Economic and debt crisis
“The Monetary Union is Driving the Countries of Europe Apart”

Wolfgang Streeck

The euro, Europe’s common currency, is in crisis, a crisis that some say threatens to break up the European Union itself. Other say that the crisis will draw Europe even closer together, as past crises have done. talked to Professor Wolfgang Streeck from the Max Planck Institute for the Study of Societies about how justified – or indeed unjustified – such hopes really are.

Professor Streeck, fairy tales can be beautiful and sometimes perhaps a bit scary, but one thing they all have in common is that they are pure fiction. In this sense, is the story we were told ahead of the euro’s introduction – namely that the common currency would deepen European unity – also nothing but a fairy tale?

It was a hope, though one that differed from one country to another. France and others hoped that the monetary union would bring an end to Germany’s domination of monetary policy, while Germany itself hoped to see its traditional hard currency policy Europeanized. Today, now that we have had the common currency for ten years, it has become clear once and for all that this conflict can no longer be concealed under the formulaic compromises of the 1990s. Whereas Germany’s economy, whose structure is geared heavily towards the manufacturing industry, can cope well with a restrictive monetary policy, other eurozone countries are not “competitive” under such conditions and risk falling ever further behind. For a variety of reasons, the good advice pressed upon them by Berlin and Brussels – namely to implement German-style “structural reforms” to adapt their economies to market and euro requirements – is of no use to them. Thus the monetary union is driving the countries of Europe apart rather than bringing them closer together.

The next few years will become uncomfortable

Optimists claim that the European Union will come out of the present crisis stronger than before, as has been the case time and time again in past decades. Do you share this view?

Absolutely not. If we stick with the euro, the next few years in Europe will become extremely uncomfortable. The rift in the EU between countries with and countries without the euro will deepen: Great Britain, Denmark and Sweden will not join, and Great Britain at least will push for the contractual ties within the EU to be loosened. Within the monetary union we will see a long-term conflict between the centre and the periphery. Brussels will keep the economically weaker countries on a short leash with a view to achieving “consolidation” and “structural reforms”. In return, and to help them adapt, these countries will demand support payments which they will only be granted if they agree to renounce their economic and socio-political sovereignty. Their citizens will protest against this, however, which in turn will reduce the central countries’ willingness to pay. Consequently, the money that will flow from north to south, and later also to the south-east, will always be too little for those who receive it and too much for those who pay it, while the interventions in the national policy-making of the peripheral states will always go too far for them and not far enough for the centre.

In a joint announcement recently, the German and French social and finance ministers expressed the conviction that “the joint efforts to combat the crisis that have been undertaken in the eurozone since the outbreak of the crisis are now beginning to have an impact”. What is more, “the growing confidence of the markets” is proof “that the European response to the crisis, namely to reform public finances and modernize our economies, is the right one”. Budget consolidation safeguards not only our social welfare systems “but also our sovereignty and the ability of our states to fulfil their mandates without restriction.” Can this be refuted?

It must be refuted. The new “confidence of the markets” is based solely on the fact that the European Central Bank has promised them that it will print money unlimitedly in order to allow states to service their debts and to keep the banks afloat. Because the great majority of this new money is invested speculatively – manufacturing companies see only the tiniest proportion of it – share prices are climbing as if there had never been any sort of bubble in the past. Everyone is hoping, yet again, that they will manage to get out before this bubble bursts, just like all bubbles do, always and everywhere. At the same time, the overall debt levels of our national economies continue to rise, not only in Europe, but also in Japan and the USA, just has been the case continually ever since the 1970s. By far the greatest share of this debt burden is attributable not to the state, but to the private financial sector, which constantly brings out new “products”. Sooner or later, its losses will doubtless have to be nationalized again by the states, which will lead to increased sovereign debt and then to a further and even more brutal “consolidation” of public-sector budgets.

The anti-democrats are on the rise

In an emergency, help needs to arrive quickly. In the financial crisis, “the state” was called to the rescue, despite it having been much-maligned in the past for its sluggishness. In his book “Weltbeziehungen im Zeitalter der Beschleunigung” (i.e. World Relations in an Age of Acceleration), Hartmut Rosa concludes – having explored the decision-making processes in connection with the various “euro bailout packages” – that this is evidence that politics is still capable of acceleration, so long as it renounces democracy. Are we facing “de-democratization” as a result of the banking, finance and economic crisis?

Yes, Rosa is quite right. The anti-democrats are on the rise. As an economist or political scientist, you can earn a fortune these days by travelling around the world from one economic congress to the next and spreading the good news to the assembled audiences, all of whom depend on profits, that democracy is not the way forward in the global crisis economy and that the “Chinese model” or indeed the Singapore model is so much better for economic growth. This is reminiscent to an amazingly detailed degree of the nineteen thirties, when Mussolini, Hitler and even Stalin had no shortage of admirers among the industrialist class in the West. Even now, there is already no lack of examples of ongoing de-democratization; just consider the fiscal pact or the de facto takeover of European economic policy by the ECB – a body that is uncontrollable in parliamentary and political terms – or indeed the blind rubber-stamping by national parliaments, pushed through by the governments, of the never-ending series of European bailouts. Sooner or later we will have to decide whether the advantages of “globalization” are in fact so great that we are prepared for their sake to allow ourselves to be ordered around by a global technocracy of capitalists stripped of any democratic responsibility.

Wolfgang Streeck is a professor of sociology at the University of Cologne and managing director of the Max Planck Institute for the Study of Societies (MPIfG). An author, he recently brought out a book entitled “Gekaufte Zeit. Die vertagte Krise des demokratischen Kapitalismus” (i.e. Bought Time. The Postponed Crisis of Democratic Capitalism), published by Suhrkamp Verlag in 2013.

Europe an Economic Tale

At the Deutsche Welle Global Media Forum in Bonn on 17 June 2013, the Goethe-Institut reflected on the current discussion of the European economic and debt crisis in a workshop entitled “Europe an Economic Tale. The Current Financial Crisis – Perspectives from Europe and Beyond”.

Peter Craven (Deutsche Welle) will chaired the discussion with Louis N. Christofides (Professor of Economics, University of Cyprus, Nicosia), Theocharis Grigoriadis (Visiting Professor of Economics and East-European Studies at the Freie Universität Berlin, Athens), Frank Sieren (Bestselling Author, Documentary Film Maker, Senior Asia Columnist for Handelsblatt, Beijng) and Dr Ursula Weidenfeld (Economic Journalist, Berlin).