Thursday, January 17, 2013

Germany: German Trade Union Tables Euro Marshall Plan

By Eva Weiler | IDN-InDepth NewsReport

BERLIN (IDN) - The German Confederation of Trade Unions (DGB) has tabled a 260 billion Marshall Plan for Europe aimed at providing a decisive impetus for qualitative growth as well as new jobs with a future in all 27 European Union (EU) countries for a 10-year period from 2013 to 2022.

The proposed investments and investment subsidies of €260 billion annually comprise direct investment and investment grants of €160 billion and ten-year low-interest loans of €100 billion to private investors.

The labour unions' umbrella organization DGB expects this combination of long-term, low-interest loans and investment grants to kick-start further additional private investment and thus promote wide-scale private modernisation measures. These in turn are projected to lead to further private investment and annual additional growth impetus totalling EUR 400 billion. This would correspond to additional growth impetus of more than 3% of the EU's GDP (Gross Domestic Product) in 2011.

The DGB expects the resulting growth dynamic to also have positive spill-over effects for employment. By substituting oil and gas imports (which do not create many jobs domestically) with an energy supply low in carbon emissions (which provides much more employment), employment will increase over the long term, thus unburdening the budgets of the EU countries.

"Our investment offensive in a fundamental overhaul of European national economies in terms of energy policy could yield between 9 and 11 million new full-time and innovative jobs in the long term. Jobs that will have a place in the future are the best way to combat unemployment, particularly youth unemployment," says Michael Sommer, President of the German Confederation of Trade Unions.

Quantitative growth and a high level of employment also create the best basis for reducing debt levels and budgeting sustainably, argue the authors of the Marshall Plan. The proposal' author Dr. Mehrdad Payandeh explains: "Our programme will benefit the EU countries twice over. Firstly, the investments will not burden their budgets. Instead, they will receive additional impetus for growth and employment and can use this to generate significantly higher direct and indirect tax revenue from income tax, VAT, company and corporate taxes as well as social security contributions and to cut the cost of unemployment."

This would mean that the €400 billion of additional GDP would result in €104 billion of additional taxes. The growth would generate €56 billion in additional social security contributions. There would also be savings of €20 billion from lower unemployment costs. A total of €180 billion could be generated in additional revenue and savings, which would flow solely to the EU countries.

The DGB sees this programme as the best impulse for business that uses resources sparingly while at the same time promoting growth. "It also makes it possible to cut public-sector and private debt in €ope. The following provides a more detailed explanation of how the individual figures were derived," says Payandeh.

The DGB's Marshall Plan for Europe is born out of the understanding that there is a close link between economic development in the short term and longer-term growth potential and that a political strategy that takes both of these into account is required.

The author of the proposal says that the DGB is aware of the different framework conditions and starting points in European partner countries. With this in view, it is proposing a mix of institutional measures, direct public-sector investment, investment grants for companies and incentives for consumer spending that will stabilise the economy. The latter are expected to combat the crisis in the short term; most of those measures are temporary.

By contrast, public-sector investment and investment grants will take some time to have an impact, but would serve to safeguard long-term growth and employment prospects in Europe by strengthening and promoting modern industries and services. Such measures are also considered suited to social initiatives in education, welfare and climate policy and support qualitative growth targets. "The effects of such measures on growth and employment facilitate a better growth dynamic which then fuels itself," notes Payandeh.

"Our proposals centre around the transformation and modernisation of our European national economies, with the aim of doing business in a manner that saves energy and resources, thus rendering ourselves independent of fuel imports in the long term while at the same time achieving huge reductions in CO2 emissions in Europe," says Payandeh.

The EU member states have already undertaken to do this. For example, the EU wants to cut CO2 emissions by 20% and increase the share of renewable energy sources used in electricity production to 20% by the year 2020. There is an aspiration to cut CO2 emissions by as much as 80% to 95% from the 1990 level by the year 2050.

The European Commission has presented an 'Energy roadmap 2050' for this purpose. With its proposal, the DGB wants to provide major support for such an energy roadmap for the next 10 years without overburdening business and society and in particular working households. With reference to the German roadmap for exiting nuclear energy, the DGB calls this ambitious programme 'Europ√§ische Energiewende' (European turnaround in energy policy). Based on the ‘Energy roadmap 2050’, the proposal suggests annual investments of €150 billion for this initiative.

The plan encompases preparing cities and municipalities for an ageing society, promoting training and education for people, modernising and expanding public and private infrastructure and developing the industrial and service centres of the future.

Funding the Plan

In view of the huge need for the modernisation of Europe, the DGB already set out a proposal in its 4-point programme from 2011 to set up a 'European Future Fund' and equip it with enough funding for it to finance investments across Europe and implement these investments in cooperation with the member states.

The European Future Fund is projected to require European funding in order to be able to subsidise the necessary investments. The DGB argues: "In Western Europe, there are €27,000 billion of cash assets on the one hand and a shrinking number of secure and profitable investment opportunities on the other. This situation poses a major opportunity to use Europe’s available capital for investments in its future. To this end, the European Future Fund would issue interest-bearing bonds – like companies or governments. We refer to these bonds as 'New Deal' bonds. This would finally provide investors with strong and secure investment opportunities, and the EU would ensure the funding of this modernisation offensive."

In this way the European Future Fund could cover the precise amount of annual investment requirements by issuing 10-year New Deal bonds that would incur annual interest. These interest obligations, the cost of which the Future Fund itself would have to cover, could be funded from revenue from a Financial Transaction Tax (FTT).

The DGB is aware that FTT will not be introduced overnight in all 27 countries. At present only 12 EU countries are planning such a tax. With its Marshall Plan, however, it intends demonstrating to the still-sceptical governments of certain EU countries that the introduction of FTT would have economic and ecological benefits. This, it hopes, would raise the willingness of those countries to introduce the FTT and thus increase revenue. If certain EU states decide not to introduce Financial Transaction Tax despite these benefits, then FTT revenue will be reduced, but investments will also be reduced by the share that would have been ap- portioned to those states.

"Nevertheless, even starting on the basis of FTT in just 12 countries can demonstrate that it is possible to finance short-term measures to stabilise the economy in these countries and long-term measures to modernise their national economies. This model could inspire the other EU countries to join the economic stimulus, investment and development programme. For this reason, we have based our Marshall Plan on a long-term perspective and have developed a programme for use in the EU in its entirety," writes Payandeh. [IDN-InDepthNews – January 16, 2013]

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Picture: DGB President Michael Sommer | Credit: DGB