Eurozone: Road to nowhere
Why does the European bourgeoisie insist on austerity despite the virtual certainty that it cannot succeed? Hillel Ticktin digs beneath the official claims
I would like to address the specific form that the economic crisis has taken in Europe, where, in addition to the banking crisis, there has been a sovereign crisis. The questions that I want to ask to begin with are: ‘Can the European Union survive in modern capitalism?’; and ‘Can the euro zone survive?’ In relation to the second question most people would struggle to provide a straightforward answer. At the moment if one was forced to answer, I would say that the euro zone might last a few more years, but ultimately it cannot survive the way it is going. So the question therefore is, what are the forces underlying the potential breakup of the euro zone and of the limits of the EU itself?
It is quite clear that if the euro zone continues to expand, and it is a condition of new members entering the EU that they should prepare to join the euro, it is therefore a problem for those members of the EU who either find it difficult to join the euro zone at this time or who simply do not want to do so. The country that has expressed itself most clearly in relation to this point is, of course, the United Kingdom, where the Conservative Party has decided to go for a referendum on the issue by 2017 as to whether the UK stays in the EU or not.
It is worth only briefly saying something about this, because the issue is much less important than what is happening to the euro zone. But the particular form this issue is taking in Britain does actually illustrate some of the dynamics underlying the crisis in the euro zone itself. Why on earth would British big business want to leave the EU? After all, the UK is not in the euro zone: it has its own currency, the pound, and no-one is proposing any change in that situation. And the continuation of its own national currency means that, in spite of what the government is saying, the UK has not had the same kind of financial problems as other countries.
Again if one thinks about big business, surely it wants the continuation of the customs union? Surely it would rather be inside it than outside? Surely it wants to ensure that any investment destined for Europe might come to Britain and not be dissuaded by a tariff operating against the UK for being outside the EU? All those points have been aired and it is quite clear that big business as a whole, or at least a substantial section of it, is in favour of the UK’s continued membership of the EU. The Conservative prime minister wants to stay in the EU, provided changes are made to certain rules that have benefited workers in employment. One might have thought on that account that big business would be of two minds, but that is not at all clear. That is to say that it is wrong to simply state that the bourgeoisie is opposed to all and any measures that benefit workers. On the contrary. It would make far more sense from the point of view of an intelligent businessman that workers’ rights be clearly enacted and protected so that one firm cannot undercut another by denying those rights. Usually the firms that do this are in financial trouble and ultimately cease to exist. The point is that in general big business has tended to favour the existence of unions, even if it prefers a certain kind of friendly, non-political union that negotiates moderate concessions for its members and so on. This has been the tendency. The fact that the EU has limited the number of hours that a worker can perform hardly seems to be a good enough reason to want to leave the EU. And, as I have said, it is difficult to believe that big business does want to leave the EU.
It is true that there is a divide between those who relate to the USA and those who relate more closely to the continent. And it is the case that the industries that remain most important in Britain - that is, the defence and pharmaceutical industries - relate very closely to the United States. But that does not mean to say that they favour withdrawal from the EU. The United States has made it very clear that it wants Britain to remain in the European Union - this has been its policy all along and Obama has recently restated it. We are therefore left to look elsewhere from the central bourgeoisie, and this gets us to the heart of the problem. It would appear that it is much more smaller capital, medium-sized capital - perhaps the so-called ‘SMEs’ - that would prefer Britain to leave the European Union and its rules, believing this would allow them more protection. They would have to deal with any tariffs against Britain, but on the other hand Britain could impose tariffs against the EU. In addition they would remove the protections for workers. In other words, the classic demands of small business.
Now, the Conservative Party depends to a much greater degree on this layer of the population: that is, small business and sections of workers who are dependent on it. So, the Tories are responding to this kind of demand, which unsurprisingly seems to be more concentrated in the south of England, where the Conservative Party has its core support and where there is tremendous pressure on it. So I think we should understand this call to leave the EU as a petty bourgeois demand, or a non-big business demand. It is not only the dominant view of big business, but that of the Liberal Democrats and the Labour Party, that Britain should not leave the EU.
That means we have the curious position of the middle or lower layer of the bourgeoisie acting as the tail which is wagging the Conservative Party dog. And one would also have to explain that in terms of the class structure in Britain today and the relative weakness of the bourgeoisie in allowing Britain to get to this pass. It is not just mistaken from the point of view of the capitalist class to withdraw from the EU: it is distinctly idiotic.
Let us turn now to the European Union itself, where you might have thought there was a similar division to that in Britain. But that division does not express itself in exactly the same way. It is clear that the German bourgeoisie as a whole is supporting the line of the Conservative Party that effectively threatens to break up the EU. The adoption by Angela Merkel of austerity and pursuing it to its end logically leads to a position where the squeeze is so great that there will be a rebellion within the countries of the euro zone - as there has already been, on a small scale perhaps, in Greece. The fact is that in Germany Merkel does represent the viewpoint of the bourgeoisie itself. So we have the German government putting forward a policy which is clearly detrimental not only to the working class, but to the bourgeoisie in a substantial section of the euro zone. In particular we are talking about Greece, Italy, Spain and Portugal. Also the Irish Republic, where the situation is slightly different, but where things are continuing in an extremely difficult way.
The other country which is not in the same financial difficulty is, of course, France. But the French have been ordered to cut their annual budget deficit to under 3%. The European Commission has gone further, and the International Monetary Fund has repeated these demands, which are the same as those imposed on the other struggling countries. They consist of a series of recipes to restore capitalism to what it was before World War II. That is to say that they are demanding privatisations and other demands of a similar kind.
It is possible under the conditions of official austerity to put forward these demands and achieve some success. In Greece, of course, there have been massive demonstrations and resistance to them. The cost of attempting to impose austerity on them is really exemplified by Greece, where there is clearly the threat of much more than further demonstrations. It is clear that the government is not supported by the majority of the population.
For the long-term stability of capitalism in Greece the policy is certainly disastrous. The immediate effect must be the growth of masses of people who see themselves as militant opponents of the EU, if not of capitalism itself. So the policy can only be described as stupid.
It is even more stupid when we realise that there is no way on earth that Greece will be able to repay its debt by 2020 under the present plan. Clearly the debt which Greece owes to the rest of the EU, the IMF, etc can never be repaid, as things stand. The policy that has been adopted in relation to Greece can only be described, even from the point of view of those imposing it, as self-defeating and crazy. Unless, that is, there is a further agenda, which I will come to later.
In the case of the other countries, there are two closely connected questions. On the one hand, what amounts to a possible sovereign bankruptcy has to be held at bay: that is to say that Spain, Italy, Portugal, etc will be unable to pay even the interest on the debt which they have borrowed from the so-called markets. The ‘markets’, of course, amount to large capital, insurance companies, banks, pension funds and so on. The problem arises because - the word ‘confidence’ is used here - the owners of the capital who are lending the money to Italy, Portugal, Spain, etc are afraid that they will not be repaid and therefore attempt to withdraw from lending, which means that interest rates rise. But behind these difficulties there is the connection to the banking crisis. In the case of Spain this is obvious; in the case of Ireland perhaps more so, as Ireland did not have a high level of indebtedness. So there have been a series of countries, Cyprus being the last, who have had to apply for loans to get out of trouble. And the reason in many cases has been the role of the banks, even where it was not a direct question of the banks having to be recapitalised.
It does seem, judging by the commentary in the Financial Times and elsewhere, that the banks in Europe remain in trouble and that no solution is in sight. It was thought that a solution would be found, but this has not happened. The banks in Europe are insufficiently funded - in other words, if tomorrow an accountant were to go through their books they would conclude that, without state backing, they would be bankrupt. That is the real position in Europe today. And it is not just the case in the countries with obvious financial troubles that I have mentioned: it is also true in countries where this is not obvious, such as Germany.
The banking crisis has not been solved; it has not been dealt with. And that links very closely with the sovereign crisis. The question, of course, is why? Why is it the case that the bourgeoisie and institutions like the IMF and the European Central Bank prefer to apply a policy of austerity wherever they can almost to their wits’ end? The logic of it is that if it continues this way what has been happening in Greece will be repeated on a much larger scale, possibly even interconnected over the countries of Europe. That could even be the case in Germany, where the working class has been fairly quiescent, and has accepted a raft of anti-working class laws and controls over pay for the last decade or so, especially the Schröder reforms. At some point you would expect the working class to reject these controls over them - even if austerity is not applied in Germany in the same way it still represents a form of control over them there too.
The point is that one would expect, in the not too distant future, for the ordinary person in Spain or Portugal or Greece to go beyond demonstrations, to go beyond simply voting for an opposition party, to perhaps go the way of Egypt or Brazil. When one squeezes a population to such an extent, that is almost certainly going to be the result. It may not happen in the next year - it may take 10 years or whatever - but it will happen. And most people, whether they are leftwing or rightwing, recognise that this is what will result.
It is precisely for this reason that the European Union has relaxed its austerity programme, allowing payments to be made over a longer period of time.
But why continue to behave in this way at all? Why not simply fund the banks? Just print the money. After all, the resulting inflation that they claim to be concerned about is not going to happen - we are just not in an inflationary situation. They claim that if in pursuit of a boom governments increased spending and ran up their deficits, that would produce inflation, which might be uncontrollable. It is often explained that the period of hyperinflation in Germany between 1921 and 1924 has been seared in the German mind.
However, this is nonsense. If anyone thinks that the conditions of 1923 apply today then they have clearly never read their history. In 1922-23 the Ruhr was invaded by France, and in March 1923 a potential revolution was breaking out. It was certainly the case that the Bolsheviks in Russia were expecting a revolution to occur in Germany, and even now it is not entirely clear why that did not happen. There was a highly unstable situation in Germany, which had just lost the war, and the economy was clearly in trouble. It is against this background that the hyperinflation of 1921-24 has to be understood. (By the way, the minister of finance during this time was a certain Rudolf Hilferding. This long-time Marxist had shifted somewhat politically by then!)
So what happened in Germany in 1923 is in no way comparable with today. There is no chance of it recurring, so it cannot be seared into anyone’s mind, because there are no conditions for it. Basically, for inflation to occur there must be a shortage of resources and too much money - that was the situation in 1923. But it is not the situation today. So this is not the reason why the bourgeoisie refuses to fund the banks and run up a deficit. If they look around the world they can see that there is an alternative. Both Britain and America are printing money on a large scale and inflation is low. Now Japan has gone in for the same policy on an even bigger scale and there is still no inflation: in fact the Japanese are still trying to escape deflation. So the argument is nonsense. There has to be a fundamental reason why in particular the German bourgeoisie wants to go for this period of austerity, this shift to 19th century forms of controls over labour, this privatisation drive and all the rest of it. And the reason is that we are in a new situation. One where, as it were, all bets are off.
There are in fact just two roads the bourgeoisie can take. There is the road that is presently being forced through - even if it does not achieve the desired ends, the aim is to establish a series of controls, amounting to a serious defeat for the working class. In my view, although this is what is being sought, it is most unlikely to succeed. It is much more likely that, if the bourgeoisie continues to pursue this path, it will produce the situation I have described: increasing working class anger and action, leading to the possibility of a popular uprising. Precisely because of this I cannot see them following their present policy all the way to the end. Nonetheless at present that appears to the bourgeoisie to be its only path. Perhaps the intention is to proceed along it only so far - to the extent that a defeat is inflicted on the working class - and that will be enough. The alternative road is one where funds are provided for something like a ‘Euro-loan’ to enable the indebted countries to get out of trouble, and also a banking union to get the banks off the hook. Such a scheme would ultimately have to be funded by the German bourgeoisie. But they do not want to follow such an alternative, because that would increase working class power and control, thanks to higher levels of employment and so on. Given the circumstances, that would mean a shift to the left, an outcome they fear. From their point of view the current road is preferable.
The elections which are due in Germany are unlikely to change much. But it is also true that if the social democrats come into government with the Greens and make limited concessions they will probably find themselves on a path which they cannot leave. One concession would lead to another until Germany did end up providing the ‘Euro-loans’, banking union and so on. But again, that has its own logic: it would almost certainly mean that the working class would begin to act as a class.