International

The crisis of the euro and the confusion on the left

The Greek crisis is reaching a decisive turning point. In the run up to the recent elections many reassurances were made, but everyone knows that what is actually being prepared is a plan for an exit from the euro in an attempt to minimise the consequences and then to put the blame for this on the "irresponsible" Greeks.


The helmsmen of capitalist Europe (and indeed of the world) are standing on the edge of a bottomless pit and do not know what to do. Until recently, the various hardliners were barking against the "irresponsible" Greeks, threatening to abandon them to their fate if they did not strictly follow the dictates of the ECB-EU-IMF troika. Today these hotheads have somewhat calmed down, as they begin to realise that an exit of Greece from the euro would not be an isolated incident, but the beginning of a chain reaction whose effects no one can predict.

However, no one has so far come up with any alternatives: if they allow Greece to deviate from the agreements, all other indebted countries will demand to be able to do the same and what would follow would be a general loss of credibility of the single currency and of all those debts, both public and private, issued in euros.

Eurobonds: solution or new problem?

The crisis of public debt is now moving directly towards Spain, with Italy not far behind, bringing the contradictions to the very heart of the eurozone. The size of the economies and public debts of Spain and Italy leave no room for any illusions that the crisis can be contained without it dragging down the single currency as a whole.

The hard-line position of the German government is leading to growing concerns and protests, and what we are seeing is the formation of a political front involving Italy, France and Spain, backed by Britain and even the Obama administration, that seeks to loosen up somewhat on austerity, extend the terms of debt repayments and find a way of spending some money in investments. The new buzzword is: Eurobonds.

The proposal is to issue bonds that are no longer guaranteed by the individual states, but jointly by all the countries of the eurozone through a special fund or a bank, thus circumventing the problem of different yields that are today forcing weaker countries to pay high interest rates while Germany is able to sell its bonds at rates below one percent. On paper it is all very logical: the strong take charge of helping the weak, while the weakest are committed to a common management of the debt problem.

Currently the list of proposals being made is a veritable tower of Babel. The most radical of these proposals is to transform all the national debts into a single European public debt; the less radical version would see Eurobonds replacing only a part of each national public debt, for example the part exceeding 60 per cent of GDP; other more modest proposals suggest financing specific investments in infrastructure (project bonds), thus removing the latter from the overall debt. Merkel proposes a different mechanism in which the most indebted countries are to be more responsible for each other.

Presuming that something like this would actually be possible, what would be the consequences? Firstly, it is not at all clear why a fund that is guaranteed by countries with radically different economic and public finances, such as Italy and Germany, should be able to borrow at affordable rates. The markets could easily come to the conclusion that the "bad" could infect the "good" and thus demand higher rates of interest. Secondly, if you create a dual market, split between national bonds and Eurobonds, this inevitably would reproduce the same differentials we see today between different countries. The contradiction that is expressed today in spreads that punish Italy or Spain would express itself in a new form. In other words, Eurobonds rather than spreading the risk across countries, reducing it, could well be a further means of contagion of the debt crisis.

Crisis of the Euro, crisis of Europe

The root of the problem lies not in technical terms or in disputes between the various governments trying to blame each other. Instead we need to understand the crisis of the euro as a phenomenon that does not arise in and of itself, but as a specific manifestation of the global capitalist crisis. The debt crisis and the growing unmanageable nature of the single currency are not the causes, but the forms in which fundamental contradictions express themselves. The European countries are too small to compete in a capitalist economy in which production and finance have long since outgrown the limits of the nation state, especially in the relatively small states like those in Europe. For sixty years the European bourgeoisie has tried to resolve this fundamental contradiction through the process of integration. Its crisis confirms the Marxist outlook that finds in the private ownership of the means of production, and also in the limits of nation states that are much too small, the main obstacles to the further general and harmonious development of the productive forces of humanity.

The former German vice-chancellor and Foreign Minister Joschka Fischer in an interview published in Corriere della Sera (May 26) put his point of view across very bluntly: either Europe becomes a single federal state or the crisis will assume a catastrophic nature. We quote a few of the salient points of the interview. "Either the euro falls, there is a return to re-nationalisation and the European Union disintegrates, which would result in a dramatic global economic crisis, something that our generation has never experienced, or are the Europeans move ahead towards fiscal and political union of the Euro-zone. The governments and peoples of the eurozone can no longer bear the burden of austerity without growth. And we do not have much time left; I am talking in terms of weeks, maybe a few months."

Fischer in Germany proposes a government of national unity that would use the idea of Eurobonds to move towards “fiscal and political union of the Euro-zone." A first step would be the "Europeanisation of public debt (...) at the moment the eurozone countries are decisive. Heads of national government leaders already behave de facto as if they were the European executive, while national parliaments have sovereignty over the budget. We must take concrete steps towards a federation: in 1781 there was a similar situation in America. What did Alexander Hamilton do? He federalised the debt of the States, which were bankrupt due to the cost of the revolution against the British. If he had not done so, the young Confederation would not have survived. Here's what we also have to do here and now."

Fischer, apart from being an ex-ultraleft turned statesman, would thus like to present himself as a passionate expert in history and ends up suggesting that in Europe what is needed is the bourgeois revolution that the U.S. carried out in 1776 – with a delay of just over two hundred or so.

In an article in 1929 entitled Disarmament and the United States of Europe, Leon Trotsky touched on the same point in a polemic against Gustav Stresemann, then German foreign minister, who stood for of a foreign policy of conciliation:

"Comparing present-day Europe with old Germany where dozens of little German fatherlands had their own customs borders, Streseman tried to find in the economic unification of Germany the precursor of the economic federation of Europe and the world. The analogy is not a bad one. But Streseman omitted to point out that to achieve her unification – solely on a national basis – Germany had to pass through one revolution (1848) and three wars (1864, 1866 and 1870) – not to mention the wars of Reformation. Meanwhile to this very day, after the “republican” revolution (1918), German Austria still remains outside Germany. Under the existing conditions it is hard to believe that a few diplomatic luncheons will suffice for the economic unification of all European nations." (Leon Trotsky, Disarmament and the United States of Europe, October 1929)

Is there any logic in the historical comparison presented by Fischer (and also, in similar terms, by several representatives of the centre-left in Italy, including Romano Prodi himself)?

The birth of the United States was a great revolutionary event linked to the ascending phase of capitalism. And it was a particularly traumatic event, a revolution whose final victory had to be confirmed almost a century later in the bloody Civil War (1860-65), that posed precisely the alternative "either confederation or federation." In that historical epoch it was not only the emerging bourgeoisie, but also the working class that had every interest in supporting the revolutionary process, just as in Europe it had an interest in supporting the formation of national states, the natural environment for the development of the capitalist economy.

And what about today? Today the bourgeoisie has nothing to offer. European integration, even before the current crisis erupted, has meant for most people only disadvantages: casualisation, privatisation, falling purchasing power of wages, cuts in the welfare state, and today all this is being pushed to its limits with all the austerity policies that weigh on the continent.

The bourgeoisie, on its part, is deeply divided: one section has benefited greatly from the birth of the euro and the single market, in particular German industry and finance, while large sections, especially of small and medium sized enterprises, particularly in the peripheral countries (including Italy), have been ruined and marginalised by the markets and have lost any power to influence key economic and political decision-making. Where is that mass force that could impose unification of the continent on a capitalist basis, a repetition of the great bourgeois revolutions with a delay of two centuries?

From a theoretical point of view, European unification is a necessity for the development of the productive forces. The point, however, is that such a task cannot be carried out within the context of a mode of production which is today in decline. On such a basis any attempts at unification are destined either to fail or to assume completely reactionary features. It is no accident that the process of European integration in the past twenty years has had reactionary consequences on all fronts: social conditions, the welfare state, trade union and democratic rights, in general, have all worsened. Not only is it impossible to mobilise any mass support for this project, it is actually proceeding with increasingly authoritarian methods as demonstrated in the case of Greece.

It is this basic contradiction that renders bankrupt all the various recipes for managing the crisis within the eurozone. The proposal to "federalise" the national public debts of Europe means ultimately creating a unified eurozone budget, a unified budget, unified tax system, unified tax collection system, i.e. a single unified state... But in the context of the present global crisis of capitalism, Europe is running aground on the same rocks as always.

The role of reformism

The reformist bureaucracies always tag along behind the bourgeoisie, and to be more precise they bow down before the stronger bourgeoisie. They have supported the process of integration in recent decades, hoping that this would create the basis for a policy of social reforms. They cling to German capital today, begging it not to be "irresponsible and selfish" and to save the weaker countries – and especially to save their careers by guaranteeing at least a semblance of social partnership. In the absence of any appreciable results on this front, they line up behind Monti, Hollande and Rajoy hoping that these can persuade Berlin to soften its intransigence.

For decades, the idea of European integration has dominated within the main political forces in Europe. The European Popular Party, the European Socialists and the Liberal Democratic Group, apart from specific national issues, have supported all the basic steps in the process and continue to do so. The idea that "Europe demands it" has always been used to silence and condemn any opposition and to discipline whatever little amount of criticism and opposition (not much, in truth) may have come from the trade union bureaucracies, that are forced every now and then to voice the opposition of the workers to casualisation, privatisation and the destruction of the welfare state. This co-operation was also based on the relative economic growth that allowed for a certain management of the social consequences of this process.

The crisis has exposed this pact and therefore opens up a crisis within those political forces that adhered to it. The recent election results are a resounding confirmation of this. In Greece, the parties that signed up to the "Memorandum" – or to describe it for what it actually is, that agreement to strangle the Greek people – have been massacred in the elections, especially the PASOK (Socialists). On the other hand, the victory of the socialist Hollande in France were hailed by a rise in the stock market. The "markets" are not too scared of the election promises about social justice, but they hope that the collapse of the Merkel-Sarkozy axis will be able to open up some room for policies of “growth”, thus making it possible to patch together some credibility for a Union and the single currency that have become more and more unpopular to millions of people.

Exit the euro?

The electoral successes of Mélenchon in France, Syriza in Greece and the United Left in Spain indicate that the electorate is looking for an alternative to the left of the Party of European Socialists. It is a vote that reflects the huge street protests that have recently shaken these countries. However, it has to be said that the leaderships of these various left alternative political forces in Europe have no clear understanding of the question of the euro and how it relates to the crisis.

A simple return to national currencies on the basis of capitalism offers no way out for the masses. A study published in September by UBS-Switzerland sums up what the effects would be of a possible exit from the euro in Greece:

“Taking all these factors into account, a seceding country would have to expect a cost of EUR9,500 to EUR11,500 per person (…) and then a cost of around EUR3,000 to EUR4,000 per person would be felt each year thereafter. (…) These are conservative estimates. The economic consequences of civil disorder, break-up of the seceding country, etc, are not included in these costs.” [See http://bruxelles.blogs.liberation.fr/UBS%20fin%20de%20l%27euro.pdf]

There is no "national independence" which can resist the pressure of the global crisis. We can quote the example of Britain, which is outside the euro and has a far more credible currency than any hypothetical new lira or new drachma. The decline in living standards, according to some studies, would be proportionally worse than in the crisis of the 1930s.

Equally dangerous is the idea that you can somehow reform the structure of a capitalist Europe, remain within the single currency and at the same time adopt alternative economic policies that avoid the destruction of welfare and workers’ rights. That so-called "democratic, social, peoples’ Europe", that for years we were used to hearing about, never materialised during the period of economic growth, and even less so can it come into being during the harsh times of this crisis, a crisis which after four years no one in the leadership of the left, has actually been able to analyse seriously and realise its depth and the consequences that flow from it. This illusion is shared by the leaders of the European alternative left, including those who defend the position of Syriza of "no to the memorandum, but without leaving the euro".

The crisis is leading to that classical breaking of the weak links, which means that although it is one, unified process it will have different tempos and stages in different areas and countries of the world. Today in Greece, and tomorrow in Spain or Italy, the forces of the left could find themselves very quickly having to give concrete answers to millions of people looking for an alternative. This is one of the most important lessons we can draw from the Greek experience, where a party like Syriza, that only a few years ago risked breaking into pieces and was struggling to hold on to its small parliamentary group, within a few weeks was close to forming a government.

To avoid ending up being crushed in such a situation, it would have had to take drastic measures: abolition of the Memorandum, suspension of debt repayments, an immediate halt to the movement of capital, nationalisation of the banks, as the first steps to get control over those key levers that would be required to defend the living conditions of the masses.

If a process like this were to develop within a dominating country such as Germany, then it would be even hypothetically possible to assume that the very existence of the single currency could become a vehicle for the generalization of a revolutionary break in the situation. In reality the actual process is following a different path, and any truly alternative economic policy would inevitably clash with the single currency.

On these key points it is urgent that we open up a debate within the labour movement. Everything indicates that a precipitation of the situation, as we have seen in Greece, could occur much sooner than one might expect, even in countries like Spain and Italy.

Only on the basis of the break-up of the capitalist European Union can a real union be built. Only on the basis of an economy which is no longer under the control of capital will it be possible to move forward on socialist and democratic foundations towards a real union of the peoples, not only of Europe but of the whole world.