Euromemorandum 2010, Rethymno, Crete

Notes on presentations and discussions

In the state of the union plenary, the main political theme was, what is the political project emerging from the crisis. Stephanie Blackenburg argued in her keynote-presentation, that the biggest failure of financial capital is leading, paradoxically, to stronger than ever ideology, rather than a reversal of capitalist relations or withdrawal of capital intrests. The ideology disguises any idea of catastrophy or failure of capital.
The main political project of this emerging ideology of the rights is a total reconfiguration of the state, leading to something Blackenburg referred to as ”rump state”, meaning a state in which the underclass has no actual access to the political domain. This means a state unable and unwilling to act in most fronts. It also means that the rhetoric of the welfare state has changed into the rhetoric of the fear of ”big government”. Practically, this means limiting the role of the state to elitist basic infrastructure, the caring take of which is posed in progressive rhetoric. All in all, Blackenburg argued that the present project is not an attack against welfare state but the state in general.
The present crises are worsened by lack of co-ordination and retrieval to nation-states. In addition, the states are clearly pursuing beggar-thy-neighbor-policies. Simultaneously, even bankers admit that the ”crisis management” has been a great victory for the banks, dispite all the anger against the banks. In the political front, in country after another in Europe there is an observable tendency of alliances between right forces (market liberal and conservative), with chaotic situations caused by no party getting a clear majority. The Left would need new alliances more than ever in this situation.
As an analytical description of the ”post-crisis political project of the right”, Blackenburg highlighted four elements: concentrated ownership of media; systematic weaking of the legistative vis-a-vis the executive; forced capitalism meaning being forced to invest one’s money via f.e. pension funds; and weakening the situation of public sector workers both in terms of wages and political influence. Accordingly, new left opposition to these developments ought to go under the heading of wide idea of economic democracy, meaning more than merely control of financial capital. The tendency to highlight shareholder activism was brought out as a warning example of ideas presented as alternatives to real democracy.
There was some additional discussion on issues of ecology and the current state. As for the existing ”energy climate”, it was noted that there is a huge consensus on reducing energy use for both environmental and power reasons (dependence on Russia etc). Yet the lack of any shared idea, what is the ”state” of subject of relevant reforms (national, EU) complicates possibilities to get commitment to any energy-use reduction measures. This was highlighted in the change of subject: when formerly the council was represented by it presidency in international negotiations, in Copenhagen this was changed, and each country negotiated on their own. Still in 2006 there was attempt for concerted action, but then France and Germany unilaterally reduced their commitments to greenhouse gas cuts.
There was a lively discussion on the role of the state. There were many who argued, contrary to Blackenburg, that by no means there has been a withdrawal of the state, but rather an economic reorientation. According to this position, elites use the state (and need the state) to defend the intrests of finance and industry. Similarly, the crisis can be seen as not a state of disorder, but a ruthless imposition of a new order.
Yet it was agreed, that capital can be fought only on european level, on which currently the whole basis of co-operation has broken down. All new EU agendas have been mostly without content. From the ecological point of view it was agreed that the ecologists need the state.
Professor George Stathakis from the economics department of the University of Crete presented on the economic state of the union, focusing on the specific case of Greece and the Greek debt crisis. The first question related to the topic is, how could it be, that Greek public lending was seen to be a threat to world capitalism earlier this year? Genuinely it seemed, that because of structural imbalances and ongoing speculation, the Eurozone was going to go into crisis at some point, and this point turned out to be Greece. The fiscal crisis of Greece was from the beginning an unstable state of the union.
As a reaction to the Greek public debt situation, there have been major arguments in Europe for and against the bail-out of Greece. Strangely, professor Stathakis pointed out, these debates almost exclusively centered on arguments based on national and ethnic charasteristics, very much in the fashion of 19th century political debates when economic policy was often based on ideas about nationalities. ”Greeks” have been accused of being lazy, undisciplined, etc., as if such characteristics could explain anything relevant about economic policy.
More deep into the point, according to professor Stathakis the Euro has functioned just as the Euromemo group has been arguing for quite some time: the common currency is excellent for periods of economic growth, and very bad for times of recession. Because no-one really seriously thought about times of recession, the Greek situation became immediately a political crisis of the Union – a political one as no economic measures were there to be taken.
As a background to the Greek situation, one can note a growing structural imbalance. In the 1980s, public expenditure rose from 25% to 40% of GDP. Most of this was done for good reason, i.e. building a somewhat functional welfare system with investments to healthcare, schooling etc – although the system is admittedly not very efficient. 40% GDP share amounts to a western european level of public spending (although Greece spends more on arms and less on education). Nevertheless, the tax collection system is far from western European levels. There have been reductions of business taxes and inheritance taxes, along with exemptions so large that it can be called a ”legal tax evasion system”. For example the 700 000 most wealthy individuals in Greece do not pay any tax. All in all, the system is based on indirect taxation.
According to professor Stathakis’ analysis, the only way to balance the Greek budget is to tax the wealthy. Greece has a world record in stabilisation plans (90-93, 04-07, 09-), and this is still to provide results. The stabilisation plans have only brought about increases in public debt.
The Greek economy has been lately also transformed to focus on its ”comparative advantages”: tourism, shipping, banking, construction, telecommunications. Professor Stathakis pointed out that all these have to do with movement of capital, which lead to the pressure to join the Eurozone. Measures of ”privatisation of everything”, especially banks and telecomminucations, were part of the strategy. Greece joined the euro on an idea of a ”hard” drachma. The country also expererienced decline of manufacturing and agriculture with the EMU and further specialisation on services.
Typically, the European response to the current crisis has been one of no co-ordination and return to national policies. Yet the ECB has bought 35% of Greek public debt, and will continue with the likely result that the share will rise to 65%.
In discussion, it was highlighted that the question of public debt has to be seen in the context of discovery of public debt as a new market. The public debt crisis can to a large extent be seen as caused by speculation.
The response has been to save banks at any cost, phrased as ”buying time and toxic”. Also essential is the return of the IMF and its austerity policies in Europe. According to IMF in the context of Greece, the country needs to improve it competitiveness, which according to professor Stathiakis is an absurd idea, as Greece hardly sells anything not specific to Greece – and anyway competitiveness will not solve structural problems.
It was also discussed, what is the future of the euro? It was highlighted that the German bourgeoiuse need the euro and are very unlikely to give it up: German banks have overinvested, they need the fixed exchange rates and the common market etc.
In the workshop on structural imbalances, Marica Frangakis gave the first presentation. According to Fragakis, we have to ask, is the problem of public debt pure superstition. It is yet necessary to make the distinction between sovereign and non-sovereign public debt, as in the present situation the Eurozone countries do not have money issuing powers, which makes the concept of sovereign debt somewhat dysfunctional.
The main discussion on how to react to mounting public debt has been the debate on ”disciplining governments”, meaning the thesis that governments simply overuse resources, against the view that public debt crises are caused by speculation on governments.
Notable in the EU policy reaction was that it took almost a year of of crisis before the EC really did anything. The slow rate of financial policy reform both at the european level and the global level exacarbates the pressure on governments. As a policy reaction, the EU reaction has meant unconditional support for banks, leading to a clear moral hazard, as banks might feel intecivised to carry on their lending policies.
Recently, EU has introduced its exit strategy, which might turn out to be overoptimistic: the strategy is to start at 2011, with a benchmark of 0,5% GDP growth. The strategy is accompanied with ”structural reforms”, which means the usual privatisation and liberalisation schemes. Generally, there has been very little policy co-ordination and many factors point that there is great uncertainty of the situation prevailing: for an example, the EC and the OECD recently fixed their growth forecasts to different directions. Similarly, views on the future of the euro range from success to complete and fast elimination, and it is hard to show any of these views to be superior in argument.
What is shared by most scholars is the understanding that the current EU architecture is faulty. Needed minimum measures include regulating the shadow banking system, and setting in place a financial crisis management system.
Catherine Sifakis continued the topic of structural imbalances, arguing that the cost of harmonising fiscal policy will be borne by the least developed EU countries. This is contrary to budgetary federalism, which is nevertheless the rhetorical line. The main point about the EU is, that capital cannot be a driving force of politically visionary projects, and even less can it be a driving force of exits from crises, yet presently it is expected to be both. As for structural imbalances, it was argued that Germany is a de facto user of power in the eurozone, and it currently refuses to question the stutus quo, as this would mean questioning its hegemony.
German labour union economists Achim Truger and Till van Treeck presented on structural macroeconomic imbalances. They called the present German economic policy ”dysfunctional merchantilism”, a characteristic of which is a ”profits without investment” -regime.
Truger and van Treeck argued, that the current dominant idea of excessive public debt being explained by excessive public spending, is empirically refuted by the experience of Spain and Ireland, which have been surplus countries before the crisis. Rather, they called reorientation of macroeconomic strategy, especially expansionary fiscal and wage policies in surplus countries to help adjustment in deficit countries. Also, a ”Keynesian new deal” in monetary policy would be needed: low intrest rates, supervision and regulation of the financial sector, and stable income shares in wage policy.
In discussion, it was noted that the Greek left is highly split between those favouring restructing and those favouring debt default and exit from the eurozone. It was also discussed, whether the polical purpose of the current measures is to incorporate Southern Europe into Latin American -style ”debt circle”, from which countries have little possibilities and little incentive to get out. This view gets empirical support from the observation, that the imposed conditionalities make debt payment commitments very difficult to fulfill.