The EU After the Euro Crisis. From the Death of Neoliberalism to Authoritarian Stabilization

For many leftists, the most recent global economic crisis brought with it a certain gratification. Even if emancipatory forces were not able to effect much in the last few years, one thing remained certain: we were right! However, it soon became evident that an economic crisis does not necessarily imply a political crisis. Slavoj Žižek hit the nail on the head in an interview: „Authoritarian capitalism is the victor in this crisis.” (, August 25th, 2011) That was particularly evident in the EU.

Strife has broken out in the European house. With the crisis of European integration under neoliberal auspices, the political bond also seems to have been broken. Nobody will take responsibility for Europe as a whole, but everyone wants to take control at the same time. Above all, Germany is on a collision course. But why? Even the founding fathers of the Europe of the euro, Hans-Dietrich Genscher and Helmut Kohl, have let loose with admonishments concerning Angela Merkel’s policies. Is Merkel’s government simply lacking a clear direction, as has been asserted in the opinion pages of daily newspapers? Or is she incompetent, as the parliamentary opposition alleges? To answer these questions, a glance at the history of Germany’s European policy is helpful.

Since the founding of the European Economic Community (EEC), a common currency has always been a goal of integration. The aim was always to stabilize trade relationships and advance the integration of the domestic market. Already in the mid-1970s, the EEC countries conducted half of their foreign trade with each other. In 1979, the European Monetary System was founded – under Germany’s conditions of stability. Despite cooperation, the EMS was characterized by the competition between different currencies. This was not a construction error; rather, there was no other possibility. It is in the nature of the hierarchy of currencies that the functions of money are distributed unequally.

Authoritarian Capitalism is the Victor of the Crisis

The Deutsche Mark was the leading currency and all other currencies were subordinate to it. Trade and credit relationships were conducted primarily in Deutsche Marks. But the central banks of EMS countries were also forced to orient to the model of the Bundesbank. As a consequence of the stability and strength of the Deutsche Mark, the EMS countries had to stabilize their currencies in relation to the Deutsche Mark. That led among other things to high interest rates, since that was the only way for other currencies to assert themselves against the Deutsche Mark.

However, that also meant that central banks had to deploy monetary and interest rate policy decisively in order to stabilize exchange rates. There was therefore a decreased room for maneuver for using monetary policy in the interest of domestic economic goals and boosting the economy through cheap money in order to raise the level of employment. That led to an increased competitive advantage for Germany. France’s unit labor costs worsened between 1978 and 1987 by 5 to 7 percent and in Italy by around 34 to 41 percent. This rift was also expressed in the increasing inequalities of trade balances. This dynamic intensified with the Single European Act, which in 1985 initiated the neoliberal course of European integration. The aim was to create a unified domestic market and to completely deregulate the flow of capital.

At the end of the 1980s, France made its approval of the completion of the domestic market conditional upon acceptance of its demand for the transfer of authority over monetary policy to the European level. At the end of February 1988, against the resistance of the German Ministry of Finance and the Bundesbank, The Federal Ministry of Foreign Affairs under Hans-Dietrich Genscher (FDP) advocated a European currency zone and the creation of a European Central Bank. With the “Wende” of 1989, these foreign policy considerations acquired greater importance: France would only agree to the annexation of the German Democratic Republic if Germany was prepared to give up the Deutsche Mark.

However, Germany accepted the project of a currency union only under certain conditions: the European monetary zone was to be a union of stability, the European currency as strong as the Deutsche Mark. The political conditions for this needed to be created. The Maastricht criteria and the Stability and Growth Pact negotiated later introduced limits to state debt that were intended to secure solidity for the new currency. Germany lent additional force to its notion of financial self-discipline by having a no-bail-out-clause included: European states should not help each other out of a jam. By contrast, France’s attempt to incorporate two convergence criteria concerning unemployment in the agreement was shot down.

This stabilization policy is still being pursued under German pressure. Once again, the EU reveals itself as a vehicle for the “implementation of that which could not otherwise be readily implemented” (Wolf-Dieter Narr). This can be seen in the exemplary cases of the so-called European Semester and the Euro-Plus Pact. The European Central Bank welcomes this in its monthly report from March of this year: countries must use the “historic opportunity”; in view of the Euro crisis, “the setting up of effective institutions and the exercise of
peer pressure” is required. The goal must be “broadening and strengthening the existing framework for fiscal and macroeconomic surveillance in the EU.”

Everybody Wants to Take the Reins at the Same Time

This is precisely what is being executed within the framework of the European Semester. With the European Rescue Package, the European Commission resolved to intervene in national budget planning. At the beginning of each year, the European Commission presents a growth report to the Council of the European Union and the European Parliament, and later issues economic policy recommendations for individual countries. These guidelines, which are aimed at increasing competition and “sustainable finances”, are supposed to be taken into account by member states during budget preparations. Thus, even without a European financial policy, budget debates have a European dimension. However, the point here is not so much the harmonization of economic policy. Competitiveness is to be supported and the Stability Pact strengthened, which has one goal above all else: the prevention of state debt.

The Euro-Plus Pact pitted Germany against France. It is an attempt to supplement the concessions made for the stabilization of the Euro with a tightening of competition and stability policy. The official goal of the pact is the promotion of competitiveness and employment, contributing to the long-term sustainability of state finances, and strengthening financial stability. To achieve this, the EU is supposed to intervene in the wage formation process: “To assess whether wages are evolving in line with productivity, unit labour costs (ULC) will be monitored over a period of time, by comparing with developments in other euro area countries and in the main comparable trading partners. For each country, ULCs will be assessed for the economy as a whole and for each major sector”. Wages should not endanger the competitiveness of each country, which amounts to a de facto wage reduction.

But the welfare state is also a target: the “sustainability of public finances” is to be guaranteed and improved through the long-term “sustainability of pensions, health care, and benefits”. The participating states are to make proposals and assume concrete national obligations every year. Measures remain the responsibility of each individual country; however the pact provides a catalogue of criteria – the benchmark being the most high-performance country. It seems likely that this will be Germany. Hans-Jürgen Urban of the metal trades union IG Metall described this “new institutional arrangement” as “a regime of authoritarian stability”.

This tightening of stability policy can be traced back to Germany’s initiative. Until the end of 2009, the German government played down the problem and embarked upon a collision course within Europe. Merkel lectured that Greece was not the only country with a deficit and that one should “not overstate” the problem. The economic affairs and finance ministers constantly pointed out that Germany would not pay the costs for the mismanagement of other states – and all this at a time where it was already obviously that Greece was de facto bankrupt. Even at the end of March, not even a month before the first rescue package, Merkel insisted upon postponing the decision until after the elections in the state of North Rhine-Westphalia.

Germany Loses Interest in the EU

Germany could not keep holding out. But even after the first rescue package was passed, Germany threatened with a stop to all aid and demanded punitive interest payments instead of credit at reduced interest rates as proposed by the ECB. Merkel even advocated revoking the voting rights within Europe for countries exceeding deficit limits. In the case of rescuing the euro, Germany sought escalation rather than compromise. At the moment, Germany is blocking all demands for the introduction of Eurobonds. The question remains as to why Germany is pursuing this course. During the introduction of the euro, the situation was different. Out of its own self-interest, Germany took on an increased responsibility for Europe – in order to profit economically in the future.

The thesis that all this can be traced back to economic causes is rather plausible. Thus, the New York Times of July 18th, 2011 notes that as a result of the debt crisis and austerity programs, many EU countries are stagnating in recession or plunging deeper into crisis. As a result, “Germany is increasingly deploying its money and energy outside the euro zone to fuel its robust growth.” The economic relevance of the euro zone is declining for Germany – with important political consequences for Germany’s European policy: “As Germany becomes less dependent on euro zone markets, there are signs that it is becoming stricter with its ailing partners, like Greece, Italy and Portugal, adding to the pressures already straining European unity.”

It is still the case that 40.9% of Germany’s exports are to other euro zone countries, but of greater interest are the growing exports to countries outside of the euro zone since the introduction of the euro (Süddeutsche Zeitung, September 9th, 2011). Between the introduction of the euro in 1999 and the year 2010, the export to euro countries rose by 5%. However, during the same period of time, Germany’s global exports rose by 6.5%. The importance of the euro zone for German exports thus sank from 46% to 41%. By comparison, the importance of trade with countries outside of the euro zone rose from 54% to 59% (heute journal, September 8th, 2011). This trend will continue as a result of the course of austerity and recession in Europe.

Is that sufficient as a reason for Germany’s political course? No, definitely not. Ultimately, capital itself is split. Whereas the head of the Confederation of German Employers’ Associations (BDA), Dieter Hundt, vociferously opposed Eurobonds (Die Welt, August 29th, 2011) and the former Federation of German Industries (BDI) head Hans-Olaf Henkel even strongly advocates a splitting up of the euro zone (analyse und kritik number 556), the current BDI President Hans-Peter Keitel knows that Germany has to make sacrifices to save the Euro: “The BDI is a vehement advocate of European integration. We need a stable community. For this, the euro is indispensable…we want to move forward and invest in Europe, in the euro – even if it causes us pain”. (Berliner Zeitung, August 29th, 2011)

In addition to these conflicts within capital, there are further points which lead to governmental policy being contradictory. At the latest since the failure of the EU Constitution due to its rejection by the referenda in France and the Netherlands, Europe lacks a political project. The economic integration process cannot be placed alongside a positive political project. The goal of a political union still vaguely exists, but there is no conception of what this might look like. What remains is the well-trodden path of stabilization policy.

Furthermore, crises are always phases in which two processes occur in parallel. On the one hand, every country attempts to emerge as unscathed as possible from the crisis – even at the cost of other countries or the dominant rules of the game such as the stability pact. On the other hand, crises are also phases in which the opportunity is used to impose national interests. That can be seen above all in the examples of Germany and France. Whereas Germany attempts to press ahead with the policy of stabilization, France is attempting to establish its long-standing cause of a European system of economic governance – until now with only moderate success.

The EU is Lacking a Positive Political Project

What also cannot be neglected is the populist aspect that also contributes to the contradictory activity of the German government. Governmental policy always aims to conceal the class character of politics – especially during a crisis. That is why an appeal is issued to the national collective: “We Germans have been living above our means”. By the same token, a large part of the German population feels like it has been shafted by “Greece”. But this racist resentment is not solely caused by German political elites; it is deeply rooted in the population. Because the CDU does not want to lose the next election, on the one hand it plays to the racist discourse about “bankrupt countries” while at the same time defending rescue measures as being without alternative.

This complicated situation constitutes the background for the debate around European policy. The political elite is not clear on the question of whether increased responsibility for Europe or a confrontational strategy is better for Germany. This constellation is also present in the conflict concerning Eurobonds. If one assumes that European bonds – like the euro – will be introduced against German resistance, there remains solely the question of how Germany will impose its interests in the concrete implementation. Then it will also be revealed which political forces have managed to win the upper hand.

Translation: (Thanks a lot!)

The original German version of this article appeared in the September 16th, 2011 issue of analyse & kritik – zeitung für linke debatte und praxis