• The ‘Austeritarian’ Integration Dividing Europe

  • By Steffen Lehndorff | 17 Nov 14 | Posted under: European Union
  • Unwelcome developments at the EU level and economic imbalances within the EU and the euro area are often at the centre of critical analyses of the European crisis. There are popular and also justified fears that these problems might cause the collapse of the currency union. However, these discussions within the left often ignore the role the economy and politics must play at the individual national level as part of a process of reorientation. This is also the message of a forthcoming book entitled Divisive Integration, which argues that the chronic EU crisis can only be overcome with a change of policy in some countries, which in turn trigger political reactions in other countries and disruptions at the EU level. One thing is certain: as things stand it will not be possible to effect policy changes without the support and approval of the European institutions.1

    In order to fully understand this challenge, a logical first step would be to consider the economic and social problems of individual countries.


    The continental drift

    The book includes analyses of ten countries, which gives the overall impression of a continent steadily drifting apart. The obsessive cutting of public expenses and labour costs that has become the key element of a new EU governance obstructs the pathway to the necessary reorientation of socio-economic models in member states. This observation is especially important because with our criticism of the existing ‘structural reforms’ being pushed through by the ‘austeritarian regime’2 we do not mean to encourage the belief that reforms are not necessary; they are, especially in those countries most badly affected by the crisis. In fact, the country analyses demonstrate that each country is suffering its own individual illness which made it prone to the crisis. The universal medication prescribed to these countries, however, has nothing to do with their individual illnesses.

    The following summary focuses on the analyses of four of the so-called ‘crisis countries’, as well as on Germany, which is often presented as a model.3

    After the first phase of the slump, that is, the 2008/2009 global financial and economic crisis, Greece was, of all EU countries, the one which experienced the most dramatic crash. Maria Karamessini describes the ‘punitive character’ of the financial aid provided to her country and the consequences of the shock treatment which has put in motion a ‘spiral of austerity-recession­austerity’. She emphasises the lack of economic perspective this approach reflects; austerity measures and privatisation deprive the state of the instruments necessary for creating policies that stimulate growth. ‘Growth will thus depend on the incentives provided to foreign multinational capital and the most internationalized fractions of Greek capital.’ It is, however, the impoverished working class which is intended to be the greatest incentive. The working class – people deprived of their rights – constitutes a huge group of people willing to accept jobs under any condition in the face of mass unemployment.

    In contrast to Greece, Italy is traditionally a strong manufacturer of internationally competitive industrial products. However, this asset never included the southern parts of the country, and an insidious crisis had been slowly taking hold of the country’s manufacturing sector long before 2008. Annamaria Simonazzi explains the ‘Italian illness’ by pointing to a mix of ‘tax evasion, tax elusion and tax cuts’ which complicates infrastructural development and the expansion of social services, as does the inefficient and clientelist character of the public administration sector. According to Simonazzi, the existing tax and social policies, as well as policies of deregulating the labour market, foster a ‘perverse redistribution’. These policies are intended to create flexibility (though to an inadequate degree in her view) by introducing social insecurity. In conclusion, Simonazzi blames this on the complete absence of industrial policies and a ‘political stalemate, with a divided majority held together only by the desire to remain in office’. For her, there are no grounds for optimism.

    In comparison with the rest of Southern Europe, Spain has experienced the most extensive capitalist modernisation process of the past thirty years. Josep Banyuls and Albert Recio describe the economic and social dynamics which were defined by a balance between the contradictory elements of the neoliberal basis of economic policies and the strong pressure from society ‘to develop a – previously non-existent – welfare state’. The boom, however, was primarily driven by a speculative and construction bubble. The fact that it has burst is now used as an opportunity to implement a conservative neoliberal project. This means privatisation in the health and education system cuts in social services and rights, while conservative-elitist elements are simultaneously strengthened, for example in the educational system. Making families take on the burden of social security and making women ‘fill the gaps opened up by the lack of public provision’ implies a ‘return to the old Mediterranean model’. Also, economically speaking, Banyuls and Recio consider the ‘structural reforms’ regressive. Instead of promoting scientific and technological progress, instead of being open to production methods which are more productive and cooperative or which remove barriers to social mobility, they are designed to reanimate a production model which is doomed to failure and which is built on low wages and precarious working conditions. It is the very production model which delivered high growth rates in the period of transition to democracy up to the 1990s, after which the country was put under pressure by the eastward enlargement of the EU, and was partly replaced as a driver of growth by the property boom of the 2000s.

    Like Spain, Ireland also experienced a property boom financed by private debt, which led the country into crisis. The growth it experienced came about so rapidly that Ireland – traditionally an emigration country – turned into an immigration country, at least temporarily. When the bubble burst, the debt-to-GDP ratio of around 25 per cent on the eve of the crisis escalated to almost 120 per cent five years later. This was mainly the result of an unprecedented state acquisition of the entire debt accumulated by the speculation-driven banking sector. Out of all the countries ‘bailed out’ with the help of European bailout funds, Ireland’s development is highlighted by the EU Commission as an encouraging example. In his analysis, James Wickham, however, points out the contradictions and downsides of this success story. Apart from the banking sector, the most important growth engines are foreign, mainly US, direct investments. Ireland is especially attractive for its low company taxation levels, which big software and web firms find beneficial to their global business activities. In Wickham’s opinion, it is bizarre that the full spectrum of political parties has ‘made “our” corporate tax rate into a symbol of national independence which must be defended in front of the other EU member states’: ‘Far from stimulating any rethink of the national development strategy, the crisis has turned the reliance on FDI into a national fetish.’

    National egoism has become even more noticeable within the context of the EU crisis, and the Irish growth model represents a typical example of this phenomenon (similarly, the British government strongly defends the City of London against financial transaction taxes and the German government supports the German automotive industry by resisting strict CO2 directives).

    This also demonstrates the size of the obstacles that stand in the way of those well-matched economic and tax policies which are necessary for a functional currency union. It also shows that, in comparison, it is relatively easy for governments to agree on cuts in social services and the deregulation of the labour market as an instrument to increase competitiveness.

    Looking at an analysis of those countries which have come through the 2008/2009 crash relatively unscathed, one common characteristic becomes obvious: The governments in question have taken measures that temporarily break with the neoliberal economic paradigm. The welfare state, with its ‘automatic stabilisers’, has proven to be a last-resort pillar of stability, even though it is an extremely unpopular lifeline in times of crisis.

    Various German governmental coalitions have perfected a certain pattern – adopting one policy in their own country and making up a different one for the faithful media and for other countries, in other words, prescribing medication to others without having first tried it themselves. I explore this hidden irony in the chapter on Germany. Deregulation in the German labour market is not the reason why its economy and labour market survived the dramatic slump of 2008 surprisingly well, nor does it explain the country’s relatively robust development since the second half of 2009. Rather, this deregulation has accelerated the growth of imbalances within the currency union, thus greatly contributing to the near crash of the euro in 2010 as well as subsequent near misses. In 2008/2009, however, the core elements of the social model in place before Agenda 2010 (a series of reforms involving the German welfare system and labour market between 2003-2005) was adopted were reactivated, particularly the priority of internal flexibility which was made possible by a ‘social partnership’ supported by the unions with their renewed self-confidence. In addition, something happened for which the rest of Europe had waited in vain during the previous years of economic boom – average wages started to increase, not least because trade unions were now receiving more public support for their wage policies. As a result, for the first time in this century, the German economic cycle was stimulated to a greater extent by the single market than by the export surplus (which remained high). In short, the relatively robust development of the German economy and labour markets can be mainly ascribed to the fact that in the last years efforts were undertaken to at least limit the detrimental effects of Agenda 2010 policies on the labour market.

    However, the Federal Government and the media are still promoting Agenda 2010 and it is still being met with public approval. This is due to the fact that German industry is exceptionally successful at an international level, especially for its product-based competitiveness. This too has nothing to do with Agenda 2010 policies, which becomes obvious when one looks at Austria and Sweden. Neither of these two countries saw similar deregulations on the labour market, and, what is more, they both are countries where the economic structural base for value creation has proven to be quite robust. The depreciation of the Swedish Krona only marginally affected the country’s industrial sector because Swedish industry is internationally competitive ‘despite’ the country’s high social standards.

    When analysing countries with strong economies, another similarity becomes obvious: Germany, Sweden, and Austria are at risk of losing their assets, but in different ways. In the case of Germany, underinvesting in social services and public infrastructure, as well as neglecting the education sector to the detriment of professional education, will undermine future economic success.

    France currently finds itself in the midst of such a process. In the French case the widespread inability of economic and political elites in Europe to identify the actual strengths and weaknesses of their individual economic and social models, and to concentrate on overcoming these weaknesses as well as developing existing strengths without ideological blinkers, is especially obvious. The controversy surrounding France’s (and also Italy’s) economic and political course will possibly play a key role in the question of how seriously the ‘competitiveness’ standards agreed on in Brussels are to be taken. The Hollande administration continues to cling in cowardly fashion to the dogma of reducing labour costs to promote competitiveness, growth, and employment. The widespread disappointment with Hollande’s lack of leadership has led to a large number of those voters who demonstrated in 2012 against ‘Merkozy’ policies turning to the right. Thus, France is becoming a striking example of the core of Chancellor Merkel’s dictum that ‘there are no alternatives’ to current anti-crisis policies; there is indeed a lack of enforceable and politically credible alternatives.


    All change in Europe emanates from the nation-state

    ‘Investor and market confidence’ are considered the pivotal elements of the continent’s economic recovery. If the confidence of the people does not automatically follow, there is a simple solution: declare social and economic problems to be national problems.4

    This is in fact true to a certain extent. However, we are dealing here with social differences within the national states and not between them. The economic development models of numerous European countries have proven unsustainable, and now they are to be revitalised by increasing social differences and weakening labour market regulations as well as the welfare state. In the meantime, the governments of stronger economies, with whom the weaker economies formed a toxic symbiosis before the crisis, are monitoring other countries’ compliance with the rules of the ‘austeritarian’ regime. However, this regime is increasingly turning into a self-laid trap preventing both the stronger and the weaker economies from overcoming their own problems. Thus, the members of this ‘union of competition’become a burden to each other. They are mainly connected by problems and they are united by a common evil nobody wants to deal with, namely growing imbalances which are increasingly hard to shoulder and which present a challenge to government action in all the national states.

    Since all member states have fallen into a trap set collectively by their governments (under the guidance of Germany), from which it seems almost impossible to escape due to difficult to revise and legally-binding decrees at the European level, the conviction is beginning to spread among critics that a progressive reform of the EU’s legal regime and the currency union is not feasible in the foreseeable future. Thus, defending social achievements mainly established during the second half of the twentieth century at a national level is now, in their opinion, only possible at this level. In Wolfgang Streeck’s words, ‘constructive opposition is impossible’; ‘the opposition’s options in their struggle against the “consolidation state” are reduced to trying to throw a spanner in the works of the capitalist “austeritarian” orientation and discourse’.6 According to Streeck, it is important to use historically grown institutions and the ‘remaining elements of democracy in the national states’ as ‘brakes on the downhill path towards a democracy-free, single-market state’.

    In fact, strategies which are limited to the defence of national achievements have been present for quite some time. They predominate in Northern Europe (for obvious reasons), and trade unions in these countries tend to focus heavily on this task, while their interest in European politics appears quite limited. They have in part succeeded. Nevertheless, they are experiencing a steady decline in their influence, and their institutional power resources are being undermined. These are experiences described by Hans-Jürgen Urban, member of the board of IG Metall, the German Industrial Union of Metalworkers, in his contribution to our volume. He comes to the conclusion that those remaining possibilities of influence should not focus on ‘preserving status quo structures, but on making one’s own contribution to reconstructing the socio-economic model of development’. This is what he calls using the power of the veto ‘constructively’, which he considers a key goal of a trade union strategy for dealing with the European crisis. Facing this challenge begins with drafting concepts or reform projects aimed at reconfiguring the socio-economic development model in one’s own country. This is the necessary basis for implementing a Europe-wide reorientation. Yet this reorientation must be based on a ‘pro-European criticism’. The widespread uncertainty as to how to master this twofold challenge is what he calls the ‘Europe gap’ in trade union strategy.

    Trade unions are far from being the only, or indeed most active, opposition forces acting as brakes against the deconstruction of national achievements. In the chapters on Greece and Spain, Maria Karamessini, Josep Banyuls and Albert Recio highlight the role of social opposition to the political crisis management of their governments and the EU. In reading about the actions of social networks and analyses of the large-scale protest movements in these countries,7 one is struck on both the political and human levels by the great courage and fierce resistance they exhibit. However, Banyuls and Recio also point to their failure to counterpose a clearly defined overall alternative to neoliberal shock therapy. There are vital social movements such as the 15-M Movement, and Social Forums in the areas of health and education, as well as anti-eviction movements. Although these movements focus on very important issues, they are still single issues. However, because of the lack of a credible political alternative to neoliberal politics, with its cuts and deregulations of the labour market, these movements are at present the only answer to the crisis, realistically speaking. Neither opposition parties nor the unions are offering any comprehensive strategies for new development paths.

    Exceptionally, in the Greek case, Maria Karamessini can truly say that such a political vacuum no longer exists. The strengthened opposition forces are proposing a growth strategy, which aims at improving the budgetary situation by increasing taxed incomes, implementing a radical tax reform, and by using primary surpluses and external financial support to fight poverty and boost public investments. However, she also points out that such alternative approaches can only be put in place if the EU stops implementing its crisis management policies and if national reform programmes are given some room for manoeuvre. Therefore, alternative crisis management approaches can only be negotiated at an EU level.

    Italy is a country which is not under the strict supervision of the Troika or the EU Commission and which still has substantial economic potential. Annamaria Simonazzi provides a harsh assessment of Italy which neatly summarises the complex challenge the country is facing: ‘One good thing that this crisis might have produced is to convince Italians that the country is at present on a road to ruin and that there is no external (European or German) nor individual (devolution, Lega Nord) salvation. Only once we have done our homework can we seek, and demand, Europe’s help.’ She concludes: ‘Emergency intervention needs to pave the way for long-term construction: a growth strategy that would mean easing up on austerity for Greece and the other weakened countries and enacting stimulus measures in surplus countries, as well as new rules that prevent the formation of the very disequilibria that led to the present predicament.’

    Today, such interaction is inevitable. The questioning and eroding of the social achievements of post-war capitalism started long before the introduction of the euro and the single market. Rules and institutions established within this context may have increased this pressure, but they are not to blame for initiating it. Furthermore, we should not forget that since France’s first Mitterrand administration at the opening of the 1980s, no efforts have been undertaken at a national level to pave the way for an alternative to neoliberalism in Europe. Thus, following the pessimistic proposal of focusing on ‘trying to throw a spanner in the works of the current system’ would simply mean exhausting ourselves in an attempt to conserve past achievements. The solution to this dilemma is to take the bull by the horns. In contrast to past decades, the ‘productive reconstruction’of European economies is becoming increasingly less viable if applied on an exclusively national level. During the twentieth century it may have sufficed to cite globalisation to explain this challenge (and the aforementioned French attempt, which was terminated soon after its start, well illustrates this challenge). Today, however, we are facing strong mutual cross-border dependence due to accelerated economic integration and consolidated authoritarian control. Those seeking an answer from the left of the political spectrum should be realistic, understanding that in today’s Europe, things often come in pairs: There must be massive pressure at the national level for the implementation of reform projects in order to provoke unavoidable conflicts at the European level so that EU obstacles to the implementation of national reform projects can be overcome.

    One could argue that the European treaties will not permit certain changes, certainly not changes in the relations of political power in the EU. As regards the treaties, this is only partly true. The proposed ‘European Recovery Programme’,9 carefully drafted by the Confederation of German Trade Unions, addresses the possibilities of implementing this plan within the framework of existing institutions. The same is true of the ‘Programme for Labour’, presented by the Italian trade union CGIL,10 which points to the room for manoeuvre for reforms at a national level in Italy. However, Council decisions on monitoring policies involving national budgets and economies are obviously firmly established and hard to get rid of, and it would be very difficult to implement a Social Charter having the same legal value as fundamental economic freedoms. However, if we want to achieve progressive change, we cannot limit ourselves to thinking about what is possible. Moreover, we need to think about how to generate a political momentum which could make possible things previously thought impossible. This is the only way that institutions can be changed. In short, it is necessary to think less in institutional categories and more in terms of political processes.

    Serious advocacy of economic alternatives, even at the level of a single national state, involving the demand at least to loosen one’s shackles (which means deviating from the EU Council and Commission’s existing decisions and policies), will put the entire political structure of single market and currency union to the test. Depending on the ability of an individual government that breaks ranks to deal with conflicts and join alliances (it could also exploit the principle of unanimity in the European Council), the other governments in Europe would be called on to deal with this provocation. And then, depending on their fear of ‘upsetting the markets’ and of a possible domino effect within the currency union, they would, to a greater or lesser extent, have to relax or correct their former policies. Progressive movements and trade unions in other countries would also face a new set of circumstances. Up to now, it could have seemed to them that they inhabit two separate worlds. But in a crisis provoked by politics – instead of by ‘the markets’ – they would be more likely to act in concert. For critical forces, it would be easier to practice social solidarity across national borders, instead of national solidarity within their own countries, which is what the ‘austeritarian’ regime induces them to do.

    An institutional framework such as the Maastricht treaty, which gives the green light to almost every kind of neoliberal policy but continues to reject or slow down the achievement of common social standards and most measures for mutual support and economic convergence, cannot be reformed without harsh conflicts, crises, and ruptures. The impulses leading to such an inevitably rocky reform process will come from countries in which the population’s desire to put an end to the ‘austeritarian’ regime and bring about a social, economic, and ecological reorientation of their own nation has become strong enough that a conflict with Brussels, Berlin, and other centres of power is inevitable. In the end, ‘constructive opposition’ at the EU level will only be as effective as the ‘constructive opposition’ for reforms in the individual countries. From today’s perspective, it is hard to imagine such an impulse coming from Germany. What is certain, however, is that everything rests on how impulses from other countries are perceived in Germany and how they are perceived by progressive forces within Germany.

    translated by Veronika Peterseil


    Benatouil, Maxime and Sigfrido Ramírez Pérez, From Industrial Policy to a European Productive Reconstruction, transform! Discussion Paper No. 3 (2014), <http://www.transform-network.net/publications/publications-2014/news/detail/Publications/-2790eb1878.html>.

    Candeias, Mario and Eva Völpel, Plätze sichern! ReOrganisierung der Linken in der Krise [Save Your Seats! The Reorganisation of the Left in the Crisis], Hamburg: VSA, 2014.

    CGIL, Il piano del lavoro. Creating Jobs to Give Italy Future and Growth, 2013, <http://www.cgil.it/Archivio/EVENTI/Conferenza_Programma_2013/CGIL_Plan_for_jobs_2013.pdf>.

    DGB, A Marshall Plan for Europe. Proposal by the DGB for an Economic Stimulus, Investment and Development Programme for Europe, 2012, <http://www.ictu.ie/download/pdf/a_marshall_plan_for_europe_full_version.pdf>.

    Dufresne, Anne and Jean-Marie Pernot (2013), ‘Les syndicats européens à l’épreuve de la nouvelle gouvernance économique’ [European Trade Unions and the Challenge of new Economic Governance] Chronique internationale de l’IRES, no. 143-144.

    Lehndorff, Steffen (ed.), Divisive Integration. The Triumph of Failed Ideas – Revisited. Ten Country Studies, Brussels: ETUI, 2014 (forthcoming).

    Sauer, Thomas, ‘Von Chimären und Krokodilen: Der lange Weg vom sozialen Nationalstaat zum europäischen Sozialmodell’ [Of Chimeras and Crocodiles: The Long Way from the Social State to the European Social Model), Thomas Sauer and Peter Wahl (eds), Welche Zukunft hat die EU? Eine Kontroverse [Where is the EU Heading? A Critical Examination], Hamburg: VSA-Verlag, 2013.

    Streeck, Wolfgang, Gekaufte Zeit. Die vertagte Krise des demokratischen Kapitalismus [Buying time. The Postponed Crisis of Democratic Capitalism], Berlin: Suhrkamp, 2013.

    Troost, Axel and Philipp Hersel, ‘Die Euro-Krise als Zäsur: Eine neue Finanz-, Geld-, und Wirtschaftspolitik in Europa’[The Euro Crisis as a Caesura: A New Financial, Monetary and Economic Policy for Europe], LuXemburg April 2012, <http://www.zeitschrift-luxemburg.de/?p=2082>.


    1.           This article is based on excerpts from the introductory chapter of the forthcoming book Divisive Integration. The Triumph of Failed Ideas - Revisited. Ten Country Studies, ETUI, 2014.

    2.           Anne Dufresne and Jean-Marie Pernot (2013), ‘Les syndicats européens à l’épreuve de la nouvelle gouvernance économique’ [European Trade Unions and the Challenge of new Economic Governance], Chronique internationale de l’IRES, no. 143-144.

    3.           Other countries analysed include the United Kingdom, France, Sweden, Hungary, and Austria. The country studies are complemented by analyses of EU crisis policies and the reactions of trade unions to the crisis.

    4.           Thomas Sauer, ‘Von Chimären und Krokodilen: Der lange Weg vom sozialen Nationalstaat zum europäischen Sozialmodell’, Thomas Sauer and Peter Wahl (eds), Welche Zukunft hat die EU? Eine Kontroverse [Where is the EU Heading? A Critical Examination], Hamburg: VSA-Verlag, 2013, p. 124.

    5.           Axel Troost and Philipp Hersel, ‘Die Euro-Krise als Zäsur: Eine neue Finanz-, Geld-, und Wirtschaftspolitik in Europa’, LuXemburg April 2012.

    6.           Wolfgang Streeck, Gekaufte Zeit. Die vertagte Krise des demokratischen Kapitalismus [Buying time. The Postponed Crisis of Democratic Capitalism], Berlin: Suhrkamp, 2013, pp. 218, 223, 256.

    7.           Mario Candeias and Eva Völpel, Plätze sichern! ReOrganisierung der Linken in der Krise, Hamburg: VSA-Verlag, 2014.

    8.           Maxime Benatouil and Sigfrido Ramírez Pérez, From Industrial Policy to a European Productive Reconstruction, transform! Discussion Paper No. 3 (2014).

    9.           DGB, A Marshall Plan for Europe. Proposal by the DGB for an Economic Stimulus, Investment and Development Programme for Europe, 2012.

    10.        CGIL, Il piano del lavoro. Creating Jobs to Give Italy Future and Growth, 2013. 

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