Last week, I re-read an article from May 1, 2012 by Abraham Newman – Austerity and the End of the European Model – that was published in Foreign Affairs. The article carried the sub-title “How Neoliberals Captured the Continent”. The author is a US political scientist and observed that given the unprecedented austerity that the European politicians have inflicted on their nations with such damaging consequences, the “Tea Party loyalists in the United States should be green with envy”, The hard-line US Republicans don’t go close to their European brethren. The thrust of the article was that independent of the short-term effects of the austerity it “will transform Europe’s political economy in the long term, lending credence to neo-liberal ideas of limited government and loosely regulated markets. The irony of this transformation is that it reinvigorates the very ideas that helped cause the financial crisis in the first place …” This is a theme that I share. It is also a starting point for a very interesting essay I read last week by Slovenian lawyer Bojan Bugaric – Europe Against the Left? On Legal Limits to Progressive Politics – published May 2013. I have been seeking to understand these perspectives more deeply as part of my larger book project concerning the demise of the European left.
Cast your mind back to the early days of the crisis. Wolfgang Schäuble has not always been the German Minister of Finance. He took that role in October 2009.
His predecessor, Peer Steinbrück was there as the festering storm that had been building for a few decades finally exploded into the GFC – an “earthquake” as he put it in September 2008.
On September 25, 2008 he told the German Bundestag that (Source):
Wall Street and the world will never again be the way they were before the crisis … [which was the result of] … a blind drive for double-digit profits … The cause of the crisis was the irresponsible exaggeration of the principle of a free, unrestrained market … This system, which in many ways is inadequately regulated, is now collapsing …
It is a pity that insight didn’t shape European thinking in the years that followed. His replacement as Finance Minister certainly changed the script.
Abraham Newman’s insight was clear in 2012:
Austerity politics in Europe is not simply a short-term fight between the surplus countries in the center and the deficit countries on the periphery. It is a long-term political agenda that privileges lenders over debtors and capital over labor and, as such, should be seen through the lens of partisan politics …
Reviving an alternative agenda for the political economy of Europe would first require social democrats to convince voters that the crisis is not just a story of profligate governments but also of reckless markets.
And in 2012, that should not have been a hard thing for progressive political parties to accomplish.
The indecent shifts in income and wealth distributions and the obvious fact by then that the early growth dividends after the crisis were almost exclusively being reaped by those at the top of these distributions while workers faced real wage cuts and relativity compression or debilitating unemployment and a steady slide into poverty as scarce saving balances were exhausted.
Bojan Bugaric’s article takes this idea a bit further for he too is incredulous that (in May 2013 when he wrote the piece) that European politics was being dominated by centre-right parties that promoted austerity as the only solution despite the material circumstances of the situation presenting:
… a great window of opportunity for the Left, which could not have been blamed for the disastrous consequences of neoliberal economic and political policies of the centre-right parties in power.
He lists a number of ‘favourable’ circumstances in addition to the “economic conditions” for “shifting the political terrain in favour of the left”.
These include the “rise of a progressive younger generation, the increase in immigrant population, the growth of the professional class and the increasing social weight of single and alternative households and growing religious diversity and secularism”.
But as we know, the progressives have not gained any traction pursuing anti-austerity programs (and we can dismiss Syriza’s pathetic masquerade) and have instead surrendered the debate space to the right who have progressively (sorry about the pun) introduced European Treaty changes (for example, the Fiscal Compact) and domestic legislation which:
… basically outlaws Keynesianism and its counter-cyclical economic policies and constitutionalizes austerity and balanced budgets as new fundamental principles of the EU constitutional order.
That is an amazing state of affairs given it this resort to extremism has happened in a relatively short time-frame.
Bojan Bugaric seeks to explore the hypothesis is that these developments have confronted the European left “with a distinct constitutional order, which because of its pro-market neoliberal bias, radically limits the ability of the Left to pursue its political program”.
He posits that one influential view is that it is now “structurally impossible to combine common economic market and redistributive social policies on the EU level”. This is because the previously-held neo-liberal ideology of the centre-right parties have been embedded in legislation, legal code, constitutions which make it moot as to the personnel that occupy senior positions in the judicial and bureaucratic infrastructure.
It is law that is now driving the politics which “crucially determines the … relations of production”.
So the European Left has nowhere (progressive) to go – no room to manouvre.
He largely rejects that view and argues that it has been the:
… the reluctance and inability of the Left to ‘Europeanize’ its social agenda … The Left thinking and policy proposals concerning ‘social Europe’ have remained firmly embedded in the logic of the nation state. The Left urgently needs a new post-national approach to ‘social Europe’.
In my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – I argue that it was not until the onset and emerging dominance of University of Chicago-style Monetarism that the debate on European integration veered off onto its disastrous course marked, initially, by the passing of the Single European Act in 1986, then the release of the Delors Report in 1989, which paved the way for the Maastricht Treaty in 1992.
Prior to the emergence of Monetarism, the discussions of economic and monetary union were along the lines that a federal fiscal authority with the capacity to provide public spending buffers to help nations facing asymmetric negative demand shocks would be an essential part of any effective design.
The conclusion of the 1977 MacDougall Report was that the state of European politics, especially the unwillingness of France and Germany to truly cede their national fiscal capacities to such a federal authority in such ways that the latter could function effectively, was such that an economic and monetary union should not proceed.
In 1972, for example, the Governor of the Danish Central Bank said:
I will begin to believe in European economic and monetary union when someone explains how you control nine horses that are all running at different speeds within the same harness.
I argue in the book that what eventually allowed the ‘nine horses’ to be harnessed together was not a diminution in Franco-German national and cultural rivalry but rather a growing homogenisation of the economic debate.
The surge in Monetarist thought within macroeconomics in the 1970s, first within the academy, then in policy making and central banking domains, quickly morphed into an insular Groupthink, which trapped policy makers in the thrall of the self regulating, free market myth.
The accompanying ‘confirmation bias’ overwhelmed the debate about monetary integration.
Bojan Bugaric, similarly, considers the 1980s as the “turning point” for the Left as neo-liberalism became embedded in the Treaties of Europe rather than the expression of centre-right political parties seeking a popular mandate.
At that point:
The relaunching of European integration thus coincided with a major shift in the political ideology. The golden age of the Keynesian welfare state did come to an end and gave its way to a new powerful ideology – pro-market neoliberalism.
The embedding of neo-liberalism in the treaties was according to Bojan Bugaric facilitated by “Mitterand’s turn from failed domestic Keynesian policies to Europe which crucially contributed to the success of the single market project”.
Keynesian policies, which empowered government to stimulate domestic demand and reduce unemployment, did not fail at the time. They were just inconsistent with the rigid European Monetary System (EMS) which was dominated by the mercantilist policies of Germany, which meant that France had to engineer a domestic recession – through Keynesian policies – to maintain the agreed exchange rate parities.
Bojan Bugaric claims Mitterand’s ‘turn to austerity’ “made centre-leftism obligatory for other European Left parties”. That may be true but it just leads to the further conclusion that the Left parties throughout Europe became seduced by the same kool aid – Monetarism.
I considered the role of Mitterand (and Delors) in this blog – Mitterrand’s turn to austerity was an ideological choice not an inevitability.
The conclusion of that analysis, which came out of the research I did for my recent Eurozone book, was that the French were still intent on remaining in the EMS despite the obvious evidence that it was a dysfunctional system that only led to domestic misery (for France).
The French Socialists wanted everything: political popularity associated with the lower unemployment and improved living conditions, a straitjacket on perceived German pretensions to European power, and continued German subsidies to the Common Agricultural Policy (CAP).
On the one hand, domestic policy sovereignty was crucial if it was to lower unemployment and this predicated against participating in the EMS.
On the other hand, the desire to undermine German influence and to find a way to subsidise their farmers under the CAP forced them to engage in the European dialogue. They were caught betwixt!
By the third currency realignment in March 1983, the French were at the crossroads and the incompatibility of these competing ambitions was obvious.
At that point, France had a choice. It could retain its policy sovereignty and pursue its legitimate domestic objectives by floating the franc or remain within the EMS and subjugate its domestic policy freedom to the dictates of the Bundesbank.
Unfortunately, for the French and for Europe in general, they chose the neo-liberal path, however culturally alien this was to them
History tells us that the French government fell lock step into the increasingly dominant Monetarist policy approach that involved using rising unemployment as a policy tool to discipline the inflation process.
That political reality was too stark for the public to accept and necessitated a smokescreen being erected to disassociate the rising unemployment from macroeconomic policy choices.
The rising unemployment was reconstructed by the political and bureaucratic spin doctors as a ‘structural’ problem reflecting a failure of individuals to be self reliant and assiduous in job search and skill development. A bevy of securely employed and highly paid economists pumped out a massive number of ‘research’ papers, which served to give authority and legitimacy to this ideologically tainted and empirically bereft view.
Most of this ‘authority’ lacked credibility, but then mainstream economics has never really been concerned with its theoretical inconsistencies or lack of empirical traction.
The ‘tournant de la rigueur’ that Mitterrand took in 1983 is held out by left-wing intellectuals as an inevitable response to increased globalisation and the end of the autonomy of the nation state in economic terms.
Mitterrand’s later ‘partnership’ with German Chancellor Helmut Kohl in forging broader European integration was the driving force in the subsequent introduction of the Maastricht treaty. Jacques Delors, Mitterrand’s austerity hatchet man, assumed a major role in the process that created the disastrous Eurozone.
There are two things that the ‘left’ repeatedly invoke and they both involve Mitterrand, in one way or another. First, that globalisation and the internationalisation of finance ended the era of nation states and their capacity to pursue policies that were not in accord with the profit ambitions of global finance.
The claim is that if a government tries to pursue full employment and redistributive policies then the financial markets will punish such a government through so-called ‘capital flight’ which would cause the currency to depreciate and the share markets to collapse.
The result would be economic crisis.
The narrative then claims that Mitterrand had no option but to abandon the Keynesian Social Democratic policies encapsulated in the 110 Propositions.
To the ‘left’, Mitterrand thus represents a pragmatist who was cogniscant of the international capitalist forces he was up against and aware enough to be flexible to do the best for France.
The alternative view (which I hold) is that Mitterrand was never a champion of the left. He just used that platform to achieve his presidential ambitions and the 110 Propositions were just a political vehicle to demonstrate a start departure from the deeply unpopular policies that Raymond Barre had pursued in the late 1970s.
He is not a role model for the left. He could have taken quite different decisions – the first of which would have been to abandon the fixed exchange rate policies and to give the French rural lobby a reality check.
Far from being helpless against the power of international capital, a sovereign, currency-issuing state like France at the time still held all the cards.
There is also a crucial difference between globalisation (by which I mean the growth of Transnational Corporations and international supply chains) and the neo-liberal ideology (by which I mean the dominance of free market economics, the demonisation of government intervention, the demands to eliminate the welfare state and the widespread deregulation of financial and labour markets).
Those two developments are separable and distinct although the latter certainly reinforces the threats imposed on nation states by the former.
My view is that the ‘left’ has conflated the two developments and consider globalisation equals the demise of the nation state. It hasn’t. The neo-liberal ideology is serving that function and that is a matter of choice.
Democracies can choose whether to undermine the nation state – by, for example, signing up to these so-called ‘free trade agreements’ and creating tax havens for TNCs and deregulating labour markets to allow the TNCs to increase their profit rates at the expense of the local population.
There is nothing inevitable about that at all.
Another blog – The origins of the ‘leftist’ failure to oppose austerity – also bears on this issue.
What I found interesting about Bojan Bugaric’s analysis is that he contends that once the European Court of Justice (ECJ) started interpreting the EU regulations they “paved the way for a future reconfiguration of the original balance between the economic freedoms and social rights in the EU legal order” and thus “limited member states’ discretion in formulating national policies”.
So one might argue that the very essence of the European Union has become neo-liberal, which goes well beyond the political preferences of the parties in power at any point in time, and raises the question for progressives of whether the whole exercise should continue to be supported.
That is, can a progressive politics survive while a nation is part of the EU? This goes well beyond the argument of whether a nation should exit the Eurozone, which, of course, I recommend for all Member States.
He also argues that the Maastricht process ended with the ‘economic’ agenda based on hard austerity (Stability and Growth Pact) supplanting the traditional European ‘social’ agenda as equal partners.
The “social elements” remained at the “the national level” but were “gradually hollowed out” by the primacy of the “supranational marketization” at the EU level.
This is the post-Maastricht reality that the Left faced even though it was the support of the Left that created this dystopia in the first place (support for single market and the EMU).
Bojan Bugaric contends that the Left has failed to respond to this reality. Even when they were in power in “13 out of the 15 states” in the late 1990s they could not use that position to force desirable treaty changes that would have given a more reasonable balance between the, now, competing economic and social objectives.
Blair sided with Kohl and thwarted the French Prime Minister Lionel Jospin’s attempts to reduce the neo-liberal bias in the Treaty.
He cites the Amsterdam Council fiasco that consolidated the Treaty of Amsterdam and the role played by Tony Blair’s ‘third way’ which “strongly opposed to any idea of binding regulation and intervention in employment policy at the European level” as being an undermining force for any Left unity at the Council.
The resulting Treaty of Amsterdam failed to embed a “social democratic EU agenda” into the EU constitution.
A similar split occurred in the lead up to the Lisbon Treaty. Blair was again at the forefront in opposing changes that would lead to the “constitutionalization of ‘social’ Europe'”.
He claims that much of the internecine disputes within the Left can be traced back to it being “imprisoned within the nation state logic of progressive social policy”. They suffered from a “fundamental failure of imagination” to see an “post-national, EU approach to social policy”.
They could have instead fought for a ‘Keynesian’ federal fiscal capacity within Europe and an elevation of the welfare state to the EU level. This would have also meant strengthening the European Parliament.
In the earlier Reports on European integration, for example, the Werner Report – the development of this federal capacity was deemed essential to the success of any plans to move to a common currency.
But once the Left went along with Delors (indeed he came out of the Left) and abandoned the federal fiscal capacity, they also had to face the consequences that social policy would remain at the national level and be subjected to the unworkable fiscal rules that limited national freedom.
It was clear to outsiders on the Left (me among them) that once the European Left signed up to the Maastricht process that they were undermining the capacity of their nations to maintain full employment and sustain prosperity for the working class.
It was only a matter of time before a major crisis hit and the social welfare nets would be attacked by the neo-liberal orthodoxy insisting that the fiscal rules be obeyed at the Member State level.
Nation states did not lose power by circumstance. They gave it away and the citizens who had little voice in the hand-over are now bearing the consequences.
Once the crisis came and the response was harsh austerity, things have become much worse. Bojan Bugaric notes that the latest developments – for example, the Fiscal Compact:
… basically entrenches a certain economic theory at the level of constitutional law requiring the signatories of the Treaty to change their constitutions, preferably, with new provisions of binding force and permanent character …
it basically outlaws Keynesianism and its counter-cyclical economic policies …
The neo-liberals have thus seriously undermined democracy in Europe and empowered the ECJ to enforce basic economic policy dictates from the EC to the Member States.
Europe has become a technocracy ruled by neo-liberal economists who play with models that have no relation to the real world and when they are applied to the real world fail badly.
A dystopia of the worst kind has been created – it is a nightmare.
The European Left now has to face the reality that their beloved ‘Europe’ is corrupted and only root-and-branch changes to the Treaties will restore it to a more democratic, social-inclusive and economically prosperous path.
Which is why the behaviour of Syriza is to be condemned. They had the strength of a strong popular support. They failed because they went along with the technocrats at the expense of articulating any alternative vision. Sure they said they were anti-austerity but that was just motherhood stuff.
Perhaps it is up to the likes of Jeremy Corbyn or the new Socialist power bloc in Portugal to provide some vision and leadership for the Left in Europe to articulate a new path.
Things look bleak as they stand.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.