• The Enchanted World of Common Currency – On the Article by Frédéric Lordon

  • By Pierre Khalfa | 30 Aug 13 | Posted under: Euro
  • In his article Frédéric Lordon(1) offers a radical critique of the construction of Europe. We can only agree when he interprets ‘the oddity of building Europe as a gigantic operation of the political elimination ... of popular sovereignty itself’.

    Similarly, we can only share his criticism of François Hollande’s proposal of economic governance for the euro area. In the present situation, this would mean one more step towards the kind of authoritarian federalism that has been gradually established since the Maastricht Treaty and considerably accelerated since the financial crisis and the adoption of the euro area’s Treaty on Stability, Coordination and Governance (TSCG) and the various associated directives (six packs, two packs…). His attack on the Eurobonds as an answer to the present crisis is welcome at a time when this idea is repeatedly put forward.

    These are the major points we have in common with Lordon’s analysis of the present situation. Our disagreement is over his proposed strategy, since he argues here for quitting the euro and establishing a common currency in place of the single currency.[2] This strategy, in short, is unrealistic and politically dangerous.

    First of all, the present problem is less that of the euro than that of neoliberal policies. Lordon is certainly right in pointing out the relationship between the present monetary policy carried out by the European Central Bank (ECB) and austerity policies. There is, however, no guarantee that quitting the euro would mean the end of these policies. The United Kingdom has kept its national currency and, moreover, its central bank carries out a non-conformist policy of the massive purchase of state bonds — contrary to that of the ECB. This has not prevented the British government from carrying out one of the harshest austerity policies in Europe — which shows that the problem is not the currency — a fact that Lordon does not mention. The European treaties and various directives that prevent economic policies from being discussed and decided on by citizens were not imposed on the states. The national governments themselves manoeuvred to establish them.

    Nothing is done in the European Union against the states; they made the Union what it is today. Moreover, this could only be done because popular sovereignty has been flouted within the nations as well. Let us recall what happened around the European Constitutional Treaty. Lordon seems to over-estimate the democratic working of the nation-states and be unaware of the deep transformations that these have undergone through globalisation[3] or see that they are dominated by a politico-financial oligarchy committed to neoliberalism. The European Union’s democratic deficiency has its counterpart in that of the nation-states. This is particularly true of France, where the institutions of the Fifth Republic give considerable power to the Executive, which does not carry out anything but governs without being really controlled. The current incidents around instituting a tax on financial transactions, in which the government is trying to strip this very modest proposal by the Commission of any content, shows that the Manichean contrast between the nation-state and European institutions prevents us from seeing the dynamic forces at work. Without a deep-rooted transformation of the nation-states freeing them from this domination – which pre-supposes a radical political change – quitting the euro will not make it possible to break with neoliberalism, and, in any case, if this transformation did occur there would be no point in quitting the euro at all.

    In Lordon’s opinion, ‘the idea of going from the present euro to a re-constructed and progressive euro is a hollow dream. Due to their very construction, if it were progressive the financial markets (holding all power these days) would not allow it to come into existence’. But why then would these same financial markets allow this common currency, which Lordon calls for, to come into existence, since its aim is to serve ‘the categorical imperative called popular sovereignty’. Any currency, common or single, European or even purely national, that serves popular sovereignty will not be accepted by the financial markets or by the oligarchies in power.

    Lordon seems to be aware of this, since he states that ‘the alternative is thus the following: either sinking permanently into a liberal euro (…) or else a head on clash with finance, which will certainly win ... and consequently will lose everything since its “victory” will destroy the euro and precisely create the conditions for a reconstruction from which the markets would be excluded’ (our emphasis). Apart from the fact that we cannot see why a victory of the financial markets would have to destroy the euro and even less how such a victory would create the conditions for a politically progressive way out of the present situation, Lordon does clearly see that the clash with the financial markets is inevitable. However, he thinks that their victory will allow the restoration of popular sovereignty over money currency — a new aspect of the cunning of reason, no doubt. The reader is stupefied . . . Even supposing the prediction of the euro’s destruction were true, how can we believe that the financial markets, having succeeded in imposing their law, would calmly allow a progressive common currency to be established?

    Lordon is nostalgic for a destructive big bang — in this case the blowing up of the euro area — that would create salutary relief through the establishment of a common currency, maintaining that all the problems he had pinpointed in connection with the euro would disappear as if by magic. The ECB would thus ‘be deprived of any power over monetary policy […] [we would be] protected from the non-European currency exchange markets thanks to the new euro (…) the internal calm of a European monetary zone freed from the scourge of the exchange markets will then make devaluations entirely political, which will depend on inter-state negotiations to agree on new parities’. Thus, it is pointed out, control of capital would be re-established and Germany forced to accept an appreciation of its national currency to support demand in the euro area and help reduce the internal imbalances. All that was impossible in the context of the single currency thus becomes possible in the context of a common currency. It is a new Eucharistic mystery of transubstantiation!

    Far from this magic world, reality tends to be crueller. Lordon has dissolved the question of the debt in a few words by stating, along with Jacques Sapir, that 85% of the French debt was issued under French contract law and would be redenominated in the national currency and consequently without any subsequent effect of devaluation. This is undoubtedly jumping the gun a bit. Indeed, if the fact that debt is issued under French contract law guarantees that, in the event of a conflict between the state and its creditors, this conflict would be settled before the French courts (though this in no way guarantees that the state would win) it is hard to understand why, if the euro continued to exist, the creditors (especially the non-resident ones) would accept a debt issued in euro being converted to a weaker currency. They would have to be forced to do this by collective action clauses – which means partial cancellation of the debt. This is certainly always possible either with the single currency or the common currency. All that is needed is the political courage to carry it out.

    Over and above the issue of money, whether common or single, the problem remains how to maintain monetary cooperation in a context of economic war. If the euro were to disappear, this would not take place smoothly but chaotically. The governments, subject to the imperative of competitiveness, will seek monetary room to manoeuvre and it is hard to see them submitting to the new kind of discipline required by a common currency — to expect it would be no more than a pious wish.

    The question we must ask is whether quitting the euro would enable more solidarity or not. The answer is easy to imagine. In a Europe with governments which, whatever their political complexion, refuse to challenge the logic of capital in any way, the breakup of the euro area would lead to a series of competitive devaluations. Each country would try to grab market shares from its neighbours by devaluing its currency. Such a situation would, moreover, be a zero-sum game in a Europe whose economies are integrated. Would these external devaluations protect us from an internal devaluation based on wage reductions? Obviously not, as we would then have to fight for ‘our exports to defend employment’ — an argument that we may be sure governments and ruling classes will use to the full. Moreover, more expensive imports would have consequences for the purchasing power of the mass of the population, which would pay the price for it.

    A strategy of competitive devaluation that aims at winning market shares from other countries will give rise to a spiral of uncooperative economic policies.  Jacques Sapir accordingly points out that it will then be necessary regularly to devalue the national currency. Far from inducing solidarity between the peoples, such a strategy would result in even more competition and in social and fiscal dumping. The consequence of this would be the worsening of xenophobic and nationalist tensions in a situation where, throughout Europe, the extreme right already has a good deal of wind in its sails. Quitting the euro proves to be a dangerous mirage.

    What then is to be done?[4] Will we be condemned either to impotence by accepting the present situation or to launching into a very risky adventure by quitting the euro? There is, however, a third way for the peoples of Europe. This involves a confrontation with the European institutions and the financial markets. No substantial change will take place without opening up a major crisis in Europe and without being based on popular mobilisations. A left government must explain that it is committed to building Europe but at the same time it rejects the destruction of social rights and the pauperisation of the peoples in the name of Europe.

    It should say: ‘The euro is our currency, but the treaties have subjected it to domination by finance. The ECB finances private banks at rates close to zero and the latter then lend to states at exorbitant rates. We no longer want to be subjected to the financial markets. We want to make the euro work to serve social and ecological needs. We want to place our banks under the control of our citizens so that they serve the real needs of society, not the greed of their shareholders. We, the government of this country, are beginning to do this here at home. We call on the European social movements and peoples to do the same everywhere, so that together we re-appropriate our currency and refound the European Union on a different basis.’

    The government in question should then take a number of unilateral measures while explaining that they are intended to be extended to the European level. These would be cooperative unilateral measures in that they are not directed against any other country, unlike competitive devaluations, but against an economic and political logic and that the more countries adopt them the more effective they will be.

    It is thus in the name of another conception of Europe that a left government should enact measures that break with the present structure of Europe. Thus, for example, a left government could enjoin its own central bank to finance the public deficit through monetary creation. It could, moreover, be done indirectly without technically violating the European treaties by using public credit institutions as intermediaries —in France, for example, the Caisse des Depôts[5]. It is fundamentally a matter of engaging in a process of disobeying the treaties and, through this, a trial of strength with the European institutions.

    Such an attitude would show concretely that there are alternatives to neoliberal policies. It would call the bluff of the European governments and makes them face up to their internal public opinion.  It would encourage the peoples to mobilise. A resolutely pro-European discourse turned towards democracy, social and environmental justice would find a considerable response from other European peoples and social movements. The European leaders will certainly try to set public opinion against these ‘counterfeiters’ who are printing euros to avoid sacrifices and to lounge at the expense of the virtuous countries. Reprisals will certainly be carried out. The disobedient people will be threatened with a complete economic boycott — a threat that is more credible when directed at small countries than against big ones, especially France.

    The outcome of this trial of strength cannot be predicted. Would it be possible forcibly to exclude the rebel country, as Greece was threatened with exclusion in the event of a victory by the radical left party, Syriza – even though the Treaty of Lisbon does not provide for the exclusion of any country from the euro area? Could a gradual domino effect spread to other countries that might break away and form a version B of the euro with fiscal, budgetary, solidary and ecological innovations that would make it viable? Would the euro area be dramatically tipped over by recasting the treaties?  Everything would depend on the balance of forces that could be built at the European level. European disobedience, beginning, if necessary, in just one country, can be conceived and popularised not as the beginning of the blow-up of European solidarity but, on the contrary, as an instrument to accelerate the emergence of a European political community, an embryo of a ‘European people’.

    Our disagreement with Lordon is based on two points: on the one hand, unlike him, we think that it is possible to advance towards building popular sovereignty on a European scale, which pre-supposes a radical transformation of the present situation. On the other hand, while quitting the euro cannot be completely excluded in certain cases, it would result from the context of a political battle to rebuild the European Union on a new basis and not from an a priori political project. These two points are obviously connected. It is because we have not given up the struggle for ‘another Europe’ that we cannot support a project to quit the euro, which negates this perspective[6].

    August 2013

    Source: http://blogs.mediapart.fr/blog/pierre-khalfa/010813/le-monde-enchante-de-la-monnaie-commune-propos-d-un-article-de-frederic-lordon

    Translation by Eric Canepa.


    1. ‘Sortir de l’euro ? Contre une austérité à perpétuité’ (Quitting the Euro? Against Perpetual Austerity), Le Monde diplomatique, August 2013, http://www.monde-diplomatique.fr/2013/08/LORDON/49561.

    2. The essential difference between a single currency and a common shared currency is that the latter allows the existence of national currencies.  As Lordon points out, there are several ways of looking at a common currency.  The European Monetary System (EMS) that existed between 1979 and 1993 was a common currency system that broke down as a result of financial speculation premised on freedom of circulation of capital.

    3. See especially Saskia Sassen, Territory, Authority, Rights: From Medieval to Global Assemblages.  Princeton University Press, Princeton, 2006.

    4. See: Thomas Coutrot, Pierre Khalfa, ‘Crise de l’euro: sortir du carcan’, in Nous désobéirons aussi sous la gauche! directed by Paul Ariès and René Balme, Editions Golias, 2012; Fondation Copernic, Changer vraiment !, Editions Syllepse, 2012 ; Pierre Khalfa, Catherine Samary, La monnaie, l’euro, ne pas se tromper de débat2011; Michel Husson, ‘Quelles réponses progressistes?’, Les Temps Nouveaux, Autumn 2010 ; Jean-Marie Harribey, Sortir de quoi ?, 2011, http://harribey.u-bordeaux4.fr/travaux/europe/debat-sortiedeleuro.pdf ; Daniel Albarracín, Nacho Álvarez, Bibiana Medialdea (Spain), Francisco Louçã, Mariana Mortagua (Portugal), Stavros Tombazos (Cyprus), Giorgos Galanis, Özlem Onaran (United Kingdom), Michel Husson (France), Que faire de la dette et de l’euro ?, Un manifeste, http://tinyurl.com/euro13

    5. This involves using the possibilities made available under article 123-2 of the Treaty on the Functioning of the European Union.

    6. We would remark, in passing, that Lordon presents his position ‘in the manner of a syllogism’.  Let us recall that a syllogism strings together a major premise that states a generalisation considered to be true, (all men are mortal) and a minor one, also considered to be true, articulating a specific case (Socrates is a man) to reach a conclusion logically deduced from these two propositions (thus Socrates is mortal).

    7. Lordon starts with the following premise: (A) ‘The current euro arose from a structure intended to satisfy the capital markets’, which he presents as the major premise. He connects this to his ‘minor’ premise (B): ‘any project for transforming the euro is ipso facto a project for dismantling the power of markets’. However, B can in no way be considered a minor premise as it does not put forward any specific characteristic but, on the contrary, affirms a fresh generalisation while presenting it as deduced from A. Finally, Lordon concludes his two premises by a political development that merely comments on his minor proposition, whereas the conclusion of a syllogism must present a new logical element. This is not very important in itself but it is regrettable that what arises from a political choice is presented as an irrefutable logical deduction.

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