Europe is haunted by austerity. Public sectors across the European Union (EU) have been cut back and working class gains from the post-war period seriously undermined. In this article, I will assess the causes of the crisis, its implications for workers and discuss the politics of labour in response to the Eurozone crisis.
The underlying dynamics of the Eurozone crisis
Current problems go right back to the global financial crisis starting in 2007 with the run on the Northern Rock bank in the United Kingdom (UK) and reaching a first high point with the bankruptcy of Lehman Brothers in 2008. Two major consequences of the crisis can be identified. First, states indebted themselves significantly as a result of bailing out failing banks and propping up the financial system. Second, against the background of high levels of uncertainty financial markets froze. Banks and financial institutions ceased lending to each other as well as industrial companies. Countries too found it increasingly difficult to re-finance their national debts. The Eurozone crisis, also known as the sovereign debt crisis, commenced.
Nevertheless, this analysis only scratches the surface of the causes of the crisis. The fundamental dynamics underlying the crisis have to be related to the uneven nature of the European political economy. On the one hand, Germany has experienced an export boom in recent years, with almost 60 per cent of its exports going to other European countries (Trading Economics, 10 May 2013). Germany’s trade surplus is even more heavily focused on Europe. 60 per cent are with other Euro countries and about 85 per cent are with all EU members together (de Nardis, 2 December 2010). However, such a growth strategy cannot be adopted by everybody. Some countries also have to absorb these exports, and this is what many of the peripheral countries which are now in trouble, such as Greece, Portugal, Spain and Ireland, have done. They, in turn, cannot compete in the free trade Internal Market of the EU due to lower productivity rates. Germany’s export boom has resulted in super profits, which then require new opportunities for profitable investment. State bonds of peripheral countries as well as construction markets in Ireland and Spain seemed to provide safe investment opportunities. In turn, these investments led to yet more exports from Germany to these countries and yet further super profits in search of investment opportunities.
Who is being rescued?
It is often argued in the media that citizens of richer countries would now have to pay for citizens of indebted countries. Cultural arguments of apparently ‘lazy Greek’ workers as the cause of the crisis are put forward. Nevertheless, this is clearly not the case. Greek workers are amongst those who work the longest hours in Europe (BBC, 26 February 2012). In any case, it is not the Greek, Portuguese, Irish or Cypriot citizens and their health and education systems, which are being rescued. It is banks, who organised the lending of super profits to peripheral countries, which are exposed to private and national debt in these countries. For example, German and French banks are heavily exposed to Greek debt, British banks to Irish debt (The Guardian, 17 June 2011).
What is the purpose of the bailout programmes?
Is the purpose of the bailout programmes to ensure the maintenance of essential public services in Europe’s periphery? Clearly not. On the contrary, the Troika consisting of the European Commission, European Central Bank and the International Monetary Fund (IMF) demands cuts in public finances precisely for services such as education and health care. Is the purpose to assist peripheral countries in re-gaining competitiveness? Again, this too is clearly not the objective. The bailout programmes do not include any industrial policy projects.
The true nature of the bailout programmes is visible in their conditionality, making support dependent on austerity policies including: (1) cuts in funding of essential public services; (2) cuts in public sector employment; (3) push towards privatisation of state assets; and (4) undermining of industrial relations and trade union rights through enforced cuts in minimum wages and a further liberalisation of labour markets. Hence, the real purpose of the bailout programmes is to restructure political economies and to open up the public sector as new investment opportunities for private finance. The balance of power is shifted further from labour to capital in this process. Employers, ultimately, use the crisis in order to strengthen their position vis-à-vis workers, facilitating exploitation.
Are German workers the winners due to the export boom?
In contrast to general assumptions, German workers have not benefitted from the current situation. German productivity increases have, to a significant extent, resulted from drastic downward pressure on wages and working related conditions.
“Germany has been unrelenting in squeezing its own workers throughout this period. During the last two decades, the most powerful economy of the eurozone has produced the lowest increases in nominal labour costs, while its workers have systematically lost share of output. EMU has been an ordeal for German workers” (Lapavitsas et al, 2012: 4).
The Agenda 2010 and here especially the so-called Hartz IV reform, implemented in the early 2000s, constitutes the largest cut in, and restructuring of, the German welfare system since the end of World War II. In other words, Germany was more successful than other Eurozone countries in cutting back labour costs. “The euro is a ‘beggar-thy-neighbour’ policy for Germany, on condition that it beggars its own workers first” (Lapavitsas et al, 2012: 30).
Hence, while the mainstream media regularly portray the crisis as a conflict between Germany and peripheral countries, the real conflict here is between capital and labour. And this conflict is taking place across the EU as the economic crisis is used across Europe to justify cuts. In the UK, although not in the position of countries such as Greece, Portugal or Ireland, people too are faced with constant further cuts and restructuring including privatisations in the health and education sectors as well as attacks on employment rights. In short, across the EU, employers abuse the crisis to cut back workers’ post-war gains. The crisis provides capital with the rationale to justify cuts, they would otherwise be unable to implement.
What possibilities for labour to resist restructuring?
Considering that austerity is a European-wide phenomenon, pushed by Brussels but equally individual national governments, it will remain important that trade unions combine resistance to neo-liberal restructuring at the European level with resistance at the national level. To declare solidarity with Greek workers is a good initiative by German and British unions, for example. Nevertheless, the more concrete support is resisting restructuring at home. Any defeat of austerity in one of the EU member states will assist similar struggles elsewhere.
When thinking about alternative responses to the crisis, short-term measures can be distinguished from medium- and long-term measures. Immediately, it will be important that German trade unions push for higher salary increases at home so that the German domestic market absorbs more goods, which are currently being exported. Along similar lines is the proposal by the Confederation of German Trade Unions (DGB) for an economic stimulus, investment and development programme for Europe. This new Marshall plan is designed as an investment and development programme over a 10-year period and consists of a mix of institutional measures, direct public sector investment, investment grants for companies and incentives for consumer spending (DGB 2013). Neo-Keynesian measures of this type will ease the immediate pressure on European economies. However, they will not question the power structures, underlying the European political economy.
A victorious outcome in the struggle against austerity ultimately depends on a change in the balance of power in society. The establishment of welfare states and fairer societies were based on the capacity of labour to balance the class power of capital (Wahl 2011). Overcoming austerity will, therefore, require a strengthening of labour vis-à-vis capital. As Lapavitsas notes, “a radical left strategy should offer a resolution of the crisis that alters the balance of social forces in favour of labour and pushes Europe in a socialist direction” (Lapavitsas 2011: 294). Hence, in the medium-term, it will be essential to intervene more directly in the financial sector. As part of bailouts, many private banks have been nationalised, as for example the Royal Bank of Scotland in the UK. However, they have been allowed to continue operating as if they were private banks. Little state direction has been imposed. It will be important to move beyond nationalisation towards the socialisation of banks to ensure that banks actually operate according to the needs of society. Such a step would contribute directly to changing the balance of power in society in favour of labour.
In the long run, however, even the change in power balance between capital and labour will not be enough. Capitalist exploitation is rooted in the way the social relations of production are set up around wage labour and the private ownership of the means of production. Exploitation, therefore, can only be overcome if the manner in which production is organised is being changed itself.
 This article was first published in Norwegian on radikalportal.no
 European Monetary Union
Are we now living in a German Europe? In an interview with EUROPP editors Stuart A Brown and Chris Gilson, Ulrich Beck discusses German dominance of the European Union, the divisive effects of austerity policies, and the relevance of his concept of the ‘risk society’ to the current problems being experienced in the Eurozone.
How has Germany come to dominate the European Union?
Well it happened somehow by accident. Germany has actually created an ‘accidental empire’. There is no master plan; no intention to occupy Europe. It doesn’t have a military basis, so all the talk about a ‘Fourth Reich’ is misplaced. Rather it has an economic basis – it’s about economic power – and it’s interesting to see how in the anticipation of a European catastrophe, with fears that the Eurozone and maybe even the European Union might break down, the landscape of power in Europe has changed fundamentally.
First of all there’s a split between the Eurozone countries and the non-Eurozone countries. Suddenly for example the UK, which is only a member of the EU and not a member of the Eurozone, is losing its veto power. It’s a tragic comedy how the British Prime Minister is trying to tell us that he is still the one who is in charge of changing the European situation. The second split is that among the Eurozone countries there is an important division of power between the lender countries and the debtor countries. As a result Germany, the strongest economic country, has become the most powerful EU state.
Are austerity policies dividing Europe?
Indeed they are, in many ways. First of all we have a new line of division between northern European and southern European countries. Of course this is very evident, but the background from a sociological point of view is that we are experiencing the redistribution of risk from the banks, through the states, to the poor, the unemployed and the elderly. This is an amazing new inequality, but we are still thinking in national terms and trying to locate this redistribution of risk in terms of national categories.
At the same time there are two leading ideologies in relation to austerity policies. The first is pretty much based on what I call the ‘Merkiavelli’ model – by this I mean a combination of Niccolò Machiavelli and Angela Merkel. On a personal level, Merkel takes a long time to make decisions: she’s always waiting until some kind of consensus appears. But this kind of waiting makes the countries depending on Germany’s decision realise that actually Germany holds the power. This deliberate hesitation is quite an interesting strategy in terms of the way that Germany has taken over economically.
The second element is that Germany’s austerity policies are not based simply on pragmatism, but also underlying values. The German objection to countries spending more money than they have is a moral issue which, from a sociological point of view, ties in with the ‘Protestant Ethic’. It’s a perspective which has Martin Luther and Max Weber in the background. But this is not seen as a moral issue in Germany, instead it’s viewed as economic rationality. They don’t see it as a German way of resolving the crisis; they see it as if they are the teachers instructing southern European countries on how to manage their economies.
This creates another ideological split because the strategy doesn’t seem to be working so far and we see many forms of protest, of which Cyprus is the latest example. But on the other hand there is still a very important and powerful neo-liberal faction in Europe which continues to believe that austerity policies are the answer to the crisis.
Is the Eurozone crisis proof that we live in a risk society?
Yes, this is the way I see it. My idea of the risk society could easily be misunderstood because the term ‘risk’ actually signifies that we are in a situation to cope with uncertainty, but to me the risk society is a situation in which we are not able to cope with the uncertainty and consequences that we produce in society.
I make a distinction between ‘first modernity’ and our current situation. First modernity, which lasted from around the 18th century until perhaps the 1960s or 1970s, was a period where there was a great deal of space for experimentation and we had a lot of answers for the uncertainties that we produced: probability models, insurance mechanisms, and so on. But then because of the success of modernity we are now producing consequences for which we don’t have any answers, such as climate change and the financial crisis. The financial crisis is an example of the victory of a specific interpretation of modernity: neo-liberal modernity after the breakdown of the Communist system, which dictates that the market is the solution and that the more we increase the role of the market, the better. But now we see that this model is failing and we don’t have any answers.
We have to make a distinction between a risk society and a catastrophe society. A catastrophe society would be one in which the motto is ‘too late’: where we give in to the panic of desperation. A risk society in contrast is about the anticipation of future catastrophes in order to prevent them from happening. But because these potential catastrophes are not supposed to happen – the financial system could collapse, or nuclear technology could be a threat to the whole world – we don’t have the basis for experimentation. The rationality of calculating risk doesn’t work anymore. We are trying to anticipate something that is not supposed to happen, which is an entirely new situation.
Take Germany as an example. If we look at Angela Merkel, a few years ago she didn’t believe that Greece posed a major problem, or that she needed to engage with it as an issue. Yet now we are in a completely different situation because she has learned that if you look into the eyes of a potential catastrophe, suddenly new things become possible. Suddenly you think about new institutions, or about the fiscal compact, or about a banking union, because you anticipate a catastrophe which is not supposed to happen. This is a huge mobilising force, but it’s highly ambivalent because it can be used in different ways. It could be used to develop a new vision for Europe, or it could be used to justify leaving the European Union.
How should Europe solve its problems?
I would say that the first thing we have to think about is what the purpose of the European Union actually is. Is there any purpose? Why Europe and not the whole world? Why not do it alone in Germany, or the UK, or France?
I think there are four answers in this respect. First, the European Union is about enemies becoming neighbours. In the context of European history this actually constitutes something of a miracle. The second purpose of the European Union is that it can prevent countries from being lost in world politics. A post-European Britain, or a post-European Germany, is a lost Britain, and a lost Germany. Europe is part of what makes these countries important from a global perspective.
The third point is that we should not only think about a new Europe, we also have to think about how the European nations have to change. They are part of the process and I would say that Europe is about redefining the national interest in a European way. Europe is not an obstacle to national sovereignty; it is the necessary means to improve national sovereignty. Nationalism is now the enemy of the nation because only through the European Union can these countries have genuine sovereignty.
The fourth point is that European modernity, which has been distributed all over the world, is a suicidal project. It’s producing all kinds of basic problems, such as climate change and the financial crisis. It’s a bit like if a car company created a car without any brakes and it started to cause accidents: the company would take these cars back to redesign them and that’s exactly what Europe should do with modernity. Reinventing modernity could be a specific purpose for Europe.
Taken together these four points form what you could say is a grand narrative of Europe, but one basic issue is missing in the whole design. So far we’ve thought about things like institutions, law, and economics, but we haven’t asked what the European Union means for individuals. What do individuals gain from the European project? First of all I would say that, particularly in terms of the younger generation, more Europe is producing more freedom. It’s not only about the free movement of people across Europe; it’s also about opening up your own perspective and living in a space which is essentially grounded on law.
Second, European workers, but also students as well, are now confronted with the kind of existential uncertainty which needs an answer. Half of the best educated generation in Spanish and Greek history lack any future prospects. So what we need is a vision for a social Europe in the sense that the individual can see that there is not necessarily social security, but that there is less uncertainty. Finally we need to redefine democracy from the bottom up. We need to ask how an individual can become engaged with the European project. In that respect I have made a manifesto, along with Daniel Cohn-Bendit, called “We Are Europe”, arguing that we need a free year for everyone to do a project in another country with other Europeans in order to start a European civil society.
A more detailed discussion of the topics covered in this article is available in Ulrich Beck’s latest book, German Europe (Polity 2013). This interview was first published on EUROPP@LSE
High levels of military spending played a key role in the unfolding European sovereign debt crisis — and continue to undermine efforts to resolve it.
A new report by the Transnational Institute — ‘Guns, Debt and Corruption: Military Spending and the EU Crisis’ — looks at the ways in which excessive militarization directly fed into the unfolding European debt crisis, and continues to undermine efforts to resolve it. Below the downlink links and infographic you can find the executive summary of the report.
Five years into the financial and economic crisis in Europe, and there is still an elephant in Brussels that few are talking about. The elephant is the role of military spending in causing and perpetuating the economic crisis. As social infrastructure is being slashed, spending on weapon systems is hardly being reduced. While pensions and wages have been cut, the arms industry continues to profit from new orders as well as outstanding debts.
Perversely, the voices that are protesting the loudest in Brussels are the siren calls of military lobbyists, warning of “disaster” if any further cuts are made to military spending. This paper shows that the real disaster has emerged from years of high European military spending and corrupt arms deals. This dynamic contributed substantially to the debt crisis in countries such as Greece and Portugal and continues to weigh heavily on future budgets in all of the crisis countries.
The power of the military-industrial lobby also makes any effective cuts less likely. This is perhaps most starkly shown in how the German government, while demanding ever higher sacrifices in social cuts, has been lobbying behind the scenes against military cuts because of concerns this would affect its own arms industry.
The paper reveals how:
High levels of military spending in countries now at the epicentre of the euro crisis played a significant role in causing their debt crises. Greece has been Europe’s biggest spender in relative terms for most of the past four decades, spending almost twice as much of its Gross Domestic Product (GDP) on defence as the EU average.Spain’s military expenditure increased 29% between 2000 and 2008, due to massive weapon purchases. It now faces huge problems repaying debts for its unnecessary military programmes.
As a former Spanish secretary of state for defence said: “We should not have acquired systems that we are not going to use, for conflict situations that do not exist and, what is worse, with funds that we did not have then and we do not have now.” Even the most recent casualty of the crisis, Cyprus, owes some of its debt troubles to a 50% increase in military spending over the past decade, the majority of which came after 2007.
The debts caused by arms sales were often a result of corrupt deals between government officials, but are being paid for by ordinary people facing savage cuts in social services. Investigations of an arms deal signed by Portugal in 2004 to buy two submarines for one billion euros, agreed by then-prime minister Manuel Barroso (now President of the EU Commission) have identified more than a dozen suspicious brokerage and consulting agreements that cost Portugal at least €34 million. Up to eight arms deals signed by the Greek government since the late 1990s are being investigated by judicial authorities for possible illegal bribes and kickbacks to state officials and politicians.
Military spending has been reduced as a result of the crisis in those countries most affected by the crisis, but most states still have military spending levels comparable to or higher than ten years ago. European countries rank 4th (UK), 5th (France), 9th (Germany) and 11th (Italy) in the list of major global military spenders. Even Italy, facing debts of €1.8 trillion, still spends a higher proportion of its GDP on military expenditure than the post-Cold War low of 1995.
The military spending cuts, where they have come, have almost entirely fallen on people – reductions in personnel, lower wages and pensions – rather than on arms purchases. The budget for arms purchases actually rose from €38.8 billion in 2006 to €42.9 billion in 2010 – up more than 10% – while personnel costs went down from €110.0 billion in 2006 to €98.7 billion in 2010, a 10% decrease that took largely place between 2008 and 2009.
While countries like Germany have insisted on the harshest cuts of social budgets by crisis countries to pay back debts, they have been much less supportive of cuts in military spending that would threaten arms sales. France and Germany have pressured the Greek government not to reduce defence spending. France is currently arranging a lease deal with Greece for two of Europe’s most expensive frigates; the surprising move is said to be largely “driven by political considerations, rather than an initiative of the armed forces”. In 2010 the Dutch government granted export licences worth €53 million to equip the Greek navy. As an aide to former Greek prime minister Papandreou noted: “No one is saying ‘Buy our warships or we won’t bail you out.’ But the clear implication is that they will be more supportive if we do”.
Continued high military spending has led to a boom in arms companies’ profits and an even more aggressive push of arms sales abroad ignoring human rights concerns. The hundred largest companies in the sector sold arms to the value of some €318 billion in 2011, 51% higher in real terms compared to 2002. Anticipating decreased demand at home, industry gets even more active political support in promoting arms sales abroad.In early 2013 French president François Hollande visited the United Arab Emirates to push them to buy the Rafale fighter aircraft. UK prime minister David Cameron visited the Emirates and Saudi Arabia in November 2012 to promote major arms sales packages. Spain hopes to win a highly controversial contract from Saudi Arabia for 250 Leopard 2 tanks, in which it is competing with Germany – the original builder of the tank.
Research shows that investment in the military is the least effective way to create jobs, regardless of the other costs of military spending. According to a University of Massachusetts study, defence spending per US$ one billion creates the fewest number of jobs, less than half of what it could generate if invested in education and public transport. At a time of desperate need for investment in job creation, supporting a bloated and wasteful military can not be justified given how many more jobs such money would create in areas such as health and public transport.
Despite the clear evidence of the cost of high military spending, military leaders continue to push a distorted and preposterous notion that European Union’s defence cuts threaten the security of Europe’s nations. NATO’s secretary general, Anders Fogh Rasmussen “has used every occasion to cajole alliance members into investing and collaborating more in defense.”
Gen. Patrick de Rousiers, the French chairman of the EU Military Committee, at a hearing in the European Parliament, even suggested Europe’s future was at stake if military spending was not increased. “What place can a Europe of 500 million inhabitants have if it doesn’t have credible capacity to ensure its security?” he asked rhetorically.
We believe, by contrast, that at a time when the European Commission’s agenda of permanent austerity faces ever-growing challenges, there is one area where Europe could do much more to impose austerity. And that is the arena of military spending and the arms industry.
Abolishing nuclear weapons owned by France and the UK could save several billions of euros every year and fulfil a major pledge made by these countries under the nuclear non-proliferation treaty to finally eliminate nuclear weapons. Reductions of all EU nations’ military spending to Ireland’s levels (0.6% of GDP) would save many more billions.
Writing off dirty debts caused by arms deals concluded through bribes, would be a good first step to lay the bill for the crisis with those who helped cause it. Such measures would also prove that at a time of crisis, Europe is prepared to invest in a future desired by its citizens rather than its warmongers.
Download Guns, Debt and Corruption: Full report (pdf, 525KB)
Download Guns, Debt and Corruption: Executive Summary (pdf, 77KB)
Rather than solving Europe’s crisis, EU institutions are allowing corporate elites to further enrich themselves through a fire sale of state assets.
The text and infographics below are excerpted from a new working paper, Privatising Europe: Using the Crisis to Entrench Neoliberalism, which was just released by the Transnational Institute in Amsterdam:
The European Union is currently undergoing the biggest economic crisis since its foundation 20 years ago. Economic growth is collapsing: the eurozone economy contracted by 0.6% in the fourth quarter last year and this slump is set to continue. The euro crisis was incorrectly blamed on government spending, and the subsequent imposition of cuts and increased borrowing has resulted in growing national debts and rising unemployment. Government debts in crisis countries have predictably soared: the highest ratios of debt to GDP in the third quarter of 2012 were recorded in Greece (153%), Italy (127%), Portugal (120%) and Ireland (117%).
Europe’s member states have responded by implementing severe austerity programmes, making harsh cuts to crucial public services and welfare benefits. The measures mirror the controversial structural adjustment policies forced onto developing countries during the 1980s and 1990s, which discredited the International Monetary Fund (IMF) and World Bank. The results, like their antecedents in the South, have punished the poorest the hardest, while the richest Europeans – including the banking elite that caused the financial crisis – have emerged unscathed or even richer than before.
Behind the immoral and adverse effects of unnecessary cuts though lies a much more systematic attempt by the European Commission and Central Bank (backed by the IMF) to deepen deregulation of Europe’s economy and privatise public assets. The dark irony is that an economic crisis that many proclaimed as the ‘death of neoliberalism’ has instead been used to entrench neoliberalism. This has been particularly evident in the EU’s crisis countries such as Greece and Portugal, but is true of all EU countries and is even embedded in the latest measures adopted by the European Commission and European Central Bank.
This working paper gives a broad and still incomplete overview of what can best be described as a great ‘fire sale’ of public services and national assets across Europe. Coupled with deregulation and austerity measures, it is proving a disaster for citizens. Nevertheless, there have been clear winners from these policies. Private companies have been able to scoop up public assets in a crisis at low prices and banks involved in reckless lending have been paid back at citizens’ expense.
Encouragingly though, there have been victories in the battle to protect and improve Europe’s public services which serve as beacons of hope. There is even a counter-trend of remunicipalisation taking place in Europe as people have become aware of the cost and downsides of privatising public services, particularly water. As public awareness grows that the European Commission far from solving the crisis is using it to entrench the same failed neoliberal policies, these counter-movements and growing popular resistance can work together to halt the corporate takeover of Europe.
OPINION:�THE EUROPEAN Central Bank and German constitutional court have calmed the waters in relation to the euro crisis for now. Such calm though will not persist for long unless very significant action is taken at a political level to deal with the longer-term issues that the crisis has thrown up.
In particular many EU treaty changes are very likely in the coming years.
It is opportune, therefore, to ask is Ireland ready to cope with such an eventuality. The answer in my opinion is in the negative. At the core of my concerns are the so-called Crotty (1987), McKenna (1995) and Coughlan (2000) Supreme Court judgments.
These judgments relate to when, if at all, a referendum on an EU treaty change should be held (Crotty) and then, once called, how it should be conducted (McKenna and Coughlan). It is the collective impact of these judgments that is so worrying if Ireland wants to remain part of the evolving project that is the euro zone.