Unions should argue for a green economic future forged in Europe
Demonstrations against austerity have swept across Southern Europe in recent weeks, and on Saturday the marches for a Future that Works will take place in the UK.
While Europe burns with anger at austerity, David Cameron fiddles. But his efforts confuse, rather than satiate, his backbenches – and reveal little more than a flawed conviction that further deregulating one of the most liberalised labour markets in the developed world is required for our economy
Cameron is politically trapped in a party that is increasingly agitated by UKIP and is without a coherent strategy either for European growth or maximising British influence within an evolving union, but we should not deny the depth of problems facing Europe. Greek society disintegrated following its economic collapse and even the future of Greece as a democracy now no longer seems certain. The award of the Nobel Peace Prize to the EU seems grimly ironic in this desperate context.
The portents from comparable historical situations are not optimistic. Public debt in the UK was 140 per cent of GDP after World War I. The government committed to return to the gold standard at pre-war parity, which was achieved in 1925, and to pay off public debt in an effort to retain creditworthiness. It is deeply sobering that following this sharp austerity real output was lower in 1928 than in 1918 and barely higher in 1938 than it had been in 1918. The general strike of 1926 is testament to the social costs of this economic failure.
As British exports were damaged by efforts to remain on the gold standard so too southern Europe struggles to export its way to growth within the Euro. Equally, British growth was also hobbled by reduced public spending as southern Europe is now being so damaged. This British experience should be a caution to those who will the end of keeping the Euro together just how much more substantial the means towards this end must be.
Recent revisions to the IMF multipliers are a wonky way of the economic profession catching up with the common sense conclusion that the timing, as well as the size, of cuts matters. No one needs a doctorate to know that you don’t try to pay off your entire mortgage when you’ve just been made redundant.
Whether this concession by the economists will be matched by a changed political course remains to be seen. Cameron insists there will be no Plan B and Francois Hollande, elected on an anti-austerity tide in France, now implements steeper cuts than Cameron.
Europe’s prospects are, however, bleak without a changed strategy. And, while the EU has long trumpeted its environmental credentials, this changed strategy should incorporate a radically revamped approach to green growth. Dieter Helm is right to call it an inconvenient truth that the US has the fastest falling emissions amongst developed countries, despite being outside Kyoto and outside the EU-ETS. It is switching from coal to gas (which has half the emissions of coal), while Germany – signatories of Kyoto and supposedly proud environmentalists – is currently switching from gas and nuclear to coal.
The carbon price produced by the EU-ETS has been low and volatile when what is needed is a long term stable and rising price. The Renewables Directive has peppered Europe with wind power and rooftop solar when breakthroughs in paradigm-shifting, highly-efficient renewable technologies are what would make most difference – both in terms of tackling climate change and putting Europe on the innovation frontier.
The Conservatives never miss an invitation to dictate terms to Europe. As they do so they tend to marginalise the UK but they also risk creating the impression that the Conservatives stand for change in the UK’s relationship with the EU and Labour for the status quo.
The Euro crisis means that the status quo of institutional arrangements in the EU cannot endure. The unions must seize this opportunity to argue for a different kind of Europe – one, amongst other things, truly capable of delivering green growth – as forcefully as the Conservatives advocate a more detached relationship with the EU.
Jonathan Todd is an Economic Consultant
Posted in: Blog Posts |Tagged with: economy, Future that Works