Wednesday, 22 June 2016

What could a radical left government achieve inside the EU?

Yanis Varoufakis, ex-Greek finance minister and advocate of "creative ambiguity"
(Image credit: Jorg Ruger, Creative Commons License)

Since last year an authoritarian crackdown on immigration has been rapidly implemented in Hungary. Over the course of just a few days in the middle of September, Amnesty International reports, the Hungarian government declared a "crisis situation caused by immigration" and constructed a border fence with Serbia, it amended its Criminal Code and Asylum Law, established "transit zones" across the country for refugees, and adopted a resolution which declared that Hungary would have to "defend itself by any means necessary from waves of illegal immigration." Amnesty reports that Hungary had seen 161,000 asylum claims in those first eight months of 2015. Prime Minister Victor Orban had already said that he wanted to "preserve a Hungarian Hungary." The country's actions met with some criticism from European officials - and then nothing. Indeed the EU Commissioner for Migration, Home Affairs and Citizenship, Dimitris Avramopolous, might have "disagreed with the means used" by Hungary but broadly endorsed the project of protecting the EU's external borders.

Wind the clock back just a few months, and Europe's first government of the radical left is having done to it precisely what it promised to oppose: "fiscal waterboarding" in the then-Finance Minister Yanis Varoufakis's memorable phrase. The Syriza-led government had come to power on a watered-down Keynesian platform, promising to renegotiate Greece's debt to its external creditors and use the fiscal breathing space to relieve the worst drubbing of the last five years and hopefully put some steam in the domestic economy. Failing to heed the various warnings coming out of the EU institutions - notably Jean-Claude Juncker's ominious "There can be no democratic choice when it comes to the European treaties" - Syriza attempted to win the EU's favour and with it space to implement at least a few of its meagre reforms. Within a month the European Central Bank had cut Greece's monetary lifeline, scant liquidity had dried up, and the government was starving its own public services in order to continue servicing its unpayable debts. Eventually the banks were closed. Greece even defaulted on its prized debt repayments. The Greek people did indeed exercise a democratic choice during this time: the country voted overwhelmingly to reject the EU's austerity deal, come what may. But Syriza, faced with the prospect of creatively subverting EU law, caved.

The lesson couldn't be starker: starve migrants, deprive refugees of their rights, violate Schengen, and you'll be chided for your over-zealousness. Expect not to have to deprive your people of vital medicine, and you'll be wilfully crushed. But the lessons - if the left really wants to look - go much further than that. Syriza was starry-eyed about Europe. It had fully bought into the myth of pan-European cooperation and solidarity. Now we have seen the limits of that solidarity: as soon as it threatens the narrow interests of Europe's cartelised elites (the German export sector, its knuckle-dragging, fiscally-conservative political establishment, and the various bureaucrats who increasingly do their bidding).

Europe's new radical right has proved adept at dodging the EU. Hungary altered its constitution in 2013 to give Orban's Fidesz government greater sway over public institutions. Poland pulled a similar trick this year, passing a law which allowed the ruling hard-right Law and Justice Party to appoint judges to the constitutional court as well as heads of public media organisations. Europe responded by announcing a "preliminary assessment" of the moves under the EU's "rule of law mechanism." This would allow the EU to take action against the Polish state if "systemic threats" to fundamental EU values are identified. The mechanism, according to Deutsche Welle, is designed to go no further than preliminaries - who knows what happens after that. Article 7(1) TEU can do properly punish Poland, but this would require a four-fifths majority from the European Council. So it would seem that for the time being the EU is stuck with these authoritarian violations of its founding principles.

It is worth looking briefly at the behaviour of the big EU states too. Germany has consistently undercut the European Central Bank's annual target of inflation at or just below two percent. Germany does this through internal devaluation - essentially limiting wage rises through union and business backed agreements, which keeps job numbers high and exports competitive. But the arrangement threatens the stability of the European Monetary Union, essentially by plunging less competitive states deep into deficit while Germany maintains huge, socially and economically pointless trade surpluses. Germany had a record trade surplus in 2015, reaching 7.9% of GDP, a clear violation of the mandated six percent limit. This beggar-thy-neighbour policy helped trap deficit countries like Greece and Italy in a spiral of debt in the run up to the eurozone crisis.

This is among the reasons why France is permanently in the red on its public deficit. With low growth and a consistently uncompetitive economy, France is forced to borrow more, in direct violation of Europe's Growth and Stability Pact. France is projected to meet its budgetary discipline commitments by 2017, with its deficit falling to three percent of GDP. But the eurozone's commitment to price stability and low deficits, along with Germany's persistent beggar thy neighbour policies, practically guarantee that France will continue to struggle with the European Commission over its public finances.

Both Italy and Greece were openly in violation of the Maastricht criteria for public debt when they joined the eurozone, though the then-Greek government in particular had assistance from Goldman Sachs in taking some of its debt off the books. Italy meanwhile used a favourable currency swapping arrangement with JP Morgan in the 1990s to get more money into government hands. These swaps didn't appear as government liabilities and so helped scrub up Italy's public accounts. Yet because the eurozone was in a triumphalist mood, these deals were allowed to slide.

The EU is not a totalitarian super-state - "the EUSSR" - but a frequently cumbersome and self-defeating trade cartel with a state-lite administrative core. It cannot behave like a state and is frequently unable to enforce its own laws. Violation or creative subversion of its treaties is endemic. It is not democratic but nor is it particularly effective for that. A clear-eyed assessment of its internal structures as well as the balance of political forces across Europe suggests there would be much for a government of the left to play for.

The left has entirely different priorities to each of these cases, and would not be seeking to violate the rule of law, undercut other countries or cook the books on its public debt. But would the EU be able to come down any harder on a progressive government which took private industries into municipal ownership in the national interest? Article 176 of the Treaty on the Functioning of the EU (TFEU) commits signatory governments to the expansion of markets. But equally as Sam Fowles, a researcher in International Law at Queen Mary University London, argues here, Article 345 would allow an elected government to carry out its manifesto pledges with respect to nationalisation as long as a defensible case could be made. Legal complications aside the point is that there is a lot of room for manoeuvre here. As Jeremy Corbyn recently said to Sky News, "When the French want to change their agricultural policy they just do it." Ultimately, the wrangling over economic policy would come down to a propaganda battle rather than any particular legal mechanism for enforcing free markets. "It would be difficult," Fowles writes, "for the ECJ [European Court of Justice] to overturn a proportionately conducted, partial nationalisation considering that the fundamental law of the EU [Article 345] recognises the rights of the member states to do just that."

The EU would strongly dislike any such challenge - but that does not mean the challenge could not be successful. And the primary terrain of struggle would not be within the courts but rather on the streets and in people's homes. Indeed the radical left would seek to keep politics on the streets and far away from the anti-democratic, unworldly officialdom of the EU. During his brief period as Greek finance minister Yanis Varoufakis used a telling phrase to characterise how he hoped his negotiations with the Troika (the ECB, the EU and the IMF) would end up: a deal consisting of "creative ambiguity" or a "fudge." It is deeply unlikely that any government besides the Greek one would end up depending so heavily on full EU backing of its actions. A government of a much stronger country could undoubtedly have used the same techniques to better effect. Greece had been dealt the worst possible hand - with much of its debt and its sole source of liquidity concentrated in the hands of its enemies.

The Jeremy Corbyn plan should be both simple and elegant: borrow to invest in strategic industries (especially green); implement an industrial productivity and jobs policy; increase the minimum wage; clamp down on exploitative contracts and low wage employers; embark on a housebuilding programme; regulate rents and energy prices. The productivity gap between the UK and Germany was the worst since records began in 2015, with job growth outstripping the amount produced per labour hour. Only targeted investment, with the state playing the role of entrepreneur, can change that. These may be historically moderate - even common sense - proposals, but they will have to be fought for doggedly. There will be the usual pre-election movements against the pound, and doubtless some of the weakening will be fanned by the media talking up concerns about a Corbyn-led government. But there are reasons to be optimistic about the markets themselves: neither Corbyn nor his Shadow Chancellor are promising anything like the massive (failed) redistribution and nationalisation programmes that threw Labour governments of the past. Theirs is a plan to invest in the face of long-term, low investment rates. Markets can function as weapons of political elites - but they can also behave in their own interest. A National Investment Bank, buying up debt, funding major investment, and driving up productivity and technological uptake would stand to benefit capital. There is always the old adage that some devaluation could spur exports, while a little inflation won't cause armageddon. Corbyn's central enemy will be the British establishment, organised within the state and accompanied by a frenzied media.

A country which is not tasked with renegotiating onerous debt repayments, which has its own currency and central bank, which has power over its own fiscal and monetary policy and is not even committed to defending a specific exchange rate, would avoid much of the EU straitjacketing that fell on Greece. Make no mistake though, it would face others: a long-triumphant, deeply-entrenched establishment would still rebel against any form of redistribution. The EU would look relatively small fry - as long as the government in question was willing to employ some creative ambiguity of its own. If the radical right can get away with bullying refugees, the radical left can surely find ways of implementing its own programme, either behind the back of or fighting tooth and nail against the elites.            

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