16 March 2012

The Euro Crisis and the Left

“The worst possible scenario . . . is one in which the euro becomes a cause for division and disaggregation”: this was the stern warning Italian Prime Minister Mario Monti gave in a recent speech to the European Parliament at Strasbourg. But rather than serving to unite leaders, it seemed to foster the schisms it had intended to heal. That same evening, Greek President Karolos Papoulias exploded in rage against the “Triple A” club: “But who is Wolfgang Schaüble to insult Greece? Who are the Dutch to do so, the Finlandians? I want everyone to remember that both inside and outside Greece, we have always fought to defend liberty, including the liberty of Europe. And we are ready to fight again for that same inviolable principle.” Papoulias was responding to a speech that Schaüble, the German finance minister, had given earlier, filled with the sort of insouciance that can only come from an unassailable surplus trade balance: “We cannot continue to fund Greece. It would be like throwing money in a bottomless pit.” These were provocative and scornful words, needlessly so, since an accord to give new funds to Greece was reached a few days later ($130 billion by 2014). Nonetheless, they crystallized the feeling of diffidence that a slice of the German public has about the “spendthrifts of the south” (including Italy, Spain, and Portugal).

Papoulias’s incendiary reply reflects the tremendous anger of the Greek population, the majority of which (77 percent according to a recent poll) retains the notion that Greece must remain in the eurozone “at any cost.” The German financiers see Greece through a screen of bond yields, haircuts, and credit default swaps; for the Greek people, more chilling numbers give a truer picture. in 2008, the Greek GDP fell 6.1 percent, and since the beginning of the crisis, it has fallen 16 percent. Since 2009, a quarter of all Greek businesses have gone bankrupt, and half of all small businesses have indicated that they are not in a position to pay their employees. The rate of suicides grew by 40 percent in 2011 alone, more than half of people under 25 are unemployed, and in the streets of Athens the number of homeless grows every week (according to some estimates, it has reached nearly 25,000 people). It is predictable that when a country in such dire condition is forced to impose “blood and tears” sacrifices—such as those demanded by the “troika” of the EU, the ECB, and the IMF in order to open the path to a second bailout—the social contract would fray, and that demonstrations of uncontrolled violence, like those in Athens on Feburary 12, would emerge. While the Greek parliament passed the new austerity plan, protesters at Syntagma Square stirred up an inferno, setting fire to a branch of the Greek national bank and a university library, among other buildings.

Despite the enormous emotional impact of the unending stream of images from Greece, it would be a mistake to treat the Greek case as an anomaly. It is now obvious that the Greek crisis is nothing other than the most striking manifestation of a European economic and political crisis—and it is a crisis of democracy and governance as much as one of sovereign debt. Debt, though, is certainly a problem. After the timid economic recovery that followed the recession of 2009, the fourth trimester of 2011 saw a return of the minus sign in almost all the countries of the Old Continent, even “virtuous” countries like Holland (-0.7 percent) and Germany (-0.2 percent). The forecasts for 2012 are not rosy, either. The EU is projected to have -0.3% average growth f, with -4.4 percent in Greece, -3.3 percent in Portugal, and -1.3 percent in Italy. Meanwhile, across the Atlantic, the economy is returning to a pattern of sustained (if weak) growth—2.8 percent in the last trimester of 2011, while unemployment is at its lowest in four years.

If a country like Greece, whose economy and public debt are marginal entities (2 percent and 3 percent of the Eurozone GDP), can shake a giant like Europe, this is a sign that the giant has feet of clay. Its feet are at the moment planted on the soil of Chancellor Angela Merkel’s Germany, which has imposed its own leadership and political direction on its European partners. In singling out Merkel and her government, however, one runs the risk of singling out nations rather than ideologies; figures rather than policies. Three lines of response to the crisis have emerged over the last several years: one associated with the right; another with the political center; and finally a broader grouping—until now barely listened to or even heard of—around the European left.


The Merkel Line

The Merkel line can be summed up in a single word: austerity. Her crowning political achievement has been the January 31 joint accord among European governments for a new treaty “on stability, coordination, and governance in the economic and monetary union,” frequently called the Fiscal Compact. This new resolution has introduced mandatory balanced budgets (deficits cannot structurally rise above 0.5 percent of GDP) and an obligation to reduce public debt by 5 percent each year, closing the gap between its current level and a threshold of 60 percent of the GDP. (This obligation will weigh especially heavily on deeply indebted countries like Italy, which has a debt-to-GDP ratio of 120 percent.) The German government’s philosophy of austerity can also be found in its firm opposition to the many voices calling for a more active and interventionist ECB and in the draconian cuts to the budgets of countries (Ireland, Portugal, and Greece) that have been forced to accept help from the EU.

The principal defect of the Merkel line is its oppressively moralistic attitude toward the deficit countries. It is wholly concentrated on the internal factors that brought those countries to brink of bankruptcy while paying no attention to the defects inherent in the European system (the responsibility for which certainly does not lie with the Greeks, the Portuguese, or the Italians). This problem with the euro, obvious from the beginning and now the stuff of a living nightmare, is that it lacks a mechanism of re-equilibrium for deficit countries. Deficit countries cannot recover competitiveness by devaluing their currency; meanwhile German exports take advantage of a euro that is much weaker than the Deutschmark would have been under the same conditions. (It has been calculated that, had the euro not been introduced, the Deutschmark would be valued 40 percent higher than the current price of the euro). It’s not an accident that this profound flaw has been described particularly succinctly by a non-European observer, Paul Krugman: “By introducing a single currency without the institutions needed to make that currency work, Europe effectively reinvented the defects of the gold standard—defects that played a major role in causing and perpetuating the Great Depression.”


The Monti Line

One possible alternative to the exclusively austere path outlined by Merkel is the “Priorities for Reviving Growth,” a letter signed by twelve European leaders—led Mario Monti, David Cameron, and Dutch Prime Minister Mark Rutte—to the president of the European Parliament, Herman Van Roumpuy and the president of the Commission, Manuel Barroso. The proposal, notably not endorsed by France and Germany, is focused on implementing internal markets and competition, above all in the service and professional sectors. 

It is this philosophy that inspired the Monti government’s national initiatives, supported by a large coalition of the center-right and center-left. After a first decree aimed at consolidating the budget (“Save Italy”), Monti proceeded with a second decree (“Grow Italy”) intended to liberalize certain sectors of the economy, currently held up in strained negotiations with labor unions over labor market reforms. Still, Monti’s clean break in his “style of governance” from the fresh horrors of the Berlusconi era has secured him international prestige and a considerable amount of consensus among Italians.


The Left Alternative

One can’t sum up the European left’s responses to the crisis in a single platform. But it’s interesting to note the contrast in tone with the Merkel and Monti lines that characterizes the German and French socialist parties’ reactions to the policies of their center-right governments. A recent document co-authored by SDP and the Greens argues that the German government’s national strategy has destablized European markets and  brought the Eurozone to the brink of recession. “Reacting to the European challenge with only a fiscal responsibility program has been one of the most dramatic causes of the growth of the crisis,” they write, all the more so because the German government has tried to keep the grievous results of their policies in Greece, Spain, Ireland, and Portugal hidden from the German public. The SDP and Greens claim that the only way to exit the crisis is through greater solidarity and integration—for example, with some variety of “eurobond” (debt guaranteed in common as a way of “europeanizing” the excess debts of individual states). They say that must be placed on the real economy rather than on financial austerity, and those who are enduring the worst social costs of the Eurozone crisis must be better protected.

To this end the French Socialist candidate François Hollande has put forward a series of proposals in advance of the April elections. Hollande—who has harshly criticized the Fiscal Compact and announced his desire to renegotiate its terms if elected—promises a financial restructuring founded on two pilllars: the dedication of $29 billion to replenishing government finances and $20 billion to financing increased growth and reduced unemployment. It’s a plan that would raise fiscal pressure from 44.8 percent to 46.9 percent; the costs would for the most part fall on three groups: the richest earners; the banks; and large corporations. The Socialist program proposes, among other measures, raising taxes to 75 percent on incomes over $150,000 (currently, the highest tax rate is 41 percent and applies to annual incomes over $70,000); an increase of 15 percent on bank profits (with the additional expectation of separating commercial and investment banks); an overal increase in taxes according to three income brackets; the abolition of the tax exemption on overtime hours; and an emergency plan providing incentives for employing young people in public education, police departments, and the justice system (putting an end to the present freeze on turnover in public administration).  

The polls make clear that Holland has a steady advantage over Sarkozy. Moreover, on March 17 Hollande will sign a common program with progressive leaders, including the secretary of the Italian Democratic Party, Pier Luigi Bersani; the leader of the SDP, Sigmar Gabriel; and the Belgian Socialist Prime Minister Elio di Rupio. Keywords of the document—which has not yet been finalized—will be “growth,” “solidarity,” and “democracy.” And with the German and Italian elections coming up in 2013, the “government of Europe”— now based on the Merkel-Sarkozy axis—almost certainly will change profoundly.

Beyond the social democratic left, one sees a ragged world moved by more radical discourse. The principal laboratory is obviously Greece, where a powerful movement against the EU austerity program goes on, and where parties to the left of the Socialists (mainly the Democratic Left, Synaspismos and the KKE, or Greek Communist Party) are currently polling at 30 percent for April’s elections. “The capitalist system cannot furnish solutions,” declared Aleka Papariga, secretary general of the KKE, in a recent TV interview. “Without popular power, it is not possible to exit the vicious circle of the crisis; it can only take place with the disengagement of the European Union and the unilateral cancellation of the debt.”

Mobilization around the subject of public debt is also taking place outside Greece. In France, an appeal for an “audit of public debt,” for the purpose of restructuring, renegotiation, or cancellation, has already garnered over 600,000 signatures. In Italy, the slogan “debt repudiation” inspired huge protests on October 15 last year, in solidarity with the “Indignati” protests organized in 950 cities that day.

Even if the movements haven’t achieved anywhere near the full extent of their goals, bracingly unorthodox actions taken by the European Central Bank in recent weeks have inadvertently begun to advance their cause. Mario Draghi, the president of the ECB, has organized two huge auctions of $1 trillion in thirty-year loans at the low interest rate of 1 percent, with the aim of creating super-liquidity in the banking system. This move—predictably criticized by the dour Bundesbank—has given new life to European banks and, through bond purchases by the very same banks, to the sovereign debts of European countries. Italy, for example, has recovered more than 200 basis points of spread between the interest rate of its own ten-year bonds and the inimitable German bonds, whose yields are often used as the index of a “healthy” sovereign debt. And now the long-awaited $206 billion restructuring of the Greek debt has taken place, with private creditors taking a haircut of 50 percent. But there is no shortage of analysts—many of them on the Greek left, whose forecasts have been depressingly correct for the last several years—indicating that restructuring will not arrest the spiral of recession afflicting the country nor prevent the inevitable Greek bankruptcy (which, according to some of the same analysts, may in fact have already happened).

How the left—variegated and heterogeneous as it is—will confront this transfigured landscape of debt remains to be seen. But the radicalization of discourse does define the broad spectrum encompassed by the continental left and testify to its powerful demands for democratic participation. And popular protest may already be making its mark on party politics. The forces of reform called “socialist”—which have long modeled themselves on Blair and New Labour’s “third way”—are now committed to remaking their identities in accordance with the cause for which they are named, capitalizing on the errors they themselves committed during the long winter of neoliberalism. The “European social model,” which Draghi declared to be officially dead and which the Socialist parties were on the verge of abandoning, may in fact turn out to be a solution to the crisis.

—Translated by Nikil Saval

Image: Riots in Athens on February 12, 2012.

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