Future crisis management must strike a better balance between fiscal and social objectives

A European Economic and Social Committee (EESC) hearing has drawn up preventive measures and alternative approaches for future crises

A deeper and stronger Economic and Monetary Union (EMU) and a strong European Pillar of Social Rights (EPSR) could prevent future crises in Europe and therefore avoid the dramatic consequences that austerity policies have had for cohesion and inclusion policies. Member States must take advantage of the economic upturn to implement the necessary structural reforms, enabling automatic stabilisers to operate in future recessions and the EU must become more democratic and accountable.

Unsustainable fiscal situations require budgetary adjustments, but future assistance programmes must first assess the social impact of austerity measures and then strike a balance between fiscal and social objectives. The programmes must be constantly evaluated and must show flexibility so that they can be adjusted if required. Creditors must ensure social protection and necessary public investment, by imposing conditions regarding budgetary cuts in crisis-affected countries. They must encourage favourable national policies, strengthen social dialogue and foster recovery measures.

These were the main findings of the public hearing on Lessons learned for avoiding the severity of austerity policies in the EU hosted by the EESC on 13 December. The findings of the hearing will feed into an own-initiative opinion drawn up by the rapporteur, José Custódio Leirião (Various Interests Group, Portugal).

The hearing consolidated lessons learned from experiences of austerity measures. Representatives of the EESC, the Observatoire français des conjonctures économiques (OFCE), European Commission, International Monetary Fund (IMF), European Trade Union Institute and BusinessEurope contributed to the hearing and discussed matters with the audience.

At the opening of the hearing, Javier Doz Orrit (EESC study group president, Workers' Group, Spain) took a firm stand, stating that austerity policies had deepened and prolonged the crisis in Europe and had significant economic and social repercussions. He called for a stronger European Union with a capable social dimension.

Past austerity measures had focussed mainly on financial and budgetary stability, which had had positive effects on public deficits, current and capital accounts and exports, among others, but had had negative effects on economic capacities and social protection systems, according to Mr Leirião. He underlined the need for recovery policies in the concerned Member States.

Xavier Timbeau, Principal Director of OFCE, Sciences Po Paris, stated the need to address macroeconomic imbalances and the current account surplus of certain countries in the Euro area in order to ensure sustainability and avoid deflation, growing inequalities and future crises. He advocated a shift from investment in assets abroad to the public sector and a soft coordination of wages, wage-setting procedures and the use of fiscal devaluation.

"We have to the see the EMU and the EPSR as twin endeavours to strengthen both the EMU and the social dimension of the EMU", agreed Roy Dickinson, Adviser - Policy, strategy and communication at the European Commission. He recognised that the crisis revealed weaknesses and failures in the EMU, which the Commission was addressing with reforms and legislative proposals.

Jeffrey Franks, Director of the IMF's Europe Office, admitted that there were problems with the programme design in terms of the reform periods that had been set and fiscal multipliers and advocated debt relief, more flexibility and the conditionality of cuts to cushion severity. He stated that, as a result of previous experiences, the IMF had “begun looking beyond the traditional, purely macroeconomic, imbalances approach, looking at other issues that are very important to economies, such as inequality, jobs and inclusive growth, climate change, female labour-force participation and corruption".  

Sotiria Theodoropoulou, senior researcher at the European Trade Union Institute, recommended setting up a debt restructuring mechanism for cases of unsustainable debt. She explained that national fiscal policies could reduce the amount of budgetary adjustment and therefore mitigate severity. James Watson, Director of Business Europe, argued that Member States with stronger business environments had experienced shallower and shorter recessions and recommended creating a business-friendly environment and fostering education and skilling.

The public hearing at the EESC was preceded by fact-finding missions to Portugal, Greece and Ireland which aimed to gather in-depth, first-hand information about local experiences of crisis management and about adjustment programmes and their effects on the economy and society. The own-initiative opinion will be voted on at the EESC plenary session in February 2018.