The Constraints of International Capitalism on Domestic Policy Choices

This is a brief dialogue between Dr. Gavin Gleason, Gareth Murphy (trade unionist), Dr. Aidan Regan  and Paul Murphy (Irish MEP) on the Greek elections, the Eurozone crisis and the constraints of international capitalism on domestic policy choices.

Gavin Mendel-Gleason 

Do you fight internationalised capital on the international scale or the national one. I think the clear answer is international. An attempt at fighting international capital on the national scale will be brutally crushed. We need to be focusing our efforts building up the fight on a scale that has a chance of winning.

Syriza is taking exactly the right approach. Change the debt terms, but stay in the Euro. This has the potential not only to alleviate the suffering of the working class in the near term in Greece but also to start the ball rolling for a broad left movement in Europe to seize the EU institutions and democratise them and provide a better playing field against international capital.

Aidan Regan

I agree with most of what you say Gav. It is impossible for the national democratic state to contain international capital. There has to be a transnational response. But this does not preclude Greece from returning to its own currency. On the bare raw empirical facts, the Euro is too strong for the Greek economy. It makes sense for Greece, in the interest of improving the standard of living of its citizens, to re-establish a currency that fits their economic needs. My instinct tells me that this reality will eventually be realised by Greek people themselves.

The alternative is a full blown united states of Europe, with direct fiscal transfers. But even this wont change the domestic economic trading conditions in Greece. They will end up in much the same position as South of Italy, relative to their Northern regions. Interestingly, you can trace the economic stagnation of the South of nItaly to the establishment of the Lira – which primarily benefited the exports industries of the North (much like the Euro-Germany). So I think one can be pro-Europe, and fight for an integrated Union based on something more than market integration, whilst choosing to retain an autonoous currency.

Gareth Murphy

Those forces that place the survival of the euro above all else accept the economic subordination of peripheral states in Europe and the manipulation and distortion of these economies to suit the needs of monopoly capital. Gavin your right about the need for international cooperation but it should be , in my view, on the basis of weakening centralised EU control and reclaiming the sovereign ability of states to control capital.

Gavin Mendel-Gleason 

The US has regions that diverge greatly in the relative cost of labour, productivity and cost of living. Fiscal union allows federal transfers to make up for this divergence so that it doesn’t lead to the sorts of centrifugal forces which are throwing Europe into disarray. An escape from the euro is not the only way out.

In any event, the question shouldn’t be one of principle, but one of what is going to be in the best interests of the working class. I think it’s fair to differ on the question but one should be required to marshal evidence rather than saying “class struggle = anti-euro”. In the case of Greece, the economy is significantly more integrated than it was in the past, yet imports are now 30% relative GDP. Compare this to Ireland which is closing in on 80%. What would be a gamble in Greece would be a clear disaster in Ireland. We have to be careful about not making a principle about something like this.

Aidan Regan

I agree Gav that an escape from the Euro is not the solution to all of Europe’s problems, but it is a core part of the solution for Greece. Europe is a long way from having the type of institutional coordination that exists in the US. In the immediate term, the EMU has to evolve from a currency to an actual monetary-fiscal-political union, across seventeen very different economies and social policies. This convergence is not likely to occur for many years, given the multi-governance system of European decision-making. In the end, it will happen if and when Germany decides. In the meantime, the Greek economy will continue to collapse under the weight of an overvalued currency, corrupt politics, and German-ECB mercantilism. At the expense of sounding flippant – a Greek exit from the Euro would lead to an immediate devaluation (offsetting the internal wage devaluation and giving a temporary boost to the few exporting sectors left – shipbuilding for example) and a surge in tourism. It would become the cheapest sunniest place in Europe for all those rich northerners. This is not economic-industrial policy for the long-term. But in the short-term, domestically oriented tourism, is all Greece really has.

It seems to me that we have to distinguish between the currency union and the European Union. A Greek exit from the currency union should mean they are treated no differently to Denmark or Sweden in their dealings with EU institutions. Taking a general anti-EU approach (as is happening with many populist-socialist parties across Europe, including the Netherlands) is a no-runner for me. I loathe any romantic return to the nation-state as a bastion of refuge against international capital. internationalization is a two-way process and cannot be reversed. The future for Ireland and Greece is Euro-regional not national. On a side note – the Greek election is a blessing in disguise for Syriza. They were never going to be able to balance a refusal of the memorandum and remaining in the Euro. They can sit in the opposition for six months whilst the Greek economy collapses – and romp home in the next election. They might be in a better bargaining position to square the circle then.

Gavin Mendel-Gleason 

But those institutions in the US exist precisely because of a centrifugal crisis. Further Greece is not the only economy that is suffering under the German-ECB policy regime. The entire periphery is going into decline and Germany will likely follow since they are so export lead in terms of growth and the periphery (plus France) constitutes the majority of their export market. It’s best to use the crisis to coordinate a solution to the entire periphery in my mind than to all go to separate currencies.

I agree that they are very likely better off allowing ND to crash the ship of state rather than desperately try to save it themselves. However, I’m not sure why it’s impossible to call a moratorium on the debt and negotiate a haircut and remain in the EU. I keep hearing this but I’m not sure what process could actually be used to stop Greece from doing it. Currency devaluation will only work relatively to the other countries if it’s about tourism and export and it’s not clear to me that this would not lead to a beggar-thy-neighbour devaluation spiral if some of the other Eurozone governments leave.

Aidan Regan

Indeed. The problems of the Eurozone are internal and structural – and require policy coordination in the core and periphery. Until Germans import more, pay better wages, and reflate domestic fiscal policy then the monetary constraints of the Euro worsen the conditions for GIIPS. So I agree, entirely, that it requires European wide coordination. But the type of coordination that would save Greece is simply not possible in the near future. A recent survey of the German electorate found that 80 percent want Greece out of the Euro. There is simply no political appetite for fiscal transfers between the regions. It might even come to the stage where Germany ask – feck, is all this money we are pumping into the ESM really worth it? Is it worth staying in the Euro. Hence, unfortunately, Germany will only push for the type of coordination we favor, if Greece are out. Hence, this absence of solidarity is no foundation for a United States of Europe. Also – I reiterate, exiting the Euro-currency does not mean exiting the European Union. In the end – a debt jubilee will be necessary.

Paul Murphy

Ok interesting debate, I agree and disagree with aspects of what Gareth, Gavin and Aidan say.

First of all, in terms of what Gavin asked about – why can’t you stay in the eurozone and impose a moratorium on repayment of debt? I think tactically, taking into account consciousness on the issue in Greece, where 80% want to stay in the euro, if you were in government, that’s what you should attempt to do. You should say we can’t afford to pay this debt and we’re not going to pay and let the responsibility for being kicked out of the euro rest with the establishment in Europe. But I wouldn’t be under any illusion that they wouldn’t force you out. There’s no legal mechanism, but the way they’d do it is quite simple. They cut off funding to your state and cut off liquidity to your banks. Pretty soon, you need to print some money if you’re not going to be in an even worse crisis. You can’t print euros, so you have to print something else.

Secondly, Gavin raises the idea of ‘seizing the EU institutions and democratising them’. I think you under-estimate the neo-liberal nature of the EU project and the EU institutions. The construction of the ECB as an ‘independent’ central bank with a more limited mandate than even the Fed and the introduction of the euro are instrumental parts of pushing neo-liberalism within Europe. The European Commission is completely undemocratic and consists primarily of ideological right-wingers and the Parliament is dominated by the right and relatively toothless in any case. The Council is dominated by the big member states who set the agenda and in any case there is a broadly neo-liberal consensus amongst the vast vast majority among those at the Council. Certainly, if you had a left government and were still in the EU (very unlikely I think) you could engage in a debate at that level and use it as a platform, together with the European Parliament etc. But I think there is no way that the EU institutions or the EU itself can be reformed or significantly democratised. Behind them lies an army of civil servants, the big majority of senior ones who also share the outlook of the ruling class.

Thirdly, however, I more agree with Gavin than Aidan when it comes to the prospect of a Greece outside of the eurozone on the basis of the continuation of the rule of capital. I think it’s an illusion to think that there would be any significant growth based on the dramatic devaluation that would follow. There would be such a massive dislocation of the economy that it would be sent into a tailsin and there would be a further collapse of private sector investment (already down almost 50% since the start of the crisis). In addition, a central difference to Argentina (and it is overstated regularly as a ‘success’ story), is that in terms of exports it doesn’t have all that much – doesn’t have the beef, doesn’t have the oil, all it has to offer in terms of native ‘exports’ is tourism, and that isn’t enough. The other issue is that its economy is incredibly ‘import-led’, with even those goods that are exported having a huge component of imports within them, which would therefore be more expensive. Exit from the euro and devaluation, without socialist policies like nationalisation of the banks, key industries etc., that would enable you to stop capital flight and have a major investment programme, is no answer – it would simply be another means by which the working class would pay for the crisis – via a slashing of their purchasing power. The latest Rearch on Mondy and Finance paper (Costas Lativstas) gives an idea of how exit on a socialist basis could be managed (http://www.researchonmoneyandfinance.org/ )

Fourthly, on Gareth’s points, I am not an uncritical defender of Syriza or its programme. Many of the KKE’s criticisms are well-founded, including those that criticise the ‘pro-EU’ orientation of the Syriza leadership. However, I think it is not accurate to say that they ‘place the survival of the euro above all else’. Tsipras made the promise that if Syriza got elected, they would remain in the euro. He also made the promise that more austerity would not be imposed and that the memorandum would be torn up (for the first election) or that it would be dramatically renegotiated (this was the defacto position in the second referendum). These promises are contradictory. Not implementing austerity will mean being forced out of the euro imo. I think it’s a big big mistake not to prepare the Syriza base for that reality. But it isn’t the same as saying they ‘place the survival of the euro above all else’. More fundamentally, I think the KKE has made a really sectarian error here, for which they have been punished at the polls. Without giving up any of their criticisms of Syriza, they could have formed a united list with them (Syriza offered this). In this way, they could have connected with the millions of people moving to an anti-austerity position and open to socialist ideas. Their criticisms of the Syriza leadership and the Syriza programme would have had a big big audience and would have had an impact inside Synaspismos and Syriza. Instead, they cut themselves off and are now in a weakened position.

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