Economists debate Europe

Submitted by martin on 23 April, 2012 - 8:25

Current European Union policies will produce "Great Depression conditions for a decade" in southern Europe, predicts economist Engelbert Stockhammer.

This is a longer version of this report than in the printed paper
Stockhammer was the opening speaker in an economists' conference about the crisis in Europe on 19 April at Kingston University, in London. Many of the other speakers were, like Stockhammer, members of the "Euro-memo" network of leftish economists from across Europe.

Euro-memo produces briefings each year arguing against the neo-liberal direction of EU policy and (on a broadly Keynesian basis, though some Euro-memo members are Marxists) for alternative policies.

Trevor Evans from the Berlin School of Economics summarised the current Euro-memo proposals: the European Central Bank should backstop bond issues by eurozone states, so they can use the collective creditworthiness of the whole eurozone; a coordinated fiscal policy across the eurozone, focused on expanding market demand in the richer EU states rather than on shrinking expenditure in the poorer states; an audit of the government debt of hard-hit states like Greece, and cancellation of layers of it; a wealth tax and a wage policy aimed at "levelling up"...

John Grahl from Middlesex University described the current EU policy as "surveillance without coordination" and "a frontal assault on the social models". He explained how, as from 2011, each year the EU runs a cycle ("the European Semester") under which each member state submits its budget and economic "reform" plans and has them approved (i.e. declared neo-liberal enough) or disapproved by the European Commission. A state which sticks to plans reckoned not neo-liberal enough faces a fine by the EU, though this punishment procedure has yet to be tested.

Grahl, however, argued that even EU leaders are aware they are floundering. Especially "if Hollande wins" the French presidency, "the fiscal pact will change... There will be an effort to retreat".

The Euro-memo group's focus on seeking shifts in EU policy contrasts with the arguments made by Costas Lapavitsas and the "Research on Money and Finance" (RMF) group of economists, who say that there is no scope for budging policy EU-wide, and the only way to get ameliorations (again, of a broadly Keynesian type) is for Greece, and presumably other hard-hit states, to quit the eurozone.

They point to the example of Argentina after its default in December 2001 as showing that there would be more scope for beneficial economic change outside the eurozone.

Lamentably, I think, most of the revolutionary socialist left has ignored this debate, focusing only on country-by-country tactics to resist country-by-country cuts. AWL has argued that the activist left across Europe should advance transitional demands on a European scale - expropriation of the banks, social levelling-up. We should also examine whether it is in fact true that euro-exit would allow more scope for limited workers' struggles to win limited gains and thus to have better chances of escalating, or whether even limited struggles have better chances of forcing concessions and of escalating if focused on the European level.

Although some members of the RMF group were at the 19 April conference, Costas Lapavitsas was not, and there was no open debate on the strategic issue. Trevor Evans declared that "leaving the euro would be catastrophic for Greece", and the statement went unchallenged.

There was, however, debate about whether the current EU policies are simply "stupid" or express substantial if destructive capitalist interests, and that is relevant.

Several economists at the conference thought the policies simply stupid. It is not necessary to go that far. If the policies are, as John Weeks (SOAS) put it, "a conspiracy carried out stupidly" - shaped by class interests, but shaped blunderingly and short-sightedly, and with elements in the ruling classes half-aware of that - then that implies that strong workers' struggles, even initially without much coordination, even initially in only a few countries, could shift the options.

A dense and heavily-researched presentation by Daniela Gabor, in terms of theory the highpoint of the day, sought to show that even in their own terms, current European Central Bank (ECB) crisis policies, geared to lending banks cash on easy terms for defined periods, cannot stabilise financial markets. The banks still eventually need "marketable collateral" - financial assets which they can use as proof of creditworthiness in financial markets.

Traditionally they have used government ("sovereign") bonds as their "best", most trustworthy, financial assets, and they still do. Current ECB policies "cannot offer effective solutions for preserving sovereign bonds as marketable collateral". Even in its own frame of reference, the ECB should do what it has so far refused to do: act as a "lender of last resort", a financial backstop, for governments in the eurozone.

Trevor Evans argued that there is no "strategy to impose German domination on Europe". It is difficult to see how EU policies could be just a matter of such a striving for domination, since no policy can win a majority in EU bodies without many non-German votes. However, Evans said, the "extraordinary level of fiscal conservatism" in German ruling-class circles has been a major constraint on EU policy.

Evans attributes that conservatism not to the German ruling class being somehow more neo-liberal than others in the EU, but to the longstanding influence in German economic thinking of the "ordo-liberalism" of Walter Eucken, formulated after World War Two, inspired by Protestant Christianity, and advocating regulation of the institutions of a market economy but free play for the markets themselves.

A recent criticism by the German business magazine Handelsblatt (29/09/11) of the teaching of economics in German universities, however, paints a picture similar to English or American universities.

"The students swot up on macroeconomic models with no finance sector and analyse the behaviour of completely rational actors in perfectly functioning markets... In the course on monetary theory there is nothing on the actual monetary policy of the ECB..."

Some findings reported at the conference point to class interests behind the EU policy. An increase in German wage costs would hurt German exports. Germany sells a smaller proportion of its exports within the eurozone, and a much bigger proportion of exports to China, than other central eurozone states; and it is much more dependent on exports than other large eurozone states.

That helps explain why Germany takes the lead on neo-liberal policies. The core interest, not specifically German, may be best explained by a comment in December 2011 by German chancellor Angela Merkel. The priority, she said, is "to show Europe is a safe place to invest", i.e. to attune public policy to the interests of footloose global capital.

That means using the crisis to smash wage and social-overhead costs and to restructure labour markets; and keeping up the euro's exchange-rate.

Yet the ruling classes want to keep the euro; and are not committed by iron law to any precise level of cost-cutting in the crisis.

The working classes of the worst-hit countries have more scope within the eurozone to begin to claw back ground, not less, and euro-exit should therefore not be a first-line policy.

Labour movements in the worst-hit countries cannot, of course, accept the conditions currently imposed by the EU. They must therefore defy the blackmail and stand firm if EU leaders force default and euro-exit rather than by conceding on demands for EU-wide change.

That is a different matter from setting euro-exit as the left's own first objective, and correspondingly posing immediate demands in terms primarily of national policy.

Both principle and realistic assessment indicate a focus on Europe-wide demands and Europe-wide working-class solidarity.

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