** MANDOS POST **
In several recent threads on this blog, we discussed (i.e., argued passionately about) the current goings on in Europe (Brexit, Greece, Italy, etc.) as signs of the impending decay and demise of the European project. I used to share this view to some extent, because I too am sometimes in the grip of a moral fallacy that haunts left-wing discourse: that things that are good, work, and things that aren’t good, don’t work. I actually think that in the bigger picture, this is true, but only in the largest temporal and spatial frames. In the medium term, lots of things that are good, are not stable enough in context to work (as in, be sustained for more than a short period of time), and lots of things that are not good, are nevertheless stable enough to last decades and even centuries.
Predicting whether, when, and how some particular set of events will cause large institutions to rise or fall cannot be done lightly or easily, and such predictions, when done in the moment, are more likely wrong than right. You should expect unexpected things to occur; there are too many variables. Some people are better at it than others, but you should take even the best track records with a grain of salt. Even two to three years ago, I would have predicted that the build-up of “bad karma” in the European system would have caused the EU to break apart by now. Even a few months ago, the rise of Euroskeptic populists in some countries suggested to me that the situation is increasingly desperate for European unity. However, over that time, and somewhat unexpectedly to me I must admit, it appears that some sort of inflection point has been reached.
The EU, as it stands now, was designed by a set of people that had different attitudes and goals over time. Therefore, it is a mixed bag, when it comes to good, not good, works, doesn’t work. A good chunk of its institutions were designed at around the peak of the neoliberal revolt against state management of the economy. In the EU, this took its expression in an approach to the economy that militated against state attempts to protect or bolster industrial employment in both public and private sectors. Because Europe does not suffer so much from the “moralized” version of libertarianism from which the US suffers (essentially, that your bank account is a virtual extension of your physical body), there is a stronger commercial regulatory apparatus developed even in the neoliberal era than what other developed “capitalist” countries tend to have. The neoliberal bits, especially the most recent ones like the Eurozone, have increasingly showed themselves to be not good and not working.
But this cannot be taken out of the context of the whole. It’s increasingly clear to me that Europe is still not that far off from the overall intended trajectory of the two generations of designers of European convergence. It is absolutely true that those who built the system had, for a number of different reasons, a deep suspicion of the public and popular sovereignty, even while they were also against outright dictatorship. I generally consider this to be overall not good and probably won’t work in the long run. (But I must note that the designers of the EU also recognized that they might need to legitimize popular sovereignty at a European level and built in provisions for systems to implement it.) However, they believed both in the necessity of European unity (in the modern world, a disunited Europe is structurally, deeply vulnerable), and the difficulty in getting a multilingual, multicultural subcontinent of fallen empires to accept the necessity of unification, so they constructed a system of what are effectively one-way traps to ensure that the cost of departure is always greater than the cost of endurance, even when the system in some matters doesn’t work. The goal is therefore for this endurance to eventually result in a crisis whose only positive-sum resolution is the Europeanization of authority.
With Italy’s effective capitulation to the Commission, and yes, with Greece’s previous compliance, and yes again, with a Brexit that is already providing the necessary object lessons, it appears that the crisis-and-trap strategy is still operating, or rather, it cannot be said to have failed at this point in time. That is, it remains that case that the strategy of making a series of systems that don’t work is working.
Considering that this game of deliberate historical manipulation has real human costs and indeed a known death toll in itself, one may well choose to designate it as not good. But, the evidence is that it still works.
So what would the decline of the European project actually look like? Well, there are, of course, phenomena that are hard to predict directly, like, sudden environmental cataclysms. If I were forced to make a prediction, however, the political coming-apart would probably have to look like one of the following options:
- A situation comes to pass where it is immediately more materially beneficial to leave than to stay (this has not yet happened).
- One or more countries decide to leave a major institution/treaty despite the costs, and they do economically better in the relatively short run after departure. (Brexit under the Tories is not likely to be an example of this.)
- A consensus develops in several countries that long-term economic suffering is more desirable than staying in the EU, even if that suffering is greater than what they might have experienced inside the EU, and they sustain this consensus even after feeling that suffering.
All of this may lead you to consider projects like the European unification, designed explicitly around creating consequences that override popular will, to be not good. I have given you at least three possibilities for it to not work. So I would say, as before, that it is a mixed bag.
Political theodicy is dead. Long live political theodicy.
Herman
I am not sure what countries like Italy and Greece have to gain by staying the course. Yes, if some major break happened like leaving the eurozone or the EU entirely there could be negative immediate consequences but staying the course seems to be the equivalent of a slow death.
When huge percentages of your young people are unemployed and likely to never work again this becomes more than just a question of institutions not working. It is a question of national survival. Furthermore, there is the strong possibility that the next crisis will bring to power political forces much worse than the right-wing populists now winning elections.
I would add that the current EU setup is not just faulty but actually operating in favor of German and more broadly Northern European mercantilism. This is more than just a case of faulty institutions, it is a case of some members states leveraging their power to benefit themselves at the expense of other member states and using moralism and sometimes outright racist national stereotypes to avoid discussing their own role in the crisis. I have read and heard comments about Southern Europeans that, if they were said about any other people, would be shouted down as racist but for some reason they get a pass from our supposedly liberal media establishment.
bruce wilder
It is much better to be a creditor than a debtor in the EU, but the creditors and debtors can be member nation-states or whole social demographics within (and without) a country.
It seems to me that Mandos’s excellent analysis could be summarized as, the EU, as constituted, is highly de-stabilizing, but de-stabilizing to countries, classes and regions but not so much to the central institutions of the EU itself. The Euro, in particular, as painful as it is for some is unpopular in few countries. (Cyprus, where a bank bail-in was devastating might be an exception, but Cyprus has other reasons to cling to Mother Europe.)
If you are in a de-stabilized country, you are very unlikely to find uniform solidarity within your country. Some groups within your country will turn to the EU or aspects of certain EU institutions as a lifeline. Some powerful groups in Greece were creditors, not debtors, with Euro bank accounts elsewhere in the EU; it mattered to the reaction to discovering that the political possibility frontier is a Hotel California, as Mandos observes it.
Britain, it may be noted, is the only debtor in northwest Europe. And, with the highest GINI has the most acute set of economic class conflicts in Europe with the possible exception of Russia — and Russia exports its worst oligarchs to London, which tells you something.
bruce wilder
I do not if it is accurate as stated, but I read today that a quarter of Germany’s labor force now earns the minimum wage or less and Germany is already a country with low household wealth. The neoliberal Harz reforms are “working” it seems.
Mandos
Yes, precisely. There are large swathes of opinion in Greece that welcomed Wolfgang Schäuble’s Dr. Strangelove act as downright heroic — the desire of the “shopkeeper/entrepreneur” class for an external Margaret Thatcher who will break previous social dynamics, increase the precariousness of the worker, introduce labour market flexibility, etc, etc.
The EU and the Eurozone have successfully Europeanized these conflicts, and merely electing a national government who wants to run a policy counter to the design of the system is not enough. These governments will always represent only fractious and easily divided swathes of national opinion, among classes whose real interests do not lie with each other, but with analogous classes in other European countries. This goes both for labour and for the petit bourgeois and for the local oligarchs and the international oligarchs etc etc.
It’s long been an open secret in Germany that the low unemployment numbers in Germany are highly fudged due to the pecularities of Hartz IV. Worker and old-age poverty are a major problem in Germany, as well as drastic underinvestment in infrastructure. In some ways, the schwarze Null of the CDU has been more immediately damaging that Schröder’s Hartz IV alone — if Germany had properly deficit-spent during this period, not only would that have blunted the negative effects of Hartz IV, it would have had positive spillover effects onto the whole Eurozone. To say this is heretical Keynesianismus, something that German ordoliberals consider a horrifying sin. Procyclical policy now, procyclical policy FOREVER.
But what it means is that, yet again, the interests of German labour do really dovetail with those of Italian labour, etc.
UserFriendly
Here is just a small fraction of the reasons Grexit didn’t happen.
https://www.nakedcapitalism.com/2015/07/bank-it-grexit-and-systemic-risk.html
https://www.nakedcapitalism.com/2015/07/more-on-the-it-implications-of-a-grexit.html
https://www.nakedcapitalism.com/2015/08/louis-proyect-a-brief-response-to-joe-firestone-on-itgrexit.html
https://www.nakedcapitalism.com/2015/08/grexit-stumbling-block-international-courts-likely-to-rule-against-forced-contract-redenomination.html
Any country planning to leave the common currency would have to go through years of planning before it would be feasible. Even just announcing that you are starting the plans would crash the economy because the new currency would be worth less than the Euro, causing all savings to flee to other countries that aren’t leaving. That is just one of a million things that will cause chaos. The electorate would have to be increadly resolute in their support of the government that initiated it because it would be years before they saw any relief.
The most plausible scenario for a breakup would be Germany and France agreeing that the common currency is so completely destabilizing to the greater project that they agree to set up a mechanism for allowing member states to withdraw from it. If countries left the common currency they could end austerity by creating new money instead of debt without breaking the awful ‘Stability and Growth Pact’ which limits their deficit to 3% of GDP. The UK always had this as an option too, but the Tories and New Labour are committed to austerity as a policy goal. So are most political parties, unfortunately.
The rest of the EU doesn’t need to end, just the common currency.
bruce wilder
@ UserFriendly
I read Naked Capitalism appreciatively every day, and the Principal, Yves Smith (Susan Webber), is distinctively interested in “back office” administrative problems as political obstacles of the first order. That preoccupation often generates superior insights into issues, but it can also produce a stubborn and arch contempt for the arguments of advocates of fundamental policy change. Sometimes, she will pull an estimate of the time it takes to put up a new system for a bank, say, or a customs agency, out of her ass and treat it as if it is a trump card that takes all tricks.
The claim of “years of planning” to make leaving the Euro feasible is a canard. Capital flight, bank runs, and hoarding of euros crashing the economy are not “one of a million things” that could go wrong — they are the main explosive hazards, the Catch 22 equivalents that make it difficult to get any fiat money started.
Early on in the Greek crisis, the Greek leadership and the European Commission could have done the sums and decided that Greece had to leave the Euro as part of a state bankruptcy in which some large part of the accumulated debt would be written off. That it did not happen was a policy choice. It was not forced by administrative trivia. That the policies executed by the Troika were labeled a “rescue of Greece” was a propaganda strategy and one that worked remarkably well.
That the Left has no serious interest in or understanding of money and finance is a fatal handicap for the hope of a left policy alternative to neoliberalism. There is No Alternative (TINA) as long as no one on the Left seems interested in or capable of thinking thru policy in the context of the economy as an institutionalized system. Or, bringing down the neoliberal Narrative of an economy driven by virtuous conduct (thrift, hard-work, sacrifice, strong institutions, etc.)
The Euro is badly designed in an ideal sense, but mainstream economics furnishes little relevant vocabulary and the public discourse is remarkably uninformed about the nature of the defects and their implications for social welfare. The propaganda narrative serves to make the Euro the hero of the story and quite popular even in countries that have suffered.
Embracing the idea that problems of administrative detail dictate policy and trump all policy arguments just feeds neoliberalism imho, which, after all, is the ideology* of the professional and technocratic classes, who staff the administrative apparatus.
*as bought and paid for by the mega-wealthy and giant, multinational corporations — important detail
@ Mandos Dec 21
Very clear and very articulate — appreciated.
Stirling Newberry
Things will go right, after all of the alternatives have been tried. It may take 50 years or so.
Mandos
The Commission cannot make this decision in the Eurozone, this is at the political level of ministers. As I understand it, Wolfgang Schäuble wanted to offer this to Yanis Varoufakis — writeoff for leaving the Eurozone — but leaving the Eurozone had (for reasons discussed above) no popular consensus within Greece and was seen outside of Greece as an attempt to establish a precedent that would be used to drive France and Italy out of the Eurozone, defeating its purpose. From time to time, a German politician bruits about the idea of a Eurozone bankruptcy and departure mechanism — shot down especially vociferously outside of Germany as it is seen as an attempt to make German intransigence formal rather than political.
Macron’s offering of gifts to the gilets jaunes is viewed with horror in German media, with yet another scolding coming today from the Bundesbank president Jens Weidmann. There’s no small part of German politics that would like to see the Eurozone split, not because it would be better for Greece, Italy, France, but rather they believe that those countries would then be allowed to sink under the weight of their own profligacy and not drag schwäbische Hausfrau Germany down with them. For this very reason, no one outside of Germany (and the Netherlands and, self-harmingly, Finland, and …) will agree to the solution you propose.
I agree with this in part, but it goes along with the arguments over detail we’ve been having in other threads. If you want a left that is seriously interested in money and finance, well, the lines between that and the administrative detail you see as diverting policy arguments are rather blurry. There is no real dichotomy between administrative detail and policy argument, quite the contrary.
At the end, people want to know that you will not make their lives worse by applying policy arguments without having the expertise to control the complex levers of the existing system, or the expertise to supplant it with a new system after you have your little (or big) revolution. Even in Greece, more people had more to lose from administrative breakdown than had more to win, from wiping the slate clean.
Stirling Newberry
The reason the “the left” has problems is the old left run the party apparatus, which whats to throw away debt, whereas most of the left is young who don’t what the debt. The right are all older, and have no such contradiction – they want to do it wrong by the elites and populists.
The is a solution from the left’s point of view, it just requires an economic collapse. It is coming, and the results will be bad for about 20 years. C’est dommage.
John Poynton
I am not sure that terms like ‘neo-liberal’ and ‘populist’ are actually very helpful. They are ill-defined and would appear to spread confusion rather than clarity.
You are right of course to look at the balance between long-term and short-term costs and benefits, and I like your idea that the EU was deliberately designed to lock it’s members in, though it is probably more conspiracy theory than cock-up reality.
Where you are most certainly wrong is in assuming that a full unilateral Brexit is not immediately materially beneficial. Firstly the customs procedures across the Channel are governed by a completely separate non-EU tripartite agreement between the UK, France and Belgium and will remain in force after Brexit. So Project Fear’s predictions of massive delays at the ports and consequent shortages are pure fantasy. It will be business as usual. Tariffs can be collected through pre-declaration and invoiced to the importer for payment later, and that can be achieved using a simple email system if necessary.
More substantially our experience of so-called ‘free’ trade within the EU Single Market has been an absolute disaster. A deficit of £4bn twenty years ago had ballooned to £109bn at the time of the referendum, whereas our non-free trade with the Rest of the World now shoes a surplus of £20bn compared to a deficit of £15bn twenty years ago. The EU deficit is sucking us dry and making us poorer. Any sort of deal with the EU will lock us into this downward spiral.
Raising tariffs on both sides of the Channel will provide an immediate boost to the UK economy because it will make British goods relatively cheaper, just like the boost we got from devaluation after the referendum. Furthermore its will raise another £25bn for the Treasury for minimal inflationary cost (less than one percent overall on a one off-basis) and it will make start on reducing the deficit which can only be financed using Quantitative Easing. So what’s not to like?
Interestingly the US also has a massive trade deficit and must also use QE to finance it. Yet the Fed seems determined to increase interest rates regardless. That can only end in tears and explains the stock market slump.
More substantailly
Hugh
I agree with bruce wilder. Naked Capitalism took on the position that by definition nothing could be worse than Greece leaving the EZ and proceeded to interpret any alternative in that light. In part, this was because Varoufakis who posted at NC had this view. He was supposedly a s*cialist but also a pro-EU elitist. When the shit hit the fan, his elitist class allegiance won out. As Finance Minister, he advocated for a fantasy European investment bank to help out countries like Greece. This showed a breathtaking and studied lack of awareness of the con that Greeks had gotten caught up in. I can’t remember: Varoufakis may have briefly considered a return to the drachma but he never seriously pursued it. Tsipras, the Syriza Prime Minister, never did. And it never even entered into the dreams of the previous PASOK Prime Minister Papandreou.
The backdrop to all this is that the EZ aided German mercantilism by German products denominated in euros cheaper than they would have been in marks. This produced account surpluses which German banks re-cycled by lending it back to countries like Greece so that they could spend it again buying more German products. This was always unsustainable. And when said shit hit the fan in the 2008 financial meltdown, German banks stopped lending and the Greek government became functionally bankrupt, –in euros, sparking the 2010 debt crisis. In the first place, there was never any need for the Greek government to guarantee much of this debt. It should have been flushed down the drain as bad debt should be. Stupid and greedy lenders should not be rewarded. But these were German bankers so bailing them out of the hides of the Greek people was OK. So the same European groups who were so eager for the Greek government to take on debt, like the European Commission and the European Central Bank, and of course the Germans, suddenly became the most hard-assed about Greek irresponsibility. And the bailouts they proposed were really pass throughs to German banks leaving Greeks holding an ever growing bag of shit even as the country was sold off in a fire sale. All this is the same EU that Mandos, like Varoufakis, continues to support and embrace no matter who and how many it hurts. Mandos says we should not be concerned with whether the EU and EZ are good but whether they work. This is an empty stance because it leaves the questions unasked and unanswered, good for whom? works for whom? Well, they aren’t good for ordinary Europeans, but they work really, really well for Europe’s rich and elites.
That Greeks even under conditions of being completely screwed over by the Germans and the European institutions they controlled is really not surprising. Who would you trust? corrupt thieves like Papandreou or sellouts like Tsipras? or with all its faults relative to these criminal clowns, the euro?
It didn’t have to be this way. As some of us pointed out at the time, Greece could have transitioned out of the EZ by establishing parallel currencies, using euros and drachmas. We also suggested that the Greek government could have initiated this process by establishing the original exchange rate between euros and drachmas at one to one, switching all its government debt to drachmas, and letting the new currency float. The drachma would initially nosedive eliminating much of the value of the debt owed to German banks. It would make German products and other imports more expensive in Greece, make Greek exports much less expensive, increase the profits from Greece’s tourist sector, and eliminate Germany’s mercantilist advantage. All this required a minimal level of competence, and political will, from Greece’s political classes, Tsipras, Varoufakis, etc. which unfortunately was nowhere to be seen. So why should ordinary Greeks buy into it? Greeks stay in the EZ, not because it is good or works for them, but because they distrust, rightly, their own government and political classes even more.