Business Europe and Economic Governance

Business Europe and Economic Governance

Since the outbreak of the crisis, major reforms of the EU’s economic governance have been introduced. These reforms are designed to lock in fiscal policy at a national level and enforce austerity at the European level.

The politics of austerity and neoliberal economic governance aren’t simply the result of a false or mistaken economic theory; they have been deliberately promoted by and serve powerful interests. Big business has used the crisis as an opportunity to put its long–term goals onto Europe’s political agenda. While European policymakers discuss further steps to deepen economic and monetary union, we take a look back to understand how Europe was set on a course towards a permanent system of neoliberal economic governance. This cannot be fully appreciated without examining the major players in the business community.

The Most Important Business Lobby

One of the main driving forces behind the reform of economic governance in recent years has been BusinessEurope (BE). BE is Europe’s largest business association and organizes employers at the European level. It is made up of 41 national employers and industry federations and, in its own words, plays “a crucial role” in ensuring “that companies’ interests are represented and defended vis-à-vis the European institutions with the principal aim of preserving and strengthening corporate competitiveness.” While BE is a broad alliance of business across Europe its inner structure reveals it is dominated by the interest of multinational corporations. The Corporate Advisory and Support Group which consists of 60 representatives of multinational corporations plays an important role not only within BE, but in ensuring BE’s contacts with high-level EU officials.

BE is one of the most powerful lobby groups at the EU level and is therefore one of the main groups in contact with the Commission. Due to privileged access to the European Commission it is well-placed to ensure that corporate interests are thoroughly represented in EU policy-making.

Opportunity of a Lifetime

If it was ever true that a crisis also brings opportunity this has definitely been the case for BE. Since the sovereign debt crisis first hit Greece in late 2009 and then spread through the whole eurozone BE has used the urgency of the situation to push its political-economic agenda. It has been one of the loudest and most forceful voices on the issue of economic governance in Brussels. From late 2009 to the end of last year BE intervened in the ongoing debate with more than 20 publicly available policy papers and letters to European institutions and individual decision makers. As we will see, many of their demands and proposals have already materialized in the economic governance reforms, and we are likely to see many more in the next few years.

BE has a strong interest in the current European politics of crisis being both consistent with and offering opportunities to further pursue their economic self-interest. First, the coercion of austerity measures increases the pressure on the welfare state and therefore opens up new sectors for private profit as public services and companies are privatized to raise money for the budget. Meanwhile social expenditure cuts weaken the protection of workers against worsening labor conditions. Second, enforced austerity is accompanied by the promotion of structural reforms, a term meaning, not a change of the economic structure, but the deepening of neoliberal economic policies through privatization, liberalization and in particular the weakening of labor rights. Lastly, BusinessEurope is in favour of these economic governance reforms mainly because it limits the scope of democracy on the national level by forcing those countries to implement austerity measures and structural reforms. It means a further strengthening of the European Commission – an institution which tends to be very favourable to business interests – while national parliaments lose much of their power to decide the direction of their fiscal and economic policies.

BusinessEurope: Setting the Agenda

In late 2009 BE started to develop their agenda for the crisis with the policy paper “Putting Europe back on Track” which outlined its main demands for post-crisis Europe. At the heart of BE’s program lies the call for fiscal consolidation, the deepening of the single market, de-regularization of labor markets and the fostering of free trade, or in short, austerity and neoliberal structural reforms. It is also noteworthy that BE was among the first to push for a reform of Europe’s economic governance model in the context of the current crisis. While BE developed more concrete proposals later, in the aforementioned paper BE had already indicated the general direction in which they wanted the EU to go:

“To increase its benefits, current and future members of the euro area will need to strengthen their collective responsibility […] to fiscal discipline, structural reforms, sound and sustainable competitiveness […]. Reinforce governance of the euro area will help to foster deeper market integration in the wider EU.”

Some months later in early 2010, when the severity of the sovereign debt crisis was clear BE’s program to transform Europe became even more concrete. They published an action plan, “Combining fiscal sustainability and growth” 4. While the overall direction was the same, in this plan BE’s proposals go into detail about exactly what should happen and how.

Noteworthy among their demands is the call for binding fiscal rules on a European and a national level, taking into account the national deficit and sovereign debt in relation to the GDP. 5 BE’s aim for such binding rules is clear, as they state themselves: to reduce the scope of “political bargaining” on fiscal policy, as the chief economist of BE puts it. This means nothing less than a reduction of democracy; instead of “political bargaining” 6 between elected governments, political parties, and visible social interests, budgetary matters should be primarily the outcome of inflexible and democratically immutable rules. To BusinessEurope, the European level and namely the European Commission provide the perfect framework to lock in national economic and budgetary policies, because this level is neither transparent, nor very accountable to the public. To strengthen the Commission means to strengthen an institution which is not particularly accountable to democratic procedures and whose personnel are – as has been reported in dozens of revolving door cases – closely intertwined with the economic elites and one of the main targets of corporate lobbying.

Furthermore asking for more power for the Commission in this regard means strengthening the Directorate General on Economic and Financial Affairs in particular, which can be considered part of the neoliberal vanguard in Europe. The project pursued by BE is therefore not only for austerity (and neoliberal structural reforms) but a project to limit democracy itself, especially where it touches the interests of business.

With these proposals BE was one of the first political actors to propose binding fiscal rules, months before the European Commission brought up “binding instruments” to ensure compliance with the Stability and Growth Pact. 8  We can therefore conclude that BE was extremely successful in setting the agenda for economic governance reform. Today, both European and national fiscal rules are a reality with the implementation of the so called Six Pack and the Fiscal Compact.

The key objective: structural reforms BE is not simply interested in fiscal consolidation, however. They link their demand for austerity with a broad political-economic program of “structural reforms” set forth in the aforementioned action plan:

  • Consideration of internal imbalances and external competitiveness – mainly a euphemism for business-friendly laws and low wages – in economic governance reform.
  • Downsizing of the public sector: “Recourse to the market by the public sector should be generalised whenever a competitive market exists for services provided to citizens or for ancillary activities to state Lorenzo Vogelistration.” 11
  • Increased scope for public-private partnerships.
  • Reforms of the pension systems: linking life expectancy and retirement age and promoting private pension schemes.
  • Healthcare: “Increase the degree of competition among providers of care and health insurance companies in order to make the system more efficient and innovative.”
  • Tax system: reduction of corporate taxes, “fair and transparent tax competition”, make work more attractive through tax reductions on labor.

The policy paper from 2010 and the action plan show a clear agenda: BE is pushing for a strict consolidation of public finances. This is combined with an agenda to, in summary, privatize public services and shift tax burdens away from business towards consumption taxes which affect the poorest most.

BE’s interest in these kind of policies is logical. Although the politics of austerity worsen the economic crisis, they are still in the interest of big business. The attacks on the welfare state, accompanied by the promoted structural reforms in the labor market weaken labor and thereby, in a shrinking economy, help to raise business’ share of profits, which also supports the project to reorient the European economies towards export-led growth instead of internal demand. Another reason why BE is promoting this agenda is privatization. The growing pressure on national budgets makes it tempting for governments to consolidate their finances through the privatization of public enterprises and services. This agenda is further promoted by several initiatives of the Commission to liberalize sectors traditionally in the public domain. The privatization of those sectors means that new areas are open for profitable business in times of crisis. The overall aim of BE’s agenda can therefore be described as a general attack on labor and the welfare state to gain more profits out of their investments.

BE’s political-economic program is underpinned by an ideological explanation of the crisis that justifies their demands. In their view, the sovereign debt crisis has nothing to do with the socialization of private losses but rather “has its origin in years of indulgence and poor economic governance, long before the financial crisis broke out.”

This happened, according to BE, because financial markets didn’t distinguish between the different eurozone countries and provided them all with cheap credit. Therefore they are suspicious about Eurobonds or other means of debt mutualisation in particular as sharing the debt burden across the EU would ease financial markets’ pressure on national governments to implement austerity measures and structural reforms.