Mar 25 2019

RESISTING THE LIBERAL ORDER

 

Murdo Ritchie, who has been an advocate of Leave vote on this blog, continues with his review of The Left Case Against the EU by Costas Lapavistas

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Costas Lapavistas

A REVIEW OF THE THE LEFT CASE AGAINST THE EU BY COSTAS LAPAVISTAS

“You can vote for any government you like in Europe pretty much. But the policies that thegovernment will have to follow and apply with regard to the economy will be the same, if you’re inthe European Union.”1 Marxist monetary economist Costas Lapavitsas is scathing about the damagethe neoliberal order has brought across Europe. He is also angry that so many on the “left” have
allied themselves with these forces. He is especially angry about the Greek Prime Minister Alexis Tsipras of SYRIZA who he accuses of subverting the entire movement by turning a vote against austerity into policies to accept them. He is also scathing about Yanis Varoufakis who he believestook unnecessary risks during the negotiations with the European Central Bank and now promotes
an unworkable strategy regarding the European Union and the European Monetary Union.

“For the European left it is an article of faith that the European Monetary Union and the EU shouldbe defended in the name of internationalism, while being critical of their neoliberal policies …Nothing could be more misleading than this perspective. The EU and the EMU are not a neutral setof governing bodies, institutions and practices that could potentially serve any socio-political forces, parties or government with any political agenda … Rather they are structured in the interests ofcapital against labour. They have become gradually more geared to serving the economic advantage, and thereby the international agenda, of a particular dominant class, above all, German industrial export capitalists … The EU and EMU are beyond reform, and probably beyond major
structural reform altogether.” (p11)2

The governing doctrine of the European Economic Community, European Community and finallythe European Union since the Rome Treaty has been the Four Freedoms. These are the Freedom ofMovement of Capital, Labour, Goods and Services. In many ways they are a re-statement of thetenets of classical liberalism; the outlook of the liberal bourgeoisie. During the post war period,Cold War military needs of production and ready supply of foodstuffs dominated the economicthinking of the EU and its predecessors and the Four Freedoms became a background decoration.

However, a unique convergence of events occurred during the mid-eighties until the mid-nineties.The Commission under Jacques Delors began in 1985. He had as Finance Minister in France earlier subverted the Mitterand plan by imposing austerity policies –le tournant de rigour. With Margaret Thatcher’s appointee as Commissioner Lord Cockfield work commenced to introduce the Single
market under the Single European Act. As this was happening the Berlin Wall fell and, later, the Soviet Union. This meant that West Germany could now be united with the East. Overnight Germany became the largest and richest country in the European Community. An enormous reservoir of highly skilled labour at low cost became available to the German economy. But its
presence brought enormous suffering on the peoples of Eastern Europe. Greater codification ofthese changes took place under the Maastricht Treaty that brought the commitment to monetary union to the core of the EU’s policies. The Four Freedoms lay dormant while the Cold War wasfought; it was not until the collapse of the Soviet Union and the Maastricht Treaty of 1992 before
they grew in importance. They became the rallying point for the European business elite. It wasalso the launch of the EMU –the Euro.

Most writers on European unification now recognise the importance of an essay written by the classical liberal economist Friedrich von Hayek as outlining the inevitability of how interstate federalism brings about a form of the liberal order. “A federal union, in short would inevitably restrict the ability of each member state independently to intervene in the sphere of the economy, thus bolstering ‘liberalism’”(p15). Of course, one of its goals is less government all round. But while the private sector is preferred over the public, market based solutions are sought, and competition is heralded as a universal solution to almost every economic difficulty, this has not reduced the size, power or influence of the government. Instead the EU has become a juggernaut of unaccountable institutionsthat bypass the scrutiny found in national parliaments. The “EU has created mountains of legislature –the acquis communautaire- through various Treaties, Regulations, Directives and Decisions, the function of which has generally to promote neo-liberalism.”(p19)

Neoliberalism “has four distinguishing features: the financialisation of production, ideology and the state; the international integration of production (‘globalisation’); a prominent role for foreign capital and the stabilisation of the balance-of-payments and a macroeconomic policy mix based on contractionary fiscal and monetary policies and inflation targeting with the manipulation of interest rates as the main policy tool.”3 Yet as a monetary economist, Lapavitsas is aware that “contemporary money poses a major conundrum for neoliberal ideology. Since the 1970s, neoliberal government policy has systematically promoted the de-regulation of markets while favouring the private and the individual over the social and the collective. But when it comes to the monetary sphere, the direction of neoliberal evolution has been unlike any other area of the economy. For more than four decades the final means of payment and hoarding has been fiat money issued by the state with no obligatory convertibility into anything other than itself. The public has held sway over the private.”(p23) Although most money is credit, it rests heavily on the state to engineer neoliberal policy.

It is, therefore, hardly surprising that it “is the main centres of power in the [UK], economic power in the first instance; in other words the City of London, the financial interest; but also industrial and commercial capital, particularly big industrial, commercial capital with extensive expert (export?) interests. Those core elements of British capital, do not want Brexit under any circumstances. I say this because a lot of people on the left are hopelessly confused on this. The City of London detests Brexit. It doesn’t want it. Big business, corporations and so on, don’t want Brexit by-and-large.”4

Bogged down by the problems and costs of unification, the rising power of Germany was slow to assert itself. Yet it advanced relentlessly. The economy has a large competitive industrial base based on automobiles, chemicals and machine tools. Export surpluses and international lending based on its industrial strength give it the necessary thrust to assert its hegemony. German capitalism has not followed the same path of financialisation as the UK or the USA. It has protected its industrial base by manipulating the exchange rate to protect exports. Consequently, its service sector has not grown as fast. “The distinctive feature of German financialisation is the maintenance of a strong industrial base in spite of weak aggregate investment.” (p41) German non-financial capital is unwilling to invest its profits, consequently it has large amounts of liquid capital for transactions and lending. Centralised wage bargaining and bank lending as opposed to stock market financing has allowed it to develop a longer term perspective.

“The attainment of German unity in 1990, in the teeth of French opposition marked not so much the end of a honeymoon as the first stage of a breakdown of a marriage of convenience that had lasted for forty years,” wrote Connor Cruise O’Brien, “The first major symbolic act … was the re-interment of the bones of Frederick the Great in Berlin. … [This] was merely symbolic of the new style, whose first definitive manifestation in practical politics came over Croatia and Slovenia. The rest of the Community was against, and the United States strongly so. Faced with such an apparently powerful ‘Western consensus’ the pre-1990 Bundesrepublik would have respectfully backed away. The new united Germany simply ignored the United States and turned the Community round. Germany recognised the independence of Croatia and Slovenia and the rest of the Community followed suit within a few days.”5

Financialisation required downward pressures on wages. Re-unification devastated the East’s economy with an enormous mass of workers suddenly becoming available. This brought downward pressures across the entire economy. Ordoliberalism, the German form of liberalism, differs from traditional anglo-saxon liberalism by mixing market mechanisms with a strong state to ensure economic freedom and social cohesion. Its “is rooted in legal theory and seeks order through integral co-ordination of competition by the state.”(p46) However, it has not been increased productivity but wage suppression that has allowed the boom in exports to occur.

EMU allowed Germany to implement a neo-mercantilist policy of keeping domestic demand weak while growing using external surpluses. It brought in demand while placing France and Italy into deficit and facing pressures on their current accounts and lack of competitiveness.

His description of German ascendancy concentrates on growth through wage suppression. Moreover, it reflects Lapavitsas’ profession as a monetary economist. It does not describe “normal” processes by which value is sucked from the weaker less technologically advanced countries by both the production process and the monetary system. Indeed he addresses the proximate causes of recession and crisis through a monetary framework. He does not go to the ultimate causes in the falling rates of profit that can be found in Europe. Indeed for a case against the European Union there is only a limited attempt to communicate how the institutions behave so that it is possible to state they are essentially irreformable. Indeed he fails to examine the foreign relations of the EU or the working of the Euro outside the Eurozone. He does not explain the EU’s imperialist practices. Carchedi is more forthright, “[S]imilarly to the dollar, the Euro will be accepted as a world currency only if backed by the military power needed to conquer and subject to EU imperialism”6

Nevertheless, Lapavitsas’ strength is writing about the Eurozone Crisis that affected Greece, but also Spain, Portugal and Ireland, however it is Greece he concentrates upon. “The Eurozone ‘sudden stop’ crisis resulted from the profound imbalances that had built up in the EMU in the 2000s. By late 2009 it was clear that the huge volumes of public debt in Greece but also of private debt in Spain and elsewhere would be impossible to sustain through regular access to the international markets. In early 2010 private lenders (typically German and French) took fright and began sharply to reverse the flow of loanable capital to the Southern periphery, seeking instead to have their older loans paid off. In particular private bank lending by the core to the periphery of the Eurozone dried up.” (p69)

The establishment of the Euro was wanted by the French as a means of keeping an assertive Germany under control by external treaties – a route it had pursued from the Coal and Steel Community in the 1940s. The European Central Bank is modelled on the Bundesbank and sets as its sole goal price stability. Its policies are in line with the so-called “Washington Consensus” associated with Structural Adjustment Programmes imposed on many third world countries. Its approach was that there would be no write-off of debt, even though the International Monetary Fund believed some was required, fiscal stability would come through austerity cuts to public spending, liquidity would be provided to take interest rates to zero, and various financial packages were made available until the countries could access finance on the international markets. Essentially this was a strategy to save foreign banks.

The ECB’s sole policy makes it drastically different from the Federal Reserve in the USA which must also work to increase levels of employment. Early money convergence criteria saw the Deutschmark as the only currency they did not devalue. Later, under the Euro, this meant that the weaker, less high tech, less export oriented economies had a real exchange rate that was too high for their economies. This introduced wage suppression and factory closures as they failed to compete. Massive unemployment resulted alongside insufficient labour in the dominant sectors of the dominant countries, principally Germany, Austria, Netherlands, and Sweden. It also sucks wealth out of these economies. Financial crises are the result. “Financial crises have always caused transfers of owners and power to those who keep their own assets intact and are in a position to create credit … Western and Japanese corporations are the big winners … The combination of massive devaluation ; IMF pushed financial liberalisation may even precipitate the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world. … One recalls the statement attributed to Andrew Mellon ‘In a depression assets return to their rightful owners.’”7

Further loans only create more problems. “[T]he bailout funds eventually changed the compositionof Greek public debt away from bonds governed by Greek law and toward bilateral or multilateralstate debt, governed by international law.” (p95) The bulk of creditors set it in English law makingthe London law courts the arena for dispute settlement. The bailouts failed to improve the country’s competitiveness and improve the situation for most Greeks. Essentially not a single economic orsocial decision could be made without the permission of the Troika. Greek sovereignty was being taken away.

“Its not the Germans or the French or anybody else who kept the Greeks, the SYRIZA government, in the European Union and the Monetary Union against the wishes of the Greek people. It’s actually the Greek elite that did that … [T]he Greek ruling class that could never contemplate leaving the Monetary Union, because they knew that if the Monetary Union was left, all the structures of
power, social, economic and other parts, would be put in doubt. They did not know what would follow from that, they were very scared by that … and they wanted to avoid it at all costs … SYRIZA complied with them, served their interests fully, and avoided that possibility and eventuality at all costs.”8

The referendum on the bailout terms took place in 2015 and separated the country on class lines. The bourgeoisie and the middle classes were desperate to accept the terms, while the working class were strident in saying No. When the No vote won instead of preparing to build a new sovereign currency and exit the Euro and the EU, Tsipras surrendered and accepted all the creditors’
demands. “[A]part from being a shameful event it shows precisely the strategy that the European left must not adopt. The left must not attempt to implement policies … while also attempting to stay in the EMU. There can be no disobedience from within, no ‘creative ambiguity’ in negotiations, no attempt to force the mechanisms of EMU to relent by relying on democratic authority. This is a hopeless path that leads to certain defeat. A left government must prepare for rupture with the EMU and for a direct challenge and even rejection of the EU.”(pp111-112)

It is essential for working people to reclaim popular sovereignty and democracy because this what the ruling classes do not want. “To establish popular sovereignty and democracy, working people must necessarily contest the national levers of power –the communal mechanisms, the institutions of local authority, the local and national electoral process, the mass media, the executive machinery of the state, and so on. By contesting power across a range of national institutions workers would be seeking the position of a ruling class in opposition to the ruling capitalist bloc. They would be striving to constitute the ‘nation.’”(p130)

The direct experience of the Greek, Irish, Portuguese and Spanish people make clear how the EU is not a harmless multi-national treaty base organisation of equals. It is a class based mechanism designed to maintain the power of powerful multinationals across Europe. Whatever the strengths and weaknesses of this text, it precisely outlines how the EU conducts itself, has become way of
expressing German led imperialist hegemony and that it is an unreformable institution. It should not be given any support in even the smallest way.

NOTES

1. The Left Case Against the European Union (Part Two). Real News Network interview with Costas Lapavitsas, Thursday, January 17th 2019.
2. All page numbers cite the written reviewed text.
3. p56, Alfredo Saad-Filho & Lecio Moraise Neo-liberalism Versus Democracy in Brazil, Pluto Press, 2018.
4. Class Struggle Over Brexit-Lapavitsas and Jay. Real News Network interview with Costas Lapavitsas, Thursday, March 14th 2019.
5. pp80-81, Connor Cruise O’Brien, Promising A Chimera, in The Question of Europe, edited by Peter Gowan & Perry Anderson, Verso, 1997. Originally in The Times Literary Supplement 13 March 1992
6. p190, Guglielmo Carchedi, For Another Europe. A Class Analysis of European Integration, Verso, 2001.
7. E. Toussaint, Your Money or Your Life. The Tyranny of Global Finance, Pluto Press 2003 cited David Harvey, A Brief History of Neoliberalism, Oxford University Press, 2010 pp162-163.
8. The Left Case Against the European Union (Part One). Real News Network interview with Costas Lapavitsas, Thursday, January 17th 2019.

 

The Left Case Against the EU published by Polity Press, 2019

 

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also see:-

WHAT VOTING LEAVE HAS REVEALED

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