By Costas Lapavitsas et al.
Reviewed by Peter Hogarth
As the credit crisis that started in 2007 continues to unfold, it is obvious that ruling classes around the world have decided to try to force the working class and poor to pay for it. Austerity, to varying degrees of severity, is the order of the day from Greece to Spain to Ontario and beyond. Fuelling this drive to austerity, and confusing the public, are a myriad of “common sense” slanders. These include: people are living beyond their means, buying houses they couldn’t afford, Greeks are lazy and profligate, spending frivolously while not paying their taxes, and there is no money for social programs, to stop foreclosures or to create jobs.
Because of the reach of these arguments, Crisis in the Eurozone is a book that is worth its weight in government bonds. Costas Lapavitsas and a host of other researchers who comprise the group Research on Money and Finance (RMF) have compiled a series of their articles, published over the last few years, which is ammo for activists to be able to combat the ideas of the day which say that Greek workers should bail out the system. The RMF crew also states their case for what some on the revolutionary left have called a “people’s default.”
Origins of the crisis
From the beginning, the project of the Eurozone was one that purported to create a new form of world money to compete with US as the international reserve currency. With the Eurozone project, peripheral countries joined a monetary system that required signing away some of their competitiveness and adopting policies (labour, fiscal etc) that exacerbated that competitiveness gap.
Crisis in the Eurozone emphasizes the unequal footing on which the various states entered the Eurozone and the effect that had on creating structural deficits in those very countries that have suffered most following the onset of crisis in 2007. The German ruling class has been able to put downwards pressure on the workers of Germany to such an extent that the German economy has enjoyed a competitive advantage.
Germany has been unrelenting in squeezing its workers and the result has been a structural current account surplus for Germany. The surplus has been translated into capital exports, such as bank lending and foreign direct investment. Thus the surplus has been mirrored by current account deficits for the peripheral countries. As Lapavitsas et al note: “this surplus has been the only source of dynamism for the German economy throughout the 2000s. In terms of output, employment, productivity, investment, consumption, and so on German performance has been mediocre.”
This means that countries entered the Eurozone with unequal levels of competitiveness, which became translated into structural deficits. These deficits were impossible to overcome under the nature of the European Union, because it is a monetary union without a unified fiscal policy, there is no means of relieving these pressures of differential competitiveness and variable integration into the Eurozone. Consequently, there has been no real catching up for peripheral countries such as Ireland, Portugal and Greece who have experienced increased growth in productivity but suffer from the competitive advantage of German exporters derived from the high exchange rates at which peripheral countries entered the Eurozone.
As the RMF notes, at the core of the current crisis, “peripheral countries were obliged to join the Euro at generally high exchange rates. Core countries, above all Germany, insisted upon this policy with the ostensible purpose of ensuring low inflation. High inflation in individual countries would have undermined the Euro ability to compete internationally against the dollar.” The result was that this reduced the competitiveness of the peripheral countries in the internal market and entrenched their emerging current account deficits and the German current account surplus.
Myths and alternatives
The book goes on to debunk the myths of profligate spending and lazy workers, emphasizing that “the real problem has not been excessive compensation for peripheral workers, but negligible increases for German workers…There has been weaker productivity growth in Germany compared to the rest [of the Eurozone].” In fact, German workers have had the lowest growth in productivity throughout the Eurozone period, while Ireland, Portugal, Spain and Greece have all experienced significant growth in productivity.
Furthermore, “Greek debt, which has attracted enormous attention since the start of the crisis, was not the highest in the group and nor has it been rising in the 2000s. On the contrary, Greek national debt declined as a portion of GDP in the second half of the 2000s.” But after the banking crisis of 2008, the European Central Bank stepped in to provide funds to help banks repair their balance sheets. This had the effect of shifting the problem of credit onto individual states, who now had a harder time issuing bonds.
Crisis in the Eurozone is incredibly valuable for detailing the unfolding crisis affecting the countries of the EU and there are far too many points to recount here, but its true strength lies in its case for alternatives. They acknowledge three alternatives: austerity on peripheral countries, seeking to alter the structure of the Eurozone, and exiting from the Eurozone.
The first one is the generally accepted solution on offer from the ruling class of the world (note Stephen Harper’s strong encouragement for this approach). The second comes from some progressive elements who want to tinker with the structure of the existing union.
However, the authors of this book recognize that the austerity model will not rescue the euro from the crisis, but will mean incredible suffering for the mass of European people. The second, they emphasize, is unrealistic due to the neoliberal agenda “inscribed into the genetic code” of the European Union.
A progressive exit
This book makes the case for a progressive exit from the Eurozone, one which “would require a shift of economic and social power toward labour.” It would mean stopping payments, devaluing the currency and restructuring the public debt. The RMF authors recognize that countries taking this route would have to nationalize banks to avoid the collapse of the financial system, creating a system of public banks that could prevent outflows of capital by imposing controls on capital accounts. In order to protect output and employment, it would be necessary to expand public ownership to other important areas of the economy such as utilities, transport and energy.
In doing this, a progressive exit could develop industrial policy that would combine public resources with public credit and potentially develop green areas of the economy. This would require transparency and accountability of the state and the expansion of the tax base, by limiting tax evasion by the rich and big capital.
One can see the desirability of such an exit for peripheral countries, as opposed to being weakened and bled dry by IMF reformers and structural adjustments to the labour, public service and public infrastructure of affected economies. However, the RMF are not idealists and recognize that engineering an exit of this kind—which can improve public health and education provision while dropping parts of the debt that are found to be illegitimate—will require a break from the Euro and an exit from the Eurozone. As well, to avoid being isolated and made the Gaza of Europe, it will be necessary to form broad political alliances to support such an exit. These alliances will necessarily go beyond national borders and will be required to sustain flows of trade, skills and investment.
While it is obvious that no political force with this power currently exists, we have to be heartened by the rise of political parties like Syriza in Greece, and the huge general strikes that have rocked places like Italy, Spain, the UK, and Portugal. These developments and the rise of movements in the streets based on young unemployed people, show the desire and base that exists for radical change. As Lapavitsas et al recognize, the workers of the peripheral Eurozone economies and the workers of Germany have only to gain from resisting the austerity consensus of Eurozone leaders. Crisis in the Eurozone is essential reading, as it provides the statistical and analytical backing for alternatives to solutions on offer.