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Architectures of a new Europe

What can be done about austerity, the crisis and democracy in Europe? (or, Is social democracy in Europe – or in one country – even possible any more?)

red vienna

In the early 1920s, the Social Democratic administration of Vienna engaged in an ambitious and internationally acclaimed programme of public housing construction.

 

Amongst those united in horror at the social and economic savagery of the austerians, there is nevertheless a sharp division on what is to be done about the European Union and I want to flush this out into the open.

I’m going to lay down my own thoughts on the matter, but I want to stress that at this point, my opinion remains quite tentative, and submit these thoughts more as an effort toward finding a position rather than at declaiming ex cathedra What Is To Be Done.

On blogs andTwitter, in journals, on the street, on the slogans on placards and banners, and in meeting after meeting, two broad and opposing positions are taken. I largely disagree with both, although both raise valid points. In summarizing the positions, I hope I am not mischaracterising any parts of the arguments. If so, please correct me below the fold.

 

The ‘Possibilist’ position

On the one hand, there is the argument that while the EU may currently be a wretchedly neo-liberal and less-than-democratic structure, it does not have to be this way, and it can – indeed must – be radically reformed. Let us call this ‘good EU’ perspective the Possibilist position due to this its partisans’ belief that a thoroughgoing progressive reform of the EU institutions is possible. (It could also be read as a nod to the 1882 gradualist faction of the French Workers Party – one of the precursors to France’s modern-day Parti Socialiste – that argued for an approach toward social justice that emphasised achieving only what was possible)

How this reform of the EU’s structures can come about, other than via the roughly simultaneous election of a majority of social-democratic governments in the EU, giving the centre-left control of the European Council/Council of Ministers, is left ill-defined. Beyond the problem of having to wait a long, long time for such an unlikely alignment of planets, we can actually point to a lengthy period in the late 1990s when social democrats did in fact control most of the major parliaments of Europe, but to no noticeable effect.

The other problem with this position that I can see is that even as it begins to concede that there may be structural problems with the European Union, it places the fault ultimately with Christian Democrat/conservative dominance of the European institutions rather than something intrinsic to the European project as it has always been conceived.

The partisans of this position range from those left-wing supporters of French President Francois Hollande who wish he would be a bit more forthright, to leading members of Syriza who may reject the troika but remain vague about membership of the euro.

As a result of breadth of this ideological spectrum, it would be incorrect to describe the Possibilist position as simply coterminous with social-democratic and social liberal critiques of the EU’s crisis-response policies, although many social democrats and social liberal critics of austerity are indeed Possibilists, but more on this shortly.

 

The Neo-Gaullist position

The opposing argument maintains that European integration has always been an elite-driven project and that particularly since the Maastricht Treaty, the EU and eurozone have developed such a steadily ratcheted up neo-liberal ‘constitutionality’ (that is: a free-market-fundamentalist orientation that can be tightened but not loosened), and institutional structures that are ever more technocratic rather than democratic and equally difficult to walk backward, that exit from the euro and even abandonment of the European project and return to national democracy is essential.

As with the difficulty of pigeon-holing Possibilism, it is also not correct to categorise this second position as simply the more ‘radical’ anti-austerian position, even though it is the position of many socialists and of the not insignificant Communist Parties of Portugal and Greece.

This is because this second position is also the perspective of national sovereigntists of an otherwise roughly middle-of-the-road social democratic persuasion, such as the UK’s trade-union-backed but tiny No2EU party and the more sizeable Scandinavian left-wing eurosceptic groups.

And such euro-rejectionist ideas are steadily gaining support well beyond the usual suspects. Portuguese economist Joao Ferreira do Amaral published a best-selling book last year promoting euro exit, a position now backed by the country’s chief justice, and the late Gaullist Philippe Séguin, former president of the French National Assembly and minister under Chirac consistently held to this position till his death in 2010.

Due to this emphasis on national sovereignty rather than a class-based but Europe-wide internationalism, and due to a need to give this argument a short-hand term, let’s describe this position as ‘Neo-Gaullist’. Gaullism, named after France’s post-war centre-right sovereigntist president Charles de Gaulle, is a philosophy of the right that emphasises national sovereignty but that nevertheless looks to strong government intervention in the economy and emphasises an ethic of noblesse oblige toward the ‘popular classes’.

 

Conservative euroscepticism

Right-wing eurosceptics also take a position backing withdrawal from the EU, but it need hardly be said that most of these characters, being of a market-fundamentalist persuasion, entertain less of a concern for the victims of austerity.

(Most, but not all conservative eurosceptics. And we should not dismiss out of hand criticisms of the EU simply because they come from such quarters. The question should always be: are the criticisms legitimate? It is noteworthy that some of the most piercing and richly evidence-based criticisms of austerity and EU post-democracy have come from the right, notably the Daily Telegraph’s Ambrose Evans-Pritchard)

However, as my primary concern is whether social justice is feasible under the current European framework, and that is hardly the primary concern of the eurosceptic right, I’m going to leave aside this third discourse, and focus instead on just the ‘Possibilist’ and ‘Neo-Gaullist’ positions.

 

Return to national sovereignty?

Brussels-based binational reporter Craig Willy, a self-described American liberal (what on the continent would be called a ‘social liberal’) and French ‘social Gaullist’, has done an admirable job in condensing the latter argument in a 2013 essay to which this article is in part a response.

In essence, he says that policy independence is impossible within the euro. Stimulus is now in essence forbidden. Overturning this is almost impossible democratically, as it would require a majority in the Council of Ministers/European Council committed to a project of neo-Keynesian reconstruction, and, as there are no general elections to this ‘European senate’, there is no opportunity for Europeans to ‘vote out the bastards’ and overturn the current policy.

Additionally he argues, because of the ‘constitutionality’ of permanent austerity, from Maastricht to the Fiscal Pact, such a reversal would require a treaty change, which would entail effective unanimity amongst states. Moreover, a European social democracy would require a true political and fiscal union, involving fiscal transfers of 5-10%, a federal budget and treasury, with EU-level progressive taxation, borrowing and spending. This in turn would require a revolution in the public’s mindset about Europe in the major eurozone countries, in particular in the largest economy, Germany, where public opinion is strongly behind Merkel and the Berlin narrative of a frugal north and feckless south.

All of this is completely unrealistic, showing that multi-national democracy cannot work. Only with a return to national democracy is there a possibility of change, as – in theory – all you have to do is vote in a new government, a much more realistic option. Willy stresses that none of this need involve any appeal to national chauvinism. It is just an honest recognition that a socially just and democratic response to the economic crisis is impossible outside of a break-up of the EU.

Given the effort over the last few years in my writing that I’ve put into cataloguing the post-democratic nature of the EU and its austerian crisis-response, one would think that I would demur from the Possibilist position and support instead the Neo-Gaullist line.

Certainly, I have abandoned all hope that I once had of the possibility of EU democratic reform, and so I concur that the Possibilist option is in fact impossible.

But however difficult the prospect of a democratic United States of Europe may be, social democracy in one country is no longer possible either, if it ever was. A recovery of national sovereignty would find the popular will no less circumscribed by capital, by undemocratic forces than it is within the EU.

I want to argue that we need to break out of this binary of ‘reform the EU’ or ‘reject the EU’. I am coming to believe that the only path out of the current unpleasantness is the construction of a United States of Europe, but – and this requirement is absolutely non-negotiable or it will not work – it must be from the ground up, by European citizens themselves, not imposed from above.

 

What permitted the construction of post-war social democracy?

To grasp why this is the case, one must have an understanding of what conditions permitted the construction of social democracy and the Keynesian turn in economic policy in the first place. Those conditions do not exist today at the national level, and it is unlikely that they ever will again.

Here I offer a potted and very, very brief history not of social democracy per se, but a brief sketch of the social, economic and political conditions that permitted social democracy’s creation in Europe and America*. I make no mention of Republican Spain, France’s Popular Front or Ramsey MacDonald’s pair of British premierships not because they are not important, but because they were failures. (If I had more space and time, I would in fact delve into these, as well as more about the role model that was 1920s Red Vienna and, from the previous century, Bismarck’s social legislation that was a key part of his Revolutionary Conservatism, but this is an essay, not a book)

First off, let’s remember that the first genuine ‘Keynesian turn’ – in form if not by name, initially occurred not after World War Two, but under Mussolini and Hitler. Between the manifest cataclysm of laissez-faire capitalism and the uncertain promise of Communism, it was the corporatist innovations of fascist economics that prefigured the Scandinavian, Swiss and American demand-management economic policies a few years later which were then embraced across western Europe after the war by governments of both left and right.

Both fascist governments were able to overcome economic crisis by stimulating aggregate demand through massive investment directed by state agencies and the establishment of extensive and generous social programmes. Italy saw the establishment of work creation programmes involving house construction, marsh draining and highway, canal, railroad infrastructure roll-out. Government assumed control of credit allocation, with the fascist regime’s Istituto per la Ricostruzione Industriale in this period ultimately controlling 77% of pig iron production, 45% of steel production, 80% of naval construction and 90% of shipping.

When private capital was frightened of investing, the state became the investor of last resort. The regime also oversaw banking reform and nationalised the Bank of Italy. It also introduced the 40-hour work week, health insurance, paid national holidays, disability and old-age pensions, maternity benefits, and leisure-activity subsidies. State expenditure doubled between 1922 and 1933.**

Meanwhile in Germany, when we ask ourselves how it is that so many people could tolerate the totalitarian barbarism of the Nazis, we have to understand that for many ordinary Germans who were not from minority groups or the left, the daily experience was not one of terror, but, as Gotz Aly argued in a 2005 essay in Der Spiegel, a ‘warm and fuzzy’ or ‘feel-good’ dictatorship: ‘Die Wohlfuehl-Diktator‘. Employment returned through a similar stimulation of demand, while the regime delivered family and child supports, decent pensions, free access to higher education and even cheap tickets for the theatre and concerts. There was an economic leveling and even social mobility. The well-being of the national community, ‘volksgemeinschaft’, was all-important. Life was indeed better.

But this all this was made possible not just by high rates of corporate taxation, near-autarkic capital controls and the state assumption of investment decision-making, but also ultimately slave labour (by Jews, eastern Europeans, political dissidents, homosexuals and POWs – amounting to 20 percent of the German workforce at its peak) and the conquering and economic draining of other economies.

Meanwhile, fascism also promised and delivered an end to the widespread class conflict of earlier decades. Independent working-class institutions were obliterated. Business leaders embraced what had previously been seen as fringe parties due to the social peace they imposed. Fascism is at base a response to crisis and strife.

 

Folkhemmet and Arbeitsfrieden

Scandinavia in this period had also been the site of recurrent labour unrest. Labour relations in Norway and Sweden were home to strike rates amongst the highest in the world, and frequent violent clashes. The worst of which, a paper-mill strike in Adelen in 1931, was suppressed by the army. In 1938, fearing further violence and radicalisation, and the socialism that was around the corner, a historic compromise between labour and capital was reached at Saltsjöbaden. For similar reasons the Arbeitsfrieden (labour peace) agreement was achieved in Switzerland in 1937.

A similar social and economic reorganisation, with local particularities, to what had been pioneered in the fascist countries was adopted. In Sweden, as the late historian Tony Judt pointed out in his magisterial history of Europe since World War Two, Postwar, Swedish social democracy’s concept of the ‘people’s home’ – Folkhemmet – was appropriated from the nationalist political theorist Rudolf Kjellen, who in turn was inspired by the social-reformism of Otto von Bismarck’s conservative Realpolitik. Via Kjellen’s concepts of folk not klass, as Judt argues, Sweden’s Sveriges socialdemokratiska arbetareparti was able to undercut the right’s communitarian appeal and neutralise support for fascism.

Sweden certainly benefited from an economy that had not been devastated by war as other western European countries had been in World War One, leaving it more room to manoeuvre, but she also benefited directly from the upturn in the German and American economies, which had also embraced a demand-management approach.

Under the New Deal, the US Treasury embraced deficit public spending while labour and capital reached a ‘Grand Truce’ akin to Saltsjöbaden in Sweden and the Arbeitsfrieden in Switzerland.

Although some of the bright young things recruited to the US Treasury may have been Keynesian true believers, Roosevelt himself was no idealist. The president had concluded that governments had no option but to turn away from laissez-faire liberalism for a brief period in order to stave off revolution.

Canadian economists Leo Panitch and Sam Gindin in their recent history of the construction of the international postwar economy, The Making of Global Capitalism, uncovered a remarkable quote from the US president, writing in a letter to a friend that there was “no question in my mind that it is time for the country to become fairly radical for at least one generation. History shows that where this occurs occasionally, nations are saved from revolutions.” The authors note that he admired the ultimately doomed municipal social democracy of the experiment of Red Vienna in the 1920s and its public housing projects for having “probably done more to prevent Communism and rioting and revolution than anything in the last five years.”

And indeed, as the war ended, in many parts of the continent, ordinary people were armed, with millions expecting that the world that would be built after the conflict would be radically different and were taking things into their own hands.

 

Social democracy as vaccination against socialism

In the absence of government, and following desertion by factory and land owners, local committees were set up to administer workplaces and neighbourhoods, organise food supplies and maintain order — often a rough justice toward collaborators. In 1944, a popular insurrection in Ragusa, Sicily, was put down by the army, and in 1948, a three-day general strike crippled the country.

While arriving Allied armies worked to disband these councils and committees, US forces cabled home to report their deep concern at the disturbances that they feared could quickly evolve into revolutionary situations. Their own forces were not immune to the rebellious sentiment. In 1946, a thousand US GIs in Paris protested down the Champs-Élysées and a New York paper the same year fretted in a report from Nuremberg that American soldiers had been infected with “strike fever”. Across the continent, Communist Party memberships soared. And of course civil war in Greece broke out between Communist partisans and nationalists, with Britain backing the fascists that not months before had been the enemy. Socialism once again was a greater fear than fascism.

It was clear that, as British Conservative MP Quentin Hogg told the House of Commons as early as 1943: “If you do not give the people reform, they are going to give you revolution.”

And so we find that the post-war welfare state, full employment and concomitant high-wage truce with labour was constructed as much by parties of the right as by social-democratic governments.

The 1947 programme of Germany’s Christian Democratic Union declared: “The new structure of the German economy must start from the realisation that the period of uncurtailed rule by private capitalism is over.” It went on to argue that the “capitalist economic system” had not served the German people, and called for a “new order built right from the ground” based on “an economic system of collective ownership”

And the 1944 manifesto of France’s Christian democratic Popular Republican Movement backed what it described as a “revolution” to create a state “liberated from the power of those who possess wealth”. It backed the nationalisation of industry and the banks and supported the programme of the Conseil National de la Résistance, which envisioned a social democratic planned economy after liberation. In France, it was Gaullism rather than social democracy became the dominant force, but Gaullism was just as committed to demand management as its left opponents.

In Austria, the Socialists and the conservative People’s Party reached an understanding that was intended to prevent the sharp class conflict of the decades before the war. This delivered child care, unemployment insurance, public pensions, child support, universal medical provision, public education and subsidised transport. While it had experienced a typical Western European welfare state for decades, it was not actually until 1970 that the country saw its first left-wing chancellor, Bruno Kreisky.

In the UK, as in Belgium and the Netherlands, it was indeed their Labour Parties that built the welfare state, with demand-manipulating fiscal policy, progressive taxation and some level of nationalisation, with as much cooperation as opposition from the mainstream right. As James Meek writes in an extensive essay in the London Review of Books  on the history of public housing in the UK, “the Tories started a race with Labour over who could build more houses.” Conservative prime minister, Harold Macmillan at one point said: “Toryism is paternalist socialism” and advocated a “planned capitalism” with substantial public ownership.

Certainly what aided the process on the continent was that the old conservative political class leading Europe had been utterly discredited by its association with fascism. The new Christian Democratic parties were composed initially of anti-fascist Catholics, some of whom had been partisans alongside Communists and socialists, allied to Christian trade unions. With the old order razed to the ground, amid the rubble, a new order could be built, even if the traditional right would quietly come in from the cold to absorb these parties in the years to come.

And of course, it was that grand American villain of the right, Richard Nixon, who famously proclaimed: “We are all Keynesians now.”

This is not to say that there were no differences between social democrats and Christian Democrats/conservatives. Compared to the cosy consensus between today’s centre-left and centre-right on economic questions, even amidst the post-war Keynesian consensus, the contrast in party programmes and delivery was stark. Just to take the example of Austria, the first ‘Red Chancellor’ Kreisky oversaw the extension of employee benefits while cutting the working week to 40 hours, decriminalised abortion and homosexuality, legislated formal equality for women and introduced maternity leave. He also extended public ownership to the point where Austria had one of the largest nationalised sectors outside of Communism.

But the point is that Europe had to pass through decades of war, violent class conflict, revolution and holocaust, for there to be cross-party consensus that mass unemployment, what they believed to be the catalyst of all this strife, was a treacherous menace that had to be avoided despite the not insubstantial cost of the welfare state and high wages.

This is where the welfare state came from: Not from enlightened social democrats on high, but from grubby conservative elites petrified that if they didn’t do something pretty radical, they would lose everything.

It is a cliché to make reference in political writing to the words of the nephew of Don Fabrizio Corbera, Prince of Salina, from Giuseppe Tomasi di Lampedusa’s 1958 novel about the Italian Risorgimento, Il Gattopardo. But the epigram is only really accurate as an allegory for the historic compromise of the capitalist class after the war: “Unless we ourselves take a hand now, they’ll foist a republic on us. If we want things to stay as they are, things will have to change.”

 

Another condition that is missing

Next, it is crucial to understand that the construction of the western European welfare state could not have happened without the encouragement, orchestration and ‘seed capital’ of the United States.

Panitch and Gindin describe this process as ‘Internationalizing the New Deal’. The US needed a restored Europe, according to a 1947 Council of Economic Advisors’ report to Truman, so that it could buy “substantial amounts of our products”, both exports and goods produced on European soil by American firms. More abstractly, but still a conscious concern – indeed the main concern – on the part of Washington, was that US capitalism could not survive if the major countries of Europe were removed from the global marketplace either by the adoption of Communism or another descent into whatever form of totalitarianism might come next.

While the stick of the Truman Doctrine attempted to contain Communism, the carrot of Marshall Plan funds offset the capital that was flowing out of Europe and moving to New York at the time, and catalysed a sustained recovery. Moreover, the plan explicitly encouraged adoption of an entente between capital and labour modelled on the New Deal’s grand truce of union recognition and high wages in return for industrial peace and increased productivity.

Class conflict would be replaced with an interest in economic growth, and a redistribution of wealth could be enacted atop – instead of in place of – the free market. Alongside the Marshall Plan, the US turned a blind eye – and even encouraged in some cases – to some level of capital controls, tariffs and radical currency devaluations until Europe could begin to be able to pay for US imports.

Simultaneously, European integration was required to develop the large firms and large domestic (continental) markets they would service, such as existed in the US, that in turn would allow the economic growth that could pay for this high-cost labour truce and welfare state. Without such regional economic integration, the US feared it would not be able to wean Europe of its relief funding lest the “vicious cycle of economic nationalism … again be set in motion.”

 

So why did it fall apart?

But the social-democratic compromise was, as Roosevelt had said, only ever intended to be temporary. And indeed, by the late 1960s and early 1970s, capital was already straining at the leash.

The Keynesian paradox is simple enough.

To keep labour costs low, the capitalist needs a certain amount of unemployment as a whip against workers to keep them from demanding higher wages. However, with unemployment and low wages, the capitalist runs into a problem of workers not being able to afford many products. The social dislocation meanwhile also tends to encourage political instability.

If there is full employment, the capitalist can sell lots of products, but wages soar as workers tell the capitalist that he can stuff it if he doesn’t pay higher wages. The inflation this produces in turn erodes the worth of large holdings of capital. At the same time, stroppy unions produced by this sellers’ market begin to challenge not just profits, but even management’s prerogative to direct production. If a job can be had anywhere, why put up with a martinet boss?

This all came to a head with the economic crisis of the early 1970s. After a period of ideological flux prompted by the unprecedented stagflation of this period, a series of governments of both left and right experimented with a retreat from Keynesianism and a return to orthodox or classical economic thinking.

Unsurprisingly, this response to the crisis – what we now term neo-liberalism – initially provoked years of increased labour strife. But eventually, the return of high unemployment would be a great aid to soothing industrial troubles.

Meanwhile, deeper global market integration and relaxation of restrictions on the flow of capital could now quite easily tame any social democratic government that was tempted to turn back the clock. This first occurred most spectacularly with the election of France’s first Socialist president, Francois Mitterand, in 1981. He had been propelled into the Élysée Palace off the back of a strong left platform, committed to expanding the welfare state and extending public intervention in the economy. But as a result of capital flight and economic sabotage, by 1982 Mitterand was forced to abandon most of his plans and became something akin to a Thatcher for France, dramatically cutting social spending.

 

Social democracy in one country

Now, to counter this, Willy argues that so long as the country has not abandoned core state powers (pouvoirs régaliens) to international institutions, countries can still actually do whatever they like.

Certainly, governments even in the current era of global quicksilver movements of capital, can be braver than many have been. Many service providers cannot simply up sticks and leave a jurisdiction, and the movement of plant and machinery for many industries would be pointlessly expensive. There is a lot of bluster from the captains of industry when demanding that they get their way.

But despite the exaggeration, the reality is that these pressures do exist. If Willy is right, then we have just had a bad run of luck with the crop of social democratic leaders over the last 30 years. We just need leaders with more gumption like Kreisky, Palme and Brandt.

I think the problem instead is material rather than ideological. I don’t buy that social democratic parties are just full of venal characters. It is that they are running up against a barrier that they cannot surmount.

In a period of growth, social democracy offers to share out the spoils of capitalism more fairly than the right. When stagnation or decline sets in, they can only promise to share out the austerity more fairly than the right. Social democracy does not have a theory of crisis. Even Kreisky would be a Blairite today.

The radicalisation toward the end of the sixties provided enough momentum for Italy’s Hot Autumn in 1978, the street politics of 80s Britain and a smattering of strikes in the US, but otherwise the left, both of the social democratic and extra-parliamentary variety, began to experience steady decline.

Voter turnout begins its remorseless downward spiral amid a crisis of representation as voters instinctually began to recognise that little changes regardless of who is elected. Social democratic parties haemorrhaged members. More generally, the left was disoriented. It would not be clear for some time that what had happened was a fundamental crisis of Keynesian social democracy, and not just a temporary set-back that could be reversed at the next election.

Then at the end of the 80s, the Soviet Union collapsed. However genuinely brutal the Stalinist monster had been, and however much its dissolution was a victory over barbarism, the very existence of a living alternative to capitalism did one important thing: it put the fear of God into western elites and permitted room for social democracy. Without Communism, there was no need any longer for social democracy to keep the masses placated. This is not in any way to apologise for Moscow or its monstrous unfreedom and perverse irrationality. It is an unalloyed good that the Berlin Wall fell and the USSR collapsed.

Hungarian anti-Communist dissident and former leading member of the liberal Alliance of Free Democrats (SZDSZ) G. M. Tamás put the conundrum well last March in an interview with the New Left Review:

“I don’t for a moment regret having fought against the ‘socialist’ regime—mendacious, stupid, brutal, repressive and treacherous—and I do still emotionally identify with the dissidence of those years. But I dislike very much the results of those struggles and … however understandable and salutary the sudden East European infatuation with freedom and rights, however promising the fall of the market Stalinist parties, it was at the same time a historical disaster, heralding the demise of working-class power, of adversary culture, the end of two centuries of beneficent fear for the ruling classes.”

In these new, radically different circumstances to those facing the postwar leaders, Blair and Brown in the UK and Clinton in the US gave social democracy one last kick at the can by further unleashing finance and using the revenues to expand spending in some core areas, but otherwise superintend a further liberalisation and deregulation of the economy.

The expansion of consumer credit and home ownership masked for a period the stagnation or retreat in working-class and middle-class incomes, but we all know how unhappily that ended. Indeed, this merely postponed rather than resolved the crisis that emerged in the 1970s. The question of restoration of profitability without full employment was temporarily solved by credit expansion, but that bubble has burst.

And so, reversing Nixon’s maxim, we are all neo-liberals now. The centre-left distinguishes itself from the right not on economic questions, but on identity politics and cultural issues such as gay rights, abortion and women’s rights that – however important – cost almost nothing.

Social democracy in one country has ceased to be possible.

 

Brave new world

This is why a retreat from European integration – and indeed global integration – is not a viable alternative.

Today, we are not presented with the same conditions that permitted the construction of the Keynesian welfare state, economic planning and full employment:

a) There is no background of strife, revolution and war that convinces elites that social democracy is the best worst option.

b) There is no actually existing alternative like the Soviet Union that also frightens elites and reminds that another way of ordering society is possible.

c) The US is going through its own economic crisis right now. It cannot help out this time and

d) Movement of capital is too fluid now for any one European country outside the EU to attempt any serious programme that delivers social justice.

If a government were to attempt such a programme, they would have to introduce strict capital controls to avoid market pressure, while engaging in currency devaluation to make their products and services competitive.

This might work for some countries for a short period. But the currency devaluation would kick off a downward cycle of competitive depreciations and beggar-thy-neighbour economic nationalism that would exacerbate rather than solve the broader economic crisis. And in a generalised period of crisis, even cheap goods can go unsold. A 25% depreciation in sterling in the first 18 months of the crisis has had little to show for it from boosted exports. Indeed, the 2012 current account deficit in 2012 exceeded that of pre-crisis 2007.

And supply chains and sites of production are so diffused now compared to when the European welfare state was constructed that such autarkic closure would cut a nation off from a range of goods and services that consumers have come to expect, with even further impoverishment of ordinary people than they have already experienced.

In any case, as soon as the capital controls were lifted, the taming pressure of the market would return, again threatening a national social democracy.

However, continent-scale economies, such as the US or China may still have room to manoeuvre. It is one thing to pick up sticks and move capital and production out of Greece. It is another thing entirely for capital to move out of an entire continent.

Any genuinely sustainable solution to the crisis, rather than the treading water that we see, must involve a recovery in investment that will have to be state-led, which in turn requires some sort of transnational taming of capital. But global markets have outgrown the nation-state’s ability to do this.

Yet remaining in the eurozone is a death trap, both economically and democratically, as Willy correctly states, and as I have repeatedly argued elsewhere.

Staying in Europe is a disaster and leaving Europe would be a catastrophe.

So does this mean that the only option is slowly reforming the EU institutions, as the left social-democratic anti-austerian analysis proposes? In reality, this is no different to just accepting austerity and post-democracy. There is no appetite for EU reform in a democratic direction at the institutional, governmental or even popular level.

What is to be done? We can’t stay in and we can’t leave.

 

A European union but not the European Union

There is another option. A coordinated writing off of public debt to European banks, hedge funds and other financial actors. To accomplish this without banking collapse, and to pay for the institutions’ losses, wealthy shareholders and bondholders would be squeezed and the major few dozen banks would have to be taken into public ownership at the European level.

This then, together with revenue sharing throughout the Union (fiscal transfers) under a true democratic political and fiscal union, could be part of a continent-wide plan for growth and bridling capital.

Such a plan, a new New Deal for Europe, could involve something like extensive public investment in new green-transition infrastructure and energy production, involving taking energy companies back into the public sector under genuine democratic control, and build-out of new grid, nuclear, hydroelectric, and solar production (in the south, not Germany, where the sun doesn’t shine); a coordinated near-term wholesale shift of transport from being fuel-based to electric-powered; a massive extension of public transit; a truly colossal public housing construction programme to lower the cost of living; the establishment of a common, high European minimum wage; a reduction of the working week and sharp lowering of the pension age; and the institution of a generous, non-means-tested, universal basic income. Significant expansions in health, education and research would round out the programme, as well as a fulfilment of the long-since abandoned commitment to raise all of eastern Europe up to the same standard of living as existed in the west prior to the crisis.

Much of this would involve, as it did during the war, expropriation (including Europe’s share of the €23 trillion in untaxed offshore booty) and the public direction of private investment, overcoming the risk aversion, timidity, and sedated animal spirits of market actors. All of which is intended to get Europe growing again and at a sharp, postwar-style clip, but in the interest of ordinary people.

But how can such a set of proposals be taken up by a European Union whose very structures prevent its implementation?

Even were a economic heterodox majority elected in the European Parliament this year, the parliament has no right of legislative initiative, so it can only advise the skipper, not set the course and hold the tiller. Europe’s executive is appointed, not elected, and our senate, the European Council / Council of Ministers, is the real legislative chamber, but one to which there are no elections and one whose legislation is largely crafted by diplomats and bureaucrats in secret. Monetary policy is beyond the remit of elected politicians, as it is the province of the unelected ECB, and fiscal policy – the alpha and omega of any government – is fast being shepherded out of the realm of democracy as well through European fiscal integration.

And of course all this would require a true fiscal and political union, with the necessary fiscal transfers and EU-level taxation – but a fiscal union constructed on the basis of democracy, not the anti-democratic fiscal union currently being knocked together, a Hail-Mary-pass of an authoritarian federation aimed at forestalling the EU’s otherwise certain disintegration.

It would require a genuinely democratic European government, at a minimum one with powers across the continent’s territory equivalent to the traditional powers of a national government, with the executive drawn from the party or coalition with the greatest number of seats in the parliament.

There would be no European Commission, no Council. There would simply be a European cabinet of ministers and a European prime minister instead. And a European central bank would merely be an agency of a European Treasury whose mission would be in support of full employment and economic growth. Monetary policy would be returned to the realm of democracy.

But it would still, quite obviously, require a common currency. So I am in the odd position of advocating a toppling of the European Union (as it currently stands) but a maintenance (and indeed extension) of a eurozone.

And of course none of this can be imposed from the top down. It would lack all legitimacy. This has to be the demonstrated will of a majority of the European demos. We should simply walk away from the existing treaties, which have never won the legitimacy of the European electorate.

In effect, the European Union as it exists has to be overthrown by a mass, popular European movement and a new European democracy constructed by these same people in its place, something that cannot happen on a piecemeal basis, i.e., country by country.

But make no mistake: to achieve a socially just Europe, the size of the political economy can be no smaller than that of a continent. Anything less is impossible in a globalised economy.

The accusation from the Neo-Gaullists is that the construction of this socially just Europe is titanically utopian.

It certainly is.

But is the scale of its utopianism any greater than the thorough democratic and economic reorganization that occurred in Europe after the war?

More appropriately: Is it any more utopian than thinking that Keynesian demand-management programmes sufficiently ambitious to solve the economic crisis can still be accomplished at the national level? That growth can return at a national level without first solving the European – perhaps even global – economic anaemia?

 

Klass not Folk

Heterodox economist Costas Lapavitsas and former German deputy finance minister Heiner Flassbeck last May published their own roadmap for coordinated, orderly euro exit. They write that political and transfer union is no way out because it is “not feasible among independent and sovereign nations. No member of the EU wants to become dependent on one country, Germany.”

But Lapavitsas and Flassbeck are still accepting here the legitimacy of the nation-state as the fundamental unit of politics, rather than the individual. Who cares what the nationalists of various lands feel about the myth of dependence on Germany, or what German nationalists feel about myth of dependence upon them? Ordinary Europeans of all lands need to expropriate the wealth of the Europeans elites of all lands.

The proposal for a European New Deal under a democratic European government – a United States of Europe if you will – makes no countries dependent on other countries. It erases the idea that Europeans are split on the basis of national borders and recognises that we are split on the basis of class.

That is the real division in Europe. Klass not Folk.

 

For a European Spring

And this is where I want to raise the importance of the 3000 or so anti-ECB ‘Blockupy’ protesters who clashed with riot police and paralysed Frankfurt in June for the second year in a row.

Willy is right when he says that for something like a European New Deal plan to work, there would have to be a ‘social democratic revolution’ in thinking in most of Europe, and in Germany in particular. For any pan-European solution to be viable, the Berlin-Brussels-Frankfurt narrative of a frugal north and a feckless south has to be broken in the country where it has the strongest hold on the population.

Germany has already gone through its austerity period, imposed by the Social Democratic-Green administration of Gerhard Schroeder and Joschka Fischer, with poverty, temp employment and low wages soaring domestically as a result. Yet still far too many ordinary Germans are taken in by the Bild tabloid lies about ‘lazy’ southern Europe instead of pointing to their domestic enemies. Last year, a German environmental campaigner told me he personally was opposed to what his government was doing in concert with the EU, the ECB and the IMF, but it was just impossible to talk about this with anyone. The Merkel line was universally accepted.

That is why the Blockupy protests are so important, despite their relatively small size (for now). What Schroeder and Fischer did last time and the support for austerity the SPD and many Greens have shown in the European Parliament demonstrate that they represent no real change from the status quo.

But Blockupy is a sign that there is now a small but growing domestic opposition there, a crack in the austerian ideological monolith in Germany. The road to a socially just Europe runs through Frankfurt.

It brings a European Spring that much closer. This year, the protests are split between a decentralised pan-European series of actions in May ahead of the European Parliament elections, and then what looks to be widespread acts of civil disobedience both in Frankfurt and across borders to coincide with the planned opening of the new ECB premises in the autumn. In parallel fashion and over the medium term, no effort can be spared to attempt to scale up cross-border general strikes along the southern bloc, and extend them to beyond one day symbolic gestures.

As I have argued, the history of the gun-to-the-head postwar compromise between European capital and labour shows that social-democratic concessions do not come without a threat that so frightens elites that they have no choice but to concede at least to a minimum of our demands.

We have to be honest: One-day general strikes have been repeated in Greece perhaps 20 times now, depending how they are measured, and similar actions have happened in Spain, Portugal and Italy, albeit with less frequency – yet EU elites remain unmoved.

So we have to go beyond even this. The threat we ordinary Europeans have to pose to our 21st century elites has to be at least as great the threat that forced postwar elites to compromise. There has to be Tahrirs, Taksims, Syntagmas across the Union, including in Germany too.

But the pan-European movement against austerity has to know what it is fighting for. Tweaking the current set-up of the EU is impossible, but so is social democracy in one country.

There is no alternative but a United States of Europe democratically built from the ground up.

 

 

*Many readers will be quick to point out that the American Democratic Party is not strictly speaking a social-democratic party and they are not incorrect, but the party played a similar role to that of social-democratic parties elsewhere, and contains social democrats amongst its membership.

** Data come from Sheri Berman’s superb 2006 book, The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century; the late Tony Judt’s masterful (if overly sympathetic to social democracy) 2010 tome, Postwar: A History of Europe Since 1945; and Ian Birchall’s out-of-print but still essential (if overly antipathetic to social democracy) 1986 work, Bailing Out the System: Reformist Socialism in Western Europe 1944-1985.

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We are not ruled by a cabal of Lex Luthors and Blofelds. We are ruled by the Three Stooges

rehn doesnt have a cat

Jeroen Dijsselbloem doesn’t actually have a white cat that he strokes during Eurogroup meetings.
Christine Lagarde does however have a whip with a poison Kryptonite tip.

 

One of the most frightening aspects of the crisis is how it appears that our leaders are increasingly at a complete loss as to what to do.

It’s common to come across popular spitting fury at the ‘banksters’ and ‘conmen’ who govern us, as though those with their hands on the levers of the European system are moustache-twiddling cartoon-mastermind villains of unbounded venality (cf. Matt Taibbi’s characterisation of Goldman Sachs as a ‘vampire squid wrapped around the face of humanity’).

But as we peer goggle-eyed and gap-jawed at the scale of the debacle of the Great Cypriot Bank Robbery and the blame game that has followed, it is manifest that we are so very, very far from being ruled by a cabal of cat-stroking Lex Luthors and Ernst Stavro Blofelds of finance. On the contrary – we are ruled by the Three Stooges of finance.

Each of the individuals involved in the negotiations last weekend has been eager to stress how he or she was not responsible for coming up with the idea of imposing the ‘stability levy’ on those with under €100,000 in deposits. All actors have been keen to seek out their preferred media outlet to plead their case.

Different outlets have published in the last few days their versions of the inside story. Peter Spiegel’s in the Financial Times is particularly comprehensive and has the ring of truth to it.

(Although I should say here: Why isn’t anybody screaming “Hello? What’s with all the Kremlinology? Why do we have no choice but to report on decision-making of this import and impact on domestic laws and finances in essentially the same way that we report on the election of the Pope? Why does the Eurozone’s de facto legislature operate like a papal conclave?”)

The ECB’s Joerg Asmussen basically said: ‘It wasn’t us.’ Cypriot officials said: ‘It was Schaeuble.’ Schaeuble said: ‘It was the Cypriots, the Commission and the ECB.’ ‘Rehn started it.’ ‘No I didn’t.’ Unnamed officials darkly hint that the Cypriots care more about Russian oligarchs than they do their own people while Nicosia publicly accuses the ECB of blackmail. France says they never supported the plan. Fingers are pointed at the Finns, Slovaks and Dutch as bullies egging the big kids on.

But all we have to do is go read the press statements of Saturday morning to find very few dissenters from the arrangement. Even European Parliament President Martin Schulz, who had nothing to do with the crafting of the deal and should have been free to be more critical publicly if he really felt that way, as of Saturday had only timid concerns, agreeing that depositors should pay for some of the bailout, and only called for an exemption for those with sums under €25,000, however much he is now thundering at the injustice of what has happened.

The most enlightening nugget in the FT’s investigation is when we find out that a proposal to exempt low-level depositors ‘was only actively supported by Ramon Fernandez, the French treasury chief – a fact that supports [French finance minister Pierre] Moscovici’s claim to have been an early opponent of the levy on smaller savers. “The rest did not care.”’

That is to say they all, with the possible exception of France, share the blame.

Over in the UK, British Chancellor George Osborne’s scramble on Sunday to reassure UK depositors in Cyprus that they will be reimbursed (at a back-of-the-envelope cost of £138-200 million), reeks of something of an afterthought, not least because his deputies (underlings? henchmen?) later wobble, saying that only ‘most’ of any monies seized will be recompensed.

And the Eurozone’s conclave of necktied cardinals all quickly row back after the fury on the streets of Nicosia and the Cypriot parliament does its democratic duty and pushes back, rejecting the deal (the first domestic parliament in Europe brave enough to do so).

They all just seem so utterly at a loss as to what to do, other than to stick to the received consensus wisdom of TINA – There Is No Alternative.

Attempting to pin the blame on a particular actor misses the point. We have to remember that not just in the Cypriot case, but for each of the euro-crisis intensive-care patients, there is a role that the ECB plays, that the IMF plays, that the European Commission plays, that the Council of Ministers/Eurogroup/European Council plays, and that local elites play. Positions are often overlapping but conflicting, representing the different elite domestic and/or institutional interests to which a particular actor is most sympathetic.

Yet when we take a helicopter view, we see that the shock-therapy course is agreed by all, regardless of nationality, institution or party. Asmussen and Dijsselbloem are social democrats and Anastasiades is a conservative. Truly, anyone who still believes that there is any difference on economic questions between Europe’s social democrats and conservatives any more can only be a member of one of these two rapidly dwindling tribes.

So saying that the Cypriot debacle is all the EU’s fault or all Berlin’s fault may be incorrect, but saying that it’s all the local comprador elites’ fault is also incorrect. It is a complicated interplay of interests between these different actors, just as Greece’s late Pasok prime minister, George Papandreou may have been thrown under the bus by the Frankfurt Group for threatening a referendum on a second bailout – but ideologically he represented nothing different.

Russian vs European oligarchs

And as if the raid on bank account-holders with less than €100 large was the only egregious act performed in the wee hours of last Saturday in Brussels in any case. What about the 70-something couple for whom €120,000 maybe is their life savings? Or the small and medium-sized businesses for whom that sum represents a payroll account?

And if there really is the concern on the part of the rest of Europe about Russian oligarch accounts, could they not have been forfeited instead? Why are no senior bondholders – hedge funds or other holders of Cypriot sovereign debt even talked about as subjects for bearing some of the pain?

All those who signed off on Saturday’s deal endorsed once again a programme of austerity, privatisation (of utilities) and structural adjustment worth some 5.75% of GDP – the same recipe that has such a depression-beating success elsewhere. The record is broken. Beyond its injustice, the strategy plainly is not working. As elsewhere, an economy already in recession will be bludgeoned by additional austerity, likely meaning a second or third kick at the bail-out can somewhere down the line, in turn requiring still further austerity in a vicious cycle.

The focus on who is to blame also occludes the step change from private to public of threats of economic violence from Frankfurt and Berlin that has occurred in the wake of the Cypriot parliament disobedience. The threats aren’t new, but they have been made privately until now. And their wrath is something to behold. So now we have an ultimatum from the ECB that it will cut off its Emergency Liquidity Assistance, snuffing out the oxygen to Cypriot banks. They will collapse, with all the social dislocation that would bring.

Schaeuble, unused to being defied, roared: “The ECB has made it clear that without a reform programme for Cyprus the aid can’t continue. Someone has to explain this to the Cypriots and I think there’s a danger that they won’t be able to open the banks again at all.”

Someone has to explain this to the Cypriots. The same refrain we’ve heard throughout the crisis, but with added bile: Vote how you like, dum-dums, so long as it’s the right way.

And lest we think France somehow gets a gold star in all this, her representative on the Eurogroup Working Group, which comprises deputy finance ministers or senior treasury officials from the 17 eurozone members, as well as representatives of the ECB and Commission, has this to say as regards democracy in Cyprus: “The (Cypriot) parliament is obviously too emotional.”

Lastly, where is this sudden concern about tax havens and Russian oligarchs and organised crime coming from anyway? Leaving aside the bail-out cash that never actually lands in Greece but heads straight back to northern reckless lenders, the ‘oligarchs’ of core European finance, the chutzpah of a Dutch chair of the Eurogroup or a Luxembourgish finance minister making any noise about tax havens is breathtaking.

Ah, I hear you say, but European oligarchs aren’t quite like Russian oligarchs. They aren’t up to their tits in organised crime.

Well, let’s have a look at the shenanigans of UK multinational bank HSBC, ordered twice by US regulators in 2003 and 2010 to tighten its anti-money-laundering activities. Then in November last year, it was found that HSBC had set up offshore accounts in the Channel Islands tax haven of Jersey for suspected drug-dealers and other criminals, prompting Her Majesty’s Revenue and Customs to launch an investigation. The following month, HSBC was fined $1.9 billion for allegedly laundering some $881 million in drugs cash for cartels. The company turned a blind eye to Mexican drug cartels using its branches to launder millions, with staff also stripping identifying information off transactions from embargoed countries such as Iran and Sudan. The company has also been accused of laundering money for terrorist groups. But of course, as the aforementioned Rolling Stone journalist Matt Taibbi put it in his investigation of the case, HSBC is ‘Too big to jail‘.

There aren’t Russian oligarchs who are eeevil and European oligarchs who are saintly. There are just oligarchs.

And of course the useful idiots – the bungling stooges – who abet them.

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Draghi’s Super-Secret Secret Squirrel show

SECRET SQUIRREL COLOR 3

Mariano Rajoy (L) and Mario Draghi (R) in fancy dress at the Transparency International Winter Gala

 

The European Central Bank’s Darth Draghi descended upon Madrid on Tuesday for a pep talk, saying that Spain had successfully stabilised its banking system and that borrowers with top-notch credit ratings should be seeing an easing of the credit drought by the end of the year. He saluted new laws making it easier to fire workers and did his best Bill Clinton impression, feeling the pain of the almost 60% unemployed youth.

After a closed hearing before a select group of MPs in the Chamber of Deputies, he told reporters that “Spain is on the right track,” while darkly warning that all EU countries still had far to go and called on PM Rajoy to put together a “credible, detailed plan” on further spending cuts.

Nothing really new here. Typical ‘Good work, now cut more’ generalities.

So why was the meeting held as a closed session?

It was reported ahead of the meeting by El Pais that according to parliamentary sources, the central bank had requested the secrecy as Draghi had wanted a similarly restricted format to that which he used when he spoke to Germany’s Bundestag.

The decision to keep the meeting closed to the public, with proceedings to be issued in none of the normal formats, provoked an angry response from left-wing deputies, who announced that they would just “retransmit” Draghi’s comments by Twitter.

All opposition parties, including the Socialists, denounced the move (although one has to ask if PSOE would really have done any different). The Socialists’ spokesman, Valeriano Gómez filed a formal protest, while the Plural Left (United Left and Greens) described the efforts at a closed session as a “failure of democracy”.

Shockingly, in response, the Speaker of the House installed mobile-phone jammers to prevent deputies from live-tweeting. So left-wing deputies Alberto Garzón and Joan Coscubiela just sneakily filmed the session on their iPhones and later uploaded the videos to YouTube.

The kerfuffle prompted Draghi to subsequently deny that he had ever wanted a closed session and that he would have been perfectly happy for it to happen in the open, adding that no harm had been done by it being posted on YouTube. See, look, I’ll even post my speech up on the ECB website.

On the one hand, the Sith Lord’s speech was so full of austerian banalities that it makes you wonder why whoever it was requested the meeting be held in secret in the first place.

On the other hand, if Draghi’s comments really were going to be incendiary and have such import for the Spanish political economy, then such words – if Spain is still a sovereign democracy – need to be said publicly.

Particularly as the ECB has such form since the crisis with secret letters to governments ordering them to liberalise their economies or commanding them to take a bail-out, or quiet phone calls to domestic banking bosses directing them to turn off the taps, citizens have every reason to be frightened of Frankfurt’s preference for the shadows.

In 2011, when former Eurogroup chief Jean-Claude Juncker was at a small Brussels think-tank function, forgetting that reporters were present, he for once spoke quite frankly about the need for secrecy, saying: “I’m ready to be insulted as being insufficiently democratic, but I want to be serious.”

Economic policy discussions were simply too sensitive, he said, potentially putting “millions of people at risk”, to have them in public. “I am for secret, dark debates,” he joked at the time, adding that despite his Catholic upbringing, he had often “had to lie.”

In the end, Draghi’s comments appear to have been largely banal. But this is the point. European leaders have become accustomed to operating beyond the glare of parliaments and the public, both for discussions of great import and for the prosaic.

The demand for state secrecy in economic matters is expanding – a sharp turn away from principles of open government, which require that citizens have a right to access documents and proceedings of government to assure democratic, public oversight.

It should be obvious that limitations on state secrecy, a core principle of democrats since the Enlightenment, is also required to prevent corruption.

At a time when great swathes of the current Spanish and Greek political classes stand accused of protecting themselves and those close to them from the taxes that mere mortals are subject to – and Draghi himself is caught up in a similar scandal of his own, we must be especially vigilant and on guard against what increasingly appears to be unblushing criminality amongst our leaders.

Enough clumsy cloak and dagger, Draghi. At least talk pretty to our face before you screw us.

***

For more details on Draghi’s Super-Secret Secret Squirrel meeting, just check the #openDraghi hashtag.

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