The European Union in the Financial and Economic Turmoil
The global economic cramp is particularly badly digested by the European Union and by the central project of European unification, the monetary union in particular. This has led to an existential crisis of the union itself, with as provisional highlights the Greek drama and the British exit. In this article, we will drill for the foundations of this unique project and the causes of the instability in the 21st century.
The global economic cramp is particularly badly digested by the European Union and by the central project of European unification, the monetary union in particular. This has led to an existential crisis of the union itself, with as provisional highlights the Greek drama and the British exit. In this article, we will drill for the foundations of this unique project and the causes of the instability in the 21st century.
Although the 2008 crisis had its origins and eruptions in the United States of America, the European Union has been hit the deepest and the longest. For ten years, the European countries knew the lowest growth, the highest unemployment, and the largest mutual contradictions. The banking crisis is the worst part, the debt crisis of the most affected countries has not been resolved and for the first time in the history of unification, the Union’s project is threatened from the bottom up by the people.
The latter has everything to do with the balance of the crisis and the authoritarian reorganization and austerity measures that were imposed by the central authorities of the Union. On the one hand, there was a massive centralisation of power exercised by the European Commission (the executive authority), the European Central Bank, the European Council (the meeting of Heads of State or Government of the 28 countries) and the Eurogroup (the Ministers of Finance of the Eurozone), supported by the International Monetary Fund. On the other hand, the Union was falling apart under the sledgehammer blows of the budget and debt restructuring imposed by the Union and the shifting of the consequences of the banking crisis on the broad strata of the population.
In many countries, banks were nationalized to limit the damage, capital increases were carried through to increase the resilience, and massive guarantees were granted to allay panic. In total, 1240 billion euros were spent in Europe controlling the banking crisis, of which 757 billion in the form of guarantees. This left deep marks in the government budgets and the national debt. While the big banks were strengthening themselves and were getting too big to fail, the bill was served by the government to the working population. Ten years of surrender on wages, social security, pensions and government services followed. Privatisations of public companies and from the state patrimony were next. Everything was conducted by the European institutions, with the help of the European Treaties (the global framework), European directives and control instruments.
The social breakdown has created deep gaps between a layer of super-rich whose fortune continues to thicken and the broad population layers. This phenomenon was extensively studied by the French economist Piketty.
For the first time, we are going to a situation where young people will be poorer than their parents. According to the Mc Kinsey Global Institute report of 2016, that would be “corrosive economic and social implications”. In the rich countries 65 to 70 percent of the families saw their real income fall between 2005 and 2014, thus calculated by the Research Department. We are talking about 540 million people who saw their income drop or stagnate. (McKinsey Global Institute report, Poorer than their parents? Flat or falling incomes in advanced economies, July 2016, p. 6). One third of young people aged between 18 and 24 belong to the ‘without future perspective’ category. According to official European statistics, this means that they are both poor (less than 60 percent of the median income), and suffer severe material deprivation, and have very little chance of having enough work.
The European crisis was already compared with the Japanese depression. After ten years of particularly low growth, there is now some prospect of a revival, but there is as much scepticism about its basis. It can be a cyclical catch up of long-delayed purchases. It can also be a long-lasting effect of doping by the European Central Bank. The ECB each month since the beginning of 2015 creates 80-billion-euro fresh money by buying up bonds in the hands of the banks. The ECB waited six years longer than the FED to seize the instrument of the quantitative easing. This has everything to do with the principles on which the European Monetary Union is founded and which we want to investigate in this article.
The European Union: A Unique Experiment
Never in history has such an enormous attempt been made to subject sovereign countries to one central government and forge together with one single currency. It is a process that started timidly after World War II and was propelled forward by economic and political impulses. Both played a role. Whenever both pulses pushed in the same direction, European unification put forward qualitative steps. Also, each time the unification process could count on fairly broad support in the population of the participating countries.
That was the case in the period 1945-1957, concluded with the Treaty of Rome, in which the European Economic Community came into being. Unification received full support from the United States of America. The Marshall plan that served as a lubricating oil had to create both a continental outlet for American products as well as link up the European allies politically against the threat of the Soviet Union and communism. Germany had to act as a buffer against the Soviet advance but also had to be incorporated into a larger European straitjacket, which had to be watched especially by France. The project started small, with six countries, and had an economic free trade zone as its first objective. The Treaty of Rome also looked further and then mentioned the four major economic freedoms as a target: the free circulation of goods, persons, capital, and services. The political support was double: for the power centres, it was mainly a block formation in the Cold War perspective, towards the population the Franco-German formation of axes was played out as a perspective of eternal peace in Europe.
A second qualitative leap came in the 1980s, concluded with the completion of the single market and the conclusion of the Maastricht Treaty in 1992, in which the European Union was born. The shock of the first post-war economic crisis led to the neoliberal turnaround under Reagan and Thatcher. The neoliberal economic stance of the United States forced the European countries to the formation of a front. Under the impetus of European monopolies and the political leadership of France, the single market was given a new boost. The most significant and most powerful interest groups on the continent united themselves to compete better with the United States and Japan. In the background, unification was supported by powerful lobby groups such as the European Round Table of Industrialists (ERT). Although the Round Table only had 50 members. These 50 represent a turnover of one thousand billion euros with employment of 6.6 million employees. The European Round Table dictated in the 1980s the project of the 1992 single market. They gave the impetus for concluding the Maastricht Treaty, replacing the customs union with a political union with three pillars: an economic, a legal and a security pillar. Formally, the Economic Community is changing in a European Union with 15 participating countries. This transformation process towards a confederation of countries was driven economically in the years 80 by the ERT and politically by France, led by the President of the Commission, Jacques Delors. The population was positive about the unification process. There are several immediately visible results that support the completion of the single market, such as the disappearance of customs and border controls.
In the Maastricht Treaty, a new qualitative step was anticipated at the same time: A Monetary Union with a single currency. This was also done at the insistence of the European Round Table of Industrialists. If exchange rate risks can be eliminated, this offers considerable continental competitive advantages. But an agreement would probably never have been possible if the political balance of power in Europe were not completely messed up. That happened through the collapse of the socialist countries in Eastern Europe and the Soviet Union (1989-1991). The result of the fall of the Wall is the reunification of West and East Germany. France sees with dismay how the subordinate neighbour is rising as the most powerful economic nation on the European continent. French President François Mitterrand sees only one way to curb the German advance: to catch the supreme Deutsche Mark in a European currency system. He wants to support the German Wiedervereiniging if Germany gives up his strong currency for a European one. The German Chancellor Helmut Kohl admits, on condition that Germany imposes the rules for the European currency. It must be as strong as the German mark, controlled by an ‘independent’ European Central Bank according to the Bundesbank model. That amounts to a strictly monetary course, with the fight against inflation as a single assignment. Not like the FED, which also makes the fight against unemployment a task. Financial transfers between strong export countries and weaker import countries were out of the question. “The Bundesbank has established the real benchmark of the strongest currency”, was then also told by Karl Otto Pöhl, ex-president of the Bundesbank. “The euro speak German”, would explain the German Minister of Finance, Theo Wagel, even before the introduction of the single currency in 1998. Under these conditions, the two major players, Helmut Kohl and François Mitterrand consented to this agreement. But it meant neither more or less than Germany starting from that time was the leading force in the European Union, at the expense of France. France tried to curb the resurrected Germany, but Germany eagerly accepted it and immediately took over the leadership of the European unification.
The Maastricht Treaty sets strict convergence criteria regarding national debt (60 percent of GDP), the budget deficit (3 percent of GDP) and inflation? These criteria will determine which countries can join the currency union within ten years (the future eurozone). In the so-called Lisbon agenda 2000, the European Union aspires to become the most competitive economy in the world. A project that is based mainly on liberal competition criteria. Although the Maastricht Treaty and the Lisbon Agenda lay the foundation for the future austerity and rehabilitation programs, most of the European population is responding positively to the progress of unification. Travel around Europe with one currency is a pleasant perspective. The antisocial consequences, like super-flexible working conditions, budget and reduction of social security, remediation made themselves felt.
The situation will change when the Monetary Union enters into force in 2002, at that time in 12 countries. Three countries that are members of the European Union remain outside the Monetary Union and the eurozone: The United Kingdom, Sweden, and Denmark. At the beginning of 2002, the ERT warns that a monetary union requires rigorous discipline and that a strengthening of central authority is necessary. From then on, the Economic Governance on the Union’s agenda. The governments of the participating countries are trying to rush ahead by giving the European Confederation a Constitution, in which all concluded treaties would be bundled and chiselled. For the first time, this clash with the will of the European population. The European Union is starting to concern itself with national politics and makes far-reaching directives that limit the competence of national parliaments. The first clash came in 2005, when four countries submit a proposal for a Constitution in a referendum. In France and the Netherlands, the proposal is rejected. Four other countries that had planned a referendum, including the United Kingdom, cancelled the planned plebiscites. It is a cramp in the first public support for European integration. But this is ignored radically. The Constitution will be given a facelift and will be approved a few years later (in 2007) as a Lisbon Treaty by 26 governments of the 27-member states. Only the Irish Government is organizing a referendum on the Treaty in June 2008 and gets the lid on the nose. The Treaty is rejected by 53 percent. That is why it will be redone in October 2009. This time it succeeds.
The Structural Weakness of the Eurozone and the German Problem
When the euro on 1 January 2002 Act is awakened to life 12 countries joined the Monetary Union. This number will rise to 19 countries today. Some states do not comply with the criteria which are laid down to join the monetary union. The first countries to break the rules are… Germany and France, it will be shown later that Greece could participate at the last minute thanks to counterfeit bills, with the help of the investment bank Goldman Sachs. The monetary union began, however, in a euphoric atmosphere. Until 2008, there seemed to be no problem. With the euro in the image and likeness of the German mark, everything seemed to go well. The structural weakness of the construction was subject to discussion from the beginning. According to the Canadian economist and Nobel Prize winner Robert Mundell, a monetary union between countries with very different economic power and wealth can only work if there are financial solidarity mechanisms built in and there exists high labour mobility. With one currency the possibility of devaluations is excluded, and the uneven competitiveness must be taken care of in a different way. Both these conditions are not fulfilled in the European Monetary Union (EMU). Solidarity funds transfer to countries in difficulty are not provided because Germany and the other strong countries (the North) don’t want to pay for the weaker (the South). The differences in language and culture also initially strongly restrict labour mobility within Europe. Those two structural defects play no role if there is no outbreak of crises.
There is a second source of tensions that will bring the Monetary Union entirely out of balance. Germany, as the strongest country, from day one of EMU has set all factors to his specifications and still more, Germany played a nasty trick on all co-signers. One stable currency, no more exchange rate risks, a large domestic market, what can a healthy export nation wish more? “Low wages!” replies the German Government Schröder-Fischer, a coalition of Social Democrats and ecologists. And she adds the action to the word. In the period 2003-2005 this government launches four reform packages (Harz I to IV), which created a super-flexible low wage sector, with mini-jobs, interim labour and forced labour at poverty wages. That, in turn, put pressure on all the starvation wages, because Germany has no minimum wage. The German economy, already the most competitive by its technological lead, gets wage advantage on top. For example, the German products become cheaper, and the German export is booming, especially within the European Union. The domestic market is being sacrificed for export. Between 2001 and 2008 the domestic consumption drops, calculated in the percentage of the national wealth, with no less than 3 percent. Don’t worry. This is compensated by the export that breaks all records. When Angela Merkel in November 2005 comes to power, Germany is well on its way to becoming export Weltmeister. The Monetary Union is a gift for the country with the most robust industry. With the wage manipulation, the weaker competitors in the countries of the South are overrun. Greece, Spain, Portugal cannot compete with the much stronger and more powerful companies in core Europe. They must import more goods than exporting them, and so the money is transferred abroad.
This structural imbalance is still cranked up during the honeymoon of the monetary unification. In the countries of the South all conditions favourable to create debt. The euro has eliminated exchange rate risk. There can be borrowed against a very low-interest-rate as if all countries are equally risk-free like Germany. Now there are no more weak lires, pesetas and drachmes. Now it looks like the robust euro, with strong nations such as Germany and France to back her, to always ensure all possible adventures. Also, the local inflation is higher than in the North, and that makes borrowing even more attractive, sometimes even against negative real interest rates. That luxury has not been there for long, and both the states and the enterprises and households benefit thereof to invest. In Greece, Italy and Portugal the State stacks debts for infrastructure projects. In Spain, but also in Ireland there is a property boom, paid with borrowed money. And where does one borrow? At the German, French, Dutch and Belgian banks. Germany and other wealthier countries benefit twice: their banks lend the money with which in those same countries the material and the equipment are purchased.
In the first five years of the euro, between 2002 and 2007, the most important capital flows of Frankfurt, Berlin, Paris, Amsterdam and Brussels go to Lisbon, Madrid and Athens. During that period an estimated 563 billion in savings left the German Heimat. That is two thirds of all German savings. A huge amount. Even conservative economists such as the German Hans-Werner Sinn believe that those German capital exports still go too far: “no country is known to me, that ever in its history transferred as large a share of her savings abroad”. (Andreas Wehr, Der kurze griechische Frühling, Keulen, 2016, PapyRossa, p. 15)
Each Frank has reverse, and that’s no different to the euro. On the one hand: the growing capital export of the strongest European countries. On the other side, the ever-increasing debt mountain of the importing countries in the periphery. In 2011, the Spanish State, Spanish businesses and citizens together amassed a foreign debt of not less than 983 billion euro. Italy has 325 billion foreign debt that year, Portugal 176 billion euros, Greece 171 billion euros and Ireland 153 billion euros. (Andreas Wehr, p. 12)
The countries of the South were in a trap. The budget should no longer be used to stimulate the economy; blocked by the Maastricht convergence criteria. Not worry, as told in ‘core Europe’, and the German, French, Dutch and Belgian banks opened the locks. The southern countries could borrow nearly free to import products from core Europe. Until the bubble burst and the crisis broke out.
Solidarity transfers were not allowed by order of the German monetarism. Only one remedy remained, a remedy of the iron hand. Germany stuck to the Monetary Union as a weapon to “put the house in order”. “If Europa had not put the house in order in its budgets and not strengthen its competitive position, it would no longer play a role of importance at the global level and yield step by step”, declared Angela Merkel during the first Euro crisis. If solidarity transfers are prohibited no possibility of devaluation exists, the German “Put the house in order” means that there needs to be handed in.
The price to be included in the Eurozone is for many states on the edge of Europe directly painfully obvious: with their currency, they have also given up their sovereignty. They are no longer the lord and master in their own home. That is now Brussels, Frankfurt and Berlin and much more. All severe debt proposals relief are wiped from the table, and a so-called ‘internal devaluation’ is required from the countries in the periphery. That means wage cuts, insane savings on social spending and health services, curtailing of pensions and the termination of infrastructure spending. It is competition down. Greece should be at the level of Slovenia. In the posh newspapers of the German establishment, there is no beating around the bush: “There will be no more money flowing to Athens, as long as the wages and pensions in Greece do not comply with the actual performance of the Greek economy. This means that the average income in Greece and Slovenia must be brought on the Estonian and Slovenian level. That can only be achieved through an ongoing internal devaluation, that is, through further cuts.” Thus, it is published openly in the Frankfurter Allgemeine Zeitung, on 27 February 2015.
It is well put together. To finance their equipment, infrastructure and construction projects Greeks, Portuguese, Spaniards and Italians borrow plenty at the German, French and Belgian banks. Cash register, cash register, cash in, they think in Paris, Frankfurt and Brussels. The money from the banks makes a detour in the South to feed the own industry. That leads to explosive trade surpluses. Money that is accumulated in the big investment banks. Those capital mountains are not used to boost domestic spending and consumption. Deutsche Bank, BNP Paribas and the other large banks use it to invest massively in Spanish real estates, Greek debts and American derivatives. The German trade surplus, made possible by the low-wage sector and the 1-euro-jobs, is used to boost the bubble economy. On the other side of Europe meanwhile, the noose of debt is getting even tighter.
In 2015 the German trade surplus widened to 8.8 percent of GDP, a world record. In comparison, the surplus on the Chinese trade balance amounts to less than 4% of GDP. The enormous trade surplus of Germany means a shortage for other countries. The European Union also imposes rules to trade surplus. To prevent derailments, the trade surplus should be no more than 6 percent of the national wealth (GDP). The exception is Germany, with 8.8 percent. The economist Martin Wolf writes in the Financial Times: “Germany is the eurozone’s biggest problem” (10 May 2016). Germany submits its model of domestic savings to all countries of the eurozone and pushes the whole European economy further into crisis, while it breaks records on its trade balance. Why is the European Union waiting to start up a procedure because of “excessive imbalances” against Germany, asks Martin Wolf rightly.
The Greek Tragedy, With a Short, Hopeful Interlude
If there is one country that in this storm completely went down, it’s Greece. The Greek decline began at the start of the banking crisis in 2008 and reached a peak in July 2015. The story of Greece is also the story of how the European institutions imposed a straitjacket on the debtor countries. Greece, Ireland, Portugal, Cyprus and successively Spain were placed under strict trusteeship and got their orders of the troika, the inexorable triumvirate of the European Commission, the European Central Bank and the International Monetary Fund. With the recipe of the Washington consensus that the IMF had applied for 20 years in the Third World: money in return for massive domestic restructuring. The only way to get debt relief was the conclusion of a memorandum which surrendered on wages, pensions, national insurance and privatisations were promised.
Until well into the 20th century, the land on the Aegean Sea is an export country. Modest, but after joining the eurozone in 2002, the situation changes. Greece is going to import systematically products which it produced itself in the past. It becomes an importing country with a negative trade balance of 10 to 13% of the GDP. This import happens on tick, with cheap borrowed money from large banks in Germany, France and the Benelux countries. Reckless loans contracted by irresponsible lenders. Because no one in Frankfurt, Amsterdam, Brussels and Paris seems not to give a damn about the question whether the Greeks ever will be able to repay. There is still the euro, surely that’s enough guaranteed? The Greek banks play the game and borrow the money, and lend the money in turn, further to families and businesses. With capital exports from Central Europe, the periphery gets into debt. And everyone joins the party.
Then the banking crisis struck in 2008. Public debt went through the roof, the financial markets pounce on Greece, and the interest charges went up to priceless heights. Families could no longer repay their loans to the Greek banks. They could, in turn, no longer repay to the foreign banks. Families, small businesses went bankrupt, banks went bankrupt. To make matters worse there appears to be fiddling with the budget deficit. It does not amount to 6 percent, but to 13.6% of the GDP. When Standard and Poor’s, Fitch and Moody’s stated that the creditworthiness was under the freezing point, the country was de facto bankrupt. Nowhere else in the world it could still borrow money on the financial markets.
In normal circumstances, debt relief could help. But this didn’t happen. In May 2010, an emergency loan of 109 billion euros was issued, to a country that was insolvent. In this way, the IMF and the European Commission wanted to save time so that large European banks could be pulled out of the swamp. Those banks still claim 140 billion outstanding appropriations to Greece, of which 45 percent were lent to the public sector, 16 percent to Greek banks, and 39 percent to the private sector.
For that loan, imposed insane recipes and conditions further dragged Greece into the abyss. The troika demanded control over the economy. Greece should cede its sovereignty, and from now on will be led by technocrats from Frankfurt, Brussels or Berlin. In exchange for emergency loans, Greece had to meet a list of measures that were set out in a ‘memorandum’. It’s a mix of blackmail and measures which no sensible person claims they will help Greece get ahead.
This became a reality very quickly. According to the predictions of the troika, the Greek economy would shrink a little and then grow again rapidly. But no. The economy sank even deeper into the recession, the maturities of the loans had to be extended, and in July 2011 already a second aid package of 110 billion euros is needed. It is immediately apparent that all those billions are not invested in Greece, but quickly returned to the sender to pay off interest charges and loans.
Through the memoranda collective agreements were broken open, minimum wages were reduced, pensions were cut, and public services were put on display. The official rhetoric was that Greece would strengthen its competitive position in this way, but after four years of troika briefs, the country had lost a quarter of its domestic products. It is an economic cutback, an unprecedented order since the great depression of the 1930 years.
The Greek population pays the price with a grave humanitarian crisis: 1.5 million unemployed, 3 million people who live below the poverty line, a third of the population without social protection and access to health insurance. The experimental politics of the troika ensures a downward chain reaction. According to a study by the Institute of Labour the purchasing power in Greece decreased between 2010 and 2015 with 37.2 percent. And of course, the demand also declined, with 31 percent. A hellish spiral appears. Falling consumption causes bankruptcy of more and more small and medium-sized enterprises. Thus, there will there be less and less tax money in the State Treasury. Every time a flood wave of new taxes and fees follows. Despite the increasing taxes, the Greeks get less and less education, health care, public transport, childcare or retirement. More than one million pensioners, 1,035,710 to be exact, lived at the beginning of 2015 with a pension that was lower than 500 euros per month. The balance of the memoranda politics is dramatic. Public debt is only growing. 120 percent of GDP in 2009 to 177 percent beginning 2015. The country impoverishes, and the most beautiful chunks of the Greek economy are sold for a song abroad.
The actual result of the emergency loans is that the money does a turn around the Acropolis and then again returns to the centre of Europe. The first emergency loan came at the end of May 2010, with 110 billion euros. The second came already a year later, at the end of July 2011, good for 109 billion euros. Altogether a small 220 billion euro. Less than five percent of all that money ended up in the Greek Treasury, according to the calculations of the European School of Management and Technology (ESMT) in Berlin at the beginning of May 2016. The calculators from Berlin have ferreted out that only 9.7 billion euro in the Greek Treasury was deposited as adequate support for the Greek Government budget. That’s hardly 5% of the whole amount. Nearly two thirds of the amount immediately went into debt and interest payments to foreign banks; we are talking about 139.2 billion euros. And another 29.7 billion euros was used to attract investors for the private sector in Greece.
In those circumstances, the elections of January 2015 brought a new sound. The left Social Democratic Party Syriza wins convincingly and makes a Government led by Prime Minister Tsipras, flanked by the nonconformist minister of Finance Varoufakis. He travelled around Europe for six months to seek support for a debt restructuring. It’s Achilles’ heel of the new Government. She hangs from her birth to the infusion of the creditors, who can crank it up and turn it off whenever they want. This is what the nineteen ministers of Finance of the Eurogroup do. Month by month the infusion is turned on and off, and at the same time, the thumbscrews are tightened. The Government does concession after concession to obtain cash credits and hopes meanwhile that the European authorities show mercy. But they are inexorable and demand a third memorandum in exchange for a new support package. On June 22, 2015, the ‘summit of the last chance was held ‘. The Greek Government had again made large concessions on almost all the requirements of the troika, but the European elite demanded the full capitulation. Then Alexis Tsipras, for a moment, chooses for the flight ahead. On Saturday morning June 27 the Greek Prime Minister announces a referendum on the new measures taken by the troika. The European establishment reacts baffled. The European excellencies were tripping over each other to condemn ‘so much arrogance’ of the Greeks. The reaction followed the following day: this is extremely violent. On Sunday 28 June 2015, the ECB Council decides to provide emergency credits to the Greek banks no longer. The loans were frozen and, furthermore, the money faucet has just turned the tap off. That meant that the Greek banks were put without money.
The Greek Government had to announce very painful measures immediately. Every Greek could take up only 60 euro per day with his bank card, and that only through bank machines. The banks remained closed all week, except for the pensioners who could pick up their pension. Despite all the misery, despite all the humiliation, despite the drying off of the banks, the majority of the Greeks voted on Sunday, July 5 against the measures submitted by the troika. In all districts of the country the no-voice won, a total of 61.3 percent. Primarily the result of the youth was very striking. More than 85 percent of the youth between 18 and 24 voted Oxi, which means ‘no’.
The European president Donald Tusk and the Commission President, Jean-Claude Juncker knew on the special European Summit of 7 July that Greece unceremoniously would be flung out of the euro, as the country does not bend. Three days after the referendum Tsipras gives in. On Wednesday, July 8, he proposes a new reform package with a lot of measures that were voted down in the poll before.
The Saturday afterwards the Germans lay new conditions again on the table, including a privatisation fund that would provide 50 billion euros. The dictates of Brussels put Greece openly into receivership. The Greek Government is obligated to push these series of massive saving measures through its parliament in scarcely three days, on 15 July. Greece is reduced to a kind of protectorate where resolutions are enforced that are drawn up outside Greece.
An Authoritarian Strengthening of the European Union
The crisis is used by the European establishment to take significant steps forward to develop the European centres of power, with strong authoritarian character. The two decision-making bodies of the European Union, the Commission and the European Council (the meeting of heads of state and government leaders), have appropriated more power for themselves with the full agreement of the national governments. Since 2008 the national states have transferred power at a fast pace and voluntarily to the European state apparatuses, because of which we can talk more and more about a confederal European Union. It has been argued as a necessity to save the euro and prevent the bursting of the European Union. At the same time, however, the gap with the large population layers on whom the entire reorganisation charge was passed, grew. Ten years surrender has led to increasing poverty and polarisation. The anti-European mood improved in all countries. Economically speaking, the euro was saved with the whip, but in political terms, the European Union sits on a time bomb.
The Greek crisis is symptomatic of the evolution of the whole European project. When in the dressing rooms, the European Union was created as a competitive project, followed the overblown statements about ‘social Europe’. Thus, the European Union was based on three venerable starting points.
The first was that the process of European integration would be consensual, based on equality of the participating partners. By threatening the Greek voters, by closing the Greek banks for weeks, by mental waterboarding and by holding a pistol against the temple of the Greeks to impose a humiliating dictate, is any notion of equality has become impossible. Thus, the European Union who treads on her first starting point and anchors a new understanding of the foundations of Europe: A Member State can and will be toppled if they are not marching in the direction of the German monetarist austerity policy. The official European Union has become the conditional European Union. The American economist Paul Krugman called the dictates of Brussels in his blog “a grotesque betrayal of everything the European project was supposed to stand for” (13 July 2015). Krugman writes in The Irish Times: “In a way, economics has almost become secondary. But still, let’s be clear: what we’ve learned this past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line.”
A second starting point was that the steps towards European integration could not be reversed. The second premise is also killed. The threat of the German Finance Minister Wolfgang Schäuble, at one time supported by the SPD leader Sigmar Gabriel, to throw Greece out of the eurozone, mentioned that possibility for the first time. Even though the threat was not carried out, the fact that it was there and was accepted as an option means that from here every step in the European Union is conditional.
A third, unspoken, starting point was that Germany itself would limit itself, in exchange for the enormous gift of a restart that the other European countries had donated after the devastating Nazi barbarism of Hitler-Germany. The dictate of Brussels has reduced these three principles of the Union to null and void.
These are three lessons from the most explosive situations that occurred during the 2008-2015 period, during the confrontation between the European power centres and the four countries which memorandums were imposed. But at the same time, the entire European order was rearranged and equipped with a set of instruments that realised a large, unchecked concentration of power in the hands of the European Central Authority.
When the entire Monetary Union was on the brink of bursting in 2010, Angela Merkel moved up a gear for Germany. Not only will the problem countries now be placed under receivership, but the entire Union must be in stricter synch. A full set of instruments was developed to force the Federal States to budgetary discipline, to structural reforms of the social security and the pensions. The so-called economic governance is, in fact, permanent monitoring of the whole social and economic policy, with penalty payments as punishment in case of infringement.
The European Council and the European Commission have benefited from the dust clouds that did stir the crisis to do what they could never have done in broad daylight. They placed throughout Europe social and economic policies under receivership by ‘experts’, straight from the massive financial and economic groups. They appropriated for themselves powers that were not covered by any democratic control or decisions, and that intervene drastically in the sovereign decision-making power of the national states.
More saving discipline, more debt discipline, more budgetary discipline, so it sounded in Germany after the banking crisis and the euro crisis. No mention was made of large investment programmes, no mention of deficit spending of a Keynesian policy to allow the motor start again. No, the logic of the eurozone had to be extended further. And strengthened even further. When the single currency was designed, the logic had already been fixed in the budgetary standards of the Maastricht Treaty (1992). Five years later sanctions were already added to those strict standards in the stability pact (1997).
And then came the banking crisis. “Never waste a crisis”, according to the neoliberal adagio. The German lesson from the banking crisis and euro crisis was that an iron hand was needed. A straitjacket out of which nobody could escape. After the single currency, the European Union also had to get a political unity, which had to be moulded in treaties and pacts as good as possible. What in regular periods would ask a lot of time and effort is now a piece of cake for the employers’ circles. Led by Merkel, already at that time, the European Union took three essential steps.
On Friday 25 March 2011 the Euro Plus Pact, one big Declaration of war to the ‘labour costs’, was adopted. Is the monetary policy too tight and does not protect the Member States against turmoil in the financial markets? Then, all the rest must be made flexible, in particular, wages. If we cannot devalue the currency, then we must devalue the wages. But the salaries belong, just as the labour market and the social security, to the competence of the national states. No worry, the Euro Plus Pact obliges the European countries each year to set up a competitiveness plan. Each country will now be monitored by some indicators in the competitiveness vis-à-vis the neighbouring countries. The comparison should, of course, to play off the wage costs against each other.
A second step follows the legal framework to impose sanctions. On Thursday 23 June 2011 for the first time six regulations were approved (later finally voted on 28 September 2011). Those regulations listen to the name Six-Pack. Under the banner of fighting ‘macroeconomic imbalances’ from now on, the European Commission can now act on domains that are not within its competence.
The Two-Pack was approved in March 2013. From now on, Member States must submit their budget plans before 15 October every year to the European Commission.
The tough German doctrine and saving mechanisms are then cast in an overall austerity treaty, the so-called Treaty on Stability, Convergence and Governance (TSCG). The whole is squeezed in a tight schedule, the European Semester. In the first half of each year, the Governments of the Member States must convey their plans. The European Commission assesses which, in its view, are the priority criteria and gives instructions. In the second semester, the governments are supposed to have realised their implementation. During the first semester of the following year, all governments must be accountable and announce their new plans. When there is insufficient progress, the in question is rapped on the knuckles and in case of insufficient improvement even have sanctions imposed that may amount to 0.5 percent of the GDP.
In this way, the saving- and reform politics in the whole of the European Union is ‘preventive’ oriented. But countries who must rely on European support funds, such as Greece, Ireland, Portugal, Cyprus and Spain, get a tough memorandum imposed that amputate both the expenditures as well as impose the new revenue by taxes and privatisations. Thus, the European Union, ‘thanks to’ the crisis, has created an unprecedented brutal device and instrumentation to dictate the surrender. That is the main reason why the people of Europe increasingly turn away from the Union, and the nationalist parties and trends have a growing success. A Europe of social progress is a fiction, and it is increasingly difficult to hide.
What After the Brexit?
In three leaps the situation in Europe evolved from a continent with sovereign states, from a single market to a confederal union with an overarching state apparatus and core countries united in a monetary union. The most prominent proponents of the unification, including the European monopolies, argue for a quick evolution from a confederate to a federal union, with a real European government and an own foreign policy. The crisis of 2008 has put a hefty mortgage on that. The economic disaster situation of the Union favours the nationalist forces, with Brexit being the most dramatic expression. But above all, the absolute European surrender to the European authorities to tackle the crisis has turned the unification process into an anti-popular, anti-hostile project, making the future of the Union unusually uncertain.
The Brexit had an impact like a bomb. The ‘markets’ had not seen it coming. But it has been brewing for a long time among the ordinary people. Most of the British people have given Europe the finger. But it is about much more than Europe, it is a cry for a radical turnaround, for jobs, for security and social protection. In short, for a stop to the endless savings and demolition policies. In Europe, in Great Britain, in Belgium.
In the leave camp England has put its cards on the table: colour the Brexit, the disadvantaged regions and cities where housing shortage proliferate. John Harris writes in The Guardian on 24 June 2016: “What defines these furies is often clear enough: a terrible shortage of homes, an impossibly precarious job market, a too-often overlooked sense that men (and men are particularly relevant here) who would once have been certain of their identity as miners, or steelworkers, now feel demeaned and ignored. The attempts of mainstream politics to survive the worse: oily tributes to ‘hardworking families’, or the fingers-down-a-blackboard trope or ‘social mobility’, with its suggestion that the only thing Westminster can sacrifice working-class people is a specious chance or not being working class anymore.”
The majority of the remaining camp share the same worries. They point not only at the European Union but also, and above all, the right-liberal politics of Cameron. Jeremy Corbyn, president of Labour, denounces: “Across many parts of Britain there is a feeling of powerlessness. In communities that have effectively left where the high skill unionised jobs were lost in the 1980s or 1990s and had not been replaced. Where people feel left behind in lower paid and less secure jobs. Where the deregulation of the labour market combined with a lack of investment has hit hardest. It is in many of these communities – former industrial heartlands – that people voted for Brexit. They have the hardest of local government services and have had the hardest hit, while the richest got tax breaks. The Tories’ choice, to make deprived communities pay for a crisis not for their own, the more divisive politics. That is wanted to blame immigrants, not a government, governments that let the industry go to the wall that has failed to invest, that has left the labour market behind. I want to be clear - the chronic housing crisis across our country is the direct result of this government’s politics - flogging off public housing while failing to build homes for all.” (Jeremy Corbyn, My Speech on the Result of the EU referendum, 18 February 2017.
The referendum shows once again that an enormous gap is yawning between the European establishment and the population. A year ago, the European establishment spat on the Greeks. The rebellious Greeks who demanded an end to the saving dogma in a referendum. They were trampled. Like the Dutch and French, the European Constitution was rejected in a referendum in 2005 but pushed through their throat.
The European coalition of liberals, socialists and Christian Democrats want more of the same. The departure of the British is seen by the great proponents of a federal Europe as an opportunity to work faster on the deepening of the European project. The French President Macron and re-elected Chancellor Angela Merkel want to work together to give the European Union a new impetus. But the political orientation is not up for discussion. There needs to be a stronger central authority, with its own budget for the Union, with its own Minister of Finance. A Union with different speeds was also taken into consideration. Some forces openly argue for the split between a core Europe, on the one hand, and a vassals Europe on the other. Their vision exudes a Europe tailored to the financial powers in Frankfurt and the sizeable German industry, supplemented by countries that provide functions in the cross-border industrial assembly chain. This is, among other things, the position that was defended by the former German Minister of Finance Wolfgang Schäuble. Schäuble developed in in the middle of the nineties the concept of a nuclear-free Europa with a ‘strong centre around Germany builds up a small integrated ‘nucleus’ of the European Union which not only holds the European Union together but defines their policy. In 1994 he developed a master plan under the title Überlegungen zur europäischen Politik. In other words, according to Schaüble Germany, France, Belgium, Luxembourg and the Netherlands must form the ‘core’ of the European unification, with the German-French axis as an engine. For Schäuble the euro must constitute the hard core of Europe. The single currency would only be reserved for a small base of countries. Round the heart, a broader European Union could be established. In the vision of Schaüble Greece does not belong to the core Europe. This also explains his harsh attitude during the crisis, and his open plea to banish the land on the Aegean from the euro. But Italy too does not belong to core-Europa. And thus, not to the eurozone. As a result, the third-largest economy in the eurozone may be a next prey for the hardliners from Berlin.
What holds the European Union together is the axis Germany-France and the collective awareness that the European countries cannot stand up against the competition of the United States and the future superpower, China. Angela Merkel expressed this clearly in 2012 when she justified the authoritarian flight ahead: “If Europe does not put things right in the budgets, if it does not gain competitive positions, it will no longer play a role on the world stage, and it will have to give way step by step”. Emmanuel Macron also expressed himself as a new president in the same sense: “ … the only relevant question was how to turn the eurozone into an economic power that could stand up to China and the United States. How to make our Europe a diplomatic and military power capable of defending our values and interests in the face of authoritarian regimes that emerge from deep crises that can shake our societies. That is our only challenge, not another.” (Discours du Président de la République, Emmanuel Macron, à la Pnyx, Athènes, 7 September 2017)
The German custody imposes a merciless competition logic on Europe. But the political crises of Greece and the Brexit also show that this is the Achilles tendon of the unification process. A three-division emerges slowly which in the future can lead to new political crises. On the one hand, there is the tight position of stronger core countries which impose their competitive logic to the Union as a whole and especially want to define the eurozone more sharply. But on the other hand, there is a group formation in the East and group formation in the South.
The former socialist countries that are joining the European Union since 2004 had a staunch ally in Britain for a too significant loss of sovereignty and were fierce opponents of a European federal model. The refugee crisis brought these contradictions to a head. Not only Bulgaria and Hungary built walls; there is fierce opposition against the distribution plan which is imposed by the European Union. Prime Minister Orban from Hungary organised a referendum to refuse all immigrants and wants to register this in Hungarian law. According to him, refugees should be locked up and guarded in a camp outside the European Union. A Central European front is established with its meetings of the Visegrad countries (Hungary, Poland, the Czech Republic and Slovakia) to defend their interests in the European Union. They all want to cooperate more and more with China, which is waiting on the eastern border with the new Silk Road project.
A clear opposition also arises around the file of the social dumping. While the ‘high wages group’ in the West advocated an integrated application of ‘equal pay’ for equal work at the same workplace, the ‘low-wage group’ in Central Europe opposes any tightening of the posting directive which restricts social dumping through the uncontrolled employment of workers from Eastern Europe.
The Greek crisis of 2015 and the dictation of the troika also created fault lines. The brutal refusal to give breathing space to the Greek economy eventually led to a cautious front against German domination. In preparation for the Bratislava Summit, Greece, France, Spain, Portugal, Cyprus and Malta met on 9 September 2016. It is an initiative of the Greek Prime Minister Tsipras, and the remarkable thing is that François Hollande ventured into a southern European front, almost openly against the German in the European Union. His successor Emmanuel Macron understands France is faced with a difficult choice if it ever came to a North-South break. He wants to make the eurozone more resistant to crises and has started a diplomatic offensive to implement far-reaching reforms that will also enable more assistance for countries in difficulty. For this? He wants a real budget for the euro countries, with a Minister of Finance and the conversion of the existing euro aid fund into a European Monetary Fund. Germany sees the threat already popping up that the more affluent countries must pay for the problem countries and Angela Merkel is under heavy pressure from her supporters not to give in. There is, however, a consensus to evolve faster with the 19 countries of the eurozone, applying a different speed within the European Union.
Can this patchwork be held together? This will depend on both economic and political factors. It can go three ways. The way out, on the one hand, is more authoritarianism in a centralized Europe, sacrificing the sovereignty of the member states to competitive logic. The way out, on the other hand, is a return to nationalism on which many nationalist forces speculate.
If Europe wants to survive, the foundations will have to change. The competition and the profit hunting in a free market are the bases of the European Union, chiselled in the primary texts of the Union. We do not have to redesign the competitive structure or give the imbalances a new coat of paint. We need another basis, other foundations. Cooperation and solidarity must replace competition and inequalities.
What we need, therefore, is a different Europe, based on cooperation, solidarity, balanced investments and regional development. A Europe where transfers are possible, a continent on which the wealth of the summit is activated for a massive industrial, ecological and social investment program, a Europe that starts from the needs and the involvement of its citizens, instead of spitting on the people. If we do not accomplish this, Europe will become a continent of authoritarianism, or it will burst during this early 21st century through the rebirth of old nationalist tendencies.