Valentine’s Day in Brussels

I spent last weekend in Brussels as the UK representative on the Expert Group on the economic crisis for ECOSY, the young European Socialists.

Beforehand I was intrigued about my fellow group members and how they would view the UK and the Labour Party, (despite it being Valentine’s Day, I didn’t expect it to be all love and roses). We’ve come a long way from the late nineties when the centre-left was in Government in most of Western Europe. Now I believe only the UK, Spain and Portugal have centre-left Governments, with Germany and Netherlands in coalition. But far from blaming Britain for the economic crisis due to our large and underegulated financial markets, my comrades from around Europe were looking to Labour for the solutions. They credited Gordon Brown with being the first to act and thought that through decisive action to protect British banks he had shown an alternative to the US approach which saw Lehman Brothers collapse. Most other countries have followed, and in some of our larger European neighbours such as France and Germany, second bailouts like the one we had in January are expected.

I found that very similar debates are taking place across Europe on issues such as bonuses, transparency and regulation. Some countries, such as Germany and Greece, had placed greater conditions on banks who had received Government funds than we have in the UK. The Group all agreed that bonuses should be based on long-term success and that we needed stricter regulation and greater consumer protection.

Our discussions convinced me of the need for effective co-ordination at the EU level, and beyond. In a globalised world, the level of regulation in other countries can have direct impact on British people and may require taxpayers’ money to bail out banks or protect consumers. A prime example was the uproar when individuals, companies and even charities realised that their deposits in Icelandic banks would not be protected should they fail. In the new financial system that emerges in 2009 and beyond, we need to be confident that our economy will not be destabilised by actions taken by banks in another country.

We also discussed how to protect our citizens from the negative impact of the recession, in particular to avoid mass unemployment and repossessions. Even countries that have a small and highly regulated financial sector, and therefore had no exposure to US sub-prime problems, are also now in recession and looking for ways to minimise its length and effects.

Here, the variation in existing welfare state provision can make a big difference to the level of flexibility Governments have and the levels of fear that workers feel about losing their jobs. In the Netherlands for example, workers get 70% of their salary for a year when they become unemployed, so that when they lose their job they don’t immediately have to worry about losing their home. The Government there is considering giving this money to employers for six months to enable them to reduce working hours or lay off workers temporarily. This long-standing investment in welfare means that the Government has much more scope to move the money around and direct spending in places that it will make the biggest difference. Of course the generous welfare systems in Scandinavia and other parts of Europe have long been the envy of the UK left, but I completely agree with James Purnell (writing here and in ippr’s latest Public Policy Research) that in order to improve welfare benefits and make them as untouchable as the NHS, we need to reform the system. It should focus much more on supporting people rather than simply handing over benefits each week and leaving them there for years and, we should create “a system that offers real help for people who play by the rules”. By moving towards a system more like the Dutch or Danish models, we can protect the welfare state from Tory and tabloid attack and improve the lives of millions of families, through the recession and beyond.