A session at the EU parliament in Strasbourg. Demotix/serge mouraret. All rights reserved.In a recent article of mine (“The failure of mainstream federalism”) I challenged what I described as the ‘mainstream’ approach to the issue of European federalism: an approach that appears seemingly content with calling out for the same list of reforms that federalists have been proposing for, well, the past seventy years – a federal budget, a central fiscal authority with real spending power, a democratic European government, etc. – irrespective of the fact that the current European trend is evidently moving in the exact opposite direction.

What I took issue with were not the proposals per se – which I generally agree with – but rather the complete lack of political strategy: i.e., the fact that most federalists seem unable to offer any insight whatsoever into how we are supposed to achieve these noble objectives. Even worse: they seem to ignore the question altogether and to rest their hopes on a pseudo-materialistic faith in the fact that sooner or later European citizens and politicians alike will come to their senses and accept that federalism is the way forward.

I noted that while such an approach may have been acceptable in pre-crisis Europe, in today’s context – in which anti-European sentiments are on the rise everywhere and where an exogenous shock, such as a breakup of the EU/EMU, risks relegating the very notion of European federalism to the dustbin of history – it is an utterly self-defeating approach. If federalists are serious about changing Europe, I argued, they have to incorporate into their analysis the political reality of ‘actually existing’ post-crisis Europe and develop a realistic strategy on the basis of this. This means considering the following facts:

a)      that Germany and the other self-appointed members of Kerneuropa (‘core Europe’) no longer see the monetary union as irreversible, and actually view the expulsion of non-compliant countries as a feasible political choice for the building for a two-speed Europe centred around a ‘core EMU’ restructured along even stricter ordoliberal lines;

b)      that since the introduction of the euro, Germany has emerged once again as a geo-economic semi-hegemonic power with a strong belief in the supposed superiority of its economic model (‘Exportnationalismus’), and that this process has dramatically accelerated since the outbreak of the crisis, leading to the resurgence of a new ‘German question’ in Europe;

c)      that ordoliberalism – an economic doctrine similar to that of the modern neo-classical school of supply-side economics, and based on the radical rejection of Keynesian macroeconomic policies – is deeply engrained in Germany’s major political parties and public opinion;

d)      that Germany’s current monetary and political establishment (or a significant part of it) – along with that of the other core economies – believes that monetary union can function just fine without political union – all it needs is tighter rules and strict punishment for non-compliance;

e)      that the European establishment’s understanding of ‘political union’ amounts to little more than a strengthening of the current process of authoritarian, centralised, top-down integration – which, paradoxically, will simply exacerbate the centrifugal trends already under way.

I concluded by arguing that the political conditions are not ripe – and will not be for quite some time – for a move towards a fully-fledged fiscal and political union, and that it would be in the long-term interest of the federalist cause to take a step back in the integration process by demanding greater flexibility at the national level, as advocated by Philippe Legrain, thus slowly recreating the conditions for moving towards a true solidarity-based and democratic fiscal and political union.

In a thought-provoking response to my piece, EU analyst Protesilaos Stavrou challenged some of the points raised in my article. I will here try to respond to some of his rebuttals. Stavrou largely dismisses the issue of German hegemony (or semi-hegemony) and the renewed talk around the emergence of a new ‘German question’ in Europe. He writes:

“It is true that in recent years Germany has been in a position of strength. This, I think, is a situational state of affairs that has much to do with the overall absence of cogent counterpoints to the main narratives of the German government… What appears to be German power may prima facie be understood as non-German powerlessness.”

This is somewhat of a truism. Geo-economic and geopolitical competition is, after all, a zero-sum game: someone’s power necessarily reflects someone else’s powerlessness. The question is understanding how and why a certain balance of power emerged in the first place: is ‘German power’ a consequence of ‘non-German powerlessness’ – as Stavrou seems to imply – or vice-versa? There is, of course, no straightforward answer. Stavrou concedes that Merkel’s years in office have been characterised by a firm commitment to the tenets of ordoliberalism, but points out that ‘in the same period no other government in Europe has actually challenged this mindset’.

Again, this is factually true, but it offers us no real insight as to why this has been the case. Stavrou cites the signing of the Fiscal Compact – ‘an inter-state treaty that practically codifies a rather ordoliberal approach to fiscal policy’ – as a demonstration of the fact that member states and the vast majority of European policy makers share Germany’s general policy stance, or are willing to passively submit to it. True: groupthink certainly plays a big role in upholding the status quo in Europe. But is it sufficient in explaining the Soviet-like level of conformity of European governments?

Totally absent from Stavrou’s argument is the notion of coercion; it is assumed that all governments that signed the Fiscal Compact did so freely and more or less willingly (and were free to refuse if they so wished). But is that really the case? After all, Stavrou himself acknowledges that many of the states that signed the treaty, such as France and Italy, ‘seem to disagree with its substance, at least in terms of their own view on fiscal policy’.

Speaking of Italy, it is worth recanting the events that occurred there in mid-to-late 2011. The reader will recall that in November of that year Berlusconi resigned and Mario Monti – a former EU commissioner and Goldman Sachs advisor – was appointed by former Italian president Giorgio Napolitano to form a so-called governo tecnico (which literally means ‘technocratic government’ in Italian).

Officially it was purely a matter of internal politics – the loss on Berlusconi’s behalf of the majority within the Chamber of Deputies and the government’s poor handling of the economic crisis –, though it was clear from the start that there were very strong international pressures at play. In August, Italy had come under the spotlight as news hit that Italian bond yields had risen above Spain’s for the first time in more than a year. That same day, the then ECB president Jean-Claude Trichet and his anointed successor Mario Draghi sent a letter to the Italian government that was intended to remain secret, though it was subsequently leaked.

The letter claimed that Italy’s post-crisis deficit-cutting plan was ‘not sufficient’, and set out detailed demands, which included: the full liberalisation of local public services; large scale privatisations; reform of the collective wage bargaining system; more stringent criteria for pensions; and, last but not least, constitutional reform tightening fiscal rules.
The government caved in and a few days later sent a letter to the ECB pledging far-reaching reforms and deeper budget cuts.

The ECB responded positively by agreeing to intervene to buy Italian bonds to keep borrowing costs down. Within a couple of months, though, frustration was mounting within the European and international community against what was perceived as an insufficiently aggressive austerity program on behalf of the Italian government. In an interview to the Italian daily La Stampa, former Spanish prime minister José Luis Zapatero recounted the events of the G20 meeting in Cannes on November 3/4, 2011. He said:

“I will never forget what I saw at the G20 meeting in Cannes. I went there fearing that Spain was in the sight of the proponents of austerity but I was wrong: the target was Italy. Berlusconi and Tremonti were under immense pressure to accept an IMF bailout. But they staunchly refused. Shortly afterwards, I heard Monti’s name mentioned in the corridors. I found it very strange. Was it a coup d’état? I don’t know, all I can say is that the US and the proponents of austerity wanted to decide Italy’s economic policies in place of the government. It is definitely a case that needs to be studied.”

Make what you want of Zapatero’s words. What we do know is that in the days following the G20 meeting there was a steep rise in Italian bond yields. This is considered by many to be a result of the fact that the ECB stopped its purchases of Italian bonds. We can’t be certain – back then the ECB wasn’t in the habit of disclosing the countries involved in its weekly bond purchases, and in any case yields had been rising since mid-October – but it is telling to note that the following week the ECB stated that it had purchased about €4.5 billion in sovereign bonds, which is less than half of what it had acquired a week earlier (leading various analysts to conclude that the ‘missing bonds’ were indeed Italy’s, and that the move was aimed at putting pressure on the Italian government, in a perfect example of the ‘politics by other means’ employed by the ECB in its handling of the crisis).

Besides, if the ECB’s aim was to put pressure on the Italian government, there was no need for the central bank to actually stop the purchases; as we have seen throughout the crisis, the ECB’s words count as much as – if not more than – its actions. And by that point, the ECB was clearly signalling to the markets its intention to stop its purchases of Italian bonds. In an interview given to La Stampa on November 5, ECB governing council member Yves Mersch stated, in reply to a question about the continuation of the bond-buying program: 

“If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect... If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist, it is free to change that decision at any moment.”

In any case, the fact of the matter is that on Wednesday November 9, exactly a week after the G20 meeting, the interest rate on ten-year Italian government bonds touched 7 per cent. On Saturday November 12 Berlusconi resigned and Mario Monti was appointed to form a new government. Now, one needn’t have a penchant for conspiracies to see the chain of events in question as a financial coup d’état resulting in the ousting of a democratically elected government. One needn’t have a penchant for conspiracies to see the chain of events in question as a financial coup d’état resulting in the ousting of a democratically elected government.

Germany’s role in the events remains unclear (though many have speculated that Angela Merkel played an important role in the back-room dealings that led to Berlusconi’s resignation), though it is unlikely that the ECB would have acted the way it did solely as a result of pressure from Germany. But this simply raises more questions: whose interests was the ECB upholding, if not Germany’s?

This brings us to another of the points raised by Stavrou: the ‘nature’ of the EU. He writes:

“On the issue of European integration as seen from a general leftist perspective, I think there exists a common misconception: that of identifying the EU with capitalism or neoliberalism. Though there may be a kernel of truth in that position, it ends up being simplistic and nihilist… The preponderance of the neoliberal paradigm is not so much a function of EU law as it is the outward expression of the balance of power within our localities and across our societies (the Treaties can be interpreted in several ways, provided there is willingness to do so).” 

Stavrou is right in noting that it would be too simplistic to describe the EU, or at least the euro area, as just capitalist/neoliberal or as simply ‘an extension of German rule’. Things are more complex than that. Which is why it is also too simplistic to describe it, as Stavrou does in another article, as simply a ‘quasi-confederation, a league of states that serves the common objectives of the states’, reflecting the dominant ideology and/or the balance of power within and between member states.

Though I would take exception to the notion that ‘the neoliberal paradigm is not so much a function of EU law’ – from the Stability and Growth Pact (SGP) to the ECB’s mandate, the neoliberal paradigm is largely embedded in the EU/EMU’s architecture – it is certainly true that the EU/EMU, like all political systems, is largely a reflection of the balance of power within and between countries (and that shifting that balance of power is a necessary precondition for any kind of progressive change in Europe, as I have argued elsewhere).

The problem with the systems-as-a-reflection-of-the-balance-of-power argument is that it implies a strictly unidirectional relationship between society and political systems, in which only the former influences the latter. But the opposite is true as well, of course: a country’s (or a union’s) distribution of power/wealth across society is also the result of the political, institutional, economic and financial architecture in place, which inevitably ends up favouring – more or less deliberately – the interests of certain sectors and classes in the economy at the expense of others and influencing the scope of political change. In other words, the relationship is two-way and often mutually reinforcing. If we look at western democracies (not just in Europe), we can clearly see that increased levels of inequality and the hollowing out of democracy go hand in hand.

If we look at western democracies (not just in Europe), we can clearly see that increased levels of inequality and the hollowing out of democracy go hand in hand: policy decisions reflect the unequal distribution of power/wealth in society but also reinforce and exacerbate those imbalances, in a kind of positive feedback loop, making it increasingly difficult for citizens to challenge those imbalances.

The EU/EMU is a perfect case in point: yes, in a very basic sense it reflects ‘the balance of power within our localities and across our societies’ and ‘the will of the majority of policy makers’, as Stavrou writes; at the same time, though, the ‘neoliberal’ framework of the EMU – most notably the presence of central bank that has no qualms about using its exceptional powers as currency issuer to bring non-compliant countries in line, nipping in the bud any challenges to the status quo, as we saw in Italy in 2011 and even more recently in Greece – makes it particularly difficult to bring about a shift in that balance of power (notwithstanding the internal dynamics of individual countries, which also favour conservative forces). This is what we mean when we talk about the ‘neoliberal’ nature of the EMU (which, by the way, was deeply influenced by Germany).

Stavrou’s dismissal of the serious challenge that this poses to the ability of achieving progressive change in Europe is a reflection of what I would describe as a more general flaw in his analysis: the inflated role that he attributes to ideas in shaping the world. Ultimately, he sees the struggle playing out in Europe as one first and foremost of ideas and ideologies rather than one of competing economic interests. He writes:

“Apart from overestimating Germany’s own factors of power, [the renewed talk on ‘the German question’] remains trapped in an early twentieth century view of Europe as a space that necessarily contains squabbling nation states. The discussion of political interests that overlap with national borders forces us to lose track of the cross-border aspects of such power, which have to do with the clash of ideologies and the eventual dominance of neoliberalism or the peculiar brand of euro-neoliberalism.”

In other words, Stavrou seems to subscribe to a worldview in which policy shifts are largely the result of certain ideas and ideologies – in this case ordoliberalism/neoliberalism or ‘euro-neoliberalism’ – assuming hegemonic status. I, on the other hand, would posit that ideas usually take hold either because they provide a justification for shifts that are already under way or because they promote and sustain the interests of the dominant political-economic establishment of the time.

Europe’s post-crisis policies haven’t simply resulted in the greatest transfer of public resources from the public to the private sector, and from the lower and middle classes to the wealthy, in Europe’s modern history; they have also influenced the unresolved inter-capitalist struggle between core-based and periphery-based capital, leading to an unprecedented transfer of wealth from the periphery to the core (i.e., Germany) and to the increased ‘mezzogiornification’ – otherwise known as ‘southification’ or ‘Chinesification’ – of periphery countries. This process can’t simply be written off as an unintended consequence of ordoliberalism/neoliberalism.

It’s the lack of a class-based lens that leads Stavrou to conclude that there aren’t any ‘inexorable or insurmountable conflicts between national interests’ in Europe. If we take ‘national interests’ to idealistically represent the common interest of all the citizens of a given country, or at least of a majority of its citizens, then Stavrou is of course right: solidarity-based cooperation is in the interest of all European countries.

In the real world, though, a country’s ‘national interests’ are defined by the dominant political-economic establishment: if today Europe remains deeply divided among (often fictitious) ethnic, cultural and identity fault lines it is because it is in the interest of European capital – notwithstanding the aforementioned conflict between core-based and periphery-based capital – to pursue a divide and conquer strategy vis-à-vis labour (thus exploiting the benefits of labour arbitrage and blocking any move towards a coordinated wage policy, for example).

This means that if we want European nations to realise that there aren’t any ‘inexorable or insurmountable conflicts between national interests’ we first have to change the balance of power within those countries (which is no easy feat, partly for the reasons outlined above).   
What we should be doing at the moment isn’t so much thinking as acting. 

Finally, Stavrou criticises my argument in favour of a more decentralised eurozone, as advocated by Philippe Legrain, noting that this would hardly be a sustainable design, since it would essentially bring the euro back to its pre-crisis condition. He is right – it’s not a particularly appealing proposal. But are there any other alternatives, in the short term, to the current course?

The truth of the matter is that those of us with an intellectual leaning have to come to terms with the fact that any grand ideas we may come up with are bound to fall on deaf ears, simply because there is no collective social agent – movement, political party, etc. – at the European level capable of appropriating them and building a consensus around them.

Hence, I would argue that our efforts at the moment should be directed at building that not-yet-existing social agent. To put it differently, what we should be doing at the moment isn’t so much thinking, as acting. 

If you enjoyed this article then please consider liking Can Europe Make it? on Facebook and following us on Twitter @oD_Europe