he Euro crisis is fast approaching its climax. The narrow victory for the right in the Greek general election will buy some time for the Eurozone governments. But within months – maybe sooner – we will know whether the Euro can survive intact and lead to closer European economic and political integration or a break up of the Eurozone will prefigure a gradual disintegration of the European Union itself. A protracted period of status quo seems the least probable outcome.
The word 'crisis' has been abused by overuse in leftist discourse. But there is no more accurate description for the economic, social and political impasse into which much of the world capitalist system has fallen. The resulting tremors have shaken the social and political consensus in a number of European countries. This has partly benefitted centre left Social Democrat, Green and some socialist parties, particularly the impressive Syriza alliance in Greece, and ominously also boosting parties of the far right.
Failure by the European left first to articulate and then to implement a progressive way through the Eurozone crisis risks giving further, alarming impetus to fascist and other far right populist forces. In the nightmarish scenario of a break up of the European Union, the democratic foundations of European society could be subject to a degree of stress not seen since the defeat of Hitler. Moreover, a collapse of the Euro would further depress the world economy.
Although attention has focussed on the travails of the Euro, we are living through a global systemic crisis characterised by multiple and simultaneous sub-crises which have far deeper roots than just the problems of the single European currency. Real wealth has been lost with the collapse of the speculative asset bubbles which will take years to make good. With the world economy slowing it will be no easy matter to stimulate a significant European growth recovery – assuming the current disastrous austerity policies are replaced by measures to promote growth.
Meanwhile there is no agreement on how to re-engineer the system to achieve sustainable growth – in spite of global warming, environmental degradation and deepening social tensions. Together, the complex of policy reforms and structural changes needed for any progressive way out of the crisis, transcend the limits of what the most radical of left reformers have hitherto seriously debated.
How we got to where we are now is fairly clear. The upheavals which rocked the Euro began with the chaos in global finance capital triggered by the US real estate collapse in 2007/8. Following the bankruptcy of Lehman Brothers the international banking system came close to collapse.
The excesses of the banking behemoths were triggered by a crazy experiment in the US to bypass the economic problems created by a growing army of poor and unemployed. If the poor were too poor to support consumption why not offer them cheap credit even with little expectation of reliable repayment? A tsunami of complex and little understood financial products were invented to ensure the banking system was not left with losses too big to bear.
Big mistake: the sky rocketing number of bad loans threatened banks across the western world, which collapsed like a pack of cards. Only states had the resources to prop the system up taking on the banks' debts. In the Eurozone this meant the Irish, Portuguese, Spanish and especially the Greek governments had to fund banking losses greater than the total output of their national economies.
When this burden - brought by Greek troubles and a common refusal to collect taxes from the wealthy and excessive military spending - threatened to overwhelm governments, they turned to the Eurozone for astronomic 'bailouts. These were provided, but on condition that crippling austerity measures were implemented. These propelled the peripheral economies into deeper recession, bigger deficits and near political collapse.
If the Eurozone had been a genuine economic union, the debt problems of these countries would not have presented insuperable difficulties. Even after the banking crisis, the collective deficit and debt of the Eurozone as a whole is smaller than that of the UK or the US. Backed by the strong collective credit of the Eurozone, these countries could have been helped, through lower interest rates and direct EU investment to slowly grow their way out of debt.
The Eurozone is not an economic union. Against the advice – among others – of the then Commission President, Jacques Delors, EU governments agreed that the Eurozone would be launched without having supranational fiscal governance powers. For ten years this one-legged trick worked but it now risks leading to the disintegration, not closer integration, of Europe.
In April the 17 Eurozone governments agreed a 'Fiscal Compact' which, when implemented, will be a limited but important step in the direction of a genuine economic union. Progress remains dangerously slow as (mainly) conservative led 'northern' EU governments remain reluctant to pledge their credit to the Eurozone whole and resist any switch from austerity to growth policies.
The costs of a break-up of the Eurozone would dwarf those involved in creating an economic union. The expulsion of the weaker, peripheral countries from the euro area would lead to massive devaluations of their re-nationalised currencies. The resulting inflation would make it even more expensive to finance budget deficits and make a European and even global banking collapse more likely. The consequent decline in employment and living standards would risk a contagious economic depression across Europe and possibly into the rest of the world: End of Weimar Mark II.
Out of office in almost all EU states, social democratic parties have been virtually absent players in this drama. However the election of François Hollande as French President and the possibility of a Social Democrat/Green coalition after the German general election next year are reviving debate about an alternative, more pro-growth European strategy.
The far left in Europe is divided between unreconstructed partisans of 'national sovereignty' and those in the Greens, the German Left Party, the Danish Peoples' Socialist party, the Greek Syriza alliance and elsewhere who argue for a radically different but positive European Union strategy. They recognise this demands more – not less – supranational European economic, social, environmental and democratic decision making. Although in opposition, Syriza can wield great Europe-wide political influence given its popular support.
Pan-European campaigns are emerging to coordinate opposition to austerity, mass unemployment and poverty. The EuroMemorandum (EuroMemo) group – a network of socialist and green economists across the EU - has been in the forefront of those pressing for a detailed and well argued alternative European economic strategy. (see link).
The EuroMemo strategy includes:
- Extending the EU loan support repayment periods to give the peripherals more time to meet their debts and avoid insolvency.
- Issuing Euro bonds so that the Eurozone can exploit its collective power to borrow, hence lend at much lower rates than are being currently charged to Greece and Ireland.
- Requiring bondholders in the banks to shoulder a greater proportion of the losses incurred through negotiated debt rescheduling preferably after the permanent system of Eurozone support comes into force in 2013.
- Expanding domestic demand in the stronger core economies in surplus (notably Germany), increasing EU investment in energy alternatives and economic and social infrastructure to offset demand contraction and higher unemployment in the peripherals.
- Enforcing the stricter EU surveillance over the performance of Eurozone economies. The Eurozone should have powers to penalise those pursuing either irresponsible budget deficits or irresponsible budget surpluses.
While rightwing governments still oppose any such strategy, the near chaos on money markets may make a policy U-turn only a matter of time. The probability is that the EU will – slowly and inconsistently – strengthen the governance of the Eurozone, agree collective oversight of national fiscal strategies, and soften and extend 'bail out' repayment terms.
But defusing the deeper crisis will require Eurozone governments to make more fundamental changes in economic, social and environmental policy. To meet this challenge, the European left is going to have to make a quantum jump towards organising and deciding policy at a European and not just a national level.
If economic union is to come, then political union must follow. In Germany there are growing demands for direct elections not just to the European Parliament but also for the posts of President of both the European Commission and the European Council. Where on earth does the British Labour Party – including the wider left – stand on these questions?
Cameron and Osborne hypocritically argue for full-blooded Eurozone integration to avoid disaster – but exclude the UK! The coalition is divided between those who want to limit Britain's participation in European integration, those who want to remain on the fringes and those who want full withdrawal from the European Union.
If the collapse of the Euro is averted, it will only be a matter of time before the market operators turn their attention to the fragile British economy and a highly vulnerable sterling. Outside Europe, in an isolated UK, the odds on finding a progressive route out of the crisis look pretty remote.