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Old 22-10-2016, 12:21 PM   #29
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Neoliberalism and the Future of the Euro Zone
By Frederic Heine and Thomas Sablowski
Global Research, October 21, 2016
The Bullet Socialist Project 21 October 2016

During the boom phase of the economy before the crisis, the economic and social gap between the centre and the periphery within the EU decreased due to a strong growth of capital flows toward the periphery. Because inflation rates in Europe’s periphery were higher than in the centre, the ECB’s key interest rate led to lower actual interest rates in the periphery and this provided an incentive to borrow and hence to greater growth than in the centre (Heine/Herr 2006: 367). However, this financialized form of development was not sustainable.

Since the outbreak of the crisis, financial integration has begun to unravel, and the differences in structures of production are again gaining greater importance. Austerity policies underpin this unequal development. Currency devaluations, typically used by less competitive nations as a mechanism to adapt to changing world market conditions, are not an option within the euro area, pressure is therefore chiefly on wages and working conditions. Furthermore, the monetary union has no adequate fiscal clearing mechanism. The budget of the European Commission is negligible compared to the budgets of individual member states. This form of integration, however, is not a product of chance; it was intended. Historically, it was imposed by the dominant groups in Germany and is in the interests of capital in as far as it puts pressure on and disciplines wage earners across Europe (see Stützle 2013; Milios/Sotiropoulos 2013).
Two Options for the Future, and Four Scenarios

The unequal development of the euro area increases the pressure to reform or abandon monetary union. The current monetary regime, therefore, has no longterm future. There are two options for the future: a deepening of European integration that removes the shortcomings of the monetary regime and increases opportunities for political intervention to compensate for unequal development, or the break-up of monetary union. The question of whether to deepen or reverse European integration is increasingly leading to divisions across the political landscape (see Nölke 2015). Depending on how the relations of power develop within the EU, a deepening of ties or a break-up of the euro area could take very different forms and imply very different situations for the subjugated classes in the EU.

1. Deepening of European integration under the hegemony of the globally oriented fractions of capital.

Despite the differences between neoliberal-conservative and social-liberal forces, this scenario would imply the continuation of the authoritarian neoliberal form of integration that has dominated development in the EU over the past years; notwithstanding the various possible modifications that would have to be made in the case of a compromise between the German and the French approach. The current plans are not yet suited to counter effectively unequal development. Depending on which version of the authoritarian neoliberal deepening of European integration wins the upper hand, the EU could plunge into an even deeper crisis.

The EU’s blatant democracy deficits would increase in an economic union designed foremost to block expansive economic policies in individual countries and curtail the budgetary competencies of national parliaments.....Despite the growing strength of opposition, this scenario is currently the most likely because it is supported by the hegemonic fractions of capital in Germany and the EU that are focused on the world market (see Heine/Sablowski 2013, Georgi/Kannankulam 2015).

2. Breakup of the monetary union under the hegemony of right-wing populist and nationalist forces.

Like the first scenario, this would have multiple negative implications for subordinated classes. Particularly, it would lead to the devaluation of work, wages and benefits compared to other currencies; rising costs of imported goods, loss of purchasing power, acceleration of social inequality between those possessing assets in foreign currencies and those who own nothing, and an accelerated sell-out of the country’s wealth to international investors etc. This of course would occur alongside the nationalism, racism, sexism and the suppression of minorities that characterizes the politics of the extreme right.

3. Exit of individual states under an anti-neoliberal or socialist hegemony.

If left-wing governments were to form again in the euro area and if they decided not to bow to the demands of the conservative-neoliberal block, a ‘lexit’ (left-wing exit) would be an important element of self-assertion.

A unilateral exit from the monetary union would be very hard to achieve under conditions of sabotage against left-wing governments, and this needs to be reckoned with. The introduction of a new currency would require several months of preparation (see Sapir 2011), whereas the ECB could wreak havoc in a matter of days by denying cash to banks.

Furthermore, even introducing a new currency would not prevent the possibility of an economic war against a left-wing government. A left-wing government would not only face the hazards of devaluation, but also of capital outflow and other acts of sabotage, because the ruling classes would not ‘trust’ a left-wing government. To cushion the negative effects of currency devaluation and the economic war waged against it, a left-wing government would have to take drastic measures. Banks would have to be nationalized, and controls on capital and foreign trade would have to be imposed etc.

Countering social inequality and ending mass unemployment would require large-scale investment programmes, radical measures to redistribute wealth and imposing strict controls over key economic sectors even beyond the banks. Only in combination with such measures would exiting the monetary union make sense from a left-wing perspective; this is what differentiates a ‘lexit’ from an ‘exit’ guided by a conservative-nationalist block. However, a ‘lexit’ would also imply a break with the European treaties, in particular with the free movement of goods and capital.

4. Re-foundation of Europe under an anti-neoliberal and socialist hegemony.

A re-foundation of Europe would be hard to implement in the current EU framework, because changes to the EU treaties require consensus among all EU member states. A single country can veto progressive changes to the treaties. This would obviously find the support of the ruling classes of all countries. It is therefore illusory to believe that a left-wing government in Germany or even left-wing governments in the central EU countries would have the power to enforce such treaty changes.

Changing the EU treaties in a progressive direction would require a simultaneous revolt and switch of government in all countries, which is a highly unrealistic scenario. More likely are successive ruptures in a number of countries and subsequent alliances between the left-wing governments of these countries and social movements. These alliances could lay the foundations for a new solidarity-based form of European integration. In our view, this is the most desirable scenario, yet also the hardest to achieve. It would require a hegemony of anti-neoliberal and/or socialist forces in each country.

Frederic Heine is a political scientist and activist, and researcher with the Rosa Luxemburg Stiftung in Berlin.

Thomas Sablowski works at the Institute for Critical Social Analysis of the Rosa Luxemburg Foundation. He is also a member of editorial board of the journal PROKLA and a member of the scientific advisory board of ATTAC Germany.

This article is excerpted from “Monetary Union Unravelling?.”
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