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Wolfgang Streeck: ‘Out of the Euro!’

Mike Watson18 March 2015

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The political economist and author of Buying Time argues that 'the unified capitalist economy is destroying European diversity' and that in order to save this ideal, 'the monster of monetary union must be unravelled'. 


If everything goes well, then what has been happening before our eyes in the last few days is the beginning of the end of the European monetary union. ‘If the Euro collapses, then so does Europe,’ said Chancellor Merkel, when it was a question of selling to the electors one of the horrendous ‘rescue packages’ for the European banks. Now we have the very opposite. The Euro is in the process of destroying Europe. If the Euro collapses – and let it be soon! – it may be that Europe actually doesn’t collapse. The outcome is certainly not clear; the wounds that monetary union has inflicted are too deep. 

With the arrival of the new Greek government under Syriza, in alliance with a far-right splinter party, the monstrous project of imposing a single currency on countries with different economies is finally meeting a well-deserved end. What hasn’t been tried! First the grey technocrats from the world of private and state financial bureaucracies, Monti and Papademos, were put in place of elected governments, until they were rapidly shown the door by their democratically minded peoples – Monti, after offering the Italians the election prospect of making them into Germans. After him came Letta, a Europhile functionary, and after Papademos a grand coalition of the two corrupt clientele parties, Nea Demokratia and PASOK, who drove the country into the abyss with help from Brussels and New York. Letta is now just a memory, replaced by Renzi, a public relations agent who is good for anything, while Samaras and Venizelos, the Blues Brothers of Athens, have met their nemesis in the shape of Alexis Tsipras and his new – and new kind of – party. In both Greece and Italy, the age of European obedience is definitively over: national democratic institutions, whatever may be said of them, have kicked out the Brussels implants. And so it will continue, especially if Podemos, Syriza’s Spanish sister party, drives the bottomlessly corrupt Partido Popular into the void. 

If this does not yet mean the unravelling of the monetary union, it at least means the end of so-called ‘austerity’. The professionals are landing in Athens to see off the amateurs. ‘No holds barred,’ as the wrestlers say. Nothing that now reaches the press can be taken as valid Euro tender; the first victim in war is truth. We can only be sure of one thing, that nothing in future will be as before. This would even have been the case if the Greek election had been won by the old parties under Samaras; even they would not have been able to continue the Troika’s Memorandum policy, and said so themselves. For the tricksters in Brussels this may not have meant very much; yet it is not very long since the then head of public relations, in an unguarded moment, demonstrated the – to him – self-evident difference between what has to be said to get elected and what one does afterwards. We now hear that the dismissed Greek government was simply busying itself for months with the old style of creative accounting – perhaps because the civil servants dismissed at the insistence of the Troika were pensioned off without the necessary contributions for this being included in the budget. This time too, of course, the hordes of economists from the EU, IMF and ECB noticed absolutely nothing of what was going on.

No one can tell what will emerge from the negotiations now begun. Syriza is divided over whether Greece should remain in the Euro or exit from it – but even if exit were the goal, it would be clever not to say so. What cards the Greek government can and will finally play will become clear; many things are possible, from a Russian loan to a financial suicide attempt in the shape of a formal state bankruptcy. On the other hand, Italy and Spain, as well as France, swear to stick with the common ‘reform’ and ‘rescue’ policy – yet it is clear that they will also claim for themselves the various concessions that Greece negotiates for itself, supported in the background by the other Mediterranean states. This will be very costly for the north, particularly Germany. Is Syriza a sniffer dog, exploring how far Germany is ready to go in order to keep the monetary union together?

It is possible that the Brussels negotiation artists will succeed in keeping Greece quiet for a while with a combination of rewards and threatened punishments, and in this way see the Euro over the summer. And perhaps this will have the desired side-effect of splitting Syriza and spoiling its appeal to the electorate. But anyone can see today that this will be only a short-lived success. There will just be a pause for breath, even if yet another compromise is somehow or other slipped past the north European voters. A fiscal house-cleaning of Greece, if this should come about, and the then inevitable similar process in the other debtor countries, does not mean any real victory. Even if the Greek economy could be stabilized at its present level, the gigantic disparities that have arisen between northern and southern Europe as a result of the ‘reforms’ – the internal devaluation caused by the de facto gold standard of the monetary union – would remain, and the same applies to Italy and Spain, even if they should make themselves ‘competitive’ according to the recipes of the ECB and EU. The result would be demands for compensation by redistribution or a ‘boost’ to growth in the shape of credits or regional policy structural aid, at least the restoration of the relations that prevailed before crisis and ‘rescue’: a conflict over distribution shifted onto the level of interstate relations. The addressee of these demands would be Germany, along with a few smaller countries such as the Netherlands, Austria and Finland – with France appearing as ‘mediator’. No matter whether demanded and presented as compensation to overcoming the damages of the crisis and its ‘solution’ in the name of European solidarity, as an entry ticket for secured market access or as delayed reparations, the old social and structural funds of the EU would be no more than peanuts by comparison.

This would be the start of a lasting conflict that could break up Europe. Germany and the north could not escape the anticipated negotiations. Decisions would be made within the monetary union, still more than they already are, from the acknowledged standpoint of their effect on international distribution. The countries of the south would have to be compensated for their renunciation of monetary sovereignty and the ensuing possibility of external devaluation, and enabled to attenuate the consequences of the internal devaluation caused by neoliberal ‘reforms’, making up for these over an extended term, simply to prevent an internal political revolt on the part of their citizens or an external one by their governments. The north – Brussels, Berlin – would have to insist, as a counterpart to the funds deployed for growth programmes, regional policy credits or infrastructural investments, on being able to codetermine and supervise the use of the funds. Money against control, in a union of sovereign European nation states! It is predictable that the donors will see the payments negotiated as too high and the controls granted as insufficient, while for the receiving countries the money will seem too little and the restrictions demanded on their sovereignty too far-reaching. 

The fact that this is more than just a temporary problem, in fact no less than a structural one, is shown by the fact that the monetary union spans national societies with very different forms of economy and economic culture, which in turn correspond to different social contracts shaping the interface between social life and modern capitalism. An important element in these political-economic arrangements is their respective monetary regimes, adapted to their environment. There is a growing recent literature on this subject. Simplified into ideal types, its conclusion is that the countries of the Mediterranean space have developed a type of capitalism in which growth is driven above all by domestic demand, if need be supported by inflation, as the outcome of a budgetary deficit or strong trade unions, in a context of high job security and high employment in the public sector. Inflation, in turn, eases the acceptance of state debts by steadily devaluing them. This often goes together with a strongly regulated national banking system, often partly nationalized. In this way, the interests of employees and employers – typically domestic and small-scale – are brought more or less into balance. The price is a steady loss of international competitiveness, which however can be compensated for, given monetary sovereignty, by periodic devaluation of the national currency at the cost of foreign exporters.

The northern economies of the monetary union, and Germany in particular, function differently. Their growth depends on successful exporting, and they are therefore adverse to inflation, workers and their trade unions included -- particularly today, as rising costs can very rapidly lead to a relocation of industrial production sites. They certainly do not need devaluations; as far as Germany is concerned, since the 1970s it has done well with repeated upward revaluation of its currency, typically by enhancing its products and shifting from price-competitive to quality-competitive markets. While the Mediterranean countries, including France, traditionally need a weak currency, countries such as Germany are attuned to a hard currency. This makes them adverse not just to inflation but also to debt, even if the interest that they have to pay on state debts is quite low. That they avoid a loose monetary policy also absolves them from the necessity of having to accept bubble formations in asset markets, and benefits their savers.

A common monetary regime for the (north European) savings-and-investment economies on the one hand and the (south European) credit-and-consumption economies on the other is quite impossible. If this is attempted none the less – and it is an interesting question how a European monetary union could have come about in these circumstances – the two forms of economy cannot profit equally; unless one of them ‘reforms’ its production structure and the social contract based on this after the model of the other. It has been almost forgotten in Europe that the first years of the monetary union were a time when Germany was the ‘sick man of Europe’. At that time, the common interest rate for the Euro was higher than the German inflation rate, and the German political economy, institutionally and economically incapable of inflation, suffered from interest rates that were far too high. At the same time, the Mediterranean space posted inflation rates above the rate of interest and thus benefited from negative real interest rates. Since 2008 and the end of the credit bonanza, i.e. the bursting of the illusions of the financial market as to the German readiness to take over the debts of the south as lender of last resort, and with the fall in the interest rate to almost zero, it is now the Germans who benefit from the common currency. Understandable southern European attempts to soften the Euro with the help of the ECB, and thus find a circuitous route to inflation, debt finance and currency devaluation, come up against an understandable refusal of the northerners to become ersatz credit givers by majority decisions directed against them and pay for the monetary injections without which the political economy of their southern partners could not function.

The structural conflict that appears here, no matter the shifting forms in which it may find expression, will persist as long as the currency union itself. It the conflict does not break the union, because governments persist stubbornly with their ‘frivolous experiment’ or the German export sector, its Euro-idealism nurtured with ideological speeches, believes that it has to see things through to the final victory of its ‘European idea’, then Europe will break up on it. The quickest possible end of the monetary union in its present form is thus above all in the German political interest, if not its economic one. In the countries of the Mediterranean space, even in France, Germany today is hated more than at any time since the Second World War. Election victories here are only won against Germany and the German chancellor, by right and left alike. The January monetary injection of the ECB certainly had one effect: a feeling of triumph in southern Europe over the German defeat on the ECB council. Italy’s hero is Mario Draghi, for all his neoliberal convictions and his past with Goldmann Sachs, as he is seen as having outsmarted and humbled the Germans. Anyone who has lived only in Germany and understands no Italian will have no idea of the emotional devastation that the Euro has caused to the relationship of the two countries.

The refusal of the German press to report the full extent of the rift between Germany and its former European friends is one example among many of its fastidious government conformism, which so damages its credibility. Even old friends on the left, whose clear heads I have admired, now explain to their German colleague that the key conflicts in Europe today are no longer between classes but between nations, with Germany on the one side and the exploited countries of the Mediterranean on the other. A few intellectual levels lower, in the daily papers and TV programmes, Frau Merkel and Germany are associated with swastikas in various ways. Or else the chancellor, in a remarkable political stereotype, is ridiculed by sections of the German left, and thereby validated for ‘European public opinion’, as the ‘Swabian housewife’ – thus ‘mad’ rather than ‘bad’ – who, unlike her supposed opposite, the happy-go-lucky credit-card-waving Madison Avenue shopaholic, has remained hopelessly behind the times. The Germans as party poopers of the consumer society, who have not understood that credit is not the road to ruin, but on the contrary the path out of the swamp, and who therefore refuse to pay other people’s bills, although in the end this would benefit themselves as well. This is the representation in popular culture of the different forms of economy which the currency union has ominously forced into a common monetary regime. That American ‘Keynesians’ such as Larry Summers, who bear joint responsibility for the deregulation lunacy of the 2008 collapse, are still given scholarly credibility, is one of the many ironies of a time in which there is little to laugh about.

Germany’s European collapse is in good part a long-term legacy of the ‘passionate European’ Helmut Kohl. When European agreements threatened to break down over disagreement about the division of costs, Kohl, who as German head of government was responsible more than anyone for the advance of European integration, was ready time and again to pick up the tab. What may have been in German interest on historical grounds was ascribed in political folklore to Kohl’s personal convictions, but none the less roused expectations beyond his time in office. For Kohl’s successors, whether from the CDU or SPD, the interests of the German export economy and its trade unions were sufficient reason to do everything to meet these expectations and if need be finance the EMU single-handed. But this they can no longer do. The deepening of the integration process that was sought by many good Europeans has had as a consequence its politicization and the rise of a European public opinion that has made an end of the ‘permissive consensus’ over integration policy. Otherwise than was hoped and expected, this European public opinion is not one of domestic policy but of foreign policy, in which the dominant factor is conflicts of interest between states and which makes the proclaimed goal of an ‘ever closer union’ increasingly contentious. On top of this, in the currency union, the necessary costs of integration, which it was expected that the Germans would meet in the old way, have become so high that with the best will in the world they far outstrip German possibilities, even if this is not believed by the partner countries, who still have the Kohl era in their memory.

It is possible to find consolation in the fact that the Merkel government, despite stereotypes of swastika and Swabian housewife, would be all too ready to pay a very high price to carry through its ‘European idea’ of a devaluation-free supranational internal market for German machinery and automobiles at the cost of German taxpayers, and the same holds for the assembled opposition in the Bundestag, if on slightly different grounds. The appearance of the AfD in German domestic politics, however, has made this impossible. Since even the permissive consensus always depended on not everything done in the cause of integration being publicly known, the attempt could still be made to conceal German concessions in some kind of technocratic deep-sea mine, a task for which the ECB is particularly suited and for which it has already performed good service. But the politicization of this subject that set in at the latest with the German elections has now made this impossible. The foreseeable barriers to any ‘growth programme’, debt forgiveness or pooling of risks on the one hand, and to rights of control and intervention on the other, have unavoidably appeared in a merciless light of publicity, with cries of triumph and alarm from the respective camps, on the part of the AfD in Germany and almost all parties in the debtor countries.

The European currency union has, in a very short time, ruined Germany’s Europe policy and the successes it had won over decades. If not drastically adapted, it may even have catastrophic geo-strategic consequences. Russia is clearly ready to extend short-term credits to the Greek government if these are refused by the EU, should Greece have the nerve to tear up the past austerity agreements (the ‘Memorandum’) or should the EU threaten to turn off the money tap to a reform-adverse Greece. The same could be the case with a Greek state bankruptcy or an expulsion of Greece from the ECU. If this should come about – if the EU were unable or unwilling to let its hand be forced by Russia – then a peculiar asymmetry would come about: just as the EU, encouraged by the USA, is attempting a foothold on Russia’s western periphery, in the Ukraine, so Russia could conversely work for a bridgehead in Western Europe’s eastern borderland. Each of the two sides would then have to fill a bottomless barrel in the other’s zone of influence (in which connection the Greeks would have cause to wonder why Brussels, Berlin and company, with money to spare for oligarchical Ukraine, could do nothing for a left-governed Greece). Just as the West stretched out its arm to Sebastopol and the Russian warm-water naval base there, so Russia could stretch out its arm to the Aegean, the training – and not just training – ground of the US Sixth Fleet. That would be a return to the geo-strategic conflicts of the early postwar years, which led to the intervention of British troops in the Greek civil war. A nightmare.

With the new composition of the Greek government under Syriza, a moment of truth has arrived for a European integration policy that is out of control, economically, politically and territorially excessive, and driven by finance capital. Never mind the ECB and its 1,200 billion Euro quantitative easing: the chickens have come home to roost. Now there is no longer time to buy, but only to lose. The monstrous currency union must be unravelled, so that Europe is not transformed into a swamp of multinational mutual recrimination, with open borders and in danger of being flooded at any time from outside. Europe as the peacefully shared legacy of commonly created cultural diversity must not be sacrificed on the altar of a unified capitalist economy and currency. The unravelling must be conducted in a socially acceptable way, before the atmosphere gets too poisoned. How this is to happen must become the most important of all European topics. The countries of the south must be allowed a soft exit, perhaps with a south-euro that does not require from them society-destroying ‘reforms’ – and those who at the start of the currency union talked them into bottomless sub-prime credits must confess their guilt as much as those who were conscious of what was happening but said nothing. In place of the artificial gold standard in relations with northern Europe, there must be a currency regime that allows flexibility and excludes arbitrariness. The number of economists, including such heavyweights as the American Alan Meltzer, who demand just this, has grown rapidly in recent times. It is high time indeed for those who understand something of what has to be done to reflect constructively on the details. To paraphrase Mario Draghi: ‘whatever it takes’ – only, not to save the Euro, but to save Europe.

By Wolfgang Streeck

Translated by David Fernbach.

See the original article here.

Filed under: greece