April 2013        

Financialisation, the euro, and the crisis

Costas Lapavitsas et al., Crisis in the Eurozone (London and New York: Verso, 2012; ISBN 978-1-84467-969-0).

Building on his work as a leading member of the renowned Research on Money and Finance group, Costas Lapavitsas, a leftist political economist, has written a significant book on the euro crisis. Many of his ideas are interesting and worth considering. For example, he has argued that the euro-zone crisis is a crisis of financialisation, which he maintains (like the Monthly Review school) is a new stage of contemporary capitalism.

     The arguments have been well rehearsed in Socialist Voice since 2008 and basically centre on the notion that the rise of finance and the sphere of circulation have expanded in recent decades, with a more sluggish growth in the sphere of production.
     This is turn has altered the conduct of the basic agents of capital accumulation, whether they be transnationals, banks, or workers. Financialisation, Lapavitsas maintains, is a new mechanism of profit-extraction from the sphere of circulation (profit derived from income flows and money stock). An interesting and perhaps controversial feature of his thesis is that in mature financialisation, non-financial firms show evidence of a growing detachment from banks.
     There is, in effect, the ascendancy of self-finance among monopoly-capitalist firms. This is counter-intuitive to the more traditional interpretation of “finance capital.” Thus, big monopoly capital has actually been relatively independent of the banks, Lapavitsas claims, and instead has relied on internal funds, such as equities and securities, to foster accumulation.
     This is true, it seems, of both the United States and Germany. The latter case is particularly interesting, as the German economy has historically been a bank-based system with a high degree of infusion between the banking sector and capitalist firms. When we move to banks themselves, in these circumstances they are clearly making less profit by lending to non-financials. They have therefore had to find other avenues, which have been principally through open-market transactions (lending to other banks) or making profits by turning to workers through increased lending.
     Lending to the latter, however, has not been for normal consumption purposes (Lapavitsas maintains that borrowing to consume because wages are low is not accurate): rather the lending has been mortgage lending for houses. Again national differences are important; in Germany, while there was an increase in inter-bank lending, housing loans have not increased dramatically. Germany, therefore, has financialisation in a different way from the United States or Britain.
     Turning to the EU, financialisation is seen to work through the role of the common currency. The euro acts as world money or as a reserve currency to compete against the dollar and to enable European big business and banks to operate in the market with extra strength. The euro also acts as a domestic monetary standard within the euro zone.
     This dual function, between the international and the domestic, is seen by Lapavitsas to create a clash and to result in crisis. Within the European Monetary Union the international role for the euro has to be squeezed out, as otherwise it creates financial instability. For this to happen there would need to be no systematic divergences in inflation rates, no systematic imbalance in current accounts, and therefore no violent shifts in capital flows.
     But all three of these conditions have been negated, as seen by the diverging trajectories between the core and the periphery, for example differences in competitiveness and current-account balances. (See “Blame the EU,” Socialist Voice, June 2010.)
     While the thesis is significant in shedding light on the specific institutional features of the euro crisis, it is not clear whether it extends far enough into explaining the underlying reasons for the crisis. The crisis affecting the euro zone is a product of capitalist organisation of the economy and not, in totality, a crisis of the euro—which is a proximate cause.
     If the euro collapsed and EMU states resorted to independent monetary and currency structures, the problems affecting many of these states would not dissipate. The euro problem arises out of the slump in global capitalism. The accumulation of debt, whether in the state, banking, the private sector, or households, is imposing downward pressure on the ability of capitalist economies to turn around quickly, even after cutting jobs, shutting businesses and ending investment in an attempt to reduce the cost of capital. The crisis is most pronounced in the “periphery” because these countries have historically had weaker capitalist economies.
     There is also a problem with the Lapavitsas argument about austerity. Like many on the left, the book argues that European austerity is counterproductive. Cut-backs in public spending will mean a longer, deeper recession, will worsen the burden of debt, will further imperil banks, and may soon spell the end of monetary union itself. While austerity is certainly not unproblematic for capitalism, the process can reduce the costs of production to a point where the possibilities for profitable investment are restored.
     Certainly, this end goal could take years to occur, but the indicators so far suggest that some restoration of profitability is taking place: the current accounts of the periphery are nearly in balance, and the exports of Ireland and Greece, for example, have risen significantly (because of a significant decline in unit labour costs).
     Austerity is not some misguided notion undertaken by ill-informed politicians but a class project designed to restore profitable accumulation.

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