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The EU: From Social-Democratic Dream to Neoliberal Nightmare

Frank Lee Reviews The Left Case Against the EU by Costas Lapavitsas

Britain, in the shape of Conservative Prime Minister Edward Heath, initially joined the EEC in 1973, after Charles de Gaulle’s resignation in 1969. De Gaulle had always been opposed to the Anglo-Saxon axis, regarding the UK as a ‘Trojan Horse’ for US geopolitical objectives, and consistently blocked the UK’s attempted entry into continental Europe. According to DG Britain ‘was not European enough’. With the General out of the way the path was clear for British entry.

However, this was not an altogether popular move with much of the electorate and some quite solid opposition from elements in both main political parties. This being the case the then Labour Prime Minister, Harold Wilson, opted for a referendum on continued membership in 1975 to settle the issue. The electorate voted ‘Yes’ by 67.2% to 32.8% to stay in Europe. As I recall I voted ‘Yes’ and even wrote a pamphlet in support entitled: “EU the unfinished project.”

However, I was then blissfully unaware that the project which I had in mind bore little resemblance to the real strategy of the EU architects. At that time the neo-liberal counter-revolution was still in its infancy and did not really get into its stride until the 1980s. Prior to this there was an interregnum between the ending of the post-war settlement in 1975 and the emergence of the new world order. During this interlude it was still possible to believe in the independence of Europe, national sovereignty, the welfare state and a settlement where an independent social-democratic Europe stood as a bridge between the harsh realities of both American capitalism/imperialism and Soviet Communism.

Alas today the social-democratic, welfare-capitalism consensus is gone, probably forever, to be replaced by the brutal reality of an off-the-leash juggernaut which gives no quarter. Europe is now essentially an occupied zone. An American controlled political/economic/military bloc effectively corralled by NATO as well as other US puppet-facade institutions such as the IMF, WTO and World Bank. And the irony of all this is that the Europeans are not even aware of it.

In Western Europe many have come to accept without challenge the primal role of the US over the affairs of their states and give little thought to NATO except as a foundation to their security architecture. They have been raised and socialised as this as part of their world. In many instances it is not only a normal part of the status quo for them, but it is also invisible for them. This is why the post-Cold war continuation of the Atlantic Alliance went mostly unchallenged at the societal level in NATO member states, leaving the US to slowly consolidate its influence in each and every state.” [1]

Thus, from the outset there was no question of an independent European foreign and economic policy. US interests and strategy dictated that Europe was to play the role of a forward base to counter the putative ‘Soviet threat’. This has all been detailed in the literature including such as Operation Gladio, Lifting the Veil and more recently Gekaufte Journalisten (Bought Journalists). Such was the geopolitical aspect of this American occupation. But Europe – now expanded to include almost all of the former Eastern European satellites and ex-Soviet republics – bought and paid for – were incorporated into the ongoing expansion of the NATO-EU bloc.

Turning to the book itself. In terms of methodology Mr Lapavitsas tends to keep to the economic developments occurring since the Treaty of Rome in 1956. This is made clear from the outset. ‘ … military and foreign policy issues will not be considered in this book.’ Given the magnitude and scope of recent events and given that the book is only 150 pages, this seems a judicious approach.

To say the EU has reached what could be a terminal crisis seems a quite feasible judgement; in fact, the process seems well underway.

The ideological authority of the EU has shrivelled, its democratic credentials have been devalued, its moral standing has taken a series of blows, and its unity has cracked. In 2016, following a bitterly contested referendum, Britain decided to leave. Moreover, rising right-wing authoritarian parties in several other countries have begun to impose a direct challenge to the very existence of the EU.” [2]

How different this seems to those halcyon days of Euro triumphalism ushered in to the strains of Beethoven’s 9th Symphony and ‘Ode to Joy’ when the great EU experiment was hailed as the new civilization. Surely nothing could go wrong? But it did.

The EU monstrosity started life as the seemingly innocent Treaty of Rome established in 1957; this initially incorporating West Germany, France, Italy and the Benelux countries which ultimately grew into a larger and more ambitious grouping. This was more than simply a free trade area as its proponents openly stated. In a speech in Zurich back in 1946 no less a person than Winston Churchill, for one, had spoken of the need to create a “European Family” or a “United States of Europe” to ensure peace in Europe.

The first step along this road was to implement the Schuman Plan, the brainchild of French Foreign Minister Robert Schuman who wanted to create a single body to control the production of steel and coal in France and West Germany, and any other European country who wanted to be a member. And so, the show was to get on the road. After Britain’s accession further members were to join the club.

By 2013 almost the whole of Eastern and Western Europe had become members with the exception of Russia (of course) Switzerland, Turkey, Belarus, Ukraine and Georgia, some Balkan states. Ominously enough many if not most of these states were or were to become full members of NATO. In addition, after the Lisbon Treaty of 2009, EU security policy was aligned with that of NATO. The EU and NATO had become joined at the hip – under US leadership (i.e., control).

A critical event was to take place in the EU in 1992, namely the signing of the Maastricht Treaty, and this was to prove pivotal in the future direction in the grand EU Project.

This treaty was the fruit of long negotiation and debate and its most important was the creation of a future common currency – the euro; it also reasserted the 4 freedoms of the EU, which were already stipulated in the original Treaty of Rome in 1957, namely the free movement of goods, the free movement of capital, the free establishment and provision of services, and the free movement of persons.” [3]

In policy terms this was of course unsullied neo-liberalism. (The only thing missing being the euro – that would come later.)The programme involved the surrender of sovereignty such that nations no longer had control of movements of capital in and out of their country, could not therefore control exchange rate movements, could not control the level of imports or exports, and could not control levels of labour movement. Capital was free to do virtually as it liked with practically no restraints. Governments were to withdraw from attempting to control market forces and leave the economy to central banks who could only control money supply.[4] The liberal virus had crossed the pond and the EU was headed in the direction of Americanization through neo-liberalism and the social philosophy of competitive individualism.

However, fitting a mosaic of sovereign states with different cultures, languages, institutions and wide differentials of economic development was never going to be practicable, and so it turned out. The EU area is not an optimal currency zone and never was. And a one currency, one-interest-rate for all states does not allow for these divergences. As Lapavitsas explains:

First it would be impossible for member states to apply domestic policies favouring particular industries or economic sectors by fixing the prices of inputs, outputs or labour. Second, member states would not be able to adopt an independent monetary policy, and indeed the union would have to form its own central bank. Third, it would be much more difficult for member states to intervene and control economic activity by regulating the quality of goods and work practices. Fourth, the methods of raising tax would become much more homogeneous to prevent the outflow of capital from one members state to another.” [5]

The free movement of capital or liberalization of capital account, which in plain English simply means that states must open up their borders – whether they are in a position to do so or not – to inflows and outflows of foreign capital. Such inflows of capital are not necessarily Foreign Direct Investment (FDI) or other forms of productive financing; much of these capital flows are simply speculative investment or ‘hot money’ usually targeting, property, currencies, or stocks and which have caused mayhem in the developing world. The East Asian crisis of 1997-98 was victim to this visitation which caused havoc to their economies stands as a prime example. In passing it should be noted that China bucked the trend and did not allow ‘hot money’ incursions into its economy and was not affected since it had very strong capital controls.

As if this wasn’t bad enough, we then had the Stability & Growth Pact in 1997. This was, to borrow a term from Max Weber, another lock on the Iron Cage of European Monetary Union (EMU). Briefly stated this arrangement was aimed at framing an alignment of fiscal and monetary policies (‘sound money’) among members of the EU. The SGP meant that members should adhere to strict fiscal discipline which would be enforced and maintained within the EMU. A fiscal policy target for every EU country to stay within the limits on government deficit was stipulated at a budgetary deficit 3% of GDP and sovereign debt-to-GDP ratio 60% of GDP.

Well, in practice not even the French or Germans could manage that, so they just ignored it. The policy itself resulted, ironically, in no-growth and instability. We were back in the days of inter-war period, of Montagu Norman at the Bank of England and what Keynes called the ‘Treasury View’. Back in the days of Secretary of the US Treasury Department, Andrew Mellon, who served Presidents Harding, Coolidge, and Hoover as Treasury secretary and who enjoined them during the onset of the great depression to: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” In short: Stone Age economics

The final nail in the coffin was of course the introduction of the euro. The single currency was launched in January 1999 and was to put final lock on the Iron Cage. Any pretence of a group of equal nations pooling sovereignty was forgotten as one particular nation gradually assumed a quasi-hegemonic status, to wit: Germany. Within the Eurozone there were countries of unequal economic development. If all of these countries were using the euro, those with the highest levels of productivity and lowest costs would start to run a trade surplus whilst those countries low productivity and high costs would run trade deficits.

The gap between the core states Germany, Holland and the Scandanavian/Nordic bloc grew as were in effect using an undervalued currency whilst the southern periphery – Portugal, Ireland, Spain, Italy, Greece were using an overvalued currency. In the normal course of events such imbalances are rectified by currency adjustments – devaluation or revaluation. But that would require different national currencies, but unfortunately there was only one currency. This meant that the deficit countries would be forced into what became known as ‘internal devaluation’ more commonly understood as austerity. In addition to this has been the lack of fiscal transfers from the more developed to the less developed or one state to another.

Fiscal transfers within sovereign states, from Vermont to Louisiana or Surrey to Merseyside, or the North to the South of Italy, is quite normal, but fiscal transfers between sovereign states between, say, Finland and Greece, is more problematic. In the same spirit:

…the lack of mutualization of public debt, i.e., allowing the debt of one-member state to be considered as an obligation of another and proposed to correct it through the issue of Eurobonds’’ … But ‘’The members of the EU have neither the legitimacy nor the desire to carry the costs and burdens of each other’s actions. This is not in the least surprising since among a group of sovereign states that rest on capitalist relations in their domestic economy and society.” [6]

In any event the whole notion of cost sharing was vetoed by the Germans.

Moving on to the centrality of Germany and German economic policy in this shifting economic montage, Lapavitsas draws attention to the gradual increasing dominance of what is the de facto European economic powerhouse. It was perhaps inevitable that Germany would – in economic terms at least – become the regional hegemon in this continental configuration. After all,

…it had a and globally competitive industrial base, pivoting on automobiles, chemicals and machine tools. Its exports enabled it to command vast surpluses on current account thus providing the wherewithal to lend globally.” [7]

Whether this Teutonic pre-eminence was a conscious policy choice on the part of Germany, or merely a policy-drift due to the internal structure of Germany’s post-war policy configuration seems debatable. Germany had certainly bucked the Anglo-American trend of de-industrialisation and financialization which had become de rigueur internationally as a result of the putative ‘efficiency’ of the Anglo-American model. Germany had not deindustrialised, had a smallish stock market compared with other developed states, eschewed as far as possible a system of equity funding and maintained a traditional reliance on bank funding for industry since long term relations were easier to develop among corporations and banks and the internal structure of corporations is not driven by the desire to placate stock markets. Moreover, the German banking system had a multitiered and competitively structured organization which included a raft of smaller and medium sized banks, the Sparkassen, which operated with a local focus. This stood in stark to the oligopolistic banking monoliths of the Atlantic world.

Additionally, there were further reasons why Germany emerged as the EU hegemon. Primarily, Germany did not sacrifice its world class industrial-export sector on the altar of deindustrialisation. But instead adopted and adapted its own variant of financialization while at the same time protected its industrial sector by manipulating its exchange rate to protect exports.

The German manufacturing sector is highly productive, export-oriented and has maintained relatively strong union representation in the wage formation process compared to the rest of the private (domestic) sector which has modest productivity and relatively weak unions. than in other EU countries.” [8]

In the domestic economy, however, Germany was able to restructure wage costs and working conditions with the imposition of the Hartz reforms – a set of policies waged arrayed against German labour which pushed down costs through the implementation of ‘flexible’ labour markets. This gave Germany a competitive first-mover, edge in intra-European trade resulting in an ongoing surplus on its current account. And when one state achieves a (recurring) surplus on current account other states must record a deficit on current account. In this instance this was the southern periphery.

In sharp contrast to the southern periphery the eastern periphery of central Europe was not part of the eurozone which means that they were not ensnared in the Iron Cage of EMU and enabled to keep their own currencies. But heavy German investment in this area produced a core-periphery relationship where low-wage, semi-skilled assembly work was farmed out to Slovakia, Slovenia, Czech Republic, Hungary and Poland. That is the usual pattern of FDI supply chains. High-end production, including R&D was kept at Home Base.

Central European peripheries have come to depend heavily on Germany for technology and markets. If Germany faced a severe recession so would probably be the whole of Central Europe.” [9]

Thus, Germany was to become the overseer of an increasingly neo-liberal order precisely at the time when the 2008 blow-out was to cross the Atlantic and usher in a quasi-permanent period of instability for the whole EU project. The main actors in the future development of the EU were the ECB the EC and the IMF, the infamous Troika. The ECB in particular was the paragon of Banking, monetary and fiscal rectitude. This was underlined insofar as it was domiciled in Frankfurt as was the Bundesbank and was heavily influenced in policy terms by this particular institution.

Given the international linkages of global finance the US crisis – 2008 – was to spread to Europe in the shape of house-price bubbles in Ireland, Spain, and the UK, together with the dreaded derivatives of Mortgage Backed Securities and (MBSs) and Credit Default Swaps (CDSs). This precipitated the crisis of the Eurozone from 2010 onwards. This has been covered in great depth elsewhere as has the Greek crisis, but it is worth noting that the reaction of the authorities was wholly predictable. The IMF’s initial response – who, like the Bourbons, had learnt nothing, forgotten nothing – was true to form, and in line with the of the postulates of the Washington Consensus From the initial analysis, wholly incorrect, the IMF claimed that the crisis was due to a loss of competitiveness by the peripheral states owing to their institutional weakness. The checklist read:

Inadequate fiscal controls on government; weak taxation systems; collective bargaining and protection for workers against firing; extensive public ownership of productive and other resources; restrictive regulations in goods and services markets; bank loans advanced on concessional and even corrupt terms; and so forth.” [10]

This being the case the IMF prescribed the by now its usual universal cure-all for the stricken states. Using Portugal as the IMF template for its miraculous, growth-enhancing, structural reforms we have the following. The IMF/EU decided to reduce public holidays to 4 days per year, provide three days fewer annual holidays, proposed a 50% reduction in overtime rates, and an end to collective bargaining agreements. Additionally, there would be more work-time management, a removal of restrictions on the power to fire workers, the lowering of severance payments on losing jobs, and forced arbitration of labour disputes.

And we’re not quite finished. For good measure there was to be the deregulation of markets. Utilities were to be opened up to competition which usually results in a decline in competition as utility cartels are formed. Pharmacies are to have their margins cut, so small pharmacies will earn less, but there is no reduction of drug prices from big Pharma, the real monopolies. The professions are to be deregulated, so lawyers cannot make such fat fees, but anybody can become a teacher or taxi driver or drive a large truck within minimal or no training. Finally, there follows privatisation of the remaining state entities sold at knock-down prices to private asset companies to pay down debt and enlarge the profit potential of the private capitalist centre. It is more or less the same proposals as Greece, Spain, Italy and Ireland.

Thus, the euro crisis foundered on with the Greek debacle centre-stage.[11] Central to the crisis was the drying up of easy credit from the core states to the southern periphery.

In early 2010 private lenders – mainly German and French – took fright and began to sharply reverse the flow of loanable capital to the periphery, seeking instead to have their older loans paid off. The taps were turned off.” [12]

The response of the PTB was simply to double-down on their policy of austerity. The EMU along with the euro (as international reserve currency) must be protected at all costs (sorry about the pun). It was therefore imperative to protect the interest of the banks, particularly the German and French banks which had been highly exposed prior to the crisis. To this end the regime of fiscal discipline – already integral to monetary union – was imposed. The existing system had to be made stronger and harsher, and, as is always the case, the costs would be borne by those states worse affected by the crisis – primarily Greece – as well as by working people across the EU.

The upshot of these policies was a partial stabilisation of the situation – excluding Greece which was simply hung out to dry – when a number of ad hoc policies including the provision of liquidity by the ECB to private and public banks experiencing difficulties and driving down interest rates close to zero. Other institutional reforms included the creation of the European Financial Stability Facility (EFSF) and the Euro Stability Mechanism (ESM) which provided interstate lending to those countries, Portugal, Ireland, which could no longer raise funds in international capital markets. It should also be borne in mind that in global terms a recovery was taking place at a faster pace than in Europe. However, it still remained the case that no member state, and certainly not Germany would accept direct responsibility for the debt of another. Moreover, Germany was adamant that the policy of ‘mutualization’ of debt – i.e., jointly to share the risk of non-payment by a single state through the issue of ‘Eurobonds’ would not be sanctioned.

All of which goes to show that when push comes to shove sacred principles are sometimes abandoned (albeit temporarily) for Raison d’état. Pragmatism can often have the last word. Such was the case of the UK’s bailout of the Royal Bank of Scotland. Market forces had to be suspended, again temporarily.

Fast forward to the present and the situation has scarcely improved. The term ‘crisis’ whereby a number of states, Italy, Poland, Hungary, Austria, France, the UK are showing signs of open revolt against the increasingly ossified EU is wholly justified. The rebellion has taken on political, economic and cultural dimensions and it has become a moot point whether or not the EU, at least in its present form, can survive. But the $64,000.00 question is can it change its present form? The far right, rightly or wrongly, seems obsessed with the question of immigration, whereas the left is split between the centre-left Remain and Reform camp, favoured by social-democrats and the Varoufakis faction DiEM25, but opposed by the hard-left which eschews any question of reform. Drawing on the lessons of Greece and the hard lessons meted out to Syriza, Lapavitsas gives short shrift to any notions of the Remain and Reform Strategy (emphasis mine).

…the point of departure for a left strategy in Europe ought to be that the EU is neither a purveyor of “soft power”, nor a benevolent or humanitarian force. Rather it is a hierarchical alliance of nation states that have created the institutional framework of a single market relentlessly promoting neo-liberalism…

The determining aspect of European political development remains class relations expressed primarily at the national level…The perception of loss of sovereignty and decline of democracy, general as it is in Europe varies among different countries, as does the underlying class reality. The search for sovereignty and the tribulations of democracy in Europe have reflected these varying class relations within the framework of the EU.” [13]

It seems axiomatic that the centrist bloc of centre-right, and centre-left seem wedded to this juggernaut, notions of reform notwithstanding. If anything, the centre-left are the most partisan exponents of the Remain and Reform strategy. Not only has the centre-left become profoundly conservative in its view of the EU, it has actually been to a large degree integrated into the neo-liberal structures of European capitalism. The political upshot of all this has been an historical class shift of the working class away from the social-democratic parties and in influx of petit-bourgeois identitarians and various other post-modernist constituents.[14]

Moreover, and symptomatic of this, has been the transmutation of the Labour party. What was once a vehicle of working-class interests and aspirations is now a middle-class career structure whose main concerns are with diversity, and liberal notions like universal human rights, unlimited immigration and open borders, not forgetting transgender rights of course. This was illustrated during the Referendum when London including the Home Counties – i.e., that part of the country that benefited most from globalization – voted overwhelmingly for Remain but the rest of England voted for leave, hardly surprising given the fact that these latter were the people who were not invited to the party. At bottom, however, is the nauseating craving for acceptance and respectability from the British and Euro elites by this cosmopolitan social stratum.

So, what is to be done. Lapavitsas states the choice starkly.

The lesson of SYRIZA is paramount in this regard. If the left intends to implement radical anti-capitalist policies and effectively confront the neo-liberal juggernaut it must be prepared for a rupture. There has to be a break, an upheaval, an overturning of prevailing conditions, for things to change in Europe. There must also be a rupture with domestic power structures that have a vested interest in current arrangements, there must also be a rupture with transnational institutions of the EU that sustain the current arrangements.” [15]

True enough. But there’s the rub. My own view is that none of this will happen. Social democrats are adept at rolling-over when the chips are down. Corbyn has been relentlessly attacked by the Zionist propaganda machine in addition to the Labour Friends of Israel, a Zionist front in the Labour party, as an anti-Semite. So, what did he do? Apologised! In addition, the Labour Party in shape of Gordon Brown has accepted the new all-inclusive International Holocaust Remembrance Alliance (IHRA) definition of anti-Semitism.

However, this is a short-term perspective. The crisis will undoubtedly rumble on and intensify with and additional push from the upcoming global financial/economic meltdown. It was the American economist, Herbert Stein, who coined the immortal quote: “If something cannot go on forever, it won’t’’.

References:-

  • [1] The Globalization of NATO – Mahdi Darius Nazemroaya
  • [2] The Left Case Against the EU – Lapavitsas (p.1)
  • [3] Ibid. (p.13)
  • [4] The European Central Bank was founded in 1998 and controlled monetary policy setting interest rates as well as engaging in QE throughout the Eurozone. The UK, Denmark, and a number of other central and East European which kept their own currencies.
  • [5] Ibid. (Lapavistas p.15)
  • [6] Ibid. (pp33+35)
  • [7] Ibid. (p.40)
  • [8] One Currency and many modes of Wage Formation, Hopner and Lutter (2014)
  • [9] Ibid. (Lapavitsas, p.64)
  • [10] Ibid. (p.70)
  • [11] Ibid. (Ch 5), also Looting Greece by Jack Rasmus.
  • [12] Ibid. (Lapavitsas, p.69)
  • [13] Ibid. (p.102)
  • [14] Bebel to Jaures 1893: “When a socialist party forms an alliance with a section of the bourgeoisie, and institutes a policy of cooperation with the government , not only does it repel its best militants, driving them into the ranks of the anarchists, or into isolated action, but it also attracts to itself a swarm of bourgeois of very dubious value.” Quoted in Political Parties, Robert Michels (p.211)
  • [15] Ibid. (Lapavitsas pp.126-127)