skip to main | skip to sidebar
Global Labour Column Archive
  • HOME
    • ABOUT US
    • GLC ANTHOLOGIES
  • LINKS
    • RECOMMENDED SITES
    • DISCLAIMER
  • AUTHORS
  • GLOBAL BOARD
  • CONTACT
  • GLU
  • ICDD
  • Follow Us on Twitter
  • Tuesday, May 3, 2011

    European Integration at the Crossroads: Deepening or Disintegration?

    Elmar Altvater
    Birgit Mahnkopf
    Are the member states of the Eurozone responsible for the Euro crisis the ones having problems servicing their debt? The majority of people in Europe believe that this is the case. Therefore, indebted countries like Greece, Portugal and Ireland must subject themselves to a brutal austerity program of savage cuts in welfare spending, diminishing public sector wages, and further privatisation measures in education, health care and in the pension system. In short, the social and cultural rights of trade unions and citizens are being trampled upon, triggering on the one hand applause and on the other social protest.
    The austerity imposed is driven by an attempt to free up funds of the primary budget that could then be used in the secondary budget to service the debt and bail out financial institutions on the brink of bankruptcy that are defined as being ‘systemically relevant’. However, the system, i.e. the project of European monetary integration, can only be saved if there is a fundamental reversal in political direction. There are only two paths we can take right now, and they lead in opposite directions: one towards the disintegration of the Eurozone, another towards the strengthening of European statehood. Conservative and neoliberal economists and politicians are playing with the idea of regrouping the monetary union into two (or more) tiers. On one side a strong, monetarily and financially integrated ‘Core Europe’, on the other side the countries that shall be excluded from the Eurozone, with their own national currencies. Thus it would be Germany, France and a few others that would continue using the Euro, but Greece might have to reintroduce the Drachma, Portugal the Escudo, Spain the Peseta and Italy the Lira.
     
    Splitting up the Eurozone would create another area of economic chaos and social and political turmoil. The new currencies that would replace the Euro would most likely suffer an immediate drop in value. Devaluation would increase the value of Euro-denominated debts (which therefore also need to be serviced in Euros). Rating agencies would downgrade the countries’ credit rating. While devaluation would increase monetary competitiveness, this advantage is unlikely to be very useful if real competitiveness does not increase as well. The relevant export industries are missing here.
     
    To the extent that the new currencies are devalued, the remaining Euro will appreciate. This revaluation would limit the competitiveness of the so-called ‘real economy’ in the Eurozone’s member states and encourage financial capital to speculate. What sort of equilibrium would then be achieved after a period of economic turbulence is impossible to predict.
     
    The other path leads towards deeper political integration. The minimal rules on government debt set by the Maastricht Treaty are obviously insufficient to prevent Europe-wide imbalances and crises. These are inevitable if countries like Germany reduce unit labour costs at the same time as they are increasing in other European countries. The current system of crisis management requires indebted countries to adjust, but not surplus countries. The structural flaw that already contributed to the collapse of the Bretton Woods system in the 1970s is being replicated in the Eurozone. The steps required to correct this flaw would be as follows: on the income side of state budgets, develop rules for fiscal policy and for tax competition, and balancing mechanisms for countries with current account deficits and surpluses, respectively. If the Eurozone is to have a future, it is European statehood that needs to be strengthened, not the market.
     
    Today the unequal distribution of income and wealth in Europe together with the rating agencies’ ratings generate large interest rate differentials between indebted and ‘wealthy’ countries. Within countries this applies only to owners of money wealth, not to waged workers. In debtor countries the results are negative capital account balances; as long as the current account generates no or only small surpluses these can only be resolved through inflows of new capital. The compulsion to generate a current account surplus is instrumentalized to justify austerity measures, i.e. cutbacks in wages and social spending. People affected by these policies do not accept this justification, and are taking to the streets in loud and determined protest.
     
    However, it has to be understood that money is always a mutual and contradictory social relationship – this is true also on European and global financial markets. Where there are debtors there are also creditors, and if deficits have to be cut, surpluses cannot grow. Therefore, current public debt levels can not only be blamed on ‘loose’ fiscal and budget policies in today’s crisis-ridden Eurozone countries. Responsibility also lies with a policy of redistribution that encourages the formation of large private asset holdings. Furthermore, we cannot ignore the fact that public debts in the Eurozone are so high mostly due to the giant bailouts of private banks and funds. That states have to pay ever more money to service their debt has a flipside: private financial market actors have to pay ever less. The European Central Bank clearly showed this in its expressively titled report “The Janus-Headed Salvation”: After the collapse of Lehman Brothers in September 2008, endangered banks were able to dump much of their worthless assets in publicly financed ‘bad banks’. In addition, their capital stocks were boosted from public funds, notably without governments asserting any kind of control over the now socialised banks’ business operations. States guaranteed the banks’ debts, as the latter were given almost unlimited access to cheap money from the central bank.
     
    One result of banks being saved by public funds is that the credit default risk of financial institutions is reduced while that of the public sector increases. The above mentioned ECB report refers to a “credit-risk transfer from the banking sector to the government”.
     
    Whenever debts are being rescheduled, governments have to pay correspondingly higher risk premiums, but to whom? To the very banks that were just recently bailed out of lots of cheap money by those governments, and – indirectly – to those owners of money capital who have invested into these banks and funds. In this they are assisted by the rating agencies that downgrade the ‘quality’ of government bonds because of their increasing debt levels. This is a profound encroachment on democratic prerogatives. A lower rating makes it more expensive to borrow and to reschedule debt and it allows private creditors to collect higher interest rates. We are basically dealing with a self-fulfilling prophecy here: predictions of an impending debt default lead to more expensive debt-servicing, which in turn increases the likelihood of this default: Rating agencies have to be subjected to democratic control. Against this background, doubts about the legitimacy of public debt come up in countries such as Greece.
     
    To be sure, the reduction of debts and of monetary wealth can also be achieved through inflation. The inflation feared by many has already been rearing its head in the form of increasing commodity and gold prices. The causes are complex, and are not exclusively related to financial and currency markets, but also to commodity and energy markets, and they are subject to catastrophic developments such as the explosion of the oil-platform Deepwater Horizon in the Gulf of Mexico, the nuclear meltdown of Fukushima, or the conflicts in the Arab world. Inflation would drastically increase distributional inequality. Central banks fight the so-called secondary effects of price increases. How? By preventing wage increases with a tight monetary policy. This strategy is not addressing the root causes of inflation thus it is unacceptable for trade unions.
     
    The reasonable demand to reduce public debt needs to be complemented by demanding a corresponding reduction in monetary wealth, either by way of a ‘haircut’, regulated by insolvency rules, i.e. getting creditors to play their part in the reduction of debt, or through the effective taxation of wealth, or a combination of both. Wealth taxes have to be reintroduced in all European countries, just as the amount of taxes paid by corporations (especially corporate income taxes) in general will have to go up: by way of a European convergence of the taxable base and tax rates, and through tougher controls of tax havens, tax evasion and money laundering. Insolvency rules are also important for an orderly debt cancellation. Especially in the case of sovereign debts, this is necessary for social and political peace to be secured.

    Download this article as pdf

    Elmar Altvater is a retired Professor of International Political Economy at the Free University of Berlin, who has written extensively on political economy, ecology, globalisation and financial markets. He has been an active trade unionist for many years.
    Birgit Mahnkopf is Professor of European Politics at the Berlin School of Economics and Law. She has published extensively on globalisation, the informal economy, industrial relations and European politics. Both are members of the Academic Council of ATTAC Germany.

    This paper is based on a declaration of the Scientific Council of Attac Germany from March 2011 on the crisis of the Euro and its political, economic, and social consequences. The authors participated in the writing of the declaration; they are responsible for the modifications which have been made. The complete version can be found in German and English language on the website of ATTAC Germany: http://www.attac-netzwerk.de/das-netzwerk/wissenschaftlicher-beirat.

    Posted in: Financial Crisis,Financial Regulation
    Email This BlogThis! Share to X Share to Facebook
    Newer Post Older Post Home

    0 Comments:

    Post a Comment

    Share

    Twitter Facebook Stumbleupon Favorites More

    Subscribe to the Mailing List

    If you want to subscribe to the GLC mailing list, please click here or send an empty email to "List-GLColumn-subscribe@global-labour-university.org"

    Contribute to the GLC

    If you want to contribute to the Global Labour Column, please read here the Guidelines for Contributions

    Languages






    Donations

    More Info

    Popular Posts

      T-Shirt Economics: Labour in the Imperialist World Economy
      Chinese Construction Companies in Africa: A Challenge for Trade Unions
      Ruskin, the trade union college, is under siege

    TAGS

    Trade Unions Financial Crisis Workers' rights Globalisation Neoliberalism Labour Market Collective Bargaining Decent Work Inequality Labour Standards Wage Social Movements Europe Development Strategies Struggle Progressive alliances Strike Growth Labour Labour rights Financial Market Tax Financial Regulation Social Security Public Investment Social Democracy South Africa Economic Democracy Fiscal Space Germany Informal Economy Corporate Governance Freedom of Association ILO Minimum Wage United States Competitiveness Human Rights Labour Movements Trade Union Austerity Central Bank Environment Free Trade Free Trade Agreement Greece Labour Movement Social Protection State Funding Transnational Solidarity Unemployment Vietnam Workers’ Rights Crowd Work Domestic Workers Economic Crisis Education Employment Forced Labour France Global Warming Labour Market Flexibility Labour Statistics Migration National Minimum Wage Public Works Programmes Trade Union Divisions Workers' unity Agriculture Brexit Care Work Construction Sector Cooperatives Crisis Economic Alternatives Economic Reform Farmworkers Financialisation Globalization Indonesia Just Transition Labour Process Liberalisation Macroeconomic Policy NUM Nationalism Occupational Health Organising Outsourcing Portugal Privatisation Refugees Regulation Reserve Army of Labour Right to strike Social Dialogue Social Justice Solidarity Tax Evasion Welfare State Workers Rights Workers’ Organisations AMCU Africa Alternative Sources of Power Anti-privatisation Anti-union Violence Automobiles Brazil Business and Human Rights Capital Flight Capitalism Chinese Investment Climate Change Collectivity Colombia Community Monitoring Conference Corporate Transparency Coup Cuba Debt Restructuring Decriminalisation Demand Democracy Developed and Developing Countries Development Digitisation Disciplining of the superfluous labour force Domestic Work Economic Development Egypt Elections Entrepreneurship Eurozone Crisis Executive Compensation Factory Occupations Fair Trade Farm Workers Feminism Finance Financial Crises Financial Innovation Financial crisis. Fiscal Austerity Food Sovereignty G20 Gender Gentrification Global Health Global Multiplier Great Depression Great Recession Hawkers Health Hotel Housekeepers Human Rights due Diligence India Industrial Relations Informal Employment Institutions International Aid Policy International Framework Agreements Investment Partnership (TTIP) Investment Partnerships Iran Korean Shipbuilding Industry Kuznets Labor Labour Broking Labour Income Share Labour Markets Labour Reform Leadership Left Legislation Loi Travail Macroeconomic Performance Management Manufacturing Marshall Plan Metal Workers Migrant Domestic Workers Militarised Capitalism Mineworkers NASVI National Health Service Neolibaralism Networking New Progressive Consensus Online Campaigning Options for the Euro Area Paternalism Patriarchy Pensions Performance Standards Political Alliances Poverty Reduction Precariousness Prison Labour Prisoners Private Plantations Progressive Tax Reform Protectionism Protests Public Policy Quebec Racism Rank-and-File Member Redistribution Regulation of Labour Rent Seeking Rural Development Ruskin SEWA Securitization Sex Work Shadow Banking Shaft Stewards Social Audit Social Development Social Movement Social Transformation Solidarity Economy Spain Sportswear Industry State Stellenbosch Street Trading Street Vendors Strike Ban Strikes Structural Changes Supply Chains Swedish Model Tertiary Education Top Income Shares Tourism Trade Liberalisation Trade Misinvoicing Transatlantic Trade Transformation Transparency Transport Trump Tunsia Turkey Unfree Labour Union 4.0 Union Strategy Unions Universal Health Coverage (UHC) Voluntary Initiatives Wage Employment Wage Inequality Wage Share West Africa Wild Cat Strike Winelands Women Women’s Movement Workers` Organization Youth

    PUBLICATIONS

    Click here to view more

    Blog Archive

    • ►  2020 (1)
      • ►  September (1)
    • ►  2017 (40)
      • ►  December (4)
      • ►  November (2)
      • ►  October (3)
      • ►  September (5)
      • ►  July (4)
      • ►  June (6)
      • ►  May (4)
      • ►  April (3)
      • ►  March (2)
      • ►  February (4)
      • ►  January (3)
    • ►  2016 (34)
      • ►  December (3)
      • ►  November (2)
      • ►  October (2)
      • ►  September (4)
      • ►  August (4)
      • ►  July (2)
      • ►  June (3)
      • ►  May (4)
      • ►  April (1)
      • ►  March (4)
      • ►  February (3)
      • ►  January (2)
    • ►  2015 (32)
      • ►  December (2)
      • ►  November (5)
      • ►  October (4)
      • ►  September (2)
      • ►  August (1)
      • ►  July (2)
      • ►  June (5)
      • ►  May (3)
      • ►  April (2)
      • ►  March (2)
      • ►  February (3)
      • ►  January (1)
    • ►  2014 (32)
      • ►  December (3)
      • ►  November (1)
      • ►  October (4)
      • ►  September (3)
      • ►  August (1)
      • ►  July (3)
      • ►  June (6)
      • ►  May (2)
      • ►  April (3)
      • ►  March (2)
      • ►  February (2)
      • ►  January (2)
    • ►  2013 (41)
      • ►  December (3)
      • ►  November (2)
      • ►  October (5)
      • ►  September (4)
      • ►  August (1)
      • ►  July (4)
      • ►  June (3)
      • ►  May (4)
      • ►  April (3)
      • ►  March (4)
      • ►  February (4)
      • ►  January (4)
    • ►  2012 (35)
      • ►  December (3)
      • ►  November (4)
      • ►  October (4)
      • ►  September (2)
      • ►  August (2)
      • ►  July (2)
      • ►  June (2)
      • ►  May (4)
      • ►  April (3)
      • ►  March (3)
      • ►  February (4)
      • ►  January (2)
    • ▼  2011 (39)
      • ►  December (3)
      • ►  November (4)
      • ►  October (3)
      • ►  September (4)
      • ►  August (3)
      • ►  July (2)
      • ►  June (3)
      • ▼  May (3)
        • Firing at Will – the Employers’ Response to the Cr...
        • Where is the Trade Union Reform and Labour Legisla...
        • European Integration at the Crossroads: Deepening ...
      • ►  April (4)
      • ►  March (4)
      • ►  February (4)
      • ►  January (2)
    • ►  2010 (39)
      • ►  December (3)
      • ►  November (5)
      • ►  October (4)
      • ►  September (2)
      • ►  August (2)
      • ►  July (3)
      • ►  June (4)
      • ►  May (1)
      • ►  April (4)
      • ►  March (4)
      • ►  February (4)
      • ►  January (3)
    • ►  2009 (5)
      • ►  December (3)
      • ►  November (2)

     
    Copyright © 2011 Global Labour Column Archive | Powered by Blogger
    Design by Free WordPress Themes | Bloggerized by Lasantha - Premium Blogger Themes | 100 WP Themes