Wednesday, November 20, 2013

The EU/euro crisis and extremist politics

This article by Marshall Auerback gives such a cloudy version of what's happening with the EU and the euro crisis that it's painful to read: Think the Tea Party Is Crazy? Europe's Rising Neo-Fascism Is a Taste of What's Coming If Austerity Prevails in America AlterNet 11/15/2013; also appears as Could austerity give rise to American fascism? Salon 11/20/2013.

I'm glad to see reminds of what I once thought was a commonplace "lesson of history," that a big ole depression can produce extremist upheavals in politics. One of the big lessons of that was that you shouldn't pursue pro-cyclical economic policies in the middle of a depression. But the Very Serious People on both sides of the Atlantic obviously forgot that one.

Pretty much everything else about this article, though, was like nails on the blackboard to me.

I've been concerned about far right parties in Europe for a long time. But most of what he describes is more a chronic condition than an obvious produce of the current crisis. For instance, he writes:

Backlash in France produced Marine Le Pen's surprisingly successful candidacy in the last French presidential election for the Front Nationale (FN). If the name sounds familiar, it’s because fascism runs in the family: She is the youngest daughter of the French politician Jean-Marie Le Pen, former president of the FN and currently its honorary chairman. In last year’s French presidential election, she polled some 18 percent in the first round and finished in third position behind winner François Hollande and the previous incumbent president Nicolas Sarkozy.
Okay, more on that in a minute. But let's get a grip. The 2012 presidential election gave Socialist Hollande the office and the parliamentary election soon after gave the center-left Socialists a majority in Parliament. Yes, 18% of the votes going to the FN is 100% too many. But that election main significant is that it was a repudiation of Sarkozy and the Merkel-style austerity policies he advocated.

Hollande then immediately turned around and started advocating austerity policies, which included some cuts in spending but were mainly focused on raising taxes on the wealthy, which brought France criticism from the austerians for not cutting the deficit according to the preferred neoliberal prescription which was to do it exclusively by spending cuts. He also cheerfully involved France in two African wars. Do I need to say that his popularity took a dive?

Dominique Moisi has a more sober assessment of the status of the FN in Europe's Anti-Europeans Project Syndicate 11/20/2013:

In this environment, the upcoming European Parliament elections seem tailor-made for extremist parties, with recent public-opinion polls suggesting that the National Front will come out on top in France. European elections leave most citizens indifferent, which translates into low voter turnout – except among those who, defined by what they oppose, wish to express their anger and frustration with the status quo.

Marine Le Pen, the National Front's leader, is shrewd and efficient, running on a straightforward message: "Europe is against the people, so the people must mobilize against Europe." With her semblance of moderation, she is far more appealing than her father and former party leader, Jean-Marie Le Pen. Her strategy is to enter the mainstream of French politics by shedding all traces of past anti-Semitism, thereby turning the National Front into a seemingly legitimate alternative to a decadent traditional right, which has suffered a prolonged bout of infighting since Nicolas Sarkozy's defeat in the 2012 presidential election.
This also is bad. But one of the problems of the EU that is part of its much-discussed "democratic deficit" is that voters don't take the EU elections nearly as seriously as they should, and turnout is low. I don't want to minimize the obnoxiousness of Le Pen and the National Front. But we're aren't looking at some 21st-century version of Mussolini's March on Rome with this, either.

In Greece, the far right Golden Dawn party did have a surge and engaged in some significant amounts of politically-motivated violence. The government banned the party in October, a course which carries its own risks, as Yanis Varoufakis discusses in this video:

Yanis Varoufakis discussing Golden Dawn and the Greek economy 10/11/2013:

Hungary definitely has a problematic authoritarian government, which the EU has tolerated, though not with the amount of objection the situation called for. But Auerback's article doesn't even mention that.

The political alliance likely to be the most immediately destructive to the larger European Union project is the Grand Coalition government in the process of formation in Germany, in which the Social Democrats (SPD) are in the final weeks or days of negotiations to again become the junior partner of a government headed by Chancellor Angela "Frau Fritz" Merkel and her CDU/CSU party. André Tautenhahn says of this final period of the negotiations, "Eigentlich sind es aber traurige Tage, an denen ein fauler Kompromiss nach dem anderen geschlossen werden wird" ["Actually these are sad days, in which one lazy compromise after the other with be concluded"]. (Die Woche der faulen Kompromisse beginnt Écrasez l’infâme! 18.11.2013)

But the biggest and laziest compromise of all was something Frau Fritz and her party didn't even have to demand: the SPD's willingness to go right along with her austerity policies that are wrecking the economies of Cyprus, Greece, Ireland, Italy, Spain and Portugal. That may restructure the future politics of Germany, and will likely roil those of other countries, as well.

What bother me about Auerback's article is less his melodramatic portrayal of European politics than his sloppy description of the EU and eurozone:

Bringing countries together in the European Union was supposed to make violent nationalist conflict a thing of the past. Member countries were supposed to prosper economically. But now countries like Greece and Spain are fracturing politically and falling into a downward economic spiral.

The creators of the euro were like parents fixing an arranged marriage. They knew that they were locking together countries with very different economies and political cultures. But they hoped that, over time, the new partners would grow together and form a genuine bond.

The European Union was banking on three forms of convergence: economic, political and popular. At the time the euro was launched, there was much hopeful talk that a surge in trade and investment between the euro zone nations would create a truly unified European economy, in which national levels of productivity and consumption would converge on each other.

It was also assumed — or perhaps just hoped — that the euro would create political unity. Once Europeans were using the same notes and coins, they would feel how much they had in common, develop shared loyalties and deepen their political union. The designers of the single currency were also hoping that elite and popular opinion would come together. They knew that in certain crucial countries, in particular Germany, the public did not share the political elite's enthusiasm for the creation of the euro. But they hoped that in time, this would change.

Enter reality. At first, people saw most regulations and orders coming from Brussels as annoying and occasionally inconvenient. Rulings on things like what kind of fat chocolate may contain seemed objects of ridicule, not the stuff of revolution. The European Commission was seen as something distant with little day-to-day relevance for the lives of most citizens living within the European Union. But everything changed with the Great Recession of 2008. Ruinously destructive austerity policies took hold in the councils of Europe, notably in the form of economic austerity packages demanded of Greece, Spain, Ireland, Portugal, etc. The consequences have been monstrous. [my emphasis]
He's right about the last part, "The consequences have been monstrous."

Without trying to sort through the mess in detail, the creation of the EU and the eurozone weren't nearly such feckless undertakings as this description suggests. The process of European unity didn't start with the European Union, the name the collection of nations previously known as the European Community took on in 1993 when the Maastricht Treaty took effect. The process formally began with the founding of the European Coal and Steel Community, as the historical narrative at the EU's website explains (The history of the European Union, accessed 11/20/2013):

The European Union is set up with the aim of ending the frequent and bloody wars between neighbours, which culminated in the Second World War. As of 1950, the European Coal and Steel Community begins to unite European countries economically and politically in order to secure lasting peace. The six founders are Belgium, France, Germany, Italy, Luxembourg and the Netherlands.
The point of this union, undertaken at the urging of the US (although that is not emphasized in the standard European accounts), was to put an end to the ugly cycle of wars that plagued the European Continent from the Wars of Religion in the 16th century, culminated in the horrific slaughters of the First and Second World Wars.

And in fact the European unity efforts largely succeeded in placing that ugly history of military conflicts behind them, though that shouldn't obscure the wars that have occurred in Europe, like the bloody Balkan War and conflicts involving former Soviet republics. The EU was also a key institution in the integration of former Warsaw Pact countries in eastern Europe into a stable and peaceful international arrangement. Auerback's description makes the whole idea sound like a frivolous delusion.

The "European project" was until very recently understood by European political leaders as primarily a political effort to secure peace and democracy. Economic agreements were certainly valued by Big Business. But within the European unity project, those were always understood as means to promote the political goals of peace and democracy in Europe. Without understanding that context, it's impossible to understand the current left-right splits in European politics over the EU and the euro.

Because broadly speaking, the left and certainly the center-left (social democrats) have been pro-European, seeing the EU as way to secure those basic goals of peace and democracy but also the regulatory and welfare states that were constructed after the Second World War. Nationalism and opposition to those social and (to a certain extent) democratic goals has meant that the anti-Europeans have been mostly on the right. Criticism of austerity policies in recent years has come from unions and within the social democratic parties. But social democratic leaders like Hollande and those of the SPD have been generally in agreement with Merkel's brutal austerity policies for southern Europe.

The political elites of both the right and center-left tend to be heavily committed to the budget-balancing, debt-limiting gospel in the spirit of Herbert Hoover and Heinrich Brüning. One dramatic sign of that commitment was the approval of the Fiscal (Suicide) Pact Merkel demanded the other members of the eurozone approve in 2011, which effectively requires those countries in the Pact to implement pro-cyclical austerity measures in a recession or depression. It outlaws using major government stimulus to counteract recessions and depressions, in other words.

And the Fiscal Suicide Pact means that its members had to write those limits into their national constitutions. "Never before in economic history has logical incoherence been given a constitutional expression that reality is bound to wreck," wrote Varoufakis. (From Contagion to Incoherence: Towards a Model of the Unfolding Eurozone Crisis Contributions to Political Economy 32/2013)

Nevertheless, even Alexis Tsirpis, leader of the left SYRIZA alliance that is currently the most popular party in Greece and intensely opposed to Merkel's austerity policies, consistently claims to be looking for a solution that will keep Greece in the European Union and the eurozone.

Marcel Fratzsche in Delusional Germany Project Syndicate 11/14/2013 addresses his arguments for the euro to rightwing anti-Europeans in Germany. He warns German voters that the notion, apparently held by many, that Germany has weathered the crisis relatively well is dangerously short-sighted:

Germans are convinced that they have weathered the crisis extraordinarily well. Although GDP growth slowed sharply in 2009, it recovered quickly; Germany’s economy is now 8% larger than it was then. Likewise, the unemployment rate has fallen throughout the crisis, reaching 5.2%, the lowest level since reunification. And the German government’s commitment to fiscal consolidation enabled it to achieve a surplus last year; by 2018, the fiscal surplus is expected to amount to 1.5% of GDP.

Such figures have fueled the perception that Germany's economy is booming, and that its future would be even brighter if the eurozone's weaker economies were not dragging it down. But, viewed from a longer-term perspective, Germany's economic performance is actually rather disappointing. A DIW Berlin study shows that, since the monetary union’s launch in 1999, Germany has recorded some of the eurozone's lowest rates of GDP and productivity growth.

Moreover, real wages have barely risen; for more than 60% of German workers, they have actually fallen. Wages have risen substantially more elsewhere in Europe, despite the depth of the economic crisis. Given that Germany also has one of the eurozone's lowest investment rates, its GDP growth is likely to be among Europe's slowest in the coming years, making significant wage increases unlikely.
In other words, Germans shouldn't be smug about their relatively good situation in the depression compared to the southern European countries currently under Merkel's austerity hammer.

And he reminds them, "While it is tempting to scapegoat the common currency, the fact is that the euro has brought huge economic and financial benefits to Germany, owing to increased trade, greater price stability, more competition, and improved efficiency." What he doesn't say clearly is that the euro's benefits to Germany, Austria and the Netherlands are currently the flip side of the severe economic conditions in the southern countries of the eurozone. If the German government doesn't stop pursuing nationalistic economic policies and start making policy in the interest of their economy, which is really the eurozone economy, they're going to wind up deep-sixing the European project.

But Fratzsche gets onto shakier ground when he writes:

The argument that the crisis stems from the eurozone not being an optimal currency area is similarly flawed. No economy is an optimal currency area; there are substantial differences among US states and even across Germany’s Länder. The main challenge to the euro's long-term viability is the lack of political will to implement complementary policies, such as a banking union and a credible fiscal union.
This touches on issues that Marshall Auerback's piece obscures. Economists familiar with what they call optimal currency area theory, both liberal and conservative ones, warned that without coordinated fiscal policies, a central bank that could act as lender of last resort to governments, and bonds based on the entire eurozone's credit-worthiness and not just on individual governments, the currency union was seriously flawed. What Fratzsche calls "complementary policies, such as a banking union and a credible fiscal union," are not complementary policies at all. They are urgently needed to save the euro and thereby most like the EU itself.

Establishing the currency union was meant to promote greater political union, just as establishing free trade agreements had been in the past. But the leaders that established the currency union underestimated the risks of the weaknesses in their arrangement, weaknesses which have become glaringly apparently since the financial crash of 2008.

But the leaders and political elites failed to develop that greater political union before the crash hit. And then they united behind austerity policies. The three leading countries in the EU are Germany, France and Britain. And the political elites of all three countries bear the leading responsibility for the 1914 levels of bad decision-making that we've seen in the crisis. Even though Britain is not part of the euro, both Labour and the current Conservative-Liberal government have played more a negative than a destructive role in European leadership. If the European project were as frivolous as Auerback makes it sound, the current state of affairs would be so tragic. And so disappointing to those who support the European unity effort, which has meant that 1914-level failures in leadership don't have the prospect today of setting of a four-year war of previously un-experienced levels of death and destruction.

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