Foundation Forum 2009 - Reflections on the recession

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How to get out of this? What the key players say

The responses vary sharply, depending on the background and national circumstances. An Taoiseach, Brian Cowen, Irish prime minister, advocates large spending cuts in the public sector to stabilise state finances and to make the Irish economy more competitive again. John Monks from the European Trade Union Confederation (ETUC) argues the opposite: in a crisis where no one is investing, only the State can provide stimulus and maintain jobs. Robert Verrue, Head of Unit at DG Employment in the European Commission states that jobs should be maintained as much as possible to protect human capital whilst upskilling those who have lost their jobs.

Brian Cowen, An Taoiseach

Following a long period of very strong economic growth, Ireland now, like many other countries, has to contend with very changed circumstances. The global recession has hit Ireland harder than most. In a relatively short time, we have gone from a thriving economy with budget surpluses to a contracting economy with unsustainable budget deficits. Put simply, we are now spending more than we earn.

Our tax revenues have fallen sharply back to 2003 levels. This means that we will have a deficit in the region of €22 billion in our public finances. To bridge this gap, we are borrowing over €400 million every single week. Clearly, this cannot continue.

Our strategy over the coming years is to bring expenditure back to 2006/07 levels. As the world economy recovers and demand for our exports increases, there will be more people in jobs and our tax revenues will rise. This combination of cutting expenditure and increasing revenue will restore our deficit to a sustainable level.

But in order for this strategy to work, we must take resolute action to increase Ireland's international competitiveness because this is quite simply essential to generating growth and creating jobs. […]

The window of opportunity to take action to stabilise the deficit is now. Inflation was minus 6.5% for the year to end-September. Prices are falling at the fastest rate in 75 years. This means that the real value of take-home pay and welfare payments has increased by that amount in the last year. The impact of delaying action and increasing debt servicing costs will mean less for public services in the future. For example, every extra €1 billion in interest on the national debt would be the equivalent of the annual salaries of 21,500 new teachers or a 6% reduction in general social welfare rates. Postponing action now would result in additional cuts of this nature in the years ahead. Delaying action will also cause uncertainty regarding the future. And uncertainty can lead to people holding on to their money rather than spending it, and the same uncertainty could cause corporations to reduce their investment in Ireland – investment which is vital to create jobs and get people back to work.

There are many calling for fairness in the Government's response to the crisis – and fairness is at the heart of our response. An essential part of fairness is protecting jobs in the exposed sectors of our economy, and helping those who do lose their jobs. Three years ago, Ireland could boast full employment. The Live Register [Unemployment] figures published this week, show there are now 412,000 of our citizens without full-time jobs. We must do everything we can to stop this trend and reverse it. We will continue to support job-retention schemes and we will continue to invest in up-skilling across the training and further education sectors to enhance people's potential for a speedy return to employment.

But the most important thing we can do to protect jobs and create new ones is to move quickly, decisively and effectively to correct and stabilise our public finances. This will restore the domestic and international confidence that will attract investment and increase consumer spending which is a prerequisite for employment.
(A shortened version from the Taoiseach’s speech at Foundation Forum 2009)

John Monks, General Secretary, European Trade Union Confederation

For most countries, this crisis is the worst since World War II. It could have been worse if the banks had gone down. Europe got its act together and prevented the financial system from collapsing. Mostly governments have been doing the right thing. We have not done what governments did in the 1930s. Back then, they cut spending. I believe the Irish government is going down the wrong road, repeating the mistakes of the 1930s. Debt is worrying but we should hold our nerve and keep up public spending. Don’t panic. Don’t exit public spending. President Sarkozy said France won’t get back into the Stability and Growth Pact until 2014. Comparatively, the recession is not being felt in France.

Welfare states are stabilisers. We need to balance market economies and public sectors. Germany and the UK have had similar falls in GDP yet because of Germany’s enlightened short-term working subsidies German unemployment hasn’t risen much. The Netherlands’ unemployment hardly went up at all. Other countries should adopt similar schemes to maintain employment. The ETUC wants to see a European initiative linked to jobs. It’s a rotten time to be looking for a job and young people are the biggest victims.

Who pays is the next question. It’s already an issue in Ireland. There is a case for progressive taxation initiatives. The old one favoured the wealthy. There are also problems trying to formulate a jobs strategy. Countries tend to focus on themselves rather than offering help to states in particular trouble.

Membership of unions usually goes down during a recession. It collapsed substantially during the 1930s. Unions need to make sure they can maintain their resources. If unions have an involvement in the welfare state they should stick with it. They should get involved in saving jobs, developing social dialogue and looking at how to help people who most need it.

Robert Verrue, Director-General for Employment, Social Affairs and Equal Opportunities, European Commission

The crisis raises the problem of clarity in a situation which is difficult to analyse. There are encouraging statistics. They are also puzzling. One should not change policy in the middle of a river and neither should Member States. We are in the middle of a river!

On a positive note, the crisis has taught us good lessons and good practices. If a survey had been taken during the summer of 2008, most people would not have expected the EU to respond so cohesively to the crisis. We need to continue to exploit the potential of a common reaction. If the EU had not been cohesive, it would have been difficult to make the advances that we have made.

For those who still were sceptical about the euro, imagine how chaotic it would have been without the common currency. Probably it would have killed the EU. The euro creates strength, independence and solidity in international discussion.

Unemployment is an important issue. Recovery means a fall in the rate of unemployment. In a Communication addressed to the EU Council last May regarding job creation, we used the image of a triangle. One corner of the triangle is to give priority to maintaining employment, given the value of human capital. The worst reaction is to let people leave and then have to find workers in the upturn. We should try to maintain workers in firms.

The second corner is to use flexibility to invest in upgrading skills, matching labour to market requirements. We need to address these now or we will run short of labour.

The third corner is to increase access to employment. Germany and France took a promising lead with their policies to support employment. Governments need to stay on track and not be derailed over the next two or three years.

 

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