Paul Mason: Europe must 'now either unite and compete or face breakup.'
On January 25th 2015 the people of Greece voted in the radical anti-capitalist party Syriza. Read Paul Mason's analysis of the Eurozone crisis in his preface to Against the Troika below.
The OECD won’t spell it out themselves, but fifty-year projections by their economists in 2014 carried a dire implication: for the developed world, the best of capitalism is over. Long-term growth rates are likely to be suppressed – by low productivity, high ratios of elderly people to young workers and an overhanding debt problem that, in turn, demands greater wage austerity and inroads into the welfare state.
For the immediate future the crisis has created an oversupply of workers and capital, and an undersupply of profits, wages, inflation and growth. And this changes the macroeconomic game. National economic strategy has, for the whole neoliberal era, been premised on the assumption that the global game was ‘win–win’ and the best way to play it was through collaboration.
But, in the seventh year of post-Lehman austerity, that is no longer true. Recession has turned into a long stagnation for the developed world; and with each of the BRIC countries now facing a structural crisis, it is time for policy makers to take a long stare at that fifty-year horizon and rethink.
If growth is dwindling, the imperative for any country becomes, first, to secure a fair share of it and, second, if possible more than that.
And that, effectively is what three out of four major players in the world economy have begun to do: America, through its fiscal deficit, bank bailouts and quantitative easing policy, has cornered most of the growth available to the West; and Japan and China are now locked in an undeclared currency war, each using loose monetary policy to maintain growth.
Only Europe refuses to compete. Its national elites, and the supranational elite around the EU institutions, can only repeat the broken mantras that have led the continent towards stagnation.
The European Central Bank (ECB) has consistently acted late, and conservatively, in the use of monetary policy to mitigate the stagnation crisis. Only in 2012, faced with an existential bond crisis, did it begin to use policy tools unconventionally. Even now, as this book goes to press, it is not clear whether it can bring itself to deliver full quantitative easing.
With fiscal policy, the entire continent is locked in – at Germany’s behest – to a damaging and needless austerity: policy-created output gaps at 2 or 3 per cent of GDP even for the healthiest economies will look – to our grandchildren – like madness. We are facing a century of stagnation so we impose stagnation some more to meet rules designed in a previous era.
The barometer of policy dysfunction is now clear: political discontent. The party political systems in Japan, China and even – for all the shouting – America remain intact. But in many European countries there is now a right-wing conservative nationalist opposition with double-digit support: UKIP, the Front National, the Sweden Democrats. In Spain and Greece, almost out of nowhere, there are radical left parties with a serious chance of winning elections.
In the face of mass unemployment and now the political threat from outsider parties, the complacency of the European elite is striking. They were always the embarrassed underachievers within neoliberalism: the EU was the only free market project in the world saddled with a highcost welfare state and an overt social contract with its workforce. They believed in neoliberalism more than they were allowed to practise it.
So while the US presidency can tough-out one ‘fiscal cliff ’ negotiation after another with Congress, the EU sticks to its own rules, and to a busted ideology, and as a result millions of young people sit at home workless, live with their parents, or occupy their hours with ‘bullshit jobs’ that pay little and contribute even less.
For conservative parties, whose mass base is the middle class, the financial elite and the now vast army of servants that lives inside the rentier bubble, such political crises are survivable. For the centre left it is different. Complacency has proved suicidal.
The Greek Pasok party would rather self-destruct than protect the worker and middle-class electoral base from austerity. The Spanish PSOE had to watch as, from nowhere, a rival, vibrant leftist party eclipsed it. In Scotland the Labour Party faces near wipeout, after it conducted a last-ditch defence of unity with England, while vast masses of young and working-class people wanted independence on a social justice platform.
This is a pallid, talentless, hyper-cautious generation of social democrats. They can’t speak the language of their own traditional support base, the working class, nor of the networked youth who swarmed onto the streets in 2012. And that’s because they cannot see an alternative to austerity.
In this book, the authors present one alternative: managed exit from the Euro and a return to nationally sovereign central banks. They argue that political union and a ‘transfer union’ whereby taxation and spending are pooled, are impossible inside the EU, and that any social justice project must inevitably clash with the European institutions.
For those who, to the contrary, still believe Europe can be reformed to deliver social justice, growth and high-welfare societies, the authors do the valuable service of spelling out what that would take: the defeat not only of the mainstream conservative parties but also of their rightwing, nationalist challengers, and the total transformation of European social democracy in the direction of heterodox, fiscally expansionist economic policy, and the triumph of the as yet untested new left parties.
The years 2015 and 2016 are critical: what happens in Britain, Greece, Spain and ultimately France will determine whether Europe falls apart under the combined pressure of the new right and the unorthodox left. If it survives, then the vast majority of mainstream politicians who want it to are currently wedded to policies that will make that survival synonymous with stagnation, austerity and social disintegration.
Europe’s survival as a project to deliver social justice, sustainable and equitable development and democratic values is now under severe threat. The neoliberal elites of Europe are clustered in the modern Versailles – Davos, the yachting ports and the guarded mansions – oblivious.
Those who want a Europe of fiscal expansion, courageous and unorthodox monetary policy, and aggressive competition with the rest of the world for growth, for people, for high-tech capacity need to be able to answer: what if that does not happen? The authors here spell out the logic: exit, breakup and the reconstitution of social justice projects within nation states, or smaller alliances of nation states.
Nobody wants a ‘return to the 1930s’; but if – as I suspect – the competitive exit phase from the post-2008 crisis has begun, then the lesson of the 1930s is that the last one out loses. Europe has had seven years to resolve the post-Lehman crisis using the old rules and methods, and has failed. It now has either to unite and compete or face breakup. Its own populations will not stand this combination of economic stagnation and political pallor for much longer.
Taken from Paul Mason's preface for Against the Troika: Crisis and Austerity in the Eurozone. To download the ebook with 50% off, click here.