Mick Wallace (Wexford, Independent)

I too have serious question marks over the lack of democracy in the European set-up at the moment. I am afraid I cannot help having the impression that the Germans, who pay most into it, also have the most say. One might say that is fair enough but they seem to have all the say at the moment. It was interesting yesterday to hear that a strong member of the Bundesbank, Dr. Andreas Dombret:

...urged troubled euro-area governments such as Spain to set aside short-term growth concerns and press ahead with budget cuts to win back investor confidence. 'Putting too much weight on short-term, demand-side risks misjudges the root cause of the current crisis, namely a profound loss of confidence in markets... Taking consolidation plans too lightly might give some relief in the short term, but it also undermines the credibility of medium-term budget goals.'

I do not like the sound of that. Clearly, the Germans are in a very different position to ourselves.

Turning to the German economy, Europe's largest, Dombret said it is in 'remarkably good shape,' and growth should gather pace as unemployment at a two-decade low fuels domestic demand.

It would be great if it does fuel domestic demand in Germany and if the Germans are encouraged to spend a bit more, as it would address some of the imbalances that exist in Europe, which are a huge problem for us.

I read a very interesting piece from Dr. John O'Brennan and Professor Seán Ó Riain from NUI Maynooth:

Chancellor Angela Merkel has argued that such policies, combined with efforts to improve competitiveness, represent a strongly pro-European response to the crisis. She argues that such measures will rebuild trust in finances and between governments and will require greater strengthening of the centre in Europe and deeper political union. [The sad fact is that] this fiscal rectitude has historically been part of a much broader social and economic compact – the other elements of which are missing in the current European fiscal compact.

A crucial element in those models was a focus not on austerity but on prudent egalitarian productive investment... Where the bailout programmes have emphasised competitiveness through cost cutting and weakening social protections, the European model was based on quality production, worker participation and strong social protections and investments.

The compact then is an attempt to manage Europe through the short term crisis by imposing discipline on government finances, betting that the process of "deleveraging" of debts will be easier to manage through states and citizens than through a restructuring of the financial system. The additional social and economic measures that were crucial to the success of such fiscally disciplined economies as Germany and the Nordics are not part of the promised road to recovery [for ourselves].

The authors also make the point:

...the other elements that might make such an outcome more likely are missing, or suppressed. In such circumstances, it is not surprising that the peripheral countries fear that the fiscal compact will simply quarantine the healthier economies in Europe from the difficulties across the eurozone as a whole.

There are real dilemmas here – uneven development in the European Union is a serious problem and interacts disastrously with liberal capital markets and state deficits. But it is striking how small a role has been given to European institutions such as the structural funds programme or the European Investment Bank in promoting an investment-led recovery. Indeed, it seems likely that structural funds will go unspent in the current period. The marketisation of continental European banking has fuelled a turn away from productive investment and the funds provided to European banks are still as likely to be used for financial trading as for productive lending. The trillion or more in liquidity provided to banks comes with few strings attached in terms of the banks' role in recovery. Policy decisions that could provide national governments with fiscal space to generate economic recovery, including rescheduling debt repayments, are largely ignored. Cross-national investments in vital infrastructure for the knowledge economy could be encouraged further. Institutional changes in terms of financial regulation, promotion of active labour market policies and industrial upgrading - vital to recovery across the periphery - could be advanced. A politics of rule-making and rectitude, necessary in many respects, must be accompanied by a politics of society-building and recovery.

The sooner we realise that it is not all about money and economics, the better. Only then might we have a better chance of getting back to a decent level. Those in the Government can talk all they wish about exports surviving through these times but they should hold up their hands and admit that they have done nothing for the domestic economy, where most of the population work and on which most of the population depends.

See this speech in context