Labor Leader Calls For Protecting Europe From ‘World of Goldman Sachs’

David Moberg

John Monks.

In this interview, ETUC General Secretary John Monks details the new challenges facing European social democracies

As the G-20 countries meet in Toronto this weekend, European leaders will likely be leading the charge for governments to shift away from economic stimulus programs and toward balanced budgets. Doing so would eliminate deficits even at the cost of important social programs — and long before most of the G-20 nations have truly recovered from the Great Recession.

The international labor movement has emerged as the leading voice for a more robust government role. For example, last weekend trade union leaders from three Global Union Federations of industrial and manufacturing unions meeting in Toronto called for continued economic stimulus as well as more stringent financial regulations, including a financial transactions tax and tough greenhouse gas controls to reduce global warming.

Both the International Trade Union Confederation and the European Trade Union Confederation (ETUC) have also spoken out against what the ETUC described as austerity programmes…now being applied, more or less simultaneously across most EU countries, mainly as a result of…panic under market pressure [that] will damage the fragile recovery.”

I recently talked with John Monks, general secretary of the ETUC, about his views of the current stage of the economic crisis, starting with his reaction to the European Union/​International Monetary Fund bailout of the Greek government, which had faced two general strikes by unions protesting austerity plans. Here’s a transcript of our conversation.

John Monks: It’s a very tough package, a very tough package. We’re not talking about a country facing up to economical realities with stoicism, or with a strong democratic tradition. We’re talking about a country that’s had a very difficult history of occupation, civil war, and relatively recent democracy, although they invented it all really in the first place. It’s a country of strong social tensions, strong conflict potential. This is not Finland. It’s quite different.

The unions accept that the country has lived beyond it means, that the country has paid inadequate attention to collecting its taxes from the rich and comfortable. And the private sector unions would say that some public workers – some, but by all means not all – who for reasons of political payola got too privileged a deal with pensions in particular, retiring in their 50s with salary schemes of around 80 percent, which is very, very high. In the UK, for example, you can’t get more than two thirds if you’ve been a civil servant for many years. So there have been some buy-offs of privileged groups for political support in the past, and I think some in the private sector unions would say that’s insupportable in the current economic crisis.

So I think the unions would say, The party’s over, but don’t kill us.” This particular package runs the risk of killing them. Can the society cope with the sacrifices being asked of them? The EU – more than the IMF – has ruled out any restructuring, or giving them more time to pay back their debts. They’ve got a tough timetable and they’re not getting an easy ride of it. In this context, you have to read the EU as under pressure from its biggest contributor, Germany. There are also other surplus countries with their finances in relatively good order despite the crisis who are looking askance at the rest that had a party and borrowed a lot of money to do it.

What do the Greek unions want? Ideally they wished they wouldn’t have to do anything. Second, they’d get a proper tax collection on the rich and comfortable, including professional folks like accountants, doctors, lawyers who’ve got tax evasion off to a fine art in a country that’s never been vigorous about following up.

But the deal had to be done, no doubt about that. It was the only one on offer, the only thing Greece had. I’ve acknowledged that publicly. I hope now that the deal is done it will be monitored and implemented with some sensitivity

One area that’s worrying us in particular is that often the IMF will restructure debts to be paid over a longer period, and the EU is ruling that out completely. No more extensions. We want it back the day we say. It’s going to be a very, very tough call for Greece because it will be paying back its loans at same time it will almost certainly be deflating the economy. Unemployment will be rising, therefore social expenditures will be rising, and still they’ve got to pay back this debt.

There’s danger in Greece and now in Spain and Portugal where there are major austerity programs that they will do what President Hoover did in 1931 and manage to deepen, widen, and exacerbate the recession, creating a double dip recession.

DM: What are the implications for the rest of Europe of this resolution of the Greek fiscal crisis?

JM: Greece was first in the queue. Its problems were serious. It is not only one with significant problems. I mentioned Spain, Portugal in the eurozone and outside the euzozone, Hungary, the Baltic states – particularly Latvia, are in difficulty. And Ireland, a different situation, where they managed to keep out the EU/IMF and decided to use their sovereignty or lose it, which is not a bad thing to remember. All the countries had deficits on the order of the U.S.. Spain was an honorary Anglo-Saxon country during the boom, and when subprime mortgages went down in the U.S., so did the housing boom in Spain and Ireland.

The countries that were on the Anglo-Saxon, Americanized end of economic systems were the ones that were badly affected. The ones that stuck to a we manufacture, we export, we keep debts under control” model, particularly Germany, are weathering the storm rather better than those with high personal, high business and high public debt.

DM: There is considerable unevenness in the European economies, including unemployment. Is this a reflection of particular economic models or public policy differences like work-sharing?

JM: The unemployment situation doesn’t necessarily correlate with the debt situation…

Every country has applied counter-cyclical measures in the New Deal, Keynesian way in this recession, and that has kept the economy going. It’s been different in different countries, so there’s an emphasis on work-sharing and subsidy schemes in Germany, Holland, the Czech Republic, to some extent France and Belgium, cuts in value added taxes in the UK. A range of fiscal and labor market measures across the countries of Europe kept up some level of demand.

When the private sector was going down the drain, the state stepped in, first taking bank debts from their books onto the public books, which is mostly why the debt is in such a bloody awful state.

I think now what’s happening is the market is saying it’s time to cut those debts. It’s not time in my opinion to cut those debts. They should have been allowed to run on the rest of this year. In the meantime, hopefully, the priv sector would have grown a bit stronger. But the market moved against Ireland fast, and Ireland had to do a big austerity program, and now it’s moving against Spain and weaker eurozone countries. The big fear – which is why the new government is moving to an austerity program – is that it will hit the UK as well and chip away at the credit rating. So in a way the U.S. can afford to be less concerned about these kinds of things. It’s not a small economy.

DM: This raises questions about the ways Keynesian interventions now seem to be at the mercy of the bond market and private traders, a dimension that did not show up in 30s.

JM: No, that was not the prob then. Roosevelt could sell his bonds. Even Italy could sell something.

It says markets have grown bigger in relation to governments, for one thing. Nowadays there’s the huge growth of the financial services market, the huge amount of money looking for some place to invest, such as from pension funds, and the sophistication of the buyers.

I would guess in the 30s most of those who bought American debt were American citizens, some European ones as well, but it would have been much more a national thing. Now it’s totally international with all these companies comparing the offers they get and looking without sentiment at the positions.

I don’t think there was any question that the Spanish government would default. Their banks are in good shape, at least the big ones. But I do think the size and scale of international financial markets, for those who’ve taken a Keynesian view, it’s one thing we haven’t taken into account. But on the other hand if you can’t gamble on derivatives from subprime mortgages or hedge funds don’t have so many opportunities, what better than to get into sovereign debt, which has been the big growth business since the recession hit the private sector debt? It’s where the money is at the moment.

DM: A little over a year ago, many headlines talked about the end of capitalism, and now they’re about the end of the welfare state. The whole crisis has been transformed.

JM: I share your sense that a year ago capitalism was wobbling. It was saved by the taxpayer, saved by the public realm, saved by welfare spending and tax cuts. Banks were saved in particular, and now the private sector is headed back to business as usual: We’ve been rescued, bonuses back, please,” though they never seriously went away, and the financial sector is back to normal, trading big amounts of money on states.

There’s a specific attempt to return to pre-crisis normality. Pre-crisis normality has been, since the late 80s and the collapse of communism, reducing the role of the state into areas which the market can not manage – and there are a number of those areas. It was getting smaller and smaller until the crisis, and after it was getting bigger and bigger.

In the present circumstance, it’s almost as though it’s Let’s get down to cutting back the role of the state and restore primacy of the market in as many places as we can.” I exaggerate a bit. It’s not quite like that in all countries, but the pressure, the direction which we’re traveling is much more in that direction, than a new longer term, lower return capitalism which some hoped would come out of this crisis of the financial markets.

DM: If it’s back to normal in financial markets, putting pressure on governments to cut deficits but also to cut the welfare state, that runs risk of deeper depression for most industrial countries.

JM: That’s absolutely right. We knew there would be a need for an exit strategy to restore some balance to public finances sooner or later. We were hoping the end of next year instead of this year if the markets kept their nerve, but the markets haven’t kept their nerve.

You never know, do you, the role of particular hedge funds in these circumstances, but I have a feeling they’ve looked around at different countries and seen their opportunities here, there, and that’s destabilized some of the governments. Rather than anything too conspiratorial, though, I think that process of markets getting their confidence back, not being so flat on their backs as a year ago, is a major factor, but as ever with hedge funds it’s not possible to get an accurate picture of the scale of their activity.

DM: The Obama administration is talking about reducing deficits even though our unemployment is higher than in many European countries. It seems during this crisis there has been a surprising lack of strong alternatives from social democratic, labor, or left parties. It strikes me the European labor and left parties have been even less willing to talk about alternatives than the labor movement. Do you agree there haven’t been those alternatives proposed?

JM: There hasn’t, has there? What was the lesson of the collapse of communism? Capitalism had won, end of history, we’ve won,” that’s it. No other challenging system is in sight. I’m not sure anyone realized what form of capitalism had won, that it was going to be the Wall Street-City of London-Goldman Sachs model that had won.

People didn’t make enough differentiation between the financial world and the rest of the economy. But that model, that belief was in the Clinton administration. It was politically convenient. It was a low tax model. It was a relatively low public spending model. It was rather good for jobs. It was seized on by New Labour in the UK – [Tony] Blair, [Gordon] Brown – and hallelujah! the financial services industries got stronger and stronger, and if you happened to be lucky to have a major center on your territory – New York and London in particular, Dublin in a smaller way, Zurich – it was terrific.

These were the highest paying industries in the world. Spending power grew, housing prices soared in Mayfair, on Central Park. And you found the holy grail. Greenspan told us risk was under control in a highly managed, sophisticated way. In 2007 Gordon Brown was praising the City of London for its sophisticated, innovative wealth creation, which contributed 27 percent of tax revenue in the UK, making possible spending on hospital improvements, schools. So it was in everyone’s interest not to touch it.

So we got the bizarre situation where the new Conservative-Liberal governmentt has more radical proposals on regulating the financial sector than Labour. So where was the right-left in any of that? It evaporated in some third way mist, which was never very clear when it first came out and got less clear as time went by.

The eternal truths for the left have been, I think, the New Deal lessons, the lessons of Keynes, lessons probably of Bretton Woods. (But we’re not back to fixed exchange rate thinking right now, and run your economy within that, rather than think you can fiddle around and vary your currency, or in eurozone case not varying your currency but failing to take the disciplinary measures to try to keep in line various governments.)

It’s a very ideologically barren time for the left.

There was a very good article by John Kay in the Financial Times addressing this question. His point was the whole orthodoxy, including that of the center left, was only to deal with market failures, and they suddenly discovered there were more areas of market failure than they ever thought before.

But what does that mean? Higher taxation? Major nationalization? Government taking on the job of running transport systems, or whole areas where their competencies are not famous in some countries. Now all those things are in the ferment about what is the alternative to Goldman Sachs capitalism.

I think the left in Europe is struggling just as much as on the other side of the Atlantic. In retrospect, the robust approach of the Roosevelt regime stands out as mostly right, and the actual scale this time is different in that the size of the financial sector is much greater in t he U.S., the UK, and most other economies. The remedies imposed were mostly right. It was a very creative center-left administration. And then Congress imposed an exit strategy in 1937, and made a bloody disaster of it.

: In broad outlines, what should labor and left forces in major industrial countries be pushing for at the moment?

JM: First, I don’t think there’s a national solution on its own. Given the international nature of capital, it has to be the G-20, certainly the EU and the U.S., given that they’re about 30 percent each of the world economy. First, it’s got to be international.

Second, there must be some sense of mutual regulation of the financial services sector, not allowing the weaker economies to be picked off in a way that’s a total disaster, and concerted action by central banks will be necessary from time to time. We’ve seen President Obama intervening in Europe, firming up [Spanish Prime Minister Jose] Zapatero, telling him he has to cut [his budget], not particularly helpful from my point of view. I don’t see much Keynesianism in some of that. He’s not the only one.

It seems if Keynesianism is going to work for any period, it needs some help against the markets, with governments standing together. Germany is now acting together with the EU, but the terms it insists on applying to weaker members are ferocious. They’ve got to be sensitive to the welfare and conditions of the county and not just cut, cut, cut. [IMF Managing Director Dominique] Strauss-Kahn and the IMF understand that. The IMF is a more sensitive machine than it used to be with a more socially aware leadership.

What else? The value of the welfare state has been demonstrated, with its shock absorbers, as well as the failures of market capitalism and the need to strengthen [those shock absorbers]. Then add in workers’ rights and trade unions, effective trade unions. If you haven’t got countervailing forces of masses of laws, you have to have people organized to have a say about what’s going on in the world. So it’s not just Wall Street types running Washington, and companies dancing to the tunes that are played on Wall Street. We’ve got to mix up companies and government a bit so it’s about more than short-term shareholder value.

And that leads me to my final point: In addition to looking for a sustainable environment, we’re looking for a sustainable economic system, and the present one is not sustainable. I’d say our slogan should be that we’re for a sustainable society, economy and environment, and countervailing forces to Wall Street, tough regulations a la Roosevelt – Glass-Steagall [the act separating investment and commercial banking] and all that, and some encouragement of what one former Goldman Sachs executive called long-term greed.”

In the capitalist system, we can just about live with that, provided there’s a mix with the welfare state and room for the trade unions to influence in a stronger way how companies run their affairs and government conducts its affairs.

It’s not a complete blueprint for an alternative society, is it? It’s America up until 1960, European welfare states and mixed economies, which were in danger in 90s and early 21st century of being swamped by the world of Goldman Sachs.

David Moberg, a former senior editor of In These Times, was on staff with the magazine from when it began publishing in 1976 until his passing in July 2022. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.

Get 10 issues for $19.95

Subscribe to the print magazine.