Thursday, 4 June 2015

Everybody has an opinion about Europe

Anti-Troika protesters in Greece, 2011

Just a few years ago liberal and left-of-centre opinion was unanimous in its adoration for the 'European project'. The titles of trash political literature from that time are testament to a near cosmic hubris, with such adoring tracts as 'Why Europe Will Run the Twentieth Century' springing up left, right and centre. Following 1992's Maastricht Treaty, an age of post-heroic certainties dawned.

Friedrich Nietzsche - a self-styled "good European" of less tedious stock - once damned precisely this kind of triumphalism: "'We have discovered happiness,' say the Last Men, and they blink." Since the sovereign debt crisis (how prosaically was the forward march derailed!) a turn to excoriation in those self same circles cannot conceal the stream of melancholy that underlies it. The insistence is still, however, that a deeper commitment to the old model of unification along either neo-functionalist or intergovernmental lines will save us all. The creepily sterile lust for deeper "consolidation" (implying there are any real gains to consolidate) hinges on the idea that eurozone policy has been too "ad-hoc" and has lacked vision. What should a substantial vision propose, according to post-enlightenment European gladiators like Jurgen Habermas? Integration, of course, to combat finance! "The justification for taking a major step forward on European integration does not derive solely from the current eurozone crisis, but also from the need to curb the evil practices of the shadowy parallel universe that the investment banks and hedge funds have built up alongside the real economy of goods and services," he and his co-writers suggest. Thus, there is the good old productive economy and the separate - in fact, "evil" - realm of finance.

This Europe of liberal, post-political fantasy never really existed - and the sooner we dispense with that fantasy, the easier for an internationalism of substance to replace it.

The modern European Union - and the eurozone which is its offspring - owe their institutional form in more ways than one to the USA. Of course, there was the Marshall Plan. But there was also the financial and monetary shape of the global economy. When repeated bouts of financial instability and inflation prompted investors to flee the dollar, it was to Germany they flocked. Eichengreen again: "Whenever doubts about the dollar and funds flowed out of the United States, they ... flowed mainly into Germany."1 Germany's periodic bouts of currency strengthening against the French franc - which, it must be said, the Bundesbank's Ordoliberals did little to challenge too deeply - made the security blanket of a shared currency more appealing. The euro evolved out of financial and monetary instability following the end of Bretton Woods. The commitment of the European Central Bank to combating inflation (and nothing else) of course reflects a Greman Ordoliberal prejudice, but also the economic reality of Europe's sole heavyweight economy. Though the euro, when launched in 1999, was an incipient challenger to the dollar, it was in other ways a prisoner of the world system founded on dollar power. The rigidities of the eurozone institutions were as much a result of Europe's contradictory developed-subordinate status in the postwar economy as they were the German ideology.

Underlying the fixation on inflation combat were other policies: essentially the dominant European classes were committed totally to a form of fiscal and monetary restraint in order to maintain export competitiveness. Many have claimed Germany takes this position because of the hyper-competitive Chinese productive economy. I suspect it has more to do with the shaky US source of demand for German goods. The eurozone was, in the end, a monetary and fiscal straitjacket for peripheral European economies (the United States is Germany's second biggest export destination after France). The euro allowed Germany to benefit from declining transaction costs while trade union deals allowed the Germans to control wage growth and undercut ECB inflation targets. For export-oriented economies like Germany, wage restraint meant gaining competitive advantages over those who allowed wages to rise. By tackling inflation, the euro was kept strong and this meant exports could be sustained despite growth. However, major differences opened up between export and import dominated countries inside the eurozone. Add to this the growth of credit - with flush German and French banks loaning to the European periphery, especially Greece - and you have a deeply precarious and lopsided "unification."

Following the 2007-8 financial crisis (itself the progeny of the US real estate sector), Europe's rule-based rigidity really came into its own. Peripheral economies, which had allowed wage increases and the credit expansion to fuel consumption, could not benefit from depreciation. German and French banks, heavily exposed to the US subprime crisis, stopped lending. Governments bailed out the banks. The liquidity freeze led to growing unemployment and steep increases in sovereign debt. Bond yields in the periphery rose, with the result that peripheral economies - like Greece - were locked out of bond markets. The rest is the widely catalogued history of harsh European austerity and deflationary measures inflicted on the unwitting southern Europeans. As Mark Blyth puts it in his book Austerity: The History of a Dangerous Idea: "If states cannot inflate their way out of trouble (no printing press) or devalue to do the same (no sovereign currency), they can only default (which will blow up the banking system, so it's not an option), which leaves only internal deflation through prices and wages - austerity. This is the real reason we all have to be austere. Once again, it's all about saving the banks."2

The natural argument of many on the left and on the liberal wing of the mainstream has been reform of the eurozone from within. Yet the institutional and legal framework of the eurozone has cemented a very stable power bloc in Europe. German big and medium capital benefits from the lowering of transaction costs across the economy while banks profit from the deflationary consequences of the euro on borrowers. It may be a harsh form of neo-mercantilism, but it does the job of feeding global consumption on the back of German exports. There will need, then, to be a significant deterioration of the domestic German position along with the continued success of peripheral, left-wing politics if the grip of deflationary Europe is to be undone. What Costas Lapavitsas and the German Keynesian economist Heiner Flassbeck call "confrontational exit"3 from the eurozone by Greece may possibly precipitate just such a crisis.

1Eichengreen, Exorbitant Privilege:, 70
2Blyth, Austerity: The History of a Dangerous Idea, 87
3Lapavitsas & Flassbeck, Against the Troika, Kindle loc 1466: "A Left government should be prepared for confrontational exit... The first step of this process would probably be a declaration of default on the debt... cessation of payments of interest and capital and a unilateral call for negotiations on what will be paid and how... [requiring] popular mobilisation, a Debt Audit and strong legal support."

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