The euro, as the new Research on Money and Finance (RMF) report shows, was mismanaged from the start because of political constraints.
“The euro is not simply a common currency devised to facilitate trade and financial flows among member countries... it is an international reserve currency... a form of world money”.
It was shaped in the 1990s, amidst the wave of capitalist triumphalism which followed the collapse of Stalinism in Eastern Europe and the USSR in 1989-91, and the subsequent strutting of the USA as hyperpower. The euro-leaders pushed it through fast, skating over difficulties and hoping they would dissolve over time, the better to create an integrated economic space which could draw in Eastern Europe.
The euro is the world’s second most important reserve currency, though way behind the US dollar. To uphold that status, the European Central Bank was given an odd shape.
Formally, its only mandate is to defend the value of the euro, keeping inflation low. It does not have the mandate which other central banks have, to be “the lender of last resort” in crisis. At the same time, it is less secure, because it does not have a unified state, with tax-raising powers, behind it.
The euro has also, so the RMF argues, been “a means of establishing a hierarchy among states and ultimately a weapon of imperial power”, essentially of German hegemony.
The ten-year trend behind the current crisis was one of growing trade surpluses for Germany and trade deficits for the “periphery” of Europe, matched by growing borrowing by governments and capitalists in the “periphery” from banks in northern Europe.
The imbalance was systematic and growing, because the competitiveness of capital in the “periphery” declined relative to German capital.
Productivity in each of Greece, Portugal, and Ireland rose faster between 1995 and 2009 than productivity in Germany; but wages grew much faster in the “periphery”, and thus unit labour costs there increased faster than in Germany. This led to a crunch where the countries of the “periphery” are crushed by debts to German and other north European banks, and face imperious German demands to beat down the living standards of their working classes as condition for “bail-outs” which are, in fact, bail-outs of northern Europe’s own banks.
Banks in the eurozone are “international when it comes to liquidity, but national when it comes to solvency”. They can get cash only from the European Central Bank.
But if they can’t pay their debts, then the ECB will not save from collapse. Their national government has to do that.
Thus the crisis since 2008 has led to banks being more closely linked with their national governments. Banks and governments are now locked in a sort of dance of death.
That is the picture painted by the report. It is true as far as it goes, but it seems to me one-sided, and one-sided in a way that gives the false impression that exit from the eurozone would release Greece (and presumably other smaller countries) into an altogether friendlier environment where they would have greater clout and autonomy.
Capitalism is dog-eat-dog both inside the eurozone and outside. Germany is hegemonic in the eurozone. But German capitalism, once it had managed the reunification of its country, was always going to be the leading force in Europe. The eurozone has given a particular shape to that hegemony, but it has not erected it out of previous evenness.
Greek, or other “peripheral”, capitalism would not have flourished better outside the eurozone. Other weaker European economies, not in the eurozone, such as Hungary, have suffered as much or worse in the crisis.
Between the introduction of the euro in 1999 and the onset of crisis in 2008, Greece’s income per head (on PPS calculations) increased from 68% of Germany’s to 80%. Spain’s increased from 80% to 90%. Ireland’s increased from 105% to 115%. And, as the RMF report notes, productivity rose much faster in Greece and Ireland than in Germany.
The report presents the neo-liberal structures and rules of the eurozone as rigid, solid, and unbudgeable however well the labour movement mobilises, whereas it suggests that countries outside the eurozone would melt into what it calls “progressive” policies just by default and exit.
Oddly, it suggests that the structures of the EU could become more fluid and subject to partial reshaping under working-class pressure, but only if Greece first quits the eurozone. The report specifically does not recommend Greece quitting the European Union (as distinct from the eurozone), and thinks it “likely that progressive Greek default and exit would lead to rapid change in the EU” for the better.
No concessions will be won, from the EU, from the eurozone, or from a euro-exited Greek capitalist government, without labour movement mobilisation.
But once mobilisation is underway, and if it is focused and clear, there is probably more space for winning concessions from the eurozone leaders, who are both alarmed and rich enough to afford concessions, than from a euro-exited Greek capitalist government impoverished by a huge flight of capital and scrabbling to hold its own in global markets.
Working-class policies before “exit” policies
The RMF report argues that default and exit by Greece are likely in any event. They could be “creditor-led”, i.e. forced on Greece by the banks which it owes money to and the states behind them.
Or they could be chaotic, leading to “social disintegration” in Greece. Or “conservative”, led by right-wing forces, and resulting in “an authoritarian polity atop an economy characterised by successive devaluations, poor growth outcomes, and worsening income distribution”.
“Yet”, the report says, “there could also be ‘progressive exit’.” It spends many pages on argument as to why default and exit could be less damaging (in terms of inflation, difficulties of getting the drachma accepted even within Greece, inability to import essentials, etc.) than other economists have reckoned, but it agrees that exit could fail to be “progressive”.
It is vague about the agency that would make exit “progressive” rather than “conservative”. “It would be necessary”, the report says, “to adopt a broad programme including, at the very least, public ownership and control over financial institutions... and total restructuring of the state in a democratic direction... in essence... a transitional programme for the Greek economy... in the direction of labour ascendancy”. (This programme includes a comprehensive reform of the Greek tax system, which at present is full of exemptions disproportionately used by the rich, but, oddly, not a reduction in Greece’s military budget, proportionally the biggest in Europe).
It would be necessary... for who to adopt this “transitional programme”? The report never says. It appears to envisage “a progressive government” of some sort of leftish bourgeois forces “that drew strength from popular support, particularly from organised labour”.
The Greek left and labour movement should be directed towards establishing their own “transitional programme” and “labour ascendancy” first, as a precondition for default and exit being incidentals in a move forward, rather than towards pushing “default and exit” as their first priority, and hoping it will “trigger” some otherwise bourgeois government into “progressive transformation”.