• Germany as Hegemonic Power: The Crisis of European Integration

  • By Joachim Bischoff , Richard Detje | 14 Nov 12 | Posted under: Germany
  • From its inception, Europe has been a political project – aimed at overcoming conflicts and creating cooperation. Over the course of the last decades European nations – led by economic and political elites – were able to overcome their long-established enmities.

    This goal, and the enormous commitment of many forces in civil society and institutional politics, undeniably deserves to be recognised and honoured as a service in the cause of peace.

    Nevertheless, the bestowal of the Nobel Prize for Peace on the European Union also indicates a problem. For a long time now, the EU has been a project of the economic and political elites. From the south to the north, Euro-scepticism is growing. While the chauvinist-anti-democratic right advocates a return to the nation-state, the left is mobilising against the social consequences of radical austerity politics. And the political blocs of the conservatives and social democrats find it increasingly hard to keep up their mantra of austerity policies without alternatives. The number of heads of government who have politically survived the crisis since 2009 is small. In this situation, the symbolic cover given by the Nobel Prize for Peace is intended to strengthen the idea of peace.

    From the onset, European integration was a new political project which grew from the ruins of World War II. But it was a project which – from the Montan Union (European Coal and Steel Community) to the European Monetary Union – was dominated by the primacy of economic integration. Former president of the EU Commission, Jacques Delors, used the image of “Russian nesting dolls” to characterise this phenomenon: from economic progress, social and finally political progress would grow. However, while during the 1980s the project of the domestic market was enthusiastically carried out, the European social model hardly advanced. The liberalisation of capital markets pushed – among other reasons to avoid speculative attacks against national currencies – toward the introduction of a common currency which in the long and medium term – and with an eye to global financial markets – was conceived as an investment currency capable of seriously competing with the US Dollar. In the process, the restructuring of the “Keynesian welfare state” was accelerated and made compatible with EU financial markets. “Europe” was turned into a project of economic and political elites, and its democratic content fell by the wayside. Attempts simultaneously to sanction and conceal this process within a European Constitution have failed in two public referendums: in France and Ireland. In this process, resistance against the legal institutionalisation of military policies played no small role.

    In the midst of the heaviest economic and financial crisis in EU-history, injecting the symbolic capital of the Nobel Peace Prize is indeed a risky project because economically, socially, and politically Europe is deeply divided. Old avenues of integration no longer lead anywhere. A renewed attempt to present, within the next two years, an EU constitutional treaty is no longer going to the trouble of concealing elite rule. The fiscal pact and reports issued by the Troika are harbingers of a new European fiscal regime to which all areas of social life will be subjected. This is producing massive social strife from above. The peace formula of “embedded capitalism” or “Rhenish capitalism” in France and Germany is no longer in effect. The policy of integration and self-integration of Germany into the European cooperative space has reached a limit: The constantly widening gap between the economic power of Germany and that of other EU countries is leading to the formation of new hegemonic structures and related conflicts.

    The failure of modernisation

    The EU Commission and German Chancellor Merkel want to establish the European fiscal regime very quickly, since the gap between the economic power of Germany – and along with it Finland, the Netherlands and Austria – and the so-called crisis countries, to which Spain and Italy by now belong, will not be closed by the prevailing austerity policy but will widen further. Highly productive industries and service companies in so-called core Europe stand in contrast to clearly weaker ones in states now declared to be part of the periphery. The project of an all-encompassing modernisation of Europe, the Lisbon strategy proclaimed at the beginning of the 21st century to promote Europe’s competitiveness in the world market, soon failed. At its core it was nothing more than an attempt to commend Germany’s mercantilist strategy as the model for the entire European club: high competitiveness, economic growth through success in foreign trade, and, beyond this, secure employment and income. This required restructuring the European social model according to competition-promoting policies, opening up the social welfare system to financial markets and the further privatisation of public enterprises, particularly in areas of municipal infrastructure. The result was the intensification of social inequalities, the formation of asset bubbles and a massive expansion of the financial sector with an ensuing rise of instability in economic and political systems. Germany was able to conquer leadership as the most competitive economic power.

    The promise of equalising economic and social living standards within the Euro-regime was made unrealistic from the start. With the European single currency, Germany had gained a decisive competitive advantage, but competitive advantages were no longer counteracted by national currency appreciation. The policy of Germany’s federal government to fuel national accumulation by usurping collective demand in the European domestic market, could – given the currency union – now have a chance. Since inferior neighbours had no possibility of depreciating their own currencies, pressure grew internally brutally to lower the costs of labour. Wherever this did not happen, debts increased. For almost a decade, this “creditor-debtor” system seemed to “function”. In the context of the Great Economic Crisis, expansion based on growing indebtedness came to an end.

    The division of Europe

    In countries such as Great Britain there is great resistance to the concession of more power to the EU. Others warn of a two-speed Europe, in which states like the 17 Euro-members work more closely together and all other partners sink into the role of outsiders. Recently, treaty change has come up for discussion due to a strengthened common budgetary and fiscal policy. In the end, EU-members decided the Budgetary Pact through bilateral agreements, not as a further development of European agreements. It is not only the Euro-sceptical British who have strong reservations about this development. Concerns about a two-speed Europe, in which they would, if anything, play an increasingly peripheral role, are gaining voice.

    At the Conservative Party Congress, British Prime Minister Cameron prepared the population for hard times. He said that painful decisions were pending in order to bring the country out of its deep recession:

    “Unless we act, unless we take difficult, painful decisions, unless we show determination and imagination, Britain may not be in the future what it has been in the past. Because the truth is this. We are in a global race today. And that means an hour of reckoning for countries like ours. Sink or swim. Do or decline” (The Telegraph, October 10, 2012).

    The insolvent nation, threatened by dissolution, shall, he claimed, once again be made solvent by removing its mountain of debt, gently regulating the banking world, further reducing the social welfare state and increasing its distance from the Eurozone. The EU budget is a typical case “where we must draw new boundaries”, Cameron said. If the budget is too large, he will block the new EU domestic budget. The Prime Minister demanded two domestic budgets in the future – one budget for Euro-members, and another for the rest of its members. Put bluntly: there is a growing gap between the Euro-zone dominated by Germany, and members who are not tied to the currency, resulting in a split within the Eurozone.

    In addition, in many countries, the political coordinates have moved to the right. In parallel to this rightward shift, a qualitative change is taking place in the political system: short-cycle as political crises as a result of austerity programmes that disintegrate social relations, the increasing discrediting of the party system, the recourse to “cabinets of experts” who are to carry out the allegedly necessary constraints which appear to be independent of social-interest conflicts and clientelist power structures. Emergency regulations decreed during the Great Depression of the 1930s in Germany, which unhinged the parliamentary system of the Weimar Republic, characterises the political architecture of today’s Europe. Under the new European fiscal regime, member states must present their domestic budgets – even before being considered by national parliaments – to the EU Commission and the European Council of Ministers for approval and are thus subjected to permanent monitoring.

    The installation of an authoritarian regime – as seen in the developments of recent months – is thus not only a consequence of a partly tacit, though often rather noisy, pressure from financial markets (Habermas: “less democracy is better for the markets”), but is necessarily mediated by a political class organising itself under post-democratic conditions.

    The reality is that in times of economic weakness – certainly in a recession – the industrial base of many countries is exposed to the danger of a non-financial sort of contagion: that is to say, while Germany’s export industry profits/profited from the expanding demand coming from Latin-American and especially Asian markets, Italian, Portuguese, and Spanish export enterprises are much more focussed on a stagnating European market – and correspondingly they suffer from the contagion of European austerity. What could bring down the firewall erected with ESM, IMF and ECB funds is the coincidence of a crisis of the real economy with that of financial markets during the coming year.

    Excacerbation of the crisis

    The world economy is on the brink of a renewed recession. Germany is an exception because its growth and employment rates lay well above average when the crisis broke out in 2008. A prognosis for the recession in the Euro-countries is that the target marks will be missed and the debt quota will rise.

    The distinct slow-down of the economy, politically aggravated by austerity policies, will provide for a massive intensification of the debt crisis in the coming months. Thus, in the foreseeable future, Greece, Ireland and Portugal will not be able to return to the capital market. It may even happen that Italy and Spain lose access to the market and will have to be supported by massive interventions by the ECB.

    Despite the repeatedly declared resistance of the German government to intensified and unlimited interventions by the central bank, more and more observers see the only way out in a strengthening of Germany’s leading role and a monetisation of state debts. A collapse of the Euro and the reintroduction of national currencies is said to be a threat to Europe and the capitalist hemisphere. The prevailing diagnosis of the crisis is: Europe’s states have too much debt, of which too much is in the books of banks which are in principle insolvent; moreover, there are enormous trade imbalances between peripheral and central Euro-countries. All three problems have to be solved, otherwise the Eurozone will implode in a deflationary spiral. However, austerity is no solution, since it is impossible for one country to correct the deficits of the government and of the private sector while a trade deficit exists.

    The magic word is “structural reform”. It designates fundamental changes in Europe’s wage system. It has come under pressure after Germany massively devaluated its currency during the decade after the introduction of the Euro. While real wages throughout Europe rose at various rates of speed, they fell in Germany. Decisive here was a policy through which the low wage sector and precarious-labour sectors were quickly expanded. Within a few years, the amount of non-existence-guaranteeing work grew to levels only outmatched by the USA. This competitive pressure is now used as an opportunity to change the collective bargaining systems between wage labour and capital in fundamental ways: through the revocation of national negotiated wage systems, through escape clauses in all sectoral wage agreements, through a general preference for company-level agreements, a stop to declarations of general application and the partial annihilation of unions. Added to this is a new political interventionism through massive wage cuts in the public sector and the lowering of minimal wages. As a consequence of these policies, real wages in Greece since 2010 were brought down by over 20% and in Portugal by over 10%. The result: the economic collapse was reinforced.

    Authoritarian capitalism?

    It is absurd to want to force structural adjustment programs of national economies in the Eurozone by lowering wages and carrying out austerity policies that lead to economic depression. Europe needs economic growth and at the same time a structural change of accumulation regime. The leadership role of Germany, which up to this point consists in the massive carrying out of austerity measures, has to be overcome in that, as the hegemonic power, it bids farewell to an economic policy oriented to current account surpluses and aims instead at a more equal balance of trade. It is of course to be feared that this civilising direction of development will find little support from the economic and political elites. The error in the construction of the Euro-project consisted and still consists of the fact that for political reasons a common currency was imposed on unequal national economies. As a consequence of the specific structure of the currency union – a coalition of sovereign states with national banks of issue, combined with a Euro-wide inter-bank payment system (Target 2) – competitive imbalances are created and Euro-countries with current account deficits and budget deficits are automatically financed by those Euro-countries which – due to their higher competitive capacities – realise current account surpluses. As long as these inequalities persist, the claims of the surplus countries on the deficit countries continue to grow.

    New institutions – such as the EFSF und der ESM – were founded outside of the European Union. These mechanisms, as well as the Euro-group, are dominated by the core European countries, and the latter by Germany. This culminates in a change of European power relations: the financial and state-debt crises have led to a shift of power toward Germany as hegemon. Germany is today stronger than it ever has been in the history of European unity. This is mirrored by a relative weakness of France and Great Britain.

    Since a generalisation of austerity policies is neither a sustainable nor socially acceptable way out, and Germany as a hegemonic power is increasingly approaching a political dead end, we are going to experience an ongoing intensification of the political contradictions in the next three months. The incubation of authoritarian, personalist forms of rule will advance. So-called technocratic governments are mere transitional forms. This development can only be stopped when popular majorities reject the prospect of such developments and, by dislodging the power of the financial markets, bring into being a through-going process of the reform of national economies.

    However, it is not only changes in the relationship between core and periphery, but also the issue of democracy that can call into question the existence of the EU. Since the Union is proceeding in “negating European democracy”, it is dramatically losing acceptance, and demands for “more Euopre” are becoming more unpopular and always less realisable. A stagnation of the European process of integration and possibly also a retransfer of EU competences to the nation-state level can therefore no longer be ruled out.

    There will be no quick, simple and clean solution from a regulatory point of view. Nothing is gained by excluding member states or by dreams of a North-Euro. The citizens of the affected countries would try to put their money in a secure place to prevent their savings from being exchanged for a new currency, which would then be devalued on the foreign exchange markets. If the Euro collapses there will be bank crises and state bankruptcies. The ailing bank and financial system will not survive the end of the Euro. The exit or exclusion of some member states from the EMU would result in a serious convulsion of the European and international financial system.

    With the Euro the whole European fabric would totter. The flawed construction of the Euro regime cannot be repaired by abolishing the Euro. And yet: The wave of Euro-enemies could very quickly turn political power relations upside down in many European countries – to the far right. Eurozone governments want to resist this possibility through the new European fiscal regime. This new and concerted fiscal and economic policy is neither social nor democratic. It reinforces tendencies to authoritarian capitalism.

    There can only be a collective way out. The dismantling of current account surpluses and the expansion of the domestic economy in the core countries are indispensable contributions to EU stabilisation. What is necessary is a reform which instead of resting on the single pillar of money and currency policies will rest on three further pillars: a common fiscal policy which redistributes resources from top to bottom; economic policies which can socially and ecologically renew Europe with public investment programmes; and social policies that eliminate poverty and create development opportunities.

    The EU is the result of the political will to overcome apparently irreconcilable antagonisms. This has, from the beginning, meant the reconciliation of peoples who for centuries had seen each other as arch enemies. Measured against such an achievement, the latest challenge to put economic development and the common currency on a sustainable basis would seem to be a less daunting task. Nevertheless: the resistances and obstacles seem insurmountable. Nationalistic centrifugal forces have in recent years gained considerable new strength and pose a threat to the entire European construction – they could put an end to the peace project.   

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