CAPITALISM IN CRISIS: Europe, Austerity and the Left, 2012

Proceedings of National Conference Sydney, 29-30 May 2010 Image for INDIGNADOS The logo of SYRIZA

Publisher: Social Education And Research Concerning Humanity (SEARCH) Foundation 124 Chalmers St, Surry Hills NSW 2010, Australia Ph: +61 2 9319 2309; Fax: +61 2 9318 2523 Email: [email protected]; Website: http://www.search.org.au

Reproduction of articles permitted as long as the source is acknowledged, except for the article by Slovoj Žižek for which permission must be sought from The Guardian. The SEARCH Foundation thanks all the authors and publishers, and the Creative Commons li- cence, for permission to reproduce this collection of articles. National Library of Australia Cataloguing-in-Publication entry Title: Capitalism in crisis, Europe, austerity and the left, 2012 / John Bellamy Foster ... [et al.] ISBN: 9781876300210 (pbk.) Subjects: Capitalism - Europe. Economics - Europe. Political development. Europe - Politics and government - 21st century. Other Authors/Contributors: Foster, John Bellamy. Dewey Number: 330.122094

Date of publication: July 2012 Format: PB; Size: 270x195; No. of pages: 112 Photos: Front cover from top - European Union and Greek Flags in Athens; Acropolis protest May 4, 2010. French strike and rally March 1, 2009. Inside cover: logos of SYRIZA (Greece), Indignados image, The Left (Germany), and the Left Front (France).

Text preparation: Troy Henderson, Peter Murphy. Layout: Peter Murphy; Leila Barreto. Printer: Spotpress, 24-26 Lilian Fowler Place, Marrickville NSW 2204 Distribution: Print & Mail Pty Ltd, 23-25 Meeks Rd, Marrickville NSW 2204 Foreword

Capitalism’s European Summer of Discontent

The SEARCH Foundation has collected the views of participants and commentators on the crisis in Eu- rope to inform debate in the Australian Left. For most Australians at present the crisis is a reason for caution and insecurity. We know that but for some accidents of economics and history, particularly our link to a trading partner ironically governed by a communist party, that there but for the grace of the mining boom go we. The policies and structures of corporate globalisation we have been exhorted to embrace mean that now more than ever we are vulnerable to policies adopted beyond our shores. The views included here are likely to prove only an early chapter in a crisis with profound political conse- quences. For a generation, the proclamation of Fukuyama’s ‘end of history’ reflected the estrangement of the terms ‘capitalism’ and ‘crisis’. Now they are firmly locked together again in Europe where it all began. After the 20th century trauma visited on the continent by depression and war, conventional wisdom foresaw successful economic and ultimately political union. This would maintain a global counter- weight to the US colossus and an emerging Chinese giant in the 21st century. Modern economic man- agement, with astute hands on the levers, would avoid economic and social crisis; the political consen- sus would prevail providing a limited democratic choice between social democratic and conservative versions of neo-liberalism. No more. The first response to the Global Financial Crisis ushered in by the subprime collapse in the US was largely rhetoric to assuage the panic. There would be an ‘end to extreme capitalism’ by revisit- ing Keynes and regulation. But in practice corporate and political elites succeeded in harnessing pub- lic finances and policies to return to the pursuit of their own interests at the expense of the 99%. The public debt crisis became a new vehicle for attacks on living standards, the welfare state and the public sector. Democracy was sidelined by technocratic experts whose arrogance far exceeded their capacity to address the underlying causes of the crisis. Political responses to these policies are now dominating the discussion on the prospects for the world economy; witness the trigger which a small nation and economy like that in Greece now represents for international share markets. The suffering imposed on the Greek people by the Eurozone auster- ity program has turned to anger and ultimately created a political renaissance for the radical left. The transformation which SYRIZA wrought on Greek politics is far more significant and enduring than the narrow majority achieved by the old parties in the June 17 general election. In Spain, Italy, Ireland, France and Portugal this renaissance is being closely watched. A decisive element in how these move- ments evolve will be the alignments of labour movements and the opinions of workers broadly defined. This collection does not attempt to make a grand analysis or a narrative. The sections dealing with po- litical economy, political responses and the future for Europe are not chapters leading to a conclusion and can be sampled at random. However, together, the contents are momentous for the future of the Left in Europe as well as in Australia and deserve further debate of all kinds. The SEARCH Founda- tion website www.search.org.au provides a forum for feedback and discussion. Rob Durbridge President, SEARCH Foundation

Capitalism in Crisis: Europe, Austerity and the Left, 2012 1 Introduction

Europe has become the focal point of the latest The third article by German economist Heribert phase of the capitalist crisis that first exploded Dieter provides a detailed account of European with the US subprime meltdown of 2007, before elites’ crisis management strategies, as well as becoming a Global Financial Crisis and a Great some insights into the structure of European capi- Recession in 2008. The European crisis clearly il- talism. Joseph Halevi’s short piece makes the key lustrates that, after short-lived calls to ‘reregulate point regarding the problems created by having finance’, ‘end extreme capitalism’ and implement a monetary union based on neoliberal principles ‘Keynesian policies’, economic and political elites without the government budgets also having ‘un- have returned to the same ideologies and poli- ion’ to deal with different levels of development cies that have enriched the 1% while promoting among Eurozone countries and the trade imbal- economic instability and attacking the interests of ances that result. the other 99%. High profile economist Nouriel Roubini and So the crisis has deepened into a political and Citibank economist Willem Buiter outline the social crisis, with sustained use of state force to costs and benefits of Greece leaving the Eurozone. contain and repress protest, and serious possibili- Articles by Varoufakis, Roubini and Greene, and ties of fascist-inspired civil conflict if there is not Pettis focus on the current predicament of - and a change in direction. future options for - Spain, the Eurozone’s fourth With strong financial and trade links between largest economy, where unemployment is around Australia and Europe, apart from the ideological 25% and 50% of young people don’t have jobs. loyalties in play, there is no way that this massive Edward Harrison argues that unless the Europe- crisis in Europe will not impact on Australian an Central Bank acts to prevent an Italian default, society. German banks will face huge losses and the Euro- This booklet is divided into four sections focusing zone will enter a depression. on the political economy of the crisis, the politi- The next two pieces by Halevi outline the failed cal response of the Left, the future of Europe, economic policies of Berlusconi and Monti and and the challenge of transformation posed by the highlight the key issue of internal European trade deeply interconnected capitalist and ecological imbalances created by Germany’s strategy of crises. generating large export surpluses through holding The political economy section seeks to situate Eu- down German wages below the rate of productiv- rope’s current economic woes within the broader ity increases. context of capitalist dynamics and the shifting Marxist economist Michael Roberts paints a bleak regional and sectoral characteristics of the crisis picture for the future of the Eurozone unless there that began in 2007. This broader analysis leads is a move towards public ownership of finance into a discussion of the current public debt and and productive sectors of the economy, state-led balance of payments problems of several Euro- investment and government budget union. UK zone countries and the likely implications for Keynesian economist Ann Pettifor makes the the Euro, before focusing on the savage austerity case against the Troika’s - EU, ECB, IMF – cur- measures implemented that have resulted in deep rent policies that serve the interests of finance. recessions, mass unemployment and widespread She argues in favour of European convergence, suffering in many European countries. prosperity, unity and peace. It starts with an excerpt from John Bellamy Fos- The next selection of articles focuses on the im- ter and Robert McChesney’s Monthly Review ar- pacts of the austerity measures being implement- ticle on the ‘Endless Crisis’. They situate the GFC ed across Europe. Christiane Marty highlights the and Great Recession within a deeper analysis effects of government cutbacks on women and of the long-run tendency of global capitalism to pensioners. Keynesian economist Paul Krugman monopoly and stagnation and the use of financial and market analyst Marshall Auerback make the bubbles as a counter to these trends. case against the austerity, arguing that cutting The next piece is a short talk by Martijn Konings government spending during a recession will only that draws out the links between the US subprime make the situation far worse by reducing demand, crisis, the GFC and Europe’s current debt crisis. investment, employment and incomes. Austerity

2 Capitalism in Crisis: Europe, Austerity and the Left, 2012 will also reduce government revenues and make but the articles on France’s Left Front and its debt and deficit reduction more difficult, if not leader Jean-Luc Melenchon, and the dynamics impossible in some countries. The last article in inside Germany’s ‘The Left’ describe important this section looks at the specific impact of auster- components of a Europe-wide solidarity of work- ity in Portugal. ing class and progressive social forces. The fact that austerity is being pursued mostly by The third section looks at just what kind of slashing public sector jobs, cutting wages, pri- future Europe may have as this crisis continues vatising public assets, and attacking the welfare to rapidly unfold. Here there is a convergence in state, rather than by taxing the rich and reining language between the financial oligarchy who de- in the power of the finance sector, makes the class mand greater European political and neo-liberal dimension of the European crisis crystal clear. economic integration to overcome the crisis, and Mass unemployment, increased poverty and re- the language from the Left of the need for Eu- duced social service provision are already having rope-wide solidarity for a democratic, anti-racist political consequences that may prove far-reach- and socialist alternative to the oligarchy. The 99% ing and present new opportunities and challenges are shaping up to the 1%. for the Left. Finally, there is a short section on the deeper Governments have fallen in the UK, Ireland, challenge of transformation in the face of the Denmark, Portugal, Spain, Greece and more, as interconnected crises of capitalism and ecology. the crisis has unfolded. Some social democratic The article by Fred Magdoff from Monthly Re- parties that have been absorbed by neo-liberalism view and the Great Transition program developed in the last three decades are falling apart, with by the new economics foundation highlight the Greece’s PASOK the most dramatic. challenge to the Left to develop a response that goes beyond the demand for a return to ‘growth’, The great development is that Left political forces and to deeply transform our societies and their have developed strong anti-austerity policies economies. which have attracted rapidly growing support in many countries. Now the genuine Left is influenc- Troy Henderson, Peter Murphy ing the economic and social debate in Europe to SEARCH Foundation an extent that hasn’t been seen since the 1980s, and in a new way. Yes, hard Right and fascist par- ties have also increased support, but for now the initiative is with the radical and anti-fascist Left. This is described and celebrated by Crikey’s international correspondent, Guy Rundle, and William Wall after the May elections in Greece, and explained in some detail by more mainstream reporter Owen Jones. Adam Rorris looks at the dramatic outcome of the June17 elections in Greece. There are several articles on the Greek elections of May 6, with Greek writers projecting this moment into the Eu- rope-wide debate, and reflecting on the massive opportunity and challenge created by the surging support for Syriza and all anti-austerity parties. Syriza’s election platform is also included in this section. Another group of articles show that the social crisis is deeply felt in Portugal, Ireland, Spain and Italy, with some insight into the work of militant trade union action and left political coalitions. The Italian Left is particularly fluid, as described by Paolo Gerbaudo of Il Manifesto. France and Germany are not in the same level of crisis as the first group of European economies,

Capitalism in Crisis: Europe, Austerity and the Left, 2012 3 Table of Contents Section I: Political Economy of Europe’s Crisis An Overview The Endless Crisis John Bellamy Foster & Robert McChesney 6 The European Debt Crisis Martijn Konings 7 Europe’s Crisis Management: Missed Opportunities Heribert Dieter 10 The Future of the Eurozone Fragile Europe of the Single Currency Joseph Halevi 17 Greece Must Exit Nouriel Roubini 18 What happens when Greece exits from the euro area Willem Buiter 20 A one-word explanation on why the eurozone cannot inflate its way out of trouble: Spain! Yannis Varoufakis 23 Get Ready for the Spanish Bailout Nouriel Roubini & Megan Greene 24 Europe’s Depressing Prospects: Two Reasons Why Spain Will Leave the Euro Michael Pettis 25 Italy’s Debt Woes and Germany’s Intransigence Lead to Depression Edward Harrison 31 Italy’s Own Goal Joseph Halevi 32 Germany: The Shadows of the Recovery Joseph Halevi 33 Eurozone debt, monetary union and Argentina Michael Roberts 35 An open letter to the leaders of Europe: abandon Euro’s ‘gold fetters’ Ann Pettifor 38 The Failure of Austerity Women Facing Crisis and Austerity Christiane Marty 41 The Austerity Debacle Paul Krugman 44 Euro bondholders, beware! The Insanity of Austerity Marshall Auerback 46 Portugal: Under the Iron Thumb of the Troika Pedro Rodríguez 48 Section II: Politics of Europe’s Crisis An Overview Rundle: Europe, where the Left takes centre stage Guy Rundle 50 This austerity backlash across Europe could transform Britain Owen Jones 51 Elections in France and Greece: The Euro Crisis, The Left and the Genie William Wall 53 Greece A Triumph of the Radical Left in Greece - A Message to Europe Haris Golemis 55 The “Drama” of the Greek Election Nikos Raptis 57 The Rise and Rise of the Greek Left in 2012 Adam Rorris 60

4 Capitalism in Crisis: Europe, Austerity and the Left, 2012 SYRIZA’s Proposals: The Exit From the Crisis Is On the Left Global Research 64 Portugal Portugal’s “Indignados” Maria Joana Gomes 67 Strike Brings Portuguese Services to a Halt Al Jazeera 68 Ireland Left gains in Ireland James O’Nions 69 A Pyrrhic Victory Gerry Adams 70 Spain Los indignados: the emerging politics of outrage Paolo Gerbaudo 72 Spain: only resistance offers hope Javier Navascués 74 Italy Berlusconi of the left? Paolo Gerbaudo 76 Italy’s Main Union to Strike Over Monti’s Labor Overhaul Lorenzo Totaro 80 France France’s Left Front hopes to ‘reinvent’ left, interview with Raquel Garrido Yasmine Ryan 81 Jean-Luc Melenchon: ‘Blame the bankers not the migrants’ Jim Wolfreys 84 Germany Thousands March in Frankfurt Against Austerity Measures Till Weber, Ludwig Burger, Paul Carrel 87 Rescue From a German Cliff-Hanger Victor Grossman 88 The voice of another Germany: Interview with Sara Wagenknecht George Gilson 90 Section III: Europe’s Future A different kind of Europe Trevor Evans 92 The golden calf of capital Susan George 95 Europeanism from below Paolo Gerbaudo 96 Another road Donatella della Porta 97 Breaking up? James Meadway 98 Austerity Policies in Europe Asbjørn Wahl 99 Europe must move beyond mere tolerance Slavoj Žižek 102 Section IV: The Challenge of Transformation – Ecology and the Crisis of Capitalism Harmony and Ecological Civilization: Beyond the Capitalist Alienation of Nature Fred Magdoff 105 The Great Transition New Economics Foundation 109

Capitalism in Crisis: Europe, Austerity and the Left, 2012 5 Section I: Political Economy of Europe’s Crisis The Endless Crisis John Bellamy Foster and Robert W. McChesney

We have had [in England], ever since 1876, in the United States but also in a number of other a chronic state of stagnation in all dominant advanced economies, morph into something far branches of industry. Neither will the full more long-lasting?” Bernanke responded that crash come; nor will the period of longed-for he thought such an outcome unlikely if the right prosperity to which we used to be entitled actions were taken: “Notwithstanding the severe before and after it. A dull depression, a difficulties we currently face, I do not expect the chronic glut of all markets for all trades, long-run growth potential of the U.S. economy to that is what we have been living in for be materially affected by the crisis and the reces- nearly ten years. How is this? sion if—and I stress if—our country takes the nec- —Frederick Engels essary steps to secure that outcome.” One would of course have expected such a declaration to be followed by a clear statement as to what those The Great Financial Crisis and the Great Reces- “necessary steps” were. Yet, this was missing from sion began in the United States in 2007 and his analysis; his biggest point simply being that quickly spread across the globe, marking what the nation needs to get its fiscal house in order. appears to be a turning point in world history. Robert E. Hall, then president of the American Although this was followed within two years by Economic Association (AEA), provided a differ- a recovery phase, the world economy five years ent approach in an address to the AEA in Janu- after the onset of the crisis is still in the doldrums. ary 2011, entitled “The Long Slump.” A “slump,” The United States, Europe, and Japan, remain as Hall defined it, is the period of above-normal caught in a condition of slow growth, high un- unemployment that begins with a sharp con- employment, and financial instability, with new traction of the economy and lasts until normal economic tremors appearing all the time and the employment has been restored. The “worst slump effects spreading globally. The one bright spot in in US history,” Hall stated, was “the Great De- the world economy, from a growth standpoint, pression in which the economy contracted from has been the seemingly unstoppable expansion 1929 to 1933 and failed to return to normal until of a handful of emerging economies, particularly the buildup for World War II.” Hall labeled the China. Yet, the continuing stability of China is period of prolonged slow growth in which the now also in question. Hence, the general consen- U.S. economy is now trapped “The Great Slump.” sus among informed economic observers is that With government seemingly unable to provide the the world capitalist economy is facing the threat economy with the needed stimulus, he observed, of long-run economic stagnation (complicated there was no visible way out: “The slump may last by the prospect of further financial deleverag- many years.” ing), sometimes referred to as the problem of In June 2010, Paul Krugman wrote that the ad- “lost decades.” It is this issue of the stagnation of vanced economies were currently caught in what the capitalist economy, even more than that of he termed the “Third Depression” (the first two financial crisis or recession that has now emerged being the Long Depression following the Panic of as the big question worldwide. 1873 and the Great Depression of the 1930s). The Within the United States dramatic examples of defining characteristic of such depressions was the shift in focus from financial crisis to economic not negative economic growth, as in the trough stagnation are not difficult to find. Ben Bernanke, of the business cycle, but rather protracted slow chairman of the Federal Reserve Board, began a growth once economic recovery had commenced. 2011 speech in Jackson Hole, Wyoming, entitled In such a long, drawn-out recovery “episodes of “The Near- and Longer-Term Prospects for the improvement were never enough to undo the U.S. Economy,” with the words: “The financial damage of the initial slump, and were followed by crisis and the subsequent slow recovery have relapses.” In November 2011, Krugman referred caused some to question whether the United to “The Return of Secular Stagnation,” resurrect- States…might not now be facing a prolonged pe- ing the secular stagnation hypothesis of the late riod of stagnation, regardless of its public policy 1930s to early ‘50s (although in this case, ac- choices. Might not the very slow pace of eco- cording to Krugman, the excess savings inducing nomic expansion of the past few years, not only stagnation are global rather than national).

6 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview THE EUROPEAN DEBT CRISIS Dr Martijn Konings Senior Lecturer in Political Economy University of Sydney It’s important to remember that what is going on large recovered and banks are making profits right now in Europe is still very much part of the again. But what these policies haven’t really Global Financial Crisis that started in 2007. So I resolved has been the crisis in the real economy, want to start by briefly discussing some important which is still very serious and ongoing. Growth aspects of that. The crisis started when it turned and investment are still down and unemployment out that many American banks had lent large is still at record levels. So why has the bailout of amounts of money to people who weren’t able to the financial sector not also resulted in a sub- pay it back. A number of major financial institu- stantial improvement of overall economic perfor- tions got into trouble, and the American govern- mance? Simply put, banks have better things to ment felt that many of these firms were ‘too big do than making business and commercial loans. to fail’: if they were allowed to go bankrupt, they One of their favourite activities right now is tak- could take the entire system down with them. So ing free money from the Federal Reserve and us- the response to the crisis was to bail out these ing it to buy government debt from the Treasury. firms. The Treasury bought up a large amount of And more generally, banks are returning to the ‘toxic assets’ and the Federal Reserve essentially kind of speculative activities that a few years ago allowed banks to borrow any amount of money everyone was concerned about, and that includes for free. the kind of securitization practices that were directly responsible for the GFC. There is no doubt these interventions made a major difference: the financial sector has by and continued next page ...

Books too have been appearing on the stagnation another “lost decade” for the world economy as theme. In 2011, Tyler Cowen published The Great a whole. In November 2011 Lagarde singled out Stagnation, which quickly became a bestseller. China as a potential weak link in the world eco- For Cowen the U.S. economy has been character- nomic system, rather than a permanent counter ized by “a multi-decade stagnation…. Even before to world economic stagnation. the financial crisis came along, there was no new The fact that these rising concerns with respect to net job creation in the last decade…. Around the the slowing down of the wealthy Triad economies globe, the populous countries that have been have a real basis, not just in the last two decades wealthy for some time share one common feature: but also in long-term trends since the 1960s, Their rates of economic growth have slowed down can be seen in Chart 1. This shows the declining since about 1970.”6 If creeping stagnation has real growth rates of the Triad economies in the been a problem for the U.S. and other advanced decades from the 1960s to the present. The slow- economies for some time, Thomas Palley, in his downs were sharpest in Japan and Europe. But 2012 book, From Financial Crisis to Stagnation, the United States too experienced a huge drop in sees today’s Great Stagnation itself as being set economic growth after the 1960s, and was unable off by the Great Financial Crisis that preceded to regain its earlier trend-rate of growth despite it, and as representing the failure of neoliberal the massive stimuli offered by military-spending economic policy. increases, financial bubbles, a growing sales ef- Such worries are not confined to the United fort, and continuing exploitation of the privileged States, given the sluggish economic growth in position of the dollar as the hegemonic currency. Japan and Europe as well. Christine Lagarde, The bursting of the New Economy stock market managing director of the IMF, gave a speech bubble in 2000 seriously weakened the U.S. econ- in Washington in September 2011 in which she omy, which was only saved from a much larger stated that the world economy has “entered a disaster by the rapid rise of the housing bubble dangerous new phase of the crisis…. Overall, in its place. The bursting of the latter in Great Fi- global growth is continuing, but slowing down,” nancial Crisis of 2007–09 brought the underlying taking the form of an “anemic and bumpy recov- conditions of stagnation to the surface. ery.” Fundamental to this dangerous new phase of This is an extract from the introduction to book The crisis was “core instability,” or weaknesses in the Endless Crisis: How Monopoly-Finance Capi- Triad—North America, Europe, and Japan—along tal Produces Stagnation and Upheaval from with continuing financial imbalances “sapping the United States to China, to be published in fall growth.” The big concern was the possibility of 2012 by Monthly Review Press. Capitalism in Crisis: Europe, Austerity and the Left, 2012 7 Section I: Political Economy of Europe’s Crisis Dr Martijn Konings continued ... And here we should remember that Europe is composed of a whole bunch of different countries The money that has been channeled into the with different regulations. To the extent that financial sector has tended to stay there. That’s banks in countries such as France and Germany of course not entirely irrational from the point of had difficulty finding profitable opportunities at view of a bank: right now it’s hard to make a prof- home, they could turn to other countries. it by making business loans. Many people includ- The first victim of the European crisis was ing Barak Obama do of course realize that getting Iceland. Icelandic banks had been deregulated the economy going again requires more direct over the previous decade, and they were bor- interventions(infrastructural investment, extend- rowing large amounts in order to make specula- ed unemployment benefits, public job programs tive investments. When this system collapsed, etc). But those kinds of proposals don’t really it dragged down the entire Icelandic economy. stand a chance because of the rise of the austerity Another dramatic story here is that of the Baltic movement. And then there’s an additional factor states and especially the Latvian case (Hudson at work. Right now, banks have even less reason and Sommers). This wasn’t necessarily reported to be responsible than before the crisis. The bail- on all that much when it unfolded but now Latvia outs have been a very emphatic confirmation that is slowly emerging as something of a poster-child the American government will bail out large firms for the austerity movement. Latvia has been a that get themselves into trouble. It’s perfectly rea- member of the EU since 2004 and during the sonable for banks to think that they can take risk, years before the GFC was growing very fast. One cash in if their bets work out, and get taxpayers to of the main drivers of this growth was a massive bear the burden if things go wrong. housing bubble, financed in large part by massive OK, so now let’s turn to the European case. When inflows of foreign capital from Western European the crisis started in the US, European commen- banks (especially Swedish and German banks). tators expressed a great deal of schadenfreude, In 2007 the interbank market froze up, debts joyful excitement at the misery of others. The couldn’t be rolled over and so the whole scheme typical analysis was that Americans had been collapsed. The results were very dramatic: just living beyond their means and were now dealing before the crisis Latvian GDP was growing at a with the consequences. So a lot of analysts saw rate of over 10% and by the end of 2008 it was the crisis as a massive boost for the euro and a shrinking by about 10%. kind of vindication of a more civilized and moral Latvia applied for emergency finance from the form of capitalism. European Union and the IMF. It received a sub- This excitement of course didn’t last very long: stantial loan that allowed it to bail out the banks. the crisis spread to Europe pretty quickly. One But this loan was conditional on the Latvian gov- issue here is that many European institutions ernment implementing an austerity program that had also bought many of these ‘toxic’ American involved cuts in public programs, higher taxes securities. But here financial institutions could and wage cuts. In a sense the combination of still claim that they were victims and the sense bailout and austerity worked: Latvia has regained that European pension funds had been ‘duped’ its standing in international financial markets, it’s only added to the sense of moral indignation. But very slowly recovering and it looks like it might there was much more to the effects of the crisis be able to join the euro zone in a couple of years spreading. The American crisis froze up the inter- from now. And so European leaders now hold up national market where banks lend to each other, Latvia as something of an example for how simi- and this made it very hard for European banks lar situations should be dealt with. But of course to roll over short-term debts. And this essentially the human costs of this have been extremely high: blew the lid off what were Europe’s own Ponzi austerity meant that in 2009 the Latvian econ- schemes. It turned out that European financial omy shrank by 18%. Unemployment increased firms weren’t necessarily all that different from from 5% before the GFC to over 20% in 2010, and their American colleagues, that they had very ac- the situation is improving only very slowly. tively been involved in their own kind of specula- Over the past couple of years, the focus of the tive practices and irresponsible lending. It’s true problem has again shifted somewhat: the new that the regulation of mortgage and consumer problem right now is sovereign debt, government debt is a little stricter in many European coun- debt. But in an important sense this is not so tries than in the US, but that hasn’t prevented the much a new problem, but more a variation on the emergence of a number of huge credit bubbles. same dynamic of a bubble economy. The sover-

8 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview eign debt crisis began when it was announced out of the eurozone. Bailing out Greece without that the public finances of Greece were in a much austerity in return would set a very dangerous worse state than the official reports stated. Rating precedent: it would signal to other countries agencies downgraded Greek debt and the govern- that they can accumulate debt and expect to be ment responded with measures to decrease the bailed out. So it is interesting to 4 see that banks deficit. This involved cuts in social programs, and countries get treated in quite different ways: layoffs of public sector workers, wage cuts, higher banks get bailed out with few questions asked; taxes, selling off state enterprises, and all this countries might be bailed out, but only if they’re resulted in a very serious contraction of GDP. willing to squeeze the life out of their population and to subordinate politics and democracy to the These measures triggered tremendous domestic requirements of financial markets. resistance. The Greek population doesn’t really accept austerity, and so the financial crisis quickly A number of commentators have pointed out that became a social and political crisis. This is where the austerity agenda presents a major threat to the European Union had to step in. There are two economic growth, both in Europe and globally. reasons why the European Union is concerned That is obviously true: Europe’s development fits about the ability of Greece to pay its debts. The the pattern of financial recovery combined with one that we’ve heard most often is that the EU economic stagnation. But the way this is often cannot afford to let Greece default on its debts framed is that this is somehow a mistake, that because of the effect it would have on the euro. countries like Germany are ideologically blink- But there’s of course another, equally important ered and shooting themselves in the foot. But that part to the story: large amounts of the govern- is of course not entirely accurate: austerity has ment debt issued by countries that are now in dif- been central to the project of European integra- ficulty – not just Greece, but also Spain, Portugal tion for several decades now, and perhaps it’s just and Ireland – are on the books of major European not really in Germany’s interest to allow other banks. countries to pursue Keynesian policies, boost demand and promote industrial recovery. From Germany is insisting that any bailouts should be the perspective of the business interests that drive conditional on further Greek belt-tightening. So German policy, a Europe where core countries are the main story that we’ve been hearing over the surrounded by countries that reliably pay their past months is that the Greek population has debts by practicing austerity really doesn’t seem been living beyond its means and if they want like such a bad idea. Mark Weisbrot, an American help they need to be prepared to make sacrifices. economist, has recently made this point: massive That is of course a very one-sided story: it ignores unemployment and a reduction in living stand- the fact that much of this financing came from ards is not some unfortunate side effect, but it’s European banks; that Greece’s attempts to hide the point of these austerity policies. its debts were heavily motivated by pressure from the Greek business community, which has a So what we’re seeing right now isn’t just about strong interest in being part of the eurozone; and, Europe solving its common problems, it’s about most of all, it ignores the fact that much of this the major European countries remaking the Eu- bailout money will go straight to European banks. ropean project to their own advantage. And this Just as in the US case, the bailouts involve mas- has implications for geopolitics and global power. sive transfers of public money to banks. There are any number of aspects to this. For instance, the relationship between Britain and It’s true that German Chancellor Merkel has tried Germany: Britain is concerned that permanent to force private investors holding Greek govern- institutions for fiscal austerity gives Germany too ment debt to accept some losses (‘a haircut’). But much control in Europe. It also has to do with this is of course itself very much in response to the closer relations between Germany and China: the fact that the Greek population has been ac- part of the reason why Germany can afford not to tively resisting the idea that they should foot the care about depressed demand in the EU is that its entire bill. And it’s interesting to see that it hasn’t exports to China have been growing very signifi- been enough to get Greece to commit itself to an cantly, and it’s also been trying to draw China austerity program. Essentially the Greek govern- into financing the European bailouts. And all ment is concerned that it just won’t be able to this of course has major implications for how the push those measures through politically and it’s relationships among the US, Europe and China reserving the right to default on its debt. are changing. And that’s why we’re seeing now that Germany is moving to open up the option of kicking Greece continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 9 Section I: Political Economy of Europe’s Crisis EUROPE’S CRISIS MANAGEMENT: MISSED OPPORTUNITIES Heribert Dieter The financial crisis that affected the global ‘national’ entities before governments came to the economy in 2008 and 2009 originated from the rescue. USA, but it affected most economies, including For all the praise the European Union has re- of course the European Union. The 27 mem- ceived for overcoming conflict and tension, the ber countries were hit hard: Capital exporters group turned out to be unable to implement a like Germany had considerable direct exposure joint response to the crisis. The lack of a common to subprime lending in the US, whilst Eastern financial policy became an issue. Finance minis- European economies like Hungary were suffer- ters from the 27 countries tended to express as ing from the deteriorating conditions on credit many opinions and the group was and continues markets and the inability of borrowers to roll over to be unable to express a common position on existing debt. Above all the crisis has exposed the financial reform at home and abroad. weakness of European cooperation and may have damaged the prospects for European integration Moreover, the old split between Britain and Con- for a considerable period of time. tinental Europe became more pronounced in the crisis. In the first part of the crisis, from the col- When the crisis hit Europe with increased force in lapse of Northern Rock in September 2007 to the September/October 2008, the response contin- collapse of Lehman Brothers about one year later, ued to be limited to national economic policy. many continental Europeans viewed the crisis as Whilst there has been a token European recovery a phenomenon limited to the USA and the United program, in essence Europeans returned to the Kingdom. The failure of the liberalized financial national level for rescue packages. Of course, sectors in the USA and the United Kingdom was this was particularly so for banks, who – as one observed with a touch of schadenfreude, until observer quipped – grow abroad but die at home. policy makers and citizens in Germany, Holland Consequently, bailout packages were organized and France realized that those that lent to the by national governments. ING turned to the USA often came from continental Europe. Dutch authorities, Northern Rock and the Royal Bank of Scotland to Downing Street, and IKB to With hindsight, this phase of satisfaction and self- the German government. Cross-border banks approval was wasted time. Instead of preparing turned out to pose a problem: Fortis, a Belgian- Europe for what was to come, many policy mak- Dutch finance group, had to be dismantled into ers in Germany, France and other countries were

Dr Martijn Konings continued ... In other words, financial institutions are in an excellent position to blackmail societies and their Now, these are all important and interesting is- democratically elected governments. And this of sues, but we also shouldn’t get too absorbed by course undermines the idea that there are ‘good the details of this. The media have been follow- banks’ and ‘bad banks’– which is 5 something I ing this logic whereby the problem gets displaced heard a lot in 2007 before the crisis reached Eu- – first it’s America’s problem, then Europe’s, rope. Simply put, banks that are so big that they now Greece’s, and each time it seems we’ve got won’t have to deal with the consequences of their a whole new set of problems to think about. And actions are likely to engage in bad behaviour at of course what this does is to obscure the more some point or other. And this is an issue for many fundamental problem, which is not this or that countries, including Australia. And so, in that set of payments but the structural growth of the sense expressing support for the Greek popula- power of finance. That has to do with the power tion’s resistance to the austerity agenda isn’t just of financial markets in a general sense, but also about taking a position on a specific policy issue, specifically with the growing application of the but to make the much more basic points that too-big-to-fail principle. Over the past three dec- banks shouldn’t be able to dictate how we live our ades financial institutions have become gigantic, lives. and institutions that have become so large that Speech to Politics in the Pub, February 10, 2012 the economic system cannot do without them are Available: http://www.politicsinthepub.org.au/down- able to take all kinds of irresponsible risks. loads/konings.pdf 10 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview far too complacent and reacted belatedly. Moreo- markets. The United Kingdom is, of course, the ver, when they realized that the crisis would not most important country in this category. In con- spare them, the reactions were frequently hastily trast to many other policy areas, e.g. agriculture implemented and lacked a coherent strategy. A or foreign trade, the European Union continues to particular nasty example is the German guarantee be characterised by an impoverished infrastruc- for deposits of October 2008, which I will discuss ture in finance. in greater detail below. But in general, all member Against this background, it is not surprising that countries of the European Union were reacting in Europe has not presented itself as a model of panic, and this represents an astounding contrast good behaviour in a crisis. The problems started to the Chinese crisis management, which appears in early 2007 when European governments did to have been implemented in a much more stra- not take sufficient note of the first hints of the cri- tegic manner. Effectively, European integration sis and failed to respond accordingly. As a result, may emerge from the American-made crisis as one comparatively hastily designed programme the biggest casualty. followed the next, conveying the impression of Crisis Management at the hectic and uninformed politics and hence exacer- bating the crisis. In Europe government policies National Level have often not been contributing to restoring The European Union is the most successful re- confidence, but have occasionally contributed to gional integration project in the world, or at least the already emerging fears in their population. In it has been in the past. The question is whether particular, the continuous repetition of the inevi- European governments have been reacting appro- tability of doom and gloom, prominent especially priately to the crisis. For Europe, the crisis could after the collapse of Lehman Brothers in Septem- have represented a unique opportunity to pro- ber 2008, dented the expectations of even the mote a reform of international financial markets most ardent optimists. and institutions of global governance, given that Government officials in many European econo- the Anglo-American model of financial markets mies have fuelled the crisis with their negative has been discredited. The crisis provided the EU comments. This requires an explanation. Why with an unprecedented opportunity to demon- have they collectively done this? Either the situ- strate its collective ability to manage and master ation was as bleak as they portrayed it, which is a crisis of enormous dimensions, but the EU has possible, or policy makers were trying to shore up failed this litmus test. Whilst there was a lot of public support for their bailout packages, which rhetoric on the need to cooperate in the crisis, in appears more likely. reality the more powerful member countries have chosen to pursue their own national agendas and Without the negative sentiment that appeared have continued to do so since. to be the consensus amongst political parties in many European economies, and certainly in Ger- The national responses have been implemented many, the large rescue operations of 2008 would against a background of limited cooperation be- have been discussed much more critically and fore the crisis. It should be noted that the regula- the call for limits to the bailout operations would tion of the financial sector in the European Union have been more widespread. continued to escape efforts to develop a uniform approach. One factor here is that the European But why were policy makers so keen on spend- Union has at least three distinct levels of coopera- ing billions of euros on private institutions that tion in financial affairs. The core is the eurozone. obviously did not fully understand their business? Whilst monetary policy is run by the European Why were politicians eager to dismantle one of Central Bank, the ECB’s mandate is limited. It is the characteristics of the capitalist system, the responsible for price stability, not for the much principle that market participants that fail have to broader concept of financial stability. Thus, exit the markets and go into bankruptcy? Again, even within the eurozone there has not been any there are two potential answers to that question. significant supranational financial supervision. The explanation given in public was that all banks Denmark represents the second level of coopera- that were at risk in 2008 were so important to tion: it continues to have its own currency, the the future functioning of the financial system krone, which is tied to the euro at a fixed rate and that they had to be bailed out at almost any cost. is part of the old European Monetary System. The Governments were, so they argued, not willing to third group is neither having any cooperation on risk the collapse of the financial system. However, exchange rate stability nor any meaningful coop- in Europe all banks were considered systemically eration with regard to the regulation of financial important, even small institutions that no one Capitalism in Crisis: Europe, Austerity and the Left, 2012 11 Section I: Political Economy of Europe’s Crisis outside the trading floors had heard of prior to The collapse of ‘Herstatt Bank’ in 1974, caused by their calamities. a bunch of inexperienced young currency traders, sent shockwaves through the financial markets Representative of this extended coverage is the of Europe and the United States. Consequently, ‘Deutsche Industriebank’ (IKB) in Germany, a the assumption that policy makers were unable to small bank specialised in providing finance to differentiate between systemically relevant banks small- and medium-sized companies in Ger- and those that may be sent into liquidation has a many.1 IKB had been founded in 1924 and had certain appeal. weathered the turbulent 20th century, but not the subprime crisis. IKB was small: total assets Third, policy makers may have been concerned of euro 50 billion and 1.800 employees do not about the short- and long-term consequences constitute a large bank and, given the business of of bank collapses. This idea is reflected on the IKB, it is impossible to consider it systemically website of the German Ministry of Finance, where relevant. Nevertheless, IKB was rescued with the rescue operations are justified with an inter- about euro 10 billion of public money (German esting explanation: any collapse of a bank would Ministry of Finance 2009). Subsequently, IKB have destroyed confidence in the German banking was quickly re-privatised to the American Inves- system. Whilst related to the second explana- tor ‘Lone Star’, a private equity institution. Whilst tion, there is an additional dimension: the future there has not been an official confirmation for the competitiveness of the banking system may have value of the transaction, newspapers have esti- been at risk, and therefore policy makers decided mated the price that Lone Star paid at euro 137 to risk taxpayers’ money for bailout operations. million (Handelsblatt, 19 June 2009, p. 1). However, these explanations are not fully sat- Of course, the question arises why IKB and, later isfying. An additional fourth factor is the close on, other larger banks, such as Hypo Real Estate network of interests between policy makers and in Germany or Fortis in Belgium and the Nether- the financial sector that has been developed over lands, were rescued. Indeed, there appears to be the years. Whilst this development has long been a significant difference from the crisis manage- criticised in the United States, for example in Jag- ment of the USA, which permitted the bankruptcy dish Bhagwati’s 1998 article on the ‘Wall Street of least one investment bank, Lehman Brothers. Treasury Complex’, published in the respected By contrast, virtually all banks were rescued in journal Foreign Affairs, there has not been a Europe. debate on the close links between politics and fi- nance in continental Europe (Bhagwati 1998). Yet In essence, there are four potential explanations. there are very close links. In the case of IKB, Jörg First, and least convincing, is the idea that all Asmussen, who was promoted to the position of banks have indeed become too big to fail. Whilst German Deputy Minister of Finance in July 2008, this is certainly the case for large financial con- sat on the board in the years before the crisis. glomerates such as Deutsche Bank or the Royal Thus, the government not only bailed out the Bank of Scotland, not all banks, least of all IKB, bank, but also tried to safeguard its own reputa- were so large that they could disrupt the entire tion. The issue of networks in German finance will financial sector. be revisited later in this article. Second, policy makers may have thought that all banks had to be rescued and may have been The Unilateral German afraid to be the first that did not rescue a bank. Guarantee and Uncoordinated Historical evidence would have given them some support for their arguments. In previous financial Stimulus Packages crises, e.g. in the 1930s or 1970s, individual bank The most striking example of national crisis collapses were identified as at least the trigger, if management is provided by Germany, the EU’s not the cause of severe turbulence. In July 1931, largest economy. After the collapse of Lehman the collapse of the ‘Darmstädter und National- Brothers in mid-September 2008, a period of bank – Danat Bank’ triggered a crisis that not unprecedented turbulence in financial markets only deepened the already two-year old depres- followed. Liquidity in interbank markets dried sion, but also had international repercussions. up completely, and panic crept into the think- The United Kingdom, which had lent to Germany ing of managers and citizens alike. There was an and the ‘Danat Bank’, the second-largest Ger- obvious need for leadership and guidance, which man bank at the time, was facing severe liquidity private markets were unable to provide. In es- shortages and the Bank of England had to take sence, the weeks after the crash of Lehman would Britain off the gold standard in September 1931. have required the joint effort of political lead- 12 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview ers and their finance ministers. They could and ing from Germany’s policies (Krugman 2008). should have demonstrated that they will be able Thereafter, European economies continued to to handle the crisis collectively. Unfortunately, implement national, rather than European, crisis that was not happening. Instead, policy makers in management. The stimulus packages were an virtually all European countries acted individu- important element in that process. Each member ally. In Germany, the government announced on country of the EU implemented a tailor-made 5 October 2008 a guarantee for all deposits in program. Of course, the individual measures were banks operating in the country, regardless of the influenced by each country’s specific preferences size of the deposit. This unilateral measure may and in many countries a lot of money went to the represent one of the worst mistakes of German building industry, which is a sector with limited post-war foreign policy. competition from abroad. Effectively, national governments were trying to make sure that tax- That claim requires substantiation. What is wrong payers’ money would not stimulate the economies with a government guaranteeing the savings of its of other countries. Whilst this is not surprising, it citizens, in particular when the economic history nevertheless constitutes a partial departure from of Germany is considered? In the 20th century, the European project, which was characterized Germans had lost most of their savings twice: by collective problem-solving. The country that in the hyperinflation of 1923 and in the postwar should have withstood that trend was Germany, currency reform of 1948. These two events have which is both Europe’s largest and most com- shaped the preference of German citizens for safe petitive economy. More than any other single investments and have contributed to the mon- country, Germany benefits from both European etary policy of the Bundesbank, which was always integration and a liberal global trade regime, and characterized by a preference for stability over the failure of German politicians to realize their economic growth or high employment. specific responsibility in the European and global Against this background, it is understandable that economy attracted harsh criticism (See, for exam- the German government was concerned about a ple, Collignon 2009).3 A comment of Germany’s potential panic amongst German citizens. How- then Minister of Economics in November 2008 ever, until the government announced its unilat- didn’t help: he indicated his hope that ‘… the eral guarantee, there had not been any obvious measures taken by other countries … will help our sign of nervousness amongst savers. Yes, people export economy’ (quoted in Münchau 2008). were discussing the stability of the financial sys- tem, but there were no widespread withdrawals. No Difference to Wall Street – Bundesbank personnel are said to have admitted The Quiet Networks unofficially that they had difficulty in restocking cash dispensers in the week before the guarantee, in European Finance but there is no more evidence than that. Networks between finance and politics help to explain some dimensions of the crisis manage- However, Germany’s unilateral guarantee cre- ment, both in the USA and in Europe. In the USA, ated severe problems for other economies. More the crisis has shed light on the significant linkages advanced ones, including Australia, were also between Wall Street and Treasury. Three recent having to guarantee deposits because capital was American Secretaries of the Treasury – Robert seeking safe havens and OECD-countries that had Rubin, John Snow and Hank Paulson – came issued government guarantees were considered from Wall Street or went there after their time the safest of all. Unfortunately, economies whose in office. Alan Greenspan has become an advisor governments were not able to issue credible to PIMCO, an important player in international guarantees were the main victims. Capital was bond markets. The former chief economist of withdrawn from economies in Eastern Europe the International Monetary Fund, Simon John- and from developing economies. Effectively, the son, has argued that the financial industry has uncoordinated and probably unnecessary German effectively captured the American government. guarantee deepened the global crisis rather than Comparing the American financial sector to containing it. Russian Oligarchs, he has recommended a tough Nobel laureate Paul Krugman has also been criti- medicine: The second problem the U.S. faces—the cizing the German crisis management in general power of the oligarchy—is just as important as and Finance Minister Peer Steinbrück in particu- the immediate crisis of lending. And the advice lar, emphasising the drawbacks of the national from the IMF on this front would again be simple: crisis management in Europe’s biggest economy. break the oligarchy (Johnson 2009). Krugman saw a negative multiplier effect aris- Capitalism in Crisis: Europe, Austerity and the Left, 2012 13 Section I: Political Economy of Europe’s Crisis The linkages between the government and the lucrative position at Deutsche Bank in 2006. An- financial sector are well known and well-docu- other Deputy Minister of Finance, Axel Nawrath, mented in the USA, but Europe, and Germany in left the government in 2009 to take up a position particular, is not structurally different. As men- in the Government-owned KfW-Bank. The scale tioned above, a key figure in German has been the of the links between finance and the government Deputy Finance Minister Jörg Asmussen, a Social may not be the same as in the USA, but the trend Democrat. Asmussen joined the Ministry of Fi- and effects appear similar. nance in 1996 at the age of 30. Quickly promoted, The drift towards less regulation for the financial he became Head of Department VII – financial sector in Germany has been implemented under markets and their regulation – in 2003. Asmus- the auspices of Social Democratic Ministers of sen pushed innovation in German finance, secu- Finance, who held this office since the change of ritization in particular, in subsequent years. In government in 1998. Whilst the previous con- an article in a finance journal in 2006, Asmussen servative coalition, led by Helmut Kohl, was not praised the benefits that asset backed securities hostile to the interests of the financial sector, it would have. Besides, he explicitly indicated that was their Social Democratic successors that de- the German Ministry of Finance will not insist on regulated financial markets. The parallels to other ‘unnecessary testing and documentation require- countries are quite striking: In Australia, financial ments’ (Asmussen 2006). markets were deregulated by the Hawke/Keat- As mentioned above, he sat on the board of the ing government following its election in 1983. In failed IKB and was thus partly responsible for this the USA, important regulatory restrictions, for bank failure. Some observers had expected that instance the separation of investment and com- Asmussen, following the IKB debacle, would have mercial banking required by the Glass-Steagall been sent into early retirement. Instead, he was Act of 1933, were scrapped by the Clinton admin- promoted in July 2008 to the position of Deputy istration in 1999. And in the United Kingdom, Minister of Finance and became responsible for Tony Blair’s Labour government championed the bailout measures – a classic case of ‘poacher ‘light- touch regulation’, the term being coined turned gamekeeper’. The very person that had by Gordon Brown. In all those cases, including been pushing deregulation and lax banking su- Germany, the interests of finance industry were pervision in Germany became the most important accommodated by ostensibly left-leaning govern- person in the rescue operation. Ironically, or per- ments. haps rather a confirmation of Asmussen’s good Of course, the importance of the small group of networks, he has been one of the very few senior economists at the German Ministry of Finance officials from the Social Democrats that remained and the Bundesbank rose dramatically during the in office after the change of government in au- financial crisis. Effectively, the crisis was man- tumn 2009. In addition, Asmussen has strong aged by half a dozen men in Germany – Finance private links with German finance. His partner, Minister Peer Steinbrück, Axel Weber from the Henriette Peuker, is the chief lobbyist of the Ger- Bundesbank, Josef Ackermann from Deutsche man Stock Exchange in Berlin (Afhüppe 2009). Bank and Jochen Sanio from BAFIN, the agency Asmussen studied at Bonn University, and one supervising financial markets, Jörg Asmussen of his fellow students was Jens Weidmann, who and Jens Weidmann coordinating the rescue has been Angela Merkel’s main economic advisor operations in the background.5 Given the great since 2005. These two were taught at Bonn by the importance of Asmussen in particular, there has economist Axel Weber, who was promoted to the been a substantial amount of criticism, both in presidency of the Bundesbank in 2004, following the political sphere and in the media (See, for a proposal of Asmussen (Fietz 2009). The regula- example, Ramthun 2009, Stern 2009, Zeit 2009). tion and supervision of German financial mar- kets, as well as the subsequent rescue operation, As mentioned above, this criticism has not desta- was in the hands of a social circle that shared not bilized his position. As in other countries, the only their academic background but also their preferences of the private sector have changed market-friendly economic orientation. over the last two decades, and at the centre of this change is Deutsche Bank, Germany’s only global The existence of links between the government player in finance. Josef Ackermann, the chief and the financial sector it is not astonishing, but executive of Deutsche Bank, is the by far most their intensity is remarkable. As in the United important representative of the banking industry States a regular exchange of personnel can be in Germany. He has continued and eventually observed. One of Asmussen’s predecessors, Caio championed the transformation of Deutsche Bank Koch-Weser, left the Ministry of Finance for a 14 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview from a national player into a globally operating For the economies involved, the existing model investment bank. Since 2005, Ackermann has has offered advantages and satisfied particular been frequently consulted by Chancellor Angela preferences. That claim applies especially to Merkel and has been a prominent figure in Ger- the United States and China. The former is the man crisis management. economy with the biggest appetite for capital, The contrast to previous decades is striking. whereas the latter is already the world’s most In the first four decades after World War II, important manufacturer of consumer goods of all Deutsche Bank was very closely intertwined kinds. A specific division of labour has emerged with German industry. Since the early 1950s, for over the past decade: China manufactures goods example, Deutsche Bank owned 25 percent of the and supplies the credit for their purchase; while shares of Daimler-Benz, one of the largest and the United States buys Chinese goods and accu- probably most prestigious industrial producers in mulates debt. Back in 2003, the Basle Bank for Germany. The close relationship between German International Settlements was already describing Banks and the manufacturing sector – labeled this arrangement as ‘vendor finance’. ‘Deutschland AG’ or Germany Inc. – came under China is not the only surplus country, however. In intense pressure in the 1990s. Again, it was the Europe, Germany’s enormous surpluses have led Social Democrats who facilitated change. to tensions within the EU. Without the common Deutsche Bank, to take the example from above, European currency, the large German current had acquired Daimler-Benz shares at a share account surplus (more than 260 billion US dollars price that was of course a fraction of their valu- in 2007) would have driven up the exchange rate ation decades later. Had they sold the shares of the deutschmark. In the absence of an external under the old tax regime, Deutsche Bank would stability pact, this drives a dangerous wedge into have been forced to pay billions in taxes on their the European Union (Dullien & Schwarzer 2009). capital gains. However, a change of the tax regime Ultimately, German capital exports helped to fi- introduced by the Social Democratic Finance nance the bubbles in Spain, Ireland and a number Minister Hans Eichel in the late 1990s enabled of Eastern European countries. German capital German Banks to sever their ties with German exports were a poor deal for Germans anyway. industry and realize enormous tax-free gains Despite their preference for safe investments, (Maisch 2005). Since then, the interests of Ger- risk-shy German savers have been left carrying man banks have of course changed fundamental- the can all the same – through the state budget ly. Whilst prior to the late 1990s, German banks – for the risks taken by financial intermediaries. regularly were advocates of German industry, Of course, given the risk-adverse preferences of since then industry and finance often have diverg- German savers, there had to be a transformation ing positions. of savings into high-risk investment. This trans- Silence on Imbalances formation was often facilitated by state-owned ‘Landesbanken’. Typically, these government- At the macroeconomic level, the crisis has ex- owned and government-guaranteed banks were posed the vulnerability of capital exporters. In engaged in financing investment in Germany. recent years China, Japan, Russia, Saudi Arabia, Their particular legal construction, especially and Germany have exported huge amounts of their explicit government guarantees, came under capital and contributed to speculative excesses in pressure from the European Commission, which other countries. But the role of the capital export- considered the government-guarantees to be an ers plays a minor role both in the analysis of the illegal subsidy and a competitive disadvantage crisis and in the debate on crisis prevention. This for other European banks. Since the government is surprising. guarantees had to be scrapped, the Landesbanken There are good reasons to give more thought to perceived a need to expand their activities and these imbalances. The whole business was a rot- engage in new, potentially more risky activities. ten deal. Germany sold machines and high quality Many of them, for example Sachsen LB, West- cars and received Lehman derivatives in return. deutsche LB and Bayerische Landesbank, were Germany’s enormous surpluses landed back in aggressively expanding their activities in the the United States where they helped fuel the dubi- current decade. Unfortunately, they did not know ous dealings of the US financial sector. This is not their new trade well, and most of them needed big a model to emulate. However, at the international bailout packages from the German taxpayer. Ger- level there is still no earnest discussion about get- man policy makers, some of whom oversaw these ting rid of the imbalances. There are reasons for ventures, have been criticising the greed of invest- the silence. ment banks, but were at the same time much Capitalism in Crisis: Europe, Austerity and the Left, 2012 15 Section I: Political Economy of Europe’s Crisis more reluctant to disapprove of those banks Heribert Dieter is Associate Fellow at the Centre which have been under their direct influence. for the Study of Globalization and Regionaliza- tion, University of Warwick Surprisingly, both the contribution of German savers to the fuelling of bubbles elsewhere and Email: [email protected] the involvement of German federal and state The author thanks the anonymous referees and governments in financial adventures abroad are the editor for their helpful comments and sugges- hardly discussed in Germany. With regard to the tions. production of surpluses, most Germans appear eager to return to successful exporting and appear First published: Journal of Australian Political not concerned that this eventuality could lead to Economy, No. 64, Summer 2009/10 yet another financial calamity. Available: http://lutahamutuk.org/yahoo_site_ad- min1/assets/docs/Europes_Crisis_Management_ Model Endorsed – Gains Wasted Missed_Opportunities.60202217.pdf The global financial crisis represented an op- portunity for Europe, but that opportunity has References been wasted. Continental Europe, without the Afhüppe, S. (2009), ‘Asmussen: Staatsdiener in den United Kingdom and Ireland, has not had finan- Fängen der Politik’, Handelsblatt, 16 July 2009, at cial sectors that had grown out of proportion http://www.handelsblatt.com/politik/deutschland/ asmussen-staatsdiener-inden-faengen-der-poli- and had continued to place emphasis on a more tik;2364080 sustainable economic development. 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(2005), ‘Hans Eichel löst die Deutschland rescued if they fail.7 AG auf’, Handelsblatt, 31 August 2005, at http:// Whilst China appears to benefit from the crisis in www.handelsblatt.com/unternehmen/industrie/ hans-eichel-loest-diedeutschland-ag-auf;952077. OECD countries, the countries of the European Union have failed to utilize the historic opportu- Johnson, S. (2009), ‘The Quiet Coup’, The Atlantic nity that the crisis provided. Contributing to the Monthly, May 2009, at http://www.theatlantic. com/doc/200905/imf-advice. failure have been mediocre crisis management driven by national rather than European priori- Krugman, P. (2008) ‘The economic consequences of Herr Steinbrueck’, The New York Times, 11 ties, structural weaknesses in regional economic December 2008, at http://krugman.blogs.nytimes. governance and the inability of European gov- com/2008/12/11/the-economic-consequences-of- ernments to develop joint positions on financial herr-steinbrueck/. governance. References continue next page ... 16 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone FRAGILE EUROPE OF THE SINGLE CURRENCY Joseph Halevi

There is now a general crisis in Europe without a The Greek story gave rise to an important debate visible or credible way out. It is clearly evidenced in the Financial Times on the institutional aspect by the continuous flare-up of hotspots of tension: of this monetary system, a debate which, I think, from Greece to the Iberian Peninsula and back, has not been echoed in Italy. The debate was and then onto increasingly less veiled allusions to started on the 16th of February by none other Italy and a dramatic about-face of Paris. than Otmar Issing, former Member of the Execu- tive Board of the European Central Bank, who, as Until just over a month ago, Sarkozy was con- an economist, was the chief architect of the op- vinced that he could delay, till 2012-13, the reduc- erational rules of the European Monetary Union tion of the French deficit to the levels required by (EMU) which gave birth to the euro. the Maastricht and Dublin parameters. Now he speaks of a rapid return to the Maastricht-Dublin Issing writes that a rescue of Greece is impos- levels in the short term. A specter of a new col- sible due to legal and regulatory reasons, as it lapse haunts France facing Germany, the specter would destroy the axis that holds together the generated by the fear that the “markets,” i.e. monetary union. The said axis is the rule that the banks, might speculate on budget cuts that Berlin euro zone member states are themselves legally and Bonn, the Bundesbank and the ECB, would responsible for dealing with their respective fiscal order the euro zone countries to enact. problems “of their own countries.” For Issing, to help Greece would entail an unprecedented moral Paris fears that the increasing public deficit will hazard of credibility for political reasons. make the risk premium on French Treasury securities higher than that on German ones. In Let’s read it together: “By its construction, Emu addition to the usual financial instability, such an is a ‘no transfers’ community of sovereign states. event would undermine the position of the French Transferring taxpayers’ money from countries ruling class in Europe, which has been crucial for that obeyed the rules to those that violated them its control -- increasingly ironclad from Jospin would create hostility towards Brussels and be- to date -- over France. The prospect, already on tween euro area countries.” In the introduction the horizon, therefore is to cut the budget, which to his piece, Issing recognizes the inconsistency will not eliminate the deficit, even if it’s cut at the of the European Monetary Union: “In the 1990s, risk of aggravating the social crisis, but which will many economists -- I was among them -- warned certainly reduce public services and jobs. that starting monetary union without having established a political union was putting the cart The French and German reactions to the Greek before the horse. Now the question is whether and Iberian situation once again highlight not monetary union can survive without such a politi- only the role of financial “markets” (which, far cal union.” from having been pacified, speculate on the Maas- tricht-Dublin criteria imposed by Germany) but Issing is correct, except that, after underlining also the absolute unsustainability of such pacts the institutional illogic underpinning the euro, he and of the European Monetary System. goes on to assert that the system can be main- tained if you obey the rules, thus refusing to help Münchau, W. (2008), ‘Angela Merkel’s Great Depres- Greece. The weakness of his conclusion has been sion’, Financial Times, 2 December 2008. seized upon by Padoa-Schioppa, who, with an air Ramthun, C. (2009), ‘Staatssekretär Asmus- of innocence, proposes in the 19 February issue sen – Ikarus aus dem Finanzministerium’, of the Financial Times that Europe therefore Wirtschaftswoche , 9 July 2009, at http://www. proceed to political unification, knowing full well wiwo.de/politikweltwirtschaft/staatssekretaer- that that is an anathema for France as well as for asmussen-ikarus-aus-dem-finanzministeri- Germany. um-402487/2/ Stern (2009), ‘Wer uns wirklich regiert’, Stern, 9 It fell to the financier George Soros to cut to the August 2009, at http://www.stern.de/politik/ chase instead. In an article published on the deutschland/3-joerg-asmussen-und-jens-wei- 22nd of February, he observes that the mode of dmann-wer-unswirklich-regiert-1501813.html. European integration is patently flawed: no mon- Zeit (2009), ‘Die Hintermänner’, Die Zeit, Zeit-Dossier, etary system can function without the combined 2 April 2009, p.- 15-17. continued next page ...

Capitalism in Crisis: Europe, Austerity and the Left, 2012 17 Section I: Political Economy of Europe’s Crisis GREECE MUST EXIT Nouriel Roubini May 17th, 2012 The Greek euro tragedy is reaching its final act: that might restore competitiveness require real it is clear that either this year or next, Greece is currency depreciation. highly likely to default on its debt and exit the The first option, a sharp weakening of the euro, eurozone. is unlikely, as Germany is strong and the ECB is Postponing the exit after the June election with not aggressively easing monetary policy. A rapid a new government committed to a variant of reduction in unit labor costs, through structural the same failed policies (recessionary austerity reforms that increased productivity growth in and structural reforms) will not restore growth excess of wages, is just as unlikely. It took Ger- and competitiveness. Greece is stuck in a vicious many ten years to restore its competitiveness this cycle of insolvency, lost competitiveness, exter- way; Greece cannot remain in a depression for a nal deficits, and ever-deepening depression. The decade. Likewise, a rapid deflation in prices and only way to stop it is to begin an orderly default wages, known as an “internal devaluation,” would and exit, coordinated and financed by the Euro- lead to five years of ever-deepening depression. pean Central Bank, the European Union, and the If none of those three options is feasible, the only International Monetary Fund (the “Troika”), that path left is to leave the eurozone. A return to a minimizes collateral damage to Greece and the national currency and a sharp depreciation would rest of the eurozone. quickly restore competitiveness and growth. Greece’s recent financing package, overseen by Of course, the process would be traumatic – and the Troika, gave the country much less debt relief not just for Greece. The most significant prob- than it needed. But, even with significantly more lem would be capital losses for core eurozone public-debt relief, Greece could not return to financial institutions. Overnight, the foreign euro growth without rapidly restoring competitiveness. liabilities of Greece’s government, banks, and And, without a return to growth, its debt burden companies would surge. Yet these problems can will remain unsustainable. But all of the options continued next page ... Joseph Halevi continued ... the speculators win - until the explosion happens. action of the Central Bank and the Treasury. And Neo-mercantilism, the subterranean reason for that is precisely what Europe lacks, frozen as it the inconsistency of the euro, is glaringly omitted is in its current form. The flaw in the European in the aforementioned analyses. Germany is the system, says Soros, was demonstrated during the heart of that neo-mercantilism. However, rag- outbreak of the crisis in 2008, when each country ged micro-enterprises of Emilia and of northeast had to rescue its own banks by altering the rela- Italy, as well as French state-owned enterprises, tive fiscal position in a highly unequal and asym- also aspire to the same model. Both aspirations metrical context. are bankrupt: France rarely realizes external The financier highlights two important elements. surplus; and Italy doesn’t even constitute a sys- The first is the case of Greece, where the drastic tem, based as it is on dependence on exports to cuts are to produce a fall in demand and thus in Germany and/or consumerist bubbles that inflate income, consequently reducing the tax revenue, and deflate here and there in the world. The euro, without however solving the problem. The sec- divorced from fiscal policy, does not contribute ond concerns Europe. Article 125 of the Treaty of to stability; rather it only serves to safeguard Lisbon provides for coordinated aids, but there is oligopolistic competition within Europe through no legislation governing them. Given Germany’s wage deflation. The crisis is reshaping the neo- opposition to “dipping into its own pocket” to mercantilist relations, on which major interests help other European countries, Article 125 is des- concentrate. tined to remain a dead letter. The original article “Fragile Europa della sola moneta” The situation is aggravated by the activity of was published by Il Manifesto on 28 February 2010. the markets for credit default swaps (CDS), risk Translation by Yoshie Furuhashi. insurance certificates, and hence speculation on Available: http://mrzine.monthlyreview.org/2010/ the debt. The CDS speculate on failure, that is, halevi060310.html default. The longer Greece is left alone, the more 18 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone be overcome. Argentina did so in 2001, when it exit the euro. Illiquid but potentially solvent “pesofied” its dollar debts. The United States did economies, such as Italy and Spain, will need sup- something similar in 1933, when it depreciated port from Europe regardless of whether Greece the dollar by 69% and abandoned the gold stand- exits; indeed, without such liquidity support, a ard. A similar “drachmatization” of euro debts self-fulfilling run on Italian and Spanish public would be necessary and unavoidable. debt is likely. Losses that eurozone banks would suffer would The substantial new official resources of the IMF be manageable if the banks were properly and and ESM – and ECB liquidity – could then be aggressively recapitalized. Avoiding a post-exit used to ring-fence these countries, and banks implosion of the Greek banking system, however, elsewhere in the eurozone’s troubled periphery. might require temporary measures, such as bank Regardless of what Greece does, eurozone banks holidays and capital controls, to prevent a disor- now need to be rapidly recapitalized, which derly run on deposits. The European Financial requires a new EU-wide program of direct capital Stability Facility/European Stability Mechanism injections. (EFSF/ESM) should carry out the necessary The experience of Iceland and many emerging recapitalization of the Greek banks via direct markets over the past 20 years shows that nomi- capital injections. European taxpayers would ef- nal depreciation and orderly restructuring and re- fectively take over the Greek banking system, but duction of foreign debts can restore debt sustain- this would be partial compensation for the losses ability, competitiveness, and growth. As in these imposed on creditors by drachmatization. cases, the collateral damage to Greece of a euro Greece would also have to restructure and reduce exit will be significant, but it can be contained. its public debt again. The Troika’s claims on Greece need not be reduced in face value, but Like a doomed marriage, it is better to have rules their maturity would have to be lengthened by for the inevitable divorce that make separation another decade, and the interest on it reduced. less costly to both sides. Make no mistake: an Further haircuts on private claims would also be orderly euro exit by Greece implies significant needed, starting with a moratorium on interest economic pain. But watching the slow, disorderly payments. implosion of the Greek economy and society would be much worse. Some argue that Greece’s real GDP would be much lower in an exit scenario than it would be Nouriel Roubini is the chairman and co-founder of Roubini Global Economics and blogs at EconoMonitor. during the hard slog of deflation. But that is logi- com cally flawed: even with deflation, real purchas- ing power would fall, and the real value of debts Available: http://www.project-syndicate.org/commen- would rise (debt deflation), as the real depre- tary/greece-must-exit. Copyright Project Syndicate ciation occurs. More importantly, the exit path would restore growth right away, via nominal and real depreciation, avoiding a decade-long depres- sion. And trade losses imposed on the eurozone by the drachma depreciation would be modest, given that Greece accounts for only 2% of euro- zone GDP. Reintroducing the drachma risks exchange-rate depreciation in excess of what is necessary to re- store competitiveness, which would be inflation- ary and impose greater losses on drachmatized external debts. To minimize that risk, the Troika reserves currently devoted to the Greek bailout should be used to limit exchange-rate overshoot- ing; capital controls would help, too. Those who claim that contagion from a Greek exit would drag others into the crisis are also in denial. Other peripheral countries already have Greek-style problems of debt sustainability and eroded competitiveness. Portugal, for example, may eventually have to restructure its debt and Capitalism in Crisis: Europe, Austerity and the Left, 2012 19 Section I: Political Economy of Europe’s Crisis WHAT HAPPENS WHEN GREECE EXITS FROM THE EURO AREA? Willem Buiter Were Greece to be forced out of the euro area (say What this means is that, as soon as the possibil- by the ECB refusing to continue lending to Greek ity of a Greek exit becomes known, there will be a banks through the regular channels at the Euro- bank run in Greece and denial of further funding system and stopping Greece’s access to enhanced to any and all entities, private or public, through credit support (ELA) at the Greek central bank), instruments and contracts under Greek law. there would be no reason for Greece not to repu- Holders of existing euro-denominated contracts diate completely all sovereign debt held by the under Greek law want to avoid their conversion private sector and by the ECB. Domestic politi- into ND and the subsequent sharp depreciation of cal pressures might even drive the government the ND. The Greek banking system would be de- of the day to repudiate the loans it had received stroyed even before Greece had left the euro area. from the Greek Loan Facility and from the EFSF, There would remain many contracts and financial despite it having been issued under English law. instruments involving Greek private and public Only the IMF would be likely to continue to be entities denominated in euro (or other curren- exempt from a default on its exposure, because cies, like the US dollar) that are not under Greek a newly ex-euro area Greece would need all the law. These would not get redenominated into ND. friends it could get – outside the EU. In the With part of their balance sheet redenominated case of a confrontation-driven Greek exit from into ND which would depreciate sharply and the the euro area, we would therefore expect to see rest remaining denominated in euro and other around a 90 percent NPV cut in its sovereign currencies, any portfolio mismatch would cause debt, with 100 percent NPV losses on all debt disruptive capital gains and losses for what’s left issued under Greek law, including the debt held, of the Greek banking system, Greek non-bank directly or directly, by the ECB/Eurosystem. We financial institutions and any private or public would also expect 100 percent NPV losses on the entity with a (now) mismatched balance sheet. loans by the Greek Loan Facility and the EFSF to Widespread defaults seem certain. the Greek sovereign. As discussed in Buiter and Rahbari (2011), we Consequences for Greece believe that the improvement in Greek competi- Costs of EA exit for Greece are very high, most tiveness that would result from the introduction notably the damage done to balance sheets of of the ND and its sharp depreciation vis-à-vis Greek banks and nonfinancial corporates in an- the euro would be short-lived in the absence of ticipation of EA exit. meaningful further structural reform of labour markets, product markets and the public sector. We have recently discussed at length what we Higher domestic Greek ND-denominated wage think would happen should Greece leave the euro inflation and other domestic cost inflation would area (Buiter and Rahbari (2011)), so we shall be swiftly restore the old uncompetitive real equi- brief here. Note that we assume that Greece exits librium or a worse one, given the diminution of the euro area and does not engage in the techni- pressures for structural reform resulting from cal fudge discussed in Buiter and Rahbari (2011), euro area exit. under which it technically stays in the euro area but introduces a second, parallel or complemen- In our view, the bottom line for Greece from an tary currency. exit is therefore a financial collapse and an even deeper recession than the country is already expe- The instant before Greece exits it (somehow) riencing – probably a depression. introduces a new currency (the New Drachma or ND, say). Assume for simplicity that at the Monetising the deficit moment of its introduction the exchange rate be- A key difference between the ‘Greece stays in’ and tween the ND and the euro is 1 for 1. This curren- the ‘Greece exits’ scenarios is that we believe/ cy then immediately depreciates sharply vis-à-vis assume that if Greece remains a member of the the euro (by 40 percent seems a reasonable point euro area, there would be official funding for the estimate). All pre-existing financial instruments Greek sovereign (from the Greek Loan Facility, and contracts under Greek law are redenominat- the EFSF and the IMF), even after the inevitable ed into ND at the 1 for 1 exchange rate. deep coercive Greek sovereign debt restructur- 20 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone ing, and even if NPV losses were imposed on the to renew their exposure to the Greek sovereign official creditors – the Greek Loan Facility, the once they have been repaid. In addition, future EFSF and the ECB. The ECB probably would no disbursements by the IMF under the first Greek longer engage in outright purchases of Greek programme would be at risk following a Greek sovereign debt through the SMP, but the EFSF exit. This would create a further funding gap. would be able to take over that role following the Assume the Greek authorities end up (very enhancement and enlargement of the EFSF later optimistically) having to find a further 5 percent in 2011.4 If Greece remains a member of the euro of GDP worth of financing. This could be done area, the ECB would likewise, in our view, contin- by borrowing or by monetary financing. Bor- ue to fund Greek banks (which would have to be rowing in ND-denominated debt would likely be recapitalised following the Greek sovereign debt very costly. Nominal interest rates would be high restructuring), both through the regular liquidity because of high anticipated inflation – inflation facilities of the Eurosystem and through the ELA. that would indeed be likely to materialise. Real In the case of a (confrontational and bitter) de- interest rates would also be high. parture of Greece from the euro area, it is likely Although the Greek sovereign’s ability to service that all official funding would vanish, at least for newly issued debt would be greatly enhanced a while, even from the IMF (which would, under following its repudiation of most of its outstand- our most likely scenario, not have suffered any ing debt, the default would raise doubts about its losses on its loans to the Greek sovereign). The future willingness to service its debt. Default risk ECB/Eurosystem would, of course, following a premia and liquidity premia (the market for ND- Greek exit, cease funding the Greek banks. denominated Greek debt would be thin) would This means that the Greek sovereign would either raise the cost of borrowing in ND-denominated have to close its budget gap through additional debt. Even if the Greek authorities were to borrow fiscal austerity, following its departure from the under foreign law by issuing debt denominated euro area, or find other means to finance it. The in US dollars or euro, default risk premia and gap would be the primary (non-interest) general liquidity premia would likely be prohibitive for at government deficit plus the interest due on the least the first few quarters following the kind of debt the Greek sovereign would continue to serve confrontational or non-consensual debt default (the debt issued under foreign law other than the we would expect if Greece were pushed out of the loans from the Greek Loan Facility and the EFSF, euro area. and the debt to the IMF), plus any refinancing of So the authorities might have to finance at least this remaining sovereign debt as it matured. We 5 percent worth of GDP through issuance of ND expect the Greek General Government deficit, base money, under circumstances where the mar- including interest, to come out at around 10 per- kets would inevitably expect a high rate of infla- cent of GDP for 2011, while the programme target tion. The demand for real ND base money would is 7.6 percent. General government interest as a be very limited. The country would likely remain share of GDP is likely to be around 7.2 percent de-facto euroised to a significant extent, with euro of GDP in 2011, which means that we expect the notes constituting an attractive store of value and primary General Government deficit to be around means of payment even for domestic transac- 2.8 percent of GDP. We don’t know the interest tions relative to New Drachma notes. We have bill in 2011 for the IMF loan and for the outstand- few observations on post-currency union exit base ing privately held debt issued under foreign law. money demand to tell us whether a 5 percent of If we assume that these account for 10 percent GDP expected inflation tax could be extracted at of the total interest bill on the general govern- all by the issuance of ND – that is, at any rate of ment debt – probably an overestimate as interest inflation. If it is feasible at all, it would probably rates on the IMF loan are lower than on the rest involve a very high rate of inflation. It is possible of Troika funding – then we would have to add that we would end up with hyperinflation. 0.72 percent to the primary deficit as a percent- age of GDP to obtain an estimate of the budget The obvious alternative to monetisation is a deficit that would have to be funded by the Greek further tightening in the primary deficit through government, say 3.5 percent of GDP. We would additional fiscal austerity (of something under 5 have to add to that any maturing IMF loans and percent of GDP), allowing for some non-inflation- any maturing privately held sovereign debt not ary issuance of base money. Because Greek exit under Greek law. This is on the assumption that would be in part the result of austerity fatigue in even those creditors under international law that Greece, this outcome does not seem likely. continue to get serviced in full, would prefer not A collapsed banking system, widespread default Capitalism in Crisis: Europe, Austerity and the Left, 2012 21 Section I: Political Economy of Europe’s Crisis throughout the economy, a continuing non- equally fail to keep their commitment. This is competitive economy and high inflation with a not just a morality tale. It has highly practical material risk of hyperinflation would make for implications. When Greece can exit, any country a deep and enduring recession/depression in can exit. If we look at the austerity fatigue and Greece. Social and political dislocation would be resistance to structural reform in the rest of the certain. There would, in our view, be a material periphery and in quite a few core euro area coun- risk of a downward spiral of dysfunctional politics tries, it is not plausible to argue that the Greek and economics. case is completely unique and that its exit creates no precedent. Despite the fact that both Greece’s Consequences for the remaining fiscal situation and its structural, supply-side euro area and EU member states economic problems are by some margin the most of a Greek exit severe in the euro area, Greece’s exit would create a powerful and highly visible precedent. For the world outside Greece, and especially for the remaining euro area member states following As soon as Greece has exited, we expect the a Greek exit, the key insight would be that a taboo markets will focus on the country or countries was broken with a euro area exit by Greece. The most likely to exit next from the euro area. Any irrevocably fixed conversion rates at which the old non-captive/financially sophisticated owner of Drachma was joined to the euro in 2001 would, a deposit account in that country (or in those de facto, have been revoked. The permanent countries) will withdraw his deposits from banks currency union would have been revealed to be a in countries deemed at risk – even a small risk snowball on a hot stove. – of exit. Any non-captive depositor who fears a non-zero risk of the future introduction of a New Not only would Greek official credibility be shot, Escudo, a New Punt, a New Peseta or a New Lira the same thing would happen for the rest of the (to name but the most obvious candidates) would EA member states in our view. First, monetary withdraw his deposits from the countries involved union is a two-sided binding commitment. Both at the drop of a hat and deposit them in the hand- sides renege if the accord is broken. Second, ful of countries likely to remain in the euro area Greece would only exit from the euro area if it no matter what – Germany, Luxembourg, the was driven out by the rest of the euro area mem- Netherlands, Austria and Finland. The ‘broad ber states, with the active cooperation of the ECB. periphery’ and ‘soft core’ countries deemed at any Even though it would be Greece that cuts the risk of exit could of course start issuing deposits umbilical cord, it would be clear for all the world under English or New York law in an attempt to to see that it was the remaining euro area mem- stop a deposit run, but even that might not be suf- ber states and the ECB that forced them to wield ficient. Who wants to have their deposit tied up in the scalpel. litigation for months or years? It does not help to say that Greece ought never Apart from bank runs in every country deemed, to have been admitted to the euro area because by markets and investors, to be even remotely the authorities during the years leading up to at risk of exit from the euro area, there would Greek membership in 2001, knowingly falsified be de facto funding strikes by external investors the fiscal data to meet the Maastricht criteria for and lenders for borrowers from these countries. EMU admission, and continued doing so for long Again, putting under foreign law (most likely afterwards.6 After all, what Greece did was just English or New York) all cross-border (or perhaps an exaggerated version of the deliberate data ma- even all domestic) financial contracts and instru- nipulation, distortion and misrepresentation that ments could at most mitigate this but would not allowed the vast majority of the euro area mem- cure it. ber states to join the EMU, including quite a few from what is now called the core euro area7. The The funding strike and deposit run out of the preventive arm of the euro area, the Stability and periphery euro area member states (defined Growth Pact (SGP) which, if it had been enforced very broadly), would create financial havoc and would have prevented the Greek situation from mostly like cause a financial crisis followed by a arising, was emasculated by Germany and France deep recession in the euro area broad periphery. in 2004, when these two countries were about to The counterparty inflow of deposits and diver- be at the receiving end of its enforcement. sion of funding to the ‘hard core’ euro area and the removal (or at least substantial reduction) Euro area membership is a two-sided commit- of the risk of ECB monetisation of EA sovereign ment. If Greece fails to keep that commitment and bank debt would drive up the euro exchange and exits, the remaining members also and 22 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone A one-word explanation on why the Eurozone cannot inflate its way out of trouble: SPAIN! Yanis Varoufakis So, Germany seems to have pushed the inflation- do. Of why the rot has dug so deeply into the fab- phobia monkey off its back. Its finance minister ric of the eurozone that Eco101 macroeconomic has condoned real wage rises for German indus- remedies are neither here nor there. trial workers and the head of the Bundesbank has Over the past two years, and following the Calam- acknowledged a readiness to allow German infla- ity that was 2008 in the global financial markets, tion to outpace that of the rest of the eurozone. Europe’s banks lost their capacity to reproduce After fifteen years of violating the Maastricht themselves. Their zombification is nothing new. agreement on the need to target the same rate We have seen it before in Japan, as well as (to a of inflation (at around 2% – see here), Germany lesser extent) in the US, in Britain etc. The differ- is now prepared to compensate the rest of the ence in our eurozone case is that bank zombifica- eurozone for the damage its deflationary strategy tion came hand in hand with the steady erosion in has caused. the capacity of eurozone sovereigns to refinance This is, surely, a good thing, is it not? Yes and their public debt. In effect, at least five coun- no. Yes, it shows that there is some hope that tries (Greece, Ireland, Portugal, Spain and Italy) German policy makers will, at last, ‘get it’ that witnessed a triangular zombification involving competitiveness is a relative (as opposed to an a reliance of insolvent banks on insolvent states absolute) concept. And, No, allowing for above and a further reliance of the insolvent states on a average inflation in Germany is too little and des- Central Bank that lacks the tools to manage the perately too late to do anything about the Crisis insolvency of either the states or of the banks. we find ourselves in. Ironically, the head of the To put it simply, yes, Germany’s ‘success’ at Bundesbank, Mr Weideman, has just published boosting its competitiveness by keeping its wage an article in the FT whose title gives the answer and price inflation well below the commonly away: Monetary Policy is No Panacea for Europe. agreed eurozone targets during the past 15 years Indeed it is not. And the reason is… Spain. Or, has ensured that, when the Credit Crunch hit in to be more precise, Spain is an excellent case in 2008, the rest of the eurozone fell into a hole. point as to why a further easing of monetary pol- However, this hole is now so deep that the rest of icy, even if German wages are allowed to increase above inflationary expectations, will simply not continued next page ... Willem Buiter continued ... to anticipate the Basel III capital requirements, the EU banking sector as a whole remains signifi- rate. So the remaining euro area members would cantly undercapitalised even if sovereign debt is suffer (at least temporarily) from an uncompeti- carried at face value. In addition, the warning by tive exchange rate as well from the spillovers of Ackermann that “… many European banks would the financial and economic crises in the broad not be able to handle writing down the sovereign periphery. bonds they hold on their banking books to market As noted by the new IMF Managing Director, levels…” (Ackermann (2011), see also IMF (2011, Christine Lagarde (Lagarde (2011) and confirmed pp. 12 -20)) serves as a reminder of the fact that by Josef Ackerman (Ackermann (2011, p.14)), the Europe is faced with a combined sovereign debt European banking sector is seriously undercapi- crisis in the euro area periphery and a potential talised. It would not be well-positioned, in our banking sector insolvency crisis throughout the view, to cope with the spillovers and contagion EU. caused by a Greek exit and the fear of further ex- A banking crisis in the euro area and in the EU its. Ms Lagarde was arm-twisted by the EU politi- would most likely result from an exit by Greece cal leadership, the ECB and the European regula- from the euro area. The fundamental financial tors into a partial retraction of her EU banking and real economy linkages from the rest of the sector capital inadequacy alarm call.10 However, world to the euro area and the rest of the EU are this only served to draw attention to the obvious strong enough to make this a global concern. truth that despite the three bank stress tests in the EU since October 2009 and despite the capi- First published: Zero Hedge, May 13, 2012. tal raising that has gone on since then both to ad- Available: http://www.zerohedge.com/news/if-greece- dress any weaknesses revealed by these tests and exits-here-what-happens Capitalism in Crisis: Europe, Austerity and the Left, 2012 23 Section I: Political Economy of Europe’s Crisis GET READY FOR THE SPANISH BAILOUT Nouriel Roubini & Megan Greene May 9th, 2012 No one can pretend to know whether Spain is ish banks to support the sovereign, particularly illiquid or insolvent without gauging the size of amid rating downgrades and deposit withdrawals. the black hole that is the country’s banking sector. Ideally, a bailout for Spanish banks should come The Spanish government is finally starting to do immediately and in the form of direct capital this: Bankia and other banks are reportedly set to injections from the EU bailout funds. Germany receive a capital injection from Madrid. With the remains staunchly opposed to this, as it would Spanish economy contracting sharply and with mean giving up the stick of conditionality and unemployment soaring, it was inevitable that the feeding Spain the funding carrot. Such an option government had to bail out the banks. But this is also resisted by the Spanish authorities as the only deals with one piece of the puzzle. Without EU taxpayer will effectively take over their banks. growth, the Spanish sovereign will need a bailout as well. Instead it looks like a bailout for Spanish banks has been postponed until the very last minute. Spain’s credit boom peaked in 2008 when the The cost of a bank bailout would then be foisted supply of cheap, external finance began to fall on to the Spanish sovereign’s balance sheet. sharply. Four years later, Spanish banks’ asset quality continues to plummet. The sector will Bank bailouts on this scale may well bring the require €100-250bn in recapitalisation later this Spanish state to its knees. If they don’t, Spain’s year to maintain a 9 per cent core tier one capital public and external debt positions will. ratio, the minimum stipulated by the European In order to stabilise its public debt levels after Banking Authority. In the meantime, there are a bank recapitalisation, Spain would have to concerns about the capacity and appetite of Span- continued next page ...

Yanis Varoufakis continued ... the eurozone cannot climb out by reversing the “…relieving stress in the sovereign bond markets inflation dynamics within the eurozone. Now, we eases imminent funding pain but blurs the signal need something more drastic. to sovereigns about the precarious state of public finances and the urgent need to act.” What is it that we need? The first thing that coun- tries like Spain need is an urgent recapitalisation So, here we have it: Spain is being screwed into of its banks (see today’s FT article by Roubini and the ground so as to, supposedly, impress upon it Greene) that does not increase Spanish pub- the ‘precarious state of its public finances’. What lic debt. This could be achieved very simply by claptrap! Spain had a surplus in its budget in having the various cajas taken over, and recapi- 2008 and has had a debt-to-GDP rate less than talised, by the EFSF (with the EBA appointing Germany’s. Behind Mr Weidmann’s subterfuge new boards of directors). Just take the Spanish hides an unfathomable truth: Having gutted government out of the ‘banking game’. That way, the rest of the eurozone for years, by squeezing the link that keeps reproducing the zombification- German price and wage inflation below agreed reinforcement mechanism linking banks and limits, German policy makers are misrepresent- member-states ends immediately. ing the cause of the Periphery’s woes. Rather than acknowledging the need to europeanise banking Why are the powers that be resisting this? Two supervision, and a part of the eurozone’s public reasons: First, as I have argued repeatedly, debt, they are offering trinkets in the form of because the national elites are not ready to give an above average inflation rate. Why trinkets? up their extremely cosy relationship with the Because, in view of the deflation that is coming to bankers. Secondly, because Spain’s insolvency the deficit countries, having German inflation rise (and Greece’s, Italy’s, etc.) is still seen by certain above average is as inevitable as it is useless. German policy makers as a golden opportunity to impose upon France (via the Periphery) their First published: Author’s Website, May 10, 2012 views on how things should be. You don’t need to Available: http://yanisvaroufakis.eu/2012/05/10/a- take my word for this. Jens Weidemann said so one-word-explanation-on-why-the-eurozone- in today’s FT piece (that I already quoted above): cannot-inflate-its-way-out-of-trouble-spain/ 24 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone Europe’s depressing prospects: TWO REASONS WHY SPAIN WILL LEAVE THE EURO Michael Pettis May 18th, 2012 Normally I don’t like to write about European from low savings rates that had been forced down prospects in the midst of a very rough patch in in the past decade to dangerous levels. the market because in that case there isn’t much Spain had a stronger fiscal position and healthier I can say that isn’t already being said. I find it bank balance sheets than many of its peers when more useful to wait for those recurring periods in the crisis began, so any argument that applies which the markets recover and optimism rises. to Spain is likely to apply more forcefully to its Still, given the conjunction of political uncertainty peers. As an aside I will add that France is for in Beijing, low Chinese growth numbers, and me the dividing line between countries that will another round of deteriorating circumstances be forced into devaluation and restructuring and in Europe, I will spend most of this issue of the those that won’t – in my opinion France could go newsletter trying to outline the possible paths either way and we will get a much better sense of countries like Spain must face. this in the first year of Hollande’s presidency. For several years I have been saying that Spain There are two reasons why I was and am fairly would leave the euro and restructure its external sure that Spain cannot stay in the euro (or, which debt. I should say that I specify Spain because it amounts to the same thing, that Germany will is the country in which I was born and grew up, leave the euro instead of Spain). The first has to and so it is also the country I know best. When do with the logic of Spain’s balance of payments I say Spain, however, I really mean all the pe- position, and the second has to do with the inter- ripheral European countries that, like Spain, are uncompetitive, have high debt levels, and suffer continued next page ...

Roubini & Greene continued ... generate a swing in its public finances that is not Portugal and Ireland, a second bailout is afford- only unrealistic, but also self-defeating. The tax able. But there can only be one roll of the dice for hikes and spending cuts required would make the a country as large as Spain. recession deeper and cause the primary balance A bailout package would buy some time for Spain, to deteriorate. but time will only help if it is used to generate In order to put itself on a path towards external economic growth. By making private claims on debt sustainability, Spain would need to see a the sovereign junior to the claims of the troika huge adjustment in its trade balance. In the short- (European Commission, European Central Bank run, a fall in domestic demand could quickly im- and International Monetary Fund) even a bailout prove the trade balance. However, in the medi- risks reducing the chances of it regaining mar- um-term, Spain can only service its foreign debt ket access. Moreover, with economic indicators if it finds balanced and sustainable growth, which showing Spain sinking further into recession, a requires a real-terms depreciation that will not turnround in the country’s economic performance occur unless the value of the euro falls sharply. would require a significant shift in policy: mon- etary easing by the ECB, a weaker euro, fiscal Anyone who has closely followed developments in stimulus in the core, less front-loaded austerity the eurozone will be struck by déjà vu looking at in the periphery, more international firewalls and Spain’s current predicament. The corrosiveness debt mutualisation. of banking sector uncertainty for investor confi- dence in Spain is reminiscent of Ireland in 2009 The only way for there to be a happy ending in and 2010. Spain’s austerity-recession feedback Spain is if action is taken swiftly in Brussels, loop is similar to the process that fed the econom- Frankfurt and other European capitals. But that is ic contraction in Greece and Portugal. not likely to happen. The eurozone periphery and Spanish crisis look like a slow motion train wreck. And yet despite the clear signs of failure in the existing bailout countries, the EU looks set to First published: Financial Times pursue an unchanged plan in Spain. But the Available: http://www.economonitor.com/nouri- crucial difference between Spain and the bailout el/2012/05/09/get-ready-for-the-spanish-bailout/ countries is size. If things go wrong in Greece, Capitalism in Crisis: Europe, Austerity and the Left, 2012 25 Section I: Political Economy of Europe’s Crisis nal dynamics that drive the process of financial to GDP denominated in a weakening currency. crisis. In that case Spain would almost certainly be forced to halt debt payments and restructure To address the first, I would start by noting that its debt. thanks to excessively loose monetary policies driven primarily by German needs over the past I want to stress that these are, practically speak- decade, Spain has made itself wholly uncompeti- ing, the only three ways for Spain to regain com- tive in the global markets and in so doing has run petitiveness. There are other ways that could in large current account deficits for nearly the entire theory also work, but they are too unlikely to con- past decade. Its fundamental problem, in other sider. One could assume for example that the rest words, has been the process by which its savings of the non-European world – most importantly rate has collapsed, its cost structure forced up, its the US, China and Japan – take steps to stimulate debt levels soared, and a great deal of investment their domestic economies sufficiently to force directed into projects, mostly real estate, that up consumption and run in the aggregate large were not economically viable. As I have discussed and growing trade deficits. These deficits, whose often in previous issues of this newsletter, all of counterpart would be a very large European trade these problems are related and are the automatic surplus, would then bail out the whole eurozone consequences of the same set of policy distortions by generating GDP growth rates that exceed the implemented in Spain and in Germany. debt refinancing rates. Until Spain reverses its savings and consump- I think most of my readers will however agree tion balance and drives down its current account that this is pretty unlikely. The rest of the world is deficit into surplus, which is what a reversal also struggling with growth and in no hurry to run of these distortions would imply, it should be large trade deficits. Another possibility is that we pretty clear that Spain will continue struggling suddenly see a rapid and dramatic move towards with growth and will continue to see debt levels full fiscal union in Europe, in which sovereignty, rise unsustainably. But the balance of payments for all practical purposes, is fully transferred to mechanism imposes pretty clear constraints on Brussels (or Berlin). But that probably won’t hap- the process of adjustment. In that sense there are pen either – the rise of nationalism throughout really only three ways Spain can regain competi- Europe has made this always-unlikely prospect tiveness sufficiently to raise savings and reverse even less likely. the current account: So we are left largely with these three ways of al- 1. Germany and the other core countries can lowing Spain to regain a cost structure that makes take steps to reverse the policies that led to the it competitive and allows it to amortize its debt European crisis. They can cut consumption while growing. Anyone who rules out two of the and income taxes sharply in order to reduce three ways listed above must automatically imply domestic savings and increase domestic con- that Spain will follow the third way. So which will sumption. These would lead to a reversal of it be? the German trade surpluses and higher infla- tion in Germany, the combination of which Humpty Dumpty economics would allow Spain to reverse its trade deficit The first way is for Germany to reverse its surplus and regain competitiveness via lower inflation and begin running large deficits. This is by far the relative to that of Germany and a weaker euro. best way, but I think it is very unlikely. Berlin has 2. Spain can force austerity and tolerate high made no indication that it is prepared to do what unemployment for many more years as wages would be necessary for it to run large deficits and, are slowly pushed down and pricing excesses on the contrary, it is even talking about the need are ground away. It can also take measures to for more austerity. reduce costs by making it easier to start busi- In part this is because Germany has a poten- nesses, reducing business taxes, and by im- tially huge debt problem on its balance sheet. As proving infrastructure, but these latter provide a consequence of its consumption-repressing too little relief except over a very long period, policies during the decade before the crisis, especially given the difficulty Spain will face in Germany’s domestic savings rate was forced up financing infrastructure and reducing taxes. to much higher than it otherwise would have 3. Spain can leave the euro and devalue. This been and Germany has had to export the excess would leave it with a problem of euro-denom- capital. Not surprisingly, given European mon- inated debt, whose value would soar relative etary dynamics, this capital has been exported

26 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone largely to the rest of Europe in order to fund the confuse trade surpluses with moral vigor. By current account deficits of peripheral Europe that refusing to take steps that seem on the surface to corresponded to the surpluses Germany so badly undermine its creditworthiness, Berlin will only needed to grow. ensure the debt moratorium that will probably demolish its creditworthiness anyway. It did this not by accumulating euro reserves, which it could not do anyway, but rather by ac- And of course without a major reversal of Ger- cumulating loans to peripheral Europe through man’s current account position the balance of the banking system. As a result of all of these payments constraint absolutely prevents net loans, Germany is rightly terrified that a wave repayments from peripheral Europe. This game of defaults in Europe will cause its own bank- will go on as long as the core countries continue ing system to require a state bailout if it is not to financing the periphery, but once they finally collapse, and so it does not want to cut taxes and stop, the peripheral countries will almost certain- reduce savings because it believes (wrongly) that ly default or restructure their debt. austerity will make it easier to protect its credit- To take a brief detour before returning to discuss- worthiness. ing the three paths Spain can take, I think Berlin But German’s anti-consumption policies are lead- is betting that if they can prolong the crisis long ing it towards a debt problem in the same way enough, while pretending that the problem is one that similar US policies in the late 1920s created of liquidity, not solvency, they can recapitalize an American debt crisis during the next decade. the German (and other European) banks to the In that light I thought this very illuminating point where they eventually are able to recog- quote from then-presidential candidate Franklin nize the obvious and take the losses. This was, Delano Roosevelt might be apposite: after all, the strategy followed by the US during the LDC Crisis of the 1980s, when it waited until A puzzled, somewhat skeptical Alice asked the 1989, seven or eight years after the crisis began, Republican leadership some simple questions: to arrange the first formal debt forgiveness (the “Will not the printing and selling of more Mexican Brady Bond). During that time a steep stocks and bonds the building of new plants yield curve engineered by the Fed allowed the and the increase of efficiency produce more US banks to earn sufficient profits to recapitalize goods than we can buy?” themselves to the point where they could finally “No,” shouted Humpty Dumpty, “the more we formally recognize what had long been obvious. produce the more we can buy.” There are at least two reasons however why this “What if we produce a surplus?” strategy won’t work for the European banks. First, the hole in the European banks’ balance “Oh, we can sell it to foreign consumers.” sheets dwarves the equivalent hole in the balance “How can the foreigners pay for it?” sheets of the American banks during the LDC cri- sis. It would take them much longer then seven “Why, we will lend them the money.” or eight years to fix the problem. “I see,” said little Alice, “they will buy our sur- Second, postponing resolution of the debt crisis plus with our money. Of course these foreign- is extremely painful for the debtor countries, who ers will pay us back by selling us their goods.” have to bear the full brunt of the adjustment that “Oh not at all, “said Humpty Dumpty. “We set both debtor and creditor countries really need to up a high wall called the tariff.” make together. This reduces maneuvering space for Europe because the political system in Europe “And,” said Alice at last, “how will the foreign- is less able than that of Latin America during the ers pay off these loans?” 1980s to accommodate this very painful process. “That is easy, said Humpty Dumpty. “Did you Well-functioning democracies, after all, make ever hear of a moratorium?” it harder for bankers and elites to force the cost of the adjustment onto the middle and working And so alas, my friends, we have reached the classes. heart of the magic formula of 1928. Humpty Dumpty’s grasp of the balance of pay- Can Spain adjust by itself? ments, it turns out, is no more naïve than that This is also the reason why Spain cannot follow of many European policymakers, and I suppose the second of the three paths described above. Germany will follow the historical precedent set by the US – and so many other countries that continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 27 Section I: Political Economy of Europe’s Crisis The second path requires that Spain bear the tinue until either the two major parties eject those full brunt of the economic adjustment, which in of their leaders who continue to demand that reality Spain and Germany should bear together. Spain behave in a “responsible” way, or harder Spanish voters, however, will not permit (and line extremist parties replace the two parties rightly so) that Madrid force such economic pain themselves. on its citizens in the name of an ideal of “respon- I place the word “responsible” in quotation marks sible behavior” (i.e. remaining within the euro) not because I am opposed to responsible behav- that is both mistaken and extremely painful. ior but rather because the attempt to tighten The adjustment will require that Spanish wages the budget and impose austerity in the name of and prices are forced down substantially until remaining on the euro is being presented as the Spain can reverse the higher price differential “responsible” thing to do. It is, however, no more relative to Germany from which it suffers. Figur- responsible than the policies France used in the ing out how to do this is not very hard – we have 1920s to revalue the franc to pre-War parity, plenty of historical precedents upon which to which were also sold to the French public as the draw. To simplify substantially, there are basical- “responsible” thing to do. ly two things that have to happen in order to force In both cases (and in many other deluded at- a relative decline in prices. First, unemployment tempts to protect hopelessly overvalued curren- must remain very high for many years so that cies underpinned by rising eternal debt), poli- wages either decline, or rise by less than inflation cymakers did not understand that their policies and relative productivity growth. This is pretty were guaranteed to fail and were based on a mis- straightforward. understanding of the causes of the underlying cri- Second, there must be some way to deal with the sis. The responsible thing to do is to acknowledge real increase in the domestic debt burden. Why? that the euro is indefensible and that Germany’s Because there are two ways relative prices can refusal to share the adjustment burden, after it be forced down, and both of these result in a real absorbed most of the benefits of the misman- increase in the debt burden. First, high inflation aged monetary position it imposed on the rest of in Germany can exceed lower Spanish inflation, Europe, means that Spain will be forced to take and second, Spain can deflate. In both cases the on far more than its share of the cost. real cost of debt must increase substantially – in But whether or not everyone agrees with my the former case because high German inflation analysis of what really is “responsible” behavior, will force up euro interest rates so that Spain’s I think most people will agree that, rightly or refinancing cost will exceed its domestic growth wrongly, Spanish voters are unlikely to accept rate, and in the latter case because deflation auto- high unemployment and an assault of middle matically increases the real debt burden. class savings for many years without rebelling at How will we deal with the rising debt burden? the polls. Spain simply cannot accept the full bur- Typically we do so by confiscating the wealth of den of adjustment. small and medium enterprises or by confiscating This means that the first two of the three paths I the savings of the middle classes, and usually we listed above cannot be followed. If I am right, we do both. are automatically left with the third. Spain (and So for Spain to adjust we need both very high by extension many other countries) must leave unemployment for many years and we need to the euro. It will be very painful and chaotic for undermine the middle classes. Any policy that them to abandon the euro, but the sooner they do requires an enormous and unfair burden on both it the less painful it will be. the workers and the middle classes is unlikely to be rewarded at the polling booths. The death spiral The huge unpopularity of the newly elected Prime I said at the beginning of this newsletter that Minister Mariano Rajoy, in that context, should there were two reasons why I was certain Spain not be a surprise. I wrote last year just after would leave the euro, the first of which has to the election that this would happen, although I do with the logic of Spain’s balance of payments thought it would take a year or two before the position and the second with the internal dynam- population really turned on him and made it im- ics that drive the process of financial crisis. To possible for him to govern. But Spaniards, from address the second, I think Spain will leave the business leaders down to workers, are furious at euro because it seems to me that the country has the Rajoy government and this anger will con- already started on the self-reinforcing downward

28 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone spiral that leads to a crisis, and there is no one big currency before any abandonment of the euro enough to reverse the spiral. is announced, depositors respond rationally by How does this process work? It turns out that taking money out of the banking system. As it is pretty straightforward, and occurs during they do, banks are forced to contract lend- every one of the sovereign financial crises we have ing, to increase balance sheet liquidity, and seen in modern history. When a sufficient level to reduce risk, all of which act as a drag on of doubt arises about sovereign credibility, all economic growth. the major economic stakeholders in that country 4. Workers. Rising unemployment and the begin to change their behavior in ways that exac- prospects for an unequal sharing of the burden erbate the problem of credibility. of adjustment cause unions to become increas- Of course as credibility is eroded, this further ingly militant and to engage more often in exacerbates the behavior of these stakeholders. various forms of industrial action, which, by In that case bankruptcy comes, as Hemingway is raising uncertainty and costs for businesses, reported to have said, at first slowly, and then all force them to cut output and employment. of a sudden, as the country moves slowly at first 5. Small and medium businesses. One of the sec- and then rapidly towards a breakdown in its debt tors most likely to be penalized in a debt crisis capacity. is the small and medium enterprise sector. What is key to understanding the process is to see Owners of small and medium businesses know that stakeholders will behave for perfectly ration- that they are vulnerable during a crisis to an al reasons in ways that politicians and moralists expropriation of their wealth through taxes, will decry as wholly irrational. Rather however price and wage controls, and other forms of than respond to appeals that they stop behaving indirect expropriation. They try to forestall irrationally, stakeholders will continue mak- this by disinvesting, cutting back on expenses, ing conditions worse by their behavior as they and taking money out of the country. respond the distorted incentives created by the 6. Political leaders. As time horizons shorten erosion of sovereign credibility. To do otherwise and politics becomes increasingly radicalized, would almost surely expose them to disaster. policymakers shift their behavior in ways that To summarize what the self-destructive and auto- reduce credibility further, increase business matic behavior of the stakeholders is likely to be, uncertainty, and raise national antagonisms. it is worth identifying some of the major stake- It is important to recognize the almost wholly holders and to suggest how they typically react to mechanical nature of credit deterioration once a rise in the sovereign’s default risk: a country is caught in this kind of spiral. Dete- 1. Private creditors. As Spain’s credibility dete- riorating creditworthiness forces stakeholders to riorates, private creditors will demand higher adjust. Their adjustment causes debt to rise and/ yields on their loans to Spain even as they or growth to slow, thus eroding creditworthiness change the form of their lending to reduce further. their own risk, for example by shortening The combination of these and other actions maturities. This has a double impact on mak- by stakeholders, in other words, can’t help but ing conditions worse. First, higher interest reduce GDP growth, increase debt, and increase rates mean that debt rises more quickly than it the fragility of the balance sheet, all of which of otherwise would. Second, shorter maturities course undermines credibility further, so rein- and other changes in the loan structure mean forcing the suboptimal behavior of stakeholders. greater balance sheet fragility and a rising All of the exhortations by politicians, the church, probability of default. public intellectuals, bankers, etc. – and there will 2. Official lenders. As they are forced into pro- be many – that stakeholders put personal self- viding liquidity facilities, official creditors typi- interest aside and act in the best interests of the cally demand and receive seniority. This of nation will be useless. Slowing this behavior is course increases the riskiness for other lenders not enough. It must be reversed. and creditors by pushing risk downwards, and But how can it be reversed? No one is big enough so worsens balance sheet fragility and increas- credibly to guarantee the creditworthiness of all es private sector reluctance to lend. the afflicted countries, and without a credible 3. Depositors. As the probability rises that Spain guarantee the downward spiral will occur, more will leave the euro, and that bank deposits will or less quickly, until it is clearly unstoppable. be frozen and redenominated in the weaker continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 29 Section I: Political Economy of Europe’s Crisis Only connect… ... What is striking is the response on the comment threads of such pieces. My impres- It is pretty clear that all of this is already happen- sion over the last month is that a large bloc of ing in Spain and it is also pretty clear that every informed Spanish opinion has reached the con- few months when the government announces clusion that EMU is dysfunctional, and increas- the latest batch of economic and debt data, these ingly destructive for Spain. Many posters seem numbers always turn out to be worse than ex- extremely well-informed, using terminology pected and much worse than originally projected, such as “debt-traps”, “internal devaluations”, which is, ironically, exactly what we should expect and “relative unit labour costs”. under the circumstances. Here is an article from Saturday’s Financial Times that shows just how Many point the finger directly at Germany, bad it is: correctly stating that Berlin seems to think it can lock in a current account surplus with Club Nearly one Spaniard in four is unemployed, Med in perpetuity. Clearly, such as an arrange- according to data released on Friday, as the ment is mathematically impossible within a country’s economic and financial predicament currency union – unless Germany is willing prompted a government minister to talk of a to offset the surplus with flows of money for “crisis of enormous proportions”. The data ever, either through fiscal transfers or loans or from the National Statistics Institute showed investment. These flows have been cut off. 367,000 people lost their jobs in the first three months of the year. That means more than Opinion is divided, of course. The pro-euro 5.6m Spaniards or 24.4 per cent of the work- camp is still a majority. But the smothering force are unemployed, close to a record high conformity of past years has been obliterated. set in 1994. As recently as six months ago one didn’t discuss The data, which follow a sovereign credit rating in polite company in Madrid the possibility that downgrade, prompted José Manuel García- Spain would leave the euro and restructure its Margallo, foreign minister, to say that they debt. The prospect was unthinkable and like were “terrible for everyone and terrible for many unthinkable things it could not be dis- the government”. He compared the European cussed. Union to the doomed liner Titanic, saying that This made it very unlikely that anyone except the passengers would be saved only if all worked radical parties of the left or right would be able together to find a solution. to control the discussion and of course this was It is interesting that Garcia-Magallo is openly likely to lead to a more disorderly resolution. But discussing the possibility of the “passengers” not now perhaps things have changed. If responsi- being saved. Usually in the beginning of a sover- ble policymakers, advisors, the press, and public eign debt crisis we spend an unfortunately long intellectuals are indeed discussing and debating time in which policymakers insist that the market the future of the euro now, I am pretty sure that a is overreacting to bad news and that the problem real and open debate about Spain’s prospects will – inevitably a short-term problem driven largely quickly move the consensus towards abandoning by illiquidity – can be resolved with patience and the euro. hard work. There is no discussion of contingency And that is why the article is comforting. The plans because the contingency is unimaginable. historical precedents suggest that typically policy- At some point however it becomes possible at makers postpone the decision to reverse the mon- least to acknowledge formally that policymakers etary straightjacket for as long as they can, and might be forced into the contingency. Once this in the process they erect barriers towards such happens, the debate becomes much more intel- a reversal in the name of shoring up credibility. ligent and the resolution of the crisis is speeded These barriers work by increasing the cost of a up. I have no idea if we have reached that stage policy reversal, and the point of this is to improve in Spain, but in that light I found an article last credibility in investors’ eyes by increasing the cost month, by Ambrose Evans-Pritchard of the Tel- of “misbehavior” by policymakers. egraph, both very worrying and, at the same time, Mexico did this for example in 1994 when, in or- comforting. der to convince an increasingly skeptical investor In the article he says: base that the central bank would not devalue the Articles calling for Spain to withdraw from peso against the dollar, the Ministry of Finance EMU – or at least exploring the idea – are no longer rare. They are appearing every day. continued next page ... 30 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone ITALY’S DEBT WOES AND GERMANY’S INTRANSIGENCE LEAD TO DEPRESSION Edward Harrison November 8th, 2011

Disclaimer: These last five pieces on the impact of So, how the heck do we get out of this morass? Italy’s potential insolvency on the sovereign debt My argument has been that with the central bank crisis are not advocacy pieces. They are action- as a lender of last resort, solvency is meaning- able macro analyses – predictions of what I see as less for a government borrowing in a currency its likely to occur. central bank creates. In a nonconvertible floating exchange rate world, the adjustment mechanism Michael Pettis liked my recent piece on vendor is the exchange rate, not the interest rate. The last financing in the euro zone. The key point he twenty years in Japan tell us that. wrote me – and which he reiterated today – is that bad policies in “the surplus as well as in the Translation: deficit countries are at the root of the trade and … all countries which issue the vast majority of capital inflow imbalances to which this crisis is debt in their own currency (U.S, Eurozone, U.K., the response”. I agree with his contention that it Switzerland, Japan) will inflate. They will print is pointless to insist on adjustments only in the as much money as they can reasonably get away deficit countries. with. While the economy is in an upswing, this That said, Michael agreed, however, that the euro will create a false boom, predicated on asset price crisis is not just a liquidity crisis. The European increases. This will be a huge bonus for hard as- Sovereign Debt Crisis is a solvency crisis too. sets like gold, platinum or silver. However, when Countries like Italy are simply not going to be the prop of government spending is taken away, able to grow their way out of the problem. Every- the global economy will relapse into recession. one is recognizing this now. Until Italy was at the - Credit Writedowns, Oct 2009 heart of the crisis, we could all delude ourselves that this crisis could be met with crushing levels That’s a soft depression scenario where the of austerity in the periphery, even if that forced countries with a true lender of last resort can the economies there into depression. If Spain’s backstop without problems. In the euro zone, the debt woes and Germany’s intransigence lead to ECB is not a lender of last resort… yet. And so double dip, then Italy’s debt woes and Germany’s the solvency issue cannot be postponed, mon- intransigence lead to a Depression (with a capital etised or inflated away and comes to a head. In ‘D’). fact, had the ECB been allowed to intervene as a continued next page ...

Michael Pettis continued ... why Mexico could not possibly devalue, and in 2000 and 2001 this was why Argentina could not shifted its domestic borrowing from peso-denom- possibly break the currency board. It would have inated funding to dollar-denominated funding, been too painful to devalue. which of course would increase the debt-servicing But of course Mexico and Argentina both did cost of a devaluation for the government. Unfor- devalue and, yes, it was a very painful experience tunately, when policy is reversed anyway, as was but they did it because the alternative was worse. the case in Mexico in 1994, the cost indeed ends And likewise while it is true that Spain cannot up being much higher, and it takes longer for the leave the euro without experiencing a very painful economy to recover. In that sense the sooner process, the point is not that anyone is argu- Spain prepares for an abandonment of the euro ing that Spain should willingly and irrationally the less painful it will be. choose to endure pain. Spain will leave the euro But of course it won’t be painless. Whenever an because the alternative is worse. analyst predicts that Spain will soon leave the First published: China Financial Markets at mpettis. euro he is almost always countered by someone com who earnestly explains that Spain cannot leave Available: http://www.mpettis.com/2012/05/18/ the euro because the process will be too painful. europes-depressing-prospects/ In 1993-94 of course we were told that this was

Capitalism in Crisis: Europe, Austerity and the Left, 2012 31 Section I: Political Economy of Europe’s Crisis ITALY’S OWN GOAL: Guest post by Joseph Halevi 3 June 2012 The Eurozone’s idiocy is obvious to all those with improved. But it isn’t really. Such shifts constitute eyes and ears. It can be witnessed anywhere we improvements when there is a shift in relative turn these days: from the evolving bank run to competitiveness. When, for example, Greek goods the non-debate on eurobonds. Joseph Halevi, improve in quality, relative to Italian ones, or friend, co-author and serial guest of this blog, when Greek production processes become more just sent me a missive that offers new insights cost effective. But nothing of the sort applies here. into our continent’s infinite inanity: Italy’s major The reason Italy’s balance of trade surplus with own-goal in consenting to (what I call) the fiscal Greece collapsed was because Greece collapsed. waterboarding of Greece, Portugal and Spain. Pure and simple. In this sense, a nuclear explo- Here is Joseph’s note (with some additions by sion that wiped out Greece, would totally elimi- yours truly): nate its trade deficit. Would that be progress? No, it would not. Neither for Greece nor for Italy. Last year the Italian Confederation of Industry threw themselves behind all the EU decisions in A similar story can be told in relation to the regard to Greece, Portugal, Spain. Thus they sup- bilateral trade between Italy and Spain, Italy and ported deflationary policies in regions where Italy Portugal, Italy and Cyprus (soon to ask for a bail- has big (albeit shrinking) net export surpluses out). Southern Europe and France were the safest (which have been acting as a buffer in relation to areas for Italy’s net exports within the Eurozone. its expanding deficit vis-à-vis Germany). In the remaining Europe (north of the Alps), Italy could only compete via devaluing the lira (a main Suppose Il Sole 24 Ore, the daily of the Italian reason why Germany insisted on Italy’s inclusion Confindustria, were to host on its front page a in the Eurozone). headline like: “In the US the financially strapped states are imploding and they account for 33% It is clear that Italy (both under Berlusconi and of Italy’s exports”. Panic would ensue with Monti) was keen to be seen to be part of Europe’s hundreds of articles flooding the Italian press. core. To that purpose, its leaders felt that they Well, this is precisely the situation in relation to must be seen to be on the ‘right’ side of the wa- Greece: Looking at 2008 figures, it turns out that terboarding of Greece, Spain and Portugal. Alas, Greece was absorbing Italian goods and services by supporting the troika’s policies, Italy turned (mainly goods) equal in value to those that 100 against its own interests and, thus, contributed to million Americans consumed (i.e. Italy’s exports its own demise in areas which hitherto generated to Greece equalled 33% of Italy’s exports to the hefty profits on the export balance. Even though United States!). it hates to admit it, Italy has already joined the ‘waterboarding experience’ on the ‘receiving’ In 2011, according to UN Comtrade, Italy’s ex- side; taking its place amongst its victims (Greece, ports to Greece fell by 46% compared to 2008; Spain and Portugal), patiently waiting to be wa- the natural victim of Greece’s implosion. In terms terboarded until all economic life is squeezed out of the Italy-Greece balance of trade, whereas of it. Italy’s export (to Greece)-to-import (from Greece) ratio was 5 to 1 in 2008, the Greek crisis reduced Posted on “Thoughts for a post-200 world”, Yanis Var- this to 2 to 1. Some Greeks may think that this is oufakis’ blog: http://yanisvaroufakis.eu/2012/06/03/ a good thing, in that Greece’s balance of trade has italys-own-goal-guest-post-by-joseph-halevi/

Edward Harrison continued ... sovereign debt crisis that has transpired since March 2010 is directly attributable to the ECB’s lender of last resort earlier when just Greece was not acting as a lender of last resort. on the line in March 2010, we wouldn’t be here at all. Since then, the ECB has intervened only as a As for Italy’s solvency, here’s what we know: quid pro quo for more economy-deflating auster- Italian government debt is almost 120 percent ity, making things worse. And when they have of GDP. Since Italy pays over 6% for two-year bought periphery bonds they have been timid to money, rolling over debt contracted at favourable prevent the currency-weakening moral hazard of yields in 2008 or 2009 becomes excruciatingly ‘fiscal profligacy’. Credible lenders of last resort onerous. Slow growth Italy’s debt to GDP spirals use price, not quantity signals. Everything in the continued next page ...

32 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone GERMANY: THE SHADOWS OF THE RECOVERY Joseph Halevi (abridged version) We are being told that Germany is successfully by the end of this year. Not Germany, though, recovering from the crisis. However, despite the whose public-sector shortfall will rise this year recovery, the German economy is below most by more than 60% as it edges up from 3.3% other countries’ in relation to the pre-crisis levels to 5.4% of GDP. In other words, the harshest of output. When the crisis began the German crusader against public deficits has been more economy’s dependence on exports caused a sharp fiscal expansionary than the rest of the eurozone. fall in industrial production. The initial liquida- In the context of the single currency as well as tion and the subsequent reconstitution of inven- Merkel’s financially punitive threats to the other tories explain in part the present rise in activity. countries of the eurozone, the German govern- The most important unspoken factor in the re- ment’s conduct acquires a Mephisto-like dimen- covery consists in that Germany has increased its sion. By compelling the other countries to reverse deficit spending far more than the rest of the eu- course in their budgetary policies, German capital rozone. According to standardized OECD figures, gains wider margins to enhance the mercantilist, the 2008 German budget was balanced (in 2007 export-oriented nature of its economy. it even exhibited a small surplus of 0.2% of GDP). Berlin’s larger public spending is not undertaken The mid-year OECD estimates for 2010 ascribe to in order to expand employment via stimuli to do- Germany a budget shortfall of 5.4% relatively to mestic demand. Indeed, this year consumption is GDP. Hence from 2008 the deficit has expanded expected to fall by another 1.4%. The increase in exactly by 5.4%. For the same two-year period public spending is tied to a century-old criterion the Italian deficit expanded by 2.5% in relation to for minimal social stability, such as the kurzarbeit GDP and now is 0.2% below the German deficit. scheme where the government pays part of the Last but not least, France’s budget deficit has wages of workers who otherwise would be fired. risen by 4.5%, also less than Germany’s. But public spending is also directed to facilitat- The dynamic of the public-sector deficit from ing the restructuring of German industry towards 2009 to 2010 reveals the nature of the policies external trade. of the German government. Compared to 2009, the eurozone countries are making a U-turn, enforcing budget cuts aimed at deficit reductions continued next page ...

Edward Harrison continued ... The problem is that the shake out process kills a lot of other debtors too. If the crisis is large higher and higher at these levels. At German yield enough, a Depression results. levels, Italy can sustain its growth indefinitely be- cause it has a primary surplus already. I covered a So, we are now faced with a question: Should the lot of the ground in my last three posts Why ques- ECB go all-in or not? There aren’t a lot of options. tioning Italy’s solvency leads inevitably to moneti- No one is going to buy Italian bonds at a low yield sation, Why Investors will buy Italian bonds after without a backstop, irrespective of austerity now ECB monetisation and Italy! Italy! Italy! that the insolvency genie is out of the bottle. With a backstop, some people will. An Italian default Here’s the thing: distinguishing between insol- equals the insolvency of the Italian banking vency and illiquidity is a tricky subject because li- system. An Italian default means massive losses quidity crises are the market’s way of shaking out for German and Dutch banks and beyond. Any the insolvent. Liquidity crises are always solvency scenario in which there is an Italian default leads crises. The question is about determining which to a Depression with a capital ‘D’. The question debtor will not be able to repay future principle is a political one and, hence, unpredictable. The and interest in a world of incomplete informa- Germans (and Dutch) either allow the backstop tion. If the questionable debtors are large enough, or face Depression. It’s as simple as that. this leads to panic and a wider liquidity crisis that stresses the balance sheets of everyone, includ- First published: Credit Writedowns ing the insolvent debtors. Indeed, the insolvent Available: http://www.economonitor.com/ almost always are shaken out and bankrupted by blog/2011/11/italys-debt-woes-and-germanys-intransi- this process (or are bailed out by government). gence-lead-to-depression/

Capitalism in Crisis: Europe, Austerity and the Left, 2012 33 Section I: Political Economy of Europe’s Crisis

Joseph Halevi continued ... As a matter of fact, exports have been the main of its production. But that competitiveness is not factor in the German “recovery.” According to based on great productivity performance; in the the Statistical Office of the Federal Republic, in last 10 years, productivity in Germany has been the January-June period, exports rose by 18% rather disappointing in comparison to other EU compared to the same period in 2009. The rise countries. By contrast, the growing gap between in imports trailed behind exports by 2%. The German productivity and German wages is not entire gap between export and import growth disappointing at all. The fact that in Germany occurred in the trade with countries outside the wages are retreating in relation to productivity, European Union, whereas with the EU the growth when the latter is not very dynamic, is a proof of of German imports outpaced that of exports. Yet the harshness of wage repression. The outcome the European Union remains the area where Ger- is the expected fall in domestic consumption as many obtains the largest share of its overall trade opposed to export growth. surplus. As for trade with non-EU countries, Ger- A further proof of wage repression in Germany is many has benefited from the devaluation of the the steep rise in the percentage of workers with euro against the US dollar due to the Greek public below median wage rates. All this contributes debt crisis prompted by Berlin earlier in the year. to mass unemployment. The commonly used Literally and metaphorically, more Mercedes data showing a rate of unemployment of 7.6% are have been shipped to the USA, especially since highly misleading, since in Germany part-time bankers and their coteries have further enriched and causal jobs have also risen fast as a propor- themselves with the crisis. Moreover, Germany tion of employment. In this respect, the Federal has significantly benefitted, in the Asian markets, Republic Statistical Office has calculated that the from the revaluation of the yen against the US unemployed, the underemployed, and the “hid- dollar and more so against the euro. For the first den labour force” (those who are not looking for time, and particularly in China, German capital jobs but would like to work and those who are goods companies obtained an advantage over unavailable in the short term but are looking for the dominant Japanese firms. However, Ger- work) together constitute over 20% of the total many will never achieve a persistent, structural labor force. trade surplus with China. It follows that Europe Joseph Halevi is Senior Lecturer of Political Economy remains the centerpiece of German capital’s quest at the University of Sydney. This is an expanded to maximize external surpluses. version of the article published in Il Manifesto on 12 On the European terrain, Germany follows a September 2010 under the title of “Germania: le ombre strategy of no compromise, whose cornerstone della ripresa.” Translation by the author. is wage deflation. German competitiveness is Available: http://mrzine.monthlyreview.org/2010/ certainly due in part to the technological quality halevi140910.html

34 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone EUROZONE DEBT, MONETARY UNION AND ARGENTINA Michael Roberts May 10, 2012 Greek capitalism has failed. So has capitalist pro- have a Europe led by them, even after British cap- duction in the smaller Eurozone nations. Nothing italism refused to join. Of course, the aim was to demonstrates more the need for a pan-European bring about a ‘convergence’ between the weaker economy to use all the resources of the continent, and stronger economies. That dismally failed in both material and human. The smaller and weak- the boom years of 2002-7. The Great Recession er capitalist economies have been driven into a just exposed and widened the inequalities. long winter of depression by the global slump. Can the existing currency union survive? Well The euro crisis is not really one of sovereign debt yes, if economic growth returns big time or if or a fiscal crisis. Its origin lies in the failure of German capitalism grasps the nettle and is pre- capitalism, the huge banking and private credit pared to pay to help the ailing smaller capitalist crisis and the inability of undemocratic pan- economies through fiscal transfers. It is no good European capitalist institutions like the European the Germans saying they will do so if the likes of Commission, the Council of Ministers and the Greece, Portugal, Ireland, Spain etc “stick to fiscal pathetic European parliament to deal with it. targets”. They cannot. So Germany will have to The ambition of France and Germany to compete decide on more transfers without more austerity. with the US and Asia on the world stage through And it won’t be cheap. The Cologne-based IW monetary union was fundamentally flawed. The economic research institute reckoned that West original dream of a united capitalist Europe, of Germans paid about $1.9 trillion over 20 years, free markets in production, labour and finance, partly via a “solidarity surcharge” on their income ever utopian, has turned into a nightmare. Now taxes, to help integrate and upgrade Eastern the single currency union is under threat. It Germany. That was roughly two-thirds of West always was ambitious. Germany’s GDP then. The subsidies helped cover JP Morgan recently looked at whether the ‘right East Germany’s budget shortfalls and poured conditions’ under capitalism existed for setting up money into its pension and social security sys- a currency union in Europe. They measured the tems. At the same time, nearly 2 million East difference between countries using data from the Germans — a full one-eighth of the population World Economic Forum’s Global Competitiveness — moved west to seek work. That is the sort of Report, which ranks countries using over 100 var- transfer of funds and jobs that will have to take iables, from labour markets to government insti- place to save the currency union. tutions to property rights. They found that there’s Currency unions cannot stay still – Europe’s has an incredible amount of variation among the euro been around for only 13 years. Either they break zone’s member nations. The biggest differences up or they move onto full fiscal union where the come in pay and productivity, the efficiency of the revenues of the state are pooled, especially when legal systems in settling disputes, anti-monopoly crisis concentrates the minds. That means the policies, government spending and the quality of smaller states agreeing to German control of scientific research. their budgets in return for fiscal transfers and the Indeed, the euro zone countries are more differ- Germans allowing proper fiscal transfers to the ent from each other than countries in just about poorer ‘regions’ of the currency union. any hypothetical currency union you could care to propose. A currency union for Central America Take the example of the UK. This is a govern- would make more sense. A currency union in East ment of four nations and many regions. Taxes are Asia would make more sense. A currency union raised by a central state (although there has been that involved reconstituting the old USSR or Ot- some devolution to Scotland, Wales and Northern toman Empire would make more sense. In sum Ireland) and raising debt is mostly made by the “a currency union of all countries on Earth that central state (there are some local government happen to reside on the fifth parallel north of the bonds or loans). Wales is a poorer part of the UK. Equator would make more sense.” It runs a ‘trade deficit’ with the rich south-east of England. Its inhabitants contribute way less in tax But the currency union went ahead because of the political ambitions of France and Germany to continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 35 Section I: Political Economy of Europe’s Crisis revenue than they receive in government hand- federal reserve system to cover ‘deficits’ on trade outs. So Wales has twin deficits on its govern- and capital between states. ment and capitalist sectors, just as Greece has So what happens now to Europe’s currency un- with the rest of the Eurozone. ion? In the absence of German capitalism bailing But it is not an issue for Wales because it is part out the south with huge fiscal transfers, the only of the United Kingdom of Great Britain and way that the peripheral countries have to restore Northern Ireland. Sometimes there are grumbles growth and avoid the break-up of the EMU is by from the rich south that they have to pay for the defaulting on the debt they have accumulated – in unemployed Welsh but that argument does not effect a forced fiscal transfer. Remember most of have much traction. After all, the extreme logic this debt is the result of the collapse of the bank- of that is to say that the extremely rich inhabit- ing system and the Great Recession. It is not due ants of Kensington in the posh part of London to ‘excessive ‘ spending by governments. The should not have their tax revenues redistributed excessive debt was in the private sector: in mort- to the poor inhabitants of east London. That gages and banking debt. That debt got trans- would mean Kensington would have to break ferred onto government books through bailouts with the fiscal and currency union that is Brit- and social benefits. ain, put up border controls and find their own Take Greece. I have made an estimate how much government, armed forces and central bank. Of the rest of the Eurozone is exposed to Greek sov- course, their riches would soon disappear because ereign debt in one way or another. Greek govern- they are based on the labour of all the people in ment debt stands at €337bn as of March 2012. Of Britain and even more from abroad. It is a point that, about €220bn is held by the EU institutions (EFSF, ECB) and the IMF. Foreign banks Exposure of Eurozone to have reduced their holdings dramati- Greek public debt €bn cally to about €36bn in long-term debt. Foreign bank holding EU / IMF / ECB debt 7% In addition, the of debt €36 bn ECB and Eurozone holdings €220 bn central banks have 46% lent the Greek banks about €250bn di- 47% ECB liquidity to rectly and indirectly. banks €225 bn So when we add it all up, the Germans, Total Exposure of €511 bn French and oth- or 5.4% of Eurozone GDP ers face default by Greece on a total of €500bn, or 5% of that many nationalist elements in Germany and Eurozone GDP. So if Greece defaults on its sov- northern Europe forget. If the Eurozone breaks ereign debt, it will be Europe’s official sector that up into its constituent parts, the ongoing (not just will take the blow. And this does not account for immediate) losses to GDP for northern Europe losses in GDP in the euro area if Greece defaults, would be considerable. causing a new credit crisis. The Institute of Inter- The example of the US also shows the advantages national Finance reckons the total cost is closer of a federal state over the commonwealth of states to €1trn, or 10% of Eurozone GDP. This is all the that existed to begin with. It took a civil war of more reason why the Troika and the European bloody proportions to establish a unified state Union could be forced to abandon their fiscal that wiped out the idea of secession for good. austerity approach and replace it with a real plan Now the US federal government raises taxes for Greek economic and social recovery. and debt and provides funds to the states (even Debt ‘deleveraging’ is necessary under capital- though they raise their own taxes). A full finan- ism. If dead capital remains stuck on the books cial union came later than fiscal union in the US, of companies, then they won’t invest in new when the Federal Reserve Bank was set up by the production; households won’t spend more if large private banks after a series of banking col- they have mortgages hanging over their heads lapses. Now dollars are redistributed through the 36 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone and the value of their house is worth less. And words, workers must work longer and harder for governments cannot take on new public projects less money and with less rights and a higher risk if the interest cost of existing debt eats into their of being sacked. Southern Europe must become a available revenues. In their very latest report, cheap labour centre for investment by the north. the historians of debt, the Reinharts and Ken- That’s the Troika’s reforms. neth Rogoff confirm the relationship between Then there is deregulation of markets. Utilities debt and growth under capitalism (see Carmen are to be opened up to competition. That means M. Reinhart, Vincent R. Reinhart, and Kenneth S. companies competing to sell electricity or broad- Rogoff, Debt Overhangs: Past and Present, NBER band to customers who must continually change Working Paper No. 18015 (April 2012)). They their suppliers to save a few euros. Pharmacies looked at 26 episodes of public debt overhangs are to have their margins cut, so small chemists (defined as where the public debt ratio was above are to earn less but there is no reduction in the 90%) and found that on 23 occasions, real GDP price of drugs from big pharma, the real monopo- growth is lowered by an average of 1.2% points a lies. And the professions are to be deregulated, year. And GDP is about 25% lower than it would so lawyers cannot make such fat fees but anybody have been at the end of the period of overhang. It can become a teacher or taxi driver or drive a is the same when private sector debt gets to very large truck with minimal or no training. Finally, high levels. Such is the waste of capitalism and there is privatisation of the remaining state enti- fictitious capital. ties sold cheaply to private asset companies in The correlation between high debt and low order to pay down debt and enlarge the profit growth seems strong, but it is a matter of debate potential of the capitalist sector. It’s more or less within mainstream economics on the causal the same proposals for Greece, Spain, Italy and direction. Is it the contraction of the economy Ireland. that leads to high and rising debt (Krugman and So the neo-liberal solution to restore growth is the Keynesians) or is it high and rising debt that to raise the rate of exploitation of the workforce, leads to the contraction of the economy and low destroy pensions and public goods like healthcare growth (Rogoff, the Austrians and the Minsky). I and education and to squeeze small businesses. think that it is the contraction of profitability that The argument goes, this would boost profitability leads to a collapse in investment and the economy and so the private sector will then invest to create which drives up debt. But until debt is delever- jobs and more GDP, assuming, of course, that aged, profitability and growth cannot be restored. capitalism does not have another slump before What is clear is that debt cannot be reduced for then. But the UK and US economies already the smaller capitalist states of Europe without implemented all these ideas a decade of more ago default. If Greek public debt was written down and what was the result? Did these economies to 60% of GDP, as the new Euro fiscal compact avoid a financial collapse or a slump? On the demands, it would allow the government to spend contrary. There is no mention of public invest- on investment another 5% of GDP a year. ment. Investment is down to the private sector because government is ‘unproductive’ (which it is Growth will not be restored by the neoliberal in a capitalist sense). solutions demanded by the Euro leaders and the Troika. The OECD claims that ‘structural re- The idea of a pan-European economy must be forms’ would deliver a rise in the level of GDP per right – but it just cannot be achieved through capita over ten years worth 13% of GDP for Por- wage reductions, deregulation and fiscal austerity. tugal, 18% for Greece and 15% for Spain because Equally, just leaving the euro would be no pana- these economies are so ‘uncompetitive’ i.e. about cea for the likes of the Greeks or the Portuguese. 1.3-1.8% a year. But what are these wonderful Argentina is usually cited as a successful example growth-enhancing structural reforms? For Portu- of a capitalist economy sticking its fingers up gal, the Troika has decided that they are a reduc- to the IMF and achieving fantastic growth after tion of four public holidays a year, three days less defaulting and devaluing. Clearly, writing off minimum annual paid holidays, a 50% reduction what Greek left leader Alexis Tsipras has called in overtime rates and the end of collective bar- ‘odious’ debt must be part of the escape from gaining agreements. Then there would be more recession. But leaving it at that and devaluing the working time management, the removal of re- currency by leaving the euro is no answer, even in strictions on the power to fire workers, the lower- the short term. ing of severance payments on losing your job and the forced arbitration of labour disputes. In other continued next page ...

Capitalism in Crisis: Europe, Austerity and the Left, 2012 37 Section I: Political Economy of Europe’s Crisis An open letter to the Leaders of Europe: ABANDON THE EURO’S ‘GOLD FETTERS’ Ann Pettifor 28 May 2012 European leaders need to abandon the fetters that guarantee compensation for losses incurred by chain them to the interests of private wealth, and financial speculation. threaten European disintegration. This economic order is the very antithesis of On May 15th, in what can only be described as an both democratic but also free market principles. act of coercion, an impoverished and effectively However, it is at the heart of the neoclassical insolvent Greece acceded to the handover of a monetarist statutes of the European Union, the bond payment – €436 million – to private finan- Eurozone and the ECB – and now the new EU cial ‘vulture funds’. The Greeks had little choice. Fiscal Compact. However, in acquiescing to this handover - fa- The leaders of Europe must wake up to the threat cilitated by its paymasters,‘the Troika’ - impov- these discredited ‘barbaric’ 19th century eco- erished Greeks protected reckless private wealth nomic policies pose to the noble ambitions of from the consequences of their risks. Namely: Europe’s founding fathers: economic policies that losses and bankruptcy, and the discipline of mar- are legally entrenched and enforced by the EU’s ket forces. treaties. This is a perverse distortion of free market These economic policies and statutes mimic the capitalism because, as Professor Kunibert Raffer Gold Standard of the 1930s, and deny economic has argued: “the most basic precondition for the and democratic sovereignty to the people of functioning of the market mechanism (is) that Europe. This is the central purpose of neoliberal economic decisions must be accompanied by (co) economics: to strip democratic states of sovereign responsibility: whoever takes economic decisions economic power and transfer these powers to must also carry financial risks. If this link is sev- private markets. ered – as it was in the Centrally Planned Econo- mies of the former East – efficiency is severely The EU’s protection of private wealth from the disturbed …. At a time when riskless decision discipline of the market has been made possible, making by bureaucrats is abolished in the East, by effective lobbying by financial elites; but also there is no reason why it should be preserved in by the absence of fair international law govern- the West”. ing relations between sovereign debtors and their creditors. Today this new, distorted economic order is en- forced, on behalf of private wealth (hedge funds, Above all, EU statutes deny European states offshore ‘investment funds’ and private bank- the public goods obtained from an accountable ers) by unelected EU, IMF and ECB officials and central bank; and a sound monetary and debt elected EU politicians. They insist that Greek and management system. EU taxpayers should shield private sector risk- takers from the consequences of their risks, and continued next page ...

Michael Roberts continued ... A recent report by the Federal Reserve Bank of Under the capitalist mode of production, the Dallas (Default and lost opportunities: a message smaller economies of Europe are stuck in a gen- from Argentina, May 2012) showed that Argen- eration of austerity, whether they leave the euro tina was lucky in 2001 when they defaulted and or not. With public ownership of the finance and devalued the peso. After a big drop in GDP, real productive sectors of the economy and a plan for GDP per capita rose by 7% a year for next seven state-led investment, growth could be restored. years. But that coincided with the huge global Even then, that won’t be possible unless it moves commodity boom benefiting sales of agro prod- onto a pan-European level, where fiscal and capi- ucts that Argentina produced. A similar default tal transfers are integrated to reduce the imbal- and devaluation of 1983 did not deliver a great ances and differences highlighted by JP Morgan’s recovery. Then, in the depths of a global reces- study. sion (much like now), real GDP fell 15% and did Available: http://thenextrecession.wordpress. not recover to pre-crisis levels until 10 years later. com/2012/05/ 38 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Future of the Eurozone Instead, the (Lisbon) Treaty on the Functioning of and Greek private banks were forced to take in the EU, which lays down the ECB’s mandate, and March this year, EU and IMF officials provided in particular Articles 123 – 125, obliges EU states full compensation for the economic risks that to rely on the private, globalised bond markets for private wealth had dodged. finance. Britain, Japan and the United States – The ‘Troika’ – officials and politicians from who all enjoy the services of nationalised central the EU, the ECB and the IMF – administer an banks – do not share Greece’s or Europe’s full ‘escrow (arms-lenth) account’ – well beyond the exposure and vulnerability to the predations and reach of the democratic Greek state, or indeed parasitic behaviour of private wealth. Europeans as a whole. Yet European taxpayer- Articles 123-5 achieve the goal of the Gold Stand- backed funds are deposited into that account ard of the 1920s and 30s: namely to capture and used to compensate private speculators and economic sovereignty from democratic states; bankers. enforce their dependence on private wealth, and According to the New York Times, 90% of the then use taxpayer resources to protect private €436 million in the account was delivered to the financial elites from the wrath of market forces. coffers of Dart Management, a secretive invest- As a consequence of what can only be described ment fund based in the Cayman Islands, accord- as a blatant financial “coup d’etat” financial vul- ing to people with direct knowledge of the trans- tures are not just circling and threatening Greece, action. Spain and Portugal. They now threaten Europe as Dart is one of the best known of the so-called a whole with the consequences of disintegration. vulture funds, which have a track record of buying the distressed bonds of nearly bankrupt By the capture of European policy-making, countries — and if they do not get paid, suing the governance and financial assets, private wealth governments for the money. Dart and another is weakening the European peoples’ deeply-held big vulture fund, Elliott Associates, perfected that commitment to, and yearning for European con- strategy during the various Latin American debt vergence, unity and peace. A commitment rooted crises in years past. in the huge costs of the economic failure of the 1920s and 1930s; and in the uncountable human By accumulating the bulk of these bonds at prices costs of the Second World War. that traders estimate to be from 60 to 70 cents on the dollar, Dart stands to make a hefty profit, That yearning is reflected in the poignant com- having received 100 cents on the dollar — an mitment of Greeks to the European ideal – and outcome likely to be especially galling to the to EU membership. Sixty-six per cent of respond- Greek banks and other local institutions that were ents in a recent poll said their country should forced to take a 75 percent loss on their Greek keep the single currency but pursue an economic bond holdings. policy different from the one set out in the bailout deal, and entrenched in EU statutes and treaties. The big winning bet by Dart could presage a more aggressive tack by vulture funds, if Greece is Private wealth is unconcerned by such yearning. forced to restructure its bonds a second time. Where EU politicians and their peoples were aim- Robert Schuman’s founding Declaration for Euro- ing at convergence, financial vultures are forcing pean unity began with a clear vision: divergence. Where Europeans were painstak- ingly building inter-governmental collaboration World peace cannot be safeguarded without based on democratic governance and moderation, the making of creative efforts proportionate private wealth’s parasitic behaviour is fuelling to the dangers which threaten it. The contri- anti-democratic fanaticism and bigotry. bution which an organized and living Europe can bring to civilization is indispensable to the All the while Europe’s elite policy-makers and maintenance of peaceful relations. politicians – at the ECB, the EU and the IMF – stand aloof from EU taxpayers that fund their Today Europe’s politicians and officials are not salaries and lifestyles. Instead they collude with proving ‘proportionate to the dangers which financial predators in the growing divergence and threaten’. disintegration of the European project, and in the No surprise then, that Europeans have a pro- economic degradation of the poorer, peripheral found distrust of politicians. This is in part be- members of the European Community. cause elected politicians prioritise the interests of So when some financial firms simply refused to private wealth and global bond markets over ‘the participate in the losses that the official sector European project’. Capitalism in Crisis: Europe, Austerity and the Left, 2012 39 Section I: Political Economy of Europe’s Crisis First they removed regulation and constraints on So, European leaders, be as bold as Keynes and capital mobility and credit creation. Roosevelt. You have nothing to lose but the ‘gold fetters’ that deny the people of Europe economic Next politicians, lobbied by private financiers, and democratic sovereignty, and that chain you to hobbled the ECB’s powers to provide affordable the interests of private wealth. finance to sovereign states. Now, and in order to shore up taxpayer resources, There is however, everything to gain from Euro- politicians, led by Chancellor Merkel, demand fis- pean convergence, prosperity, unity and peace. cal consolidation so that savings can be accumu- If you want to read more polemics and debates like lated with which to prepare for the next financial this please support openDemocracy by becoming a crisis, and to bail out and/or compensate “too- member, the amount is up to you, and you can get a big-to-fail” banks. short editors’ email summary of the week. ‘Austerity’ policies are hurting the people, and This article is published by Ann Pettifor, and openDe- mocracy.net under a Creative Commons licence. You mirror the economic and political incompetence may republish it with attributionfor non-commercial of Germany’s Weimar Republic under Chancellor purposes following the CC guidelines. For other que- Heinrich Brüning. As Peter Temin has persua- ries about reuse, click here. Some articles on this site sively explained, under Brüning “the move toward are published under different terms. No images on the highly restrictive government budgets came at site or in articles may be re-used without permission the beginning of 1930” following the dictates of unless specifically licensed under Creative Commons. the gold standard. …” With a series of austerity About the author decrees … the “iron chancellor” exerted a constant downward pressure on the German economy”, he Ann Pettifor is a Director of PRIME Policy Research in writes on page 30 of Lessons from the Great De- Macroeconomics, whose work and writing has con- centrated on the international financial architecture, pression (The Lionel Robbins Lectures for 1989). the sovereign debts of the poorest countries, and the The Weimar Republic flattered global financial rise in sovereign, corporate and private debt in OECD elites by maintaining capital mobility and borrow- economies. ing excessively from international bond markets, First published: Open Democracy simultaneously printing money and enforcing Available: http://www.opendemocracy.net/ austerity on a war-weary and exhausted populace. print/66076 The result was predictable: massive unemploy- ment, bankruptcies and rampant inflation. Tragically, officials at the ECB and Bundesbank have drawn the wrong lessons from the disas- ter that was the Weimar Republic’s economic strategy. Instead they should turn to, and draw on lessons learned by Britain and the US in the 1930s, the first countries to abandon the dictates of private wealth under the Gold Standard. Under Keynes’ tutelage, Britain’s currency, Ster- ling, was in 1933 revived as a money managed by the Bank of England and protected from specula- tive and vested private financial interests. Then in 1934, President Roosevelt freed the dollar, and with it, the people of the United States, who then embarked on a period of sustained recovery. Sadly, Germany maintained the dictates of Gold Standard economic policies throughout the 1930s – and we all know the political consequences of that incompetence. If Europe were now to abandon the Gold Stand- ard-type policies that underpin the Euro, Euro- peans would feel the full force of private wealth’s anger, through allies in the media, academia and politics. But this will follow from fear – not reason. 40 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Failure of Austerity Women Facing Crisis and Austerity Christiane Marty

The crisis has very negative effects on society as official statistics. The standard indicators, indeed, a whole, especially on women. The austerity poli- do not grasp the extent of the increase in econom- cies established in Europe are making the popula- ic insecurity that is hitting women and too often tions pay by sparing those responsible, namely the gender-based data is missing. the major banks. As an additional injustice, these policies, by ignoring any analysis of the differ- The consequences of the crisis ences in effect on men and women, not only do on employment nothing to correct them but aggravate them. Even though the situation varies depending on It is essential to make this fact known, not only to the sectors of activity, the impact of the crisis on establish men and women as victims but because employment shows certain major tendencies: the it shows the injustice of the policies that hit even increase in the level of unemployment, a great harder at sections of the population which are al- increase in insecure and informal jobs as well as ready in a situation of inequality. Essential actors of poverty. Each of these hits women even more in the social movements and in building alterna- strongly. tives to present policies, women must take their full place in making their points of view and their In the European Union, the sectors that were proposals heard. first to be hard hit by the crisis were those in which men were the majority: building, industry, This contribution proposes to make the above transport – these were also those on which revival more explicit, as it affects the European countries plans were concentrated. The increase in the rate and France in particular. It is an effort to place of unemployment for men was highest between things in their context, without claiming to be 2007 and in 2009: their unemployment rate exhaustive. reached that of women. It was 9.6% in 2010 for The crisis hits women especially both men and women. At the same time, women in part time work suf- Men and women do not have the same place fered reduction of working hours. The unemploy- on the labour market nor in the private sphere ment statistics do not reflect this because they because of gender inequalities. They are over- define job seekers as people without any job seek- represented in the informal, insecure and low ing employment (Category A). People who are paid form of employment and under-represented underemployed (who want to work more, catego- at all levels of decision-making in the economic ries B and C in “reduced activity”), the majority of field. Women are more exposed to job insecurity, whom are women, do not appear in the published to sacking and to poverty and less covered by unemployment statistics. In some countries, systems of social security. As a consequence of women are removed from the active-population this difference in situation, the crisis has differ- figures if unemployed. This also contributes to ent impacts depending on gender. In periods of the under-estimation of the effects of the crisis on recession, people already threatened by poverty women’s unemployment. are more vulnerable, particularly those who are subjected to multiple discrimination: unmarried The first phase of the crisis, with the highest in- mothers, young people, old people, immigrants … crease in men’s unemployment, was followed by a second phase in which the predominantly femi- Women are harder hit in various ways. This is nine sectors were hit: the public services, health a fact noted by the International Trade Union and education … Confederation (ITUC, the European Trade Union Confederation (ETUC), the European Parliament In France, the unemployment rates for men and and many organisations. The crisis “only worsens women became the same in 2009, but from 2010 the traditionally unfavourable position of women” the unemployment rate for women again became [Reference 1]. The ITUC recalls that “the impact higher. of the crisis on employment tends to be under- As the analysis by Françoise Milewski1, shows, it estimated and never reaches the front pages of is not enough to note the development of unem- newspapers. Nevertheless, in general, women are ployment by comparing it with those for employ- the first affected by precariousness and the grow- ing job insecurity”, which is hardly reflected in continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 41 Section I: Political Economy of Europe’s Crisis ment and hiding the development of part-time crisis in Europe has particularly negative reper- work, which is a form of partial unemployment. cussions on women, who are more exposed to job Women were less hit by loss of employment than insecurity and sackings and less covered by social by the increase of the rate of under-employment security systems”. Unfortunately, such warnings through part-time work at the same time as the have not been followed by any effective action, sharp increase in their rate of unemployment in which calls into question the real powers of the “reduced activity”. The crisis has strengthened the European Parliament. earlier trends in the labour market and part-time has played the role of shock absorber for women. The increase in poverty Moreover, the crisis has led to the multiplica- The increase in poverty affects people who are tion of precarious jobs, with short hours and out of work as well as those with employment. very low wages, mainly affecting women. The The European Parliament notes that “female partial unemployment of men and women has poverty remains hidden in the statistics and in not been treated in the same way. In the motorcar the social security regimes”. In its 2010 annual industry, men being subjected to a reduction in report on equality between men and women, the their activity have benefitted from compensatory Commission notes that women are more exposed measures. However, nothing of the kind has been to the danger of poverty, especially those over 65 planned for the reduction in activity of women in years of age, with a 22% risk of poverty (16% for part-time work. The idea that the unemployment men), for single mothers (35%) and other groups of men is more serious than that of women is still of women, such as those belonging to an ethic very strong. In fact, unemployed men are paid minority. a higher rate than unemployed women (64% as against 57%). The impact of austerity plans on women The growth of precarious and The countries having the highest level of social informal employment security and public services have been better able Recourse to precarious and informal work2 has to resist recession – yet these are precisely the increased because of the crisis. In fact, what is bases of the social state that are being subjected involved is an acceleration of a fundamental ten- to budget cuts! Women are doubly affected as the dency that makes the “informalisation” of labour principal employees in the public sector and the the characteristic of all labour markets. This principal users of social services. trend, indeed, affects women most, especially im- Over fifteen European countries have instituted migrants. Despite a lack of gender-defined statis- such measures. At the end of 2010, the European tics, field studies note the over-representation of Parliament noted that: “female unemployment is women in the informal sector – in vulnerable jobs in danger of increasing disproportionally because and part-time work –, a lower rate of pay than of announced budget cuts in the public sector, for men doing the same work and more limited since women are employed at a particularly high access to social services. All of which, according rate in education, health and social services”. to the ITUC “undermines their rights, perpetuates inequality in society between the sexes and limits The civil service is indeed largely staffed by fe- the perspective of lasting economic progress”. males. In the United Kingdom, women represent 65% of the employees in the public sector, and For its part, the ETUC notes an alarming fact they will suffer the most among those affected by regarding the changes in women’s working condi- the announcement of the cutting of 400,000 jobs. tions in Europe in terms of working hours, wages and contracts. Feminine jobs have become more In France, one civil servant in two is not being precarious, there is everywhere an increase in replaced on retirement. In the 2008-2012 period, workload, pressure, stress, moral and psychologi- this was equivalent to the suppression of 150,000 cal harassment and off-the-books hiring. The equivalent full-time jobs in the civil service, number of undeclared women workers has appre- which means that many fewer are being recruited. ciably increased, especially in the domestic sector. Further regarding the elimination of jobs, civil servants are suffering from wage cuts in about a The European Parliament, through two resolu- dozen states, some of which are as high as 25%, tions [References 2 and 3], drew attention to for example in Rumania, Portugal or Greece. In the fact that this situation has not received the France their wages have been frozen. attention it deserved: “the financial end economic

42 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Failure of Austerity Reductions in social security and lower wages. These correcting mechanisms are insufficient since the inequality between men social services and women is amplified when they pass from Throughout Europe social protection and security wages to pensions. In France, the average overall budgets are being subjected to drastic reduction: pension for women is only 62% of that for men4, decreasing unemployment benefits, social grants, although their average wage is 80% of that for help to families, maternity allowances, services to men. Even so these protective mechanisms are dependent people, etc. Similarly, reductions are being attacked! Reinforcing the link between con- hitting essential services such as childcare, social tributions paid and the pension amount means services and health. In France, many pre-school doubling the global penalisation of women. classes, maternity and abortion centres have been The drop in pensions will have the consequence closed. Whereas the number of dependant people of still further exposing women to poverty. The is increasing, the budgets allocated to them are European Commission notes that “pauperisation stagnating or being amputated. threatens pensioners and that old women are The cuts in social security and health services es- one of the groups most exposed to the danger of pecially affect women to the extent that they have poverty”. to assume the role of the main heads of the fam- The trend is also to align the age of retirement of ily. Women find themselves obliged to cover those women to that of men in those countries where services from which the state is withdrawing, there is such a difference and to reduce the pen- which increases their difficulty in carrying out sion amounts. their family and professional lives. The increased unpaid work load in their private lives occurs at The “reform” carried out in France in 2010 ampli- the expense of their jobs, which reinforces the fied the regression already taking place [Refer- gender inequalities on the labour market and in ence 5]. Since women were, on average, required women’s schedules, as is noted by the European to pay more years of contributions than men, any Institute for Gender Equality [Reference 4]. lengthening of this period disproportionately af- fects them as does the postponement of the age at In France the reform of dependency measures has which the rating “relief” for people with too short been postponed to 2012 because of the plan to re- a career (most of whom are women) is applied. duce deficits. Nevertheless, it was urgent since the present situation is intolerable, especially for the We should also mention that the budgets for family careers of the dependent people (mainly policies in favour of equality between men and women): they assume a very heavy responsibility women have also been the first to be written off in and workload3 that penalises them in their jobs various countries, as was noted by the European (working part time or ceasing to work) and affects Parliament. their health (physical or nervous exhaustion). It is all the more untenable in that many depend- Conclusion ent people are in a situation of poverty, and the Some lessons can be learned from the light cast suspension, in November 2007, of indexing social on the effects of the crisis on women. First, that services to the rate of inflation has meant a drop no policy should be decided at a national or in their standard of living. international level without a prior analysis of its effects on gender. This was a commitment made Attacks on pensioners by the states during the 4th World Conference of Nearly all the European countries have recently Women in Beijing in 1995 … and never applied! “reformed” their retirement systems. The general Similarly the programmes of political parties, like trend has been towards privatisation and mak- the proposals put forward by the social move- ing the amount paid as pensions dependent on ments, should systematically integrate the aspect the contribution amount. This new closer rela- of gender and the objective of equality between tionship arises from a decline of the correcting men and women – not only because it is a matter mechanisms (bonuses linked to responsibility of social justice but also because policies regard- for children, minimum pension levels) that had a ing equality constitute part of the solution for redistributive effect for women, attenuating the emerging from the crisis. negative effects on their contributions through having children. Everywhere, the average pen- Indeed, going back to the sources of gender sion for women is less than that for men because inequality enables one to become aware of the of interrupted careers, part-time working or continued next page... Capitalism in Crisis: Europe, Austerity and the Left, 2012 43 Section I: Political Economy of Europe’s Crisis The AUSTERITY DEBACLE By Paul Krugman January 29, 2012 Last week the National Institute of Economic and OK, about those caveats: On one side, British Social Research, a British think tank, released unemployment was much higher in the 1930s a startling chart comparing the current slump than it is now, because the British economy was with past recessions and recoveries. It turns out depressed — mainly thanks to an ill-advised that by one important measure — changes in return to the gold standard — even before the real G.D.P. since the recession began — Britain Depression struck. On the other side, Britain had is doing worse this time than it did during the a notably mild Depression compared with the Great Depression. Four years into the Depression, United States. British GDP had regained its previous peak; four Even so, surpassing the track record of the 1930s years after the Great Recession began, Britain is shouldn’t be a tough challenge. Haven’t we nowhere close to regaining its lost ground. learned a lot about economic management over Nor is Britain unique. Italy is also doing worse the last 80 years? Yes, we have — but in Britain than it did in the 1930s — and with Spain clearly and elsewhere, the policy elite decided to throw headed for a double-dip recession, that makes that hard-won knowledge out the window, and three of Europe’s big five economies members of rely on ideologically convenient wishful thinking the worse-than club. Yes, there are some caveats instead. and complications. But this nonetheless repre- Britain, in particular, was supposed to be a sents a stunning failure of policy. showcase for “expansionary austerity,” the notion And it’s a failure, in particular, of the austerity that instead of increasing government spend- doctrine that has dominated elite policy discus- ing to fight recessions, you should slash spend- sion both in Europe and, to a large extent, in the ing instead — and that this would lead to faster United States for the past two years. continued next page ... Christiane Marty continued ... References importance of a whole area of human activity, 1. CSI, “Vivre dans l’insécurité économique: les hitherto essentially performed by women, that femmes et le travail précaire”, mars 2011 (ITUC: covers the economics of caring: invisible and “Living with economic insecurity: women in pre- unpaid work carried out in the private domain carious work”). and under-valued work in the public sphere. The 2. European Parliament Resolution of 17 June 2010 crisis reminds us of the importance of collective on aspects regarding equality between men and well-being and of the importance of high quality women in the context of economic recession and social security and public services. financial crisis (2009/2204 INI). At a time when they need to be developed (crèch- 3. European Parliament Resolution of 19 October 2010 on wages and the situation of insecure work es, organisations to assist dependent people, etc.) (2010/2018 INI). they are being attacked on all sides. Yet these sec- tors represent an enormous potential for growth 4. EIGE (European Institute for Gender Equality), “Report on Reconciliation of Work and Family Life turned towards social needs. Austerity is not as a Condition of Equal Participation in the Labour unavoidable [Reference 6]. The crisis is an op- Market”, 2011. portunity for profoundly transforming the modes 5. “Retraites, l’heure de vérité” Syllepse 2010. Coordi- of production and consumption. Policies must, as nation JM. Harribey, P. Khalfa, C. Marty. (Pen- a priority, meet social and environmental needs sions, the hour of truth) and put forward rules to this end. Because they 6. “Le piège de la dette de la dette publique” (The are increasingly under attack, daily needs and the trap of debt and of public debt) Attac, Éditions economics of caring must regain an often forgot- Les liens qui libèrent, avril 2011. “Le manifeste ten importance. d’économistes atterrés”, Les liens qui libèrent, 2010. It is most important that these concerns, which are too often still those of women, become the First published: transform! concern of us all. Making these fundamental Available at: http://www.transform-network.net/en/ requirements heard and giving them more weight news/article/women-facing-crisis-and-austerity.html than the markets is the issue of our times. NB: for more data see website 44 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Failure of Austerity economic growth. “Those who argue that deal- Strange to say, however, those warnings from ing with our deficit and promoting growth are economists proved all too accurate. And we’re somehow alternatives are wrong,” declared David quite fortunate that Mr. Obama did not, in fact, Cameron, Britain’s prime minister. “You cannot do a Cameron. put off the first in order to promote the second.” Which is not to say that all is well with U.S. How could the economy thrive when unemploy- policy. True, the federal government has avoided ment was already high, and government policies all-out austerity. But state and local governments, were directly reducing employment even further? which must run more or less balanced budgets, Confidence! “I firmly believe,” declared Jean- have slashed spending and employment as federal Claude Trichet — at the time the president of the aid runs out — and this has been a major drag European Central Bank, and a strong advocate of on the overall economy. Without those spend- the doctrine of expansionary austerity — “that in ing cuts, we might already have been on the road the current circumstances confidence-inspiring to self-sustaining growth; as it is, recovery still policies will foster and not hamper economic hangs in the balance. recovery, because confidence is the key factor And we may get tipped in the wrong direction by today.” Continental Europe, where austerity policies are Such invocations of the confidence fairy were having the same effect as in Britain, with many never plausible; researchers at the International signs pointing to recession this year. Monetary Fund and elsewhere quickly debunked The infuriating thing about this tragedy is that the supposed evidence that spending cuts cre- it was completely unnecessary. Half a century ate jobs. Yet influential people on both sides of ago, any economist — or for that matter any the Atlantic heaped praise on the prophets of undergraduate who had read Paul Samuelson’s austerity, Mr. Cameron in particular, because the textbook “Economics” — could have told you that doctrine of expansionary austerity dovetailed with austerity in the face of depression was a very bad their ideological agendas. idea. But policy makers, pundits and, I’m sorry to Thus in October 2010 David Broder, who virtu- say, many economists decided, largely for politi- ally embodied conventional wisdom, praised cal reasons, to forget what they used to know. Mr. Cameron for his boldness, and in particular And millions of workers are paying the price for for “brushing aside the warnings of economists their willful amnesia. that the sudden, severe medicine could cut short First published: New York Times, Jan 29, 2012 Britain’s economic recovery and throw the nation back into recession.” He then called on President Available: http://www.nytimes.com/2012/01/30/opin- Obama to “do a Cameron” and pursue “a radical ion/krugman-the-austerity-debacle.html rollback of the welfare state now.”

Capitalism in Crisis: Europe, Austerity and the Left, 2012 45 Section I: Political Economy of Europe’s Crisis Euro Bond Holders, Beware! THE INSANITY OF AUSTERITY Marshall Auerback Austerity during a serious recession is economi- Now why should Greece matter? After all, it’s cally insane. It is a pro-cyclical policy that makes only about 2% of Eurozone GDP and it is already the recession more severe. A more severe reces- virtually functioning like a barter economy. The sion is a mass destroyer of wealth and quality problem, however, is both the contagion effect of life. It is pure waste. It is the primary cause (can a Greek default be “contained” or will the of dramatic increases in public deficits and disease spread inwardly to the core?), and the debt. Unemployment reduces tax payments and likely precedent that it sets for other countries. increases demands for public spending. One Okay, it’s a tale of two Europes, but let’s rid cannot decide to end a budgetary deficit during a ourselves of the notion that the Germans have in- recession by adopting austerity. Austerity (some curred costs thus far. They have not. The whole combination of cutting government spending and system has supported the perpetuation of Ger- increasing taxes) reduces private and public sec- man mercantilism. It has entrenched their export tor demand. dominance, both in Europe and globally (as This means that imposing austerity is likely to evidenced by their huge current account surplus). deepen the recession and can make the national The only “costs” borne so far have been Ger- deficit and debt larger. It is analogous to the med- many’s workers, who have seen their wages and ical insanity of bleeding patients to cure them of benefits lose ground by virtue of the Hartz Labour disease – and then bleeding them more because market reforms introduced in the early 2000s. the prior bleeding make them sicker. More recently, the “costs”, such as they are, have So why can’t the Germans see this? Well, for one been borne by the European Central Bank: Were thing, because the Germans aren’t experiencing the ECB to expand significantly its bond buying any of this hardship. In fact, if you look at real program in the secondary market, the notion that retail sales, factory orders, industrial production, the euro would fall is akin to the reasoning that total employment and the services PMI (which re- the dollar would collapse if it engaged in QE2. mains well above 50) it now seems as though the And if what is called quantitative easing was German economy began to resume its economic inflationary,Japan would be hyperinflating by growth with the commencement of this year. now, with the US not far behind. In many respects, that’s unsurprising. Germany There is NO sign that the ECB’s buying of euro- stands in marked contrast to the European pe- denominated government bonds has resulted in riphery. There is no fiscal restriction, domestic in- any kind of monetary inflation. Indeed, nothing terest rates are super low, employment has been but deflationary pressures continue to mount expanding rapidly and unemployment stands at in the euro zone, as fiscal austerity continues to a 20 year low. It appears that, having absorbed dominate policy. The reason there is no inflation a trade related and sentiment shock emanating from the ECB bond buying is because all it does is from the European periphery, a domestic demand shift investor holdings from national govt. debt to led expansion has probably resumed. Why, from ECB balances, which changes nothing in the real their perspective, would they wish to impose costs economy. on themselves by bailing out yet another profli- But the question which persistently arises when gate? one advocates a larger institutional role for the By contrast, nearly one in four Spaniards is now ECB is whether the ECB’s balance sheet would unemployed, double digit unemployment is the be impaired, and my contention has long been norm in Ireland, Portugal and Italy and Greece NO, This is because when the ECB buys the is a dysfunctional mess. The two mainstream, bonds then, by definition, the “profligates” do not pro-bailout parties, New Democracy and Pasok, default. In fact, as the monopoly provider of the only garnered about one-third of votes. They will euro, the ECB could easily set the rate at which struggle to form a coalition government – and it buys the bonds (say, 4% for Italy) and eventu- Greece may soon face more elections. It’s political ally it would replenish its capital via the profits dysfunction reflects accurately reflects the state of it would receive from buying the distressed debt its economy. (not that the ECB requires capital in an opera- tional sense; as usual with the eurozone, this is 46 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Failure of Austerity a political issue). At some point, Professor Paul was functionally equivalent to imposing a mas- de Grauwe is right: convinced that the ECB was sive tax on private bond holders. Why, in such serious about resolving the solvency issue, the circumstances, would any fiduciary now allow any markets would begin to buy the bonds again and fund manager/pension fund trustee, etc., to buy effectively do the ECB’s heavy lifting for them. any euro denominated bonds? The bonds would not be trading at these dis- Had the ECB continued to fund Greece via pur- tressed levels if not for the solvency issue, which chases of its bonds, and didn’t not allow them to the ECB can easily address if it chooses to do so. default, then Greece would have to continue to But this is a question of political will, not opera- make these payments. But the ECB (and the Ger- tional “sustainability”. mans) had this weird idea that somehow continu- So the grand irony of the day remains this: while ing their bond buying operation allowed Greece there is nothing the ECB can do to cause mon- (and other “fiscal deviants”) to avoid their “fiscal etary inflation, even if it wanted to, the ECB, responsibilities” (i.e. continued fiscal austerity). fearing inflation, holds back on the bond buying The reality (however misguided), is that the bond that would eliminate the national government buying operations actually provided the ECB with solvency risk but not halt the deflationary mon- its leverage to force Greece and others to continue etary forces currently in place. their “reforms”. Bond buying by the ECB changed Okay, so if the ECB had simply continued its the whole dynamic from doing Greece a favor to bond buying program, who would have taken the disciplining Greece by not allowing them to de- losses? Well, presuming the bonds don’t mature fault and allowing the ECB to collect a significant at par, no question that a private bank which sells income stream from the Greeks in the meantime. a bond at today’s distressed levels might well take The minute Greece defaults, this leverage is lost. a loss and if the losses are big enough, then banks And then what is to stop the other “problem chil- in this position might well need a recapitalization dren” from demanding the same terms? program. And in this scenario, Germany too could Consider the following: by virtue of the bond take a hit, as does every other national govern- agreement with Greece (now under threat, given ment as they use national fiscal resources to the election results), private sector investors took recapitalize. And the hit will get bigger the longer a huge 70% effective hair cut on Greek debt. This the Germans continue to push this crisis to the was sanctioned by the EU, despite the fact that brink. the original rules of the currency union stipulated But that is a separate issue from the question of that one bond was as good as another. So the whether the bond buying program per se will pose rules have been unilaterally changed. a threat to the ECB’s balance sheet. It will not: a It looks great for Greece at one level: They cut big income transfer from the private bond holders their deficit by 100 billion euro by decree, by what who sell to the ECB, which can build up its capital was called ‘private sector involvement’ which was, base via the profits it makes on purchasing these functionally, a bond tax. This was the course of distressed bonds. So again, the notion of an ECB action embraced by EU officialdom, instead of an- being capital constrained is insane. other 100 billion of public sector service cuts and By contrast, the status quo is a loser for every- tax hikes on the population. Yes, there is still aus- body, including Germany, as they are about to terity to come, but the biggest savings have come discover. A broader ECB role as lender of last by virtue of the fact that the agreement sanctions resort (of the kind the Germans are still pub- the “taxation” of the holders of Greek bonds. licly resisting), along with their unhelpful talk of haircuts and greater private sector losses, actu- And ostensibly nothing ‘bad’ happened, apart ally do MUCH MORE to wreck Germany’s credit from a few banks changing a few numbers down position than the policy measures which virtually on their books. Nor did the euro go down or everybody else in Europe is recommending. Why inflation go up or anything else ‘monetary’ go would any private bondholder with a modicum wrong. of fiduciary responsibility buy a European bond, Now consider France: You’re newly elected presi- knowing that the rules of the game have changed dent Francois Hollande. You’ve campaigned on and that the private buyer could find himself/her- a platform opposing more austerity. But you also self with losses being unilaterally imposed? know the Germans, by virtue of their own healthy In a sense, then, the Greece fiasco and the re- economy, have ZERO political appetite to relent sultant electoral backlash is totally a problem of on the cause of fiscal austerity. Europe’s own making. Introducing “hair cuts” continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 47 Section I: Political Economy of Europe’s Crisis Portugal: Under the iron thumb of the troika Pedro Rodríguez ABC Madrid, 7 June 2012

Graffiti in Lisbon, April 2011 — hands of the troika made up of the International “International Monetary Fund get out of Monetary Fund, the European Commission and here. Precarious they want us to be, rebels European Central Bank, whose representatives they will get.” periodically descend on Lisbon to audit the books. AFP “We’ve gone from the scissors to Fourteen months on, Portugal spends its days the saw” under the watchful eye of the IMF, the ECB and the European Commission, which have lent it the One of those check-ups came just this week. It’s money to pay back its debts. As the lenders’ emis- the fourth in the year that the Portuguese have saries inside Portugal verify that the reforms are been living “under the troika.” This type of audit being pushed through, the people are calling for of the commitments that have been met is carried “more time, more money and better conditions.” out over two weeks by a squad of young techni- cians with laptops looking for figures, deadlines When they talk about the “MoU” in Portugal they and documents. Meanwhile, three senior officials are not referring to their famous compatriot, the are in charge of contacts at the political level: coach of Real Madrid. The MoU (“Memorandum Abebe Selassie (IMF), Jürgen Kröger (European of Understanding on specific economic policy Commission) and Rasmus Rüffer (ECB). conditionality”) is the final word over the eco- nomic lifeblood of this country of 10.6 million “In other countries they would have been greeted people, who when the calendar leafs over to April with protests at the airport, but our character is have a tendency towards radical changes. not like that; we’re not like you Spaniards” says sociologist Jorge de Sá, who for years has been In April 1974, the Carnation Revolution ushered taking monthly surveys of the changing views of in democracy. And in April 2011, following in the Portuguese public. the footsteps of Ireland and Greece, the Social- ist government of Prime Minister Jose Socrates Nicolau Santos, economic journalist and deputy was forced to go to the European Union with a director of the prestigious weekly Expresso, dramatic plea for help. speaks of a “quiet desperation” in the restrained protests in Portugal in a year that has seen the A month later, that help took the form of a bailout bailout, elections, a change of government and worth 78 billion euros – capital at an interest rate the forced adjustment. João Cantiga Esteves, one of about four percent, handed over in instalments of the most informative economists on the Por- and accompanied by a whole litany of deep and tuguese crisis, argues that there is a tacit social painful reforms. The fine print for sorting out consensus that the troika is “a necessary aid, an the finances of Portugal, to let the country return to the markets by September 2013, lies in the continued next page ...

Marshall Auerback continued ... What to do? Austerity lite will simply place Hol- But, so far, not a word from any of them. The lande in as politically vulnerable a position as his silence is deafening. predecessor. Embracing growth and rejecting the The risk to bond holders remains very real. “fiscal stability pact” risks an open rupture with the Germans, a cornerstone of French politics for Marshall Auerback is a market analyst and commenta- generations. tor. He is a brainstruster for the Franklin and Eleanor Roosevelt Institute. He can be reached at MAuer1959@ But wait: there’s a third option. No more auster- aol.com ity, just another Greek style bond tax (what will First published: Counterpunch, May 11-13, 2012 be called more PSI “restructuring”). After all, if Greece doesn’t have to pay, why do we? This Available: http://www.counterpunch.org/2012/05/11/ must be a tempting option for the French. And if the-insanity-of-austerity/ not the “Tricoleur” straight away, what about the Irish, Portuguese or Spanish? 48 Capitalism in Crisis: Europe, Austerity and the Left, 2012 The Failure of Austerity opportunity” to push ahead with all the reforms Unsustainable debt that successive governments have failed to pull off. Moreover, Passos Coelho’s cabinet has earned the highest scores in the periodic reviews of the This conformity does not mean that Portugal implementation of the MoU. Portugal’s status as a has not build up abundant reasons over the last model patient, however, is part of the great ongo- year to sing the saddest of fados. Everyday life ing debate in Europe about the limits of austerity. has been hit directly by “austeridade” and cuts dictated by the troika to lower the general govern- Despite having done everything it was asked to ment deficit, which had climbed above 9 percent do, Portugal’s economy remains in critical condi- of Portuguese GDP in 2010 and this year should tion. This year GDP is expected to fall between 3.1 get down to 4.5 percent. “We’ve gone from the to 3.5 percent, with an unprecedented unemploy- scissors to the saw,” says an enviably polyglot ment rate that is already above 15 percent, and young woman in Rossio Square in central Lisbon. for youth at over 36 percent. At the start of the bailout the ratio of debt to GDP was 107 percent. “More troikista than the troika” At this rate, however, that will climb to 118 when the bailout ends in September 2013. Despite having the lowest levels of pay– the “mileuristas” of Spain are, with any luck, “560 Professor Cantiga Esteves argues that Portugal’s euristas” on this side of the border – the sacrifices problems have little in common with the bank- have only been piling up since the government ing crisis of Ireland or the lies Greece told about decided last year to apply a 50 percent excise tax its deficits. In Portugal’s case, the key is that “our on the Christmas bonus of all those Portuguese economy grew at an annual average of 0.7 per- with incomes above 485 euros per month, which cent over the last decade, and all our public and is equivalent to the minimum wage. private consumption has been leveraged on an unsustainable debt.” From that moment on the crisis and the adjust- ment stopped being merely theoretical. Cuts hit Given the controversy around the model patient home everywhere else too: in health, education, and the need for a second bailout, the sociologist public transport... There also came a painful hike Jorge de Sá insists with the characteristic irony of in taxation, with a VAT of 23 percent at the higher his countrymen: “Tell me, please, when the IMF end. has ever cured something in a democracy.” Nicola Santos, deputy director of Expresso, is among Although the terms of the bailout were negotiated those who believe that a second operation will be with the troika by the outgoing Socialist govern- very difficult to avoid: “We need more time, more ment, implementing them is the job of the new money and better conditions.” cabinet, headed by Prime Minister Pedro Passos Coelho. This is the youngest and smallest Portu- Translated from the Spanish by Anton Baer guese government since the Carnation Revolu- http://www.presseurop.eu/en/content/ tion. article/2129121-under-iron-thumb-troika Four of the eleven ministers belong to no party, starting with the Minister of Finance, Vitor Gaspar, who confirmed this spring that senior citizens and officials will have to wait until at least 2018 to fully recover their bonus pay for Christmas and summer, which is currently being withheld. Critics of the government insist that in trying to speed up the pace and the timing of the neces- sary adjustment they are being “more troikista than the troika”. For now, the only demand from the troika that the Portuguese government has rejected has been a cut in the Tasa Única Social, the flat-rate social tax that businesses pay into the coffers of Portugal’s social security for every worker.

Capitalism in Crisis: Europe, Austerity and the Left, 2012 49 Section II: Politics of Europe’s Crisis Rundle: EUROPE, WHERE THE LEFT TAKES CENTRE STAGE Guy Rundle, at Dubai airport, writes: Red tide rising ... red tide rising ... or not? In That is all the more so, because there may now be Europe, the Left has had a phenomenal weekend, no partner for the imposition of such in the Greek with Nicolas Sarkozy and the UMP losing the government. The centre-right New Democracy French presidency to M. Hollande, the so-called party will likely get the largest single vote with “Mr Normal’’, while in Greece the centrist, former around 21%, but that is a pitiful result, and leaves leftist PASOK party looks set to be replaced by it scratching for a majority. Even with PASOK at Syriza, “the coalition of the radical left” as second 13%, and LAOS (an Orthodox rightist party) at party, with a likely vote of 17% to PASOK’s 13%. 8% it would be scratching. That leaves it with the option of gaining interim support from a gaggle In the UK, Tories and Lib-Dems faced a lashing in of independents, with a short shelf life -- and this local elections, the latter losing more than 50% of presumes that PASOK itself will not now simply seats up for grabs (about a third of all local coun- dissolve further. cil seats), the Tories doing not much better and Labour scarfing up nearly 500 new seats. Alternatively, a left coalition could be put togeth- er of Syriza, PASOK, the Democratic Left (8%), Indeed it was such a good innings that another another two small parties, and some independ- solid win was barely noticed -- the near defeat ents -- although more fractured such a group of the CDU in the German state of Schleswig- might have a better chance of stability. The big Holstein, with the Social Democrats gaining 29% hole in everything is the KKE, the Communist to the CDU’s 30%. What was of greater impor- Party, which will get the same 8.5% and that has tance was the collapse of the Free Democrats, the promised to never join a coalition to administer neo-liberal junior partner in the Merkel coalition capitalism. However for some matters -- such as -- they fell from 14% to 8.5%, while votes shifted the repudiation of the latest austerity deal -- its leftwards -- 14% to the Greens, 8% to the Pirates, vote could be gained. and a solid showing for Die Linke, the left party. The only shadow is the 8% polling by “Golden The only real disappointment to the Left was in Dawn” an out-and-out fascist group with a violent the London mayoral race, where Boris Johnson history -- meanwhile in the UK, by contrast, the inched ahead to see off Ken Livingstone. Even BNP lost its last remaining four local council here, the results were flat and frankly worrying seats. It is now represented only, inevitably, in the for the Tories. A month ago, Johnson had been European Parliament. polling up to 10% ahead of Livingstone. In the end he was taken to preferences, and lost by less So do we break out the Bolshevik Bollinger? Yes than 3%. and no. It must be remembered that in large parts of Europe, a version of the left social contract has The triple whammy -- in France, Germany and never gone away. For all the talk of Europe turn- Greece -- means that things must change in Eu- ing right over the past decade, much has been left rope. Hollande is a centrist within his own party, in place. Sarkozy was elected as the purest version which is a fairly centrist outfit itself, but he was of the man who would overturn this -- he thrilled pushed leftwards by the campaign of Jean-Luc and outraged France by lauding American energy Melenchon’s United Left, which forced him to in the 2007 election campaign. And then? propose a 75% tax rate on very large incomes, and Well he did very little, ducking the fight to re- a raft of other commitments to public utilities. construct statist French society as soon as it was Perhaps of greater importance, Hollande’s victory opposed by unions and social movements. Then breaks up the Merkozy alliance, just at the time he got into gimmicks, Holocaust memorialisation, when Merkel herself is coming under pressure etc, (he had a scheme that every French child from the left (electorally) and from the Right, would “adopt’’ a victim of the Holocaust, which, within her own coalition. I doubt very much that down the line, would certainly have benefited one Hollande is going to repudiate the whole neo- French industry -- adult psychotherapy). liberal structure of the EU superstate, but I doubt Then he married Carla Bruni, became a notori- also that the sado-conservatism that has been ous publicity hog, and by 2011 the only thing that imposed on the European south will continue to be applied. continued next page ... 50 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview THIS AUSTERITY BACKLASH ACROSS EUROPE COULD TRANSFORM BRITAIN Owen Jones Friday, 11 May 2012 The truth is that the real world has paid the çois Hollande in France, and the stunning break- high priests of austerity an unwelcome visit through of anti-austerity leftists in the Greek elections.

When I first read Naomi Klein’s The Shock Before I am accused of a swivel-eyed left-wing Doctrine a few years ago, I had no idea how conspiracy theory, it is worth pointing out that prescient the book was. It was a polemic about even some proponents of austerity are candid “disaster capitalism”, arguing that sudden crises about their strategy. Last November, I was in are intentionally manipulated to push through Portugal, which – after being bailed out by the EU extreme free market policies that were otherwise and IMF – is pushing through a far-reaching free not politically possible. But early 2008 was a market agenda. The first wave of the most radi- completely different era: although Northern Rock cal privatisation program in the country’s history had just suffered the first bank run for 150 years, is under way, including the selling off of energy, it seemed like a bizarre blip. The US sub-prime water, public transport and the national airline. crisis was rumbling away, but it was like sheet VAT on electricity and gas has been hiked from lightning from a distant storm. “The deficit” was 6 per cent to 23 per cent, driving up energy bills; not an everyday term of political debate. It was many public sector workers are facing a drop in not at all clear that the world was about to be ut- income of a quarter; and unemployment benefits terly transformed. have been slashed by nearly a fifth. Austerity has plunged the country into a deep recession, and And yet the past four years have proved a total debt-to-GDP ratio is soaring: but that is not the vindication of Klein’s argument. A crisis of the point. Portugal is being remade in the image of market was cleverly transformed by free market neo-liberal dogma. ideologues into a crisis of public spending. Across Europe, the biggest slump since the 1930s has Free market economists in Portugal had long sup- been used to push through policies straight out of ported such policies, but knew they could not get some right-wing wet dream: the slashing of taxes away with them in normal circumstances. “The on the rich and major corporations; the selling thing with deep reforms is that democracies have off of public services; and a bonfire of workers’ a strong bias in favour of the status quo,” I was rights. It is disaster capitalism on speed. told by Professor Ferreira Machado, the Dean of one of Portugal’s leading business schools, who But, this week, the great revolt against the Shock boasted that he was just a phone call away from Doctrine began. That is exactly how we must the country’s Prime Minister. When asked if there understand the sudden sea change in European politics: not least, the election of Socialist Fran- continued next page ...

Guy Rundle continued ... kept him from the role of Europe’s clown was the a leftward movement, but the greater gains have continued presence of Silvio Berlusconi. In his been to the left of them -- and if they try to now black tie and his ‘50s hair, with his model girl- move to the centre and resume business-as-usual, friend, and a bad case of short-arse syndrome, he I suspect there will be hell to pay. In either case, couldn’t decide whether he wanted to be Charles those so trained in the dialectic that they can seek de Gaulle or Serge Gainsbourg. He will have out defeat anywhere should take the weekend plenty of time to think about it now. off, wave the scarf and drain a glass. Marchons! Marchons! Unlike some more eeyore-ish comrades, I’m not going to look these results in the mouth -- Europe First published: Crikey, Monday May 12, 2012 is repudiating the myth of neo-liberalism -- some- Available: http://www.crikey.com.au/2012/05/07/ thing it only took to at weariness of the com- rundle-europe-where-the-left-takes-centre-stage/ promise and lassitude of the mainstream social democrat parties. Those have now gained from Capitalism in Crisis: Europe, Austerity and the Left, 2012 51 Section II: Politics of Europe’s Crisis was a collision course between democracy and moment for Ireland to add our voice to that,” de- the radical reforms he thought necessary, he was clared Mary Lou McDonald, a leading anti-Treaty candid. “I think there is a difficulty reconciling politician. it,” he said, and mentioned an opposition leader For the first time since this crisis began, the who had caused a political storm by suggesting momentum is with those taking on the Shock the suspension of democracy for six months. “Of Doctrine. It has the potential to change the whole course, she was not advocating that – she was political climate here in Britain. Polls show actually expressing that collision course between two-thirds reject the Government’s economic the two things, and what she was saying was that program. The Tories and their Lib Dem allies got it would be much easier to do the necessary re- a kicking in the recent elections. Cameron’s ap- forms if we could put democracy in brackets.” proval ratings are in freefall. Democracy in Europe has not been suspended, Until now, Britain’s anti-austerity movement has and the collision course is more apparent than been fragmented and lacking in direction. The ever. “Stop the world, we want to get off!” was new winds blowing from the Continent could The Wall Street Journal’s verdict on the mount- change all of that. An attempt to use this crisis ing European anti-austerity backlash. The truth to transform society in the interests of the top is that the real world has paid the high priests of is floundering here and across the Channel. The austerity an unwelcome visit. Their policies have prospect of building alliances across Europe is no sucked growth out of the economy, failed to tackle longer fanciful. It is a moment of transition: what debt, dramatically increased unemployment, and happens next is uncertain. As the Italian Com- devastated living standards. It would be utterly munist Antonio Gramsci put it as he languished baffling if people did not fight back. in fascist jails in the 1930s: “The crisis consists No wonder Greece is at the forefront of the back- precisely in the fact that the old is dying and the lash. A modern European society is being dis- new cannot be born.” membered by austerity. The economy has shrunk First published: The Independent by nearly a fifth, and the country’s debt continues to mount. Over half of young people are with- Available: http://www.independent.co.uk/opinion/ out work; the minimum wage has been slashed commentators/owen-jones-this-austerity-backlash- to desperately low levels; and wages have fallen across-europe-could-transform-britain-7734670.html by a third since 2009. Then there’s the ultimate indicator of despair: the number of people taking their own lives. Greece had one of the lowest sui- cide rates in the world, but experts suggest it may have doubled since the crisis began. Austerity is literally killing people. But, along with the booting out of France’s Nico- las Sarkozy, the Greek elections could mark the beginning of the end for Europe’s Shock Doctrine. “This is a message of change, a message to Europe that a peaceful revolution has begun,” declared Alexis Tsipras, the leader of radical left coalition Syriza, which trebled its seats in Parliament and came second. Given the failure of any party to form a government, new elections beckon, and Syriza can expect to do even better. But, already, the results have boosted the confidence of all those taking on the austerity offensive across Europe. In the Netherlands, the anti-austerity Socialist Party looks set to stage a breakthrough in the upcoming elections. Those calling for a “No” in the upcoming Irish referendum on the EU Treaty – slammed as an “Austerity Treaty” by opponents – feel momentum is on their side, too. “The people of France, the people of Greece are against the policies of austerity and it is now the

52 Capitalism in Crisis: Europe, Austerity and the Left, 2012 An Overview Elections in France and Greece: THE EURO CRISIS, THE LEFT AND THE GENIE William Wall of Williamwall.net May 10th, 2012

The Eighth of May was the Fête de la Victoire Finland, Slovenia, Slovakia, Greece, Italy, Spain, in France. It was also the day of François Hol- Ireland, Portugal, Romania and The Netherlands. lande’s first public appearance as president-elect. Iceland - outside the Eurozone - makes eleven. The right-wing Le Figaro featured photographs Six of these, including Ireland, resulted in the of ‘deux presidents sous l’Arc de Triomphe’, election of right wing governments. Many com- in which Sarkozy managed to look even more mentators have interpreted this as a swing to the disgruntled than usual and Hollande looked as if right. However, it must be observed that in the he had just grasped a double-edge sword by the Tweedledum/Tweedledee contest that counts as blade. politics nowadays, the only way to reject the views of Tweedledum is to vote for Tweedledee even The public holiday commemorates the surrender though he will prosecute exactly the same poli- of Germany at the end of WWII and the defeat cies. Therefore, these votes are better read as a of fascism in most of the states of Europe - Spain rejection of, and punishment of, the governments and Portugal being the exceptions. It was an in- believed to be responsible for the crisis. The peo- teresting day as left-wing newspapers like Libéra- ple expressed their thoughts in the only way pos- tion, L’Humanité and Le Monde expressed con- sible so far. In other words, these elections rep- cern about the rise of the neo-nazi Golden Dawn resent the first stirrings of democracy, the people in Greece and a near 20% support for Marine le testing their power. It must also be remembered Pen in France while at the same time noting left- that considerable manoeuvring has taken place in wing advances. Without drawing any parallels, it some countries to prevent just such an expression is also worth remarking that the consensus is that of democracy - Italy’s ‘expert’ government being no matter what François Hollande thinks about a case in point. It now looks as though Greece austerity, Germany rules. will go for a second General Election, a possibility Everyone is agreed that Hollande is not a revo- relished by people like Tsipras. lutionary and that he may well continue the This, in fact is what has made the markets jittery. neo-liberal policies of Sarkozy, though without What if people use elections to express their opin- the venomous racist rhetoric. The old saw about ions rather than putting Tweedledum back in as ‘campaigning on the left and ruling on the right’ usual? Is it possible that elections could become is tailor-made for the Europe’s centre-left parties. unpredictable? What kind of instability would oc- When Angela Merkel said she would welcome cur if elections actually worked? And what would him with open arms, she probably had this in rich people (aka The Market) think? Would politi- mind. But as yet it is not at all certain that this cians be expected to act on their promises? That is what Hollande will do. There are a number of way madness lies. reasons why he might not, including the general collapse of neoliberalism as an economic theory, The rise of the far-right is another aspect of the whatever about the structures of wealth and pow- elections that is exercising a lot of word-proces- er it is intended to support. In any case, Alexis sors at the moment, and undoubtedly Greece’s Tsipras of the SYRIZA party in Greece, is not toe- Golden Dawn is a terrifying organisation, a kind ing any old left/right centre line. He has terrified of BNP on crack. They remind me of those people the markets apparently, and august bodies such who thought the Da Vinci Code was actual history as the EU Commission and the IMF are trembling - except in this case the set text is Mein Kampf. and re-orientating themselves to the bizarre fact In France, Marine Le Pen has moderated her lan- that a nation is not prepared to immiserate itself guage in the usual way, but she still represents the to save foreign banks. good old mix of xenophobia, racism and corpo- rate-statism. France often tries to forget that Mar- In many ways this is the usual newspaper guff. shall Petain not only collaborated with Hitler, but Nevertheless something new is afoot in Europe instituted his own brand of fascism in Vichy. And and it might be timely to appraise it. Greece has had the Colonels. There is a fascist It is a startling fact that ten governments have rump in every state in the world. It hides in the fallen as a direct consequence of the crisis: continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 53 Section II: Politics of Europe’s Crisis Republican Party in the USA, for example, in the and general strikes, may well be enough to force Tory party in the UK, in Fine Gael in Ireland. I PASOK, the socialist party, to come to terms with would suggest that it’s better to see it expressed in SYRIZA in due course, if not in this election, then far-right parties like the EDL, BNP, FN or Golden in the next or the next. What is happening is the Dawn than have it lurking in centre-right coali- radicalisation of public discourse, a possibility tions, driving the nationalist, anti-immigrant, that terrifies those who benefit most from the anti-worker, anti-gay rights agenda. At least we’d status quo. know where they were. In all of this the figure of Alexis Tsipras is one of For me, the most startling development of all is the most interesting. As of today he has declared the re-emergence of the left/right discourse after the Greek Bailout terms null and void and threat- thirty years of right-wing hegemony. As little ened to nationalise the banks. He cannot form a as four years ago it was fashionable to use the government but is said to relish the thought of term ‘left-wing’ as a synonym for ‘crank’. Nobody fighting another election in a month or two. The was described as right-wing. Neoliberalism was markets are worried and therefore the politicians regarded as neutral, a fact of life rather than are worried. What they are worried about is, I an ideology, to which there was no alternative think, that Alexis Tsipras’ middle name is Hugo. because history was over. It was sufficient to say A European Chavez might just be enough to ignite that the markets would not wear a policy for it to the powder-keg that they’re sitting on. If Greece be regarded as impractical. Ideological conflict, went left, a la the Bolivarian Revolution, the certainly in the sense of left-wing politics, was other little PIGGIES might think the same way. over and class warfare was a thing of the past. After all, many of us have already nationalised our banks anyway, and Ireland has nationalised None of it went away, of course, it was just that a vast housing stock. It’s the flip of an ideological the mainstream media ignored it. It still does to switch between holding these institutions in trust a large extent. But suddenly the name of Marx for the people who ruined them in the first place, crops up in casual conversation. Politicians and holding them in trust for the people. It’s what are routinely described as left or right. Class is happened in South America, so maybe that con- back. This is an earthquake in public discourse. tinent is the one to lead us out of our despairing It involves the return of the repressed, to coin subservience to the market. a phrase, the dark under-consciousness of the capitalist consensus. Vast swathes of the popula- What has Berlin shaking cudgels, share prices tion always knew there was a class conflict and falling, bond spreads increasing, Eurozone they were losing it - people in precarious labour, finance ministers ‘engaged in heated debate’ and unemployed people, people who couldn’t afford Wolfgang Schaüble flatly declaring that ‘the Greek health insurance, disabled people - but they didn’t nation knows what it has to do’ is the sound of a have a name for it. If nothing else the crisis has cork popping. It’s definitely not champagne this been a naming of names. The most significant time round. In fact it’s very like the sound of a challenge for the left in the coming years is not genie escaping. power or revolution, but to re-establish the left- First published: Irish Left Review wing analysis as central to debate. In the mean- time, increasing the left vote at elections has a Available: http://www.irishleftreview.org/2012/05/10/ useful disciplinary purpose. elections-france-greece-euro-crisis-left-genie/ The Irish election of 2011 is instructive in this regard. In the previous election the combined total of left-wing seats was approximately 15%. In 2011, the left vote increased to 38.5%. Yet the government that resulted from that election is a right-wing/centre-left coalition, with the Irish Labour Party as junior partner prosecuting all the brutal austerity measures they had campaigned against under the fatal slogan ‘Frankfurt’s Way or Labour’s Way’. What this means is that the criti- cal mass of left-wing and left leaning voters was not sufficient to push the ILP into a more radical stance. In Greece, on the other hand, the criti- cal mass, combined with massive street protests

54 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Greece A TRIUMPH OF THE RADICAL LEFT IN GREECE - A MESSAGE TO EUROPE Haris Golemis, Athens* Special Edition 04a2012 of the Transform! Eu- was that the three-party government under the rope newsletter May 11, 2012 unelected technocrat Papademos remain in office for two more years, just like Monti in Italy. The The recent electoral results in Greece was a most important reason why the country went serious blow to the governments of Merkel and to the polls should be traced to the resistance of Sarkozy, as well as to all those arrogant neoliberal the Greek people mainly in the streets, but also parties, politicians, analysts, EU, ECB and IMF in the workplaces (through the movement of the officials who thought that the European people squares, the strikes and mass demonstrations, can suffer passively and for an indefinite period civil disobedience like the “no pay movement”, the extreme austerity policies of neoliberal ortho- the jeering of mainstream politicians wherever doxy, which supposedly aim to an exit from the they appeared in public etc). capitalist crisis in Europe. At the same time, the success of the radical Left in Although resistances in the streets and hope- the elections was not a linear function of the bad ful results in the ballot boxes have happened in economic situation. History has taught us that almost all EU countries since the crisis began, it unemployment, poverty and generally the wors- is interesting that the clearest message against ening of economic conditions do not necessarily neoliberalism in the EU came from a small create a favorable political environment for the country of the European South. The people of the Left. The situation in the countries in Central and most notorious of the PIIGS, instead of accepting Eastern Europe after the demise of the so called either to willingly go or forcibly be drawn to the “really existing Socialism” is a painful example. slaughter house, decided to revolt by voting mas- sively against the center-left Panhellenic Socialist The unexpectedly high electoral percentage of the Movement (PA-SOK) and the center-right New radical Left can, to a large extent, be attributed to Democracy (ND, the two parties which, together good political party strategies: with the extreme right Popular Orthodox Rally a) the establishment and maintenance of the (LAOS) had signed the Memorandum of shame Coalition of the Radical Left(SYRIZA), a difficult with the “Troika” and participated recently in the alliance of “Synaspismos” with smaller parties Papademos’ government. and groups mostly of the extreme Left, One could legitimately claim that the election b) the alliance of SYRIZA with groups or individu- results were due exclusively to the fact that the als coming from PASOK who had a large appeal crisis and the policies for a way out of it destroyed to the general public (in fact the name of the elec- the traditional ties connecting the lower and toral list was SYRIZA-Unitary Social Front), middle strata of the Greek society with PASOK and ND, creating a rupture to the powerful c) to the appeal made to all forces of the Left, bi-party political system which dominated the mainly to the Communist Party of Greece (KKE) country since the fall of the dictatorship in 1974. and the Democratic Left (DIMAR) - the party In fact, within the two years that passed since which was created two years ago after the split of the bail- out package agreed between the Greek Synaspismos - to forge an alliance which could government(s) and the “Troika,” a large number govern the country - an extraordinary ambition of PASOK and ND deputies resigned, became for the communist, post-communist, renovating independent, created other political parties or and radical Left in Greece. In a country where entered other parties or coalitions. personalities play a crucial role in politics, one of the reasons for the success of SYRIZA should also However, neither the rupture of the political be attributed to the personality of its leader Alexis system happened automatically nor the increase Tsipras, a charismatic and popular young politi- in the power of the radical Left was a “natural” cian. consequence of the crisis. Early elections were proclaimed not out of the free will either of the Coming to the actual election results, the Coali- collapsing Greek political system or of Merkozy, tion of the Radical Left (SYRIZA) achieved a Lagarde, Trichet/ Draggi or Barroso - in fact, the continued next page ... wish of this “Holy Alliance” and of the “markets” Capitalism in Crisis: Europe, Austerity and the Left, 2012 55 Section II: Politics of Europe’s Crisis percentage as high as 16.8%, overtaking PASOK tion, the political force which would benefit from which lost 30% of its power and collapsed from the delegitimization of the political system and 43.92% and 160 seats in 2009, to 13.18% and 41 the mounting of social unrest was not obvious. seats in 2012. New Democracy fell from 33.47% Nationalist, xenophobic and even fascist groups and 91 deputies to 18.85%, but due to an incred- were racing to this end, propelling arguments for ibly unjust electoral law now has 108 deputies “a strong, pure and independent country”. Fears (getting a scandalous bonus of 50 seats - out of a and blackmails for the dangers of an exit from the total of 300 - which go to the first party, indepen- Euro-zone - that would amount to a complete col- dently of its percentage), while the Communist lapse of the country’s economy - were consistently Party of Greece (KKE) margin-ally increased its spread by the political elites, inside and outside power from 7.5% to 8.5%, loosing for the first the country, as well as by the mainstream media. time its dominant position within the broader At the same time, the Left remained fragmented, Left. LAOS, the party of the extreme Right which with the Communist Party re-fusing to engage in participated in the recent coalition government, any kind of dialogue and the Party of the Demo- didn’t manage to enter the parliament and the cratic Left (DIMAR) failing to define the limits same happened with the Ecologists-Greens, a of its juxtaposition. This is why the victory of member of the European Greens. The rest of the SYRIZA was so important. But there was also one seats are occupied by the party of the Independ- additional reason that made all of us proud for ent Greeks (a nationalist, xenophobic party creat- being members or supporters of Synaspismos and ed by a split of New Democracy, which denounces the other groups of this political alliance. Despite the “Memorandum” with the “Troika” - 10.6%), intensive pressures from almost all parts of the the Democratic Left (the party created in 2010 political spectrum and the media, SYRIZA did not from the split of Synaspismos - 6.11%) and the retreat from its values of defending immigrants - fascist group of Golden Dawn, which managed to opposing clearly the, not so unpopular, establish- gather 7% of the votes and 21 seats in the Greek ment of concentration camps for their contain- Parliament. ment, the first of which incidentally opened just a few days before the elections - and of arguing for Although SYRIZA was certainly the big winner of the protection of human rights in a period where the elections, one should not miss another very society was open to mass propaganda of this type. important fact. Ignoring the funny claim of KKE that they are communists and not leftists (!), the The electoral results in Greece are important not combined result of the admittedly fragmented only for this country, but for Europe as whole. Left in Greece is the biggest in recent political Now, it is more evident than ever how interde- history, overshooting 30% and thus breaking the pendent the European countries are, since devel- record of the old party of United Democratic Left opments even in a small country of the Southern (EDA), which in 1958 (9 years after the end of the periphery can create a “butter- fly effect”, so civil war) managed to reach 25% of the vote creat- strong that it can shake European decision- ing a shiver to the then “free world”. making in its core. This is the reason why Synas- pismos never accepted the dilemma that Greece Although it is too early for a detailed analysis of should either accept the present political and the radical Left vote, we think that it is useful to economic framework of the EU (as supported refer to some of its important qualitative charac- by the PASOK and ND) or voluntarily get out of teristics: SYRIZA came first among young vot- the Union - a demand put forward by KKE, but ers, as well as among the voters ageing up to 55 also some groups of SYRIZA. On the contrary, we years. It prevailed in the big urban centers, where believe that struggles and dis-obedience at the the economic and social crisis is particularly national level should be combined by coordina- acute. It even managed to represent big parts of tion at the European level for the refoundation the popular strata in the poor neighborhoods of of Europe, which is also the aim of the Party of Athens and other big cities, where traditionally its the European Left. EU will either change or stop penetration had been low. existing. Allow me to close this first note on the Greek elec- In our hard times, victories of the movements tion results with two final remarks: and the radical Left in one European country can First, one of the reasons why the victory of positively influence the political and social strug- SYRIZA is such important development on a Eu- gles in another. The victory of SYRIZA in Greece ropean scale is due to the fact that, although one belongs also to the indignant movements around could expect that the two - former - big parties would lose power because of popular dissatisfac- continued next page ... 56 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Greece THE “DRAMA” OF THE GREEK ELECTION By Nikos Raptis May 12, 2012 Dramatis Personae - Greens (with anarchist roots): around 5 % - Neo-Nazis (in Greek Parliament): around 5 % A. Before Frau Merkel (and her US men- tors) “attacked” the Greek people, about - Neo-Nazis (not in the Greek Parliament): not two years ago: available. Probably the same as before. C. After the May 6, 2012 Greek parliamen- The situation in Greece was approximately the tary elections: following: - “Socialist” (PASOK): 13.18 % - “Socialists” (PASOK): around 40 % - New Democracy (conservatives): 18.85 % - New Democracy (conservatives, i.e. rightists): around 35 % - Independent Greeks (split from New democ- racy): 10.60 % - KKE, Communists (Stalinists): around 6 % - Democratic Alliance (split from New Democ- - SYRIZA (Eurocommunist roots): around 3 % racy): 2.55 % - Greens (with anarchist roots): close, but less - KKE, Communists (Stalinists) 8.48 % than 3% - SYRIZA (Eurocommunist roots): 16.78 % - Neo-Nazis (in the Greek Parliament): around 3 % - Democratic Left (new party, split from SYRIZA): 6.11 % - Neo-Nazis (not in the Greek Parliament): less than 0.3 % - Greens (with anarchist roots): 2.90 % (did not enter in the Parliament) B. After Merkel’s “attack”: - Neo-Nazis (formerly in the Greek Parliament): - “Socialist” (PASOK): around 10 % 2.93 % (did not enter in the Parliament) - New Democracy (conservatives): around 30 % - Neo-Nazis (formerly not in the Greek Parlia- - KKE, Communists (Stalinists): around 12 % ment): 6.97 % (entered in the Parliament). - SYRIZA (Eurocommunist roots): around 12 % - Democratic Left (new party, split from SYRI- continued next page ... ZA): around 13 %

Haris Golemis continued ... The struggle goes on! Europe, the victories of the Spanish strikers, the * This article is the result of discussion and ex- success of comrades of the French Communist change of views and ideas between the author Party and the Front de Gauche in the recent and Elena Papadopoulou. French elections. We were inspired by them and had the conscious feeling that we were returning Transform! is a network of 22 European organi- this inspiration. In this framework, we will never zations from 16 countries, active in the field of forget the actual presence of representatives of political education and critical scientific analysis. the parties of the European Left in our rallies and This collaboration of independent non-profit the moral support we got from comrades all over organizations, institutes, foundations and people Europe. means to utilize their work to contribute to peace- ful relations among people and to a transforma- Despite our victory, we are well aware that no vic- tion of the present world. tory can be taken for granted. In our struggle we Portside aims to provide material of interest to people have to face, on a daily basis, two big enemies: on the left that will help them to interpret the world a) the political forces of the establishment who and to change it. www.portside.org want to subjugate the peoples of Europe to First published: Transform Europe their austerity policies and Available: http://www.socialistproject.ca/bullet/632. b) the forces of the reactionary radicalism, the php extreme and fascist Right, the National Front in France, the Golden Dawn in Greece and their allies in other European countries. Capitalism in Crisis: Europe, Austerity and the Left, 2012 57 Section II: Politics of Europe’s Crisis The “Drama” results the Greek “patriotic” proxies of the US and the European elites started an unbelievable attack [Scene one] against SYRIZA, the real winner of the elections, One of the dominant (if not the most dominant) by accusing it, with a schadenfreude smirk, that “perversions” in this “drama” is that the electoral “it was at a loss” to govern the country. This law donates to the first party (that is the one with has been going on ad nauseum for almost four the greatest total number of votes) a bonus of days since that Sunday evening to this minute 50 seats [!!!] in the 300-seat Greek Parliament. (Thursday morning of May 10), by the use, not so Which means that one candidate of the first party, strangely, of the same denigrating expressions by with say 200 votes, can gain a seat, while a candi- a wide spectrum of persons. date of the second party with 100,000 votes can- Was (or is) a Greek leftist government possible? not enter in the parliament! Unbelievable? Yes, What if SYRIZA, the Communists (KKE), and the but instructive for the young people of the world. “moderate” leftists of the Democratic Left, had How come such a monstrous law came to be? The united before the elections and had gained the late Andreas Papandreou, a US-bred economist, 50-votes bonus, turning the trick of the electoral as a major political figure in Greece for almost a law into a boomerang for the establishment par- half century (since the early 1960s), offered the ties? Greeks some very interesting humans, whom he To answer this, we have to take into account the chose to be the Greek political elites for decades. strange fact of an inexplicable conduct of the For example, he chose Akis Tsohatzopoulos, who leadership of the KKE. Why, they did what the a few days ago was imprisoned for corruption and reactionary US proxy politicians were not able who dragged in prison his wife, his daughter, and to do? That is, they sabotaged the victory of the assorted relatives and friends. He chose Theodore Left. The Greeks, all the ordinary Greeks, are very Pangalos, a rather rotund 350-pound gentleman, angry against the KKE leadership. What is going who “handed” Ocalan of the Kurds to the CIA, on? Is there an explanation? Not at this point. who calls ordinary Greeks good-for-nothings, etc, etc. Finally, he chose a civil engineer, who at some Also, there are some more indications of this point in his career drafted the above noble elec- “strangeness”. Why one of the most important toral law, plus a law that in effect made striking in spokespersons of the KKE is a lady who is a fer- Greece illegal. These exceptional individuals were vent... Christian? Is this supposed to be an indica- chosen by a single person to decide the lives of tion of the rationality of a leftist political system? ten million people. Even more so, given that the lady, a few decades ago, was the “favorite child” of the Greek political Now, suppose that, in spite of the above noble Right. One could accept a sincere change of heart law, there is a leftist government in Greece. Natu- on her part, as I did, but not anymore, after the rally, this government will have under its con- May 6 Greek elections. trol also the Greek armed forces. Furthermore, suppose that this sovereign Greek government [Scene two] demands that one of the most important US mili- Today, in the afternoon of May 10, it seems that, tary bases in the world, the “Souda Bay Base” in as expected, there is no possibility of forming a Crete, should be closed. Would not the forming of Greek government of any color. Therefore, there such a leftist Greek government be rather “annoy- is going to be a second round of elections, during ing” not only for the US but also for Israel which the first two weeks of June, 2012. uses the “Souda Bay Base” as part of its military My estimate for a possible result of the second machine? round: If the KKE leadership insists on its present Therefore, a leftist Greek government cannot ex- “strange” stance, SYRIZA will be reinforced by ist, ever. other parts of the Greek political spectrum and However, horror of horrors, in the evening of May will be able to govern, the “socialists” and the 6, 2012, a Greek Orthodox Christian Sunday, such Right will shrink even more and the Neo-Nazis a leftist Greek government became a possibility, will be cut to size. as shown by the above election results. Therefore, Whatever the outcome, the US and the European the US and the European elites were obliged to elites are in trouble. The Greek case will initiate a face this odious situation. It seems that they were domino effect; for Ireland, Spain, Portugal, Italy, prepared to do so. A few seconds (this is not an and even France (ignoring the charade of the exaggeration!) after the announcement of the daughter of “Le Pen”).

58 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Greece [Parenthesis: Referring to the maxim “If Elections what Philip Agee mentions about their “use” Could Change Things, They’d Be Illegal”, men- by the US as tools for provocation, dirty tricks, tioned by my compatriot Nikolas Kosmatopoulos etc, in his book “Inside the Company: CIA Di- (ZNet article of May 7, 2012) here is a real case ary”. that cannot be ignored: In 1946, a little more than So what happened in Greece and the percentage one year after the Nazis left Greece, parliamen- of the, not in the Parliament, lumpen Nazis which tary elections were to be held in Greece on March jumped from less than 0.3 % to 6.95 %? 31 of that year. The Greek Left decided to abstain. All over Athens there was a single slogan: “Demo- First, about 1 % to 2 % of the voters of the suits- crats, abstention!” At the time, I was sixteen years and-neckties parliamentary Nazis moved to the old and my hometown is Athens. The Left was lumpen Nazis, causing the “respectable” Nazis to successful: it abstained. Today, 66 years later, the not make it into the Parliament. consensus is that the Greek Left was wrong. What Second, about 3 % of the voters [an estimate] are remains to be exposed is to find who, in the Left, people living in areas with intense problems with initiated this wrong slogan. If the Left had won, immigrants. “Wild” Bill Donovan, the “greatest American ever” (according to the general feeling at that time), Third, about 2 % to 3 % of the voters [again, an would not have had an easy task to smash the Left estimate] are (mostly young) people who, naively, of Greece, Italy and France. If the Greek Left had thought that the way to punish the politicians, won the 1946 elections, Greece and Europe would who have almost destroyed Greece, was to vote be different today.] for the Nazis. [Scene three] Fortunately, the lumpen Nazis, themselves, of- fered the solution for eliminating this anomaly, In the above lists there are two groups of neo- of having Nazis in the Greek Parliament. The Nazis, before the May 6 elections. One group of solution: a single word of the language of the clas- neo-Nazis in the Parliament and one not in the sical Greeks, which has been heard all over the Parliament. The first one is the old guard of neo- planet in the news and in videos in the Internet. Nazis who are wearing suits and neckties and are Te word: “egerthiti” (“stand up”). The word is the mostly middle-aged, while the second one is the classical Greek form of the imperative of the verb younger blood with the characteristic sartorial “egeiromai”, which has the meanings: I wake, I appearance. rise from the dead, I rouse or stir oneself, be ex- Let us examine, briefly, the neo-Nazi phenom- cited by passion, etc. Although the verb is in use enon: in Modern Greek, as a form of the imperative in classical Greek it is unknown to the female Greek First, to facilitate this, it is more practical (and population and is known only to the Greek males! more accurate) to substitute the term Nazi for the The explanation: the “egerthiti” form is a “mili- term neo-Nazi. [A Nazi is a ... Nazi]. There are tary command” meaning “stand up” (at atten- three “levels” of Nazism, in any population. tion), used only by the Greek military to reinforce • The “crypto-Nazis” (or “closet Nazis”), hiding the Greek soldiers’ ... patriotism. Not only that, in the “conservative” part of the vast area of the classical Greek word “skelea” is also unknown the middle-class. It is not very difficult to spot to the female Greek population! It is used only by them. Also, naturally, their Nazism is accom- the Greek military, as a patriotic expression. It panied by anti-Semitism. means the (male)... underwear! • The (above mentioned) Nazis in suits and When the Greeks, all the Greeks, saw and heard neckties, who are out of the closet and try to that stocky representative of the Greek Nazi viril- be respectable. For example, becoming mem- ity hollering “egerthiti” (actually mispronounced bers of Parliament, say in Greece. As a matter as “egerthi-to” by him) they laughed their heads of fact, one of these parliamentarian Greek off. The ridicule is unbelievable. There is nothing Nazis, has managed to be, today, the Minister the Greek Nazis can do to change the mind of the of Public Works in the Greek Government. Greeks about the “egerthito!” scene. The reader can see him in action, wielding an It is more than probable that the Nazis, in a sec- ax, in a Comment on my ZNet Commentary, ond round of elections, will lose most of the votes “Quakes: call on Turks and on Greeks”, of they have gained and will not make it into the November 18, 2011. Greek Parliament. • The lumpen Nazis. No need to describe them and say much about them, except to refer to continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 59 Section II: Politics of Europe’s Crisis THE RISE AND RISE OF THE GREEK LEFT IN 2012 Adam Rorris, July 12, 2012

The Greek elections in May and then in June 2012 The centre Pasok party was elected in 2009 after have confirmed that politics in that country would a series of political scandals exposed gross politi- not return to ‘business as usual’. Politics has been cal corruption in the former conservative New transformed by the Greek radical left coalition Democracy government. Almost immediately the (SYRIZA) that increased its vote from less than incoming Pasok government announced it had 5% in 2009 to 27% in June 2012. Its successful discovered a grand cover-up of the extent of the political campaign prior to the election (as well as national debt. In fact, it was soon revealed that its electoral interventions) have blown apart the successive Greek governments had consistently comfortable two-party arrangement (Pasok and and deliberately misreported the country’s official New Democracy) that has existed since the fall of economic statistics. the junta in the 1970s. As the real Greek government deficit was revised The increasingly neo-liberal politics of these cen- ever upwards, by mid-2010 the markets were tre-right parties is the political issue as SYRIZA ready to frame the situation as a crisis in inter- has quickly moved from the politics of protest to national confidence in Greece’s ability to repay the politics of seeking power in government. Once its sovereign debt. In May 2010, the other Eu- it became obvious in 2012 that SYRIZA had a real rozone countries and the IMF, agreed to a €45 chance of forming government, its support grew billion rescue package. In return, Greece was very fast and it narrowly missed out on gathering required to enter a death spiral of harsh auster- the largest number of votes (and thereby having a ity measures to be monitored and evaluated by chance at forming government). It now stands as the troika (European Commission, European the main political opposition party and with the Central Bank and the IMF). very real prospect of forming government at the These austerity measures have been driven by next elections. massive reductions in real wages in the public and The emergence of a principled left political or- private sectors (the biggest cuts directed at the ganisation with (i) a radical critique of the causes lowest wage earners), cutbacks in social welfare of the latest economic crisis, and (ii) practical but and large scale reductions in the size of the public bold plans to deal with the crisis, is now captur- sector. At the same time, the pension funds which ing the attention of people across Europe and left provide not only the post-retirement of Greek movements of other countries. workers but also cover their health and other welfare costs during the working life, saw their Background to The Greek Elections 2012 portfolio value collapse as their holdings of Greek The Greek electoral convulsions of 2012 are a bonds drifted towards junk status. As the auster- product of the extreme politics of austerity that ity measures suck the life out of the economy, were imposed on the country in the wake of its unemployment rates have soared with a clear deteriorating fiscal position. It is not possible to majority of young people now classified as unem- understand the sea-change in Greek electoral ployed. Meanwhile those lucky to be employed politics without appreciating the real deteriora- are often going unpaid for months at a stretch tion in living standards which this politics has and feel increasingly like they are half a step from imposed on the majority of Greeks. going over the cliff themselves.

Nikos Raptis continued ... P.S. Besides the acrobatics of the Greek Nazis happening is that the more Schaeuble threats that with classical Greek words, there is an additional the Greeks hear, the more votes go to the “Left- comic factor that keeps the Greeks in spirits of ies’!!! One wonders if Herr Schaeuble is really a (relative) mirth. That source of merriment is Herr bright ... economist. Wolfgang Schaeuble, the Minister for Economics Nikos Raptis’s ZSpace Page (or something) of the German Democratic Volk. For months now, but especially for the last five From: Z Net - The Spirit Of Resistance Lives or six days, Schaeuble has been threatening the http://www.zcommunications.org/the-drama-of-the- Greeks openly, saying in essence: If you vote for greek-elections-by-nikos-raptis the lefties, you will be punished! What is really

60 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Greece It is no wonder the dominant feelings of ordinary terity program with no sign of ending. Greeks during this period are said to be despair, Not surprisingly, a broad-based revolt in public anger, indignation, insecurity and uncertainty.1 opinion was brewing as the economy imploded These feelings have burst into the media space, with all the attendant social effects. In an attempt with a particular focus on the coverage of an to stabilise itself politically, Pasok in late 2011 increasing number of suicides - some leaving hastily formed a coalition government with New behind explicit political messages describing their Democracy which was tacitly supported by the predicament and personal choice. troika. If the strategic intent was to render a TINA The political debate from 2011 onwards became scenario (there is no alternative) - then it failed increasingly framed around the issue of the spectacularly. New Democracy became clearly forced austerity program upon Greece. As the soiled by the same troika policies and revealed international troika became more concerned that they were the tweedledum to the Pasok tweedle- no Greek government would actually implement dee. SYRIZA had been directly involved in lead- what they had been prescribing for them, they ing many of the protests that were gathering in chose to spell out in ever greater detail exactly intensity and frequency in the urban centres. Far what they had in mind in terms of their austerity from being isolated by this action, SYRIZA was solution. These details were recorded as a set of harnessing the latent opposition. The Communist memoranda and effectively forced upon the Greek Party of Greece (KKE) went down an alternative government. The IMF and other troika partners path by insisting that the masses come to it, and did not even show the minimal courtesy of send- refused to join protest actions which it did not ing senior officials to discuss the terms of the pro- initiate and control. gram with the Prime Minister and other senior cabinet colleagues. Instead, there were dire pro- The Elections of 2012 – nouncements from senior members of other EU Key Outcomes governments and the troika. Quite simply, if the terms were not followed Greece would not receive Collapse of the established two party any financial support and would be pushed out of oligopoly – while the two major parties in 2009 the euro currency zone and possibly even the EU. had captured more than 75% of the national vote, The troika had effectively made the memoranda by May 2012 this had dropped 35%. The chart the new political fault line in Greek politics - you below illustrates how the national vote has now were either for against the memoranda and the been spread across a wider group of parties. This ever vicious cuts they imposed as part of an aus- pattern was evident in both 2012 elections. 1 See for example, http://www.vprc.gr/uplds/File/ Re-establishment of a centre-right coali- teleytaia%20nea/Epikaira/VPRC_Political%20Conjunc- tion government – a coalition government ture%20and%20Government_May2012.pdf ).

Source: Ministry of Interior http://ekloges-prev.singularlogic.eu/v2012a/public/index. html#{“cls”:”main”,”params”:{}} Capitalism in Crisis: Europe, Austerity and the Left, 2012 61 Section II: Politics of Europe’s Crisis was the only possible outcome and the centre- (which brings a bonus 50 parliamentary seats right formed this government. However they also in the 300 seat parliament). However, by June brought in the left-wing Democratic Left party, 2012 some party realignments (and an unrelent- which has already seen senior members breaka- ing scare campaign conducted by the magnate- way as a result of its participation in this coali- owned media) proved effective in consolidating tion. the right-wing vote. Belief in the New Democracy party amongst their core constituency has been The rise of SYRIZA as the second party badly dented by the gross economic and political and dominant opposition force – the evolv- mismanagement of their party. However the June ing picture revealed by the chart below is of SYRI- vote shows their base has recognised the real ZA rapidly growing from a marginal to a major political challenge posed by the Left (in the form party status. By June 2012 SYRIZA had captured of SYRIZA) and have responded by circling the enough of the Pasok and other left vote to have wagons. clearly broken from the pack and to position the Left as the clear parliamentary opposition. Maintenance of the Democratic Left vote – the Democratic Left party is a 2010 right breaka- The collapse of the Pasok political ma- way from SYRIZA. It polled 6% in May and held chine - the spectacular failure of Pasok to protect that vote going into June. This was significant giv- its vote has left it teetering and desperate for en the polarising effect of SYRIZA policies which relevance. Its only real post-election option was saw the Pasok vote collapsing. Unblemished by to again tie itself to a coalition government (albeit corruption such as Pasok, the Democratic Left as a junior partner) and demonstrate that it still was in a good position to attract a part of the commanded power. Of course, the political cost is disaffected Pasok vote. They are now positioned that it will be held jointly responsible for impos- for closer cooperation and possibly merger with ing the harsh conditions of the austerity program segments of Pasok in the future. which remain to be implemented. The re-inven- tion of Pasok is now a political necessity as its Confirmed political arrival of a neo-fas- brand is trashed across the broad spectrum of its cist party – slowly burning on the right margins electoral and industrial base. was a neo-fascist organisation (Golden Dawn) that had polled less than 0.5% of the aggregate Consolidation of the right wing vote national vote in 2009. However, what went large- around New Democracy – on the calcula- ly unnoticed was that it had actually polled more tions of the New Democracy leader, the May 2012 strongly in some deprived areas of Athens with election was supposed to give a clear mandate to a higher than average concentrations of migrants. New Democracy government. In fact, the elec- By May 2012 its support had increased to nearly tion saw the New Democracy vote decimated as 7% and then in June it stayed at 6.9% in the face it collapsed to less than 19% and only just man- of a massive attack from other political parties. aged to beat SYRIZA into the ‘first party’ position

Source: Results from June 2012 national opinion polls conducted by VPRC and reported in Avgi newspaper http://www.avgi.gr/ArticleActionshow.action?articleID=697536 62 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Greece

Three Important Demographic vote exceeded 35% in most of working class districts, declining to 32% in middle districts and Aspects of the Electoral Support less than 15% in higher income districts. How- for Parties ever, SYRIZA support is soft amongst farmers and fisherman reflecting its current weakness in Age-based polarisation – opinion polling organising outside of urban areas and probably shows the two major parties (New Democracy the aging demographic profile of rural areas. New and SYRIZA) are attracting the bulk of their Democracy has its strongest support amongst votes from the opposite ends of the age spectrum. pensioners (reflecting the age-bias), farmers/ SYRIZA is positioning itself as the party of the fisherman and employers/businessman. The future with more than 45% of the 18-24 year old Pasok vote only breaks the 20% barrier amongst vote. However even up to the 45-54 year old age pensioners - many of whom are likely to be rusted bracket, SYRIZA is polling higher than all other on for the duration. The neo-fascist vote (Golden parties. It is not until the mid-50 year old bracket Dawn) is strongest amongst the under-employed that SYRIZA is overtaken by New Democracy. The but also the employers/business-owners. dismal prospects of Pasok are highlighted by its less than 10% support amongst all groups aged The urban/rural divide – has shown the under 45. SYRIZA to be the strongest party in the urban ar- eas (30%) and New Democracy challenging with Class–based polarisation in electoral sup- 26%. Notwithstanding this relative weakness, it port – analysis of opinion polling shows broad needs to be understood that SYRIZA made large based support for SYRIZA across all employment gains in the non-urban areas where it was poll- status groups with the exception of employers/ ing below 10% even in the May 2012 elections. businessman and pensioners. It has a dominant SYRIZA has transformed itself into a party with vote amongst the unemployed, under-employed genuine support across the nation and even into and private and public sector employees. Analysis the furthest areas away from Athens. Meanhwile, of the June 2012 Athens voting results by wealth Pasok barely manages to break the 10% mark in profile of different districts2 shows the SYRIZA 2 As reported in Avgi newspaper http://www.avgi.gr/ continued next page ... ArticleActionshow.action?articleID=697536 Capitalism in Crisis: Europe, Austerity and the Left, 2012 63 Section II: Politics of Europe’s Crisis SYRIZA’s PROPOSALS: The Exit From the Crisis Is On the Left Global Research, June 1, 2012 Socialist Project • European regulations on the debt of European states. 1. Creation of a shield to protect society • Radical changes to the European Central against the crisis: Bank’s role. • Not a single citizen without a guaranteed • Prohibition of speculative banking products. minimum income or unemployment benefit, • A pan-European tax on wealth, financial trans- medical care, social protection, housing, and actions, and profits. access to all services of public utilities. • Protection of and relief measures for indebted 3. Income redistribution, taxation of households. wealth, and elimination of unnecessary expenses: • Price controls and price reductions, VAT reduction, and abolition of VAT on basic-need • Reorganization and consolidation of tax col- goods. lection mechanisms. 2. Disposal of the debt burden: • Taxation of fortunes over 1-million euros and large-scale revenues. The national debt is first and foremost a product • Gradual increase, up to 45%, of the tax on the of class relations, and is inhumane in its very distributed profits of corporations (SA). essence. It is produced by the tax evasion of the wealthy, the looting of public funds, and the • Taxation of financial transactions. exorbitant procurement of military weapons and • Special taxation on consumption of luxury equipment. goods. We are asking immediately for: • Removal of tax exemptions for ship owners and the Greek Orthodox Church. • A moratorium on debt servicing. • Lifting of confidentiality for banking and mer- • Negotiations for debt cancellation, with provi- chant transactions, and pursuit of those who sions for the protection of social insurance evade taxes and social insurance contribu- funds and small savers. This will be pursued tions. by exploiting any available means, such as • Banning of transactions carried out through audit control and suspension of payments. offshore companies. • Regulation of the remaining debt to include provisions for economic development and employment. continued next page ... Adam Rorris continued ... The electoral arrival of the Left as a truly large urban centres and is now relying on an ageing national force will pose a challenge in the future population in rural areas to help carry it through as to how it accommodates the different needs of a political survival stage. diverse communities and how it will give internal democratic expression to views and expectations Challenge to the Left and Right of these supporters. An organisational transfor- Time and the dictates of the troika will be the mation of SYRIZA from a coalition towards a biggest challenge to the centre-right coalition more mass-based individual membership model government. If the economic crisis continues to is now being discussed with initial proposals bite, social cohesion will fray even further and suggesting the transformation be completed by the centre-right claim to be the only ones capable mid-2013. If SYRIZA can successfully manage of providing effective shelter from the storm will this transformation process, they will (i) be bet- be even less credible. The determination of the ter positioned to form the next government, and troika to push through with its austerity program (ii) have the structures in place to defend that is coming under increasing challenge, and yet government from the political/economic attack there is no sign from the real players that Greece that will surely come from within and outside the will be let off the hook. country.

64 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Greece SYRIZA’s proposals continued ... We are calling for: • Pursuit of new financial resources through ef- • The restoration of popular sovereignty and an ficient absorption of European funds, through upgrade of parliamentary power within the claims on the payment of German World War political system: II reparations and occupation loan, and finally o Creation of a proportional electoral system via steep reductions in military expenses. o Separation of powers 4. Productive social and environmental o Revocation of ministerial immunity reconstruction: o Abolishment of economic privileges for • Nationalization/socialization of banks, and MPs. their integration into a public banking system • Real decentralization to create local govern- under social and workers’ control, in order to ment with sound resources and expanded serve developmental purposes. The scandal- jurisdiction. ous recapitalization of the banks must stop im- • The introduction of direct democracy and in- mediately. stitutions of self-management under workers’ • Nationalization of all public enterprises of and social control at all levels. strategic importance that have been privatized • Measures against political and economic cor- so far. Administration of public enterprises ruption. based on transparency, social control, and • The solidification of democratic, political, and democratic planning. Support for the provi- trade union rights. sion of Public Goods. • The enhancement of women’s and youths’ • Protection and consolidation of co-operatives rights in the family, in employment, and in and SMEs in the social sector. public administration. • Ecological transformation in development of • Immigration reforms: energy production, manufacturing, tourism, and agriculture. These reforms will prioritize o Speeding up the asylum process nutritional abundance and fulfillment of social o Abolition of Dublin II regulations and needs. granting of travel papers to immigrants • Development of scientific research and pro- o Social inclusion of immigrants and equal ductive specialization. rights protection. 5. Stable employment with decent wages • Democratic reforms to public administration and social insurance: with the active participation of civil servants. • The demilitarization and democratization of The constant degradation of labour rights, cou- the Police and the Coast Guard. Disbandment pled with embarrassing wage levels, does not of special forces. attract investment, development, or employment. 7. Restoration of a strong welfare state: Instead, we are calling for: • Well-paid, well-regulated, and insured em- Anti-insurance laws, the shutdown of social ployment. services, and the steep fall in social expenditures under the Memorandum have turned Greece into • Immediate reconstitution of the minimum a country where social injustice reigns. wage, and reconstitution of real wages within three years. We are in need of: • Immediate reconstitution of collective labour • An immediate rescue of the pension system, agreements. to include tripartite financing and the gradual • Instigation of powerful control mechanisms consolidation of separate pension fund portfo- that will protect employment. lios into one public, universal system of social insurance. • Systematic opposition of lay-offs and the de- regulation of labour relations. • A raise in unemployment benefits until the substitution rate reaches 80% of the wage. No 6. Deepening Democracy: democratic po- unemployed person is to be left without unem- litical and social rights for all: ployment benefits. There is a democratic deficit in the country. • The introduction of a guaranteed minimum Greece is gradually being transformed into an income. authoritarian police state. continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 65 Section II: Politics of Europe’s Crisis SYRIZA’s proposals continued ... • Aiding the Cypriot people in the reunification of the island. • A unified system of comprehensive social pro- Furthermore, on the basis of international law tection covering the vulnerable social strata. and the principle of peaceful conflict resolution, we will pursue improvements in Greek-Turkish 8. Health is a Public Good and a social relations, a solution to the problem of FYROM’s right: official name, and the specification of Greece’s Health care is to be provided for free and will be Exclusive Economic Zone. financed through a Public Health System. Imme- The incumbent economic and social system has diate measures include: failed and we must overthrow it! • Support and upgrades for hospitals. Upgrade The economic crisis that is rocking global capital- of health infrastructures of the Social Insur- ism has shattered the illusions. More and more, ance Institute (IKA). Development of an inte- people understand that capitalist speculation is grated system of first-level medical care. an inhuman organizational principle for modern • Covering the needs of medical treatment in society. It is also widely acknowledged that the both personnel and equipment, in part by private banks function only for the benefit of the stopping lay-offs. bankers, harming the rest of the people. Big busi- • Open and cost-free access to medical treat- ness and bankers absorb billions of euros from ment for all residents in the country. health care, education, and pensions. • Free pharmaceutical treatment and medical An exit from the crisis requires bold measures examinations for low-income pensioners, the that will prevent those who created the crisis from unemployed, students, and those suffering continuing their destructive work. We are endors- from chronic diseases. ing a new model for the production and distribu- 9. Protection of public education, re- tion of wealth, one that will include society in its search, culture, and sports from the totality. In this respect, the large capitalist prop- Memorandum’s policies: erty is to be made public and managed demo- cratically along social and ecological criteria. With regards to education, we are calling for: Our strategic aim is socialism with democracy, a • Consolidation of universal, public, and free system in which all will be entitled to participate education, including coverage of its urgent in the decision-making process. needs in infrastructure and personnel at all We are changing the future; we are pushing them three levels. into the past! • Compulsory 14-year unified education. We can prevail by forging unity and creating a • Revocation of the Diamantopoulou Law. new coalition for power with the Left as a cor- • Assurance of self-government for Universities. nerstone. Our strength in this endeavour is the • Preservation of the academic and public char- alliance of the People: the inspiration, the creative acter of Universities. effort, and the struggle of the working people. With these, we will shape the lives and the future 10. An independent foreign policy commit- of a self-governed people. ted to the promotion of peace: Now the vote is in the hands of the People! Now The capitulation of our foreign policy to the the People have the power! desires of the U.S. and the powerful states of the European Union endangers the country’s inde- In this new election, the Greek people can and pendence, peace, and security. must vote against the regime of the Memoranda and the Troika, thus turning over a new page of We propose: hope and optimism for the future. • A multi-dimensional and peace-seeking for- For Greece and for Europe, the solution is with eign policy. the Left! • • Disengagement from NATO and closure of Available: http://globalresearch.ca/index. foreign military bases on Greek soil. php?context=va&aid=31179 • Termination of military cooperation with Israel.

66 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Portugal Portugal’s “Indignados” Maria Joana Gomes Oct 23 2011

Under the heat of the warm sun on a late summer and peaceful, and attracted more than just young Saturday, I left my house in Vila Real and trav- college men and women to its ranks. It brought elled the one hundred kilometers that separate it more than 150,000 people together in Lisbon and from Porto, Portugal’s second biggest city, where 80,000 in Porto on 12 March, though it failed a demonstration of the Fifteenth of October to gather the same momentum as in Spain or Movement was supposed to take place. Here in Greece, for instance. my hometown, where pro-government parties Although Portugal did not have a self-immolating have ruled since the Carnation Revolution, a coup Mohamed Bouazizi of its own, the country of led by leftist mid-rank army officers which ended fado has witnessed dramatic changes between 12 forty-eight years of dictatorship on 25 April 1974, March and 15 October. The rejection by the oppo- no demonstrations were scheduled and the few sition parties of a fourth set of austerity measures “indignados” had to go on their own to Porto, brought about a political tsunami leading up to where a major demonstration and a popular as- parliamentary elections on 5 June. The election sembly were to take place later on that same day. outcome carried away the two-term prime min- The demonstrators started to gather in Batalha ister José Sócrates (who had come to be known Square around 3 pm. The crisis and the absence as the Portuguese version of Tony Blair) and his of a clear political structure permitted endless center-right “socialist” party. Instead, it brought creativity when it came to slogans and posters. to power a right-wing neoliberal government Many participants held hand-made cardboard headed by Pedro Passos Coelho, a Portuguese im- signs where they wrote their own improvised personator of David Cameron, who opened wide lines of protest. But if the forms were multiple, the door for the draconian measures of the so the content was identical: frustration, pessi- called “Troika” (the World Bank, IMF, and EU). mism, and resentment directed against corrupt Passos Coelho has been eagerly and earnestly im- politicians and austerity measures. However, the plementing even tougher austerity measures with number of participants was not as big as was ex- little parliamentary opposition. Portuguese jour- pected: 100,000 in Lisbon and 20,000 in Porto. nalists and economists are very skeptical these This was a significant outcome, one might say, days, and are constantly warning of an inevitable but far from the level of attendance at the demon- recession and upcoming chaos. strations of 12 March 2011. Classified as one of the poorest countries and To go back to that earlier time, two major mo- also as one of the most unequal countries in the ments helped in shaping the Portuguese “indig- European Union, the Portuguese know that they nados” movement. First were the then-ongoing have all the reasons in the world not to be san- protests in Cairo and Tunis. Then there was the guine about their country anymore. Salaries have release of a song by the Portuguese group “De- been cut, taxes on essential goods like electricity olinda” about the sad predicament of the un- and gas have increased from six to twenty-three derpaid and highly educated young generation. percent, civil servants will receive neither holiday This song, entitled “Que parva que eu sou!” (How subsidies nor thirteenth month subsidies, and stupid I am!), rang so familiar to young people private workers will be obliged to work an extra in their twenties and thirties that it was rapidly thirty minutes every day. At the same time, the adopted as a hymn of the protest movement. So government utterly refuses to impose higher tax inspiration was not lacking, and young people rates on the wealthy. All this, together with a decided to take to the streets against all forms of highly restrained state budget, will push the econ- the exploitation that they have experienced in the omy to abysmal levels, similar to that of 1975. last decade, namely low wages, precarious work- Here history has something else to tell: 1975 was ing contracts, non-paid extra working hours, and the year after the Carnation Revolution. Amidst alarmingly rising unemployment rates. Under the civil and military unrest and right-wing extrem- banner “Geração à Rasca” (which can be approxi- ist terrorist attacks, a different troika—a socialist mately translated as “Precarious Generation”), troika—formed by the prime-minister Vasco Gon- this heterogeneous movement, very similar in its essence to those behind the Arab Spring continued next page ... protests, defined itself as secular, non-partisan, Capitalism in Crisis: Europe, Austerity and the Left, 2012 67 Section II: Politics of Europe’s Crisis STRIKE BRINGS PORTUGUESE SERVICES TO A HALT aljazeera March 22, 2012 Union group calls for general strike against Some taxis in Lisbon sported black ribbons in austerity measures amid fears eurozone country solidarity with the strikers. could need second bailout. While public services were widely affected, how- A 24-hour union strike against austerity meas- ever, most banks, restaurants, supermarkets and ures has brought public services to a stand-still in pharmacies in the Portuguese capital remained Portugal. open. Thursday’s strike, the second in four months, is in Al Jazeera’s Barnaby Philips, reporting from Lis- protest against the broad cost-cutting measures bon, said that protest participation through the agreed to by the government of President Aní¬bal first half of the day had been “patchy”. Cavaco Silva in return for an international bailout of the recession-hit economy. Widespread protests planned “The participation rate is strong in the public “The strike is useless and it hurts the country,” transport sector, among garbage collectors and said Pedro, a waiter in his thirties at a Lisbon the health sector,” Armenio Carlos, secretary cafe, adding business was not down. Protest video general of the Confederation of Portuguese Work- says austerity threatens social gains ers (CGTP), the group organising the strike, told Camilo Lourenco, a financial commentator, is also reporters on Thursday. sceptical of the effectiveness of the strike. Speak- The union is opposed to government austerity ing to Al Jazeera, Lourenco said that in times of measures such as the elimination of public em- economic downturn, “people are willing to stick ployees’ Christmas and vacation bonuses - each to their jobs and get whatever salaries they can roughly equivalent to a month’s pay - in an effort other than being unemployed”. She cited a sense to rein in the public deficit. of fear in a country where 300,000 people receive food aid from charitable organisations every day. Public transportation in the capital, Lisbon, and Oporto - Portugal’s second-largest city - were Demonstrations and rallies are also planned for closed, forcing tens of thousands of commuters to 38 cities and towns across the country, including find an alternative way to get to work or school. Lisbon, Evora and Coimbra. The majority of ports, including those in Lisbon The CGTP, which organised the protests, put up and Viana do Castelo in the north, were also posters and banners in recent days across Lisbon closed. urging workers to take part in the strike. The Lisbon airport however, has remained open. The 600,000 strong group, with connections to On the streets, garbage went uncollected in sev- the nation’s Communist party, organised a similar eral cities including Lisbon and its suburbs. strike in February to protest against a reform of the labour code making it easier to hire and fire In the southern city of Evora, famed for its Ro- workers. man ruins, garbage lined the streets. “Dozens” of schools were shut according to Carlos, head of the continued next page ... nation’s largest union.

Portugal’s ‘Indignados’ continued ... çaves, the President of the Republic Costa Gomes, can give us some help with the weather, but in and Otelo Saraiva de Carvalho, who had played a the end, it is all in our hands: the new Portuguese directing role in the revolutionary coup and was “indignados.” at the time commander-in-chief of a newly cre- First published: Jadaliyya ated military department, was ruling the coun- try. Portugal seemed to be heading fast towards Available: http://www.jadaliyya.com/pages/in- becoming the first communist country of Western dex/2923/bashful-indignados_chronicle-of-a-portu- Europe. Could it be that history here repeats it- guese-prote self, and the fights of our parents will become our own? Will we re-enact the Hot Summer of 1975 throughout the Winter of 2012? Climate change 68 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Ireland LEFT GAINS IN IRELAND James O’Nions

27 February 2011: Five deputies for the that would not otherwise have happened, there United Left Alliance, while Sinn Féin will surely be serious reflection going on in the takes at least 13 party after these sobering results. Elections to Ireland’s lower house, the Dáil, have Left-republican Sinn Féin more than tripled its seen a jump in representation for the left, while share of the vote, with Gerry Adams elected with also rewarding Ireland’s Tories. The vote for 22 per cent of first preferences in Louth. In an Fianna Fáil, Ireland’s traditional party of govern- amusing aside, David Cameron’s office was forced ment, slumped, leaving them with less than half to apologise to Adams after he resigned from his the 77 seats they had before. Westminster seat to run in the Irish republic’s Fine Gael, now the largest party, is likely to seek a election. Technically MPs are not allowed to re- coalition with Labour, which has beaten its previ- sign, so the traditional way of allowing them to do ous highest seat tally and seen a big jump since so is to give them the office of Crown Steward and the last parliament. Yet it has done so largely with Bailiff of the Manor of Northstead. This is an “of- the votes of people opposed to austerity, which fice of profit under the crown” which makes them Fine Gael is committed to continuing, albeit with ineligible to sit in the House of Commons. Cam- some cosmetic changes. eron’s office claimed he had accepted the post, prompting Adams to reply: “I simply resigned. I Ireland uses proportional representation in was not consulted nor was I asked to accept such multi-seat constituencies of between three and an office. I am an Irish republican. I have had five seats. The Single Tranferable Vote system is no truck whatsoever with these antiquated and somewhat complex, and voting is still continuing quite bizarre aspects of the British parliamentary in some constituencies, but the overall picture is system.” now clear. The United Left Alliance, which was put together The Greens lost all six of their seats. They were hurriedly at the end of last year, is mainly made widely criticised on the left for supporting spend- up of the Socialist Party and the Socialist Workers ing cuts in coalition with Fianna Fáil. While Party-dominated People before Profit Alliance. they’ve continued to publicly justify their decision to go into the coalition by citing green reforms continued next page ...

Portuguese strike continued ... Portugal’s centre-right coalition government is Unlike the last general strike held in November, racing to implement the bailout terms while grap- Thursday’s action lacked the backing of the euro- pling with the worst recession since its return to zone nation’s second- biggest union, the histori- democracy in 1974, after decades under dictator- cally more moderate General Workers Union ship. (UGT), which reached an agreement with the The Portuguese economy is expected to contract government over the labour law reforms. by 3.3 per cent this year, after shrinking by 1.6 Lisbon is locked into a three-year programme of percent in 2011. Unemployment is expected to be debt- reduction measures and economic reforms pushed to a record 14.5 per cent. For the youth, in return for a 78- billion-euro ($103 billion) that unemployment rate is “considerably higher” financial rescue package from the European Un- than the nation-wide average, said Al Jazeera’s ion and the International Monetary Fund (IMF) Philips. agreed in May 2011. Portugal has vowed to limit its public deficit to 4.5 Portugal was the third EU country after Greece per cent of its gross domestic product this year and Ireland to receive such a bailout. and to within the EU’s limit of three per cent in 2013. The strike comes amid rising concern among ana- First published: Al Jazeera lysts and investors that the country, like its fellow eurozone member Greece, will need a second bail- Available: http://www.aljazeera.com/news/eu- out. The government strongly denies that such an rope/2012/03/2012322131751664866.html intervention would be needed. Capitalism in Crisis: Europe, Austerity and the Left, 2012 69 Section II: Politics of Europe’s Crisis A PYRRHIC VICTORY Gerry Adams June 4, 2012 In an earlier European campaign 2000 years ago made their anger clear. It is also obvious that so- King Pyrrhus of Epirus suffered such heavy casu- cial class played a part with the NO vote greatest alties at the hands of the Romans that his appar- among those working class and low and middle ent military victories ultimately led to his defeat. income families bearing the brunt of this Govern- ment’s austerity policies. Out of that experience the phrase pyrrhic victory came into common usage and was used to de- This blog believes that the success of the YES scribe someone who has been successful in some side in this latest European campaign is a pyrrhic activity, usually politics, business or war, but the victory. The adverse economic and social conse- cost has been so great that it was ruinous to the quences for the Irish people will not ease in the overall project. years ahead and the battle of ideas between those who advocate austerity and conservative policies, And so it is with the referendum of the auster- over those who seek to defend the rights of citi- ity treaty. The people have spoken and the Fiscal zens and the creation of a more equitable society, Compact Treaty will now become part of the Irish will increase in intensity. constitution. But the success of the YES side does not make the arguments of the NO campaign any This has been evident in recent days in the shal- less true and in the view of this blog will lead to low and bitter criticisms that some on the YES a worsening of the social and economic circum- side have engaged in since the referendum result. stances for most Irish citizens. One columnist indulged in the usual nonsense when she described the outcome for Sinn Féin as In the face of a deliberate campaign by the two ‘humiliating’. government parties, supported by Fianna Fáil, built on fear, 40% of the electorate still said NO. And many of those who reluctantly voted YES continued next page ...

Left gains in Ireland continued ... electoral alliance or becomes something more concrete remains to be seen. In theory, its two However, one of its five elected deputies, Séamus main constituents (who are allied to parties of the Healy, is the key figure in the Tipperary-based same name in Britain) are fairly close politically. Workers and Unemployed Action Group. Yet they come from political traditions which tend Healy was elected first in the three-seat Tipperary to regard their own particular brand of trotskyism South constituency, as was the Socialist Party’s as sacrosanct. Joe Higgins in Dublin West. Higgins made a Since its breakthrough in 2009, the Left Party in breakthrough in the European elections in 2009 Germany has been copied in various places across when he beat sitting Sinn Féin MEP Mary Lou Europe, but the model the ULA would perhaps MacDonald to the third Dublin euro-seat. He has be better looking to is the Left Bloc in Portugal, also been a Dáil deputy before, though not in the which started as an agreement between two small last parliament, and is a popular figure in Dublin far-left groups and now has 10 per cent of the for his role in the campaign against the Bin Tax. MPs in Portugal’s parliament. The Socialist Workers Party’s Richard Boyd- Yet while the left has been strengthened electoral- Barrett just made it as the last of four deputies ly, with a Fine Gael/Labour government unlikely from the Dublin constituency of Dun Laoghaire. to upset the IMF and Europe’s neoliberal estab- It was a run-off between him and Ivana Bacik for lishment (which in any case Fine Gael are part of) Labour, but once she was eliminated, her votes it will be popular mobilisation that still counts in transferred to him - though not before she had the months to come. demanded a recount. First Published: Red Pepper Given the nature of their breakthrough, the United Left Alliance must now consider what Available: http://www.redpepper.org.uk/left-gains-in- kind of left reorganisation it wants to pursue. ireland/ Undoubtedly the ULA will become a more endur- ing formation, but whether it remains a simple 70 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Ireland The issues at the heart of the referendum haven’t Time will tell how accurate his predications are. gone away because of the success of the YES side. However, the government did make a number of On the contrary the dangers are greater than ever. firm commitments during the referendum cam- The Irish government and its Fianna Fáil ally are paign. One was the Minister of Finance’s pledge committed to more years of austerity policies and that a YES vote would mean that December’s of the erosion of the state’s fiscal sovereignty. At budget would be less harsh. Another was Fine the same time the situation in Europe deterio- Gael and Labour’s belated support for a jobs and rates with increasing uncertainty around devel- growth package. opments in Spain and Greece, Cyprus in trouble They now have to deliver. They need to demon- and new unemployment statistics revealing that strate – in actions rather than words – how they unemployment in the Eurozone now stands at intend to address the jobs crisis, the mortgage record levels at 11%. crisis, and get the economy growing again so that The European political leadership, which is we get back into the markets by 2014. shielded from the reality of austerity and the The Government also has a duty to stand up for impact of the policies they promote, continue to Ireland and to ensure that the banking debt issue promote their conservative ethos. is dealt with by seeking a debt write down. On the same day citizens were voting on the It is important that they introduce the type of austerity Treaty the EU Commissioner Olli Rehn jobs stimulus that was talked about during this was busy warning in Brussels that Europe needed campaign – unless there is serious investment in more austerity and greater fiscal discipline. job creation the numbers of citizens on the live Previously the head of the European Central Bank register and emigrating will continue. Mario Draghi set out his vision for Europe in the Sinn Féin has published firm proposals for a next ten years. He said: “We want to have a fiscal significant jobs stimulus package and in the time union. We have to accept the delegation of fiscal ahead we will set out the detail of this. But this is sovereignty from the national governments to only part of what we must do. Republicans have some form of central authority.” a different vision for Ireland. We are for a new And his predecessor Jean-Claude Trichet is republic that is citizen centred and is based on reported to have told a meeting in the USA last equality and fairness. There is an onus on Sinn month that Europe should take on to itself the Féin to articulate this and to continue to evolve right to declare a sovereign state bankrupt and and develop our republican politics and policies take over its fiscal policy. He pointed out that the and demonstrate that there is a viable alterna- Austerity Treaty gives fiscal oversight to EU states tive to the conservatism of Fine Gael, Labour and to levy fines on those they deem to have broken Fianna Fáil. the rules. If all of this failed a country could be In the short term June will be a pivotal month in taken in receivership!! determining the future of the EU and of the Irish So the direction for Europe and for the Irish state state. The French Parliamentary elections will under this government is set. Greater economic take place on June 10 and 17th; the IMF is due and fiscal union, and the erosion of sovereignty to publish an all important report on the Span- for member states. All of this will be accompanied ish banks on June 11th; the Greeks go back to the by a continuation of the Troika bailout pro- polls on June 17th; and EU leaders will meet on gramme that commits this government to €8.6 June 28th and 29th to produce their blueprint for billion of additional cuts for the next three years the way forward. and a further €6 billion in cuts as a result of the First published: Léargas austerity Treaty’s demand for reducing the struc- tural deficit to 0.5%. Available: http://leargas.blogspot.com.au/2012/06/ pyrrhic-victory.html Where does the government plan to get all this money from? It singularly failed to say during the referendum campaign. One YES economist Colm McCarthy – who produced the ‘An Bord Snip Nua’ report - told the Irish Small and Medium Firms Association at the weekend that the gov- ernment will have to break all of its commitments not to raise income tax; not to touch welfare and to honour the Croke Park agreement. Capitalism in Crisis: Europe, Austerity and the Left, 2012 71 Section II: Politics of Europe’s Crisis LOS INDIGNADOS: the emerging politics of outrage Paolo Gerbaudo on the protests that have swept southern Europe Back in 2001, after borrowing more than any ing sun, and to house the different committees other developing nation, Argentina’s credit rat- managing the camp. ings plunged, pushing it to the brink of default. A giant L’Oréal billboard towering over the square An enraged population converged on the central was defaced by a huge banner affirming ‘No nos Plaza de Mayo, in front of the presidential palace, representan’ (they do not represent us), and the banging spoons on pots and shouting ‘Que se camp soon filled with thousands of hand-written vayan todos!’ (they should all go). On 21 Decem- placards, banners and post-its, while political and ber, President De la Rúa was eventually forced to union flags were banned. escape by helicopter. Tweets using hashtags such as #spanishrevolu- Ten years after the events in Argentina, the tion, #acampadasol, #yeswecamp and #europe- scenario of popular revolt has shifted from South anrevolution helped the movement make ripples America to southern Europe, whose countries across the world; solidarity camps were erected have seen their own credit ratings fall in the on five continents. In the meantime the indig- wake of the global financial crisis. In the past two nados proliferated at the local level, with camps months Spain and Greece have seen the birth of reaching the most remote towns of Castilla and a popular movement calling itself ‘Los indigna- Andalusia, and tens of neighbourhood assem- dos’ (the outraged), after the title of a pamphlet blies being born in the metropolitan areas. On 19 authored by the nonagenarian former French re- June, more than half a million people marched in sistance fighter Stéphane Hessel, calling on young Madrid to present their demands to parliament. people to act against the follies of the financial Further demonstrations took place in Barcelona, markets. Valencia, Las Palmas, Bilbao, Sevilla, Málaga and Inspired by the Arab Spring, they have set up pro- numerous other cities. test camps in symbolic squares like Puerta del Sol In the meantime, the movement had moved in Madrid, Plaça de Catalunya in Barcelona and across the Mediterranean to Greece. After so Syntagma Square in Athens. And their adherence many general strikes and street battles with the to nonviolent principles has earned them broad police had proven incapable of halting the auster- support among a public grown resentful of the ity drive of Papandreou’s government, the Greeks economic system and distrustful of democratic found inspiration in the nonviolent and popular institutions that appear to have been emptied out character of the Spanish movement. of all power. On 25 May, following a call made through a Momentous protest wave Facebook page, thousands of people converged Few journalists in Spain had taken notice of the on Syntagma, where they set up their own camp protests called for 15 May 2011 by Democracia to oppose a new bailout package offered by the Real Ya! (Real Democracy Now!), a citizen grass- International Monetary Fund and the European roots organisation started a few months before Union. and supported by around 200 civil society or- Pulsing hearts ganisations. On the day a total of 100,000 people marched in different cities across Spain to ask for The pulsing hearts of the indignados movement changes in electoral law and economic policy. in both Spain and Greece have been its popular assemblies. Beginning in the evening and often In Madrid the police responded with truncheons continuing well into the night, they have seen to a sit-in set up in the Gran Via avenue. In pro- people of all ages and walks of life sharing their test around 100 people decided to camp over- anger at the economic impasse, the loss of jobs night in central Puerta del Sol. That was to be the and the state of countries that feel they have been beginning of a momentous wave of protest. betrayed by the political class. The following day hundreds more gathered in Spain and Greece are among the countries that Puerta del Sol, and by the day after that they had have been experiencing the harshest consequenc- become thousands. In imitation of Tahrir Square es of the financial crisis in Europe. In Spain, since in Cairo, activists set up a haphazard cluster of the phenomenal crash of the building sector in blue tents to protect participants from the scorch- 2008, the government of José Luis Zapatero has

72 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Spain put forward a series of draconian austerity meas- to dissolve all parties. This might not represent ures. These include a rise in the pension age to the spirit of the square as a whole. But definitely 67, a deep reduction in public employees’ salaries left parties are not going to earn many votes as a and a 9 per cent cut in public spending approved consequence of this protest.’ in the last budget alongside pro-employer labour reform. Meanwhile, unemployment is stuck at 20 Beyond the protest camps per cent and according to recent figures 43.5 per Highly critical of what they see as corrupt political cent of young people don’t have a job. institutions and suspicious towards unaccounta- The situation is even harsher in Greece. Despite ble parties and trade unions, the indignados have the protests, the country is now facing the conse- found some reasons for hope in assembly democ- quences of a second bailout package, which will racy. At the same time, they are not as naive as probably total €110 billion, the same as the one some media have portrayed them, and are well given in 2010. To appease the IMF and the Euro- cognisant of the fact that the only way to secure pean Central Bank, the Papandreou government social change is via deep reform of the democratic has recently approved a new, fifth round of aus- institutions they have lost trust in. Thus, topping terity measures. The plan includes 150,000 public the official demands of the assemblies in Spain sector job cuts and a €50 billion programme of and Greece are proposals for constitutional and privatisation of public assets. Among them is the electoral reform whose rationale is seemingly to Piraeus port, the biggest in the Mediterranean. regain some form of national sovereignty after years of market-led globalisation. Many analysts believe that the new bailout plan will not stop Greece from defaulting and will only This ‘back to the nation’ strategy is causing a lot make its recovery slower and enable the banks to of concern among some on the left and those who get their money back at the expense of the tax- had been at the forefront of anti-globalisation payer. In the meantime, recorded unemployment protests. Such a turn is quite understandable, in the country remains above 15 per cent, and given that it is at the national level that the man- after the new public sector job cuts it is forecast to agement of the economic crisis and the politics of reach the same level as Spain. austerity are unfolding. But it raises questions as to whether the real solution to the problems faced Talking with people in the protest camps, one by southern European countries is simply to exit can see how these numbers translate into a daily from a European Union identified with the euro, experience of personal hardship. ‘I am glad to be as some of the indignados (especially in Greece) here also because there is something to eat and seem to believe, or rather to refound Europe on somewhere to sleep,’ admits Dimitris, a 26 years- democratic and social grounds as it is argued by old social worker I met in Syntagma Square, others in the movement (particularly among the who is struggling to live on the €400 monthly Spaniards). benefit given by the Greek state. The situation is not rosy for those who are in employment either. Now that most of the protest camps have ended ‘My friends tell me you should be happy: at least (though the Syntagma camp was continuing as you have a job!’ says Laura Blanco, a 28-year-old Red Pepper went to press, despite the approval social researcher camping at Puerta del Sol. ‘But of the new austerity package), the indignados how can I be, when most of the money goes away are looking for new ways to harness public at- with the rent and bills?’ tention. In Spain, walking and cycling caravans Part of a ‘lost generation’ who have seen labour are already leaving from different cities to head rights and welfare entitlements progressively towards the capital, gathering support and vanish as a consequence of neoliberal policies, the proposals on the way. The movement was due to indignados are critical not only of the right but assemble in Puerta del Sol in late July to present also of the organised left. The governments they its demands to the people as much as to parlia- oppose in Spain and Greece are in fact headed ment. In both Spain and Greece, the indignados by Socialist politicians. But the trade unions and movement will face an uphill struggle to turn its parties of the radical left, such as Izquierda Unida impressive popular support into concrete political in Spain and Syriza and the Communist Party results, but it has already succeeded in creating (KKE) in Greece enjoy little credibility either. political institutions of a new kind. ‘There is quite a lot of distrust towards parties,’ First published: Red Pepper, August 2011 says Sissy Vovou, a member of the Greek Syriza Available: http://www.redpepper.org.uk/los-indigna- who has been active at the Syntagma camp. ‘One dos/ of the resolutions of the assembly here was even Capitalism in Crisis: Europe, Austerity and the Left, 2012 73 Section II: Politics of Europe’s Crisis SPAIN: ONLY THE RESISTANCE OFFERS HOPE

From the ‘indignados’ to elections and general Previously, in May, local and regional elections strikes, Javier Navascués reflects on growing had already resulted in a significant defeat of the resistance to neoliberalism and austerity across Socialist Party as expected. But with this also Spain came the unexpected: the eruption of the ‘indig- nados’, who stepped onto the stage during the Already shattered by the mishaps of Greece, electoral campaign. Ireland and Portugal, the single currency could be in real danger of collapse if contagion extends Hundreds of thousands marched in the streets all to Spain. That is why the European Commis- over Spain and occupied public spaces, from tiny sion, the ECB, chancellor Merkel and president villages and working class neighbourhoods to the Sarkozy keep a keen eye on Spanish affairs, and most centric squares in large cities. They aimed keep pressing the recently elected government of their criticism towards the banks, the markets Mariano Rajoy to pursue a very strict agenda of and the EU, but also towards the political and austerity and cuts. But recent developments in electoral system, including the unions and the Spain could prove that’s it’s no easy undertaking. traditional left. It is Spain’s economic size that makes the possible The movement itself was very pluralistic and un- effects of a Spanish default much more frighten- defined at the beginning. General criticism of the ing than the above-mentioned cases. Spain is malfunction of formal democracy and rejection of suffering the hangover of a real estate bubble neoliberal policies blended with naive apoliticism triggered by deregulation and fuelled by cheap and the desire to behave ‘nicely’. The movement money, courtesy of the single currency. Now was radical enough to openly defy the electoral burst, it has left behind a mountain of private courts when they banned the demonstrations the debt: businesses and households owe to Span- day before the elections, but some controversial ish banks and these in turn owe to their foreign questions were left off the agenda, such as the war (mostly French and German) colleagues, to the on Libya. tune of well over 800 billion euros (£650 billion). The movement had very little electoral impact Here lies the risk - a default could affect seriously in May - only an increase in blank and null votes these large lenders. and a proliferation of tiny groups which ran in the During 2009 there was a timid attempt to cope elections but got no significant results. But there with the crisis by replacing dismal private invest- was a sensible political effect: in August, after be- ment with public expenditure. But as in many ing summoned by Sarkozy, Merkel and the ECB, other countries - with the valiant exception of Ice- president Zapatero set out to amend the consti- land - the largest efforts were devoted to keeping tution to enshrine the absolute priority of debt the banks afloat, and there was not enough public repayments over any other commitment. money for both. By the end of the year the EU was Socialist and Conservative leaderships supported back to stability as usual and austerity began. the amendment and agreed to carry it out through In May 2009 came a 5 percent cut in public serv- an urgent procedure. They did not want to risk ants’ pay, the freezing of public pensions and opening a public debate on the constitution two reform of the labour laws. This triggered the first months after thousands of people had marched sign of resistance on September, a general strike in the streets crying ‘there is no democracy when called reluctantly by the large unions that was markets rule!’ The radical left and the unions more a half-hearted blaze than a sustained fire, strongly opposed the change. So did speakers as their leadership feared an eventual Conserva- from the ‘indignados’, and the topic started trend- tive takeover in the coming elections. In January ing on the social networks. 2011, these same leaders accepted a reform of the In November, the Popular Party gained an abso- public pension system, selling it as the lesser evil. lute majority in the general elections. This was Consequently their credit sunk with Zapatero’s. the result of a mass defection of Socialist voters The radical left and the smaller more militant - the Socialists’ vote fell by 4.3 million compared unions appeared too weak to pose any threat, and to 2008, while the Conservatives only grew by the Popular Party began to bank on victory in the 600,000. general elections which were to take place by the The United Left (a broad-based left coalition in- end of 2011. cluding, but not limited to, Communists) almost 74 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Spain doubled its share and jumped from 2 to 11 seats, their toll less than three months since he gained which could be read partly as fall-out from the office. ‘indignados’ movement. Five days later, the general strike turned out to The new government immediately launched a be very successful, especially among industrial, reinforced agenda of austerity and deregulation, transportation, construction and, in general, blue which was warmly welcome by the powers-that- collar workers who massively followed the call, be in Europe: the ECB, Merkel and Sarkozy, and not withstanding the years of passivity. The same David Cameron by the way. Out of the need to cannot be said of public servants, where the num- comply with the deficit target came a new cut ber of strikers was less significant. Nevertheless in public expenditure of 1.5 percent of GNP. the country was almost paralysed. Education, healthcare and social services run As is usual in Spain the strike ended in marches, by conservative regional governments were also attended this time by hundreds of thousands all downsized, and some services which used to be over the country. Rank-and-file trade unionists free began to be charged for. Along with this came marched alongside thousands of young people another reform of labour law which set out to who had taken part in the ‘indignados’ move- destroy all the major achievements in labour rela- ment, in a spirit of unity. Activists who had been tions, including collective bargaining and protec- trying to bridge the movements, with little suc- tion against arbitrary layoffs. cess until then, were delighted. In some senses This was the last straw for the large unions, which the elections had proved that the Popular Party until now had preferred bargaining over confron- is not invincible, and the resistance had taken tation. A general strike was called for March 30, confidence from this. demanding the withdrawal of the labour reforms. The unions have committed to further mobilisa- It became a challenge to all the Popular Party’s tions if the government doesn’t move. The gov- policies, supported by all parties to the left of ernment has answered by drafting an extremely the Socialist Party, trade unions and all kinds of restrictive budget and announcing further cuts in social movements including those connected to health and education, plus new laws restricting the ‘indignados’. The Socialist Party was caught in civil rights. Mainstream economists admit that, the middle, as it had been responsible for similar with this budget, recession is almost unavoidable measures and also feared the strike would not and unemployment will continue escalating. succeed. The risk premium placed on Spanish sovereign Meanwhile, regional elections were to take place debt is at it maximum, the financial system is in five days before in Andalusia and Asturias, both high distress and rumours of intervention by the of them traditional strongholds of the Socialists. EU are spreading. Recent developments have Extrapolating from the results of the last elec- raised the stakes. tions the most probable outcome was another absolute majority for the Conservatives. President Will the resistance movement change the course Rajoy strategically delayed the presentation of the of events? It is an open question now, but at least national budget for 2012, which was expected to there is hope that we are not doomed. Some ex- include harder cuts, to protect his party’s electoral ternal developments could help too - for example, prospects. He even engaged in a fake row with the the results of the French presidential election European Commission over the deficit target for and the coming Greek elections could open a new 2012, pleading for 5.8 per cent GNP against 4.4 gap in the EU’s walls. But much will depend on per cent as initially planned. It was finally settled the ability to strengthen the new unity that can at 5.3 per cent. be built in Spain. This is up to the unions, to the ‘indignados’ movement, and to the political left. The regional elections in Andalusia and Asturias were very disappointing for the Popular Party. Javier Navascués is an activist with United Left Both ended in hung parliaments. In the case of in Spain, and the architect of a radical form of Andalusia, which amounts to almost a fifth of participatory budgeting in Seville. Spain’s total population, the United Left and the First published: Red Pepper, April 2012 Socialist Party won the majority of the seats, so a left-biased regional government is expected in Available: http://www.redpepper.org.uk/spain-only- this significant region. It will be added to Cata- the-resistance-offers-hope/ lonia and the Basque Country, neither of which have got Popular Party government. It appears that the Rajoy’s hard measures have began to take Capitalism in Crisis: Europe, Austerity and the Left, 2012 75 Section II: Politics of Europe’s Crisis BERLUSCONI OF THE LEFT? Paolo Gerbaudo Does the rise of Nichi Vendola in Italy offer ever towards Italy’s notoriously corrupt political new hope for the left? institutions. It is this personalised engagement that has led the Italian commentariat to draw par- First published in Soundings 48 Summer 2011 allels between Vendola and Berlusconi: both are While the international media have reported in seen as exemplars of the populist politics that has great detail the sex and prostitution scandals dominated the Italian scene since the fall of the engulfing the beleaguered Silvio Berlusconi, they traditional parties of the so-called First Republic, seem to have completely missed the rise of a at the beginning of the 1990s. potential new leader of the left - one who may be But if Vendola’s politics can indeed be termed finally capable of upstaging the vulgar spectacle populist - and this is not necessarily intended as of the prime minister after the left’s years in the a derogatory expression - his political aims could wilderness. The person in point is Nichi Vendola, not be more different from those of Berlusconi. the volcanic governor of Apulia, a politician who, A long-time supporter of the antiglobalisation because of his media-savvyness and televised cha- movement, Vendola has been an outspoken risma, has already been dubbed the ‘Berlusconi of critic of neoliberalism; and he is also a staunch the left’ - or alternatively and rather more posi- opponent of Berlusconi’s proposed nuclear tively - the ‘Italian Obama’. programme: under his governorship Apulia has Combining in the same eclectic persona the iden- become the region with the highest share of re- tities of (post-)communist, gay and Christian, the newable energy production in Italy. Finally, while ear-ring-wearing, poetry-enthusiast Nichi Ven- Berlusconi’s career has been stained by accusa- dola has been one of the very few success stories tions of corruption and complicity with the Mafia, in the Italian left in recent years, and the story Vendola has been at the forefront of campaigns of his rise is a very telling one. Vendola has won against organised crime and the culture of illegal- two regional election campaigns against all the ity. odds, casting himself as a maverick fighting for a Building on this track record, which has won ‘better Italy’ against the ‘worst of Italy’. Though him a large and diverse public following, Ven- he originates from the radical left of Rifondazione dola has now set himself the ambitious task of Comunista (Communist Refoundation - a left creating a ‘left for the new millennium’, seeking group formed when the majority of the old PCI to go beyond the worn-out track of the Italian turned itself into the PDS), he has managed to communist tradition. This process has involved gain support far beyond the familiar terrain of the an intense rethinking of language, imagery and progressive electorate. Having recently founded a forms of engagement with the electorate, as part new party of the left - Sinistra, Ecologia, Libertà of what Vendola calls a ‘new narration’. The next - he now hopes to run as the centre-left coalition few years will show whether or not Vendola’s ‘new candidate in the next general election. If he is narration’ can really bring about a cultural shift able to secure the backing of his uneasy allies in on the Italian left. At the moment PD’s strategy the Partito Democratico (the biggest party of the remains fixated on constructing a politics of the centre-left, the result of a ‘cold fusion’ between centre. Can Vendola’s more powerful articulation the PDS and progressive Christian Democrats), of a left politics displace the hegemony of Ber- he might well have a chance of winning, given lusconi’s right? that a poll in January 2011 gave him a 48 per cent approval rating, against Berlusconi’s 36 per cent. The queer man from Terlizzi Key to Vendola’s surprising political rise has been The journalistic tag ‘Berlusconi of the left’ has its his adoption of innovative political communica- basis in the fact that, as with Berlusconi, Ven- tions strategies, including provocative electoral dola’s politics is highly concentrated around his posters, dedicated Facebook and YouTube pages own charismatic figure, his peculiar personal and memorable TV appearances. Unlike the biography, and his capacity to connect with the other leaders of the left, who have been unable to emotions of a ‘gelatinous’ electorate, in which compete with Berlusconi’s seduction of the elec- class and ideological identifications are loose torate, Vendola has managed to develop a strong and dynamic. Vendola’s combative demeanour, emotional connection with Italian voters, who his ‘prophetic’ mode of address, and his highly are highly suspicious of parties and as cynical as metaphorical and often baroque language, scat- 76 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Italy tered with references to Gramsci and Pasolini, centre left coalition, the young economist Franc- have managed to set him apart not only from the esco Boccia, who was supported by the main vulgarity of Berlusconi and his cronies, but also parties of the centre-left. And he went on to nar- from the bureaucratic and professorial look and rowly defeat the centreright candidate Raffaele feel of other leaders of the left. Fitto in the election itself, in what was tradition- ally known as a staunchly conservative region. In a mediatised politics in which personal image In 2010 the Partito Democratico, continuing its can make or break the career of a politician, it orientation towards the centre, pleaded with is first and foremost Vendola’s bodily appear- Vendola not to re-run, in order to open up the ance - his ‘queerness’ embodied in his ear-ring, coalition to the centrist party UDC, who disliked his defiant Southern Italian face, his colourful him. He refused to do so, and, running against while always elegant attire - that has managed Francesco Boccia for a second time in the primary to capture figuratively the ‘other Italy’, or the elections, he won 67 per cent of the votes, going ‘better Italy’, that he wants to represent. His on to easily beat the centre-right candidate Rocco media image operates an almost perfect reversal Palese. In these two campaigns Vendola consoli- of Berlusconi’s own. To Berlusconi’s unashamed dated his image as an underdog - fighting against machismo, Vendola opposes his reserved but the party apparatus of the left and prevailing nonetheless provocative homosexuality, to thanks to grassroots popular support. Berlusconi’s Northern and businesslike accent his Southern popular parlance, to Berlusconi’s In this symbolic construction of Vendola as an entrepreneurial arrogance, the selflessness of his anti-establishment hero, an important role was grassroots political career. played by the heretical adoption of political marketing techniques. In this he was considerably Despite the reputation he has earned as a maver- assisted by the inventive Apulian marketing firm ick and an unrepentant radical, Vendola’s politi- Proforma, who designed a now famous series of cal upbringing was not very different from that of provocative posters for his 2005 election cam- the many unlovable party cadres of the left who paign, whose aim was to positively reclaim all the are now in the ranks of the Partito Democratico. fear-mongering labels the right sought to attach Born in 1958 in Terlizzi, a small town in Apulia, to Vendola, while simultaneously emphasising Vendola first became involved in politics when he the bigotry of his political adversaries and the was 14 years old, when he joined the youth wing uncompromising character of his own politics. of the PCI. At university he studied literature and ‘Subversive’, was the banner headline of one of wrote a dissertation about Marxist writer and the posters, beneath which Vendola’s defiant face film-marker Pier Paolo Pasolini, before becoming was pictured above the caption ‘because I always a journalist for the PCI’s daily paper L’Unitá. put the last first’. ‘Dangerous’, proclaimed an- What made Vendola a ‘heretic’ at that time was other. ‘As all honest people are’, read the caption that he was a gay man in a morally conservative below. party, and was involved in environmental cam- These political marketing techniques were part of paigns, both of which isolated him within his own Vendola’s attempt to avoid the ‘boring’ language party. His radical political trajectory continued of the left, but they did not involve watering down when he subsequently joined the ranks of Rifon- his radicalism in order to appeal to the moderate dazione Comunista, attaching himself to the part electorate. On the contrary, both his governor- of the PCI that did not want to abandon the belov- ship campaigns stood out in their unashamed ed hammer and sickle. Nevertheless, in 2009, one appeal for social justice and for the defence of the year after the historic electoral defeat in which environment. This is something rarely seen in the all the radical left parties, including Rifondazi- communications of Partito Democratico, which is one, lost their representation in parliament, he constantly concerned to cast itself as a business- abandoned this party too, and founded Sinistra, friendly ‘quiet force’, in order to deflect Berlusco- Ecologia, Libertà, which brought together splin- ni’s accusations of being still ‘communist’. ters from the Greens, the PDS and the Socialist Party. This was an attempt to make a clean break In Italy, television constitutes the main arena with the nostalgic communist tradition. within which political debate is defined, and here Berlusconi enjoys an overwhelming structural The turning point in Vendola’s rise to the status advantage, given his ownership of three terres- of national celebrity was his participation in the trial TV channels. But Vendola has managed to left coalition primaries for the regional election exploit the spectacular character of the medium in Apulia in 2005. Against all the odds he beat a to his own ends. On political talk-shows such as more moderate candidate for leadership of the Capitalism in Crisis: Europe, Austerity and the Left, 2012 77 Section II: Politics of Europe’s Crisis Annozero and Ballarò, where he is a frequent Vendola’s success stems from his recognition that guest, Vendola has overshadowed both adversar- the problem faced by the Italian left is funda- ies and allies with his emotionally charged style of mentally a cultural one. This is a major cause presentation. Instead of getting lost in the techni- of the left’s inability to respond to the challenge cal explanation of policy details, he constantly of ‘Berlusconismo’ - a term that captures the focuses on dramatic - at times melodramatic - pernicious cultural and moral project underscor- messages that distil his analysis of the economic ing Berlusconi’s politics. Vendola has described and social problems of the country, as well as the Berlusconismo as ‘a plague on Italian society’: redemptive solutions he offers. On one occasion ‘instead of solidarity, it proposes a false individu- he read out a list of the forms of torture which in alism. Instead of hard work and professionalism, the past were inflicted on homosexuals like him it tells young people that they can get rich quickly (quite a sensational TV moment in a notoriously by using cunning, fraud and their own body’ homophobic country like Italy). (Guardian, Comment is free, 14.2.11). Vendola has recently become a pioneer of ‘poli- Faced with this enticing hyper-individualist ideol- tics 2.0’ in Italy, with an intensive use of social ogy, Vendola argues, the Italian left has contented media to reach the young people who constitute itself with demonising Berlusconi, instead of con- a significant share of his electorate. He has used centrating on the creation of new values capable YouTube to broadcast video messages (‘videolet- of superseding those of Berlusconi. The moderate tere’) and has gained impressive visibility on Fa- left has become technocratic, totally focused on cebook, where, thanks to 416,000 friends, he has administration and subservient to the dogmas of recently become the most ‘liked’ politician of the neoliberalism, which makes it seem a carbon copy old continent (the second being French president of Berlusconi. The radical left, on the other hand, Nicholas Sarkozy!). And this adoption of new has accepted a minority position, and embraced media campaign techniques has run alongside the ‘an ethic and aesthetic of defeat and of the good establishment of a capillary grassroots network death. They kill you but with the red flag falling to support his campaign. During the 2010 Apulia over you like a theatre curtain. How boring!’ (il regional campaign he supported the creation manifesto, 20.7.10). of ‘Fabbriche di Nichi’ (Nichi’s factories) - local Trying to find a third way for the left between the political spaces reminiscent both of the ‘case del feebleness of the PD and the sterile antagonism popolo’ (the people’s houses of the PCI), and the of Rifondazione, Vendola has sought to advance ‘centri sociali’, the squatted social centres of the a politics which, through the balancing acts of his Italian countercultural left. media performances, attempts to juggle idealism The skilful use of these different communica- and pragmatism. The policy platform he pre- tive stages are testament to Vendola’s efforts to sented in the Apulian regional elections is rep- construct a personalised connection with the resentative of this effort. It combines traditional electorate based on identification with the leader radical left policies (defence of labour rights and and emotionality, rather than with a well-defined opposition to nuclear power stations) with a more ideology. But Vendola nevertheless sees his politi- positive attitude towards private business, as cal venture as going beyond the terrain of person- exemplified by a popular funding programme to ality politics. His declared aim is to contribute to help young people become entrepreneurs. what he calls a ‘new narration’ of the left, intend- This innovative policy approach reflects Vendola’s ed as part of a new progressive culture capable of aim of defying expectations about what is to be superseding Berlusconi’s vulgar spectacle. considered as progressive politics. His split from A ‘new narration’ for the Left Rifondazione Comunista was a logical step within this endeavour, as was his farewell to an ideologi- The word ‘narration’ has become a trademark of cal and identitarian baggage he saw as having Vendola’s campaigning as he has toured around little purchase on the reality of contemporary Italy seeking to build a support base beyond his Italy. But so far this necessary task of cultural own region. The repeated references to this rather demolition of the communist tradition has not yet intellectual term, sometimes substituted with the been accompanied by the positive construction even more bookish ‘affabulazione’, have attracted of a coherent new progressive identity that might jokes from adversaries and supporters alike. But give some solidity to the unsettled landscape of understanding Vendola’s infatuation with this the left in Italy. word is highly significant for getting to grips with The transitional setting in which Vendola oper- the nature of his political project. A great deal of ates is visible in the branding of his party Sinistra, 78 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Italy Ecologia, Libertà - which reads more like a list In its pure form charismatic authority has a of disparate values and identities than a descrip- character specifically foreign to every-day routine tion of a coherent political actor. This impres- structures. The social relationships directly in- sion is compounded by the inconspicuousness volved are strictly personal, based on the validity of the party logo, which shies away from trying and practice of charismatic personal qualities. If to capture figuratively the novelty of this new this not to remain a purely transitory phenom- left; there is no adaptation of the hammer and enon, but to take on the character of a perma- sickle ‘symbols of labour’ concept, or of the Green nent relationship forming a stable community of Party’s smiling sun. Instead they offer only the disciples or a band of followers or a party organi- party’s name, in a youthful-looking font - which sation, it is necessary for the character of charis- makes it look rather ‘uncertain’ (to quote Vendola matic authority to be radically changed.1 on the PD). The unresolved complexity evident If charisma is to be stabilised, there is a need for in SEL’s branding reflects the current lack of any some form of ritual transmission and institu- glue to hold together its diverse range of follow- tionalisation. But this in turn involves depriving ers apart from the identity supplied by Vendola the leader of some of his performative wizardry. and his communicative cunning. This situation is While Vendola’s ‘new narration’ can partly be all the more problematic in that SEL as a party is seen as an attempt to routinise his charisma into much less popular than its leader: while Vendo- a more stable political identity embodied in a la’s approval ratings have topped 48 per cent, SEL party, the project at the moment is faced with a remains at under 10 per cent, and there is limited fundamental contradiction. room for growth. The huge discrepancy between the popularity of Vendola and that of his party is Vendola has in fact been reaping the disillusion- indicative of the risks inherent in trying to create ment of the Italian electorate towards the party a new left by means of a personalised politics. system and towards the parties of the left in particular. He has been prized precisely for side- A big leader with a small party stepping the mediation of discredited party bu- Some commentators have spoken of SEL as a reaucracies, but he now runs the risks of becom- ‘personal party’, created in a similar way to Ber- ing a prisoner of his own party’s apparatus. This lusconi’s Forza Italia (now the People’s Freedom dilemma has been a driving factor in his creation Party) and former anticorruption prosecutor An- of the ‘Fabbriche di Nichi’ as a way of maintaining tonio Di Pietro’s Italia dei Valori (Italy of Values). a personal basis of support. Indeed some of his Yet, in the light of Vendola’s recent momentous associates have suggested that he should not have rise in popularity, and his declared ambition to founded a new party, and instead should have become leader of the centre-left coalition, his case relied on mobilising through a flexible grassroots appears more like that of former prime minister structure. Romano Prodi, who was described as a ‘leader One could argue that so far Vendola has skilfully without party’. For though Vendola, unlike Prodi, handled the liquid situation of Italian politics, does have his own party, it is at the moment too and of the Italian left in particular, making up small to constitute a sufficient base of support for for the lack of a dependable party ‘scenography’ his attempts to ‘hegemonise’ the much bigger Par- with his own performative skills and capacity for tito Democratico, or the centre-left coalition as improvisation. But in the long run, without the a whole. In fact SEL frequently appears to be an support of a durable new left identity, this actor obstacle to Vendola’s engagement with his large (to continue the theatrical metaphor) might well and diverse electorate; there is a risk that it may run the risk of over-exposure and media burnout, trap its leader within the minoritarian terrain of with the danger that his party could follow suit. the radical left he is desperately trying to break In recent months, Vendola’s eclectic pragmatism out of. and frequent resort to media stunts have begun to Vendola’s venture draws attention to the problem draw pointed criticisms. In particular, his open- of the uncanny relationship between charismatic ness towards the possibility of a broad coalition leaders and emerging collective formations in a against Berlusconi, including parties of the right, transitional situation - such as has been experi- and his indecision regarding the military inter- enced by the Italian left since the dissolution of vention in Libya, have earned him accusations of the Communist Party. Max Weber captures some ‘tacticism’.2 of the tensions of this condition in his famous While Vendola’s ‘narration’, with its focus on description of the ‘routinisation of charisma’: contingency and performance, does not yet seem capable of offering solace to the desperate soul- Capitalism in Crisis: Europe, Austerity and the Left, 2012 79 Section II: Politics of Europe’s Crisis ITALY’S MAIN UNION TO STRIKE OVER MONTI’S LABOR OVERHAUL Lorenzo Totaro, March 21, 2012 Italy’s biggest union will hold a general strike Improved Confidence against Prime Minister Mario Monti’s overhaul of the nation’s labor laws, including an easing of Monti’s steps to shore up public finances and spur firing rules, after two months of talks failed to Italy’s economic growth, which has lagged behind produce an agreement. the euro-region average for more than a dec- ade, has helped restore confidence in the nation “The government thinks it can resolve Italy’s and bring down record borrowing costs. Italian problems by reducing workers’ rights,” CGIL 10-year bonds yield 4.99 percent, down from 7 head Susanna Camusso told reporters in Rome percent when he took over. today. Her union, the only one to oppose the deal, announced an 8-hour general strike to protest the “There won’t be any signed agreement,” Monti changes, saying the date will depend on Parlia- said at a press conference last night in Rome after ment’s vote on the bill. CGIL will also stage eight leading the final round of talks following two hours of strikes at individual firms. months of meetings with social partners. “These negotiations were purely consultative,” he said, Monti, who took over as premier from Silvio Ber- adding that he wants to resolve the issue by next lusconi in November, pledged to expand jobless week. benefits, reduce temporary work contracts and allow more leeway in firing. The package marks With Monti forging ahead, the focus will now shift his fourth major legislative effort since coming to getting the plan through Parliament, where to power in November. He passed a 20 billion- he will likely need the support of the Democratic euro ($26.5 billion) austerity plan to balance the Party, which is close to the CGIL. Monti has said budget and revamp pensions, followed by meas- he wants the bill passed by the end of the month. ures to boost competition and cut red tape. ‘High Standard’ “A strike by the CGIL is not going to unsettle the bond markets,” said Nicholas Spiro, managing “This agreement sets a high standard, as it would director of Spiro Sovereign Strategy in London. help to make significant progress toward a more “The markets, and many Italians for that matter, modern and flexible labor market, and therefore have already bought into the narrative that Mr. encourage new hiring,” Fabio Fois, a European Monti is a genuine reformer and a showdown economist at Barclays Capital in London, wrote in with the CGIL would actually win him plaudits for a note to investors. “The current legal framework facing down the unions.” has led to a two-tier labor market, with some continued next page ...

Berlusconi of the Left? continued ... searching of the Italian left, at least it offers an ef- in political communications and social movement fective tactical solution in countering Berlusconi’s media. He also works as a freelance journalist, dominance in the realm of mediatised politics. and is the UK correspondent of Italian daily il And this is no small achievement given the recent manifesto. He is currently working on a book record of the left on this terrain. However his ulti- about the relationship between media and space mate legacy will be assessed at the level of politi- in the recent wave of euro-mediterranean move- cal strategy, through gauging the extent to which ments. he has been able to serve the long-term project to which he has explicitly committed himself - the Notes recomposition of the left. This is precisely the 1. Max Weber, On Charisma and Institution Building, task in which Berlusconi has patently failed on University of Chicago Press 1968, p54. the right, given that the success of his political al- 2. L. Casarini, ‘E’ questa la nuova narrazione?’, il liances seems completely bound up with his own manifesto, 21.2.11. personal leadership and individual vagaries. Will Vendola’s ‘narration’ be any different? Paolo Gerbaudo is a media lecturer specialising 80 Capitalism in Crisis: Europe, Austerity and the Left, 2012 France FRANCE’S LEFT FRONT HOPES TO ‘REINVENT’ LEFT Yasmine Ryan Last Modified: 30 Apr 2012 12:07

The far-left alliance has never before Al Jazeera’s Yasmine Ryan spoke with the Left competed in a presidential race, but is Front’s Raquel Garrido, a longtime ally of Melen- helping forge a new European alternative. chon. Along with Melenchon, Garrido also quit the French Socialist Party in late 2008 to take Paris, France - The bid of Jean-Luc Melenchon part in the new movement. for the French presidency, while ultimately un- successful, has given the Left Front, an alliance of Yasmine Ryan: You left the Socialist Party right far-left parties, massive visibility in France. when the financial crisis was beginning. Did that crisis help trigger the group’s decision to leave the The Left Front’s candidate won fewer votes than Socialists? was widely expected, after opinion polls sug- gested he could sway as many as 16 or 17 per cent Raquel Garrido: It helped, it’s true, because we of voters. knew that times were going to get harder and that the left needed to face the speculative attacks and Nonetheless, with the leftist coalition’s candi- the financial crisis with a harsher standpoint than date’s score of 11.1 per cent, placing him in fourth that which the Socialist Party, and Social Demo- place out of some ten candidates, the far-left has crats in general in Europe, were ready to take. managed to reassert itself and regain a place in the political conversation of the nation. continued next page ... workers overly protected with open-ended con- panies would still risk having to reinstate work- tracts and another group of workers with fixed- ers. Judges will also be able to order reinstate- term contracts who lack job security.” ment if they rule that a company unjustly claimed they were firing staff for disciplinary reasons. Companies should now “double” their efforts to The new rules would allow companies to fire for boost “investments, growth and employment” economic reasons without risk of reinstatement because they will no longer have the “excuse” of a and workers would be entitled to as much as 27 rigid labor market, Monti said. The premier said months of compensation pay. the changes will also help convince foreign com- panies to expand in Italy. The package seeks to make the open-ended job contract the cornerstone of Italy’s labor market, “Timing is fundamental,” Labor Minister Elsa Fornero said. The government wants to reduce Fornero said last night. Dragging out the approval structural unemployment and encourage the process would damage the credibility of the effort, hiring of young people and women through ap- she said, declining to rule out the Cabinet passing prentice contracts that lead to open-ended agree- it as a decree to make the legislation take effect ments, she said. Italy’s unemployment rate tops before parliamentary passage. 9.2 percent, the highest since 2001. Stefano Fassina, head of economic policy for The package would also expand the system of un- the Democratic Party, said in an interview with employment benefits, which currently favor work- newspaper La Repubblica that Article 18 had ers at the largest companies who already enjoy been “gutted.” The party would try to get the plan the most job security. Fornero said the plan will changed before it goes to Parliament and propose cost an additional 1.8 billion euros. Workers will amendments in the legislature if necessary, he be eligible for 12 months of benefits, with anyone said. over 54 qualifying for 18 months. “The question now is whether there will be any - With assistance from Flavia Rotondi in Rome. dilution in the labor law legislation to assure pas- Editors: Jeffrey Donovan, Andrew Davis. sage,” said Richard McGuire, senior fixed-income strategist at Rabobank International in London. First published: Business Week Available: http://www.businessweek.com/news/2012- Dismissals 03-21/italy-s-main-union-to-strike-over-monti-s- Fornero said even under the new plan, dismissals labor-overhaul without just cause would still be illegal and com-

Capitalism in Crisis: Europe, Austerity and the Left, 2012 81 Section II: Politics of Europe’s Crisis Raquel Garrido interview continued ... cial Democratic Party in Germany and created a new party, Die Linke [“The Left”], with the former But we actually did start thinking about leaving communist party. the Socialist Party before, a long time ago. We first started questioning our strategy when we We were invited to that founding congress, with started seeing in Latin America left-wing gov- Jean-Luc Melenchon, Pierre-François Grond and ernments coming into power, but not with your myself. And that was what did it at the end, to traditional Social Democrat party. convince us that that was the way forward, there was no future remaining [inside the confines of] To the contrary, most of those experiences - in those little battles inside the Socialist Party. Argentina, Brazil, Venezuela, Ecuador, Bolivia - were being triggered by new parties. New political We took time to correctly prepare that departure instruments that were organised outside of Social from the Socialist Party, and, in 2007, we had Democratic, left-wing, traditional parties. Segolene Royal as a candidate and she failed to defeat Nicolas Sarkozy [in that presidential elec- And the methods they were employing were radi- tion]. Although the Socialist Party was strong, cal, whether it be in their fight against the IMF, or there was no other strength coming from the left whether it be in the means of remobilising their against the right. societies through constitutional assemblies. So, in 2008, we left, and immediately agreed with The constitutional assembly is a French inven- the [French] Communist Party and others about tion, [born of] the French Revolution. It means [forming] a coalition. The strategy to our succes- ensuring that sovereignty lies not in the monarch, sion was to urgently reunite the other left [par- but in the people themselves. ties]. The rest of the left couldn’t remain in small Suddenly, at the end of the 1990s, the method groups, it had to reunify. was being used in Latin America, and quite suc- That’s what we’ve been doing, up until now, and cessfully so. So that suggested that the social we’ve managed to have all those groups support democratic movement in Europe was failing, and Jean-Luc Melenchon’s presidential candidacy. wasn’t going to deliver what it expected to deliver YR: To what extent have the movements of the after state communism failed. Arab world inspired you? Do you see your party We took from Latin America that idea that we as retaking socialism? were facing two failures: the failure of state RG: Yes. Even more than retaking socialism, communism, and the failure of European social we’re retaking a cultural nerve that exists in democracy. And that the left needed to reorganise France, as a core underlying cultural identity - in creating new instruments. “Liberty, Equality, Fraternity”. In 2005, in France we had a referendum on the For us, what is very interesting in the Arab Spring European constitutional treaty. Although the is the fact that, if you look at Tunisia, or even Socialist Party in France decided to support Egypt, the method of the regime change is a con- that treaty, our faction, around Jean-Luc Me- stitutional assembly. It’s going back to the people, lenchon, opposed the constitutional treaty, and it’s not just internal rearranging. The solution is we campaigned with all the groups to the left of in the people. the Socialist Party that had a very clear analysis on the dangers of that treaty, the fact that it was You have to change the regime, and in Tunisia, enshrining into hard regulation very ultra-liberal the regime was a kleptocracy. You had to change principles of free trade, of prohibition of grants to that and you had to do that through the people. public services… That really inspired us. Although the Latin Ameri- cans had inspired us, they are really far away, And we won that election. We campaigned for a whereas Tunis is right nearby. “no” vote, and we won. The history of French socialism has always been We were empowered by the vote, and thought to merge that underlying cultural French revo- that if we dared defend what we were really think- lutionary background with the importance of ing, instead of sticking to internal competitions the working class and trade unions and workers’ within the Socialist Party, if we took that battle rights. outside to the people, it was possible to win it. We took that banner, and we added two more [el- And right after that, we were invited to Germany, ements]. The first one was environmental issues. where the former Social Democratic minister of the economy, Oskar Lafontaine, had left the So- We decided to organise a very front-on opposi- 82 Capitalism in Crisis: Europe, Austerity and the Left, 2012 France tion to the National Front [the far-right party led Whereas on our side, our three million new voters by Marine Le Pen, which accrued a record 17.9 are actually three million new voters for the left. per cent of the first round poll]. I think all the So our rise is spectacular on the left. commentators would agree that we were alone We did our best, so that the working class that in doing this. The results show that we were usually abstains, voted for us - or in any case, right in analysing that the National Front was an didn’t go vote for the National Front. We did that important issue in France that needs to be dealt containment job very well, I think. The Socialist with. Not only with moral opposition, saying that Party doesn’t do that. Even now, they are barely racism is bad. We need to be more precise on its speaking about the National Front’s high score. programme. That’s what we did. We showed that we thought After the Toulouse killings, when the right-wing the National Front was trying to present itself as a came right at Arab people and Muslims, it was party defending workers’ rights, actually it isn’t. If only Jean-Luc Melenchon who said “Stop the you look at its programme, it always opposes the harassment”. While Sarkozy imitates the National redistribution of wealth from capital to labour. Front, the Socialist Party just shies away. Verbally, it will always present itself as [being] on YR: Sarkozy’s strategy for at least the past year the side of the poor and working class. Which is seems to have been to seek the far-right vote. typical of fascism and extreme right-wingers. But Within the UMP, it seems this has caused a lot of we were the only ones to reply, and to look at the internal conflict, with many who would prefer to programme. be closer to the centre of the political spectrum. Why do you think the National Front vote has The same thing applies to women’s rights. Marine skyrocketed in spite of this strategy? Le Pen was present at the outset of this cam- paign as a modern woman. Jean-Luc Melenchon RG: It is directly linked to the fact that the UMP was the one who showed that if you look at her was convinced that the way to win was to focus programme on abortion or other [issues impact- on those themes. The score shows that this was ing particularly on women], she was clearly not wrong. defending women’s rights. The only result they achieved by that strategy was I think that’s something no one will forget, that to help the National Front. So if they do it again we were the ones that started that process of try- between the two rounds, they will do it again. ing to strike back against the National Front. On the other hand, the National Front’s strategy YR: Most of the commentary, until the results is to have the UMP collapse and reorganise the were confirmed yesterday, suggested that the Left right-wing around themselves. They want to split Front and the National Front were competing the UMP. for the working-class vote. But the voting results Athough they have an anti-system rhetoric, their show that both of your votes were record highs - real strategy is within the parameters of the right the Left Front being a new party, and the National [as a whole], and how that can be organised after Front rising significantly compared with 2007. Sarkozy, if and when Sarkozy loses on May 6. RG: You are right on the spot. Actually we do YR: So you think Le Pen will not endorse not compete for the same votes. The National Sarkozy? Front competes with the right, the UMP [Nicolas RG: No. What she will probably do is to appear as Sarkozy’s Union for a Popular Movement]. though she is negotiating on issues - immigration If you take the scores of the right-wing and the and security - to force the UMP to go there, to win extreme right, you’re around 16 million votes. that cultural battle on the common programme of And that’s been the same in other elections. What the right in France. happens is you have transfers. Sarkozy got votes Then she will watch Sarkozy lose and say: “Okay, from them [in the 2007 election] and now they’re you tried it your way, now we are going to try it getting them back again. my way.” And the more the UMP goes along with the YR: In terms of the Left Front’s own strategy - themes that are suggested by the National Front - this is the highest score for the far-left since 1981 immigration, insecurity, halal food, anti-Muslim, - are you going to seek to negotiate with Hol- anti-Arab - actually all it does is favour the Na- lande? tional Front. continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 83 Section II: Politics of Europe’s Crisis Jean-Luc Melenchon: ‘BLAME THE BANKERS NOT THE MIGRANTS’ Interview by Jim Wolfreys, 16 June 2012 The French radical left politician spoke to Jim The fascists have tried to whip up anti-immigrant Wolfreys about France’s parliamentary elections racism during the campaign, producing a fake and the fight against the fascist Front National Front de Gauche leaflet with “Let’s vote Mélen- chon” written in Arabic. Though they printed the In France’s presidential elections in April Jean- Arabic backwards. Another anonymous leaflet Luc Mélenchon, the radical left candidate, waged depicted him as Hitler in front of Auschwitz. a dynamic campaign and won around four mil- lion votes. But at the same time the fascist Front In response, the Front de Gauche has combined National (FN) leader Marine Le Pen achieved a condemnation of the FN’s racism with attempts record 6.4 million votes. to encourage ordinary people to feel their collec- tive strength. These campaign methods, Mélen- Parliamentary elections are now taking place chon argues, are “borrowed from working class across the country. The Front de Gauche’s Mélen- trade unionism—the idea that a show of strength chon and Le Pen went head to head in the con- is necessary. Strength brings forth strength, liveli- stituency of Henin Beaumont, in northern France. ness and joy.” Le Pen has built up a significant level of support in the town over the past five years. It is in the Disorientated Nord Pas de Calais region where the FN presi- He continued, “When someone is a bit disorien- dential vote was up nearly 10 percent on 2007. tated, a bit lost, they see who is strong, who is Mélenchon nevertheless decided that he would joyful, who they want to be with. Today nobody stand against her. wants to be with the Socialists they see arriving Historically this has been a left-wing region, with at the market with their suits and waistcoats and a long tradition of working class struggle and haughty and contemptuous ways. organisation. Mélenchon tried to draw on this “Then they see the Front de Gauche turn up history to undercut the FN. with its red flags and street singers, so there’s an One in five people are unemployed in Henin atmosphere that’s created, a joie de vivre, that Beaumont. Corruption scandals have damaged embodies the ideal of the left. We’re not there to the local Socialist Party, allowing the FN to pose be bored or sad.” as a “clean” party. continued next page ...

Raquel Garrido interview continued ... RG: No. Millions of people have put their trust in us, have shown up to our meetings and rallies. RG: No, we won’t negotiate. Our strategy is to Something really powerful happened with our govern on our programme. That strategy needs campaign, and it would be very disappointing if one compulsory entry point, which is to defeat all of that ends up in a cheap negotiation with the Sarkozy. That’s way we will support the Hol- Social Democrats. lande ballot against Sarkozy with no negotiation needed. Our intention is to replace the Social Democrats as leaders, across Europe. It will take time, but Then after that, life comes back. The ongoing that’s where we’re going. debate on the legitimacy and efficiency of auster- ity plans is right there on the table. It will be for You can follow Yasmine Ryan on Twitter at @ the next weeks because we have parliamentary YasmineRyan elections [in June], and we will be campaigning This article has been amended since first publication to for our own candidates everywhere in France. correct the combined number of votes garnered by the We certainly do not want to participate in any UMP and National Front. government whose objective would be to imple- First published: Al Jazeera ment austerity plans, as Francois Hollande is Available: http://www.aljazeera.com/indepth/featur planning to do. es/2012/04/2012424191716534108.html YR: So you won’t be seeking any cabinet posts?

84 Capitalism in Crisis: Europe, Austerity and the Left, 2012 France This is part of a wider strategy: “We’re carrying Mélenchon sees this as a part of a national fight out what we call a campaign of popular education. for political influence. “I’m demonstrating that we This can’t be something pretentious or arrogant are stronger, more numerous, more disciplined that sounds like we’re giving people lessons. We and more clear sighted than this band of badly- also need to avoid being suffocated by the past— educated gorillas who’ve been caught in the street as if everything was glorious before and it’s all handing out fake leaflets like the cretins that they rubbish now. It shouldn’t be dry history either.” are. On 3 June the Front de Gauche initiated a march “There were those among us who hesitated about and rally to commemorate Emilienne Mopty. She standing, who said, ‘You’re going to narrow down was the organiser of a 1,500-strong demonstra- our message’. I said ‘No, it’s you who are reducing tion in 1941 by miners’ wives. They were protest- the meaning of the FN to a moral question’. The ing in solidarity with 100,000 miners from across FN question is a social question, it’s an ideologi- the region taking part in the first mass strike cal question. Either they win authority over the under the Nazi occupation. Mopty was also a masses or we do. And the question will be—is it resistance fighter—arrested and tortured by the the banker or the immigrant who’s responsible Nazis and beheaded in Cologne in 1943. for the crisis? That’s what’s at stake here, in this Several thousand joined the march. At the rally, place—and in the wider world. So the struggle Mélenchon spoke of the 29 different nationalities must be implacable and to the end.” that made up the workforce in the mines, listing The Front de Gauche is trying to involve and each one in turn. He told the crowd, “Here, on the inspire confidence in ordinary people. Mélenchon land that gave rise to the labour movement and explained, “My method of intellectual combat is to socialism, we’re supposed to endure the shame to link three threads all the time. The first thread of it apparently being the fiefdom of the abject is the programme. It’s the rational, reasoned way descendents of those who invaded, occupied and of opening up a debate—there’s a problem, here’s betrayed us. We’re going to make them leave, the solution. It’s radical but concrete. We always we’re going to hunt them down and politically make sure we show how things are going to be eradicate them.” done.” He explained why he had prioritised the fight Strategy against the FN. “The Front National is a threat in France and in Europe. Politicians make use of Underpinning his strategy is an attempt to make it. The FN gives the right a pretext to shift their ideas accessible and inspire a belief that there are rhetoric in a direction that they think will bring practical political answers that can be found to them electoral gains. But the basic function of all the problems society faces. “In the old far left, or this in a period of crisis, when people are uniting the left of the left, the tradition is to say ‘we just together against the power of neoliberalism, is to have to…’ or ‘what we must do is…’ without show- divide them. ing how. So concrete radicalism.” Reality Culture, Mélenchon’s “second thread”, is a highly contested area —and one that ordinary people “This reality exists for capital. So the FN repre- often feel excluded from. He said, “These values sents a threat to our democratic institutions and mustn’t be evoked in a metaphysical way. There’s also a danger in terms of the possible ways out of a way of relating them to the means of making the crisis. In the presidential election we set our- them thrive. The culture we draw on is made up selves the aim of finishing as high as possible. At of principles and cultural acts, words that don’t the start our main target wasn’t Marine Le Pen, need any justification. it was to eliminate the [centre right candidate] François Bayrou so that the Socialists couldn’t “I read a whole page of Victor Hugo in a mass make an alliance with him. meeting. There were 10,000 people there. Peo- ple loved it because they understood what I was “It was only in March that we overtook Bayrou. doing. I read a poem by Louis Aragon [a Commu- Then I set the next target—‘We’re going to catch nist poet], everyone was quiet and listened and her [Marine Le Pen] and beat her.’ I didn’t beat applauded.” her in the presidential election so the campaign is still going and I will continue to pursue it until Finally, there is history, the subject of intense I’ve had the last word. That’s why we’ve come debate in France, particularly over the question here, where the problem is greatest because she’s here herself.” continued next page ... Capitalism in Crisis: Europe, Austerity and the Left, 2012 85 Section II: Politics of Europe’s Crisis Jean-Luc Melenchon continued ... “It’s about saying ‘No, things don’t always need to be this way. We can get beyond capitalism. There of “national identity”. “The battle is profoundly is a collective force that can be mobilised, and no, ideological. There are those who talk about roots there’s nothing inevitable about the extreme right as something that pre-exist us, that are immobile gaining an influence in this area.’ and that we should try to reproduce in order to “There’s a hope in this campaign that’s inspiring. live correctly. That’s the classic reactionary obscu- I’ve lived here for eleven years. We’ve done lots rantist ideal. They tell people it’s a way of ‘return- of painstaking anti-fascist activity—it’s been hard ing to an identity’,” said Mélenchon. sometimes. Now there’s more of a sense of our One alternative is to remind people of their radi- mass, collective strength.” cal history, from the French revolution to resist- ance against the Nazis. He said, “Against their First round results favour ethnic roots, I counterpose historical roots and Hollande proclaim that, ‘we are the inheritors of Maximil- The first round of France’s parliamentary elec- ien Robespierre and Emilienne Mopty’. tions confirms the rejection of austerity that led “This is how the struggle is radically and inte- to Nicolas Sarkozy’s defeat in presidential elec- grally ideological in character. But it’s the way of tions last month. The combined left vote was 47 doing it that’s the most important thing. It’s Marx percent. The right won 35 percent. who says that hunger satisfied with raw flesh torn The fascist Front National’s score of nearly 14 off with fingernails is not the same as hunger percent has more than tripled since the last par- satisfied with a knife and fork. liamentary elections five years ago. The absten- “We have to start with the idea that we are cul- tion rate of 43 percent is the highest ever. tured beings. That the working class is not just a This indicates that the results reflect a lack of sup- stomach, it’s a brain. Of course it’s the stomach port for the right rather than positive identifica- that ends up deciding, but the call of the stomach tion with François Hollande’s Socialist Party. He also passes via the brain. “So it’s this vision of is expected to win a parliamentary majority in the political struggle that we take into battle.” second round on 17 June. ‘Everyone has a role in the Front The desire to beat the right also appears to have de Gauche’ squeezed the vote for radical left candidates. In the northern town of Henin Beaumont FN Mélenchon’s campaign has mobilised hundreds leader Marine Le Pen came top with 42 percent of thousands of people in demonstrations, rallies of the vote. She now faces a second round run-off and electioneering. He said, “Everyone has a role against the Socialist Party candidate. in the Front de Gauche. Mine is to put words together. Little by little you can hear people The Front de Gauche’s Jean-Luc Mélenchon was talking again about revolution, the red flag, the narrowly beaten into third place. The Front de clenched fist and nobody seems to find it strange Gauche took its opposition to the FN into work- any more.” places and markets, housing estates and com- munity centres, organising meetings, rallies and a He sees a thirst for radical politics, arguing, “Even march against fascism and austerity. a few years ago if you heard the word capital- ism, half the room would faint and the other half Having only announced he would be standing last would burst out laughing. That’s all finished. Now month, he won 21 percent of the vote and vows to we can talk about revolution. So I think we’ve won continue the fight in the area. a series of battles through the influence we’ve got © Socialist Worker (unless otherwise stated). You may over the vocabulary of politics.” republish if you include an active link to the original. ‘A campaign that inspires hope’ Available: http://www.socialistworker.co.uk/art. php?id=28750 Whatever the outcome of the parliamentary elec- tion, the Front de Gauche campaign has had a big impact on activists in the area. Antoine is a member of the New Anti-Capitalist Party. He told Socialist Worker, “Mélenchon’s campaign has managed to give hope back to the left and to the working class. That’s a medium term project. 86 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Germany THOUSANDS MARCH IN FRANKFURT AGAINST AUSTERITY MEASURES Reuters, May 19, 2012

FRANKFURT: At least 20,000 demonstra- major credit crunch with unprecedented fund- tors marched through Frankfurt on Saturday in ing operations in December and February that a peaceful protest against austerity measures unleashed over 1 trillion euros ($1.3 trillion) into implemented to tackle the intensifying euro zone the financial system. debt crisis. Saturday’s march - the final demonstration in Police closed off main roads in the centre of a four-day-long ‘Blockupy’ protest - passed off Frankfurt and set up check points on highways peacefully and without police detaining any dem- around the city as part of a heavy security opera- onstrators. tion to protect Germany’s financial capital. The protest followed a legal scrap between activ- The protesters are angry at the misery they say ists and authorities over whether the demonstra- governments are inflicting on people with their tions should be allowed to proceed. response to the crisis, which has intensified since A court on Monday gave the go-ahead for a rave inconclusive elections in Greece this month fueled dance party organized by protesters on Wednes- concerns about its future in the euro zone. day and Saturday’s protest, but ruled against “We’re protesting against the Europe-wide demonstrations taking place on other days. Sev- policy of impoverishment by the troika,” said a eral hundred activists were detained earlier in the spokeswoman for the ‘Blockupy’ anti-capitalist week for defying that ban. movement, who put the number of protesters at http://news.yahoo.com/thousands-march-frank- 25,000. Police said there were 20,000. furt-against-austerity-measures-133432915--busi- The troika refers to European Central Bank, In- ness.html ternational Monetary Fund, and European Union (Reporting by Till Weber, Ludwig Burger and officials who are supervising bailout programs Paul Carrel; Editing by Sophie Hares) extended to Greece, Portugal and Ireland. The Frankfurt-based European Central Bank (ECB) is at the centre of the policy response to the crisis and has faced calls from politicians, inves- tors and protesters to do more. The central bank says it has already headed off a

Capitalism in Crisis: Europe, Austerity and the Left, 2012 87 Section II: Politics of Europe’s Crisis RESCUE FROM A GERMAN CLIFF-HANGER Victor Grossman Berlin Bulletin No. 44, June 4, 2012 Published by Portside The media were keen for a real wide split in the Oskar Lafontaine, 68, the West German leader Left Party. from Saarland, while getting 28.5 percent in the East (but with a far smaller population). Consid- In truth, a lot of the members feared the same. ering past history and media hostility both were The long standing quarrel between the two wings remarkable achievements, but the differences - often called the reformers versus the fundamen- obviously required different strategies and tactics, talists - had crippled activities in the party far too which must be understood and appreciated by the long. It seemed very possible that all the hopes of other side. past years might be buried at the election con- gress this past weekend in Goettingen. The party’s Then, after his polemics about the disagreements, victory in 2009, with nearly 12 percent of the na- nasty as they have been, Gysi pointed out that a tional vote and 76 deputies in the Bundestag, had strong revival of the Left is not only important to been frittered away, there had been one defeat its own members. As the only true fighter for the after another on the state level, the national poll- needs of most people, the only real antagonist of ing figures had dropped to about 6 percent, thus the financial interests now ruling the roost, and threatening the ability of the party to even remain ruining it, the only fighter for a policy of peace - in the Bundestag after next year’s elections. no military deployment, no export of weapons - it bears a responsibility to the people of Germany That required 5 percent hurdle was by no means and Europe as well. certain, the other parties were simply ignoring the Left as if it was already a goner, and the key role The other grand old man, Lafontaine, also made a of the Left as an example and support for leftist very passionate speech. The media waited for an parties all over Europe had all but disappeared. angry response; rumors of their allegedly broken Would the Gottingen congress sound a tinny friendship have been circulating for weeks. But he death knell to all the old hopes? disagreed with Gysi on only one main point - or rather one word: “We must ban the very word If you believe some of the media you might think `split’ from our vocabulary”, was his message. De- it did. spite disagreements we are united in all our basic Some journalists dug hard to explore and exploit aims! It was due to our influence that the other any differences, disappointments or disagree- parties even considered the question of a mini- ments. That is, after all, their assignment. But it mum wage, hitherto rejected by all of them. We would seem that they missed the boat. raised the question of dropping the pension age It is true that one grand old man of the party, back to 65 from 67; we helped channel sentiment Gregor Gysi (now 64), started things off with a against the war in Afghanistan - or anywhere. We merciless analysis of past blunders, especially are needed, more than ever. of the sharp political division which has split Basically, both men said the same thing, so did the Bundestag members into two feuding fac- both of the new co-presidents, and so did other tions - he even used the word hatred to describe major speakers, including the party’s leading the worst outcroppings, and said that if things theoretician, Sahra Wagenknecht, 42, who continued that way he could no longer act as rejected calls to run for co-president and was caucus chairperson, indeed if they can’t overcome elected as one of four vice-presidents. It was she differences it must be considered whether the two who warned that the lack of a strong left, in times groups should not separate. His analysis dwelt of crisis, opened the way for the far right. on the dispute about whether the Left should The votes, with the possible candidacies open welcome or join coalitions with the Social Demo- until the last minute, were full of suspense. Part crats, as often advocated and sometime practiced of this was due to the long-announced, hotly con- in the eastern German states, or condemned, troversial candidacy of the East German Dietmar as by some in the West. He pointed out that for Bartsch, leader of the so-called Reformer wing, historical reasons the situations were completely who tends towards closer ties to the Social Demo- different in the two regions; at the height of its strength in 2009 the Left got 8.7 percent in the continued next page ... western states, in no small measure thanks to 88 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Germany cratic Party (which almost always rejects such new leadership team - led jointly by Kipping and advances, on all but local levels). Riexinger, must now try to cement over fissures, to grow together and lead the way for the only The Left has an unusual rule in all its elections, party in Germany with the will and the potential including the one for the highest office. First a for moving forward, fighting the good fight, devel- women’s slate is voted on. When this is com- oping solidarity with similar groups and parties pleted a second, mixed slate is open to both men in other countries - and maintaining a belief that and women. This has resulted in the majority of the current economic system in Germany, the rule female representation in the Bundestag, and it of big business and the big banks, with all their now meant that the first vote for president was servile politicians, eventually needs profound between two women, Katja Kipping, a 34-year-old changes. redhead from eastern Dresden versus the older Dora Heyenn, head of the party in western Ham- http://lists.portside.org/cgi-bin/listserv/wa?A2=ind12 burg. In Kipping’s Saxony the reformer wing is 06A&L=PORTSIDE&F=&S=&P=19568 very strong, but she herself has not been too close portside aims to provide varied material of interest to either wing; her mainly private interest was the to people on the left -- things that will help them to question of a guaranteed basic income. It was no interpret the world, and to change it. We invite you political split between the two, but the younger, to submit material for consideration. News, analysis, more dynamic woman won with 67 percent of the opinion, discussion and debate are welcome. vote. An unwritten but not iron-clad tradition expects a balance of one man, one woman, one East Ger- man, one West German. At one point it looked as if there might instead be a leadership of two women. But when it came time to choose the co- president the other woman dropped out, leaving two male contenders, the controversial Dietmar Bartsch and Bernd Riexinger, head of the party in western Baden-Wurttemberg, a union leader, not too well-known generally but a friend of Lafon- taine. Bartsch was disadvantaged; his election would have meant two easterners. Partly to avoid this imbalance, perhaps, but also to avoid the greater possibility of a split on political differenc- es, the delegates chose Riexinger with 297 votes against Bartsch with 251. For the other governing positions there were Easterners, Westerners, men, women, reformers and “fundis”, though those leaning further left seem to have been somewhat stronger. But thus far there has been no more talk of a split; everyone, including Bartsch, speaks of building a fighting party, of winning more elections, of fight- ing coming battles against very definite levels of poverty in Germany and, even more, against fear - fear of not finding a job, fear of losing a job, fear of impossibly higher rents and of cuts in medical care. It is too early to tell whether the two wings can really grow close enough to fly upwards again. There seemed - from afar - near unanimity on the need for it. Problems certainly have not disap- peared, but hopes seem high again, and there is a deep sense of relief among nearly all the delegates that they are still together. The almost entirely

Capitalism in Crisis: Europe, Austerity and the Left, 2012 89 Section II: Politics of Europe’s Crisis THE VOICE OF ANOTHER GERMANY Interview with Sahra Wagenknecht, By George Gilson, published in The Athens News on 18 November2011 A rising star in the German Left Party (DIE is to be refinanced by the European Central Bank. LINKE), MP Sahra Wagenknecht charges that That way, financial markets could no longer serve Europe is using the blackmail potential of mar- as instruments of blackmail. kets to force fiscal policy and political change on You voted against the bailout packages in the countries Bundestag. How will countries like Greece sur- THE ONLY thing German Chancellor Angela vive without such loans? Merkel and Sahra Wagenknecht have in com- A question in return: How is Greece to survive on mon is that they are both women raised in the those so-called rescue packages and the forced former East Germany. With stunning oratory, cutback programmes? Up to now the billions have the 42-year-old leftist MP has often ripped into only been used in order to bail out banks and pri- the chancellor, saying that the banks are the key vate creditors. If a right rescue policy exists, you beneficiaries of the huge bailout deals. cannot opt for a wrong one. In an interview with the Athens News, Wagen- Are we moving from a European Germany to a knecht charges that Merkel is using the markets, German Europe, where all must follow the Ger- with blackmail, to push killer austerity pro- man model of absolute fiscal discipline? grammes that are doomed to economic failure. Advocating an overhaul of the role of the Europe- Unfortunately, this is the way it looks. In the an Central Bank, she argues that surplus coun- meantime, Merkel has dictated a killer cutback tries like Germany should finance programmes to programme also for Italy - the third largest build up the industrial base of deficit countries, economy in the eurozone. This programme is to such as Greece. be monitored by the European Commission and the International Monetary Fund. Any Italian Athens News: Many Greeks believe that the harsh government will be forced to implement this pro- a u s t e r i t y programme imposed by Germany gramme. The future policy in Italy is going to be and the EU has created a vicious circle of borrow- dictated by undemocratic European institutions ing, namely taxes-recession-unemployment, that as well as by German Chancellor Angela Merkel will destroy the middle class, and some view this and French President Nicolas Sarkozy. as a new German occupation. Is there some truth to this? What do you think Europe is expecting from the new Greek coalition government and is it some- Sahra Wagenknecht: This impression is correct. thing Greece can deliver? Cutbacks in wages, pensions and social security inevitably lead to a reduction in demand. Cut- The ruling policy in Europe is to expect an im- backs on a scale as demanded from Greece lead to plementation down to dotting the i of the cut- a distinct recession. The last one-and-a-half years back policy that Greece has been dictated upon have proven that. to enforce - this means a continuation of false policy. Against the background of this continuing Do you think that the overwhelming power of the blackmail, it is difficult to come up with construc- markets is undermining democracy in Europe, tive proposals for the new Greek government. It and if so, what can be done to repair this? stands with its back to the wall. I would say that Merkel is using the markets in The reintroduction of the drachma would lead to order to prescribe wage and social dumping as a a worsening of the social and economic situation. solution for the countries in question. In order In my view, however, it would be important for to change this approach, the political situation in Greece to enhance its capacities to effectively levy Germany has to change. Otherwise, chances are and collect taxes from the rich and the big com- slim that this false policy is going to change - even panies. In order to do so it would first be essential though alternatives are possible. to invest money to create the necessary financial Public financing must be liberated from the dic- institutions. tates of the financial markets. This is possible if The Greek coalition government was set in mo- states are able to borrow money with favourable tion by an EU ultimatum on November 6 and interest rates via a public bank. This bank in turn Sahra Wagenknecht continued next page ... 90 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Germany something similar is happening in Italy. Will Many argue that Germany is profiting most the EU and the markets now have authority to from the euro, as Germany’s surpluses are tied to implement regime change in countries that face the trade deficits of the south. Does the EU have bankruptcy? a duty to invest in development projects that can create jobs and development in Greece, and not Yes, apparently in these times of crises, the ruling just solar energy programmes that benefit only policy in Europe is using the blackmail potential Germany, as many charge? of the financial markets to facilitate short-term government changes. This is undemocratic and Of course. This is the crucial point. Without the not acceptable - and this is true even though buildup of the Greek external debt, Germany’s indeed it is nice that [Italian Prime Minister] export-oriented industry would have never been Berlusconi is gone at long last. able to realise its enormous surplus in trade with Greece. This is also true with regard to the We’ve heard a lot of threats from Merkel, German trade with other countries. Excessive Sarkozy, EU Finance Commissioner Olli Rehn indebtedness is always a partial responsibility and others that Greece could be expelled from the of the creditor as well. This is why Germany has eurozone. Is Greece’s eurozone membership truly to be forced to strengthen its domestic demand. in jeopardy? Wouldn’t Greece’s expulsion have Also, on the other hand, special programmes - to possibly as disastrous an effect on the euro as on be financed by the surplus countries - must be set Greece? up to strengthen the industrial basis of the deficit Expelling Greece is formally and legally impossi- countries. The euro will only have a future if the ble. However, suspending the euro rescue credits crisis is solved with solidarity [among EU coun- would have the same effect. Greece would then tries]. be forced to reintroduce the drachma. It seems http://www.sahra-wagenknecht.de/en/article/1137. that this possibility is used as a bargaining chip the-voice-of-another-germany.html on the highest political level. This is completely irresponsible. A state bankruptcy accompanied by the reintroduction of the drachma under the existing conditions would be an invitation to the markets to start attacks on other countries in the eurozone.

Capitalism in Crisis: Europe, Austerity and the Left, 2012 91 Section III: Europe’s Future A DIFFERENT KIND OF EUROPE Trevor Evans March 2012 Trevor Evans outlines the basis for a rates of unemployment even before the outbreak progressive pan-European response to the of the crisis in 2007. euro crisis The EuroMemo group (Economists for an Alter- The growth of private international financial in- native Economic Policy in Europe) has, since its stitutions since the 1970s has seriously curtailed founding in the mid 1990s, consistently criticised the ability of national governments to exercise the undemocratic structures of the EU and their democratic control over economic policy. This neoliberal policies, while arguing that progressive was vividly demonstrated early in the 1980s, economic policies can be most effective if imple- when capital flight forced the French government mented at a European level. to abandon its programme of progressive eco- The group has set out a progressive pan-Europe- nomic reforms. Since then, finance has become an approach in its Euromemorandum (available much stronger, and the constraints are especially online at www.euromemo.eu). The most pressing severe for smaller countries. issue is the need for an alternative response to the A strengthening of the EU and a single monetary euro area crisis. This is the result of two interlock- bloc comparable in size to the US could be used to ing factors: the international financial crisis that achieve a major shift in the balance of power. By began in the US, and major imbalances within the acting at a European level it would be possible to euro area itself. achieve greater democratic control over economic policy than is possible in individual European The international financial crisis states. Big European banks had expanded their business Major corporations, which organise their ac- in the US since the 1990s in order to take advan- tivities on a global basis, can play countries off tage of the apparently higher returns there and against each other, obtaining concessions by were hit with big losses when the crisis broke. A threatening to shift production – and jobs – to major financial collapse in October 2008 was only other locations. But because the European market prevented through large-scale government injec- as a whole – like that of the US or China – is too tions of capital. important to abandon, it would be possible to im- The financial crisis led to a major contraction of pose greater regulation on corporations’ activities credit, and in the final quarter of 2008 and the at a European level. first quarter of 2009 Europe was faced with the The EU has, of course, in practice taken a dif- most severe recession since the 1930s. EU output ferent path. Since the 1980s in particular, EU fell by almost 5 per cent, and the impact would policy has been dominated – as in most member have been even more severe had governments states – by a strongly neoliberal approach. It has not responded by introducing emergency pro- explicitly allied itself with the interests of busi- grammes to boost their economies. ness, leading to rising social inequality, while The rescue of the banks, the cost of the emer- embracing greater integration into world markets gency fiscal programmes and a sharp fall in tax and an aggressive, mercantilist trade policy – to revenues due to the recession led a large increase the detriment of many developing countries. in government deficits. In the euro area the deficit The EU’s most ambitious project, the launch of jumped from 0.7 per cent of GDP in 2007 to 6.4 the euro in 1999, has been based on major flaws. per cent in 2009. It involves a common monetary policy but no common fiscal policy, let alone a common wage or Imbalances in the euro area industrial policy. The common monetary policy, When countries joined the euro area, their inter- furthermore, is based on restrictive principles in- est rates converged on the (lower) German level. herited from the German Bundesbank. While this The lower interest rates contributed to higher approach proved beneficial for German business economic growth and rising wages in southern so long as other European countries pursued high Europe, although higher inflation than in Ger- growth strategies that took higher inflation in many eroded the real value of the wage increases their stride, it has proved fatal when imposed on to some extent. Lower interest rates also fuelled a the euro area as a whole, contributing to higher boom in house prices in Ireland and Spain. 92 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Europe’s Future In Germany, by contrast, policies introduced by have declined, making it even more difficult for the Social Democrat/Green government meant governments to service their debts. As the reces- that wages did not rise at all in real terms follow- sion deepened in Greece in 2011, it was forced to ing the introduction of the euro in 1999. With return to the EU for yet further support. At the stagnant consumer spending, economic growth same time, Italy and Spain have been pressured was dependent on rising exports. Thanks to the to cut public spending as a condition of European single currency, Germany was able to expand Central Bank (ECB) support in the government its exports to other euro area countries without bond market. The result is that the euro area, the value of its currency rising (and making its including Germany, which depends on exports to exports more expensive) as would have occurred other euro area countries, is expected at best to without the euro. stagnate in 2012. As a result of these contrary developments, The EU summit in March 2011 agreed on a series between 2000 and 2007 the German trade sur- of measures for dealing with imbalances in the plus increased from €65 billion to €195 billion. euro area. However, these put the weight of This was closely mirrored by the trade deficit adjustment on countries facing deficits. Countries of Greece, Portugal and Spain, which increased with a trade surplus, such as Germany, are not from €61 billion to €160 billion. The deficit of the required to expand. Countries where wages rise southern countries was largely financed by loans more than productivity, as in southern Europe, from banks in Germany and France. are required to adjust, but not countries, again such as Germany, where wages rise less than The weakest link in the polarised relation be- productivity. tween southern and northern Europe was Greece. In 2007, even before the crisis began to bite, The EU’s responses to the crisis have either failed the government deficit was equal to 5 per cent to deal with the causes or actually made it worse. of GDP, principally because of a failure to tax The insistence on making private investors take the well-off. This rose to some 15 per cent in losses on their bond holdings, for example, led to 2009 (the exact figure is disputed in Greece). As panic selling. The ECB’s three-year loans to banks financial investors began to smell blood, specula- of a massive €489 billion at 1 per cent interest in tion against Greek government bonds intensified December involves a huge subsidy for the banks, in early 2010. The failure of the EU to respond with no guarantee they will use the funds to buy until the situation became critical in May led to a government bonds. Due to private sell-offs, the weakening of the euro and the onset of the euro interest rate that Italy and other countries will area crisis. have to pay to refinance government debt in 2012 remains prohibitively expensive and there is a EU imposes austerity serious danger of further panic selling. Although it was the big banks that caused the crisis in 2007 and – after being rescued by The basis for alternatives governments – led the speculation against euro As an immediate measure the ECB should an- area government bonds, the measures the EU has nounce that it will spend whatever is necessary adopted to reform the financial sector are even to stabilise government bond prices so as to end milder than those introduced in the US. Instead panic selling. The EU should then introduce of fundamentally reforming the financial sec- measures to achieve a radical downsizing of the tor, the EU’s response – led by Germany – has financial sector. In place of the current complex focused on imposing fiscal discipline. But fiscal of giant profit-driven institutions and the opaque deficits are the result not the cause of the crisis. mountain of complex securities, cooperative Apart from Greece, other peripheral euro area and public-sector commercial banks should be countries had small fiscal deficits before the crisis promoted to provide financing for socially and en- and Spain actually had a fiscal surplus. In most vironmentally desirable investment projects. countries, it was the private sector that had run Unsustainable public debt, as in Greece, should up debts. be subject to a debt audit (as pioneered in Ec- When Greece, and subsequently Ireland and Por- uador) to determine which debts are legitimate tugal, were obliged to turn to the EU for financial and which should be written off. Debt reduction support, this was made dependent on imple- should also be achieved through a wealth tax on menting austerity programmes. This has driven the very rich. They own much of the 40 trillion countries into deep recessions and, in addition to euro financial wealth held in the euro area in 2011 the deeply regressive social impact, tax revenues and have benefited inordinately from neoliberal Capitalism in Crisis: Europe, Austerity and the Left, 2012 93 Section III: Europe’s Future policies in recent decades. To prevent future policy has been suspended for the foreseeable speculation against weaker states, euro area future. governments should swap remaining government The current situation is unsustainable. Peripheral bonds for jointly issued euro bonds. countries are confronted with the prospect of pro- The common monetary policy should be comple- longed austerity and mass unemployment. But for mented by a coordinated euro-area fiscal policy. a small country like Greece to leave the euro area In place of the current one-sided emphasis on would expose it to massive economic disruption fiscal discipline, this should aim to stabilise the and lead to a further large fall in living standards. economy and promote full employment with EuroMemo argues for a coordinated Euro- what the International Labour Organisation calls pean response. In place of the current German- ‘decent work’. The EU budget, currently equal to a dominated axis with France, there should be a meagre 1 per cent of EU GDP, should be increased strengthened European economic government to at least 5 per cent in order to have a macro- that is subject to effective democratic control. economic impact and to provide greater support This will require a significant strengthening of the for weaker regions. To this end, the long-term role of the European Parliament. But it will also decline in the taxation of higher incomes should be important to develop support for progressive be reversed, with incomes of over 250,000 euro European policies among the citizens of the EU. a year taxed at around 75 per cent. In addition, countries with a trade surplus, such as Germany, The Euromemorandum proposals have received should introduce expansionary policies so as to support and been drawn on to a varying extent in strengthen euro area demand and relieve the different member states by unions, social move- pressure on deficit countries. ments including Attac, left parties including the German Die Linke and the Greek Synaspismos, A strong programme of public investment is and the left wing of some social democratic and necessary, especially in peripheral countries, in green parties. The proposals should now be de- order to establish productive capacity based on veloped through a deepened interchange between modern technology and skilled jobs rather than progressive economists and movement activists on low wages. Financing for this should draw on and used to help build European-wide support the European Investment Bank, which is already for a fundamental change in the direction of EU empowered to issue bonds. policy. A coordinated euro area wage policy should First published: Red Pepper, March 2012 ensure that the widespread decline in the share of wages in national income is reversed, and Available: http://www.redpepper.org.uk/a-different- that wages in states with lower incomes begin to kind-of-europe/ converge on those with higher incomes. Normal working hours should be reduced to 30 hours a week both to combat unemployment and as a contribution to building a society in which life is not dominated by waged work. A progressive response to the crisis in the euro area also confronts a major challenge: while the debt crisis faced by peripheral euro area coun- tries calls for economic growth, environmental sustainability requires a massive reduction in the consumption of non-renewable resources and the emission of green-house gases. Democratising the EU The EU response to the crisis has been highly authoritarian. Fiscal discipline is to be imposed on euro area states by the European Commission and measures will be automatic unless meetings of EU finance ministers vote with a super major- ity to suspend them. In countries such as Greece and Portugal democratic control over economic

94 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Europe’s Future A DIFFERENT KIND OF EUROPE? Responses to Trevor Evans

How do we respond to the euro crisis? if by that one means benefiting the great major- Susan George, Paolo Gerbaudo, Donatella ity of European populations, is not the point. della Porta and James Meadway write The prescribed commandments must be applied whatever the consequences – which, as oppo- These are responses to Trevor Evans’ article on nents have repeatedly warned, will be full blooded the basis for a progressive pan-European re- recession and the increasingly likely destruction sponse to the euro crisis. of a flawed but remarkable post-war political The golden calf of capital achievement. The economics of the elite has as much to do with Traces of older and darker human-sacrifice rites blind faith as rational argument, says Susan are here on display: the markets must be propiti- George, so our resistance has to reflect this fact. ated. These mysterious, god-like forces will have their due: throw another public service, another The Euromemo Group’s recent report is a particu- wage-cut, another batch of uneducated children larly important and thorough analysis-cum-set of and their underpaid, uncared-for, often unem- proposals to repair years of self-inflicted damage ployed parents on the fire. The thirst of these gods in the eurozone. Its voice, however welcome, is far cannot be slaked. As the European leadership dis- from the only one in what has become a mighty covers at regular intervals, they always demand chorus. new sacrifices. Many respectable experts, such as Nobel econom- Yes, I recognise that quasi-rational forces are also ics laureate Paul Krugman and Martin Wolf of at work. We are not talking only religion. We are the Financial Times, and innumerable NGOs are also talking Politics, Money, Power and Rapport singing from the same hymn-sheet. A broad coali- de Forces and our elites surely believe they have tion has proposed valid and converging alterna- found a foolproof way to make the people pay tives based on both history and common sense. once again for their crisis. Capital must continue But let’s face it. None of the reasonable, workable to devour social substance, to privatise public proposals of this consensus, ranging from the services, to squeeze more value from labour, to mild centre left to the long-time radicals, is even perpetuate the yawning inequalities that keep it on the table. Governments, the IMF and institu- afloat. tions such as the European Commission and the I am simply asking that those who remain pre- European Central Bank are not reading, much pared to fight understand that we are not engaged less discussing or acting on them. This harsh here in rational argument concerning economic truth should give us a clue about what is actually alternatives with respectable people whose ideas going on. are simply different from our own. We are up We are not talking economics here. We are talk- against a rigid belief system whose priesthood ing religion – and hellfire and brimstone religion is prepared to defend it to the death – and they at that. There was no earthly economic reason have plenty of resources to bring to their battle. to allow the Greek quasi-or-actual default to Yes, we must continue to campaign and explain, undermine and possibly destroy 50 years of the to propose and publish, to occupy and march. But European work-in-progress. Greece represents no we must also do much more than that. more than 3 per cent of the European economy. With our financial transaction tax campaign, However, instead of obliging and helping Greece Attac verified the Gandhian rule of thumb: ‘First to correct obvious economic shortcomings, they ignore you, then they laugh at you, then they including a bloated military budget and no tax criticise you and say it can never work, then you income from the church and the rich, a medieval win.’ We have advanced considerably with the morality-play scenario was chosen. FTT but it has still not been applied to the euro. The austerity policies everywhere imposed are You only win when a majority of your adversar- as dogmatic as anything John Calvin or the pope ies realise it’s in their interests or when they can’t ever invented. It doesn’t matter that the pre- take the heat any longer. scribed doctrines can’t and won’t work. ‘Working’, The Euromemo proposals are not in the interests Capitalism in Crisis: Europe, Austerity and the Left, 2012 95 Section III: Europe’s Future of the financial markets and no cosmetics will for Europe’ (signed, among others, by Donatella cause them to believe that they are. So we are set Della Porta, who writes on the following page). to remain in Gandhian stage 1: they will ignore This proposes economic recipes resembling those us. That is why we need the help not just of econ- outlined in the Euromemorandum, among them omists but also of anthropologists and historians, an abandonment of the ‘stability pacts’, a shift in actors and comedians and theologians. We need taxation from labour to wealth, the establishment satire and denunciation, sermons and our own of a European public rating agency, the creation medieval morality plays. of eurobonds to refinance public debt and invest- ment in the green economy. To this, the Italian Some of our foes might even recognise they are appeal adds an emphasis on the need for demo- endangering themselves by worshipping the cratic reform of EU institutions to make them golden calf. Do not forget the papal legate who in accountable and representative. 1209, during the Albigensian crusade, was asked by his troops what should be done about the pos- To date the Florence appeal represents one of the sible Catholics mixed in with the heretics. He, like most advanced policy platforms on European re- our sacred Markets and our 1 per cent, cried out form. The problem is that it does not identify who ‘Kill them all – God will recognise his own.’ Even, should campaign for the demands it puts forward. possibly, the Germans. The organisers of the Florence meeting mooted the idea of a new European Social Forum for this Europeanism from below purpose, but this suggestion is a symptom of the Paolo Gerbaudo reports on the Routes of degree to which Italian activists are out of tune Europe conference in Florence, arguing that with what is happening around Europe. the Italian left must embrace the participatory The organisational form that is en vogue across democracy of the Indignados to achieve political Europe is not the social forum as a convergence purchase. of progressive civil society organisations but The city of Florence is one of those privileged the popular assembly used by the Indignados: a observation spots from which one can read the convergence of individuals who do not feel repre- health of the Italian left and its international sented by any organisation, including progressive standing. Back in 2002 it was in this city that ones. The policies emerging from the Florence the first European Social Forum was organised. meeting resonate with some of the proposals The event came a year after the bloody battle of that have been agreed by the assemblies of the Genoa, the event which marked the culmination Spanish Indignados through complex consensus of the anti-globalisation movement. Hundreds procedures. Yet the organisers of the Florence of thousands of members of social movements, meeting did not seem to acknowledge that this trade unions, NGOs and activist groups gathered is currently the only movement that can halt the in what remains, to date, the biggest and most politics of austerity in Europe. successful European Social Forum. The event What made Italian social movements so influen- testified to the cultural influence of Italian social tial during the anti-globalisation cycle was their movements in Europe, and of their espousal of a capacity to combine a high level of intellectual Europeanism from below. analysis with the inventiveness of grass-roots On 9 December 2011, Florence was again the organisational practices. The meeting in Flor- venue for a forum assembling key progressive ence demonstrates that this cultural capacity is intellectuals and activists of the Italian left, con- still there. What is now missing is the connection vening to discuss the future of Europe. Almost a between intellectual debate and organisational decade after the first ESF, this forum was staged practices reflecting the direction that social move- against a background of political demobilisation, ments are taking around Europe and beyond: in which Italian activists appear incapable of fac- popular participation and assembly democracy. ing up to the politics of austerity pushed by the ‘Italian activists continue to wallow in nostalgia new Italian prime minister Mario Monti, who has for the anti-globalisation cycle,’ I was recently been de facto chosen by the European oligarchy told by a member of Democracia Real Ya, one to reassure the financial markets. of the initiators of the Indignados movement The Florence meeting was titled ‘Routes of Eu- in Spain. If valuable proposals such as the ones rope’ (punning in Italian on ‘rout’) and sought advanced by the Florence meeting are to have any a new progressive agenda for the old continent. political purchase, they need to find legitimacy in The end result was a draft appeal, ‘Another Road the movements of the present rather than in those of the past. 96 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Europe’s Future Another road financial crisis. Also, there is convincing evidence that rich corporate lobbies have privileged access Donatella della Porta, professor of sociology to EU institutions. at the European University Institute, is a signato- ry to the ‘Another Road for Europe’ appeal, which In this context, legitimacy has been sought by has a strong emphasis on the need to democratise introducing elements of participation and con- the EU, not only by strengthening the European sultation – for example, taking proposals through Parliament but through greater participation of citizen’s initiatives. But they have been highly civil society. exclusive in their design. ‘Italy needs reforms, not elections,’ declared The limits of democracy in the EU are clear, but Herman Van Rompuy, president of the Euro- devising ways of democratising it is no easy task. pean Council, as he presented his conception of Increasing the power of the parliament is neces- democracy in a speech at the European University sary, but not sufficient to overcome weaknesses in Institute last November. During his speech, PhD the quality of parties and elections. students from all over Europe held up posters Since the first European marches against un- headed ‘Democracy?’ and stating: ‘As the head employment, the counter-EU summits, and the of a European people whose popular consent in European Social Forum, social movements have the appointment was deemed superfluous, the played an important role in constructing a Euro- office of president of the European Council is the pean public sphere. They triggered a politicisa- symbol of the ever more blatant democratic defi- tion that is fundamental to democracy (and not a cit at the heart of the European Union. However, risk for it, as the eurocrats imply). The power of the crisis of democracy in the European Union is social movements to contest is the main driver of much more insidious than the appointment of a democratisation. presidential figurehead. The undemocratic ethos Through protests targeting the EU, they can pervades the very structures of the Union.’ counter the strength of the lobbies. By monitor- In spite of this deficit, they concluded, ‘We believe ing and denouncing the privileged access granted that another Europe is possible . . . Our Europe to these lobbies, they can introduce elements of can and will once again be rooted in its found- institutional controls. This could mean increased ing values of human dignity, freedom, equality transparency of EU institutions, which are char- and solidarity, constructed upon and protected acteristically rather secretive in their decision- by accountable and truly democratic political making and top-down in their communication. institutions.’ Among their ‘95 theses’, two read: As for the instruments of participation, the use ‘No common currency without a common democ- of direct citizen initiatives is currently limited by racy!’ and ‘You can’t balance the budget with a high thresholds for both the numbers of sig- democratic deficit!’ natories required and the number of countries This illustrated how the debate on the financial covered, making it an instrument that only large, crisis, is in Europe as in the occupied parks of Europe-wide organisations are likely to use. America, intertwined with a competing vision of Moreover, the important democratic moment in democracy. referendums is not merely the vote. It must in- The EU always had problems of democratic legiti- clude the process of opinion formation. Together macy. The powers of the parliament are still far with instruments of direct democracy, it is also less than those of national governments. Moreo- important to create free spaces, where a Euro- ver, the low quality of electoral accountability pean civil society can develop, ideas and identities leads to and is reinforced by the weakness of Eu- can be formed, and communication move ‘from ropean parties. Consequently, elections to it are below’ towards EU institutions. of a ‘second order’ character, with citizens voting Finally, democracy is not only a procedure. At more to indicate their stance on national politics. the national level, democracies have legitimated Likewise, MEPs tend to vote along country lines. themselves through reducing social inequalities To balance the lack of democratic legitimacy, and granting some modicum of social rights to EU institutions present themselves as benign, their citizens. Conceptions of political equality efficient and non-political. But with the apoliti- spilled over to claims of social equality. The EU cal pretence becoming less and less credible as is weak on this. The extensive power of monetary the power of non-elected EU institutions grew, policies has meant declining power on social their claims to efficiency were undermined by the policies, in the sense of imposing strong lim- its to these being pursued at the national level. Capitalism in Crisis: Europe, Austerity and the Left, 2012 97 Section III: Europe’s Future Moreover, a tradition of ‘negative integration’ equal relations amongst Europe’s peoples, the EU – the Europe of the market – has detracted from has become a machine to drive them apart. The the attention of EU institutions to the welfare crisis has trailed new xenophobia in its wake. The of European citizens. Improving the democratic True Finns, anti-EU, anti-immigrant, rose from quality of EU institutions implies addressing the nowhere to within a whisker of government. Ger- demands for a social Europe, a Europe of the man tabloid Bild has revelled in crude stereotypes citizens. of Greeks, while German flags are burned on the streets of Athens. The ‘Another Road for Europe’ draft appeal is online http://www.opendemocracy.net/rossana- A clear hierarchy of power has developed through rossanda-et-al/another-road-for-europe-draft- the single currency. Intended on its creation to appeal act as an international reserve currency able to compete with the dollar and the yen, the euro Breaking up? locked member states into a single monetary James Meadway argues that while the Eu- regime but made no serious provision to unify romemorandum proposals are welcome, it is an fiscal policy. Competitiveness, under these condi- illusion to think that the EU’s neoliberal institu- tions, could only be achieved through productiv- tions can act for social justice. ity growth or cutting labour costs. Productivity growth has been unimpressive, but Germany, at The future for Europe is as bleak as it has been least, has been singularly successful in hammer- for a generation or more. From the eruption of ing its workers. What was already a wide competi- the Greek debt crisis in October 2009, Europe’s tive advantage became, over the decade, a yawn- towering sovereign debts have threatened to pull ing chasm. Export surpluses in Germany and down its enfeebled financial system – a collapse the north were matched by deficits in southern that threatens wider economic disintegration. Europe. Those deficits were financed with debt, And yet for two years the supposed guardians of recycled through Europe’s financial system from the European economy have proved themselves northern surpluses. inadequate. A succession of summits, each one more last-ditch than the one preceding, has Instability always threatened. But since the agreed on little of use – except endless demands crisis broke, those macroeconomic imbalances for austerity. It is this rush to cut that is, in the have translated into gross political unevenness. first instance, dragging the whole continent into If, formally, euro members retain equal rights the mire. within EU institutions, in practice the debt crisis has given the largest surplus country immense Euromemorandum thinks this results from bad power. Crippled southern economies, locked into policy – European leaders’ hopeless misdiagnosis the euro and left with few options, have buckled of the continent’s malaise, pushing public spend- under austerity. ing cuts against debts and deficits that were the result of the private sector’s financial collapse and There are, moreover, other tendencies, less visible longstanding trade imbalances. It offers alterna- but similarly destructive for the project of a neo- tives, which are timely and carefully argued, and liberal union. One is Europe’s financial system, place the needs of wider society far above the liberalised in grand style over the decade of the demands of Europe’s bankers. euro’s existence, becoming perversely repatriated. Therein lies the problem. The economic madness National banking systems, rather than integrat- that has spread to country after country, infesting ing more tightly across the EU, are being drawn politicians, media, even whole institutions, is not ever closer to their national governments through an aberration in an otherwise healthy body poli- their purchases of sovereign debt. As interna- tic. It’s the product of a diseased, dysfunctional tional creditors retreat from risk, governments – system. especially those in the indebted periphery – grow more reliant on private, national banks. National It is desirable to have European institutions that banks, in turn, are increasingly looking to their can co-ordinate fiscal and monetary policy across central banks to hold short-term deposits, fearful the whole continent. But how this co-ordination of risks elsewhere. The financial integration of the is to emerge from the dysfunction that actually euro’s boom years is now turning into its oppo- exists is unclear. site. And as the crisis deepens, the dysfunction wors- ens. Far from promoting an ‘ever closer union’ of continued next page ...

98 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Europe’s Future AUSTERITY POLICIES IN EUROPE: THERE IS NO ALTERNATIVE March 16, 2012 Asbjørn Wahl One of Margaret Thatcher’s infamous slogans was Many people expected that the financial crisis, “There Is No Alternative”, known also through its with its ruinous consequences, would mean abbreviation TINA. For Thatcher this was a nor- the final goodbye to neoliberalism, speculation mative slogan, a part of her political, ideological economies and the dominance of free market struggle. She wanted to convince people that her forces. This policy had led to a dramatic redistri- neoliberal policies were the only possible, other bution of wealth – from labour to capital, from alternatives have been left on the scrap heap of the public to the private sector, and from the poor history. My use of the same wording in the title to the rich. The system was thus discredited – and of this article is not meant to be normative, but now the politicians surely had to realise that sys- rather descriptive. It describes the really existing tematic deregulation, privatisation and free-flow political situation in Europe today. Thus, it also capitalism had failed – and had actually been describes the enormous challenge which the trade directly destructive. The casino economy had to union and labour movement in Europe faces, be stopped. In other words, the time had come for the lack of alternatives to the current neoliberal, control and regulation. So many people thought. austerity policies or, to say it bluntly, the deep But that is not what happened. The governments ideological and political crisis of the left. did not seize the opportunity to ensure increased The background of the extreme austerity policies democratic control and lasting public owner- which are now being pursued in great parts of Eu- ship of the financial institutions. There were rope are well known to most people. The financial admittedly, in the wake of the crisis, a number of crisis hit Europe at full strength in autumn 2008. proposals about regulating the financial markets To prevent a collapse of the world’s financial mar- and imposing taxes on financial institutions and kets governments introduced massive economic financial transactions. The elites and the money- rescue packages. These packages were crucial in grubbers were obviously nervous for the reactions preventing an economic breakdown after unre- among people. However, actions of a sort which strained speculation economies had been allowed could threaten their interests, failed to appear. to hold the field for a couple of decades. Most Proposals of this kind, therefore, have increas- governments took up enormous loans to finance ingly been toned down and postponed until the these packages, something which led them into a continued next page ... debt crisis.

Responses .. continued ... Calls for the European Central Bank to act as an internationalism, based on the needs of working effective lender of last resort must work against people, is needed. For the countries of the periph- both this tendency to repatriate banking systems ery, that means reclaiming democratic sover- and against the built-in weakness of a central eignty and breaking the straitjacket of the euro. bank that lacks a central state. Joint and several Turning the Euromemorandum vision into reality liability for ECB bonds and guarantees cannot will mean ditching some long-held illusions in function when competing sovereign states have the ability of Europe’s flailing neoliberal institu- every incentive to duck the risks and costs. tions to convert themselves into vehicles for social justice. The reductio ad absurdum of this belief is the col- lateralised debt obligation (CDO) on steroids that James Meadway is an affiliate of Research on is the European Financial Stability Facility: an Money and Finance and a co-author of the report off-balance sheet bailout fund apparently expect- Breaking up? A route out of the eurozone crisis, ed, by some miracle of accounting, to bail out its available at www.researchonmoneyandfinance. own major contributors. org The space for plausible solutions to this crisis First published: Red Pepper, April 2012 emerging from European institutions is rap- Available: http://www.redpepper.org.uk/a-different- idly dwindling, if it ever existed, and a genuine kind-of-europe-responses/

Capitalism in Crisis: Europe, Austerity and the Left, 2012 99 Asbjorn Wahl continued ... Within the prevailing power relations, however, this was not the policy of choice. The neoliberals future. This was well illustrated by the G20 meet- and speculators who contributed most to causing ing in Toronto in Canada in June 2010, where the the crisis are still in the driving seat – even when final declaration contained little more than the the crisis measures are drawn up and the bills are well-known neoliberal recommendations about made out. The result is that the losses become removing further barriers to the free movement of socialised while the gains become privatised – yet capital, goods and services. again. Thus, austerity policies are implemented that further intensifies the crisis. The interests On the contrary, what we have seen are draconian of financial capital are given priority. As many austerity programmes, massive privatisation of people have pointed out, the EU’s rescue pack- whatever is left to privatise and enormous at- ages are not primarily designed to save Greece, tacks on public sector wages, pensions and trade Ireland, Portugal and other countries that might union rights – particularly in the most crisis- follow, but the German, French and British banks ridden countries. Pensions have been cut by up to and financial institutions that these countries 15–20%, while the wage level in the public sector had borrowed money from. While what is needed has been reduced by anything from 5% (Spain) to is stimulation of the economy, investments in over 40% (in the Baltic). Collective agreements infrastructures and in productive activities to and trade union rights are being set aside – not create jobs, as well as a strengthening of the social via negotiations with trade unions but via govern- security network, we are witnessing the opposite. ment decrees and political decisions. This has happened in at least nine European Union (EU) The role of the EU in what is now being enacted countries (the Baltic states, Bulgaria, Romania, on the European continent is pivotal. In addition Greece, Spain, Portugal and Ireland). If the trade to the democratic deficit that is built into the EU union and labour movement is unable to contain institutions, they have to a great extent acquired this development, it may be facing a decisive and their form and content during the neoliberal era. historic defeat in Europe. They are therefore dominated by the interests of capital – financial capital in particular. Through How could this happen in a part of the world the Lisbon Treaty neoliberalism is constitution- which has harboured some of the strongest and alised as the economic system of the EU. The EU most militant trade union and labour movements Commission, The European Central Bank and in the world? Why have not opposition and resist- The International Monetary Fund (IMF) – popu- ance been stronger? How come that most of the larly known as the triad – are now, together with proposals of regulation and increased democratic national governments, using the crisis to further control have vanished like dew before the sun? reshape societies to suit the interests of financial And who could imagine that quite a few of the capital. For example, the IMF is now prescribing enormous attacks on public services, wages, pen- the same measures for the debt-laden EU coun- sions and trade union rights were carried out by tries which so far have been placed under admin- Social Democratic governments – in Greece, in istration by the IMF and The European Central Spain and in Portugal, until they all were ousted Bank, as they have formerly imposed on develop- from their government offices by frustrated voters ing countries and the Central and Eastern Euro- and replaced by right wing governments? pean countries via the so-called structural adjust- This has to do with power relations in society ment programmes. This is a recipe for depression and the deep political crisis on the left. It is not and social crisis. common sense but the prevailing balance of In this picture, the lack of political alternatives on power, mainly between labour and capital, that the left is striking. The current deep ideological decides what ‘solutions’ are chosen. If reason had and political crisis on the broad left can only be prevailed, one would naturally have stopped the understood in the context of the rather socially meaningless speculation economy via regulations, peaceful post World War II period, the heydays by gaining increased democratic control over of the social welfare state and the existence of a banks and other financial institutions, by prohib- class compromise between labour and capital in iting short sales, hedge funds and trading with Europe. This historic compromise was the result various high-risk, so-called financial instruments. of a very specific historic development, in which One would have limited the free movement of capitalist forces gave concessions to the well or- capital across national borders and overturned a ganised working class in Western Europe to damp taxes, rates and dues system that lets the rich go its radicalism and win workers’ support in the free and encourages unrestrained speculation. cold war against the Soviet Union. However, in 100 Capitalism in Crisis: Europe, Austerity and the Left, 2012 the dominant trade union and labour movement cal evidence, especially in Europe, is extremely these historic specific achievements gradually frightening. Anyway, the social struggle and the formed the basis for a generalised social part- fight for social welfare in Europe are entering a nership ideology which became more and more new phase. The crisis polarises differences and delinked from the analyses of the power relations provokes confrontations particularly at the local on which it was built. Thus, it also led to a certain and national level. General strikes are back on the depoliticisation and deradicalisation of the trade union agendas in many countries, particularly in union and labour movement. The historic role of Greece, where the population is being exposed the Social Democratic parties became to adminis- to draconian measures that threaten their gen- ter the class compromise, rather than to mobilise eral economic and social living conditions. In the working class for further social progress. This Portugal, Italy, Spain, France, Ireland and Great is very well illustrated by the fact that the politi- Britain general strikes and mass demonstrations cal and ideological crisis really hit those political have also been carried out, though with differing parties as the class compromise started to disin- degrees of strength and intensity. The outcome of tegrate from around 1980 – and capitalist forces these struggles is, however, extremely uncertain. launched their neoliberal offensive. The European social model, such as we know it from its heyday, has at any rate been abandoned What we have seen in Europe over the last 30 in reality by the European elites, even if they con- years is therefore governments which have pur- tinue to pay lip-service to it. sued some kind of neoliberal policies whether they have been right wing, centre or so-called A solution to the crisis, built on solidarity, will centre-left governments. The Social Democratic require massive mobilisation in order to change Parties in the EU member countries have, without the balance of power in society. Only if the trade exception, supported all the neoliberal consti- union and labour movement is strong enough tutional amendments of the EU, and the entire to pose a threat to the existing economic order, construction of a Singel Market, which in reality will the speculators and their political servants has been a systematic project of deregulation, pri- start to give in. That is why support for those who vatisation and undermining of trade unions and are now fighting to contain this cutback policy is social welfare. The few examples we have seen of so crucial. The restructuring of the political left political parties to the left of Social Democracy seems to be part of the task. Either the trade un- joining governments as junior partners of Social ion and labour movement will manage to defend Democratic Parties (the French Communist Party the social progress gained via the welfare state, or 1997-2002, the Italian Rifondazione Comuni- it risks being left with a right-wing authoritarian sta 2006-8, the Norwegian Socialist Left Party and socially degraded Europe. A great part of the 2005-today) have proved anything from negative social progress of the last century is at stake. to disastrous. None of them have been able to This column was first published by the Global Labour contain neoliberal policies, and they have there- Journal fore lost confidence among workers. http://digitalcommons.mcmaster.ca/globallabour/ Most of the European trade union confederations vol3/iss1/9/ are clinging to what in EU language is called the Also available: http://www.social-europe.eu/2012/03/ ‘social dialogue’. This means that they act as if austerity-policies-in-europe-there-is-no-alternative/ the post World War II class compromise is still intact, and that bi- and tripartite cooperation between labour, capital and the state is still the most effective way of promoting the interests of workers. That the class compromise has come to an end, and that the social forces with which they seek dialogue are attacking public services, wages, pensions and the very fundamental trade unions rights day and night, do not seem to weaken most European trade union organisations’ belief in social partnership and social dialogue as the main way forward. The enormous austerity policies and the attacks on the trade unions are, socially and politically speaking, a deadly cocktail – and the histori-

Capitalism in Crisis: Europe, Austerity and the Left, 2012 101 Section III: Europe’s Future EUROPE MUST MOVE BEYOND MERE TOLERANCE Slavoj Žižek guardian.co.uk, 25 January 2011 The EU must unite its people in a in this universal dimension directly, irrespective common struggle, breaking the of my special place within the global social order. deadlock between anaemic liberals Christ’s “scandalous” words from Luke point in and impassioned extremists the direction of a universality which ignores every When, a decade ago, Slovenia was about to join social hierarchy: “If anyone comes to me and does the European Union, one of our Eurosceptics not hate his father and his mother, his wife and offered a sarcastic paraphrase of a Marx broth- children, his brothers and sisters – yes even his ers joke about getting a lawyer: Do we, Slovenes, own life – he cannot be my disciple” (14:26). have troubles? Let us join the EU! We will have Family relations stand here for any particular eth- even more troubles, but we will have the EU to nic or hierarchic social link that determines our take care of them! This is how many Slovenes place in the global order of things. The “hatred” now perceive the EU: it brings some help, but it enjoined by Christ is therefore not the opposite also brings new problems (regulations and fines, of Christian love, but its direct expression: it is financial demands to help Greece, etc). So is the love itself that enjoins us to “disconnect” from our EU worth defending? The real question is, of organic community into which we were born, or, course, which EU? as St Paul put it, for a Christian, there are neither A century ago, Gilbert Keith Chesterton clearly men nor women, neither Jews nor Greeks. No deployed the fundamental deadlock of the critics wonder that, for those fully identified with a par- of religion: ticular way of life, the appearance of Christ was perceived as ridiculous or traumatic. “Men who begin to fight the church for the sake of freedom and humanity end by flinging away But the impasse of Europe reaches much deeper. freedom and humanity if only they may fight The real problem is that the critics of the anti- the church … The secularists have not wrecked immigrant wave, who should defend this precious divine things; but the secularists have wrecked core of the European legacy, instead tend to limit secular things, if that is any comfort to them.” themselves to the endless ritual of confessing Eu- rope’s own sins, of humbly accepting the limita- The same holds true for the advocates of reli- tions of the European legacy, and of celebrating gion themselves. How many fanatical defenders the wealth of other cultures. of religion started out attacking secular culture and ended up forsaking any meaningful religious The famous lines from William Butler Yeats’s experience? Second Coming render perfectly our present pre- dicament: “The best lack all conviction, while the In a similar way, many liberal warriors are so worst are full of passionate intensity.” This is an eager to fight anti-democratic fundamentalism excellent description of the current split between that they end up flinging away freedom and de- anaemic liberals and impassioned fundamental- mocracy themselves. If the “terrorists” are ready ists, Muslim as well as our own, Christian. “The to wreck this world for love of another world, our best” are no longer able fully to engage, while “the warriors on terror are ready to wreck their own worst” engage in racist, religious, sexist fanati- democratic world out of hatred for the Muslim cism. How can we break out of this deadlock? other. Some of them love human dignity so much that they are even ready to legalise torture – the A recent debate in Germany may indicate the ultimate degradation of human dignity – to de- way. Last October, the chancellor, Angela Merkel, fend it. declared at a meeting of young members of her conservative Christian Democratic Union: “This And does the same not hold also for the recent multicultural approach, saying that we simply live rise of the defenders of Europe against the immi- side by side and live happily with each other, has grant threat? In their zeal to protect the Judeo- failed. Utterly failed.” With this, she was echo- Christian legacy, the new zealots are ready to ing the debate about Leitkultur (the dominant forsake the true heart of the Christian legacy: that culture) from a couple of years ago, when con- each individual has an immediate access to the servatives insisted that every state was based on universality of the Holy Spirit (or, today, of hu- a predominant cultural space which the mem- man rights and freedoms); that I can participate 102 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Europe’s Future bers of other cultures who live in the same space the occupied West Bank: Palestinian women who should respect. were demonstrating against the wall were joined by a group of Jewish lesbian women from Israel. Instead of bemoaning the newly emerging racist The initial mutual mistrust was dispelled in the Europe, such statements announce, we should first confrontation with the Israeli soldiers guard- be self-critical, asking to what extent our own ing the wall, and a sublime solidarity developed, abstract multiculturalism contributed to this sad with a traditionally dressed Palestinian woman state of things. If all sides do not share or respect embracing a Jewish lesbian with spiked purple the same civility, then multiculturalism turns hair – a living symbol of what our struggle should into legally regulated mutual ignorance or hatred. be. The conflict about multiculturalism already is one about Leitkultur: it is not a conflict between So, perhaps, the Slovenian Eurosceptic missed cultures, but between different visions of how dif- the point with his Marx brothers sarcasm. Instead ferent cultures can and should co-exist, about the of losing time with the costs and benefits analysis rules and practices these cultures have to share if of our membership in the EU, we should focus on they are to co-exist. what the EU effectively stands for. Mostly, it acts as a regulator of global capitalist development; One should thus avoid getting caught in the lib- sometimes, it flirts with the conservative defence eral game of “how much tolerance can we afford”: of its tradition. Both these paths lead to oblivion, should we tolerate it if they prevent their children to Europe’s marginalisation. The only way out of going to state schools? If they force their women this debilitating deadlock is for Europe to resusci- to dress in a certain way? If they arrange marriag- tate its legacy of radical and universal emancipa- es or brutalise gay people? At this level, of course, tion. The task is to move beyond mere tolerance we are never tolerant enough, or we are already of others to a positive emancipatory Leitkultur too tolerant, neglecting the rights of women, gay which can sustain authentic co-existence. Don’t people etc. just respect others, offer a common struggle, The only way to break out of this deadlock is to since our problems today are common. propose and fight for a positive universal project Published with permission shared by all participants. Struggles where “there are neither men nor women, neither Jews nor © 2012 Guardian News and Media Limited or its affili- Greeks” are many, from ecology to the economy. ated companies. All rights reserved. Some months ago, a small miracle happened in

Capitalism in Crisis: Europe, Austerity and the Left, 2012 103 Section IV: The Challenge of Transformation - Harmony and Ecological Civilization: Beyond the Capitalist Alienation of Nature: Monthly Review Beyond the Capitalist Alienation of Nature Fred Magdoff Fred Magdoff is professor emeritus of plant and years)—a relatively short time in the 150,000 year soil science at the University of Vermont. His history of anatomically modern humans—has is coauthor with John Bellamy Foster of What shown that it fosters interpersonal relations and Every Environmentalist Needs to Know About metabolic interactions with the earth that are Capitalism (Monthly Review Press, 2011). detrimental to achieving a harmonious existence. This is a result of capitalism’s basic characteris- This article was prepared for presentation to the tics and the relationships it creates as it normally conference on “Harmony and Ecological Civiliza- functions. The purpose of capitalism is not to sat- tion” organized for a group of visiting Chinese isfy human needs and preserve the environment. academics interested in ecological Marxism by There is only one purpose and driving force—ul- the Institute for Postmodern Development of timately responsible for both its dynamic periods China (IPDC), Claremont, California, on April 27 and its crises and long periods of slow growth and 28, 2012. Sponsors of the conference from (stagnation)—and that is the accumulation of China included: the Central Bureau of Compila- capital without end. The capitalist system has a tion and Translation of the CCP and the China number of basic characteristics and also fosters Society for the Dialectics of Nature. specific human characteristics and relationships. Let me begin by making clear that I am not a phi- Here are ten key aspects of capitalism: losopher nor am I well versed in Chinese cultural • It has to grow (or else it is in crisis) and its history. My background is in agriculture, specifi- very logic and motivating force impels growth. cally soil fertility and health, from which I have • It has no other driving force than the accumu- branched out into areas of ecology and ecological lation of ever greater amounts of capital. approaches to agriculture and society. • Through the creation of so-called “externali- With that in mind, when I consider the concept of ties” (or side effects) it wreaks damage on hu- harmony in the context of humans, their socie- mans as well as the ecosystem and the life sup- ties, and the environment I have a particular un- port systems needed by humanity and other derstanding of the concept. It refers to all people species. In Paul Sweezy’s words: “As far as the living together peacefully without exploitation natural environment is concerned, capitalism of one person by another, each able to reach his perceives it not as something to be cherished or her full human potential, in a society in which and enjoyed but as a means to the paramount everyone has their basic material and nonmate- ends of profit-making and still more capital rial needs satisfied, feels secure, safe, happy, accumulation.”1 and fulfilled as human beings. In addition, the • It promotes the use of nonrenewable re- concept also implies harmony between people, sources without regard to the needs of future the environment, and the other species we share generations, as if there was no end to them, the planet with. People need fully to understand, and abuses even renewable resources such as and act in such ways that indicate, that they are ocean fisheries and forests. embedded in nature and dependent upon it—not just to obtain natural resources needed for hu- • It creates vast inequality in income, wealth, man life, but also that their lives are made richer and power both within and between countries. and protected by biodiversity and the smooth and Not only class, but race, gender, and other efficient functioning of the many cycles of nature inequalities are built into its laws of motion. such as the water and nutrient cycles. • It requires and produces a reserve army of labor—people precariously connected to the There is an overriding issue when considering economy, most kept in poverty or near pover- harmony as I have briefly described it. Harmony ty—so that labor is available during economic in the world—among its people and between upswings and workers can easily be fired when humans and the rest of the ecosystems—is not not needed by businesses. possible in the context of capitalism. Capitalism, a system that has been in existence for some 500 • It promotes national economic and political years (merchant capitalism for approximately competition and imperialism, leading to wars 250 years and industrial capitalism for about 250 for domination and access to resources. 104 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Ecology and the Crisis of Capitalism • It fosters and rewards those particular human man Ideology, “the relation of man to nature is traits that are useful for thriving or even just excluded from history and hence the antithesis of existing in such a possessive-individualist so- man to nature is created.” Proletarians thus had ciety—selfishness, individualism, competition, the historical task of bringing their “‘existence’ greed, exploitation of others, consumerism— into harmony with their ‘essence’ in a practical while not allowing the full expression of those way, by means of a revolution” (italics added).3 human characteristics needed for a harmoni- Only in this way could they reestablish a har- ous society (cooperation, sharing, empathy, monious connection to nature and to their own and altruism). production. That Marx and Engels were referring • It leads to the breakdown of human health directly to the early stages of what we now call since people operate in a hierarchical society, the ecological crisis is indicated by the following: with many working under dangerous and “The ‘essence’ of the fish is its ‘being,’ water—to physically debilitating conditions or in jobs go no further than this one proposition. The ‘es- that are repetitive and boring—while subject to sence’ of the freshwater fish is the water of a river. job loss or fear of losing their job. (There are But the latter ceases to be the ‘essence’ of the fish many adverse long-term health effects follow- and is no longer a suitable medium of existence ing the loss of one’s job.)2 as soon as the river is made to serve industry, as soon as it is polluted by dyes and other waste • It leads to the breakdown of healthy com- products and navigated by steamboats, or as soon munities as people become more solitary in as its water is diverted into canals where simple outlook and behavior and indigenous culture drainage can deprive the fish of its medium of is replaced by the dominant national or inter- existence.”4 national capitalist culture and outlook. People become dedicated to obtaining more for them- Nevertheless, for many the role that capitalism selves and their families and depending less plays in ecological destruction is invisible. Thus on reciprocal relationships with others. the ecological and social antagonisms and con- The growth imperative of capitalism deserves spe- tradictions of capitalism are frequently misdi- cial attention because it is one of the major stum- agnosed. Some observers suggest that many of bling blocks with respect to harmony between these problems are caused by the rise of industrial humans and the environment. Accumulation society. Here, so the thinking goes, any society without end means using ever greater quantities based on or using industrial production will of resources—without end—even as we find ways necessarily have the same resource and environ- to use resources more efficiently. An economy mental problems. Others blame the thoughtless growing at the very meager rate of 1 percent a exploitation of natural resources and the great year will double in about seventy-two years, but damage done to the environment on the exist- one growing at 2 percent a year, still a low rate, ence of too many people. The large population, will double in size in thirty-six years. And when exceeding the carrying capacity of the planet, growing at 3 and 4 percent, economies will double they maintain, is the culprit and the solution is in twenty-four and eighteen years respectively. therefore to reduce the population of the earth as China recently has seen recorded growth rates quickly as possible. (Not easy to do of course by of up to 10 percent, meaning economic output humane means.) Some ahistorical commentators doubles at a rate of approximately every seven say the problem is endemic to humans because years! Yet, we are already using up resources far we are inherently greedy and acquisitive. With a too fast from the one planet we have—depleting few important exceptions, non-Marxist discus- the stocks of nonrenewable resources rapidly sions of the problems neglect to even look at the and misusing and overusing resources that are characteristics and workings of capitalism, let theoretically “renewable.” If the world’s economy alone examine them at any depth. They are so doubles within the next twenty to thirty years this embedded in the system, that they assume that can only hasten the descent into ecological, and capitalism, which many mislabel “the market probably societal, chaos and destruction. economy,” will go on and on forever—even, it is illogically assumed, if we destroy the earth itself Thus capitalism promotes the processes, relation- as a place of human habitation—while any other ships, and outcomes that are precisely the op- type of economic system is absolutely inconceiv- posite of those needed for an ecologically sound, able. Economic, societal, and historical contexts just, harmonious society. are completely ignored. In the alienated ideology and practice of bour- Rational and useful alternative solutions to any geois society, Marx and Engels noted in The Ger- problem depend upon a realistic analysis and Capitalism in Crisis: Europe, Austerity and the Left, 2012 105 Section IV: The Challenge of Transformation - diagnosis as to what is causing it to occur. When While capitalism creates many of the features such analysis is lacking substance the proposed and relationships discussed above, we must keep “solutions” will most likely be useless. For exam- in mind that long before capitalism existed there ple, there are people fixated on nonrenewable were negative societal aspects such as warfare, resource depletion that is caused, in their opin- exploitation of people and resources, and ecologi- ion, by “overpopulation.” Thus, they propose, as cal damage. However, capitalism solidifies and the one and only “solution,” a rapid “degrowth” makes these problems systemic while at the same of the world’s population. Programs that provide time creating other negative aspects. contraceptives to women in poor countries are therefore offered as an important tool to solving Living in Harmony with the the global ecological problem. However, those Planet concerned with there being too many people generally do not discuss the economic system that It is certain that there is no way to reach a truly is so destructive to the environment and people harmonious civilization with an economic system or the critical moral and practical issue of the vast in which decisions are made by private individu- inequalities created by capitalism. Even the way als based on how much capital will be accumu- that capitalism itself requires population growth lated as well as personal greed and consumerism. as part of its overall expansion is ignored. In such a society “[s]ocial relations became but reflections of the dominating force of society’s Thus, a critical aspect almost always missing from capitalist economics.”6 Hierarchical class struc- discussions by those concerned with population tures are solidified—with workers (blue and white as it affects resource use and pollution is that collar), small business owners (this includes the overwhelming majority of the earth’s envi- farmers and craftspeople working on their own ronmental problems are caused by the wealthy or in small units), and owners and managers of and their lifestyles—and by a system of capital large businesses. The relationship of a worker to accumulation that predominantly serves their a business manager or owner reflects differences interests. The World Bank staff estimates that the of wealth and power in the workplace and in the wealthiest 10 percent of humanity are responsible world outside. And the worker and the boss have for approximately 60 percent of all resource use differing interests. The boss is trying to maximize and therefore 60 percent of the pollution (most profits while the worker is trying to get more probably an underestimate). Commentators fix- income and better working conditions. Because of ated on nonrenewable resources and pollution the motive force of capitalism and the procedures, as the overriding issues cannot see that one of practices, and approaches embedded in its DNA, their main “solutions”—promoting birth control there is no way to reform or modify the system to in poor countries—gets nowhere near to even accomplish the goals of sustainability, harmony, beginning to address the real problem. It should or ecological civilization. Capitalism, in its very go without saying that poor people should have essence, is anti-sustainability, anti-harmony, access to medical services, including those involv- and anti-ecology. For Marx capitalism generated ing family planning. This should be considered an “irreparable rift” in the metabolism of nature a basic human right. The rights of women in this and society, requiring the “restoration” of this respect are one of the key indicators of democrat- basic metabolism essential to life—a restoration ic and human development. But how can people that necessitated a more harmonious social order fixated on the mere population numbers ignore beyond capitalism.7 the fact that it is the world’s affluent classes that account for the great bulk of those problems— No one can predict the details of any future whether one is looking at resource use, consump- civilization. But, to be ecological and socially tion, waste, or environmental pollution—that are sustainable—basic requirements for harmonious considered so important to the survival of society society—an economy will need to have the sole and even humanity? purpose of satisfying basic human material and nonmaterial needs (which, of course, includes a In addition to the vast quantity of resources used healthy ecosystem) for all people. As with many and pollution caused by wealthy individuals, gov- pre-capitalist societies, economics will need to be ernments are also responsible. The U.S. military submerged within human relationships and must is one of the world’s prime users of resources— be under control of the people. from oil to copper, zinc, tin, and rare earths. The military is also is the single largest consumer of An ecological or harmonious civilization, a truly energy in the United States.5 sustainable, ecologically sound society, will need to have certain basic characteristics. It will need

106 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Ecology and the Crisis of Capitalism to stop economic growth after basic human needs are undoubtedly conservative. As explained in my are satisfied. It will also need to promote, encour- book (with John Bellamy Foster) What Every En- age, and reward the positive human traits of co- vironmentalist Needs to Know About Capitalism: operation, sharing, empathy, and reciprocity. And It is important to recognize that this [the wide it must operate with respect for, and care of, the income/wealth disparity characterizing global environment - locally, regionally, and globally. society] is a question of class and other forms of There are people who believe that nature has social inequality, as well as inequality between rights of its own and that “mother earth” (or nations. In 2008, Americans in the highest in- Pachamama, in the language of the people of the come quintile (the top 20 percent) spent three to Andes in South America) should be respected and four times as much on housing and clothing, and cared for just because it is right and ethical to do five times as much on transportation as those in so. But even taking an anthropocentric view, it is the poorest quintile. In Canada, where consump- to the direct benefit of humans and their socie- tion data is available by groupings that represent ties to create and maintain biological and habitat 10 percent of the population (deciles), ecological diversity and functioning, essential to a thriving footprint analysts have found that the top income ecosystem. In order to live healthy, satisfied, and decile has an ecological footprint nine times that happy lives now and for generations to come peo- of the bottom decile, and a consumer goods foot- ple need clean water and air, healthy and produc- print four times that of the bottom decile.9 tive soils, wise and careful use of renewable and Viewed at the global scale, inequality is even nonrenewable resources. Degraded ecosystems worse. Recent studies have shown that, “a mere 2 need to be regenerated. Humans need places to percent of the world’s adult individuals have more see and enjoy the natural world—parks, forests, than half of the global household wealth, with swamps, lakes. When people understand nature’s the richest 1 percent accounting for 40 percent of beauty and importance for their existence, they total global assets; while the bottom half of the live emotionally richer lives and are connected world’s population has barely 1 percent.”10 to the natural world on a deep emotional level. There has even been a term coined for describing A harmonious and ecologically sound society children that do not experience the natural world must promote substantive equality. It is impos- regularly (and in industrialized wealthy countries sible for everyone to live at a very high (so-called this may include the majority)—“nature-deficit western middle-class) standard of living since disorder.” Although some children do adapt to this would necessitate an ecological footprint that being mostly indoors and relating with the world the planet cannot support. Nor is a truly demo- primarily through electronic gadgets, there are cratic system (essential for harmonious society) many that suffer the consequences ranging from compatible with conditions in which a few live in a lack of vitamin D to depressed immune systems luxury while most people live at far lower liv- (more likely to be sick) to behavioral problems ing standards. A harmonious relation to nature such as aggressiveness.8 Because our lives are so and society therefore requires egalitarian condi- dependent on healthy local, regional, and world tions. Indeed, how would a few manage to live at ecosystems, protecting and regenerating the a higher standard than the mass of people when environment must be a goal of a society that seeks economic decisions, including those of invest- harmony in the broadest sense. ment, wages, types of private property permit- ted, etc., are being made by democratic, planned An economic/political/social system that is procedures? designed to satisfy basic human material and If society is going to meet the needs for all people nonmaterial needs for everyone (as discussed to live decent lives, we cannot ethically have a above) will require a democratic decision-making group, however small, that constitutes a wealthy process that is based in communities and coop- leisure class that promotes what the great U.S. eration between many communities and regions. sociologist and economist Thorstein Veblen It will be essential for people to live at a much called “conspicuous consumption.” Nor can we more modest living standard than what is called have a culture of “pecuniary emulation” based the western middle-class standard of living. This on “invidious distinctions,” where everyone is is underscored by the Work Bank estimate that attempting to outdo his/her neighbors in physical approximately 75 percent of all resource use (and, possessions.11 therefore, pollution) is caused by the wealthiest In an earlier paper I approached the subject of 20 percent of humanity, approximately 1.4 billion ecological civilization by beginning with a discus- people. Even here, as we shall see, the statistics sion of basic ecological concepts.12 I described Capitalism in Crisis: Europe, Austerity and the Left, 2012 107 Section IV: The Challenge of Transformation - the pillars that undergird strong ecosystems—di- + an economy operating with the goal of produc- versity; efficient natural cycles through closely ing goods and services that will fulfill basic hu- linked metabolic relationships; self-sufficiency; man needs, while protecting the environment self-regulation; and resiliency through self-re- + substantive equality newal. The discussion then turned to using these + living simply pillars as a framework to examine characteristics of a possible future ecological civilization. All of this of course means cultivating a new, harmonious ethic as part of an ecological revo- Let me give just one example of the changes that lution. As the Dao De Jing (also referred to as can occur when communities are put in control of the Laozi) declared: “People starve because the their economies (self-regulation). In Venezuela, rich take too much…. Only those who do not use small-scale fishermen were having problems life as a means [for aggrandizement] are able to caused by the large and disruptive harvests made value life.”13 We must find a way to return to this by huge fishing trawlers. Bottom trawling tech- essentially harmonious, ecological conception in niques not only harvested large quantities of fish, our lived society. but also damaged the sea floor and coral life so important to maintaining the stock of fish for the Notes future. The national government banned trawlers from Venezuelan territorial waters. In keeping 1. Paul M. Sweezy, “Capitalism and the Environment,” Monthly Review 41, no. 2 (1989): 8. with its approach to other communities, fishing communities were encouraged to make decisions 2. For a few examples, see Daniel Sullivan and Till von and manage their resources collectively. Now, the Wachter, “Job Displacement and Mortality,” The Quarterly Journal of Economics 124, no. 3 (2009): fishing cooperative of Chuao - a village mainly 1265–1306; Frances M. McKee-Ryan, et. al., “Psy- known for the quality of chocolate produced from chological and Physical Well-Being During Unem- its cacao trees - collectively decides on when and ployment,” Journal of Applied Psychology 90, no. where to fish and how much to catch, and the size 1 (2005): 53–76; and Philip Oreopoulos, Marianne of fish to keep. They are able to not only feed their Page, and Ann Huff Stevens, “Intergenerational community, but also sell fish to the government- Effects of Worker Displacement,” Journal of Labor operated, low-cost markets to supply the general Economics 26, no. 3 (2008): 455–83. population. They have gained a semblance of 3. Karl Marx and Frederick Engels, Collected Works, self-sufficiency (another pillar of strong ecosys- vol. 5 (New York: International Publishers, 1975), tems) by means of their own gardens, the fish 55–58. they catch, the cacao and bananas they sell. By 4. Ibid. controlling the location, quantity, and size of fish 5. Daily Energy Report, “A Look at US Military Energy they catch they are in a closely linked conscious Consumption,” June 8, 2011, http://oilprice.com. and planned metabolic relationship (another 6. Harry Magdoff and Fred Magdoff, “Approach- important pillar of strong ecosystems as applied ing Socialism,” Monthly Review 57, no. 3 (2005): to society) with the natural world that is based on 19–61. respect for this resource and its preservation for 7. Karl Marx, Capital, vol. 1 (New York: Penguin, future generations. 1976), 637–38; Capital, vol. 3 (London: Penguin, 1981), 949. To summarize, a harmonious civilization requires an economy and politics under social control. One 8. Richard Louv, Last Child in the Woods (Algonquin Books, 2008). in which communities strive for: (1) self regula- tion by meaningful democratic processes; (2) self 9. Fred Magdoff and John Bellamy Foster, What sufficiency for critical life needs (even though Every Environmentalist Needs to Know About Capitalism(New York: Monthly Review Press, complete self sufficiency is not needed or desira- 2011), 34–35. ble); (3) economic equality in which everyone has 10. Ibid., 84. their basic human material needs—but no more— met; and (4) application of ecological approaches 11. Thorstein Veblen, The Theory of the Leisure Class (New York: New American Library, 1953). to production, living, and transportation. 12. Fred Magdoff, “Ecological Civilization,” Monthly We can simplify the issues by using the following Review 62, no. 8 (2011): 1–25. equation: 13. P.J. Laska, The Original Wisdom of the Dao De Jing Harmonious civilization = socialism (with the (Green Valley, AZ: ECCS Books, 2012), 98. economy and politics under social control, mean- First Published: Monthly Review ing democratic control by the people and workers controlling their factories, farms, and all other Available: http://monthlyreview.org/2012/06/01/ workplaces) harmony-and-ecological-civilization 108 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Ecology and the Crisis of Capitalism THE GREAT TRANSITION A tale of how it turned out right Creating a new kind of economy is crucial if we for much longer without triggering irreversible want to tackle climate change and avoid the climate change. The majority of the planet’s eco- mounting social problems associated with the systems are being pushed to breaking point. Our rise of economic inequality. The Great Transition ‘footprint’ in the developed world has grown too provides the first comprehensive blueprint for heavy, and we are showing no signs of our being building an economy based on stability, sustain- able to tread more lightly. ability and equality. Measures of life satisfaction in developed coun- Executive Summary tries are flat. Overwork for many combines with widespread worklessness for others. Set alongside This report argues that nothing short of a Great those who have far more than they need are those Transition to a new economy is necessary and who do not have enough. Falling social mobility desirable, and also possible. Business as usual sees these patterns repeated from one generation has failed. Yet prime ministers, finance ministers to the next, while unsustainable levels of debt and governors of central banks are still running affect all parts of society. As real incomes have around – perhaps a little less frantically than they fallen, many have had to take o n debt to fund the were – trying to allay fears and convince us that essentials of life. For the more affluent, status- this is not the case. driven consumerism, often fuelled by debt, is the The genie is out of the bottle though, and it is norm. hard to see how it can be put back in. We can’t afford to carry on The financial crisis exposed deep flaws in the ap- as we are proach to economics that has dominated policy- making for a generation. It turns out that letting Restoring business-as-usual – if such a thing is markets rip does not always lead to the best even possible – won’t make us happy, and it will outcomes for societies. Government intervention, cost us dearly. This report forecasts that in the pe- far from being inherently inefficient, turned out riod to 2050 the cumulative cost associated with to be essential to prevent system-wide collapse. A climate change will range from £1.6 and £2.6 tril- return to blind faith in markets to deliver a future lion, while the cost of addressing social problems of endless, rapid growth is impossible to imagine related to inequality will reach £4.5 trillion. now. We appear to be locked into this state of affairs, This promise was always illusory, even on its own but are we really? terms. Economic liberalisation has not delivered rapid growth on a consistent basis, but has been It can still turn out right characterised by booms and crashes. Fewer and We think that there is an alternative; one where fewer have benefited from the booms as wealth we live within the limits of the natural world and and incomes have become increasingly concen- more fairly with each other, locally, nationally trated, while those who suffered most from the and globally; where we focus on the things that crashes saw few if any benefits in the good times. really matter, applying our core human values Inequality has risen to record levels in many de- to what is really valuable. We estimate that the veloped countries – not much has been ‘trickling measures proposed in this report would create up down’. to £8.65 trillion of environmental and social value But the promise was also an illusion at a more in the period to 2050. basic level. Essentially, orthodox economic This won’t just happen. It requires us to rethink theory assumes the infinite consumption of finite much of what we have taken for granted. As the resources. Growth, in the sense of using more and well-off consume less, headline indicators such as more stuff, is obviously impossible when there is GDP will have to fall by as much as a third, but we only a certain amount of stuff. We can use what can grow ‘real value’ at the same time.By 2050, we have more efficiently of course, but this, too, this increase in value would far exceed the fall in has hard limits. GDP, which is a very poor measure of ‘progress’ The world is warming. The atmosphere cannot in any event. Rapid decarbonisation that moves absorb the levels of CO2 being pumped into it toward global fair deal limits will avoid between Capitalism in Crisis: Europe, Austerity and the Left, 2012 109 Section IV: The Challenge of Transformation - £0.4 and £1.3 trillion in environmental costs. A and the vital ‘core economy’ of family, friends and progressive redistribution of incomes to reach community life. We also propose a redistribu- Danish levels of equality will cut the costs of tion of ownership to create a form of ‘economic inequality-related social problems and increase democracy’, where company shares are progres- social value by £7.35 trillion. sively transferred to employees in a resurgence of mutual and co-operative ownership forms. More By sharing our resources more equally, by build- equal societies are happier societies. By focus- ing better communities and a better society and ing on fairness we reap both social and economic by safeguarding the natural environment, we can benefits, as we no longer have to pay such a high focus on the things that really matter and achieve price for the social ‘ills’ associated with high levels genuine and lasting progress with higher levels of of inequality. well being. Taken together this would amount to what we have termed the Great Transition. In the Great Rebalancing we make a positive case for markets, but only once markets have been set The Great Transition: in detail up in such a way that prices reflect true social and In the first part of this report we make the case environmental costs and benefits, and when those for change. In Part 2 we sketch out some of the markets operate within scientifically defined lim- steps we would need to take to make a reality of its. We also argue that the market sphere needs to the Great Transition. be more tightly drawn and rebalanced alongside the public sphere and the ‘core economy’ – our In the Great Revaluing, we make the case that ability to care, teach, learn, empathise, protest building social and environmental value should and the social networks these capacities create. be the central goal of policy-making. We also In laying out the essential functions of the state, argue that this needs to be true for private as well we again make a positive case – the state should as for public decision-making, with market prices be seen as ‘us’ and not ‘them’, and as a domain reflecting real social and environmental costs and where we come together to achieve those things benefits. We need to make ‘good’ things cheap that are best done collectively. Arguing for a and ‘bad’ things very expensive – too often this broader definition of ‘public goods’ and for the is the opposite of what we have today. As long as importance of maintaining low levels of inequal- the achievement of good outcomes is separate ity, we sketch out a facilitating state, which from the real business of business, we will not see supports citizens, but also works with them to these outcomes achieved. Similarly, public policy ‘co-produce’ well-being in areas such as health cannot hope to create the best possible social and education. This facilitating role requires a and environmental outcomes unless this is at the balance to be struck between direct provision, heart of policy-making. In both cases, building co-production, and the fostering of strong local real value requires us to accurately measure these relationships where people are encouraged to outcomes and to build these measures into the come together to pursue their shared goals and core of public and private decision-making. This shape their own outcomes. is a vital first step, upon which much else that is proposed in this report depends. This process is central to the ideas set out in the Great Localisation. Here we argue for an expand- In the Great Redistribution, we show how a ed concept of ‘subsidiarity’ – the idea that deci- redistribution of both income and wealth would sions are best taken at as local a scale as possible. create value as resources are moved from those This is enshrined in the principle, if not always who do not need them to those who do. We the practice, of the European Union with regard propose the creation of Citizens’ Endowments to political participation and decision-making, of up to £25,000 for all people on reaching the which needs to be made more genuinely partici- age of 21 to enable them to invest in their future, patory and democratic but also more meaningful. as well as Community Endowments to provide By this we mean moving real power away from commonly owned assets to invest in our local the centre to devolved democratic bodies and neighbourhoods. Both would be funded by a giving local people a real say in how this power proposed increase in inheritance tax on all estates is exercised. The principle of subsidiarity should to 67%. As well as material factors, however, we also apply to the private sector. Redefining ‘ef- also need to redistribute time. By sharing work- ficiency’ beyond its narrow economic focus, we ing hours and tasks more equally, everyone would suggest a more rounded view, where the impact be able to undertake more meaningful work, and on the social fabric of cities, towns and rural areas by shortening the working week to four days we is important when considering issues such as the could create a better balance between paid work production of goods and services. Exploring the 110 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Ecology and the Crisis of Capitalism question of what things are best produced lo- offering people the opportunity to transfer a por- cally, regionally, nationally and internationally, tion of their mortgage debt into equity and paying we suggest some criteria that might help in this social rent on the balance. Locally, we argue for a judgement and make the case for greater local restructured ‘ecology of finance’ of private, public self-sufficiency in some areas, combined with re- and mutually owned institutions designed to gional, national and international trade in others. meet local needs. In the local public sphere, we Big is clearly not always ‘best’ but neither, neces- again suggest using the tax system to encourage sarily, is small. What we need is appropriate scale social ‘goods’ and discourage ‘bads’ and argue and, crucially, a clear means of deciding what this that priorities should reflect local, democratically should be. determined priorities. The Great Reskilling continues this train of The Great Interdependence situates these na- thought, starting from the position that greater tional proposals firmly in an international con- local production will require us to relearn many text. While we focus on the UK in this report, skills that have been forgotten. From agriculture we do this on the assumption of a particular to manufacturing to the provision of local finance, global ‘deal’, which addresses global inequalities returning to appropriate scale means equipping from both a development and an environmental ourselves with the means to do so. Becoming perspective. Specifically, we assume that the es- less passive in terms of consumption and pro- sential global cap on carbon emissions to avoid duction we would start to regain our autonomy, irreversible climate change has been achieved and which would extend to culture and arts, where we that the UK’s share of this total carbon budget describe the beginning of a life-enhancing renais- is broadly based on its population. As part of a sance. This is not just the casefor the economy phased transition we factor in a ten-year period and for the arts however; local decision-making where the UK reduces its emissions to align with based on active participation will be most effec- the required ‘convergence’ path, during which tive when people are well informed about what time annual transfers to developing countries makes their local economy tick and what makes totalling around £200 billion are made. Mirrored public services able to achieve the best outcomes. by other developed countries as part of the same Achieving consensus requires as full an under- ‘global deal’, this total financing would add up to standing of these issues as possible. the trillions of pounds needed to enable develop- ing countries to eliminate poverty and fund their In the Great Economic Irrigation we outline own transition to a sustainable development path. how finance could facilitate many of the changes Reducing total imports and reshaping the compo- proposed in this report. For public finance we dif- sition of these imports would obviously impact on ferentiate between tax and spending and between national development strategies, but this process national and local levels. Developing criteria for is already underway to some extent. The current what money should be raised at these two levels, global crisis has caused many in the develop- we argue for a shift from taxing ‘goods’ such as ing world to question the wisdom of export-led work, to taxing environmental and social ‘bads’ growth focused on developed economies. While such as pollution, consumption and short-term we are by no means suggesting that exports would speculation. We argue for new variable consump- cease, they would certainly be reduced as the en- tion taxes, replacing income tax for the major- vironmental impact of transporting goods around ity of the population, reflecting the social and the world was factored into prices. A rebalancing environmental costs of goods. For private finance of internally and externally focused development we again distinguish between national and local, is desirable for many reasons, and we would see arguing that large-scale projects such as build- more local production and more regional trade ing a green energy and transport infrastructure becoming the norm. Again, we are already seeing should be funded through national level envi- this begin to happen. If carefully managed and ronmental and ‘land’ taxes and the creation of well funded, this would see development acceler- public money where appropriate. This would be ate and ‘stick’, becoming more resilient in a stable channelled through a national ‘Green Investment and environmentally sustainable global context, Bank’. For private credit we suggest linking the with poverty and global inequality being progres- ability of banks to create credit with the ability sively reduced and the huge dangers to devel- of borrowers to build social and environmental oping countries of irreversible climate change value, creating a ‘race to the top’ and reducing averted. damaging credit bubbles. To get us out of the debt trap we now face, rather than slashing public ser- These are big assumptions, but we do not apolo- vices we propose a New National Housing Bank, gise for that. A global deal along the lines out- Capitalism in Crisis: Europe, Austerity and the Left, 2012 111 Section IV: The Challenge of Transformation - lined here is essential for environmental reasons, but also to finally rid the world of the scourge of poverty and inequality. Business as usual has also failed in this regard. Just as within coun- tries, trickle down approaches at global level have brought us to the brink of environmental disaster, while also increasing inequalities and entrench- ing grinding poverty in many parts of the world. Locally, nationally and globally we need to change direction quickly and radically. We need nothing short of a Great Transition – to collectively build a different future. This report concludes with a discussion of two big challenges that have to be addressed before this can be achieved, but also sets out clear steps that can be taken straight away to start the journey. While there is much that the Government needs to do, there are also things that we can all do now. We cannot afford to wait and neither should we. The possible future sketched out in this document is not intended to be prescriptive in any way, but to show that not only is fundamental change possible, it is also very appealing. We might have to give some things up, but these are not the important things in life. What we could gain, on the other hand, would be something really worth having. The Great Transition is finding ways to survive and thrive through financial crises, climate change and the peak and decline of global oil production. First published: new economic foundation Available: http://www.neweconomics.org/publica- tions/great-transition

112 Capitalism in Crisis: Europe, Austerity and the Left, 2012 Left Renewal The SEARCH Foundation has conducted a series of ‘Roundtables’ on topics ranging from ‘Re-imag- ining the Good Society’, to the tension between ‘the market’, the state and the common good, to the challenge of an ecologically-sustainable economy, privatisation, the impact of the Great Recession of 2008-09, and democracy, national identity and racism. These Roundtables have been held in Sydney, Melbourne, Adelaide, Hobart, Launceston and Brisbane, from 2007 to 2012.

All presentations are available on the SEARCH website at www.search.org.au/projects/round- tables The presentations from the first topic were published in hard copy:

Shared Values, Shared Future: Re-imagining the Good Society, Collected papers 2007-08. 104pp. $10.00. Project for a 21st Century Democratic Ecological Socialism SEARCH Foundation, 2010. $5.00 Other SEARCH publications Greed or Survival? By Max Bound, 2012. 141pp. $15 Australian Communism in the 20th Century, a graphic history 2011, 60pp. $15.00 From global crisis to green future ..., Australian Left Renewal Conference, Proceedings of National Conference, Sydney, May 29-30, 2010 128pp. $5.00 The Last Great Cause - Volunteers from Australia and Emilia-Romagna in defence of the Spanish Republic, 1936-1939 By V.G. Venturini, 2010. $45.00 Never Give In - Three Italian Anti-Fascist Exiles in Australia 1924-1956 By V.G. Venturini, 2008. $45.00 The CPA - Lessons for the 21st Century Proceedings of a seminar at UTS, October 22, 2000. 23pp. $5.00 Ecological Sustainability in Australia, Achievements and Challenges By Vanessa Jackson, 1997. 118pp. $15.00 How Green has Australia Become? an assessment Vanessa Jackson, ed David Hudson, 1997, 36pp. $5.00 Community over Market Solutions, Report to Participants May 1996, 32pp. $10.00

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