• The Stability Treaty: An Error or a Crime?

  • By Jean-Marie Harribey | 14 Nov 12 | Posted under: European Union
  • As this autumn begins, the governments of member countries of the Economic and Monetary Union of the European Union (EMU) are struggling to ratify as quickly as possible the EMU’s Treaty on Stability, Coordination and Governance (the so-called Budgetary Pact).

    The French government in particular has decided to have it adopted by Parliament at the beginning of October. This is a major issue, since the Pact will establish the budgetary “Golden Rule” – i.e. forbidding state deficits to exceed 5% of GDP. This rule is a sort of “triple lock-down rule”.

    An absurd triple rule

    First lock-down: to reduce already existing deficits, all governments are planning to constrict public and social expenditures. There is no doubt as to what the result will be: To the existing recession will be added the various associated injustices as well as a widening productivity gap between the countries.

    Second lock-down: An authorised deficit of 5% of GDP represents, for France (whose GDP is about 2,000 billion Euros) about 10 billion a year. This affords a minuscule margin of manoeuvre, when one considers the enormous public investments required to transform the fuel, power and transportation systems, renovate housing and help to reconvert whole sectors of industry and intensive agriculture – which destroys the soil, ground water and biodiversity – into an ecological agriculture. Unless one imagines that the commercial sector could achieve all this … even while seeking to maximise its profits.

    Third lock-down: the first two lock-downs have all the hallmarks of guaranteed inefficiency. The third expresses the logical absurdity of liberal economic ideology, since long-term investments will have to be financed solely out of current revenue and not by loans that would enable the repayments to be spread over a long term during which the investments made would be yielding results. In other words, social and ecological transition is prohibited by the lock-downs contained in the Budgetary Pact.

    The immensity of this absurdity requires us to point out that all economic development, whether it is of the destructive sort that capitalism imposes or a quality development, such as is required for a social and ecological breakthrough, needs money through credit and therefore through indebtedness. This is where the ideological tour de force by the dominant classes lies: in having delegitimised the very idea that collective bodies (the state, local authorities) can borrow to prepare for the future.

    This tour de force is also a hostile act in that it refuses to envisage the slightest development of the European Central Bank (ECB) by preventing it from becoming a genuine lender of last resort, i.e. for collective bodies and not only for private banks and other financial institutions that have plunged us into this crisis.

    The same obstruction can be seen in the refusal to endow the European Stability Mechanism (ESM) with the status of a bank, such that it could refinance itself through the European Central Bank. The way it has been established, it is unable to do so and is obliged to borrow on the financial markets (which will maintain control).1

    What is the European crisis a name for?

    Three German intellectuals, Peter Bofinger, Jürgen Habermas and Julian Nida-Rümelin published an article in Le Monde, August 27, 2012 entitled “More than ever, Europe”. They explained that the European Union suffers from an institutional crisis because its political integration is not up to the needed economic coordination. Their proposal: “Only a deep reinforcement of integration can make it possible to preserve the common currency without requiring an unending series of aid measures, which in the long run cannot fail to put the solidarity of the European nations through harsh tests. To achieve the needed reinforcement, a transfer of sovereignty towards European institutions would be inevitable both to impose fiscal discipline and to guarantee the stability of the financial system”.

    That the European Union’s institutions (the Commission, the ECB and the European Parliament) are daily proving their inability to deal with the crisis is indisputable. However, that fiscal discipline should be the last word for curing the crisis is curious to say the least, unless the discipline were to be directed against the rich who have benefited from so many tax advantages. At most, some national budgetary severity could be accepted within a federal context if the European level had a substantial margin of manoeuvre. But those national budgets will be padlocked while nothing is planned to increase the miniscule European budget, which is itself subject to being the same rules of budgetary balance. Thus neither at the national nor at the European levels can a self-willed political action be possible.

    In brief, these three thinkers never ask themselves what the European crisis is a symptom of. This crisis is not a crisis of the public debt (to the extent that our misfortunes are due to the accumulation of this debt caused by laxness in expenditures), nor strictly speaking a crisis of the Euro (in the sense that the Euro’s very existence has engendered the present crisis). The European Union is in crisis because it has involved itself in the worldwide transformation of capitalism, which is itself now at a total dead end. In other words, the European crisis is the regional expression of a double planet-wide malfunction that can no longer be hidden.

    The first malfunction is that of a mode of production incapable of providing the increasingly exigent financial sector the base that it needs to appropriate an ever-increasing portion of income. Thus overproduction is spreading in several industrial sectors, which were previously able to deal with capital accumulation. From the second half of the year 2008, the uncontrolled increase of private debts no longer sufficed to compensate for the inadequacy of wages to stimulate demand for the consumption required by capitalism and to attenuate the explosion of inequality. This also points to the inability to go beyond a certain threshold of exploitation to produce value. Finance (i.e. the financiers and their ideologists) thought it could fly forever in the upper stratosphere, but sooner or later reality brought it down to earth, unfortunately dragging the world into a crash. The neoliberal European Union could not, and cannot, be a rampart against the crisis because it participated in building its foundations. With its idiotic and cynical austerity measures and rules it can only reinforce the crisis.

    The second planetary malfunction is the second tier of the first – that of a mode of production henceforth incapable of conceiving an infinite trajectory of capital accumulation because it is up against the ecological crisis, particularly up against the wall of natural resources – that is of the planet’s limits. Why is this malfunction the second tier of the first? Because without exploitation of labour power, that is without arms and brains, the exploitation of nature is impossible – and because without natural resources the exploitation of labour power has no material base.

    This intertwining explains the systemic character of the general crisis that is hitting all societies, to different extents and in different ways. The liberal ideologists have understood this well. Hence their pressure, on the one hand, to push the destruction of social rights that impede maximum profitability, and, on the other hand, to establish a “green capitalism” that can increase the commodification of natural resources.


    The storm has arrived

    The crisis will not subside after the ECB’s September 6 announcement that it will buy, “without limits” short-term public bonds on the secondary market in the event that states are in difficulty, but resell them for prices equivalent to those of private bonds, in order to sterilise the preceding monetary creation. Thus the ECB and the Pact are prolonging the problem that has resulted in Europe not having a real central bank that can be a lender of last resort for the economy as a whole.

    By forcing the states to undertake huge budget cuts in public and social expenditure, the Pact allows the dominant classes to avoid a substantial tax reform that would make them give back at least part of the wealth they accumulated over the last three decades.

    It perpetuates the absurd notion that public expenditure is a parasite on the market economy, since it is financed by taxing the latter, which is the only thing considered to be productive. Yet those working in non-commercial services produce these services’ economic value, and the taxes and social-security contributions are on the overall revenue already increased by that value: In France this represents a good quarter of the GDP.

    By refusing to submit the Pact to a popular vote, European leaders are committing a serious offence against democracy, a breach that the Pact makes worse to the extent that it will force the states to submit their annual draft budget for approval by the European Commission in accordance with a procedure called “the semester”. Moreover, if the Pact is not ratified, the “six-pack” and “two-packs” are already prepared to perform the same function. However, this lack of democracy is not a mistake but a deliberate decision, these arrangements having as their ultimate end the perpetuation of the reign of finance capital.2

    Therefore everything must be done to organise a real democratic debate on whether or not to ratify the Budgetary Pact. Mobilisation against this Pact has begun in several European countries and will not stop even if the Pact is ratified. The issue is to know if society will have the right to have the means of bringing about a breakthrough or if it will have to be “disciplined”. To paraphrase a famous saying, we must choose between a social-ecological breakthrough and neoliberal barbarism.  




    1. On this question see: J.M. Harribey, “Les vertus oubliées de l’activité non marchande” (The Forgotten Virtues of Non-commercial Activity), Le Monde diplomatique, November 2008, http://harribey.u-bordeaux4.fr/travaux/valeur/non-marchand-diplo.pdf.
    2. See Attac, Le piège de la dette publique (The Public Debt Trap), Paris, LLL, 2011 Économistes atterrés, L’Europe mal-traitée (Ill-treated Europe), Paris, LLL, 2012; Fondation Copernic, Changer vraiment, Quelles politiques économiques de gauche ? (To really change: What economic policies for the left), Paris, Syllepse, 2012; Appel des 200 pour un référendum sur le nouveau traité européen: “Europe: pas sans nous !” (The Call of the 200 for a referendum on the new European Treaty: “Europe: not without us!”), http://www.referendum-europe.org

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