We are in the deepest crisis in the history of the European Union. Only if both the governments of member-states and European institutions act decisively, can we get out of it. European countries can only regain their credibility when they move closer together and finally observe the rules. In the short run we have done a lot already and, for example, enacted sharper rules for the Stability Pact. Now we must put the extended European Fund for Stability, the EFSF, to work. And right after this we must activate the long-lasting mechanisms, ESM (European Stability Mechanism). In a third step, we should make plans for a stronger coordination of the economic policy that we need to stabilise the Euro zone and all of Europe for a long time to come”.1 This is by no means only the position of the chair of the EU Commission, but stands for the great majority of established policies in the Euro zone and the EU.
The USA and China have moved to increase pressure on Europe publically as well, insisting that European policies must more decisively and swiftly combat the debt crisis. According to the position of US President Obama, anti-crisis measures have not been undertaken quickly enough and Europe has never fully recovered from the financial crisis of 2007. Since the debt crisis has now expanded overseas and is threatening the US economy, decisions, the President says, should not be put off until the crisis gets worse.
Let us then look at the causes of the crisis and proposed solutions.
Starting with the US real-estate market in mid-2007, the credit bubble, which had been inflated for many years, burst in important capitalist countries. The resulting sudden devaluation of a large part of fictitious capital retroactively reinforced the chronic over-accumulation long since underlying the expansion of credits.2 Temporarily, the crisis process in the core capitalist countries threatened to get out of control. For the first time since the World Economic Crisis of the 1930s, the entire wealth produced in the world (gross world product) began to shrink. This synchronicity of recessions in highly developed capitalist nations characterises this crisis of the century as the first global crisis in the “Age of Globalisation”.
Even if the crisis first broke out in the USA and if in 2007 and 2008 the political and economic elites held the illusion that Europe would not be negatively effected by what was essentially a US speculation crisis, it quickly turned out that EU countries were at the heart of the crisis process and were much more strongly gripped by the recession.
As a result of the crisis, the social landscape has been fundamentally changed. In less than two years unemployment rose by about 50%-80% in most countries, and in so doing, a new base level mass unemployment has been established. Increased pressure on wages is one result. Added to this, following the experiences of the last decade, is the acceleration of a vicious circle of rising mass unemployment, growing precarisation of working conditions and the cutting of still not dismantled and privatised parts of the old European social model.
Factors responsible for the debt crisis are:
Answers to the economic and social crisis in Europe3 amount to nothing more than providing short-term emergency programmes for the hardest hit countries on the periphery, with cosmetic-symbolic operations in the case of reforms in the domain of banks and financial markets. Proclamations to the effect that one must strictly regulate the financial markets and reorient policy to the real economy, have – now that the immediate shock of the crisis as passed – never been pursued. Instead of this, the old competitive strategy has invoked and “a clear affirmation of the Stability and Growth Pact” is demanded. A European “New Deal” to overcome the crisis has never been up for debate.
In the Great World Economic Crisis, the character of the EU as a “project of the elites” becomes clear. Now this has come back to roost: A “European policy (…) at the turning points of the unification process has never before been carried out in such a blatantly elitist and bureaucratic way “4 as it was in the wake of the course of the bulldozing through of a constitutionalism shaped by neoliberalism. From the onset, the constitutional process was not based on a policy to promote social and political integration. Massive democratic deficits were inscribed into it and the militarisation of foreign policy reinforced. And by now the world economic crisis has revealed the lack of perspective inherent in the neoliberal policy of deregulation, the extension of the market and the privatisation of central pillars of the European social model. The European wheelbarrow has gotten stuck in a deep legitimation crisis.
Even after the German agreement to extend the Euro bailout measures, the federal government is agitating for the continuation of neoliberal European policies in the sense of an elite project: stronger measures against countries which offend the EU budget rules are demanded; financial aid is to be tied more strongly to questionable rehabilitation programmes; the path is to lead “out of the Union of debtors to a Union of stability”. Political rhetoric is becoming ever more mendacious: the neoliberal elites assert that the shared goal is that “Europe exits the crisis in better shape” than when it got into it. But in fact, the crisis’ burdens are being still more shifted to the great majority of the population. It is said that a condition for overcoming the crisis is giving more powers to the EU. Foreign Minister Westerwelle therefore demanded that: “States which in the future want to use the solidarity of the rescue parachute must now concede binding rights of access to the European level during this whole time and concede execution rights regarding their budget decisions”; the goal should be to become a “European Stability Union”; “we must further strengthen the Stability Pact in the direction of automatic sanctions”. In the “ideal case” this would be reached by a reformulation of the European Treaties.
Four years after it broke out, an end to the crisis is not in sight – even if we believe the most common prognoses. The optimistic assumption of an uninterrupted growth of about 2% until 2015 in the European arena is based on a prolonged export boom, which supposes that investments will grow at a rate of about 3%-4% while private consumption lags significantly behind the GDP. Consequently, unemployment will recede only very slowly – which in turn speaks for a progressive precarisation of working conditions. The entire accumulated debts of states, despite massive austerity policies – yearly public debts are to sink from 6% in 2010 to 1.5% in 2015 –, will continue to be far more than four-fifths of the GDP. European integration has reached the systemic limits of financial capitalism.
Greece is the first European country that already in the beginning of 2010 exhibited clear symptoms of the insolvency of banks and state systems. An indicator of this was the increasing impossibility of refinancing the accumulated state credits on international financial markets. Through an assistance loan from European states and the IMF in the amount of 110 billion Euros in May 2010, Greece was provided temporary independence from financial markets – as were shortly afterwards Ireland and Portugal. However, in the meantime Spain and Italy also have moved close to the limits of debt sustainability.
But haven’t the Greeks programmed their own collapse because they have been living too long above their means? To be sure, through the financialisation of the last decades, the Greek economy has been pushed in the wrong direction. Low interest rates made it possible to pad the structural problems through the expansion of public and private debt. After the collapse of the Lehman Brothers investment bank in mid-September 2008 most countries – including Greece – gave guarantees to their banks. In addition, many countries propped up their damaged financial institutions with new equity capital and spent billions on stimulus packages in order to alleviate damage to the real economy. Pent-up structural problems, such as tendential over-indebtedness, bank and financial crises as well as a worldwide recession all of a sudden revealed the debt trap. The global financial crisis did not produce the precarious state of public finances;5 it has simply brought it to light But at the same time it has aggravated it through the explosion of interest rates.
The weakness of the Greek economy has structural causes deeply rooted in Greek society. Over the last decades, important areas of social value creation have come under pressure through the development of productivity as well as exacerbated competition. The infrastructure measures planned with support from the European Structural Funds could not be realised due to growing uncertainty in the banking sector. In addition, there are home-made problems such as excessive military expenditures, an inflated public sector and massive structural problems in taxing higher incomes and in tax enforcement.
In addition, social security is affected by structural changes, which should have long since been dealt with by a reorganisation process. This is by no means an expression of excessive benefit entitlements for the broad majority of the population, because entitlements and social contributions should have long ago been balanced.
Nothing can be done to guard against such a crisis, not even with the harshest austerity policies. When numbers of bankruptcies increase rapidly, when unemployment increases by now to 18% and incomes are falling, the state will take in less, despite tax increases. Particularly with an asymmetrical tax policy incapable, not just symbolically but also in terms of confiscation, of getting access to assets and to apprehend tax evaders from “high society”, which instead causes consumption to break down as a result of higher mass taxation.
The economic downward spiral is the decisive problem and the cause of the multi-faceted symptoms of crisis. The tighter austerity programme subject to the conditions of the “Troika” (IMF, ECB and EU) has decisively contributed to Greece’s not being able to get out of the process of economic contraction.
It is a fact that Greek economic figures for the first half year of 2011 are worse than even realistic economists had predicted. Hope of a quick economic recovery is thus sinking. Greece’s finance minister is counting on a return to economic growth not before the year 2014, and even this is an optimistic assumption in the face of world economic crisis symptoms and world economic parameters. In this situation, returning the 2011 budget deficit to 7.6% of the GDP – as agreed on with the “Troika” – is not feasible. The even harsher austerity measure recently enacted will only accelerate the economic “death spiral”.
A successful rescheduling of Greece’s debt presupposes an amortisation table taking into account how drained the economy is. Several not insignificant questions of how another financial package must be configured in order to guarantee a temporary decoupling of Greece from the financial markets, or how high the interest rate can be for such a package, are not decisive in the end. What counts for any successful process of economic reorganisation is first of all clarity on what a new growth path can look like. The EU-Commission and the Euro countries are too timidly approaching a consideration of an investment and structural programme for the Greek economy, which would have to be tied to a corresponding structural programme for the European economy. Secondly, continuation of the restructuring process is meeting growing resistance from the populations of Euro countries and from the economic-political elites. Crises boost sceptics and populists, whether in Finland or in the Netherlands, in Belgium, Austria or Denmark. The EU is a useful scapegoat on which to project domestic national problems even if they are not at all due to communitarisation.
Greece is insolvent – so it is said by a growing part of the ruling classes, because the country is no longer able to pay back its debts fully and on time. It has debts running up to 160% of annual GDP. Without money from the rescue package it can not even pay its interests. Orderly bankruptcy would thus mean debt cuts by about 50% and a return to the drachma. But what would be the consequences of such a debt cut?
There is justifiable fear that the national currency would be devalued far beyond 50% in relation to the Euro. The state and many enterprises would then have difficulty in servicing their debts incurred in Euros. This would result in payment defaults and enormously increased interest/risk premiums for new credits. Greece could indeed reduce its debt and interest burden. However, this would by no means involve a stabilisation of the real economy.
Even if populist politicians refuse to believe it, the allegedly most convenient solution, that is, throwing Greece out of the Euro zone – even though according to EU law this is impossible – along with a stop on all aid payments, would be full of risks. An end to the common currency and dissolution of the EU cannot be excluded. The reintroduction of the drachma would unleash capital flight. Most likely this would lead to a run on the banks because savers and investors would transfer even more money abroad. In sum: a collapse of the banking system, which in turn would require recapitalisation. Further dangers would be:
The abrupt shrinking of Greece’s economy would have impact on the European economic, banking, and financial systems. Already now German write-offs of current engagements in the Greek economy would run to several 100 billion Euros, let alone the costs of bailouts for its own banks and financial market agents.
In the face of such costs and the hard to foresee repercussions wiser experts advocate rescheduling. If Greece, Ireland and Portugal all together adjust the value of their outstanding public and bank debts by about 50%, the burdens on Germany, the ECB and other Euro countries would be reduced. In addition, in this way the spreading and contagion of the crisis could be halted.
Already now, Italy and Spain are being drawn into the maelstrom of the European debt crisis. There as well, the core of the crisis problem lies in the economic growth process. The IMF has published pessimistic prognoses for Italy. In 2011 the GDP is to grow by only 0.6% and 0.3% in the next year. Although this is not shrinkage as in the Greek case, but it does exacerbate the restructuring process.
As was true in the past, Greece’s insolvency could be avoided. In order to do so, a rebuilding program is needed to combat the economic crisis and create jobs. But there is no money for this – except premature payments from the funds of the EU Structural Fund meant for Greece. Greece still has entitlements of 70% from a promise of 20 billion Euros worth of infrastructural funds. However, there were blockades due to co-financing and the financial means to be made available by banks. But here too, investments in infrastructure (transportation, energy, etc.), agriculture, and tourism require a longer timeframe and an appropriate economic environment before any strengthening of accumulation in the real economy sets in.
Without a rebuilding program, any debt cut will only be another tool for buying time. With the approval of the European Parliament for an extended EFSF parachute, it becomes possible for the latter not only to shield countries from the financial markets but also to keep banks and pension funds liquid, which the write-offs required by a “haircut” cannot stem. And in the event that large amounts of money are transferred by Greek banks to supposedly safer foreign harbours, there is a Plan B in readiness, with the issuing of controls on capital movements. All this makes clear that it is not finance regulations that are the problems. They are in limbo if the real economy continues to sag. However, a plan for this is not on the agenda.
Not only Greece is sailing in turbulent waters. For all member-states of the Euro Club, the prognosis is: “that the conjunctural dynamic in the course of the second semester will continue to subside and a recession will result”6 which in turn will effect a slow-down of economic life also in Portugal far into the coming year. Thus, it is clear that the debt regime with the prevalent mixture of austerity, tax increases, parachutes and injections of liquidity by the ECB is hardly still manageable. “Recession in the Euro zone should entail a further negative stimulus for the debt crisis. Current official budget prognoses for many countries (...) will turn out to be too optimistic. This could contribute to further destabilisation of financial markets (…). Although in our prognosis we do not assume that there will be uncontrolled payment defaults by countries or bank collapses as a result of a possible drop in credit-worthiness in the state loans for other countries the risk of such a development, however, is considerable, and if it occurs, the recession would deepen appreciably”.7
The balancing act between, on the one hand, ensuring states’ capacity to act by limiting their public debts, and, on the other hand, leading the real economy back to a sustainable-growth course, is no longer manageable for several countries, if international economic development stalls. In a deflationary environment, the debt crisis implies a renewed financial market crisis.
Certainly, a resizing of the financial sector is urgently necessary, but in doing so there must be concern that this does not result in a still deeper drop in real investments, or that payments in the area of social security does not cause does not further shrink.
A way out of the debt trap for Europe will in the end only be possible through a comprehensive economic structural programme. Even though elements of such a European New Deal are constantly being mentioned, there exists a lack of Europe-wide public opinion or a European public arena – one reason for which is that the political movements – trade unions, social associations, left parties – are still divided socially and nationally. In order to gain the capacity for mobilisation, however, there needs to be a common left agenda and left networks on the European level. As long as this is not the case, the current dominion of financial capital will remain in place, with all the risks this implies for Europe’s future.