“In Defence of Europe”, by Loukas Tsoukalis, Oxford
University Press 2016, 238pp, ISBN 978-0-19-875531-9, £18.99
There is hardly
a member of the European Union whose past is not more prosperous, secure,
expansive and influential than its present. During every age of European
civilisation someone has held the upper hand, and lost it. Perhaps thanks to
the maturity that comes of rising and falling, this neighbourhood of high
pedigrees and inflated egos managed, after its last great conflagration, to
settle into the idea of sharing its croquet lawns. That idea is now in retreat.
Was the European Union a passing whim?
In Defence of Europe is a work of controlled anger. Professor Loukas Tsoukalis,
who chairs Greece’s pro-EU think-tank, ELIAMEP, argues that the Eurozone’s sovereign
debt and refugee crises exposed potentially fatal design weaknesses and
third-rate political responses, creating winners and losers. He writes from the
Europe’s periphery, the ultimate loser, bringing forth incontrovertible economic data
that back up a stinging accusation of the north, especially Germany. “Democracy is not a given, nor is
peace,” he ominously warns three pages before the end.
Tsoukalis
focuses on European Monetary Union as an inequality machine. Assumptions that EMU
would encourage everyone to enjoy Germany’s high trade surpluses proved wrong,
because when they adopted the euro member states had diverging levels of
competitiveness. In the decade preceding the financial crisis of 2008, “unit
labour costs in Ireland rose by 46 percent in relation to Germany. The
corresponding figures were 33 percent for Greece and 24 percent for Portugal,” he
says. Exchange rate fluctuations between EU members had made up for much of the
competitiveness gap by lowering the cost of exports. By nailing everyone to a
fixed currency, the euro amplified Germany’s essential competitiveness, but made
it much more difficult for less competitive economies to export goods and
services.
Nor is it only
the periphery that suffers from currency overvaluation. In a recent interview, France’s far-right leader, Marine Le
Pen, called the euro “a suit that fits only Germany.” She would ditch the
common currency for the same reason that Greek leavers would: “The
IMF has just said that the euro was overvalued by six percent in France and undervalued
by 15 percent in Germany. That’s a gap of 21 percentage points with our main
competitor in Europe,” she said. If she wins the presidential election next
spring, an anti-establishment vote that seems all the more likely after Donald
Trump’s success, Le Pen plans to recreate the “currency snake” of 1972 – a band
of exchange rates 4.5 percentage points wide, within which EU members had some
room for devaluation.
When financial markets collapsed in 2008, they started pricing risk
into sovereign bond purchases and Greece, with its high deficits and debt, was
soon unable to borrow. It asked its Eurozone partners to set up a distress
fund. Greece got its sovereign loan on what Tsoukalis describes as “punitive and
economically unrealistic terms”. As government cut costs it created a deepening
recession. Greeks began to
talk of a deliberate deconstruction of their economy as part of a northern
European plot to reduce them to a cheap worker class and buy up their companies.
This dubious narrative had its northern counterpart. Germans talked of
how the fiscal profligacy of the periphery threatened hard-won German budget
surpluses should the EU allow the wealthy states to subsidise the less well off,
as in the US economy. But with the exception of Greece, none of the sovereign
debt crises that followed (Ireland, Portugal, Spain, Cyprus) were due to
overspending, says Tsoukalis. They were caused by private debt bubbles leading
to bank bailouts. The fiscal profligacy narrative, however, enabled German
politicians to claim credit for German economic success as a product of
political virtue, blame the periphery for its woes and justify the austerity
wrought on it.
There was a more ominous financial reason for austerity, though. Northern
European banks, grown fat on the savings of workers in strong economies, had
financed a borrowed prosperity in the periphery, and were now in danger of
going under should the periphery have trouble honouring its bonds. Tsoukalis
puts a precise price tag on this. In the third quarter of 2009, “total claims
of French and German banks on the countries of southern Europe plus Ireland had
reached astronomical figures: $824bn for the French banks and $733bn for German
banks.”
Europeans on the periphery have long held that Eurozone bailouts were
entirely selfish: not to bridge the wealth gap, but to save northern banks and the
euro. Tsoukalis tells it by the numbers: “Approximately 70 percent of the total
financial assistance provided to Greece… has been spent on servicing, repaying
and restructuring old debts, and another 20 percent has been spent on the
recapitalisation of banks following sovereign debt restructuring… Politicians
[in Germany] have never dared to tell their citizens the bitter truth, namely
that the money they lent to other countries in the Eurozone was also money to
save their own banks and some of it, at least, may never be paid back.”
Had even this been done in a burden-sharing fashion, with, say, part
of the periphery’s debt being mutualised through a euro-bond, or by forcing
creditors to accept at least some responsibility for their lending decisions, the
political consequences of bailouts might have been less poisonous and European
unity might have been preserved. But the Germans, Dutch, Finns, Danes and Belgians,
with trade and budget surpluses, did it with an authoritarian, punitive and
morally superior tone, partly as an example to others. Never before
had European relationships been defined by the raw power of money.
In this process, financially strong countries destroyed the consensus
politics traditional to the European Union, and took over control of what were
purportedly councils of equals. On page 93, Tsoukalis momentarily drops his
academic sangfroid to ask, “Is
[austerity] a fiscal virtue in legal clothes or a kind of policy straitjacket
in a European system that is turning into a madhouse?”
A weakened Union
It is a maxim that Europe has lurched forward during crises, but
Tsoukalis believes the Eurozone crisis ultimately weakened European
institutions because they came across as uncaring about people. “The losers turned to the nation state
for protection, because they had nowhere else to turn. Europe did not offer any
kind of protection.” Thus the EU came to be seen by many Europeans purely as
the instrument of capital, and “an integral part of the globalization process
in an era of neoliberalism.”
European institutions
were also weakened by legal sleight of hand, says Tsoukalis. Europe’s fiscal rules
expressly forbid government bailouts, so the institutions created to offer them
operate outside EU law.
Finally,
bailouts came off as a German diktat to national parliaments, which are still
the bedrock of European democracy. Austerity bills hundreds and in some cases
thousands of pages long had to be considered in periods as short as 24 hours. Lawmakers
were in each case told by German and EU officials that failure to pass a bill
would result in emergency loans being stopped, and national bankruptcy. “How much
economic sovereignty (or democracy) can you afford if you are bankrupt?” has
become a key question in Europe.
Tsoukalis’
consternation by numbers supports the periphery’s view of European economic
policy with data and argumentation. In effect, he tells the losers of Europe
that they are right to be angry - and why. Despite its shortness, this is a
dense work, but the student and observer of Europe will find it an invaluable
resource.
In retrospect,
Germany’s comportment in Europe - forcing acquiescence upon others to divisive
and often questionable policies – goes back to German reunification. At the
European Summit of December 1991, Germany muscled through recognition of
Croatia and Slovenia, which had declared their independence, ignoring warnings
that this would prompt the breakup of Yugoslavia, which it did. After an
eight-year civil war, which Europe did nothing to stop, Germany participated in
the NATO-led bombardment of Serbia and Kosovo – its first military action
abroad since the end of the Second World War. Germany’s Yugoslavia policy
marked the first manifestation of her new persona – more assertive, prepared to
take a leading role in Europe, but in the national rather than the collective
European interest. Now Germany, along with other creditor countries in Europe, has
hijacked European economic policy with purely national priorities.
It is tempting
these days to think of the EU as divided along cultural lines. Germany can put
herself at the heart of a resurgent Holy Roman Empire consisting of her supply
chain countries and Teutonic affiliates. It is a Standard of Living Union,
fundamentally different in outlook from countries like Italy, France, Greece,
Cyprus, Spain, Portugal and Malta, which thanks to good climate and rich
history can claim only a Quality of Life Union. If the EU is to have force on
the world stage as a political entity, fiscal union, greater redistribution of
wealth, a defence and foreign policy and a constitution must be on its agenda.
In reality, both the self-proclaimed federalists and the new wave of populist separatists
are pulling in the opposite direction.
