Martin Höpner, who works at the Max-Planck Institute for the Study of Societies in Cologne, recently sent me a copy of his latest paper – The German Undervaluation Regime under Bretton Woods: How Germany Became the Nightmare of the World Economy (published January 2019). He presented this research at a Makroskop workshop in Wurzburg on October 13, 2018 – I was on the same panel as him at that workshop and enjoyed some very productive conversation about these issues. It is a very interesting historical analysis of the way that the German elites (central bank, industry groups, banks, politicians, and trade unions) have collaborated since the 1950s to suppress domestic consumption and maintain the nation’s export competitiveness, even though this has undermined material prosperity for workers. The relevance of the analysis to current debates about the Eurozone and its capacity for reform are that the undervaluation regime is entrenched in Germany’s institutions, its history, its culture, and its power elites and have been that way for many decades. What the Europhile progressives, who still think reform is possible, have to show is that this entrenched position can somehow be abandoned. They have never provided any convincing argument to substantiate that hope/belief. That is why I continue to call them out as dreamers – good intentions but naive to history.
I am now back to my Wednesday pattern of devoting more time to non-blog post writing and less time to blog post writing. But I was interested overnight in the news that the German government is trying to force (pressure) the partly-state owned Commerzbank (Zombie 1) into a merger with Deutsche Bank (Zombie 2). The result will probably just be a bigger zombie bank. It is unlikely it will reduce the vulnerability that both banks currently face as a result of poor management, risky loan portfolios (greed over prudence), massive debt burdens, and costly, underperforming branch structures (especially in the case of Commerzbank). Another example of the failure of the European Union to provide policy structures that advance prosperity and reduce the risk of crises.
The 1975 song – The People United Will Never Be Defeated – which was written in sympathy with the Chileans after the brutal Pinochet coup and other national struggles (for example, in Italy and Germany) raises the question: Who are ‘The People’. Relatedly, in Modern Monetary Theory (MMT) we talk about a currency-issuing government being able to pursue public purpose which advances the well-being of the people. Who is the public and the people in that context? I ask these questions because they are germane to research on cosmopolitanism and the Left view of the European Union and similar arrangements that reflect an antipathy towards the concept of the ‘nation state’ and the belief that progressive advance can only be organised at a supra-national level in order to be effective. Today’s blog post just continues that theme based on current research.
I have just finished reading a recently published book – The European Illusion – written by academics associated with Attac Austria and it demonstrates the dilemma that European progressives have created for themselves. The 348-page book is freely available in – PDF – for download. The dilemma slowly reveals itself as the various chapters unfold. The format of the book is odd – conventional prose, interviews between the contributors, and opinion pieces. As we transit through the book we learn that the European Union is neoliberal central. Okay, that is a helpful start to a progressive vision. Then we read that, as such, it is impossible to reform. We learn that movements such as DiEM 25 are dreamers. Getting better! But then we read that Lexit strategies are unhelpful and a sort of Project Fear rationale is proffered – risky, uncertain and the rest. So, on the one hand, the EU is a disaster that has deliberately set out to destroy the working class and that that cannot be reformed. But, on the other hand – TINA – it is counterproductive to dismantle it. Solution – a grassroots campaign of rebellion – “strategic disobedience”. It beggars belief actually. Apparently, we can democratise neoliberal central by disobeying the EU rules, even though the EU cannot be reformed. Yes, and pigs might fly!
It is Wednesday and despite being on the other side of the Planet than usual (in Helsinki at present) I am still not intending to write a detailed blog post today. I am quite busy here – teaching MMT to graduate students and other things. But I wanted to follow up on a few details I didn’t have time to write about yesterday concerning the role that NAIRU estimates play in maintaining the ideological dominance of neoliberalism. And some more details about the Textbook launch in London on Friday, and then some beautiful music, as is my practice (these days) on Wednesdays. As you will see, my ‘short’ blog post didn’t quite turn out that way. Such is the tendency of an inveterate writer.
There is a campaign on the Internet calling itself CANOO (the Campaign against nonsense output gaps) which one Robin Brooks, economist at the Institute of International Finance and former Goldman Sachs and IMF employee, is pursuing. You cannot easily access his written memos on this because the IIF forces you to pay for them. However, there is nothing novel about his claims and the points he is making are well-known. However, they are points that are worthwhile repeating at loud volume because the implications of the ‘nonsense’ are devastating to the well-being of workers, particularly those most vulnerable to precarious work and unemployment. So while the CANOO is just dredging up old issues I am very glad that it is. The concept of biased estimates of output gaps and so-called ‘full employment unemployment rates’ goes to the heart of the way the neoliberal economists, who dominate policy making units in government and places like the IMF, the OECD and the European Commission, create technical smokescreens to justify their dirty work. The more people find out about the basis of the scam the better. I have been working on this issue (estimating, writing and publishing) since the late 1970s as a graduate student. So welcome Robin Brooks, and make a lot of noise.
Last week (February 14, 2019), Eurostat released its latest national accounts estimates – GDP up by 0.2% and employment up by 0.3% in the euro area – which confirmed that EU growth rates have declined significantly over the course of 2018. Moreover, the December-quarter data confirmed Italy is in official recession and Germany recorded zero growth (thereby avoiding the ‘technical recession’ category after contracting by 0.2 per cent in the September-quarter). Export expenditure accounts for nearly 50 per cent of Germany’s GDP – a massive proportion. It has adopted a growth strategy based on impoverishing its own residents through flat wages growth and a sustained proportion of low-paid, precarious jobs and setting its sail on sucking out expenditure from other nations (in the form of their imports). This has been particularly damaging to the Eurozone partners but also exposes Germany to the fluctuations in world export markets. Those markets are softening for various reasons (economic and political) and, as a result, German growth has hit the wall. The solution is simple – stimulate domestic demand, push for higher wages for workers, outlaw Minijobs, and start fixing the massively degraded public infrastructure that the austerity bent has starved. Likelihood of the German government adopting that sort of responsible policy. Zero to very low. There is the problem of the Eurozone from another angle. The main economy cannot play the game properly.
The aptly named – Corporate Europe Observatory (CEO) – “is a research and campaign group working to expose and challenge the privileged access and influence enjoyed by corporations and their lobby groups in EU policy making”. It is relentless in exposing the corporate scams that result in European Union laws being biased towards corporations at the expense of the well-being of the broader population. The research results they publish are diametrically opposed to the claims by the Europhile Left, especially those from Britain, that posit that the EU is the exemplar of global organisation, defending workers’ rights and all manner of good things, and with just a few reforms here and there is the hope for a progressive future. CEO’s most recent report (February 6, 2019) – Captured states: when EU governments are a channel for corporate interests – allow us to see how the EU machinery has turned the Member States into a “channel for corporate interests” – “middlemen for corporate interests”. My position is that CEO has it right and the Europhiles a dreaming.
The increasing uprising against Modern Monetary Theory (MMT) in the media is salutory because it means our ideas are now considered to be a threat to the mainstream economics (for example, Paul Krugman now buying into the carping) and to the heterodox tradition (for example, the British economists who self-identify with that tradition). The high profile debate around the Green New Deal has been associated with MMT and this has brought all sort of crazy attacks on MMT from those who think they are ‘green’ but haven’t traversed out of ‘Monetarist-type’ economics thinking. And then I note that apparently the Green New Deal is being expropriated by Europhiles to wedge those who consider Lexit and Brexit to be the only way to re-establish progressive society and politics. Apparently, the Europhiles are arguing that you cannot be both Lexit/Brexit and support the Green New Deal. Curious logic. And, of course, a desperate attempt by the Europhiles to grasp at anything to discredit both Brexit and MMT, given that there is a high proportion of MMTers who prefer Britain leave the EU and that the EU disappears in its current form. And so it goes. Wolfgang Streek recently published an interesting academic article that bears on this discussion. That is what this blog post is about.
Transparency International EU, is part of TIs “anti-corruption movement” focused on happenings in the European Union. It gets around 40 per cent of its funding from the European Commission, itself, although they claim this does not compromise their “institutional integrity and independence”. Let’s hope not! They have just released a report – Vanishing Act: The Eurogroup’s Accountability (February 5, 2019) – which confirms, in case one wasn’t already aware (looking at the Europhile Left here) that the core decision-making body in the European Union – the so-called Eurogroup – (the Finance Ministers of the Eurozone), which “exercises political control over the currency and … the Stability and Growth Pact” – is inherently shady and anti-democratic. The Report finds that the EU’s democratic deficit is intrinsic to its design and resistance to any effective reform. While the Report proposes some changes to the structure and operations of the Eurogroup it maintains the line that the growing lack of democratic oversight in key EU decision-making can be improved. I disagree. The problems are endemic. The DNA of the Eurozone architecture is neoliberal to the core. That ideology has permeated all the major EU institutions and has left the EU citizens without an effective voice in the decision-making process. To resolve that alienation, people are donning yellow vests and taking to the streets. Progressives should encourage these anti-EU protests and support those who desire to abandon these neoliberal institutions. The reformers cannot seem to grasp that the basic structure is the problem. Any steps in the right direction require that basic structure (the Single Market, SGP, etc) to be abandoned. And doing that means the whole house of cards falls down. And it cannot come quickly enough.