Social aspects of the economic crisis

I have been fortunate enough, as an MEP, not only to work in a stimulating political environment that offers interesting challenges but also to live for part of the week in a country, Belgium, whose artistic and architectural heritage and relaxing environment attracted me from the time of my very first visit in 1980.

Recently, one can detect a tension in the air of the capital, Brussels. No, not that to do with the upcoming European Parliament elections but that to do with the troubles of the European banking and insurance giant Fortis, which is now almost entirely owned by the Belgian government. A sign of things to come took place when the giant Fortis advertisements dominating Brussels airport were hurriedly taken down.

Last week, Fortis announced that for the last three months of last year it expected a loss of about €6 billion, rather more than the €4-5 billion it had predicted in January.

The troubles of Fortis go back to its attempt to bail out another bank, ABN, in 2007. Along with two other European banks, Fortis purchased the Dutch bank for €70 billion. Fortis' share was €24 billion, an outlay that weighed it down once the US financial crisis came to a head.

After the failure of Lehman Brothers, banks stopped lending to one another. Fortis found itself unable to refinance its debts. There were other conditions in play. For example, Fortis reported a 41 per cent drop in profits for the first six months of 2008 as compared with the same period in 2007.

Fortis was considered too big to fail, not just by the Benelux countries but also by the European Central Bank. In Belgium, the bank is the largest private sector employer. About half the country banks with the group. At the outbreak of the crisis, the bank had about 85,000 employees worldwide.

No wonder, therefore, that the European Central Bank chief, Jean-Claude Trichet, was present at the talks designed to boost confidence in the bank and secure a bailout from the governments of the Netherlands, Belgium and Luxembourg. The integrity of the financial system of the eurozone was at stake as well.

By late 2008, the financial crisis became a political one. The Belgian government attempted to sell off the bank's assets, which would have left shareholders with virtually nothing. The latter initiated a court action to stop the sale and the courts found that the shareholders had not been sufficiently consulted.

It also emerged, from the Belgian Supreme Court, that certain members of the government, possibly the Justice Minister himself, had tried to influence the decision of the court. As a result, the Prime Minister handed in the resignation of the entire Cabinet, which had only been in government for nine months. After some consideration, the king accepted the resignation and a new Prime Minister was appointed in the last days of 2008.

The losses of Fortis also affect Luxembourg. This land-locked duchy, which is much larger than Malta but with a smaller population, is a powerhouse of financial services in Europe. It was so interested in the survival of Fortis that in the summer of 2008 it agreed to buy 49 per cent of Fortis banks in Luxembourg.

To the casual visitor like me, who happens to be there on business on one of the several days of the year when the weather is overcast, it might appear that the main city is there to serve the financial sector.

But this sector has also been kind to the whole of Luxembourg. The salaries of the state sector are very generous by any European standard while the purchasing power of the pay packages is strong: Luxembourg itself is not cheap but is situated so close to the more competitive shopping centres of Germany and France that it is not difficult for residents of Luxembourg to nip across national borders to do their weekend shopping.

The bad news from Fortis, however, has raised questions about how long Luxembourg's belle époque may continue. How long will the high salaries be sustainable for? What about the security of the generous pension system, which routinely permits, among other things, early retirement in the middle to late 50s?

Such considerations show the implications of the financial and economic crisis for the rest of Europe, including Malta. The crisis raises concerns not just about job protection and creation, or about purchasing power and economic stimulus packages. The questions include the implications for social security, today and for the future.

It is important that the measures taken to address the current crisis do not endanger the long-term viability of a social Europe. Some of the necessary action to be taken will be at the national level. But it is also important for institutions like the European Parliament to ensure that the appropriate European-wide measures to protect the social security net are taken.

Dr Attard Montalto is a Labour member of the European Parliament.