Crisis in the Eurozone. Costas Lapavitsas
belief that the monetary union represents social progress that could truly benefit working people through judicious institutional intervention has commanded support in unexpected quarters. Thus, vocal supporters of the euro have come from the Keynesian tradition, even though the latter has historically rejected rigid international monetary arrangements. Astoundingly, support for the euro has also come from sections of the European Left, including its furthest reaches. Who would have imagined that putative heirs of Karl Marx would be transmogrified into defenders of a variant of the gold standard?
Support for the monetary union from the European Left has decisively affected the political fallout from the crisis. Many have spoken volubly about the iniquities of capitalism, the disastrous nature of neoliberalism, the absurdity of austerity, the poison of inequality, and so on, and so forth. But whenever the discussion has turned to the euro, which has, after all, been the focal point of the crisis, much of the Left has sought simply to change the subject. Or it has put forth proposals with impeccable mainstream credentials, including issuing eurobonds and lending by the European Central Bank to member states. In the face of the deepest crisis of European capitalism since the Second World War, the left alternative has often appeared as a reworking of Bagehot’s advice to the British ruling class at the end of the nineteenth century, namely to lend freely and ask questions later. It is no wonder that the Left has been marginal to the politics of the crisis so far.
Analysis in this book treats the euro as integral to the crisis facing the European Union. The theoretical framework is based on the tradition of Marxist political economy, particularly the theory of world money, while drawing extensively on mainstream economics. The aim has been to identify the social and economic causes of the storm that has engulfed the eurozone since late 2009. The most distinctive feature of the work, however, and fully in line with its intellectual underpinnings, is its readiness to discuss abandoning the EMU. Europe currently needs radical ideas to shake it out of the intellectual torpor of neoliberalism as well as to determine a path that would be beneficial to working people. But a radicalism that is not prepared to contemplate quitting the common currency has little to contribute either to public debate, or to political struggle currently taking place in Europe.
The book is a collective effort by members of Research on Money and Finance at the School of Oriental and African Studies in London. Parts of it began to appear in March 2010, taking the form of RMF reports that have been widely read. In two distinctive ways the work could only have been produced at SOAS. First, it draws on the School’s vibrant tradition of Marxist political economy which has always been fully familiar with the methods and arguments of the mainstream as well as open to ideas from heterodox economics. Second, it draws on the School’s even longer tradition of development economics and expertise in analysing IMF interventions in developing countries facing debt and currency crises. For us at SOAS, the likely outcomes of the ‘rescue’ programmes imposed on peripheral Europe were painfully apparent at the outset.
Europe is currently on the cusp of a profound transformation. If the conservative response to the crisis finally prevails, the future looks grim. Financial and industrial interests will impose a settlement condemning working people to stagnant incomes, high unemployment, and weakened welfare provision. Democratic rights will be in doubt and the continent will head toward even faster decline. If, on the other hand, radical forces prevail, the balance could be tilted against capital and in favour of labour. European societies could be rejuvenated economically, ideologically and politically. Soon we shall know.
Costas Lapavitsas
London
March 2012
ACKNOWLEDGEMENTS
The analysis of the eurozone crisis in this book has drawn on continuous debate within RMF. Particular thanks are due to J. Arriola, A. Callinicos, A. Cibils, R. Desai, P. Dos Santos, G. Dymski, I. Levina, T. Marois, O. Onaran, J. Rodrigues, S. Skaperdas, E. Stockhammer, A. Storey, D. Tavasci, J. Toporowski, and J. Weeks.
All responsibility for errors lies with the authors.
INTRODUCTION: THE END OF EUROPEANISM
The history of capitalism is the history of its crises. Each time it had to confront an outburst of its own contradiction, the mode of production had no solution but to reinvent itself, to push its own limits further back, thereby gaining new strength but always at a certain cost, recreating those limits at a larger but transformed scale. New contradictions thus appear, leading to further crises and reconfigurations within the same fundamental structural coordinates. This is, at least, the pattern of all the major crises of the system – those which have affected its historical core since the nineteenth century.
The crisis of 1870s and 1880s led to the end of the classical liberal era and the passage to monopolies, another wave of imperial expansion and the first attempts to rationalise the economy and regulate the class antagonism by the means of state intervention. This first ‘great transformation’ of the mode of production led in its turn to World War One – or rather, to the new thirty years’ war of the ‘short twentieth century’, out of which emerged a socialist bloc as system of states, the dismantling of the colonial empires, new forms of imperialist domination and, last but not least, the welfare state. This domesticated form of capitalism was restricted to the core Western countries, but it combined unprecedented economic growth with conditions of parliamentary democracy and political stability, setting new standards of legitimacy for the mode of production.
With hindsight, it became clear that this configuration was the product of exceptional circumstances – the impact of two world wars and the weight of a victorious socialist revolution over one sixth of the globe – very unlikely to be reiterated in the future. In any case, its impetus was exhausted after three decades, and a new era started: neoliberalism, an era during which – thanks to the crisis, followed by the collapse of the ‘socialist camp’ – the mode of production succeeded in rolling back most of the concessions previously made to the working classes. A new world emerged, built on the ruins of the socialist experiments, including their attenuated welfare-statist versions – the world of global finance–oriented capitalism.
It is too early to say whether the current crisis, which started as a real estate crisis in the US, morphed into a crisis of the banking system and then crystallised in a sovereign debt crisis, will mark the end of the neoliberal era. In a way, the tectonic plates have only started moving and the balance of forces is still uncertain, although the strategic advantage achieved by the dominant classes during the period of high neoliberalism still operates fully. What looks certain however is that this crisis will leave behind at least one casualty: the so-called ‘European project’, or ‘European integration’, embodied in the institutions of the European Union with, at their core, the Economic and Monetary Union. If we think that this project has been the only one of any real importance consciously designed by the dominant classes of the Old Continent, it becomes clear that we are witnessing a turning point of world historical importance, comparable in some senses to the victory of the West in the Cold War. The importance of the project undertaken by Costas Lapavitsas and his collaborators of the SOAS-based Research on Money and Finance group lies in their pathbreaking contribution to explaining the causes of this major upheaval.
Of course, concerning the EU, we knew that the coordination and diffusion of neoliberal policies have consistently been at the core of the project, especially after its relaunching in 1986 with the Single European Act. It is also well known, thanks especially to the powerful argumentation of Perry Anderson,1 that insulation from any form of popular control and accountability is the founding logic of all the complex nexus of technocratic and expert-staffed agencies which form the backbone of the EU institutions. What has been euphemised as the ‘democratic deficit’, actually a denial of democracy, legitimised in various ways by the apologists of the European project, has become especially obvious since the 2005 French and Dutch referenda on the proposed constitution of the EU, several years before the start of the current turmoil. The missing element from the picture back then was however the political economy of the edifice. It seems that the coming of the crisis acted, as it usually happens in these cases, as a detonator, bringing to the surface pre-existing contradictions and making it possible to reflect theoretically upon them.