European priorities have shifted in the last few months and are now focused squarely on reining in the most profligate states - especially the 16 (soon-to-be 17) countries within the single currency zone. John Monks, general secretary of the European Trade Union Confederation (ETUC), tellsEuropolitics how budget cuts without tax rises could stymie growth, and says the EU’s reputation in Greece - and any other countries that need to tap the bailout fund - could be damaged by the harsh austerity programmes it is pushing.

What does the focus on budget cuts mean for long-term growth?

It’s now a desperate situation because governments are either implementing austerity programmes or are about to. Initially, Ireland, Iceland, Hungary and the Baltic states, which didn’t have much choice, had to make cuts and those that had a choice didn’t do so. But it is this issue of confidence that is important now, and has turned with a vengeance on other countries, even those in a strong position, such as Germany, the Netherlands and Denmark. Even the French government, which was the slowest to do it, is now moving in the direction of ‘rigeur’. They’re all gambling that somehow they can find some growth at the same time as paying off debt. I’ve protested to the president of the Commission and the president of the Council that this is crazy - the stronger economies should have kept going - but they’re terrified at being the next Greece or Spain, at coming into the rifle sights of the markets. I don’t know where the growth is coming from. The hope must be that there’s enough growth now from the world economy - Asia in particular - to be just about enough to sustain the recovery in the economy. Ireland’s cutting, but there’s growth in the export sector. Britain, because of its devaluation, has some growth in its export sector and Germany’s got tremendous growth, but we can’t all be export champions. Somebody’s got to buy them, and if households and businesses are cutting debt, and governments are doing it at the same time, then the prospects for growth are desperate.

Is the EU doing enough - for example in the ‘Europe 2020’ strategy - to help countries counterbalance these cuts?

The answer to that is no. The ‘Europe 2020’ strategy looks out of date already. It’s Lisbon as usual. Let’s be clear: the European Commission is the only body that is not calling for an end to the stimulus packages and to pay back the debt. It’s still saying they should pay it back by 2011 at the latest. But that’s certainly not what the OECD and the IMF are saying. They’re saying start paying it back now, the sooner the better.

How would you respond to critics who say that wages have been artificially inflated by strong unions?

Let’s start with the Commission: they glibly chuck these figures out. In some countries the average person has had a pretty restrictive life, and then we had 15 years or so when all the horizons widened and what had become the preserve of the rich and the privileged - air travel, holidays in the sun, nice cars, new houses - suddenly came within the reaches of a lot of people. But people can see that disappearing now. The promise of material wealth and a bit more than comfort is possibly evaporating, and not just in Ireland and Spain but in Germany, Denmark and elsewhere. Where are the prospects for growth coming from now that governments are behaving like individuals and paying back their debts as fast as they can?

Does there need to be more of a focus on raising revenue, then?

There will be tax rises in a number of countries - those that already went into austerity have increased some taxes, for example, David Cameron in the UK. But the real weight will fall on cuts in public expenditure. There is an interesting contrast to be drawn with Sweden: it had a deficit equivalent to some other EU countries in the early 1990s and the government resolved to pay it back 50-50 through tax increases and public expenditure cuts. That was an attempt to be fair, but I don’t hear a lot of other governments talking about it. Where I’d like to see the EU step forward is to raise the idea of a financial transaction tax. The financial markets are so vast now - if we slice a bit off all the deals and put the money into some kind of fund for development or growth, countries could draw on it for innovation in new ‘green’ technologies and to help the unemployed. Because of the stimulus packages, unemployment didn’t go up as fast as we expected it to, but that was because people were working part-time and employers were not hiring but not necessarily firing. The worry now is that we are heading into a second wave of the crisis where the focus is on sovereign debt rather than bank debt and the second wave is generally grimmer than the first wave. Is there light at the end of the tunnel? Well, the EU could offer some light with positive funds and taxes on financial speculation - that would at least give some hope.