Lessons to learn in the downturn

Aug 24 2009 by Kevin Rowan, The Journal

THE news that France and Germany have moved out of recession is something we have all been looking forward to.

It's a bit of optimism at the height of our ‘barbecue summer’.

Both economies grew by 0.3% in the three months to the end of June, to seemingly surprise most economic commentators.

Since together they account for almost 48% of GDP in the eurozone, it fell by only 0.1% in the last quarter.

While this is clearly significant, it does not necessarily mean the downturn is coming to an end.

Most other European economies are still in negative growth territory, especially the United Kingdom, something clearly emphasised by Bank Governor Mervyn King.

We also ought to offer some caution about even two swallows making it summer. Some analysis of the economic dynamics in France and Germany is clearly apposite.

There seems to be some agreement on the importance of the role played by consumption in France and Germany. Car scrappage schemes are highlighted as particularly valuable.

The second key characteristic is unemployment, which experiences a time lag in recessions and is set to go on rising. Those losing their jobs are, of course, less likely to spend on consumption goods.

Indeed, it would be reckless of them to do so. This means that, as the TUC has long pointed out, firm action to tackle unemployment is not just a social and moral priority, but an economic one too.

Both France and especially Germany have also made firmer interventions to prevent workers moving into unemployment, including wage subsidies, something the TUC have been campaigning for here, without a positive response from government so far.

Thirdly, banks clearly do need to be more prepared to lend to businesses seeking to invest. The Government and the Bank of England have surely provided unprecedented incentives, in the form of all-time low levels of interest rates and quantitative easing.

The Chancellor is talking tough, but it may well be time for a little more of the stick. As many of my trade union colleagues have pointed out, taxpayers own large swathes of many high street banks now.

Finally, Christine Largarde, the French Finance Minister, has been much more effective in making the case against excessive bank bonuses than Alistair Darling. She, from a centre right government, has captured the sense of unfairness most of us feel in a way which resonates much more with the views of the UK public than our own centre left administration.

We need to learn all of these lessons very quickly.

Kevin Rowan is regional secretary of the Northern TUC