Debt described as a political choice

One of the State's foremost economists has said debt, and how it is addressed, is a political choice and not an economic one and that giving political primacy to the financial over the social is “ludicrous”.

Professor Tony Fahey, Head of Social Policy at the Geary Institute in UCD, was speaking at a conference in Dublin yesterday hosted by Social Justice Ireland.

Titled Does the European Social Model Have a Future? the conference heard arguments that a gradual reduction in the working week to 30 hours, would reduce unemployment, improve family relations and increase equality.

The conference looked at how the European Social Model - a model for European socio-economic planning which grew out of the aftermath of the second world war, and which stressed the protecting the common good, has been undermined since the crisis began in 2008, and considered responses to this.

Prof Fahey looked at lessons that might be taken from the European response to the economic crisis and massive national debts after World War II. Debt in Britain and France approached 250 per of GDP, and in Germany 300 per cent of GDP - which was “well in excess of what most indebted countries in western Europe face today”.

While a “burst of inflation” reduced debt to 40 per cent of GDP in France by 1950, and Germany, which he described as the “Greece of the day” obtained generous debt forgiveness through the intervention of the United States, Britain was determined to protect sterling’s status and refused to consider any kind of default.

“It thus represented a massive cumulative drain on British resources” and the economy grew far more slowly that those of France or Germany.

“Real economics in Europe could have been swamped by financial obligations but the decision was made to liberate the economies to grow, and liquidate the debts.”

How debt was handled was not an economic decision but a political one, and it was “ludicrous” that financial people, particularly bankers who had held too much, uncontrolled sway before the crisis, were still dictating policy in Europe , he said.

Anna Coote, head of social policy with the British think-tank, the New Economic Forum, argued the current crisis could be the opportunity for a radical rethink of how we organised and valued working life.

She said the economic worth of unpaid work should be recognised, while the working week should be reduced as part of a move to a “new settlement” in Europe.