The eurozone crisis unleashed in autumn 2009 has dominated political developments in Europe over the past few years. On the radical European left there is a sense that the European Union (EU) is disintegrating under the weight of the eurozone crisis and that the crisis has exacerbated centrifugal tendencies — national antagonisms and class confrontations — leading to both political crises and the rise of the populist right.
The most daring contend that the eurozone crisis is a re-run of the 1930s, with fascists lurking in the background while others see a revolutionary silver lining — that the balance of forces is shifting in our favor and that in the coming meltdown the radical left can and will, with the appropriate strategy, make great strides forward.
Cédric Durand argues that these strides will break “with neoliberal European institutions and [regain] democratic sovereignty on domestic currencies” (meaning secession from the eurozone or even, for some, the EU itself).
But a closer look at the eurozone crisis supports the opposite diagnosis; the crisis is not and will not lead to centrifugal tendencies taking over and leading to the disintegration of the EU. Instead, the eurozone crisis is acting — like in previous rounds of integration — as a catalyst for the next step in the long-term process of European unification from above.
The dominant social forces in Europe are steering through the political fallout of the eurozone crisis with relative ease.
Opposing the way these forces have handled the crisis doesn’t need to be synonymous to opposing unification itself. This point is important for those who want to draw strategic conclusions from the political conjuncture in Europe. Unless the radical left takes a more sober look at the reality of the eurozone it risks locking itself in an impasse, fighting lost battles and arguing against the run of history.
From War to Bargaining
European unification is not a historically shallow or contingent project that could easily be reversed by a displacement of the balance of political forces or under the weight of a conjunctural crisis. The EU’s founding father, Jean Monnet, was correct when he wrote that “Europe will be made through crises and will be the sum of the solutions provided to those crises.”
As I argued during the early stages of the crisis in summer 2010, there is
a pattern where each crisis acts as a catalyst which eliminates opposition to further integration by demonstrating in practice why the dominant fractions of European capital can no longer solely rely on a single national state and why individual national states would be much weaker if left on their own.
This is the reason why Europe’s corporate elite have, from day one of the crisis, argued that the eurozone must be preserved at all costs, including through greater centralization of economic policymaking to address the structural flaws in the eurozone’s institutional design.
European unification has been the key dimension in what could be called the “corporate reconstruction of European capitalism,” to paraphrase the title of radical historian Martin Sklar’s book on the transformation of early twentieth-century American capitalism.
In a nutshell, the technological breakthroughs of the second industrial revolution required both a widening of markets and the oligopolistic transformation of market structures to allow for a qualitatively higher degree of concentration and centralization of capital — both prerequisites for oligopolistic firms to reap the economies of scale and scope offered by large-scale production.
But while these breakthroughs took place simultaneously in Europe and the US during the last quarter of the nineteenth century, it was the US which took the lead, exploiting them in production and adapting its social and political structures to suit the new ways of producing to become the most powerful industrial nation in the interstate system.
Part of this success stemmed from the integration of the US market, which unlike Europe, was not fragmented by the multiplicity of nation states engaging in commercial and actual warfare. Indeed, it is this deep contradiction between the demands stemming from the development of the productive forces and the reality of sociopolitical arrangements in Europe that held back the continent for three quarters of a century and plunged it into a long European civil war resulting from German attempts to forcibly unite the continent.
Because that attempt failed and because the alternative scenario of unification from below — imagined most clearly by Leon Trotsky and captured in his slogan of the United Socialist States of Europe — was blocked, European unification from above has gradually moved forward on the basis of compromises resulting from hard bargaining among the various fractions of Europe’s corporate elite that came into its own between 1950 and 1980.
A Planned Surrender
The eurozone crisis is not simply the global financial crisis — which rippled out from Wall Street after 2008 — playing out in Europe. The eurozone suffered the effects of the financial crisis in 2009–10, posted a brief recovery, but then slipped back into recession from 2012 until late 2013. The eurozone GDP is still below its 2009 peak, while US GDP in 2015 was 18 percent above its 2009 level.
Europe’s difficulties partly stem from a serious institutional imbalance at the heart of the eurozone: a centralized monetary policy combined with decentralized (country specific) fiscal policies — an imbalance aggravated by decentralized financial supervision and fiscal liability for national banks, rescuing them in the event of failure.
Because of this institutional imbalance, eurozone member states that had lost competitiveness prior to financial crisis (Greece, Spain, Portugal, Ireland) or suffered big banking crises (Ireland, Cyprus, Spain) in its wake suddenly found themselves under attack from investors on the bond markets and were threatened with bankruptcy.
It is worth mentioning that bankruptcy loomed despite the eurozone’s lower debt-to-GDP ratio (84 percent in 2010) compared to the US’s (95 percent). In a climate of growing financial uncertainty (indicated by rising risk premia), European capital froze investments in Europe hoping to limit their exposure to the troubled continent, thereby aggravating a fragile economic situation and tipping the eurozone back into recession.
In response, Europe’s corporate elite called for policies to address this imbalance and reduce uncertainty by eliminating sovereign credit risk — the prospect of a member state defaulting on its debts — and increasing the level of political centralization in the eurozone.
In 2012 the French, German, Italian, and Spanish peak employers’ organizations publicly called for “a deep and determined process to bridge the gaps of economic and monetary union’s architecture” while praising structural adjustment programs for crisis-hit countries and the efforts by the European Stability Mechanism (ESM) and the European Central Bank (ECB) to eliminate credit risk.
Meanwhile, according to extensive surveys of corporate executive opinion in the eurozone by the consultancy firm Grant Thornton, roughly 93 percent of interviewees favor the preservation of the euro and around 90 percent support a greater degree of European integration as the solution to the crisis.
Indeed, the crisis management policy implemented has closely reflected the program advocated by Europe’s corporate elite: a short-run focus on ad hoc fiscal policy centralization through liability sharing and a very limited version of Eurobonds (this is basically the role played by the ESM) combined with the close supervision of spending and revenue policies in struggling member states, where the other eurozone finance ministers essentially have the last word over those policies.
Right-wing populist critics, especially in Germany, argue that through the ESM and the use of the ECB’s balance sheet to support the public debt securities of crisis-hit countries the eurozone has even been implementing a policy of financial transfers (redistribution among member states) — a claim that undeniably has an element of truth to it. By lending to those member states at lower rates than private investors, those institutions are seen as subsidizing them, using the credibility and fiscal resources of the other member states to do so.
The other parameter of the corporate elite’s EU policy has been to drive through a set of economic policies — which function as structural adjustment programs — for crisis-hit countries that are designed to restore profitability and competitiveness and to spur export-led growth. Ireland and Spain exemplify this strategy.
This short-term crisis management policy prefigures a long-term plan for revamping eurozone institutions which has been official EU policy since at least the June 2012 European Council meeting, where a decision was taken to launch a banking union and the president of that institution was tasked with preparing a report on how to achieve a “genuine economic and monetary union.”
A series of official reports by the European Commission and other EU bodies have now been published that spell out various pathways for accomplishing greater political centralization, much like the Maastricht treaty had been preceded by a number of official reports on monetary union.
One of the key concepts that has emerged from these brainstorming exercises, and on which there is now a consensus, is that of a small eurozone budget managed by a finance minister answerable to the eurozone members of the European parliament.
Last summer the German magazine Der Spiegel (based on leaked information) even suggested that debate was progressing to giving such a minister the power to tax, borrow, and spend, as opposed to previous proposals where the eurozone budget would be funded by contributions from member state budgets.
At this point the main force holding back further developments is the political conjuncture: both French and German governments are up for reelection in 2017 and the British government has promised a referendum on British membership by then.
Formal negotiations over treaty changes are being postponed until these hurdles can be bypassed, with the additional hope that the economic recovery can gain further steam until then and thus boost public support for “more Europe.”
Despite delaying tactics in the face of political tension, substantial institutional innovation has already begun, quite apart from the setting up of the ESM. Most importantly, the so-called “banking union” set of reforms is radically altering the degree of political centralization in the EU (non-eurozone countries can join too).
The banking reforms are essentially transferring responsibility for banking policy — including responsibility for bank rescues involving fiscal resources — to the European level. The reforms — which the Financial Times has called the “biggest surrender of sovereignty since the creation of the euro” — are designed to break the so-called “doom loop” between banks and member states. In some member states big domestic banks have grown far too big for the local state to provide a sound backstop in case of trouble, so the solution is for the EU as a whole to assume the contingent liability of potential bank rescues.
The ECB also gets the power to regulate and wind down failed banks. The ECB can now tell any bank in the eurozone to stop buying certain assets, to curb lending, or to raise more capital. Crucially, the ECB is telling banks to reduce their exposures to the public debt of their home states, in a move calculated to gradually end the policy of covert financial repression implemented by member states as a way of compressing their borrowing costs.
Traditionally, banks have supported their home states by buying disproportionate amounts of their debt securities, partly because they knew those states would be the ones to rescue them if they failed, partly because of the cozy relationships with local politicians, resulting in lower borrowing costs than would have obtained if this national bias did not exist.
And although the German government is employing delaying tactics on this front for the moment, the banking reforms will soon be completed by a Europe-wide deposit guarantee scheme, much like in the US where the federal government guarantees (through the Federal Deposit Insurance Corporation) the first $200,000 in any bank account in the country.
So, Europe’s bosses are putting their house in order, but are they facing substantial opposition while doing so? All available evidence suggests they are not. While the European public may not share the ideas of Europe’s corporate elite, robust support for unification remains, and there seems to be no major Euroskeptic crisis in public opinion. This indicates that any centrifugal tendencies that might have been generated by the eurozone crisis are being kept in check.
Public opinion surveys bear out this assessment. The latest Pew Research Center European Union report shows that positive views of the EU in the six most populous member states (including Euroskeptic Britain) have rebounded strongly since 2013.
While that year 52 percent of respondents had a positive view of the EU (down from 60 percent the year before), 61 percent did in 2015, a result closely correlated to perceptions about the state of the economy. Clear majorities in the four eurozone countries back membership of the single currency (close to three-fourths in Germany, France, and Spain and, rather surprisingly, 56 percent in Italy).
A more extensive survey of the impact of the eurozone crisis on public opinion was published in 2014 by the European Commission, based on data from the regular Eurobarometer survey collected since 1973. It found that despite dropping to 47 percent of respondents in 2013, positive views on EU membership had been lower in the spring of 1997 (at 46 percent) and that such low levels are a regular occurrence.
Even more surprising are the results on whether membership has been beneficial for member states or not. The lowest level of answers in the positive during the crisis was in 2011, at 50 percent whereas the lowest ever was in 1997, with 41 percent. In 2013, even 47 percent of Greeks polled believed EU membership was beneficial. Finally, in response to the question whether the eurozone crisis meant that member states should work more closely together, 83 percent agreed, with only 12 percent favoring less integration.
The overall picture one gets from these surveys seems to match behavior in the ballot box, which is best gauged by looking at the European parliament election — the only election that simultaneously takes place across Europe and can be said to involve the most clearly “European” stakes as opposed to national ones.
The European parliament election is also an election that oversamples the right-wing Euroskeptic parties, not only because of the proportional representation elective principle, but also because voters consider the stakes to be lower and thus are more willing to favor far-right parties at the European Parliament than in national elections where tactical voting holds greater sway; the UK Independence Party and the National Front‘s spectacular showings last year demonstrate these voting tendencies clearly.
As such, the most common analysis of the 2014 European parliament elections was that the Euroskeptic and populist right had seen its scores soar, social-democratic parties been decimated and that, overall, strong centrifugal tendencies were being reflected in those results.
But, according to a calculation by Nicolas Veron, some 70 percent of the members of parliament (MEPs) elected are pro-EU — a number that is still 5 percent higher than after the first such election in 1979, although the highest percentage (80 percent) was recorded in 1999 and 2004. The 2014 elections can be summed up as follows: the European People’s Party (mainstream center-right) lost a big chunk of votes and MEPs to the populist right, social democracy was stable, the Liberals and Greens retreated somewhat and the radical left advanced somewhat.
When looking at national electoral and party systems, it quickly becomes obvious that only Greece has been decisively affected by the eurozone crisis with the staggering rise of Syriza, the collapse of Pasok, and the defection of hard-right voters from New Democracy. Spain will hold a general election next December and although bipartism has been overthrown, the two traditional parties are still on course to get more votes than Ciudadanos and Podemos, in a development that seems to be partly driven by inter-generational tensions.
A similar picture of contained crisis emerges when one looks at the evolution of labor struggles in Europe during the crisis. While the crisis has certainly given rise to struggles — most clearly in Greece, Spain and Portugal — those struggles were concentrated in 2010–12 and have since weakened substantially. We are not witnessing a wave of struggle that threatens the political equilibrium of European capitalism in any fundamental way.
The macro-picture supports this conclusion. Data compiled by the European Trade Union Institute suggest that the trend for the average number of days lost due to strike action in Europe has continued to decline during the crisis years and that it has, on average, been lower than in the 2000s, although interspersed by peaks due to mass strikes.
According to ETUI:
Since the Great Recession a shift has occurred in the mass strikes towards political mass strikes, often occurring in the public sector . . . political mass strikes — either generalized public sector strikes or general strikes in certain regions or for the whole economy — are associated with the South of Europe.
In other words, the structural adjustment program has been opposed on the street and at workplaces by those sections of the working class most directly affected by it, i.e. public sector workers in crisis-hit countries, but only sporadically so.
Goodbye to the Nation-State
The emergent overall picture suggests that although the crisis has shaken Europe’s political order, it hasn’t thrown it off balance. The continent’s ruling elites are successfully handling the crisis and are doing so by deepening the level of political centralization of the continent, thereby tackling the issue of the faulty design of the EU’s monetary and economic union.
The structural adjustment programs for the weaker national economies have been carried out with only Greece as an outlier, both in terms of how well the program has worked from the perspective of capital — measured by the resumption of export-led growth and price-competitiveness — and the political fallout it has generated.
But the experience of the Syriza government also suggests that a localized shift in the balance of electoral forces is not enough for the overall course of economic policy to be diverted into a more progressive path. Greece accounts for 1.3 percent of the European Union GDP; a rough analogy would be if Oregon voters elected radical leftist senators, governor, and state legislature, expecting to effectuate a significant change of policy in Washington, DC.
Ultimately, a political strategy built on the hope that a big crisis is imminent and the assumption that the “center cannot hold” is a dead end. Waging bets on European unification going into reverse and on that basis calibrating a strategy that ties in with that prospect is swimming against the tide of history.
At the moment the political and strategic implications of the Left’s blindspot are overshadowed by the heat from the eurozone crisis which has not yet subsided. But down the road, when the plan for further transforming Europe into a centralized federation will have been carried out, such an attitude risks driving the radical left into political irrelevance.
Just as it would be madness for leftists in America today to argue for a return to the antebellum configuration of relations between the states and the federal government, effectively singing in tune with right-wing libertarian states’ rights advocates, it is completely misplaced for leftists in Europe to keep insisting that we return to pre-Maastricht configurations of relations among member states, let alone pre-Treaty of Rome ones.
Consciousness always lags behind actual historical development of course, but the sooner the radical left realizes that the Europe of nation-states belongs to the past, the sooner it will be in a position to craft a strategy for progressive change on the continent.