The economic crisis that has shaken the world may have started in Wall Street, but it has been made much worse by the actions of both the European institutions and European member states.

Much of the so-called debt crisis was caused not by states spending too much, but by states bailing out banks and speculators.

EU government debt had actually fallen from 72% of GDP in 1999 to 67% in 2007. It rose rapidly after they bailed out the banks in 2008. Ireland’s bank bailout cost them 30% of their national output (GDP) and pushed debts to record levels.

• By blaming the crisis on government spending, politicians and bankers argued that the only solution was to cut public spending, but this has actually worsened the debt crisis.
• Austerity measures have led growth to collapse across the EU. In Greece, GDP fell by 7.3% in the second quarter of 2011. Austerity has reduced governments’ capacity to pay back spiralling debts, leading to even higher debts. And, as speculators encouraged doubts on certain countries’ abilities to pay, the rates of interest soared – as happened to Greece, Ireland and Portugal – making the debts completely unaffordable.

The European Union, more than three years after the crisis, still has not re-regulated the banks. No restrictions have been imposed on the size of banks. Little attempt has been made to separate high-street retail banking from investment banking – which exposed ordinary people to the enormous risks taken by gambling investors. Prohibitions on the speculative trading instruments that caused the crisis in the first place are not yet in place or agreed. Finally, watered-down measures that will force banks to lower their borrowing and increase capital reserves will not be in place until 2018.

As austerity cuts swept Europe, the numbers of the wealthy in Europe with more than $1 million in cash actually rose in 2010 by 7.2% to 3.1 million people. Together ,they are worth US$10.2 trillion. The five biggest banks in Europe made profits of €28 billion in 2010, and  there are 15 000 professional lobbyists in Brussels, the vast majority of them representing big business.

Consequences of the crisis

• UNICEF has warned of the ‘irreversible impacts’ of wage cuts, tax increases, benefit reductions and reductions in subsidies that will bear most heavily on the most vulnerable in low-income nations – particularly children.
• Unemployment in Greece is approaching 900,000 and is projected to exceed 1.2 million, in a population of 11 million.
• In Spain, youth unemployment is running at more than 40%.
• These are figures reminiscent of the Great Depression of the 1930s.
• The European Union’s answers to the problem
• More austerity: In the UK, 490 000 public sector jobs are being cut; in Ireland, wages for low-paid workers have been reduced; in Lithuania, the government plans to cut public spending by 30%. The EU is planning to impose requirements by 2013, which means that no European member state countries can have a budget deficit of more than 3% of GDP or a public debt of more than 60% of GDP, which will mean even more austerity.
• More privatisation of public services: Greece is selling off its railways and postal and water services; Portugal is privatising 17 enterprises; Spain is selling off state assets such as airports and the lottery
• Less democracy: Without any national public and parliamentary debate, the European Parliament and the EU Council of Finance Ministers rushed through a decision in Autumn 2011 which will mean all national budgets must now first be approved by the Commission, before they are even seen by each country’s parliament. If countries do not reduce their debts fast enough or refuse the budgetary ‘suggestions’ from Brussels, enforcement measures will kick in. In the case of France, with a GDP of about €1 900 billion, the Commission could demand a deposit or a fine of between €20 and €100 billion.

Alternative solutions:

1. Bring the financial sector back under public control.
2. Tax the rich, the speculators and the polluters.
3. Make corporations accountable to people.
4. Cancel the debt and socialise the banks.
5. Enshrine human rights and nature rights in international law above corporate rights.
6. Change EU treaties to put democracy and people above corporations.
7. Stop and reverse privatisation of social services. Put citizens and workers in charge.
8. Localise the economy (banks and businesses).
9. Introduce participatory budgeting.
10. Transition to a Just Low Carbon Economy.

This article is extracted from the Pocket Guide on EU Crisis, published as part of TNI’s Economic Justice, Corporate Power and Alternatives programme. www.tni.org