“It is a matter of great urgency to bring more and new dynamics to the resistance movement against the painful austerity packages being imposed on EU countries. In this particular political field the fight has to be fought on two levels: in the streets and squares and in the parliaments. The composition of the London Europe against Austerity Conference ensures that both components will be combined in our future actions. This conference could be the initial spark and an important step for a joint campaign against the neo-liberal policies which make the rich richer and the poor poorer.”
The course of the economic crisis that erupted in late 2007 can be simply summarized as follows, writes Michel Husson: during the two decades preceding the crisis, capitalism has been reproducing itself by accumulating a mountain of debt.
To avoid the collapse of the system, states have taken over some of these debts, in transferring from the private to the public sector. The project of the ruling classes is now to present the bill to citizens through budget cuts, increases of the most unfair taxes and frozen wages. In a nutshell, the majority of the population – as workers and pensioners – must sacrifice through austerity to ensure the realization of the fictitious profits accumulated over many years. THE WORM IS IN THE FRUIT In Europe, the effort to build an economic integrated area via the European Union (EU) with a single currency in the form of the euro, but without a matching budgetary capacity, was not a coherent project. A truncated monetary union became an economic framework to generate heterogeneity and divergence in the countries of Europe. Countries with above average inflation and below average productivity lose competitiveness, and are encouraged to base their growth on overindebtedness; while countries with below average inflation and above average productivity gain competitiveness and sustain structural surpluses. In retrospect, the choice of the euro (with its launch in 1999) had no obvious advantage over a common currency system – a convertible euro for relations with the rest of the world, and adjustable currencies inside the zone. The euro was designed as an instrument of budgetary and above all wage discipline (following on the EU’s Growth and Stability Pact): the use of devaluation is no longer possible, and the wage becomes the only adjustment variable for addressing competitiveness and external imbalances.
In practice, the Economic and Monetary Union also worked through overindebtedness and, at least initially, the decline of the euro against the dollar. These expedients eventually had to run out. Things started to go offtrack with the German policy of wage deflation through the 2000s which has led to an increase of Germany’s market share in Europe. Although the euro area was broadly in balance with the rest of the world, the gap has widened between the German surpluses and the deficits of most other countries in Europe. As a result, the growth rates inside the euro zone have tended to diverge, right from the first introduction of the euro. This market configuration inside Europe has proven, not surprisingly, unsustainable. The crisis has sharply accelerated the process of fragmentation and financial speculation and it has exposed the tensions inherent within neoliberal Europe. The crisis has deepened the polarization of the euro area. On the one hand, Germany, the Netherlands and Austria enjoy trade surpluses and their fiscal deficits have remained moderate. On the other, the famous ‘PIGS’ comprised of Portugal, Italy, Greece and Spain (Ireland being partly another case) are in a reverse situation: high trade deficits and fiscal deficits above average and rapidly climbing. Although the depth of the economic crisis has led to an increase in fiscal deficits everywhere, it has been much less in the first group of countries. The sovereign debt crisis has accelerated the move toward austerity which was, in any case, already the neoliberal policy of adjustment and the planned policy response as the economic crisis stabilized. Speculation against Greece, then Ireland and Portugal, has been possible because no systematic measures have been taken to regulate banks in the wake of the crisis. The pooled management of the debt on a European scale, through the European Financial Stabilisation Mechanism and the European Financial Stability Facility, remained partial and always came late in the day. The central banks themselves have provided ammunition for this speculation by lending to banks, at a very low interest rate, money which the banks in turn lent to governments at the higher rates paid on sovereign debt, neatly pocketing the difference. As sovereign debt takes over from private debt, the financial crisis moves into the public sector. The bailouts of the peripheral European countries under attack from financial capital are, in fact, the bailouts of European banks (concentrated in Germany, France and Britain, with US banks also implicated) that hold much of their debt. Speculative attacks are used as an argument in favour of moving quickly to drastic austerity plans, as in the cases of Greece and the Iberian countries. This strategy is a nonsense that can only lead to another recession, including in Germany, whose exports to 300 SOCIALIST REGISTER 2012 emerging markets outside Western Europe might not offset its losses internal to European markets. European governments and the European Commission have had one overriding goal: to return as quickly as possible to ‘business as usual’. This goal is, however, out of reach, precisely because everything that had helped manage the contradictions of the flawed form of European integration, such as peripheral Europe indebtedness and internal European trade imbalances, has been rendered unusable by the crisis. These elements of the analysis of the current European economic conjuncture are now quite widely shared. However, they lead to quite opposite predictions and orientations, particularly on the Left: the bursting of the euro area, or overhaul of the pan-European political project. FOR A REFOUNDATION OF EUROPE The main objective of any Left alternative for Europe must be the optimal satisfaction of social needs. The starting point is, therefore, the distribution of wealth. From the capitalist point of view, the way out of the crisis requires a restoration of profitability through additional pressure on wages and employment. But that approach does not take into account the real causes of the crisis. It is the decline of wage share which has fed the financial bubble. And the neoliberal fiscal counter-reforms have deepened deficits, even before the erruption of the crisis. The political equation for the Left is simple: we will not emerge from the crisis on top without a radical change in income distribution. This question comes before economic growth. Certainly, higher growth in itself could lead to more employment and higher wages, although such a growth-fixated strategy needs to be assessed from an ecological point of view. In any case, we cannot rely on growth if, at the same time, income distribution becomes increasingly unequal. We must therefore squeeze inequalities from both sides: by an increase in the payroll for workers and by a tax reform. The upgrading of the wage share could follow the rule of three thirds: one third for direct wages, one third for socialized wages (or welfare) and one third to create jobs by reducing working hours. This rise of wages would be at the expense of dividends, which have neither economic justification nor social utility. The fiscal deficit should be gradually reduced, not by cuts, but by a re-fiscalization of all forms of income (bringing them back into public finances), which have gradually been exempted from taxes. The immediate cost of the crisis should be borne by those responsible: this means that the debt should be in large part cancelled and the banks nationalized and socialized.
the only factor. It is, therefore, a fundamental error to suggest that an exit from the euro would spontaneously improve the balance of power in favour of workers. It is enough to consider the British example: the pound keeps Britain out of the European Monetary Union and the euro, but that has not protected the British people from an austerity plan which is among the most brutal in Europe. Supporters of the exit from the euro advance another argument: it would be an immediate measure, and relatively easy to take, while the strategy of a refoundation of the European project would be out of reach. This argument misses the very possibility of a national strategy that does not presuppose a simultaneous rupture in all European countries. FOR A STRATEGY OF RUPTURE AND EXTENSION As often put, the dilemma seems to be between a risky adventure of ‘exit’ from the euro and a utopian European harmonization giving ‘voice’ to workers’ struggles. The central political issue for socialists is to get out of this false choice. The main distinction here is between ends and means. The objective of a programme of social transformation is to guarantee to all citizens a decent life in all its dimensions – employment, health, retirement, housing, and so on.5 These can be achieved by a change in the primary distribution of income between profits and wages and by tax reform. But advancing the struggles for these goals implies the questioning of dominant social interests, their privileges and their power. This confrontation takes place primarily within a national framework. But the resistance of the dominant classes and their possible retaliatory measures exceed the national framework. The only viable strategy is to rely on the legitimacy of progressive solutions that arise from their highly cooperative nature. All neoliberal recommendations are ultimately based on the search for competitiveness, such as reducing wages, trimming social contributions, and cutting taxes to win market share. As European growth levels will continue to be weak in the period that has opened up with the crisis in Europe, the only way for any individual country to create jobs will be by competing for them with neighbouring countries, especially since the largest part of foreign trade of European countries is within Europe. This is true even for Germany as the second largest world exporter: it cannot rely only on emerging countries. The neoliberal way out of the crisis is inherently non-cooperative: you can only win against the others, and this is the ultimate cause of the deepening crisis of European integration. In contrast, progressive solutions are cooperative; they will work even better if they are generalized to a larger number of countries. For example, 304 SOCIALIST REGISTER 2012 if all European countries reduced working time and charged taxes on capital income, such coordination would avoid the backlash that the same policy would undergo if adopted in only one country. It is incumbent, therefore, that a government of the radical left follow a strategy of extension: (1) ‘good’ measures are implemented unilaterally as, for example, with the taxation of financial transactions; (2) accompanying plans for protection such as capital controls are adopted; (3) the political risk of breaking European Union rules to implement these radical, initially nationally-based, policies is accepted and challenged; (4) the proposition is made to amend these rules by extending them on a European scale to allow these measures to be adopted by member states, for example, in the extension of a European tax on financial transactions; and (5) the political showdown with the EU and other European states is not avoided and thus the threat of exit from the euro is not excluded as a viable option. This strategic scheme acknowledges that the making of a ‘good’ Europe cannot be the precondition to the implementation of a ‘good’ policy. The retaliation measures must be neutralized through counter-measures which effectively involve resort to a protectionist policy arsenal if needed. But the strategy is not protectionism in the usual sense: this protectionism defends an experience of social transformation emerging from the people and not the interests of the capitalists of a given country in their competition with other capitalists. It is, therefore, a ‘protectionism for extension’, whose very logic is to disappear once the ‘good’ measures have been generalized across Europe. The rupture with European rules is not based on a petition of principle, but rather on the fairness and legitimacy of measures that correspond to the interests of the majority and are equally proposed to neighbouring countries. This strategic challenge for change can then rely on social mobilization in other countries and hence build a relation of forces that can influence EU institutions. The recent experience of the neoliberal rescue plans implemented by the ECB and the European Commission has shown that it is quite possible to bypass a number of the provisions of the EU Treaties. For this strategy of rupture, exit from the euro is not a prerequisite. It is rather a weapon to use in the ‘last resort’. The immediate break should proceed on two points which would allow real room for manoeuvre: the nationalization of banks and the restructuring of debt.
It is now obvious to everyone that the current neo-liberal economic model is not sustainable, as its laws suit only a few. The fraudulent nature of the banking system, excessive risk, aggressive lending and the greed of the people controlling it, has put over the years most of world´s countries into unbearable debt.
Corruption in the political system, over-dependent on financial backing from the banking system, has prevented governments from serving their original purpose: to rule in a way that promotes wealth distribution across society . This flawed system has led to dangerous social and economic imbalances.
Effectively, today’s politicians behave as direct employees of bankers and multinational corporations. They often serve as public ministers only to accept a position as MD, CEO or form part of the executive boards of FTSE 100 companies once their term in government finishes.
Millions of people all over the world live below the poverty line, do not have food, access to clean water or sanitation, and die from curable diseases. And still the human race has not faced the two main problems threatening its existence: the energy crisis, and most importantly climate change. Planet Earth has not stopped giving us, gracefully, the essentials to survive, yet we keep consuming without showing any respect for the environment that hosts us, aiming only for maximization of profits: scientists reported the melt down of ice and “open waters” on the North Pole in the next 5 years. It is time for some changes.
OLME – the Greek federation of secondary education state school teachers – is participating in and supporting the “Europe Against Austerity” conference. Themis Kotsifakis, General Secretary of OLME, who will be speaking at the conference, sends a message of support:
“The Greek Government and the Troika (EU-IMF-ECB) have imposed severe austerity measures, slashing our salaries and pensions, destroying public goods (education-health-public transport etc), privatizing public companies and organisations, and selling off the wealth of the country to the banks and capital.
Greece is the point of departure as similar policies are being implemented or are under implementation across Europe – especially in the countries of the European South.
Employees in Greece and throughout Europe suffer an unprecedented attack by the neoliberal policies implemented by the EU and the governments across Europe.
Therefore, we believe that there should be a coordinated reaction of all workers, youth and social movements across Europe.
Together for another Europe without neoliberalism.
People first, not profit.”
A new article from Professor Riccardo Bellofiore, professor of monetary economics and history of economic thought at the University of Bergamo, Italy.
1. Europe is in the middle of an economic and social storm. In the meantime, the world economy goes towards a recession that is none other than the prosecution of the deep structural crisis of capitalism. The institutional design of the euro is marked by many contradictions. It is however the global crisis that started the European crisis. The European crisis does anything but retroact on the world dynamics. In this context, the eurozone risks to implode. The Greek crisis has been transmitted to Ireland and Portugal – i.e., the periphery of the Continent – and then, as expected, it has eventually hit the Spain. At that point, suddenly, the crisis centered on Italy, with spillovers in France and even Germany: an acceleration that has been quite unexpected. Germany is sharply awakening from the illusion of a decoupling from European demand. This illusion is, indeed, the only reason that can justify its suicidal policy since 2010, from which however it had progressively to recede.
The green shoots of a recovery have withered away very quickly, and the bounce after the crisis was overestimated. China – the only country that, since the beginning of 2009 has implemented a true Keynesian government spending policy – may derail. Its growth relies too much on infrastructural investment; and many stress that a huge real-estate bubble is developing. Older industrialised countries pretend to teach China that it could not permanently rely on under-consumption. Here another illusion emerges: that an increase in wages would automatically transform in imports. If we turn to Latin America, we see that also its growth is ridden by internal contradictions, which may end up in a slowing down of GDP growth: because of policies against rising inflation; because of a too big increase in the exchange rate; and because that area is too much reliant on the price dynamics of raw materials. The idea that the United States could move to the side of net-exporters, with only Latin America providing the buyer of last-resort, is clearly a wild dream. The awaited ‘light at the end of the tunnel’ is none other than a high-speed train that is coming towards us.
2. The euro was born with an original sin. Even left-wing parties chose not to see it, though it was quite evident from the start. Thus, they agreed to introduce a single currency that, in its own DNA, was going to determine a recessionary drift, deep differences in the competitiveness of each country, a wage squeeze, an increasing social inequality, the dismantling of trade unions and a permanent industrial restructuring. This has in fact been anticipated in 1992-93, with arguments which hold to this day, both by Jean-Luc Gaffard and by Paul Krugman.
Within the structurally heterogeneous European area, in which there are radical variances both in the productive power of labour and in (material and immaterial) infrastructures, a nominal convergence cannot but give way to a progressive deepening of the real divergences. The in-built and on-going tendency to self-dissolution of the monetary union could be counteracted only through a common fiscal policy, governing the resource redistribution within the euro-zone internal regional areas. European authorities should also implement industrial and structural policies explicitly targeted to overcome the real divergences among countries. By contrast, the European Union budget (compared to GDP) is ludicrously low: as Vittorio Valli observed a few years ago, it is equal to a tenth of what is necessary.
How was such a fragile construction able to take off at the end of the 1990s? The answer is in the (temporary) success of the made in USA ‘new’ capitalism. This capitalism has been able to integrate China and the rest of Asia, and to provide demand to neo-mercantilist Europe, while Latin America and Russia were facing ups and downs. Germany overcome the re-unification shock, and pushed forward a radical restructuring of the labour market and the labour process again. With its ‘satellites’, Germany benefited from the brisker capitalist development in the ‘periphery’. The real-estate bubble spread also in some European countries. Because of that, Ireland and Spain (not to speak of England) had remarkable GDP growth: this is why their public budgets were so ‘virtuous’. In a world of lower and lower interest rates, the government deficits of Greece and Portugal, as well as the management of the Italian government debt, provided financial placements for German and French banks.
The multi-speed dynamics of Europe is well known by now. Its core is the growth of Germany with its ‘satellites’. Net exports are the driving force, with the resulting profits invested abroad. It’s a Luxemburg-Kalecki model. However, within the ‘new capitalism’ investments are increasingly driven by ‘toxic’ finance. Indeed, in Europe the treasury-bonds of the ‘periphery’ played a similar role than subprime loans in the United States.
Germany, like its ‘satellites’ and the rest of Northern Europe, has a historical need for exporting in the rest of Europe, where it realizes the largest part of its profits. Trade deficits in Southern Europe facilitate Germany also for a second reason: they hold down the nominal revaluation of euro (compared to what would happen with either the Deutsche mark or also an euro restricted to the net exporters). The ‘single currency’ gives rise also – thanks to both the increase in the productive power of labour and the wage repression, the one and the other leading to competitive deflation – to a real devaluation that benefits the stronger area. After the 1990s, even in the last decade, the net neo-mercantilist position of Europe kept on ‘closing’ thanks to the American engine. Europe’s net exports towards the United States, however, became more and more unable to offset the growing structural deficit with China, and to mend the effects of instability in Russia and Latin America.
In that phase, trade imbalances were not a great problem. For a while, financial and trade imbalances, mounting exponentially, seemed to magically make the economies more and more ‘resilient’. The concern about government finance did not look so pressing. Rather, in the same instances where growth was not driven by real-estate bubbles, the very government deficits offset the recessional tendency initiated by Germany. Actually, the ‘tragedy’ (or ‘farce’) of the sovereign debt should not be played even today. Deficit and debt ratios of the euro area are definitely lower than those of United States and Japan – not mentioning the United Kingdom. As Krugman reminded us, if one make a list of countries in which government finance has been a serious trouble before the crisis, then the list add to only one: Greece.
3. Demand and the (low) growth for Europe, as well as the current sovereign debt crisis, came wholly from outside. It is not a replay of the 1992 collapse of the European Monetary System, as some Italian left economists feared in 2008. As I countered at the time, if only the economic analysis of the Left would have escaped obsolete readings, such as the tendential fall in the rate of profit, or would have resisted the under-consumption temptation (according to which the global crisis was the crisis of a world of low wages), it could have seen in advance that it was the collapse of the ‘privatized Keynesianism’ which would have actually brought Europe into deep trouble. The problem is neither that ECB follows to the letter its ‘monetarist’ prescriptions, nor that European institutions are inactive, another legend on the Left. The point is rather that when they intervene in support of the economy, or they come to back up the public debt against speculation, or they eventually accept to change some of the institutional architecture of the single currency, they do this reactively, in the wake of the crisis.
The idea that European authorities will be forced, ‘out of necessity’, to create an institution giving financial support to countries in crisis, or will eventually implement some kind of fiscal redistribution on a continental scale, is not wrong in itself. The point is that they are too little, too late. The paradox is that, if they condoned Greece’s debt, the costs for Europe would have been negligible. The same is valid if you add Ireland, and then Portugal. Even in this case, a cancellation of the debt would have been much less destructive than the dynamics set in motion to avoid default, without rescheduling and reducing the debt to be repaid. But when the crisis hit Spain, and then Italy, the crisis changed its nature. The leap from quantitative became qualitative. In this situation, one either learns to swim or drowns.
It is useless to blame ‘markets’ or ‘rating agencies’. They are absolutely right, at present. They just register the dramatic absence of a political direction which could assure some way out. It is this political ineffectiveness that pushes up interest rate spreads, and that exposes one country after another to the risk of default (according to a mechanism well described by Paul de Grauwe). The economic policies of European countries, because of their deflationary nature, pull down the rate of growth, while the rest of the world either comes to a stop or slows down. It is not a surprise that the sustainability of public debt worsens. It is a sort of ‘paradox of thrift’ applied to public finance. The peculiar form of ‘independence’ of the European Central Bank is a further complication. There is no political sovereignty over money in the single currency area. The ECB is neither a true lender of last resort nor it has the will to finance government deficits.
4. The crisis in Europe is not due to Greece. Nor is it the result of the government indebtedness of a given country (both in absolute terms and compared to GDP). As Jan Toporowski argued, what matters is the willingness (or not) of the central bank, here the ECB, to re-finance government deficits. Even with a hypothetical euro limited to Germany and its satellites, the ‘sovereign debt’ crisis could burst anyway. For instance, it could in Belgium, whose debt to GDP ratio is close to 100%. Excluding default, a way out could be inflation, a second growth, a third a mix of the two. Both inflation and growth increase the denominator in the deficit (or debt) to nominal GDP ratio.
Inflation is currently considered as a curse. But the number of the critics of inflation will be lower and lower as the crisis proceeds. It is some years that authoritative voices, such as Kenneth Rogoff, have supported it, even giving a percentage, between 6%-8%. At present inflation is not an option on the table. It is the Great Recession itself that stops it. Most firms and households do not ask for credit, and loans are refuted to those who ask – because banks and financial institutions are reluctant to lend to the ‘real’ economy. We are living in a two-speed economy. Monetary stimuli make financial bubbles start again, but these bubbles do not make the real economy grow anymore. On the contrary: the burst of the bubbles brings back to the recession, and is capable of making it worse. Furthermore, one can picture what inflation means for the working classes in the absence of income indexation.
One could ask whether an exit option from the eurozone would be desirable. It is not possible to exclude that the evolution of the situation could lead to the dissolution of the single currency. Nonetheless, at present, this is a counsel of despair. An advice like this came from the left last year with regards to Greece, then to Ireland. The positive example usually put forward is Argentina in 1992. However, as again Toporowski observed, the main problem with Argentina was the banking crisis, and, second, the fact that its debt was denominated in a foreign currency. By contrast, in the Greek case, the banking crisis follows the crisis of the government debt, and it is denominated in an internal currency – or better, a currency that should be internal: the fact that it is not, in practice, it is a despicable political choice. The getting out of euro would dramatically increase the external debt burden, as it would go along with a huge devaluation. In addition, the feasibility of such a choice requires a condition that is absent in Greece, i.e. significant continuous series of government primary surpluses. Otherwise, the concurrent impossibility to satisfy the internal debt may likely lead to the insolvency of the domestic banking system. The worsening of the structural foundations of competitiveness, which has been going on for decades, makes an improvement of the trade balance something which may be very slow, or not existent at all. A spectacular reduction in the real wage should be added to the picture. It is very difficult to consider all this as a ‘leftist’ solution of the crisis.
5. Was there an alternative to the construction of the single currency in the form of the euro? And on which basis? About twenty years ago, in Les dangers d’une monnaie unique, Jean-Luc Gaffard, an economist who was for sure not Marxist, asserted that one should consider the so-called ‘paradox of productivity’. It deals with the need for a prior financing to allow the displacement of resources that will give way to a new output. The outcome of real investments, private or public, cannot but be subsequent: and it would not be possible without that financial condition which, in turn, entails a higher bank credit and also a higher inflation (including the change in relative prices).
From this (Wicksellian and Schumpeterian) point of view, the real convergence of the European economies would have required policies which are the opposite of those defined in the Maastricht Treaty: creation of money in support of private innovation; and a temporary but substantial increase in government deficits financed by new money – deficits which may be labelled ‘productive’. At the beginning, this policy entails higher inflation and an increase in the debt to GDP ratio. But the price increase and the fiscal ‘imbalance’ will be reabsorbed as long as the policy is effective.
Notice that the introduction of the euro was not the only possible form of the monetary unification. An alternative has been suggested by Suzanne de Brunhoff, in the wake of Keynes’ plan at the Bretton Woods Conference. It is about the introduction of a ‘common currency’, instead of a ‘single currency’ circulating among the public. The former is just a reserve currency that would be used in the clearing mechanism among central banks of the member states, within a system of fixed (but adjustable) exchange rates. These latter would be changed in case of significant trade deficits of some countries, with the symmetrical commitment of net exporters to reduce their surpluses. This is what the EMS and also the Bretton Woods agreement failed to consider, inscribing in their DNA a deflationary drift.
The clearing of the European real ‘imbalances’ requires, yesterday as today, an intervention that concerns not only reflation on the demand side, and/or a re-coupling of the wage to productivity. A strong intervention on the supply side and in the productive structure, along with financial stabilization, is indeed needed.
It is useless to make a review of the acrobatic solutions to the crisis proposed by European authorities in the last few months; and the same is valid for the alternative proposals. The former, as Wolfgang Münchau rightly observed, are dead, because of this summer turmoil. The latter are too weak, far away of the heart of the matter. Even those who assert that some of the debt is illegitimate and it should not be paid, or those who press for cancellation of the debt, are not wrong. But at present it is very unlikely that their position can gain sufficient strength in this radical shape.
The so-called European Financial Stability Facility (EFSF) has been introduced late, and it has been poorly supported. What was lacking is the will to cut interest rates and to reschedule the debt: in order to extend the period of repayment and to make the creditors bear some losses. We are now besides this stage: the EFSF, in its current configuration, cannot cope with Spain and Italy. If it ever tried to do that, it would seriously worsen the very fiscal balance of the States which contribute to its financing, including the France and Germany. Finally, it is true that the ECB has decided to implement plans for the purchase of government securities, but only on the secondary market. It is still not a structural and permanent intervention, within a coherent setting for the management of European public debt.
Without a fiscal union, whose institution is utopian in the short-run, it remains only the eurobond solution, as a common guarantee for all the public debts of the Eurozone countries. However, apart from the formal (legal and political, besides technical) difficulty linked to its quick introduction (something which could be speeded up by a worsening of the crisis), the question is: eurobonds to do what? As Yanis Varoufakis observed, it is necessary to consider eurobonds as something more than a credible instrument to reach a low-cost public debt financing for the countries in trouble. They have to be regarded also as the foundation for a coordinated expansion of expenditure and investments on a European scale. It amounts, in fact, to a proposal for a renewed, and innovative, New Deal that could directly lifts the structural ties to growth, by improving the quality of the output and by increasing the productive power of labour.
6. Some insights towards a real alternative to the current mess may come from the structural Keynesianism of those who are, at the same time, critical of capitalism and the realized Keynesianisms of the past. I shall refer her to some recent analyses by Alain Parguez, and to some less recent contributions by Hyman P. Minsky.
There is no economic development without debt. More recent decades confirmed that ex post government deficits are the condition for the net creation of income in the private sector. However, as Parguez teaches us, we have not to forget that there are ‘bad’ deficits and ‘good’ deficits. ‘Bad’ deficits – like those, first, of Monetarism, and then of ‘privatized Keynesianism’ – are the non-planned result of the tendency to stagnation, of shock therapies, of deflationary policies, of the unsustainability of toxic finance, and so on. By contrast, ‘good’ deficits are planned ex ante deficits. Their aim is to build-up, and improve, a stock of productive resources. They are a means for the production of wealth and not of (surplus)value: a long-run investment in tangible (infrastructures, ‘green’ conversion, alternative forms of transport, etc.) and intangible (health, education, research, etc.) goods. A gender-balance and a nature-friendly approach becomes internal and crucial to this policy. The same welfare has to be transformed: from the privilege given to money transfers towards a direct intervention on the use-value side, as part of a wider planning.
Obviously, a deficit spending of this kind immediately raises the government debt to GDP ratio – but the subsequent growth in the denominator will make this increase only temporary. Such an intervention may have positive ‘capitalist’ effects, i.e. the effects which mesmerize Post-Keynesian economists. It would support the real economy from the demand side, it would stabilize the financial sector by providing ‘sound’ financial assets, and it would increase the productive power labour. This is the reason why this intervention can – and must – be part of a ‘minimum programme’ of a class Left. It is clear, however, that this entails not a stable model of a new capitalism, but rather an ‘imbalance’: an uneven terrain where the issue of an overcoming of capitalism has to be finally dealt with.
7. Here some of Minsky’s conclusions in his John Maynard Keynes (1975) turns out to be very enlightening. Of course, Minsky is not a ‘revolutionary’ thinker in any standard way. Nonetheless, his perspective is that of a ‘socialization of investment’, coupled with a ‘socialization of employment’ and a ‘socialization of banking’. Nothing strange, you may say. Did not Keynes himself advance the thesis that capitalism needed a thorough ‘socialization of investment’?
Not quite. The General Theory, Minsky writes, is to be read as a product of the ‘red’ 1930s. Keynes himself underlines its conservative implications, versus socialism. Once full employment is achieved – thanks mainly to high private investments supported by economic policy (including an expansion in money supply to reduce the rate of interest) and the resulting positive expectations – there is no reason to argue against the market allocation of resources. This Keynes has never been enough, and it is not enough today. The really-existing Keynesianism during the so-called Golden age is criticized by Minsky from the bottom up. It was a system in which taxation and transfers govern consumption, monetary policy rules investments, government spending is either waste or military expenditure, rent-positions and finance are nurtured. He calls this a strategy of high profits, high investment, leading to an artificial consumption, and putting at risk the biological and social environment. A ‘socialism for the rich’.
This is Minsky. We have to come back to the first square, he insists: to 1933. We have to think for the first time a Keynesian New Deal, dealing with the fundamental questions: ‘for whom is the game played?’; ‘what kind of product do we want?’. Minsky favours a society in which the real structure of consumption is determined by government investments, which are the driving force behind autonomous demand, which gives way to a different supply side. He explicitly reclaims a ‘socialization of the towering heights’, consumption as a ‘common’ dimension, capital controls, the regulation of finance, banks as public utilities, and so on. Minsky, like Parguez, asks for the State to be the provider for a ‘direct’ creation of employment.
The Great Recession, as the final crisis of Neoliberalism as we knew it, and the European collapse, as the deadlock of Neomercantilism, are putting again on the agenda the issues of how, and what, and how much to produce.
Translated by Marco Passarella, this article will shortly be published in Transform!
 It was not very difficult to see that in advance. Cf. Riccardo Bellofiore and Joseph Halevi: “Could Be Raining. The European Crisis After the Great Recession”, International Journal of Political Economy, vol. 39, no. 4, Winter 2010–11, pp. 5–30.
 “Les dangers d’une monnaie unique”, Le Monde diplomatique, settembre 1992.
 “Lessons of Massachusetts for EMU”, în Torres Francisco, Francesco Giavazzi (eds.), The Transition to Economic and Monetary Union, Cambridge University Press, Cambridge.
 Vittorio Valli, “Una politica di sviluppo per l’Europa”, in Rive Gauche. Critica della politica economica, Sergio Cesaratto and Riccardo Realfonzo (eds), manifestolibri, Roma 2005
 The definining features of this ‘new’ capitalism have been put forward quite clearly already before its crisis in Riccardo Bellofiore and Joseph Halevi, “Tendenze del capitalismo contemporaneo, destrutturazione del lavoro e limiti del «keynesismo»”, in Rive Gauche. Critica della politica economica, Sergio Cesaratto and Riccardo Realfonzo (eds.), manifestolibri, Roma 2005 (there is a German version: “Was ist neu am ‘neuen Kapitalismus’. Der Wandel von Wirtschaftspolitik und Arbeitsbeziehung aus der Perspektive von Marx und Kalecki”, in Keynes als alternative(r)? Argumente für eine gerechtere wirtschaft?, Günter Krause (ed.), Karl Dietz Verlag, Berlin, 2007; an English versioni is going to be published in the near future as “Deconstructing Labor. What is ‘new’ in contemporary capitalism and economic policies: a Marxian-Kaleckian perspective”, in Employment, Growth and Development, C. Gnos, L.P. Rochon, D. Tropeano (eds.), Elgar, Cheltenham, 2011. The picture of this financial and privatised Keynesian is developed in all other papers of ours thereof. Our reading was, and is, opposed to the distributional/underconsumptionist vulgata which is plaguing every corner of heterodox economics, and which grounds the economics proposal of the alternative Left. Privatised Keynesianism is a notion which has been independently employed by Colin Crouch, in many papers. Cfr. “Privatised Keynesianism: an unacknowledged policy regime”, British Journal of Politics and International Relations, 11: 382–399.
 “Only the ECB can halt eurozone contagion”, Financial Times, August 3, 2011.
 “The bullets yet to be fired to stop the crisis”, Financial Times, August 8, 2011.
 “Even a joint bond might not save the euro”, Financial Times, Aug 28, 2011.
 Cf. the second version of his “Modest Proposal”, with Stuart Holland:
 “The true rules of a good management of public finance”, March 2010, mimeo
 Cf. chapters 8 and 9 of his 1975 John Maynard Keynes, reissued in 2008 by McGraw Hill Professional. More on Minksy’s thought (and his interpretation of money manager capitalism) in my introduction to the reprint of the Italian translation: Keynes e l’instabilità del capitalismo, Bollati Boringhieri, second edition, Torino 2008
If you wonder how it might repeat itself the third time, look at Italy: a country where the most effective opposition to government are – literally – comedians. Lately, however, reality has been much more inventive than comedians. This has distorted most analyses of the country’s economical and political situation: as if Italy’s problem is just its prime minister, distracted by sex and trials.
Italy went in the eye of the storm this summer. To understand the true nature of the Italian crisis we need to look at it in the context of the wider European crisis. Both, we are told, are part of a wider sovereign debt crisis. The limits of the eurozone are well known: it has a ‘single currency’ that isn’t backed by political sovereignty, a Central Bank that doesn’t act as lender of last resort or finance government borrowing, and no significant European public budget. The ECB policy errors, its obsessive anti-inflationary stance and its propensity to raise the interest rate whatever the cause of price rises, are also plain to see, though its pragmatism must be recognised. And Germany’s neo-mercantilist dream of profiting from Southern Europe negative current accounts but imposing them balanced state budgets pertains more to psychiatry than economics.
That said, the European crisis is not an endogenous one, the sovereign debt crisis is not truly a public debt crisis, and Italy’s crisis is not Italian-born. German neo-mercantilism induced stagnation in Europe, which survived thanks to US-driven exports. When “privatized Keynesianism” – mixing institutional funds, capital asset inflation, and consumer debt (a model exported from US and UK also to Spain and Ireland) – eventually exploded, European growth imploded.
The sovereign debt crisis is thus the private debt crisis in disguise. Deficits are not of the ‘good’ kind (planned to produce use values for the collectivity, and self-dissolving through qualitative development), but of the ‘bad’ kind (induced by real stagnation or saving finance). Anyhow, for a sovereign area, default should not be on the agenda. The problem has been the unwillingness to refinance first Greece, then Ireland, then Portugal. Their share in the euro area public debt to GDP ratio is ridiculously low: cancelling the debt would have been less painful.
Spain was next in line (because of the rapid increase in the flow dimension of public debt), and a bigger problem. Italy is a different story altogether. The crisis came because ‘markets’ and rating agencies had fear and smell stupidity. They saw the stupidity of European leaders, who were ineffective to provide rapidly a financial rescue for indebted countries, and who introduced self-defeating austerity programmes. Fear became panic, producing a ballooning of the interest rate spread. The sharp decrease in the already very low Italian GDP growth rate (2010: 1,3%; 2011: 0,1% first quarter) and the dramatic rise in the interest rate paved the way to Italy’s current nightmare, because of the near 120% stock of debt. It is a simple issue of doing the math to see that at some point this can start a liquidity crisis, turning soon into solvency crisis.
Does this mean that Italy has not deep, serious, failings in its economy? Quite the contrary. But they are structural, long-standing ones. Their date from the mid-1960s, and they resulted in the continuous decrease in labour productivity and the growth rate. Capitalists answered workers’ struggles with a kind of investment strike, hence through higher labour intensity rather than innovation. Industrial sectors (and most big firms) disappeared, high-technology was imported, privatisations turned public enterprises into rent-seeking activities. Industrial districts prospered mostly thanks to devaluations, but are now in a deep crisis. Lately the thriving Italian pocket multinationals (mid-seized enterprises) account for the good export record in manufacturing, but they are residual and dependent on outside-generated growth. Public debt was a means to assist a de-industrialising economy.
The fatal blow came with the policies of flexibility (that is, casualisation) of labour, leading to a collapse of labour productivity. For a while, until the faltering growth was higher than the self-dissolving productivity, this led to full-underemployment in the Centre-North. The crisis is revealing the hidden truth, and the drama of Italian unemployment and further casualisation is just at the beginning. The recent policy measures to redress the government budget balance according to the ECB diktat are the sum of increasing regressive taxes and a savage reduction of government’s money transfers to local authorities, which means cuts in essential social services.
Italy’s trouble is the same as Europe’s: lack of effective demand, but also perverse composition of output. Default plus exit from the euro are not options anymore within a crisis including Italy. In 1992 Italy left the European Monetary System and managed a huge devaluation of the lira: the structural problems deepened, and workers and popular conditions deteriorated dramatically. This time, moreover, Italy leaving the euro would mean the end of the monetary union, and a dramatic broadening of the European and world crisis. The crisis can be overcome only by stopping the domino effect and opening hope for the future: that is, dealing at once with the European financial and real crisis. One suggestion has come from Yanis Varoufakis and Stuart Holland: eurobonds not only as financial rescue but also as finance to a wave of investments on a European scale.
However the crisis is a capitalist crisis: it is part of an attack against labour, private and public, in production and social reproduction. From this point of view – if the problem is not neoliberalism, but capitalism per se – a renewed New Deal should be part of a wider programme of the European left and trade unions, pushing forward for a socialization of investment, banks in public utilities, the intervention of the State as direct provider of employment, and capital controls. It is not (yet) Marx. It is Minsky 1975. Unfortunately what’s really missing in Europe is not the money to finance the public debt. It is internationalism. European struggles are the necessary condition to resist austerity and get back some decent reformism.
Riccardo Bellofiore is a professor of monetary economics and history of economic thought at the University of Bergamo, Italy. This article was also published in The Guardian Comment is Free on 2st September.
‘As the crisis broke three years ago, here in Italy we said, “We won’t pay for the crisis”. But, up to now, we – the weakest and more unprotected classes – have paid for it all. At that time the rebellion didn’t have a European dimension, it was solely national in every single country. Now, we are trying again. For the demonstration on the 15th October, we can have millions of people from all over Europe protesting against the neoliberal politics that rob and destroy our social and common wealth. The meeting in London on 1st October is an important step towards this common action. COBAS will be there!
Senator David Cullinane says:
‘This conference will be a timely event to both oppose the draconian cuts threatening ordinary people across Europe and to look at progressive alternatives. In Ireland we know only too well the dire consequences of austerity policies, bank bail-outs and IMF/EU loans. Driving down living standards, slashing public services, hitting the most vulnerable and attacking workers’ rights and families has been a catastrophe, making the economic crisis much worse. Unemployment and emigration out of Ireland are increasing and so is the deficit. Sinn Fein believes there is a better way forward: investment in jobs and people and an economic stimulus as the way out of the crisis, based on equality and social justice. We are pleased to be at the conference to discuss perspectives for the way forward.’
Film Director Ken Loach is the latest addition to those supporting the Conference. Ken says:
“The need to organise against cuts is plain to all. It is equally clear that we need to make links with others facing similar attacks. We must not only speak of internationalism but make it a reality. It is desperately important that this conference is one step on the path of European-wide solidarity action. Good luck”.
Portugal’s Left Bloc will be participating in the European Conference Against Austerity in London on 1 October. Feyzi Ismail spoke to Jorge Costa about the crisis and the need for Europe-wide mobilisation.
What kind of mobilisations has Portugal seen in recent months over the financial crisis and austerity drive?
The most recent mobilisation was on 12th March this year. In response to an appeal called on Facebook, over 200,000 people demonstrated in central Lisbon against rising unemployment and attacks on wages and pensions. This is a huge number of people in a metropolitan area of around 3.5 million. The organisers were four young people. From that date until today, it’s small groups of young people that are mobilising and it’s just beginning, but we have big expectations.
Can you describe the IMF intervention and the current political situation?
The political climate is very subdued in the country for the moment. Of course it was already quiet because of summer but generally speaking we are still living the aftermath of the elections and the victory of the right. Elections were held in June after the resignation of the Prime Minister, José Sócrates, of the Socialist Party – the equivalent of New Labour in Britain. The government is now a coalition made up of the main bourgeois party, the PSD (Partido Social Democrata), which is conservative, and the PP (Partido Popular), which is even more right-wing.
There were austerity measures in place throughout the socialist government, with wage cuts and cuts in welfare. But last year there were two new austerity packages introduced, which included rises in VAT, freezes on pensions, further wage cuts, cuts in public services and a big plan of privatisation. So half of the Greek-style austerity package was already introduced before the IMF coming in, during the socialist government, and now the other half is being implemented through the IMF directly, by their presence here, and by the current government.
The IMF is loaning Portugal €78 billion from this year, for three years. It’s going to condition every aspect of society: wages, pensions, welfare, public services, labour laws and so on. Unemployment benefit will be reduced by a third. All this together will produce an even bigger rise in unemployment and the recession will deepen.
What is the public mood over the bailout?
Many people believe that things will be better after this. That was the spirit that led them to vote for the political parties that support the troika – the EU, European Central Bank and the IMF. Most people think the left is correct in theory, but that it has no policy to answer the blackmail of the bankruptcy, and so many people voted for the parties that brought in the IMF. Soon I believe people will understand this policy is wrong and it will not answer their problems. They will understand that it will not pay the debt and it will lead us to a situation in which we have a bigger debt and fewer resources to address it.
There is also fear. Unemployment is exploding – we are now reaching figures of 800,000 unemployed, which is 12 percent of the population. So it’s very high and this produces a social fear of course. We feel it in a very real way. So we are living in a moment when people are waiting to see what happens. The impact of the cuts will be felt more deeply in the coming months. Further wage cuts and tax rises will be implemented from next month, and Christmas bonuses will be cut from this Christmas. So this will change the political and social situation. The left must prepare itself and discuss ways of mobilising amongst the widest section of the population under these new conditions.
Do people look at Greece and say that it only delayed another crisis?
There are people looking at Greece. But the mainstream media tells people that Portugal is not Greece, that we should not behave like them, and that we’re not in as much debt as Greece. So people feel that the situation looks the same but they are told it’s not the same, that we have more options. Ireland is also shown as an example of how the economic crisis is not unfolding like in Greece – it’s portrayed as a success.
These are times of intense media propaganda. There are news programmes on TV telling us how to cook for €2 per person. They are explaining to people how they can feed themselves for less money, because they will be earning less money. And so the mainstream media is assuming a role in this process of mass manipulation of the facts and of the future of this IMF intervention.
There’s a big transfer of wealth taking place, from the working class to the financial sector and the bosses. The media operate to build a consensus to push these policies forward. And this all builds an atmosphere of inevitability: let’s try to adapt, save and so on. So the conditions for mobilising are not very easy. We need to be aware that times of foreign intervention are times of very harsh conditions for activists.
But against expectations and every prediction, the way that people rose up in the streets last March shows that we have to be ready to answer people and help them find ways of resisting. Spain is a good example. There have been mass mobilisations on the scale we haven’t seen in years. These mobilisations are spontaneous and have a direction of their own, which has its problems, but the mobilisations also have a very deep credibility in society. And they can develop. We need to encourage them to develop into mass coalitions to fight the cuts and fight unemployment and build more permanent forms of organisation and participation. In the squares of Barcelona and Madrid and elsewhere they are signs of that possibility. We hope that we can move in that direction in Portugal in the short-term.
What has been the Left Bloc’s response to the IMF intervention?
First, we want an audit of the debt. We want to identify its elements, understand who our creditors are, how much we owe, for what and what the money has been spent on. In short, we want know what is being demanded of Portugal. And how we got here.
Second, we want to renegotiate the debt. Because there are parts of the debt that are the result of corruption, and therefore illegitimate and shouldn’t be paid. So we need to renegotiate the whole debt – the size and terms of the debt, the interest and the time in which it should be paid. Because even if we had a very strict austerity plan for the next 20 years, and by some miracle these austerity policies brought us 4 or 5 percent economic growth a year, even in that case we wouldn’t pay the debt in the time the IMF is proposing. So we are working on science fiction. The debt is not feasible even under the most ideal circumstances. So we must renegotiate the debt and do it now because we will be in a weaker condition to do it afterwards.
At the same time we are demanding the development of financial economic instruments on the level of the EU to address the economic crisis and help the peripheral countries find solutions to their debt crises. Parts of these debts should be mutualised, mainly through the creation of Eurobonds, and this has to be done on a European scale by way of developing a European level fiscal policy, so that we can build the resources to redistribute wealth.
Of course we know that the EU today is not an institutional space where this can happen. So this has to be built by a mass mobilisation on a European scale. It’s a very difficult situation for the left when the European bourgeoisie is organising a mass transfer of wealth from workers to themselves, and when they have developed the institutional architecture to facilitate this – from the monetary plans to the financial institutions to the political establishments, which are built to organise this transfer – it’s very difficult for the left to present an alternative to this framework. But that’s what the Left Bloc is trying to do.
Are there circumstances in which the Left Bloc would argue that the debt should not be paid at all?
The troika is building the conditions for that. They are creating an economy in this country that will bring us to a level of indebtedness that will obligate us to refuse the debt. That’s for sure. But our position for the moment is to renegotiate the debt with our creditors, refuse the illegitimate parts of this debt and make huge fiscal reforms to generate the resources to face the social crisis.
What further mobilisations are planned and how are the unions involved?
On 10th September there is an appeal for a demonstration in support of teachers, whose numbers are now being reduced dramatically. The unions calculate between 15 and 25,000 teachers will lose their jobs starting this September because class sizes and working hours are being reduced. Over the past few years there have been tens of thousands of teachers contracted by the state under very precarious conditions, and now we are seeing the first victims of this policy. So the demonstration on 10th September will be very important.
Also the organisers of the 12th March demonstration are now calling another demonstration, which is an international appeal, together with other movements, including those of precarious young people and the unemployed, on 15th October. It’s just beginning as a grassroots initiative, so the Left Bloc is in solidarity with it. We will help mobilise for it, and participate in it, and some of our members are helping to organise it, but we want it to live and create its own space in society.
We believe Europe can turn 15th October into a continental-scale mobilisation against cuts and austerity. But we also need to develop new forms of permanent, direct, democratic participation, which are not necessarily the old trade unions, or not necessarily the old associations. We should learn from the good experiences that workers and mass movements have made in the last century to understand what should be done to fight.
We should not be conservatives and say that the old forms of organisation are the only effective ones, but we should also not worship the cult of the new. We should see new tools and forms of expression, participation and democracy as ways of avoiding the same mistakes, of finding better ways of engaging people – and large numbers of people – to have a say and develop their consciousness. At the same time we need to build antagonistic organisations, the Counterfires. We need more than ‘likes’ on Facebook. We need to have our own media, we need to have our own organisation, not just in the squares but also inside workplaces and schools – to put fear into the ruling classes, which is the sentiment on the streets of Greece.
How does the Left Bloc organise and what has it been doing specifically around the IMF intervention?
We organise in local groups and across sectors, including the environment, youth and students, media and others. The website in particular is important for us – at peak times we have over 10,000 visits a day. At a national level, we also co-ordinate amongst the municipalities, and our members participate in various campaigns. We have a free newspaper that comes out every two months with a circulation of 150,000 copies. This has been a real success for us. In the past there has been a tradition of selling the paper, but we lost it. The fact is that people have had enough of it, they are used to free papers, and of course there is the web. We reach more people and that’s the point. People respect it as a paper and take it, and members engage with it because it’s a big job to produce and give out.
We also have co-ordination meetings, assembly meetings and we organise public meetings. There are hundreds of initiatives locally and Lisbon-wide. And we have branches across the country in all the main cities and in most urban areas. We have elected people at local level and have two MPs in the European Parliament. The founding organisations of the Left Bloc organise as associations, with their own activities and publications. There are three associations of this kind: a group that split from the Communist Party, known as Manifesto, UDP (União Democrática Popular), which has Marxist-Leninist roots, and PSR or Revolutionary Socialist Party, which is part of the Fourth International. The Left Bloc is organising its annual socialism conference 9-11th September and a conference on debt the first week of November.
The Left Bloc is also participating in an audit commission on the debt. The idea was along the lines of a Citizens’ Audit Commission, like in Greece, based on the voluntary participation of union activists, left activists and critical economists that can analyse parts of the debt, understand what’s been spent on specific things, like soccer stadiums, submarines, corruption, health and so on, and produce a report on the kind of debt we have. So our critique of the debt is informed. But it’s only just beginning.
Most economists who understand the financial crisis in Europe talk in apocalyptic terms. What do you see happening?
Yes, the possibility of a total crisis in Europe, with the disintegration of the Euro and an even deeper recession than the one we have now, is a possibility. It’s even a possibility worldwide because of the repercussions that the recessions in the US and Europe can have on emerging economies. But in Europe they are playing a very risky game. The German bourgeoisie is leading the process in a risky and arrogant way since they are trying to transfer as much as they can and as quickly as possible into their own pockets. And although they are being told by every Nobel prize-winning economist and even moderate politicians to watch out – you could be bringing Europe’s financial system to a point of no return – they are still trying to take it as far as they can. The German and French banks are mainly the ones going in this direction.
The problem is that German and French banks were the ones that built the debt of the peripheral economies. These banks lent money to the Portuguese banks so they could lend, in a very easy way, to ordinary people: to buy houses instead of renting them, to build new houses instead of renovating them. If you go to the centre of Lisbon houses everywhere are abandoned. Ask the German banks how this was possible.
Mass private debt has been created over the past 20 years, but mainly in the last decade. Germany was able to produce a high degree of capital accumulation over this period mainly for two reasons – they were selling technology to emerging countries and at the same time cutting wages in Germany. So they put this capital on the financial markets and lent it to the peripheral economies to favour credit policies that in the end went wrong. And the bailouts have been transferred to the state. In Portugal, the way public debt has risen is very visible. The banks pay almost no taxes in Portugal – they find ways of avoiding or minimising taxes. Last year they paid around 5 percent. The Left Bloc has had some important interventions around this but there is no mass campaign against it.
There will be more demonstrations in Athens very soon, and in Spain the possibility also exists for this movement to develop. In Portugal there will be a movement. The ruling classes in Europe are turning to repression in a very harsh way, and they will do it across Europe. What happened in Britain over the riots will be followed elsewhere. That’s why we need mass mobilisation at a European level, to stop the assault of the ruling classes and defend democracy.
The Left Bloc will definitely have a presence at the European Conference Against Austerity in London. We are very interested in building wider unity and popular participation around the crisis. And we must build this unity across borders and on a European scale. That’s why this conference is so important.
Jorge Costa is a leading member of the Left Bloc and is a former Left Bloc MP.