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The euro crisis unfolded in 2009 and is still unresolved. In the course of the crisis, not only did remarkable economic differences between the eurozone member states become apparent, but serious distributional conflicts also emerged. What we observe are conflicts and disputes that take place within several member states as well as between them: think of protests in Greece, Spain, Italy and, albeit slightly less, in Portugal. In all these countries, thousands take to streets to protest against deregulation, wages cuts, unemployment and cuts in the welfare systems. Their anger is not only directed against their national governments, but also against the European Union and other member states. Simultaneously, we see protests and opposition to different attempts to create a so-called fiscal transfer Union. This opposition might be less noisy, but it is important. It is articulated in newspapers, by several groups in Germany who want to challenge the fiscal pact in front of the Federal Constitutional Court, and by political parties in Finland, the Netherlands, Denmark, Austria etc.
What are the relevant characteristics of the euro crisis? In theory, an optimal common currency area (Mundell 1961) should have equally productive regions, high levels of interregional labour mobility, and interregional transfers. From the very beginning, it was clear that the euro zone is far from being an optimal currency area. But political actors at that time expected economic pressure to spur on less productive members of the euro zone, hence equalizing competitiveness and standards of living. And indeed, for ten years it looked like euro zone economic development would meet these expectations. So what happened?
From the year 2000 to 2008, the differences in credit rates narrowed remarkably all over the euro zone. The difference between the interest rates among euro member states – the so-called spread - almost disappeared. This led to a constant flow of cheap money for the less productive member states, either through private credit or through public debt. Permanent export surpluses from high productive euro members provided a steady supply of capital for less productive members. As a consequence, the banking sector expanded and standards of living rose, for imports could be easily financed. It is worth noting that for almost one decade this constellation suited different interests. It offered rewards for exports, provided an opportunity for investment, dampened distributional conflicts, facilitated governing, and raised the living standards. Ironically, workers in highly competitive exporting countries took relatively less advantage from this constellation, as a high degree of wage discipline and relevant deregulation were seen as necessary to support an export-oriented economy (as in the German case). With the subprime crisis and the collapse of Lehman Brothers in September 2008, things changed almost overnight.
The crisis started as a problem between banks and debtors. Then it turned out that at least some creditors were “system relevant”. This means that their problems not only had consequences for them, but were also threatening to contaminate other economic actors or even national economies as a whole. The overwhelming importance of this sudden realisation and its impact on the way the crisis was handled is obvious, as “contagion” soon became the leading metaphor in the euro crisis (Vobruba 2012). As soon as these problems were no longer those of private creditors and debtors, but of national economies themselves, the constellation of actors involved in the crisis changed from a two to a three poles structure. In other words: states became guarantors and got involved in the crisis. This was the moment when the euro crisis turned into a political and social problem.
As a consequence of the crisis and the way it was handled, two phenomena fundamentally emerged. First, it appeared that the monetary volume in virtual circulation exceeded by far what was really there. And second, several vicious circles were triggered off. Rising credit rates led to soaring public deficits and thus even higher credit rates. Unsound credit practices brought the banks to the verge of collapse, forcing governments to bail them out, exponentially increasing public deficits in the process. Austerity measures, instituted in order to bring public deficits under control, led to shrinking GDPs, thus increasing the public debt ratio, even if debts themselves were diminishing in absolute terms.
At this point the relation between the common currency and distributional conflict becomes clear. Imagine a situation without the euro. Trade between countries with different levels of productivity would lead to an export surplus, mirrored by strong demand for the exporting country's currency. This would eventually lead to a revaluation of the exporting country's currency, and to a devaluation of the importing country's currency. Devaluation implies a shrinking purchasing power (because of comparatively high prices for imported goods) at home, but an increase in purchasing power for people from “hard currency" countries, who would enjoy cheaper imports and tourism services from the less competitive countries. All in all devaluations provide a competitive advantage for less productive economies. In this constellation – two countries, two currencies - the currency exchange mechanism works as an interrupter of interdependencies. It creates a constellation of economic trade without social entanglements, leading to transnational social indifference and nationally framed social conflicts.
Nevertheless some caveats have to be added here : first, this is not to say that transnational trade does not cause distributional conflicts at all. In less productive countries, rising prices for imported goods might lead to discontent and claims for higher wages, thus spurring inflation. In more productive countries, wage discipline aiming to secure exports also might cause dissatisfaction. But all these conflicts unfold within each country, not between them. From the point of view of an export country, an abrupt and strong devaluation might appear as an illegitimate advantage that could provoke retaliation. But these are political conflicts between countries, not distributional conflicts between people across borders.
The introduction of the euro meant abandoning this exchange mechanism. It is often said that European integration proceeds “without society” (Bach 2008), that integration at the institutional level is deepening without any progress at the societal level. And in this respect the introduction of the common currency is seen as a prominent case in point. But consider this: the common currency has sparked intensified cooperation and conflict in a wider institutional frame. Never in history had there been such close relations between member states and people in the EU, nor had there ever been such a strong sense of mutual dependence (albeit not of solidarity) within Europe.
In the course of the euro crisis, it has turned out that, with the loss of the currency exchange mechanism, indifference was to be replaced by quarrel. What does this mean? In the light of a conflict theoretical approach, it can hardly be ignored that such a development is a remarkable step towards social Europeanization, towards a European society (Vobruba 2012a). Denying this conclusion would imply a definition of society which equates it with the absence of conflicting interests, thus identifying social integration with harmony – which would be an absurd claim, at least in the modern world.
The decisive moment was when "third players" came into the game. As soon as states were (or rather felt) forced to function as guarantors, the problems between investors and debtors changed into a complex relationship between the economic and the political systems; between the tax payers, welfare recipients and financial institutions (etc.) of different countries.
Perhaps a basic structure of distributional conflict can be identified, which looks like this:
Of course, this is an oversimplification in many respects. It ignores all nuances between “rich” and “poor” as well as, say, the possibility of individually highly competitive enterprises in a less competitive economy (and vice versa). But as a first approximation to systematising a complex constellation, this scheme seems to be quite useful. It demonstrates that the constellation that comes with the common currency triggers conflicts that follow neither a logic of class, nor a logic of nation.
Two conclusion can be drawn. First, conflicts are likely to unfold simultaneously between different groups within the national frame, as well as between different economies (represented by their nations). At present, all organised interests at the European level, be it business, workers or voters, are too weak to overcome national rivalries. Thus, far from a revival of class conflict, the common currency led to a new constellation in which economic and political disparities between national societies are carried out as conflicts between the poor(er) parts of these societies. In other words, the complex conflict constellation is open for populist exploitation.
Second, the lack of transnationally institutionalised conflict regulation exacerbates conflicts about the territorial frame of conflicts. The core question deriving from the euro crisis is how to find a balance between transnational transfers and fiscal control at the European level, hence how to redesign the relation between national sovereignty and EU politics. This is likely to lead to the creation of new institutions. We have to consider the Europeanization of distributional conflict not as a danger, but rather as an important aspect of the social construction of an European society. But it is unclear whether the institutional frame of the European Union in its present form will fit with this society in the making.
Bach, Maurizio 2008. Europa ohne Gesellschaft. Politische Soziologie der Europäischen Integration. Wiesbaden: VS.
Mundell, Robert A. 1961. A Theory of Optimal Currency Areas. American Economic Review, Vol. 51, 4. 657-665.
Vobruba, Georg 2012. Kein Gleichgewicht. Die Ökonomie in der Krise. Weinheim, Basel: Beltz-Juventa.
Vobruba, Georg 2012a. The social construction of the European society. In: Harry Dahms, Lawrence Hazelrigg (eds.), Theorizing Modern Society as a Dynamic Process. Emerald: Bingley, UK.