Can a Democratic Europe be Built By De-privatising Political Power?
For ten years now, Europe’s political stage has been enriched by a new character, not always friendly and liked but feared because of its power: the European Central Bank (ECB). It is not a scarecrow. The ECB is generally seen for what it is, that is, a directorate of people with very precise goals and tasks heading the institutions with political decision-making power in monetary and financial areas, a power greater than that of national governments and other institutions of the European Union. The ECB has played a key role in the conceptualisation, enacting, and policing of the policy defined as ‘austerity’, which has brought sovereign states (with the exception of the most powerful state, Germany) to their knees, has trampled on the already weak ‘sovereignty’ of the European Parliament, and has swept away what little is left of the welfare state, which the masters of economic globalisation were still not able to eliminate between 1970 and 2005.
In this role the ECB has found two valuable and efficient fellow travellers: on the one hand, the EU’s European Commission whose task it is to define and promote Europe’s general interest. In the last twenty years, as an autonomous organ that is the motor of Europe’s political, economic, and social integration, the Commission has turned into an arrogant executive and extremist defender of the interests of the globalised European financial, industrial, and commercial world. On the other hand, the International Monetary Fund (IMF), a technocratic international institution whose policies since its creation in 1945 have always notoriously served United States interests and those of the dominant holders of capital in the international markets. These three protagonists together make up the Troika, which – either through its permanent representatives sent to the Member States (as in the case of Greece) or its continuous on-site inspections – controls and guides the national governments’ observance of the many stipulations of austerity policy, which were adopted by the EU even before the 2008 financial crisis.
Austerity, in its strict sense, indicates the totality of measures intended to reduce public debt primarily through the selective reduction of public expenditures, in particular social expenditures (military expenditures are not required to be reduced), and tax cuts for economic actors (to favour the competitiveness of businesses) accompanied by an increase in indirect taxes (on consumption and access to public services that are increasingly privatised). In reality, the Troika is the ultimate instrument that Europe’s rulers and big players in the international markets are using within the broader context of strategy aimed at eliminating the state – as a sovereign agent of policy, the guarantor of human rights and responsible for collective social security as well as the institutional location of representative democracy – in favour of ‘world economic governance’ and the promotion of a world society guided by the logic of global private finance and market mechanisms. These (finance and the market) form one side of the clamp that is now suffocating and imprisoning the evolution of both the western societies of the north and those of the emergent (BRIC) countries.
In what follows we will review the cornerstones of the provisions that symbolise European austerity policy, looking then at the role of the ECB as a sovereign power in more detail, also asking what its consequences are, and, finally, outlining proposals for dismantling the present state of things.
Starting in the 1970s, Europe’s ruling classes faced a series of major problems: The environmental crisis of ‘development’, the collapse of the world financial system (1971-73), the end of the western countries’ control of oil prices (1973, 1978), the emergence of ‘Third World’ countries, and, above all, the revolt of capital holders against the reduction of the rate of profit for private capital, a result of the welfare state in the 1960s and 70s. The welfare state had allowed a redistribution of the produced wealth towards income earned by labour and collective wealth (goods and services of general interest) at the expense of holders of income on capital, which was unacceptable for them.
The dominant social groups thought they could resolve the problems by regaining control of regulation and the economy (‘the house rules’) through leaving the problems to the ‘market’ and ‘finance’ to resolve, the two key mechanisms seen as ‘creators of wealth’ in a capitalist economy.
In the name of the principle of liberalisation, marketisation, and the privatisation of goods and services, they created the European ‘common market’ in 1992 and advocated the creation, in 1994, of the World Trade Organization (WTO). Through the ‘market’, the dominant groups wrested from the collective domain and elected political representatives the power of setting priorities and defining and measuring the value of ‘things’, subjecting these to the principle of the maximisation of competing individual utility. Thus, within a few years, the European Union established the principle that any intervention on the part of public powers in areas subjected to Europe’s internal market is harmful and therefore illegal because it would distort the regulatory mechanism of the market. More market with the goal of zero state has been the iron block forming the first arm of the clamp.
It is, however, difficult to make integrated markets work without a common currency with which to develop financial activities and organise the ‘financial markets’. Whence the creation of the second iron arm of the clamp: the creation of the euro, the single currency. Its creation occurred in the absence of two conditions thought to be absolutely necessary by all advocates of a unified Europe since the end of the 1950s: a) the convergence of the economic structures of the Member States of the currency union, which the single market was supposed to have promoted – instead, the liberalisation of markets accentuated the economic differences between the countries of Europe’s north and those of Mediterranean Europe; and b) the existence of a European political public authority that would be responsible for monetary and financial policy, a condition that was clearly far from being satisfied in the second half of the 1990s, which is why monetary policy was entrusted to a new institution, the European Central Bank, politically independent of the other institutions of the EU. The creation of the ‘common’ currency without a European political government was a deliberate choice in order to transfer responsibility for financial policy to the financial operators themselves, who in the meantime had become increasingly globalised, free, and powerful. Let us recall the abandonment of controls on international capital movements during the 1980s, the explosion of the currency markets, the proliferation of tax shelters, the privatisation of all the financial actors, the elimination of the distinction between insurance and banking activities, between deposit banks and credit banks, and between various banking sectors (agricultural, industrial, commercial, artisans’ banks, working people’s banks), and the legalisation of highly speculative hedge funds, out of which the derivative products emerged that were at the root of the deep financial crises of 2001 and 2008, which destroyed tens of millions of jobs.
This complex of measures gave birth to a financial system known as the ‘total bank’ – hyper-oligopolistic, characterised by the emergence of enormous private financial agglomerations so powerful as to become ‘too big to fail’, because their failure would bring with it the global collapse of the world capitalist system. The whole economy is thus ‘beyond public control’: political power has been privatised, and the political sovereignty of national states has been reduced to a pure formality. The 2012-2014 Fiscal Compact was the final step in crushing the sovereignty of the EU’s Member States.
The ECB is one of the constituent institutions of the European Union, along with the European Council, the Council of the European Union, the European Commission, the European Parliament, and the Court of Justice of the European Union. It is vested with legal personality. It was created in the framework of the Treaty of the European Union (TUE), known as the Treaty of Maastricht (1992). The ECB is the principal element of the European System of Central Banks (ESCB), consisting of the ECB and the national central banks (NCBs) of the states that are in the currency union and which comprise the Euro System. The ECB’s capital is owned by the central banks of the Euro System – or ‘Euroland’ as it has been disparagingly dubbed. Since the capital of many NCBs is held by private agents (banks, firms, and other economic actors) the ECB’s capital is also largely in the hands of private subjects. Formally, the ECB is a ‘public’ banking institution but with mixed public-private capital, as is the case by now with the great majority of ‘public’ economic and financial subjects (for example, the deposit and lending banks in Italy and France, respectively the Cassa Depositi e Prestiti and the Caisse des Dépôts). Being a separate legal entity and having full political independence, the ECB has no need of a European political government in order to legitimately govern the EU’s monetary policy according to the mandate given it by the Treaty of Maastricht. It is the European government in the monetary sphere.
The ECB acts in conformity with the ‘free competition’ principle of a capitalist market economy. In this context, the ECB’s objectiveis the maintenance of price stability. To stabilise prices, the Treaty has established an annual rise of less than 2 per cent in the Harmonised Index of Consumer Prices (HICP) for the euro area. The ESCB upholds the EU’s general economic policies in order to contribute to the meeting of the EU’s goals as stipulated in Article 3 of the TUE. The goal of full employment is not a concern of the ECB, as it is for the Federal Reserve Bank (The United States’ central bank).
Among the tasks of the ESCB, under the guidance of the ECB, are the establishment and carrying out of the Union’s monetary policy; carrying out foreign exchange operations; maintaining and managing the official reserves of foreign currency of the Member States; and (since 2014) the prudential supervision of credit institutions within the framework of the Single Supervisory Mechanism (SSM). These are extremely crucial tasks for monetary (and financial) policy, which were previously entrusted to national central banks. With the taking on of this new function, the ECB is enhanced as a supra-national European power in the monetary realm.
The ECB’s powers are considerable:
Article 130 of the Treaty on the Functioning of the European Union (TFEU) established the principle of the ECB’s full political independence. It could not be clearer: ‘When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body.’ It stipulates the obligation of the government of Member States to abstain from any form of interference in the ECB’s activities.
The principle of the ECB’s political independence constitutes a major juridical, institutional, and political reality that is anomalous not only in the context of central banks of the world but even in relation to the rest of the European Union’s architecture. The ECB is the ‘most independent’ central bank in the world, more so than the US Federal Reserve Bank, and even more than Germany’s Bundesbank. Moreover, considering that the Treaties limit the ECB to giving sole priority to price stability, it has great difficulty in orienting and adjusting European monetary policy in the service of the major more general objectives of the EU that do not directly depend on monetary policy. This gives rise to a series of major dysfunctions, contradictions, and adverse consequences for European integration and for European societies on the political, economic, social, and cultural levels.
Above all, European monetary policy lies outside the reach of democracy. The ECB is the only central bank in the world that has been granted political independence. Other central banks are autonomous but not independent. Behind this anomaly is the idea, accepted in the last thirty years by the national political powers, that it is necessary to detach the economy from politics and entrust the tasks of managing it, and in particular monetary policy, to technical (that is, ‘independent’!) organs able to make the financial markets confident of the ‘stability’ of the banking and economic system of the country in question. This explains why the EU, under pressure of the international financial markets and economic agents, accelerated the creation of the ECB and the adoption of the euro even in the absence of a federal European state. The presumed apolitical character and ‘neutrality’ of the technical organs, which are entrusted with functions of great political impact, is a pure deception. How can one think that interest-rate manoeuvres are not political acts? Money is politics. Furthermore, in what way is the ECB apolitical when Trichet, Draghi’s predecessor as ECB President, and Draghi himself, have since 2011 sent letters to the Spanish and Italian governments in which they emphasise the urgent need to ensure price stability in their countries by requesting them, explicitly and directly, to privatise public services, reduce social expenditures, make changes in labour legislation, and reduce taxes? To speak of the ECB’s neutrality is the umpteenth confirmation of its deception when it participated in writing and signing the last memorandum dictated to the Greek government, which despite the mandate it received from its own population through the referendum, was obliged in August 2015 to accept it under the real threat of an immediate non-negotiated expulsion from Euroland. The apolitical character of the ECB was imposed by the dominant social groups that are against the intervention of civic public authorities (including parliaments) in the economy and think that politics must be subject to the ‘laws of the market economy’.
In the second place, the only sovereign authority within the European Union is the ECB. There are no formal limits to the decision-making power of the ECB – a ‘technical’ organ. The ECB has sovereign political independence, without any control and counterweight on the part of the other institutions of the EU. In contrast to the other organs with public authority, the ECB’s members are not chosen through a democratic process but co-opted by their peers. Always by virtue and in the name of the confidence that the markets must be given, it is stipulated that the markets are to be outside the political system of democratic checks and balances. The European Commission has the exclusive power to propose a European legislative act. In addition, once a directive or decision is approved by the Union, the Commission becomes an executive organ. None of the three political institutions of the EU is sovereign. Legislative and excecutive powers are shared. This is a sui generis political engineering, conceived to ensure the functioning of an institutional system in continual evolution and to avoid imbalances at the level of formal decision-making power. Each one of the three institutions mentioned depends, for decisions and action, on the others and is responsible in the face of the others. By contrast, in deciding and acting the European Central Bank does not depend on the other institutions or on any other entity. It is sovereign; it need not ask for any authorisation nor open negotiations with other institutions. Its power is endogenous and self-referential.
Adopting the articles of the Treaty of Maastricht relating to the ECB, Europe’s states have put into effect a formal and real surrender of democracy and sovereignty. For several years now, the ECB has, it is true, agreed to present an annual report on its activity to the European Parliament, but only for information purposes. The Parliament is not authorised to vote on the report nor to propose guidelines and binding recommendations for the current year or the future. The ECB has also accepted a meeting every three years between its directors and the Commission of the European Parliament to discuss economic, monetary, and financial matters, but exclusively for purposes of information. Clearly, these procedures have nothing to do with reinforcing democracy – not even representative democracy.
The European Parliament continues to accept the situation. The two political groups that make up the great majority that for years now ‘governs’ the Parliament (the European People’s Party and the Progressive Alliance of Socialists and Democrats) have approved the political independence of the ECB and in general support its monetary policy even if with some minor but increasing discomfort. It is not facile populism to say that it is an unacceptable scandal that the European Parliament, composed of people elected by the populations of the Union, and the legitimate sovereign representatives of 509 million European citizens, has to beg a technical organ of the European Union, composed of 18 people, chosen without any responsibility towards the other EU institutions, to agree to publish the minutes of their decision-making meetings.
The arguments deployed by those jurists, economists, politicians, and journalists who assert the democratic character of the existing system are quite weak. On the website www.banningpoverty.org, I have examined arguments that the ECB is in fact accountable on the basis of ‘democratic legitimacy as a function of the procedures’ and has ‘legitimacy as a function of the results’.
In the third place, we are seeing the inversion/overturning of the constitutional objectives of the European Union. An instrument has substituted the objectives. We are looking at a political-social and historical-ideological mutation of European integration.
The argument that democratic legitimacy exists as a function of the results goes as follows: If the ECB achieves its objective of stabilising prices below their 2% increase, the ECB’s independence is in the interests of Europe’s peoples because price stability (would be) based on the economic growth and well-being of all EU citizens. The ECB would therefore be acting in a responsible way in relation to the EU’s peoples. This argument is completely unfounded. There is complete conflict between absolutist monetarism tied to price stability and the complexity and variety of objectives involving the socio-economic well-being of all the Union’s citizens. Monetarist absolutism translates in fact into the ECB’s constitutional incapacity to serve, harmoniously, cooperatively, and by evolving, the needs of European societies on the economic, social, human, political, and institutional level. Money’s ‘genetic’ raison d’être has been radically modified. Now money – a means, an instrument at the service of short-term action – has substituted for historical long-term societal goals. Price stability obeying the logic of the financial markets in the epoch of financial transactions occurring every millisecond, that is, in a senseless financial system, has turned out to be a useless and irrational political parameter. More than 124 million EU citizens are paying an unspeakable social and human price on the altar of the monetarist dogma of wealthy social groups. As could have been predicted, austerity has in no way permitted shared economic growth but rather the growth of processes of impoverishment and inequality among Europeans. Eurostat, the statistical office of the EU, has calculated that in 2014 the EU’s poor have reached a record 124.3 million people within a total of 509 million inhabitants. From 2010 to 2014 their number grew by three and a half million, although the EU’s Europe 2020 strategy aimed at reducing the level by 20 million between 2010 and 2020.
In the fourth place, European integration is falling apart on the level of socio-economic policy, and the EU is becoming a financial-mercantilist technocratic system with a twofold political hegemony (that of Europe’s strong globalised economic groups and of one country: Germany), and, on the political-military level, within NATO under US hegemony.
Everyone recognises that the euro is a currency that does not have a state, a situation that exists nowhere else in the world. The other central banks exist because a state created them. The constitutionalisation of the political independence of the ECB occurred before and in the absence of a sovereign European state. The fact that of 28 Member States only 19 are part of Euroland shows the exceptionality of the ECB’s supra-national sovereignty ‘without a state’. In the context of the present European Union, the ECB is the only institution – even though it is a technical organ – given real supra-national powers – a true paradox. Until recently, the countries involved in the European Community openly declared that their final objective was that of creating the unity of Europe. Today, the European Union (the term which replaced that of ‘European Community’ in vogue through 1992 and not by accident) is essentially a political entity whose working principles are similar to those of active inter-governmental, international organisations. There is no lack of impulse towards forms of European supranationality, but there is no more talk, in the context of the EU, of common European policies. The rule is to speak of the ‘coordination of the Member States’ policies’. The ECB is the macroscopic example of the primacy of the logic of money/finance at the service of the dominant social groups and over the rights and power of the people. The 2012 European Fiscal Compact (the European budgetary compact formally known as the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union), which takes from EU Member States their sovereignty in the sphere of budget, and the various national investment compacts, adopted following the measures known as ‘Quantitative Easing’, are its key tools. Quantitative Easing responds to the needs of banks, debtors, and creditors. It does not aim at putting money (and finance) at the service of social justice within and among Member States for a really ‘sustainable’ development. In this respect, the EU’s current monetary (and financial) policy is fundamentally contrary to the principle of a nations of laws and the various international human rights conventions and treaties.
As we see, the juridical, institutional, political, and social paradox represented by the current EU system with its ECB is great indeed. This EU needs to undergo a profound rethinking and revision.
It is illusory to believe that a system, which by the wish of its own political ruling classes has privatised political power, handed over to private interests all economic power, and favoured the growth of injustice and social inequalities, can give birth to a new European communitarian political ‘architecture’ that is democratic, just, cooperative, solidary, ecologically sane, and free. We need to further the conceptualising and promoting of a new European Community, starting with a) the dismantling of the principles of the European Monetary Union (EMU) and its constitutive elements, above all the abolition of the political independence of the ECB, and b) the reconstruction of the social fabric of a European common life, by constitutionalising the common public goods (and services) that are at the root of any form of a ‘community of life’, namely water, land, knowledge, and healthcare. The struggle against the private appropriation and accumulation of the ownership and control of life on a planetary scale is part of the work of retransforming the world, of which the construction of a new ‘community of European life’ should be the strong propelling force.
To this end, two fundamental proposals, one medium-term and the second long-term:
First, as European citizens, we have to intensify and maintain, up through the end of the present European legislature, our pressure on European parliamentarians until they revoke a series of decisions they have made, in particular the Markets in Financial Instruments Directive (MIFID) on European financial markets. The most well-disposed Members of European Parliament, with the committed support of European civil society (this time really united and cooperative at the European level) would have to put in place a parliamentary plan to ‘SAVE EUROPEAN DEMOCRACY’. The plan would have to aim at, and have the EP approve, a coherent series of ‘small’ legislative initiatives originating in parliament whose purpose is to alter various procedural mechanisms for allocating institutional tasks, for increasing the powers of the Parliament, and for revising some of the norms and forms of action – with the overall purpose of destabilising the EMU and giving back a modicum of dignity and strength to European representative democracy.
Second, a European campaign of consciousness-raising and citizen mobilisation ‘END THE ECB’S INDEPENDENCE. FOR A CURRENCY THAT SERVES CITIZENS AND PROMOTES SOCIAL JUSTICE’ needs to be launched. Precisely because we know that the Treaties cannot be modified in the short term it is essential, and of enormous political-pedagogical value, to promote a long process of political and cultural mobilisation supporting the great founding principles of the cohabitation of more than 500 million people. The structural changes need time to be fuelled by a strong utopian capacity and broad horizons. Let us begin with water – a public common good without barriers and a universal human right.