On June 28 the European Council – with the leaders of 27 EU countries - meets in Brussels for key decisions on how to address Europe’s crisis. A week ago the G20 summit defined the global context and last Thursday in Rome the leaders of the four largest euro countries rehearsed the forthcoming debate in the Council. Little has emerged from this flurry of meetings. Policy changes are not in sight and much is ignored on the current acceleration of Europe’s crisis.
The first ‘potential news’ we can expect from Brussels concerns the taxation of financial transactions. At the end of Rome’s summit the German economic minister Wolfgang Schäuble declared that ten EU countries are now ready to introduce it. It would be a long-awaited success for those who have been demanding the introduction of the Tobin tax for twenty years; even if limited to a few countries, hitting some speculative activities only, and not waterproof in the face of finance’s strategies, the tax would mark a symbolic watershed. For the first time in five years of crisis, finance would ‘take a beating’ from politics. The scene in plain view would not be limited any more to governments’ passivity in the face of speculation, saving private banks with public money while public budgets suffer the outrageous terms imposed for refinancing debt. We could watch investment banks losing some power, speculation cut down to size. The problem is that Europe has given up the idea of a common rule on this issue and has chosen an “enhanced cooperation initiative” among selected countries; David Cameron’s UK – the staunchest opponent of taxing finance – is let off the hook. We will have to wait for the European Council to see whether this initiative will be introduced.
The second prospective measure concerns the collective responsibility of euro countries on public debt - and is more unlikely to emerge from the summit in Brussels. Italy, France and Spain have (weakly) demanded that Europe’s Funds set up for addressing the crisis – EFSF and ESM – buy the bonds of fragile countries as a way to cool down interest rates; solidarity (and eurobonds) come before the transfer of sovereignty – has argued François Hollande, the new Socialist President of France. But the German chancellor Angela Merkel is firm on the opposite view; what is needed is a ‘fiscal union’ – even tighter than the Fiscal compact decided a few months ago, waiting approval from Europe’s parliaments – which would amount to a German protectorate on the spending power of euro countries. Eurobonds may come a long way after that. The novel development here is the “conversion” of Christine Lagarde, managing director of the International Monetary Fund; she has told Europe to immediately introduce eurobonds, a “fiscal union” and bond-buying by the European Central Bank (ECB), ending the present recession in time to help Barack Obama’s re-election in the US vote of next November. Among EU leaders the stalemate is likely to persist well beyond the Brussels summit and the lone player with the power to act is going to remain Mario Draghi, the Hamlet-like head of the ECB. He has so far saved banks, refused to support the government debt of weak countries, and upset the German government by asking for a “banking union” with the power to control the excessively risky behaviour of banks. Confusion rules at the top.
The third agenda item – 130 billion euros for funding “growth” – has no basis in fact; it is not clear where this money will come from, where it may go and how it could possibly end Europe’s recession. Modest action regarding the capital of the European Investment Bank and on reshuffling existing EU funds is no news at all.
The real news on the eve of the EU summit is much darker. Financial markets continue to bet against European governments and reflect the somber economic outlook. On Monday the Spanish government officially requested EU help in refinancing its private banks. Greece is not anymore on the front page of newspapers but its crisis – economic as well as political – is far from being solved, in spite of the brief respite that may come from Brussels on the terms of the Memorandum imposed on Athens. And there is Cyprus too; this small island in the East Mediterranean, member of the euro, has become a financial paradise for Russian and Middle Eastern capital and has now two banks close to collapse – their deficit amounts to 20% of the country’s GDP, according to Moody’s. Cyprus’ president Demetris Cristofias - a Communist party leader with Russian links – has asked for a large emergency loan from Moscow and may soon knock at Brussels’ door for EU help. By the way, Cyprus will assume the Union’s rotating presidency on July 1, 2012. The world’s largest economic area led by a bankrupt financial paradise; it could be a fitting epilogue for a Europe unable to place finance under control and stop the plummet towards collapse.
Four key themes ignored by Europe’s leaders
In order to change Europe’s course there are four key themes – ignored by Europe’s leaders - that need to move to the centre of the debate. The first one is the need to tame finance. This issue could become a point of cleavage in rapidly-changing European politics. Speculation means sky-high interest rates on public debt, cuts in wages and welfare, never-ending recession. It is in (almost) everybody’s interest – firms, workers, political forces this side of ultra-liberalism – to break this spiral, building a “post-liberal consensus” for actions that include a drastic downsizing of financial activities, the “Volcker rule” with a return to a rigid division between commercial and investment banks, restrictions to operations with high risk and low transparency (trade over the counter, derivatives, etc.), the end of fiscal paradises and rigorous harmonization of tax rates in Europe. Within the Union, all countries of the so-called periphery would greatly benefit from such a new course, and maybe France will consider taking the lead in such an alliance for changing the course of European integration.
The second question concerns capital flight, a theme left out of all discussion, but at the root of the acceleration of the crisis in Greece, Spain and Italy. EU treaties assure the free movement of capital, but such a principle has over a long period and frequently been limited by governments. In weaker countries, expectations of exit from the euro have led firms and the rich to transfer money to their accounts in Switzerland, Germany, UK, Luxembourg and other fiscal paradises. This has opened up huge additional imbalances in Europe’s balances of payments, starving investment of financial resources in the very countries where they are most needed in order to recover production capacity and competitiveness. Even the IMF has raised the issue of reducing capital flow imbalances. Encouraging the reinvestment of capital in the economy where it has been accumulated appears to be a sensible policy for helping Europe to move out of the crisis. A harmonised fiscal treatment that penalises capital flights and administrative controls could be used to this end. In this case too, the real economy of all countries would benefit; large firms and the rich would be put under some constraint.
The third theme is Europe’s recession. 2012 will be a year of falling GDP for the whole of the Eurozone; several countries experience serious slumps and their GDP is back to the levels of a decade ago; even the German “export success story” is now losing steam. The neoliberal dogma repeated at each EU summit is that cutting wages and public expenditures increases competitiveness, exports and growth; in fact, this is leading the Europe to a new great depression.
We need to learn the lessons of the Thirties; demand has to be stimulated, income and wealth have to be redistributed from the rich to the poor, reversing Europe’s record inequalities. It is not just a question of quantity, but also of quality. Demand needs to be expanded through “good” public expenditure – welfare, education, social and environmental policies. Investment and exports have to be encouraged when they help change the economy in the direction of a higher quality of work, wages and sustainability, with lower energy and resource use; a “green new deal” could be an important part of the the way out of Europe’s crisis. Income redistribution is needed to support the livelihoods of all citizens and may include basic income provisions; opulent consumption could be discouraged with fiscal measures, while the move overall should be towards a more sober consumption pattern.
The fourth question is about politics. Europe’s crisis has led to a wiping out of democracy; decisions have been made – too little, too late, too poorly – in Berlin, Brussels and at the ECB; the governments of other EU countries have no weight, the European Parliament has no say. A polarisation has emerged between the growing power of Germany (and its satellite states) with no checks, balances and responsibilities, and the weakening of a fragmented European periphery. In this context any steps towards further integration risk according more power to Berlin – as Paris clearly fears. Restored democracy – within and among states, and within Europe as a whole - has to be the starting point, if we are to avoid the danger that the economic crisis may turn into a major political one. Practicing more democracy is the only chance we have for avoiding the perspective of a “pan-German” Europe on the one side, and the illusory revival of nationalisms on the other.
These four questions at the core of Europe’s crisis will not be addressed by the European Council on June 28 in Brussels. They will be at the centre of a parallel gathering, on the same day in Brussels: the forum ‘Another Road for Europe’ held at the European Parliament. Launched by thirty social organisations from all over Europe, in cooperation with the Parliamentary groups of the Greens and the European United Left, the Forum will focus on alternatives to Europe’s crisis with a debate between fifty economists, trade unionists and representatives of social movements and thirty members of the European Parliament and national politicians – socialist, democrat, green and left. After five years of dramatic crisis, a gathering of this other Europe, pointing out viable alternatives to the power of finance and neoliberalism may well be the best news coming from Brussels on June 28.
There will be live-streaming of the forum on the web. All information on the website www.anotherroadforeurope.org