European Monetary Union: Muddling Through, Falling Apart, Going Where?

Published on Global, by Ingo Schmidt, December 21, 2010.

… Austerity and Alternatives:

Fiscal stimulus and almost unlimited injections of liquidity from the ECB, alongside similar measures by central banks and governments in other parts of the world, helped to contain the recession of 2008-09. At that point, Europe’s ruling classes considered the violation of the neoliberal principles enshrined in the ECB-constitution and the EU’s Stability and Growth Pact a price worth paying to save European capitalism. Since then the ECB has paid lip service to its principles, but its actual monetary policies have remained fairly loose. European governments, however, turned to austerity. Some, like the Germans, have done so voluntarily; others, like the Irish and the Greek, involuntarily, and under pressure from the ECB and the Germans. Whether expansionary macroeconomic policies offer a long-term solution to today’s economic problems is questionable. 

But it is absolutely certain that austerity exacerbates these problems immediately in the short-term. The austerity measures that were imposed on Greece and Ireland, along with the pre-emptive austerity being adopted in Italy, Portugal and Spain, have already led to severe political tensions between Eurozone governments. They have also triggered a wave of strikes and protests in the deficit countries.

Meanwhile, governments in the surplus countries such as Germany are presenting themselves as the saviours of the Euro and, importantly in the fuelling of populism, keeping tax-payers’ money in their own countries. The underlying logic implies that European deficit countries are in the red because they are populated by lazy workers and run by wasteful governments. Kick their butts and they will work as hard, and export as much, as the highly efficient workforces in the surplus countries do.

This ‘boost-exports-through-austerity’ strategy will not work. A single small country might achieve export success on the backs of wage cuts of its workers and attacks on the welfare state temporarily. But after a while the export stimulus that wage restraint can buy will be outcompeted by technologically more advanced production capacities in the core. Past experience within the Eurozone, and the EU at large, proves this point sufficiently. With the whole group of deficit countries being pushed to austerity, it is not likely that even temporary export success will be achieved because, as a group, these countries represent a significant part of Eurozone production and income. And if peripheral exports do not increase and their domestic demand is being restricted by austerity measures, the exports of surplus countries may well shrink, too, knocking out any semblance of a European recovery.

The danger that austerity in the periphery poses for another recession across the Eurozone is rarely understood; but suspicion and anxiety that the recovery might not last and fears of job loss are rampant across Germany and the other European surplus countries. Indeed, these sentiments have helped fuel the recent successes of far-right parties in Austria, Belgium and the Netherlands. In the absence of convincing progressive solutions to the combined crises of capitalist economies, public finances and European integration, alarming numbers of people from all social classes have been turning to crude economic nationalism of different sorts. This popular ferment corresponds with the charges that the European periphery is populated by lazy people with an insatiable appetite for fiscal transfers from centre countries. It also reflects elite considerations that it may be necessary to reintroduce the Deutschmark and invite satellites like Austria and the Benelux countries to form a Deutschmark bloc that would keep crisis-ridden European deficit countries at bay.

Considering the austerity pills that doctor Euro has prescribed to Greece and Ireland, and threatens to administer to Portugal and Spain, anti-Euro attitudes in these countries are quite understandable. The disease has not been diagnosed properly, the cure is far from promising. Britain never joined the Eurozone, and it is Downing Street that has ordered its brutal austerity. What is needed at this time is an effective coordination between struggles in different countries in general and between peripheral countries and EU-key player France in particular. On the one hand, France also is a deficit country and thus faces some of the challenges that small peripheral countries are grappling with. On the other, its size gives it a much stronger punch vis-à-vis the surplus bloc than peripheral lightweights – if popular movements can force the French government to strike out. A second challenge for European labour movements and the left is to build coalitions between deficit and surplus countries. After all, many workers in the latter think they have to make sacrifices to the benefit of Irish and Greek slackers but don’t realize that they are effectively bailing out the rich who had invested in the periphery. A substantial part of the bailout money just pledged by the EU and the IMF flows back to the surplus countries, just not into the pockets of the mass of taxpayers who mustered those monies in the first place. Instead, it is safely funnelled into the bank accounts of the rich in those countries. The part that stays in Ireland and Greece helps the rich in those two countries. Workers are screwed in all countries. (full long text).

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