European futures

This article is also published by Sceptical Scot.

It is ever harder to remember that the European Union was once widely regarded as an agent for progressive political and economic reform.

Though the left has viewed the creation of the single market with caution, it has recognised the EU’s efforts to ensure the observance of fundamental human rights across Europe, to guarantee basic conditions of employment across all member nations, and to support its members weakest regions through economic development programmes.

The fervour of the Ukraine’s pro-Europe Maidan movement recalls how Europe’s poorer nations once saw the EU: as an enabler of economic progress and a safeguarder of essential freedoms. Now however, with the imposition of seemingly perennial austerity in the wake of the eurozone crisis, the EU appears more prison-house than gateway.

The European ideal of a voluntary gathering of democracies working together to design a mutually beneficial trading and political framework has been sullied, with ‘first tier’ creditor nations imposing punitive debt repayment terms and restructuring programmes on ‘peripheral’ debtor economies.

The eurozone’s most indebted members – Ireland, Portugal, Spain, Italy and Greece – are finally creeping out of long and deep recessions, but by the end of last year were still 6 to 9% smaller than before the crisis. Draconian austerity programmes have enforced sharp tax rises, the radical paring back of social programmes and vertiginous levels of unemployment upon millions of EU citizens. A prevailing sense of powerlessness in the face of austerity has created today’s popular groundswell for the breaking up of the eurozone and, indeed, the EU itself. Anti-EU parties are likely to win more than a third of the seats to be contested in this Thursday’s European elections.

Given Europe’s ongoing nightmare it is hard to imagine how the EU’s image and capacity as a force for progress can be restored. Though it does not yet share the right’s outright hostilty to the very idea of the EU, the left’s commitment to the European project is wavering.

But two new books written by very different authors, from very different worlds, argue that – despite everything – the EU still offers a credible framework for the advancement of progressive political purposes if critical design flaws in the mechanisms of the eurozone can be fixed, and its economic policy can be turned from austerity towards expansion.

The Tragedy of the European Union (PublicAffairs), a collection of interviews with the financial speculator and long-time observer of European politics George Soros, and Crucible of Resistance (Pluto Press) by Christos Laskos and Euclid Tsakalotos, academic economists and senior members of the radical left Greek party Syriza, both take on the tough challenge of arguing that the EU’s problems are not so much institutional as political.

George Soros: The Tragedy of the European Union

One might be forgiven for taking advice offered by George Soros on the restructuring of the eurozone with due scepticism. Soros, of course, accumulated much of his estimated $20 billion fortune through currency speculation that undermined the eurozone’s fragile predecessor, the Exchange Rate Mechanism (ERM).

Soros seeks to address such doubts from the outset of the book. He is content to labelled a speculator, but in the classical sense of the word: one who probes and discovers weaknesses in a system from a place of observation. A lifetime’s testing of the strengths and weaknesses of financial frameworks, he argues, makes him well qualified to identify flaws in the present constitution of the eurozone. He did indeed benefit from the part he played in the destabilisation of the ERM, but the pressure subjected by Soros and other speculators was valuable in finding out fundamental instabilities that could only be fixed by replacing the system with full monetary union.

And he points to his history as a Jewish survivor of World War II as proof of a deep personal commitment to the ultimate success of the European project:

The European Union is in my view the shining example of an open and free society. That is why the current crisis is so personal to me. I am very concerned about Europe’s future and the potential dissolution of its open society. In the run-up to World War I or in the Weimar Republic, people did not think all these terrible things could happen. But I have a particular sensitivity to these matters, because I lived under both Nazi and Soviet occupation. And I would hate to see a repeat of dark times in Europe.

Whatever one makes of Soros, his book does indeed meet his promise of providing a lucid exposition of the design flaws that left the eurozone so vulnerable to the financial storm that broke in 2008. For Soros the most fundamental oversight in the architecture of the zone is that it denies its members recourse to the traditional tools sovereign nations depend upon to safeguard against debt default, without offering the compensatory assurance of a strong central bank with powers to act as a lender of last resort.

Membership of the eurozone requires participating countries to transfer their right to print money to the European Central Bank (ECB). So government bonds issued by eurozone members to their creditors must be denominated in a currency they do not control. This puts heavily indebted members at serious risk of default: so long as a country can print its own money it can service its debt, but if it is forced to borrow in a foreign currency there is a possibility that there may come a point of crisis at which it may no longer be able to afford that currency. The eurozone’s debtor nations, Soros maintains, are in essentially in the same position as third world countries borrowing in dollars or euros.

The risks attendant in requiring members to service debts in euros could have been covered had they had recourse to a strong central bank with the power to provide loans on generous terms to indebted members, and the further assurance of clear procedures for some measure of debt mutualisation to take effect during periods of economic stress.

But the eurozone’s design incorporated no such safeguards. So when the financial crisis hit, the zone’s most vulnerable members were left with no choice but to accept whatever bailout conditions members in a position to provide loans were prepared to grant.

And tragically for the sake of European harmony, the zone’s creditors drove a hard bargain. Beset by its own political and economic issues, Germany, the eurozone’s unwilling leader, was in no mood for generosity, and imposed severe repayment conditions that forced debtor nations to inflict harsh austerity programmes upon their populations. Public spending has been slashed, taxes ratcheted up, and conditions of employment weakened. Social security programmes have been cut to the bone just when, as unemployment has soared, they have been needed most. The economies of Greece and other debtor nations, denied resort to countercyclical fiscal levers, have spiralled down deflationary vortices.

Soros argues that France’s current weakness has left Germany as the sole member with the clout to drive through the restructuring necessary to fix the eurozone’s design flaws, and reset its economic policy on an expansionary path. Indeed, for Soros Germany has a moral as well as pragmatic responsibility to do so.

As the principal architect of the eurozone – with all its inherent instabilities – Germany is obliged to take the initiative to devise and implement the structural changes necessary to provide proper safeguards against debt default: the strengthening of the ECB and introduction of debt mutualisation processes. And Germany should recall the generous assistance it received when it was itself a heavily indebted economy in the aftermath of World War II. The conditions for Germany’s post-war economic growth were made possible by development assistance provided under the Marshall Plan and the writing off of much of the country’s debts under the terms of the 1953 London Agreement.

Soros argues that Europe needs a new Marshall Plan encompassing the redesign of the eurozone, renegotiation of its current debt arrangements, and commitment to an expansionary economic programme. Germany should lead it. And if it isn’t willing to do so, it would be better for Europe if Germany simply left the eurozone, thus creating the space for the other countries to reshape it according to their own requirements. Without Germany the value of the euro would depreciate allowing the zone’s members to regain their competitiveness.

Soros’ argument is suffused with a somewhat wistful, melancholy ambience, as if he himself recognises how unlikely it is that any of this will happen. As he observes in one of the later chapters, Angela Merkel’s emphatic re-election last year has given her an unambiguous mandate for continued pursuit of Germany’s current eurozone policy. Soros acknowledges that Merkel is attuned to the settled view of her electorate that Germany has already done quite enough to assist its debtors at a time when they have suffered austerity of their own, including economic deregulation and slow wage growth.

Soros’ diagnosis of Europe’s predicament is acute, but his prescription is weak, investing too much unwarranted hope in the power and willingness of particular nations and their political leaders to lead radical reform. His vast experience, spanning 60 years of European politics and the various monetary frameworks it has evolved, perhaps explains both the strengths and weaknesses of his analysis. Soros’ deep understanding of the workings of financial markets and successive attempts by governments to manage currency fluctuations allows him to identify the shortcomings of the present system with great clarity. But his memories of the towering political personalities who laid the foundations for Europe’s post-war recovery may have contributed to his over-estimation of the capacities of contemporary political leaders to engineer similarly bold change in defiance of electoral considerations.

Crucible of Resistance: Christos Laskos and Euclid Tsakalotos

Laskos and Tsakalotos, in Crucible of Resistance, are under no illusions that the eurozone’s creditor nations will experience a change of heart that will set the EU on a new path, and offer a much more hardheaded assessment of the full extent of the arduous task confronting progressives seeking to turn Europe from austerity.

Like Soros, Laskos and Tsakalotos believe that – in spite of everything – the eurozone’s can yet serve as an effective channel for a radical political and economic agenda. But debtor members can and must take responsibility for forcing change into their own hands: Germany won’t do it for them. And the movement for change must extend well beyond the sphere of parliamentary politics. Political leaders seeking to push through radical reforms will only have a chance of breaking the resistance of entrenched interests if they can demonstrate that they have the backing of mass popular support. High level negotiations at the EU summit table must be complemented by popular pressure exerted through a wide range of non-parliamentary channels.

Laskos and Tsakalotos’ argument is grounded in their first-hand experience of participation in the rise of Syriza, the only party of the radical left in Europe to have achieved significant electoral success during the eurozone crisis. For many years Syriza was one of several fringe parties on the Greek left, achieving less than 5% of the vote in the country’s 2009 election. But just three years later it was defeated by the narrowest of margins at the 2012 election, winning 26.9% as compared to the 29.6% share achieved by New Democracy, the party that went on to lead the Greece’s current coalition government.

Laskos and Tsakalotos believe Syriza owes its rapid rise to a willingness to participate in and learn from the waves of popular protests that have risen in resistance to the harsh austerity programme imposed upon Greece, several of which have achieved partial success in mitigating the full force of some of the most punitive measures: hunger strikes undertaken by workers in defence of basic employment rights secured important concessions; commuters refused to pay stealth taxes levied in the guise of motorway tolls; and mass campaigns of mass civil disobedience warded off attempts to enforce the payment of new taxes by attaching them to electricity bills.

Syriza played a part in these and other grassroots actions, but the party first attained wide notice as a leading participant in the ‘town squares’ movement that spearheaded popular resistance to the Greek government during the summer of 2011. The movement might be considered Greece’s equivalent to the other major movements of that year of protest, which included the ‘Indignados’ of the Puerta del Sol in Madrid, and the Occupy encampments in London and New York. The ‘town squares’ risings didn’t succeed in breaking the austerity programme, but did secure significant concessions, and contributed to the fall of at least one of the patchwork coalitions that have ruled Greece since 2010, and the ongoing destabilisation of its successor.

The movement was also of significance for providing a testing ground for the evolution of new forms of participative decision making, which Syriza has incorporated into its formal processes for the discussion and setting of its political strategy and policy programme. The party’s first hand observation that popular grassroots movements can effect change has inspired its conviction that a radical political programme can succeed, but only if that programme has been worked out in discussion with ordinary people who see the value of pursuing popular action on its behalf. Abstract manifestos decided upon behind closed dooers by party insiders won’t do: grassroots activists need to have a say and a stake in any programme that they will be willing to fight for.

Perhaps the most striking characteristic of Syriza’s agenda, given its formulation in close consulation with many of the ordinary people most affected by EU-imposed austerity, is its firm rejection of the temptation to withdraw Greece from the eurozone. For all its faults, Syriza believes the eurozone can serve as an effective vehicle for change: member countries are better placed to realise a mutually beneficial progressive agenda through collective action within the framework provided by the eurozone than by withdrawing and seeking to go it alone.

Laskos and Tsakalotos note the repeated failure of attempts by left-wing European governments to pursue radical agendas in isolation from the rest of Europe, referencing in particular the Alternative Economic Strategy developed and abandoned by Labour in the 1970s, the Common Programme of the Left jettisoned by President Mitterand in early 1980s, and the abortive economic strategy pursued by the socialist Papandreou administration in the mid 1980s. Syriza argue that if Greece simply defaulted on its debt and left the zone to pursue an ambitious autonomous programme it would soon find itself shipwrecked on the shores of global finance, like the governments which attempted those earlier strategies. Indeed such is the universal fear of the ratings agenices that even countries outside the eurozone, with access to an independent monetary process, and therefore seemingly favourably placed to pursue their own course, have nonetheless pursued austerity programmes: the United Kingdom, of course, is perhaps the prime example.

So they argue that Syriza has been right to resist the siren call of isolationism, and to recognise that the left has a better chance of working towards change by engaging in the tough fight of transforming the EU from within. Correctly designed, and orientated towards growth rather than austerity, the eurozone has the potential to operate as bulwark against the corrosive force of the financial markets, and to function as an arena in which social democracy can be cultivated.

Syriza argues that the hard process of transforming EU policy can start if Greece and the other debtor nations realise that they have more bargaining power at the EU negotiating table than they or their opponents have thus far acknowledged. The first step would be to threaten departure from the eurozone if a more flexible debt reconciliation schedule cannot be agreed upon. Syriza does not believe that ‘Grexit’ would be in Greece’s long term interests. But nor would it be in the interests of any other member:

[T]he departure of one economy violates the supposedly irrevocable commitment in a monetary union not to devalue. If one economy does nevertheless effectively devalue (through its exit), monetary union has, in effect, been transformed into a fixed-exchange-rate system. All the evidence from economic history is that such systems are extremely vulnerable in times of recession.

The spectre of such a devaluation following the exit of just one of the debtor members would strengthen their hand in negotiating for a new eurozone deal.

But, as has already been noted, any pressure that could be applied for radical change by political leaders at the EU negotiating table would need to be supplemented by demonstrations of popular support. As SYRIZA found in Greece, spontaneous, resourceful and persistent grassroots protest proved the only effective method of winning concessions against austerity: it is not enough to leave political leaders to attempt to force through transformative change on their own. This, Laskos and Tsakalotos argue, is the lesson to be learned from the Greek town squares, from Occupy, from the Arab Spring, from the Make Poverty History intiative of 2005, and the energy the grassroots Radical Independence movement has injected into the campaign for Scottish independence. Such solidarity initiatives not only help effect change, but by modelling new democratic structures they demonstrate to previously disaffected citizens that politics can be a genuinely participative process with transformative possibilities.

As Laskos and Tsakalotos concede, Syriza has a long and hard road to travel before it can bring about substantive change in Greece, let alone the rest of Europe. But the popular support it has won in just a few years, through the simple act of engaging with and learning from popular movements initiated by people who would not ordinarily consider themselves as being ‘political’, perhaps lights a way forward for a left despairing of how to begin to see a way of turning Europe to a more affirmative path.

Syriza’s achievement thus far, perhaps, consists in the recognition that the left is a movement, not a party, and that the popular support required to drive through a programme of radical change can only be engaged if people truly believe they have a stake in it.