July 2011        

The time is long overdue for the people to have their say

As the EU “project” becomes less and less credible, its supporters are more and more being forced to adopt a variant of an old Groucho Marx stance. When it was clear that what he was saying was untrue, Groucho would brazenly ask, “Who are you going to believe—me or your own eyes?”
     The euro as a reserve currency is designed to act as a means of payment and hoarding in the world market. For it to be able to act as world money it has relied on three elements: firstly, an independent central bank in full command of monetary policy; secondly, fiscal stringency imposed through the Growth and Stability Pact; thirdly, relentless pressure on wages and labour conditions to ensure competitiveness for capital.
     This has resulted in an entrenched gap between core and periphery.
     The gap was bridged by huge capital flows from core to periphery, which took the form mostly of bank loans.
     In countries like Ireland and Greece, banks engaged in rapid expansion, thus adding further to debt. By the end of the 2000s Ireland, Greece, Portugal and the rest of the periphery had become enormously indebted—at home and abroad, privately and publicly.
     As the crisis deepened, the debt situation of the peripheral countries was made even worse as the cost of state intervention, partly to support banks and partly to sustain aggregate demand, soared, threatening to turn the debt crisis into a banking crisis that could potentially destroy the euro.
     To save the euro, policy has focused on saving the banks exposed to peripheral debt. Thus, the European Central Bank has advanced abundant and cheap liquidity to banks; in contrast, it has seen fit to advance only miserly doses of liquidity, at high interest rates, to states.
     At the same time, unprecedented austerity was imposed on peripheral countries, welfare provision was cut, and labour conditions worsened. The costs of the crisis were thus shifted onto the shoulders of working people as far as possible.
     By early 2011 the class content of the policy for rescuing the euro had become crystal-clear: firstly, to defend the interests of financial capital by protecting bondholders and other lenders; secondly, to promote the interests of industrial capital by crushing labour costs.
     Imperial interests at the heart of the euro zone have become transparent. These policies have been dictated by Germany, the main beneficiary of the euro. German ascendancy is now stronger than at any time in the history of the European Union. If the current policy to rescue the euro succeeds, Germany will emerge as the undisputed master of the euro zone and the dominant force throughout Europe.
     On the other hand, countries like Ireland, Greece and Portugal will stagnate, with high rates of unemployment and worsening income distribution. However, a narrow segment of financial and industrial capital within the periphery will probably continue to do well.
     There has been a glaring lack of an effective national democratic opposition in this country to the social and imperial transformation now taking place in Europe. Politics is dominated by the ideology of “Europeanism,” which today is dominated by a fear of disrupting the monetary union. Hence illusions even among some socialists and republicans that the euro zone could be reformed in the interests of working people, creating a “good euro.”
     “Good euro” illusions call for the European Central Bank to acquire much of the existing debt of peripheral countries and also to finance fresh borrowing by euro-zone states in the future. It is further suggested that the issuing of Eurobonds—which is already undertaken by the European Financial Stabilisation Facility to obtain funds for lending to countries in difficulties—should be expanded to meet the regular lending needs of euro-zone states.
     The ECB might possess an enormous ability to act as lender of last resort, i.e. to advance liquidity to banks and states; but lender of last resort has nothing to do with handling bad debts, i.e. solvency. Guaranteeing solvency is a matter for finance ministries, which must mobilise tax income to make good the losses represented by bad debts. In the context of Europe this means drawing on the tax income of countries like Germany, and therefore imposing burdens on German working people. An unlikely scenario!
     The ECB has no power to make good the foolish lending that European banks indulged in during the 2000s. Recapitalising the banks means committing tax revenue, a step that would have profound class and power implications.
     The current policy of imposing austerity leads to recession, which worsens the problem of debt. The long-term prognosis for Ireland, Greece and Portugal is for low growth and increasing difficulties in servicing the public debt, leading to almost inevitable restructuring or even default.
     The immediate focus of a radical alternative in Ireland, and indeed in other peripheral countries, must be to confront the burden of public and private debt.
     Public debt in particular has to be renegotiated with the aim of writing off its greater part. To this purpose there should be debtor-led default. There are certainly costs to defaulting and unilaterally writing off debt, including being shut out of financial markets for a period and paying higher interest in the future. But even mainstream literature points out that—to its surprise—these costs do not seem to be very substantial.
     Government decisions of fundamental importance for the future of this country for generations to come, such as the disastrous bank guarantee and more recently the EU-ECB-IMF “bail-out,” were made without reference to the citizens of the country.
     The time is long overdue for the people to have their say.

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