The Financial and Economic Crisis: A European Response

Ian Dean, intern at ILO in Brussels

In summer 2007, a crisis began in the financial sector. Beginning with Bear Stearns in the US, banks began to fail. Lending dried up. Governments intervened. Now the crisis has spread to the real economy, evolving into a decline with very immediate and serious consequences for the people of Europe. The European Commission predicts that overall employment in the EU will contract by 1.6% this year – that’s a loss of some 3.5 million jobs – and unemployment in the EU could reach 10% in 2010 for the first time since the 1990s. The UN agencies are working with the EU to try to find effective policy responses to the crisis. Through their representations in Brussels, the UN, including the ILO, WHO, UNDP, UNICEF, UNEP and more, is engaging with policy actors in the European Commission and other European institutions to ensure that, in particular, the social and developmental dimensions of the crisis are not overlooked.

Why are the social and developmental dimensions so important? Already we have seen that as the crisis broadens and deepens, the effects on individuals through job losses, financial difficulties, inflation or deflation, are beginning to be felt. In such economic circumstances, risks of rising unemployment, poverty and violation of decent working practices are heightened. This is why the ILO is seeking a global response to the crisis that accords with the Decent Work Agenda , and one that supports a fairer globalization. Responses to the crisis must not be piecemeal in nature and rolled out temporarily, only to revert back to “business as usual”. The challenge now is to respond to the current crisis by putting in place measures that pave the way for a sustainable pattern of growth and development for the future.


Initial Response to the Crisis
Support to the banking sector has been the cornerstone of both national, and European, responses to the crisis. Whilst it may be tempting to criticise the supposed ‘reward for failure,’ it is essential that banks are supported and encouraged to resume normal lending programmes to ensure that the flow of credit, upon which so many businesses depend, resumes as quickly as possible. There is also talk of revision of regulatory practices, with the European Commission pushing for harmonised regulation across all member states, following the recommendations of the De Laroisière report.

The European Commission’s European Economic Recovery Plan (ERP) released in November 2008, details policy responses, at both the EU and Member State level, to ensure both short-term recovery and long-term sustainability. The ERP recognises the challenges inherent in the current crisis, particularly the pressure for businesses to make redundancies in response to short-term falls in demand or access to credit, and advises that greater flexibility in working time arrangements and enhanced employment services could help. The plan also details a “European employment support initiative,” including simplified European Social Fund (ESF) criteria, in order to help support those who have lost their jobs, particularly the low-skilled, through retraining, counselling, apprenticeships, and subsidised employment. In the longer-term, the plan looks to the emerging Green Economy in its investment plans for sustainable growth – which is in line with ILO and UNEP joint proposals on Green Jobs . However, the EU’s own contribution to the plan represents only 1% of total EU GDP. If the plan is to yield results, a coordinated, integrated and coherent approach from all the individual member states will be essential.

Developments
The G20 summit in April, as predicted, saw more power and resources awarded to the IMF, to allow greater international monitoring of the global financial system, and swift and flexible action should member states experience balance of payments difficulties. The impact of the crisis on developing countries was also examined, with the European Council (in its Presidency Conclusions, 19/20 March 2009) calling for the G20 to honour commitments to increase development assistance, and reaffirm their commitment to deliver on the Millennium Development Goals and work towards a Global Charter for sustained economic activity.

The European Commission has also proposed an Employment Summit, to be held in May 2009 involving European institutions, the troika and social partners, to establish a new consensus on how to modernise social policies to the mutual benefit of employees and employers. The ILO will continue to engage with the Commission to ensure that the forthcoming Summit is productive, as well as other internal and external EU initiatives, in line with the Decent Work Agenda.

It is still too early to predict the effects of these responses to the economic crisis, and it seems certain that the worst effects for individuals are yet to be felt. What is clear is that tackling the social effects of the financial crisis is an integral part of the European response, and that UN agencies will continue to ensure that it remains so, even after the ‘green shoots of recovery’ have been seen. ■


Image: UN Photo/Evan Schneider: Secretary-General Meets EU Ministerial Troika: Ban Ki-moon (fifth from left, left side of table) holds a meeting with the European Union Ministerial Troika. Location: United Nations, New York