The European meltdown

The spectre of capitalist failure

Like ‘sex’ and ‘violence’, the words ‘Europe’ and ‘crisis’ seem to have a near permanent affinity these days. This constant conjunction tells us that the nature of the crisis is no transient thing. It is what Gramsci would have called an ‘organic crisis’, one that condenses multiple chronic problems at various levels of the system in a single, epochal spasm. Growth rates across the Eurozone are close to zero, unemployment is over 10 per cent on average – a figure masking extremes of joblessness in Greece and Spain. But it is not just an economic crisis. The Eurozone is a political creation, and it is at the level of politics that the strains are manifested at their highest level. Repeated sovereign debt crises threaten debt default, the withdrawal of economies from the euro currency and the ultimate collapse of that currency. The material basis for the European Union (EU) to continue to exist in its present form is endangered, and the solutions only seem to exacerbate the problem.

Greece’s calamitous decline, accelerated by the neoliberal austerity measures supposed to rescue it, has been staggering enough. The cost of bailouts for banks with investments in Greek debt continues to soar and the IMF has revised the country’s growth rates downward to -6 per cent in 2011 and -3 per cent in 2012. The addition of Italy, the fourth largest economy in the EU, to the roster of endangered states has raised the material possibility of the death of the Eurozone. The system’s rulers know it. Angela Merkel and Nicolas Sarkozy have both acknowledged that the euro will not survive if Italy goes under. Jean-Claude Trichet, president of the European Central Bank until 2011, characterised the turmoil as ‘the most difficult situation since the Second World War – perhaps even since the First World War’. The head of the Fitch ratings agency fears a ‘cataclysmic’ collapse of the euro. Sergio Marchionne, the boss of Fiat and Chrysler, has bluntly called ‘the future of Europe’ into question.

The raw fear of Europe’s ruling classes is driving them now. Knowing they can no longer rule in the old ways, their new measures reek of the ruthlessness born of despair. Austerity budgets have been pushed to their limits in terms of economic viability and political acceptability. The tendency now is towards more federalism: European courts, Merkel argues, should be empowered to enforce budgetary rules across the EU, oversee fiscal discipline within national states and sanction those who break the rules. But the disagreements aroused by such solutions have been destabilising enough to worry the credit ratings agencies and will most likely summon the opposition of national electorates.

Meanwhile, old political fissures are exacerbated. In the UK, Tory enragés are taking the opportunity to try to break Britain from its growing entanglement with the EU. The spectre of capitalist failure is haunting Europe.

Creative powers of the bourgeoisie

It was not always thus. The project of a single market and currency, signalled by the Single European Act of 1987 and consecrated by the Maastricht Treaty of 1992, was initially sent aloft on a gust of irrepressible optimism. Representing the culmination of decades of work, ideas, planning and intense political battles, the EU would eventually constitute the largest single economic unit on the planet. According to its champions, such as the British think-tanker Mark Leonard, it was on the verge of becoming a global superpower to rival the US. The next century would be a European century, with Brussels its veritable Olympus. And indeed it would be foolhardy to underestimate just what an accomplishment was the EU, the single currency and the successive treaties that created a dramatic pooling of markets and sovereignty, with remarkably little friction. Even the leaders of the most recalcitrant un-European nation-states, such as the UK, were tempted by the advantages of European unity. In an extravagant judgement, Perry Anderson considered the EU ‘the last great world-historical achievement of the bourgeoisie, proof that its creative powers were not exhausted by the fratricide of two world wars’.

Yet Europe does not embody a community of shared interests. The project of European unification was always riven with antagonisms that would ultimately contribute to its ongoing crisis. Omitted from panoramas of the European scene are the quasi-colonial relations between core and peripheral states, the dimension of class conflict, and the role that pan-European institutions play in such struggles. The core/periphery structure allows the dominant EU states to exploit subordinate ones. Its absence from analysis tends to lead to the sovereign debt crises being explained in glib cultural terms – the supposed profligacy and laziness of the Greeks, for example.

Yet if this relation of dominance within the EU is under-examined, class antagonisms are virtually invisible in mainstream discourse. As Guglielmo Carchedi puts it, the process of European union ‘has been fuelled by European oligopolies under the leadership of German oligopolies’ while ‘the European working class has been locked out as much as possible from the construction of the European Union’. As a result, where organised labour has had an input into the EU’s formation, it has overwhelmingly been reactive and defensive, engaging in campaigns to restrict its development, such as that against the EU Treaty. Nevertheless, these class antagonisms, and the attempt to manage them on terms favourable to capital, has decisively shaped the EU’s development and the form its crisis is taking.

To understand how, it is necessary to trace the EU’s origins to the efforts of European statesmen after the Second World War to create a viable liberal bloc, independent of the US. All of the states that would lead the drive towards unification had experienced the devastation of defeat and occupation during the inter-war period. The politicians who took the initiative had been shaped by an epoch of extensive European empires, and expected these powers to continue as dominant world actors for the foreseeable future. Yet the rapid collapse of the colonial empires left European nation-states struggling against the immense advantages of American capitalism, particularly its vast markets, larger production facilities and economies of scale. The pooling of productive resources and sovereignty was one way of resolving this dilemma.

Franco-German axis

For its principal architect, Jean Monnet, European union was a means of rationalising Europe’s outmoded polities and forms of production, while also easing the friction that had led to two world wars. Monnet’s relationship with US policymakers is relevant, inasmuch as he proactively sought the support of Cold War planners such as Dean Acheson, the Dulles brothers and others. US strategists looked favourably on his ideas, seeing in them the basis for the economic regeneration of Western Europe and unity against the Soviet Union. But Monnet’s objective was not to fashion Western Europe as a bulwark against the USSR. On the contrary, European union was a means to an independent path, equidistant between the US and the USSR. To achieve this, it would be necessary to manage the sources of conflict that had previously dogged the continent.

The European Coal and Steel Community (ECSC), for instance, initiated by the French foreign ministry in 1951 at the behest of Monnet, was a way of unifying French and West German capitalist interests with respect to the coal and steel region of the Ruhr. As a precursor to the Common Market, in principle it aimed to enshrine supranationalism as an impediment to war, while also strengthening liberal statecraft. Stripped of pieties, however, it was a French effort to prevent renewed German expansionism. It also sought to rationalise production in the economic sectors affected, containing the effects of intermittent gluts and shortages. Finally, it sought to stabilise a state system under threat from labour and leftist insurgencies. In the immediate aftermath of the war, communist parties in France and Italy were resurgent. Colonial insurrections were combined with domestic turmoil, particularly in France where a series of militant strikes broke out in 1947 and were crushed with austere brutality by the government. Unity among the core European states was thus partially a means of containing the influence of postwar socialism.

In the new Franco-German axis, France would provide political leadership and Western Germany would serve as an economic powerhouse. The institutions developed by the ECSC, from the High Authority to the European Court of Justice, prefigured the institutional forms that would dominate the European Economic Community (EEC) and later the EU. The EEC, created by the Treaty of Rome (1958), expanded the common market allowing for the free movement of labour, capital and commodities within a number of core states including France, Germany and Italy. A series of institutions were created to facilitate this mobility, such as common policies on agriculture and transport and the harmonisation of laws across nation-states.

At this stage, however, the model was not economic and monetary union. Indeed, France’s political dominance was made clear, as it effectively blocked access for the UK, Ireland and Denmark to the EEC – partially on the grounds that admitting them would turn the common market into a vast free trade area subordinate to the US.

From common market to economic and monetary union

It was the deep crisis of the seventies and the subsequent rowing back from unification that led European elites to fully embrace the idea of economic and monetary union. An epochal crisis beginning in 1973 left European economies seeking to shore up tumbling currencies, socialising private sector losses, erecting protectionist barriers and pumping money into national corporatist projects to regenerate growth. Meanwhile, following the collapse of Bretton Woods, the US was exploiting its position as the sole supplier of international reserve currency. It could allow the value of the dollar to drop, in order to boost exports, without experiencing the sort of currency collapse that would afflict European rivals adopting the same tactic. This was intended to overcome the loss of its global advantage relative to Japan and West Germany, the most dynamic European economy. West Germany’s response was to invest in new technology, suppress domestic demand in favour of export-led growth, and shift production overseas to exploit cheaper labour: a strategy that a reunified Germany has pursued to this day.

But the EEC’s planners also tried to develop a common monetary strategy to restore stability in exchange rates. These efforts culminated in the European Monetary System, and later the Exchange Rate Mechanism. Logically, this entailed the deepening alignment of European economies, as no stable currency system could emerge while nation-states pursued radically different fiscal policies. Parties to the mechanism thus converged on policies of austerity similar to those already adopted in West Germany. France, which had initially sought to revive its economy on the basis of Keynesian nostrums, had adopted austerity measures by 1983. European unification thus reinforced a neoliberal turn, based on a policy mix pioneered in Chile and subsequently rolled out across the US and UK. Profitability would be restored to industry through drastic cuts in wages and the unleashing of financial markets; currencies would be stabilised through reduced consumption (thereby easing inflationary pressures); public spending would be cut and labour organisations weakened; and demand would either be supplemented by overseas markets or stimulated by private borrowing.

Austerity policies (demanding low inflation, controlled wage growth, fiscal conservatism and flexible labour markets) became the bedrock of the Treaty of European Union (1992), and especially the Stability and Growth Pact (1997) that underpins the euro. An exceptionally powerful European Central Bank was created to help enforce these rules.

The project, by this point, was far more than one of economic union. Implicitly, each step in the integration of European economies demanded a further pooling of political sovereignty. In the wake of the collapse of the Warsaw Pact and the absorption of a host of formerly Stalinist states into the European community, the political thrust of integration became more important. Acceptance into the EU offered these states a means of rapid economic expansion after recent stagnation (while also supplying dominant European capital with cheap labour markets). But to qualify, they had to accept not only a plethora of economic and fiscal rules, but also the liberal political structure codified in the EU’s laws and reinforced by its courts. With this centralisation and concentration of political authority in the EU, the logic was increasingly tending towards federalism.

All of this has been carried out among elites with barely a nod to electorates, barring some scattered plebiscites seeking popular mandates for decisions already taken. And, as the case of Ireland’s two votes on the Lisbon Treaty shows, even an unwelcome referendum result can be reversed with sufficient pressure and blackmail. Organised labour has occupied a subordinate role – for example, it was incorporated into the Consultative Committee of the ECSC – but otherwise, popular constituencies have simply been marginalised.

The EU’s liberal champions have never exhibited much concern about its undemocratic character. Even as the Eurozone demands the replacement of elected governments with unelected technocracies in Greece and Italy in order to force-feed the public austerity measures, the note of complacency remains. Worried about the betrayal of democratic principle? Not so fast, says the political scientist David Runciman: ‘it could work’. Democracies are superior (on technical, provisional grounds) to their rivals, but during a crisis ‘the last thing you need is democratic politicians trawling for votes’. Who knows what voters might demand?

Such a purview is certainly worthy of a project that, from inception to denouement, has evinced an organised distrust of the masses.

Europe in chaos

The project of European unification proceeded comfortably along neoliberal lines throughout the 1990s and most of the next decade. The regionalisation of the world economy has underpinned the ‘Europeanisation’ of capital across the continent. The sociologist Michael Useem has described the development in advanced capitalist economies of an ‘interlocking directorate’: a network of directors sitting on the boards of multiple firms and developing a shared general perspective on the business scene. Across Europe, such a directorate has emerged over the last two decades to rival the similar networks connecting the US and UK. In addition to the core European economies were added a belt of new, peripheral states, including the former Soviet satellites. The arduous process of Turkey’s incorporation has not been hindered by any lack of consensus as to its suitability as a member state. Only the latter’s resistance to the de-militarisation of Cyprus stands in its way.

Otherwise, the expansion of the union has been so rapid that, in its way, it almost constitutes an overland empire. It has certainly vied with the US for influence abroad, emphasising its economic strengths, while member states have occasionally supplied military hardware. An example of this was Britain and France’s leading role in organising the overthrow of Libya’s Gaddafi, which helped secure an outpost for the EU amid a turbulent revolutionary process that otherwise threatens European business interests in the Middle East.

Nonetheless, the limitations of this empire, largely political and military, were visible even before the credit crunch and its fall-out. Europe’s ruling classes have lacked sufficient unity to develop a centralised political authority to rival the US, with various attempts to float a Europe-wide defence initiative floundering. Military resources have instead tended to be deployed through NATO, under US supervision. The idea of an EU military force was, apart from anything else, about the suppression of conflict within the union, particularly after the Yugoslav debacle.

The EU is therefore ill-placed to contain future turmoil within its boundaries. The lack of political unity has also thus far retarded the development of a single, centralised stock exchange of a scale necessary to compete with rivals. The development of mass resistance to the Lisbon Treaty, whose provisions were inspired by the European Round Table of Industrialists, illustrated that unification was not taking place in a way that incorporated all classes. Indeed, the success of wage repression across the EU, where the share of income going to labour has fallen on average by more than 10 per cent, is to a considerable degree the result of policies pursued under its rubric.

But the sovereign debt crises following from the financial crash and subsequent recession have exposed the combination of class antagonism and the core/periphery relationship in a dramatic fashion. This can be seen in the way that Greece’s debt crisis has evolved. While Greece is belaboured for its apparent laxity in allowing debt to accumulate under the cover of accounting tricks, the reality is that French and German capital have depended on the country consuming beyond its means. High levels of public and private debt ensured that Greece could function as an export market for German products, without adding to wage pressure. And because Germany could thus maintain a balance of payments surplus, it didn’t have to support consumption domestically through high private borrowing or wage increases.

Attempts to resolve the debt crisis have compounded this unevenness. Protecting the banks has been imperative for European leaders, particularly the powerful financial institutions of the core. There is a logic to this. As the crisis continues, profit rates across the Eurozone have recovered somewhat, but not by means of productive investment. In fact, there has been a slump in corporate investment. Most of the recovery in profitability has been achieved through wage cuts, downsizing and speculation. Thus, instead of the widely advertised Keynesian revival, the neoliberal emphasis on finance-led growth continues to be orthodox among European leaders. EU powers have been far more aggressive in the pursuit of ‘austerity’ than their American counterparts. For this reason, Greece has been awarded ‘bailouts’ to cover payments to financial institutions largely based in France and Germany, while almost all the ‘haircuts’ applied to Greek debts have affected only Greek banks.

In return for these ‘bailouts’, the Greek government has been enjoined to sell public assets worth $71 billion at fire sale prices: public industries, post offices and airports, infrastructure and acres of prime real estate. Public sector wages have been cut by 20 per cent and taxes have risen to levels simply unaffordable for most of the population. Meanwhile, the power of the ‘troika’ within the EU – the Presidency, the Secretary-general and the High Representative – has been demonstrated with their insistence on access to Greek ministries in order to oversee the decisions made by elected politicians. Germany has argued that this monitoring should be conducted on a permanent basis.

Insulating parliamentary decision making from the public is of supreme importance. When the Greek prime minister, Papandreou, proffered a referendum over the most recent austerity/bailout package, EU leaders were aghast. It was a feint, intended to coerce the conservative opposition into abandoning their opportunistic criticisms of the package, but to the EU this was playing with democratic fire.

What future for Europe?

Part of the difficulty for the EU is that its measures are not working, even on narrow technical terms pertaining to growth and debt repayment. The latest decision from ratings agency Standard & Poor’s to downgrade a number of countries such as France and Italy was accompanied by a censure of EU leaders. On the one hand, it charged that they didn’t sufficiently recognise that the problem was caused by ‘fiscal profligacy at the periphery of the Eurozone’. This reflects the financial elite’s desire to transfer the blame for, and thus the burden of, the crisis onto the weakest. On the other hand, it complained that ‘fiscal austerity alone risks becoming self-defeating’, as the resulting collapse in demand would undermine growth and tax revenues, and thus the prospects of debt repayment. The future of the EU is therefore hostage to conflicting imperatives – make the poor pay but not so much that they can’t go on paying indefinitely.

Yet the failure of Europe is fundamentally a political failure. Unable to develop into a superstate or to cohere around a military agenda, it must continue to try to centralise political authority. Nor can it contain its class antagonisms in the way that the postwar compromise partially did. The model of development now proffered by the Franco-German leadership offers nothing but hardship for the continent’s working classes and years of devastation for vulnerable states in the periphery.

The lack of democratic legitimacy may turn out to be the EU’s greatest weakness. In principle, the EU derives its legitimacy from the participation of elected governments, and elected representatives in the EU parliament. But this was never convincing. In practice, the unelected executive – the EU Commission – has always dominated decision making and the Commission has always reflected the interests of industry and high finance. Similar authority has been accumulated by the European Central Bank and the European Court of Justice. But the power of the EU was also mediated by modestly democratic national states. Now, with the EU effectively using its power to gainsay the authority of elected governments and insist on ‘technocratic’ administration, even this limited democratic space is incompatible with its survival and expansion. The question is whether popular, democratic forces within Europe have the wherewithal to propose and implement an alternative.

Where the leaders of the EU have the advantage is in their near monopoly, thus far, on political initiative vis-à-vis their opponents. In Greece and Spain, for instance, popular struggle has taken militant forms. But it has so far been largely defensive and insufficient to face down the combined power of the EU, the IMF and domestic elites. The Left is growing in these countries but as yet, even in these vanguards, a leftist political leadership articulating a viable alternative to the EU has not emerged. The leadership of organised labour is everywhere in a more or less defeatist mood, interested only in modifying the terms of surrender. Despite some promising revival of anti-capitalist organisation after Seattle in 1999, much of the political Left was cannibalised by schisms and sectional rivalry from 2005 onward. And the Left has been at least as disoriented by the global crisis and its unpredictable effects as its opponents.

Yet, events are proceeding more rapidly than they can be accounted for and it would be a complacent European leadership that wrote off the prospects for mass insurgency. Unexpected eruptions of militancy have the capacity to unsettle fixed political calculations. For example, the indefinite strike by Greek steelworkers that has gone on for months in the face of management aggression stirred a movement in solidarity that led to a general strike on 17 January. Austerity measures enforced by the new ‘technocratic’ government of Italy, replacing Silvio Berlusconi’s administration, have provoked shutdowns from government workers and wildcat strikes among taxi drivers. This itself is one of the factors unnerving the ratings agencies, and one of the reasons why panicked EU administrators have so openly bruited their undemocratic credentials.

The union was built on the desire to suppress inter-European rivalry, but is imperilled by serious strategic divisions. It was developed to expand and rationalise production, but is now shaken by its inbuilt irrationalities. It sought to contain socialist and labour challenges, but, through its lack of legitimacy, is arousing the renewal of these challenges. Lastly, it aimed to form a pole of power independent of the US. At the moment, it is difficult to imagine that it will be the power to replace America – or that the twenty-first century will be a European century.

Richard Seymour

Richard Seymour is a writer, broadcaster and socialist based in London. He writes for the Guardian, the London Review of Books, Jacobin and others. His book, Corbyn: The Strange Rebirth of Radical Politics, is out through Verso.

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