In autumn 2008 big banks in the world’s richest countries went bust. Governments bailed them out or nationalised them. The sharp end of the crisis was swivelled to point at governments, and their ability to manage debt, rather than at the banks.
The governments have managed the sequel by giving priority to getting banks profitable and independent again, and making the working class pay. That is the story behind the “bail-outs” of Greece, Ireland, and Portugal, and Greece’s second “bail-out”, currently being negotiated.
On the estimate of most economists, the “bail-outs” of Greece will not stop the Greek government eventually having to plead for postponement of its debts. They will only give time for the German, French, and other banks who lent money to the Greek government to extricate themselves.
As the Marxist economist Costas Lapavitsas puts it: “In 2015 Greece will be bankrupt but its debt will be held overwhelmingly by public lenders: the EU, European Central Bank [ECB], and IMF. When default comes, the banks will be out of it and Europe’s taxpayers will bear the burden”.
The economic crisis is not, in general terms, worse in the EU, or in the eurozone, than in the other rich countries of the world. Germany is the most thriving of the rich capitalist economies at present, with 4.8% year-on-year growth in the first quarter of 2011. Since late 2009 output in the EU and the eurozone as a whole has been growing a bit faster than in the USA. Unemployment is also lower, on average. The USA deployed much more government spending to revive growth than the EU, and for longer, and is only now moving to the growth-stifling central government spending cuts already well under way in Europe, so the EU’s advantage is likely to continue.
Japan is in renewed outright recession this year, partly but not only because of tsunami damage, and it suffered much bigger output losses in 2009 than Europe.
The crisis is, however, special in the eurozone. In the first decade after the euro was introduced in 1999, the governments and banks of southern Europe and of Ireland were a bit like the subprime mortgage borrowers of the USA.
Between 1970 and 2001, for example, the Greek drachma had lost eleven-twelfths of its value relative to the US dollar. The Greek government, and Greek capitalists, had to pay above-the-odds to borrow, because the lender always knew that a million drachmas paid back in five years’ time, or ten years’ time, would be worth much less in world terms than a million drachmas at the point of lending.
From 2001 the Greek government and Greek capitalists could borrow in euros, a currency guaranteed by the strength of the German economy. They borrowed amply, at low-ish interest rates, from German, French, and other banks. The borrowing pumped up export markets for German goods, especially.
German industrialists liked the new export markets, and the fact that their goods were now not constantly losing competitivity in the markets of poorer European countries by way of the relative decline of their currencies (making a set price in deutschmarks more expensive in drachmas, pesos, or lira). German, French, and other banks liked the flow of interest payments on what seemed to be safe loans. Greek capitalists and the Greek government liked the new credit. Greek workers, even, found that they could extract bigger pay rises, and get easier credit.
It couldn’t last forever, but it looked a lot more durable than the US subprime mortgage boom. And anyway the capitalists reckoned, as capitalists do, that “in the long run we are all dead”.
With the world financial crash, the balminess broke down. Banks started demanding high interest rates to lend to Greece — and Portugal, Ireland, Spain, etc.
Other poorer EU countries have suffered similarly to Greece without being in the euro. Lithuania, Hungary, and especially Latvia, none of which are eurozone members, have been whiplashed by rebounds from easy-credit years.
Greece faces more rigidity. Being in the euro, it can not let its currency decline relative to others to boost its competitivity and export earnings. In fact, Lithuania, Hungary, and Latvia have not done that either, but Greece does not have the choice.
Greece also has the problem that if it defaults on foreign debts, then it risks crashing the credit market within the country too. It faces huge pressure not to default, because the big powers of the EU fear the damage to the eurozone done by a Greek default. A Lithuanian, Hungarian, or Latvian default (though they have not happened) would be less troublesome for the big powers.
The further, and perhaps decisive, factor of rigidity is the choice by the EU’s leading governments of a harshly neo-liberal path forward from the global financial crash. As the Euromemorandum group of leftish economists put it, a short “Keynesian parenthesis” in 2008-9 was quickly followed by “the EU elites” getting “back on their traditional neoliberal track”. The German government, although it had no significant debt crisis, pushed through a £66 billion cuts package in June 2010. It introduced a constitutional amendment, in May 2009, to ban all budget deficits in future, except in extreme cases, and has pressured other EU governments to do the same. EU policy calls for all EU governments to reduce budget deficits to 3% of GDP by 2013 (an obviously unrealistic target).
Although welfare provision is generally less mean in Europe than in the USA, in some ways Europe is more “neo-liberal” than the USA. Taxes on profits are generally higher in the USA than in Europe, and, even after the Bush tax cuts, taxes on high incomes in the USA are higher than in several European countries.
One result of European capitalist integration is more intense “competition” between states to reduce taxes on the rich and on business, and to shift the burden to indirect taxes, like VAT, which hit the worse-off harder.
The European Central Bank is mandated to be monomaniacal about keeping eurozone inflation down to 2%, whereas the US Federal Reserve is relaxed about much higher inflation, and is willing to try more things to limit or stave off recessions. The US Federal Reserve helps the US government out whenever it wants, whereas the ECB is mandated not to assist eurozone governments short of credit other than in exceptional “bailouts” like those for Greece, Portugal, and Ireland, for which the EU was obliged also to set up additional funds.
A recent study by the French economist Patrick Artus shows that if the euro’s value declines relative to the US dollar, then the net effect on the trade balance for Germany (gain from increased global competitivity of exports, loss from increased expense of imports) is zero. Germany thus has nothing to gain, and obvious things to lose, from any relative decline of the euro. Other eurozone governments (Greece, especially, as it happens) could gain a bit, but Germany’s preferences have dominated. (Spain, it turns out, tends to lose from a decline of the euro, so has good reason to back Germany on this).
In any case, a harshly “neo-liberal”, “strong euro”, course has been set.
In principle, European capitalist integration, even in the form of a common currency which can now be seen to have been botched, should allow a much easier ride for the people of Greece. Enlarge the EU budget, allocate much more money to support for poorer areas, establish social minima (wages, pensions, benefits) across Europe, tax the rich Europe-wide. If a strong enough Europe-wide workers’ movement existed, it would go on to demand expropriation of the banks Europe-wide, including the Swiss banks which hold 600 billion euros in deposits from rich Greeks alone, and the banks in other European “tax havens”.
Some left-wing economists, however, say that the weakness of Europe-wide workers’ links means that advocating such measures is “living in a care-bears world” (as French writer Jacques Sapir puts it), and practical politics demands that “quit the euro” be our headline demand.
Sapir packages his quit-the-euro demand with a general call for “de-globalisation”, protectionism, reindustrialisation, and an alliance of the working class with industrialists against finance-capitalists. I do not think that other advocates of “quit the euro”, such as Costas Lapavitsas, would go along with all that.
People like Lapavitsas can reasonably argue that the revolt in Greece is at a much higher level than in other European countries, and bound to be so. The Greek workers should not be asked to wait until there is a united Europe-wide movement. Greece is likely to default, and may well eventually quit the euro anyway: why not take the initiative with a call to quit the euro now, on terms set by the left?
In a dissenting article, French Marxist Michel Husson concedes the difficulties:
“It is basically true that the European project based on the single currency is not coherent... It removes a variable of adjustment, the exchange rate, from the set of different prices and salaries inside the euro zone. The countries in the periphery thus have the choice between the German path of freezing wages, or suffering a reduction in competitivity and loss of markets. This situation leads to a sort of impasse and there are no solutions that can be applied straight away: going backwards [to separate currencies] would throw Europe in a crisis which would hit the most fragile countries hardest; and beginning a new European project seems out of reach at the moment.
“If the euro zone explodes the most fragile economies would be destabilised by speculative attacks...
“Other solutions exist which need a complete recasting of the European Union: a budget which is financed by a common tax on capital and which finances harmonisation funds and investments which are both socially and ecologically useful and richer countries help poorer ones with their public debt. But again this outcome is not possible in the short term, not through lack of alternative plans but because implementing them requires a radical change in the balance of forces at the European level”.
To demand workers be concerned to “save the euro” because in some abstract way it represents “progress” would be wrong. But it does not follow that we positively demand “quit the euro”.
There is a sleight-of-hand in the left “quit-the-euro” arguments. It is assumed, rather than proved, that quitting the euro would go together with a political shift to the left. In reality, as Jean-Marie Harribey argues in a response to Sapir, it more likely to give hegemony to the nationalist right (especially if the left has downplayed its own distinctive ideas in favour of the quit-the-euro theme).
Demands such as that there should be EU-wide taxes on finance and on the rich, are, as Husson points out, no “further away than an ‘exit from the euro’ which would be beneficial to working people”. And they have the advantage of pointing towards a unifying cross-Europe programme. For Greek workers to fight for “European” demands would not hold them back, or delay their fight within Greece.
As Harribey argues, the thing we should argue for “getting out of” is the debt, not the euro. Sapir responds that that to demand all governments repudiate their debts is an even more “nationalist” course than the “controlled nationalism” of his quit-the-euro policy.
But that is to miss the point. The stance of refusal to pay for the debt burden is not a policy to recommend to capitalist governments, for them to pursue in competition with other capitalist governments. It is a policy for the workers’ movement, in each country and across the borders.
To botchedly-integrated capitalist Europe, the socialist answer remains: a workers’ movement unified across Europe, fighting for social “levelling-up” and the taxing and expropriation of the rich across the continent.