Questions on the Union
A few years ago Romano Prodi, former President of the European Commission and twice head of Italian centre-left governments, congratulated himself for having built the European Union starting with the common currency. If we had started from politics, he averred, we would never have got to here, considering the historical rivalries of European states. I wonder whether he would repeat this argument today.
The common currency, the euro, is now with us and has become the second world currency. But Prodi himself, Jacques Delors - another former President of the European Commission, Felipe Gonzales - former head of the Socialist government of Spain, and other former European leaders have recently published a worried article on its future (Le Monde, 16 July 2011). Four euro countries, Greece, Portugal, Spain and Italy, are deeply in debt, at the centre of a turbulence dangerous for all the continent. The ‘fathers’ of the euro recognize that “some measures” should have been taken at the time of its creation, such as the “coordination of economic policies”, and “are now being developed in pain”. And in a rush.
If I understood well their proposal on the Greek crisis, we should relieve the country from part of its debt through the emission of Eurobonds; they would delay its reimbursement and protect it from speculation (first carried out by French and German banks). An economic programme common to all European countries, they argue, could reverse the logic of “each one for himself” and avoid placing on Greek citizens’ shoulders all the burden and “pain” of reimbursing debt and rebuilding the economy. Part of the bill should be paid by,“big institutional investors” - that is, foreign banks. It is they who made the risky investments: absorbing loss is their business.
Such prudent words, however, did not convince today’s European leaders at the summit of July 21, 2011, where a more modest compromise was reached with Germany dragging its feet. In the same issue of Le Monde a distinguished German economist argues that Greece should be temporarily dispatched outside the euro, returned to its devalued drachmas, with no help from Eurobonds. This is the liberal line. The same farewell to the euro, for good, is proposed, in a widely different perspective, by Amartya Sen and in France, by economists and sociologists such as Jacques Sapir and Emmanuel Todd, leftwing politicians such as Jean-Luc Mélenchon and part of the confused French Socialist Party, as well as by the far right of Marine Le Pen.
European treaties do not include procedures for abandoning the euro. I do not know whether this is feasible, nor whether a return to the drachma would improve the condition of Greece. A massive devaluation would favour its exports (provided that there are goods to be exported besides tourism) but at the same time it would expand its foreign debt by the same proportion (in euros) with French and German banks. Am I wrong?
Greece was just the beginning. Portugal, Spain and Italy, with huge public debts, repeatedly downgraded by rating agencies, have been attacked by financial speculation in the hot summer of 2011. Countries find themselves in different situations. Italy has a stronger economy and weaker public finance, a ratio of public debt to GDP of 120%, contrasting with the 60% required by Europe’s Growth and Stability Pact. But most of its debt is domestic, not held by foreign banks. Still, the spread of its interest rates with German bonds jumped in August and it took massive buying up of Italian bonds by the European Central Bank (ECB) to bring them down. The price Italy paid for this was to accept the directives of the EU and the ECB for balancing the state budget by 2013, with 45 billion euro of spending cuts and new taxes.
This recipe is the one already imposed on Greece and Portugal; cuts in public expenditure, beginning with education, health and local services, the selling off of public assets and privatisation of public services. Measures that cancel out the concept of the public good. This is happening in Italy just two months after voters themselves rejected privatisation, in a referendum held in June 2011 on the selling off of water services introduced by the government, together with the nuclear power programme and a law protecting government leaders from justice. So much for democracy!
In Greece the government has introduced a 10% cut in the wages of public sector workers and in pensions. The people’s rage led to weeks of mass demonstrations. For Europe and the euro, an autumn of discontent is brewing. Outside Europe things are no better. In the US the White House and Congress found a last minute compromise on August 2 on huge spending cuts and a rise in the ceiling of US federal debt. Political leaders are discredited, the rating agency Standard & Poor downgraded for the first time US bonds and a new recession is looming. What do the mountains of debt of a west that used to be rich have in common?
I call on those more knowledgeable than I am - economists and ‘fathers’ of the European Union - hoping they can provide answers to questions that are now paramount for the average citizen. Were errors made in the construction and constitution of the European Union? If so, how do we mend them?
Questions urgently demanding answers
The first question is: why were the ‘fathers’ of the Euro so certain that a common currency would by itself have been capable of integrating so many countries with such different economic structures, in terms of industrial strength and social quality. They were so certain that no margin was allowed for countries unable to sustain the terms of the Growth and Stability Pact. Was it unthinkable that the invisible hand of the market could not align all these economies in a few years? Did they really think that a monetary policy, together with the anti-inflation bias of the ECB, could do all these jobs by itself?
The euro and the European Union were born out of a faith in liberalism, a faith propagated by Friedrich von Hayek before World War II against Roosevelt’s policies to address the crisis of 1929, against the understanding of Beveridge and Keynes that a deep social breakdown would bring unacceptable dangers, including the rise of a populist right that in the 1930s had spread with Italy’s fascism, Germany’s Third Reich, the Spain of Franco and the Greece of Metaxas. The solution that emerged was a social compromise, pushing governments to pressure capital to give workers a fairer share, so that: a) a social peace could be granted – the Soviet Union, who had stopped the Germans in Stalingrad was still confronting the west; b) mass demand for Fordist mass production could emerge. The constitutions and policies of postwar European governments all went in this one direction.
From such a road, the European Union took a drastic turn in 1992, three years after the Berlin wall had fallen. Left parties and trade unions have followed suit with varying degrees of conviction. Today, the price of this liberal choice is starkly before us. European treaties can show effective improvements on human rights, but is it not true that social rights have been curtailed, compared with the thirty years of postwar growth? Were they too costly?
This was, of course, the argument of New Labour and Tony Blair. In fact, by placing on the same level the full freedom of movement of people, firms, and capital - the European Union has opened the way to the rise of finance and globalisation, subjecting its workers to a historic defeat.
Citizens, firms and capital, in fact, do not share the same nature; nor do they have the same freedom of movement. Moving to Lithuania is different for a worker and a firm looking for cheap labour. Altogether different is the move of a corporation from the Milan to the Tokyo Stock Exchange. Or the movement of billions in speculative money by investment banks. In the European Union, all controls on capital movements stopped, not just controls by member-states, but by the Union as a whole. In Europe, workers had collectively obtained better wages and conditions than in the rest of the world; so immediately, production and work moved out of the continent. And capital soon discovered that much higher profits could be made from financial activities than from production - either material or immaterial. Finance grew at unprecedented rates, multiplying its ‘products’, and losing its roots in the real world. We discovered a whole new vocabulary - futures, derivatives, hedge funds - and a new geography of tax havens. The free-for-all manipulation of money steadily inflated the financial bubble that exploded in 2008.
After the burst, states moved in with public funds to prevent the collapse of private banks – all except Lehman Brothers – and major losses to investors. In a mortgage frenzy, banks had pushed people to buy houses who then found themselves homeless. A young trader, more skilled than his supervisors, made the ancient bank Société Générale lose 500 million euros, without getting rich in the process. Others did made millions, illegally, and one of them, Madoff, got caught.
The G20, meeting in haste, complained, denounced excesses and tax havens, praised the state intervention that it had been barracking until the day before, and promised to put ‘morality’ back into capitalism. With indecent haste, all went back to finance as usual; not even the easiest target, closing tax havens, was achieved. The lure of financial gain cannot be resisted.
In the same vein, capital still invested in industry discovered that much higher profits could be made by shifting production outside western Europe, with its (weakening) labour ‘rigidities’ and policy constraints. We know the results. For instance, a small company from Brescia buys an old French producer of electrical appliances and moves it to (pre-rebellion) Tunisia. An Indian billionaire buys up the remaining steel plants of Europe, closes most of them and keeps the market for his family company. Governments stopped mediating between capital and labour; they started running after capitalists, enticing them with tax cuts and incentives. We all know that firms’ profits are now less taxed than workers’ wages. If the company is an oil giant - Total - located in several countries, it may happen that it pays no taxes at all in France.
Finally, capital outsmarted labour (and the left) in its use of technology to replace workers. New technologies could have brought huge savings of effort and resources, and productivity gains; they just led to job losses. Are we surprised that in the European Union we now have 23 million unemployed? That 15 million have temporary jobs, full or part-time? That another 15 million would like to have work but are too discouraged to seek employment?
In order to make life easier for capital, governments keep dismantling, step by step, the remaining defences of labour - union rights, collective bargaining, permanent jobs, wages, social insurance. The invention of precarious work has been so brilliant. Much remains to do to reach the working conditions of Egypt or China, but it looks like this is what they aim at.
I wonder how European governments can believe they may increase growth and tax income by cutting wages and welfare services, making people poorer. Are we surprised that workers, employed and unemployed alike, disoriented by the policies of the left and the unions, do not like this Europe? And that everywhere the extreme right wins votes? I would like to be proven wrong. To be shown that it is not Europe’s fault, that the Union has no other choice. Or is another choice possible?