Sunday, June 01, 2014

Joschka Fischer on nationalism and the crisis of the EU

Former German Foreign Minister Joschka Fischer discusses the recent European Parliament election in Europe's Nationalists on the March Project Syndicate 05/31/2014. (German version: Die nationalistische Herausforderung Europas)

Here is how he diagnoses the problem of the EU:

At the heart of Europe’s political crisis is the eurozone’s economic and financial malaise, which neither national governments nor EU institutions seem able to address. Rather than strengthening pan-European solidarity, economic distress has led to a massive distribution conflict. What once was a relationship among equals has given way to a face-off between debtors and creditors.

The mutual distrust that characterizes this conflict may irreparably harm the soul of the Union and the entire European project. Northern Europe is plagued by fears of expropriation; the south is in the grip of a seemingly unending economic crisis and unprecedentedly high unemployment, for which its citizens hold the north – particularly Germany – responsible. The debt crisis in the south, together with the social consequences of harsh austerity measures, is seen simply as the abandonment of the solidarity principle by the rich north.
This may be attractive as a diplomatic posture: let's all sit down and reason together, can't we all just get along, etc.

Its would be more descriptive to say that the onset of the depression in the eurozone in 2008 triggered a series of events - decline of GDP, rise of unemployment, flight of capital from "periphery" countries to the northern countries - which placed a number of undercapitalized banks that had been pursuing risky lending policies in immediate danger of bankruptcy. The various eurozone governments were then faced with either saving or reorganizing the endangered banks. There was no banking union, meaning there were no eurozone-wide mechanisms for supervising the banks and for using the common resources of eurozone countries to deal with financial crises of banks.

Countries like Ireland and Spain decided to use public funds and higher public debt to bail out their countries' private banks. Except for Greece, whose pre-crisis conservative governments had recklessly run up the public debt while cooking the books to disguise what they were doing, none of the other eurozone countries had any seriously problematic levels of debts prior to the onset of the crisis.

The debt crisis surfaced first in Greece, which had reached a level of debt that was unsustainable. A debt reduction (haircut) was needed with a restructuring of the existing debt. Angela Merkel's government in Germany, however, didn't want to let Greece take a debt haircut, because it would have immediately put pressure on undercapitalized German banks that had invested heavily in Greek debt. As the economic crisis rolled on, financial speculators put pressure on various countries in the eurozone that drove up their borrowing costs to levels that would have pushed them into national bankruptcy.

As Jamie Galbraith wrote in 2011, "The eurozone crisis is a bank crisis posing as a series of national debt crises and complicated by reactionary economic ideas, a defective financial architecture and a toxic political environment, especially in Germany, in France, in Italy and in Greece." (The crisis in the eurozone Salon 11/10/2011)

The "bailouts" that were provided by the Troika (IFM, EU Commission, ECB) to Greece, Ireland and Portugal, and the somewhat less onerous deals reached with other countries required those countries to take on more public debt to avoid defaulting on their old debt. Combined with shrinking GDP, this increased their debt as a percentage of GDP. And the neoliberal austerity policies that the Troika imposed on crisis countries and the EU's 2012 Fiscal (Suicide) Compact locked the entire eurozone into pro-cyclical economic policies. I'm not kidding when I call it Herbert Hoover/Heinrich Brüning economics. The result in Greece's case is that, even with a subsequent relatively small haircut, debt as a percentage of GDP is considerably higher for Greece today than in 2009 when its debt crisis broke into public awareness.

Cerstin Gammelin und Raimund Löw provide a very useful outline of the course of the euro crisis in »Jedem seine Scheiße«: Wie Angela Merkels nationaler Egoismus die EU aufs Spiel setzt Blätter 5/2014. Their account is a useful reminder of the dominant role that Merkel and Germany have played in the course of events, with a stubborn insistence on extracting particular German interests at the expense of the prosperity and social solidarity in the eurozone as a whole. ("Solidarity" is not an exotic or unusual concept in the political vocabulary of Europe.)

The Fiscal Suicide Compact (Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) is a key moment in this process. This treaty imposes arbitrary limits on national deficits and national debts, with EU institutions dominated by Germany having greater authority to enforce those restrictions. The Fiscal Suicide Compact required the signatory countries to make the highly restrictive debt and deficit provisions part of their national constitutions. It basically outlaws Keynesian, countercyclical policies in a depression or recession. It bans basic macroeconomics from being used as a guide for economic policy during economic crises, in other words.

The Fiscal Suicide Pact was a major part of the price that Merkel extracted in mid-2012, in return for her agreeing to look the other way as the ECB used a creative way to evade its own legal restrictions against direct purchases of eurozone national debt as a way to support the backstop that debt and defend it from speculators.

So its surprising and disappointing to see Fischer defending Angie-nomics this way: "to hold the German hegemon responsible for austerity policies in the south is only partly justified; the German government did not force the affected countries to run up high levels of public debt." Actually, the German government did force the periphery eurozone countries "to run up high levels of public debt." It's really hard to see how Fischer could make such a claim, even as an effort to make the message sound more palatable to the German public.

He continues directly to say, "What Germany can be held responsible for is its leaders' insistence on simultaneous debt reduction and structural reforms and their objection to almost any growth-oriented policies within the eurozone." It would be more accurate to say that Germany should be held responsible for Merkel's (and the SPD's!) bad debt reduction approach. And to say that Merkel's policies which she did indeed force on the periphery nations was focused not on growth but on internal devaluation by reducing most people real income int he periphery countries.

Fischer seems to equate the German nationalism of Merkel's short-sighted policies, which focus on extracting benefits for Germany our of the currency zone at the expense of the other countries, with the resistance to those policies in the countries most damaged by them.

Fischer's column places the focus on the danger of rightwing nationalism from parties like France's National Front.

But he seems to be stuck in the outdated dichotomy of pro-Europe parties vs. anti-Europe rightwing parties.

The reality today is that unless pro-Europe/anti-austerity policies prevail soon, a prospect whose likelihood seem low at the moment, the eurozone will probably not survive and possibly not the European Union, either.

Gammelin und Raimund Löw write:

Die Ironie der Geschichte: Auf paradoxe Weise hat sich das Merkelsche Leitmotiv „Scheitert der Euro, dann scheitert Europa“ seit Beginn der Krise in sein Gegenteil verkehrt: Der Euro steht heute dank unkonventioneller Maßnahmen der EZB und der Euroländer nicht mehr vor dem Aus, dafür aber fordert die Rettungspolitik ihre Opfer, vor allem im Süden des Währungsgebietes. Die Tendenz ist unübersehbar: Der Euro bleibt, aber Europa bröckelt. Unter Merkels Ägide hat die Krise Deutschland verschont, aber Europa hat sie in existenzielle Sorgen gestürzt.

[The irony of history: In a paradoxical way, the Merkelite leitmotive "If the euro fails, then Europe {the EU project} fails" has reversed into its opposite since the beginning of the crisis. Today the euro no longer stand at its end, thanks to the unconventional measures {especially since June 2012} of the ECB and the euro countries, but in exchange the rescue policies have claimed their victims, above all in the south of the currency zone. The trend cannot be overlooked: The euro remains, but Europe {the EU} is disintegrating. Under Merkel's auspices, the crisis has spared Germany, but Europe has plunged into existential worries.]
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