The euro and European disintegration: Should we care?

Paul Krugman has long been skeptical of the success of the euro. The Nobel Prize winning Princeton economist, New York Times columnist and longtime Keynesian (stimulus) advocate to get the economy out of depression has repeatedly expressed his doubts on the viability of a single European currency in the face of political and fiscal disunity.

The European Union's unwillingness/inability to spend money on expanding employment (in other words, fiscal policy) in managing European business cycles (recession and growth) gives them no tools with which to fight economic depression.  

The EU set up a monetary union, but it needs a political union based on the empowerment of working people, not just bankers, to survive this crisis.

The main monetary tool for central banks to spur growth - lowering interest rates - is not possible once those rates approach zero. In addition, central banks without more democratic supervision, respond first to the ways in which economic cycles impact the financial system; they respond first to their most immediate clients - banks. Banks havea powerful and compelling interest to avoid anything which lowers the value of their loan and investment assets. This interest is no less powerful and compelling even if their lending and investment practices were foolish and reckless.

They will shamelessly beg for public bailouts when in trouble, but starve a whole nation before willingly inflating or taxing an additional penny of their wealth to help their fellow citizens. Those citizens, who were so kind to deposit their money in the bankers' trust, or promise to pay back loans - even though many of the contract terms and resets were concealed in misleading language and assurances from lenders - are left ruined. Then they are lectured by the rich and their flunkies that poverty is really in their best interest -- "the hungry dog hunts

When the financial crisis of 2008 hit, the central bank in Europe and the leading EU countries - France and Germany - adopted a different approach than the U.S. Federal Reserve. The Obama stimulus package, and a fairly aggressive policy of easy credit by the Federal Reserve, was motivated by the mandate to reduce unemployment, not just keep inflation low. The stimulus and the easy money policy were not enough, says Krugman, to fix the depression, but they halted the downward trajectory of jobs and GDP.

European policy has been dominated by banker interests. There is no "reduce unemployment" mandate or obligation in the authority of the European Central Bank (ECB). There is no EU entity which can stimulate growth like a government, as well as absorb bad debt and distribute the losses across the EU. Thus ECB activity has focused on cutting EU member budgets under the now refuted theory that laying off more people will somehow instill markets with "confidence."

Laying off more people in a depression has the opposite effect - it reduces GDP, reduces gross revenues for government, and debt gets worse, not better, after the cuts. This policy now has a global name: "austerity."

Elections in Greece, France and Germany have punished the austerity policy.

In Greece, the political center has collapsed under the waves of layoffs and wage cuts forced upon Greek workers, leaving it currently without any governing coalition, and another election looming. France has rejected austerity with the election of Socialist François Hollande. Angela Merkel's party in Germany suffered serious losses in parliament.

Krugman predicts the following.

1. Greek euro exit, very possibly next month, since previous commitments to pay down debt in exchange for loans were rejected at the polls. Political chaos is already stimulating a run on Greek banks as depositors try to move their money to safety.

2. Further huge withdrawals from vulnerable Spanish and Italian banks, as depositors there try to move their money to Germany, or other "safe" havens.

3. Spanish, Italian, Irish, Portuguese, Greek authorities (the PIIGS countries) may try to ban transfer deposits out of country and put limits on cash withdrawals and/or make huge draws on ECB credit to keep the banks from collapsing.

4. Germany either accepts huge indirect public claims on Italy and Spain (the largest troubled countries), or, the end of the euro.

This sequence of events seems highly likely. Krugman has been predicting it for over two years since the crisis began, and EU leaders have so far rejected the stimulus strategy which was the only hope of escaping this logic.

But it is a terrifying logic! And it is NOT the path to recovery. Disintegration in Europe is the path to aggravated conflict on every level, including peace and security. Recovery means investment, not cutbacks, in a depression. It means greater unity, not divisions, between EU nations and peoples. The working class must lead the way. But the way must be paved with internationalism. The fate of Greek workers will determine the fate of all EU workers. The election wave in Europe shows that working class and many democratic forces have awakened to the grave dangers that austerity forces have set in motion.

U.S. workers have a dramatic stake in the outcome. Another recession on top of the depression now threatens Europe. It will take the wind out of any hope we have of sustaining the anemic recovery we have here. The austerity forces here stopped the Obama recovery program two years ago. Krugman is pessimistic - but despite his brilliance as an economist - he has at times been politically numb. Let's take that as a tonic. The lessons of Europe and the courageous reversal of austerity in the face of persistent threats from bankers and the rich give hope. When working people get moving - anything is possible!

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  • This analysis is based on a half truth, and very stupid. What recovery the US has: look MS Global from which billions of dollars were stolen by criminally oriented thieves (read bankers), and the scandal of JPMorgan, which supposedly lost only tiny 2 billions, but this seems to be tip of much bigger iceberg. The Obama quantitative easy is nothing other than the transfer of ordinary people's money to too big-to-fail financial institutions, and left the real economy (manufacturing economy) dry without any lending from those rescued too-big-to-fails. If the author is a Marxist, he must be 1000% blind. Even the head of Gallp Poll stated in Russia Today interview that the unemploment level of the US is around 20%, and I add another 3% or more, due to the fact that the US has the largest prison population of 2 million or more. The private prison industry is prosperous and thriving. As Marx wrote, only the manufacturing can produce wealth, and even Crsitina Fernandes Kirchiner, the current Argentinian president, in her spech to the Congress, stated that money can not produce wealth, only manufacturing can. That is, Obama policy is just a cover-up and the US media now can not report it, as very corrupt now. Krugman is an economist on the service to financial institutions, though his assesment of the EU economy is partially correct. The euro is a failed currency from the start as it lacks any fiscal policy. No currency can survive without it, and in the case of the euro zone, the member countries are so different, and therefore, it can not have any unified monetary and fiscal policies. As a result, for example, Spanish economy has experienced housing and construction bubbles, leading to the the current panic. Unfortunately, there is not any good politicians at the leading positions, that is, they are all fools.
    At this moment of time, good politicians at the leading positions are all from Latin American countries, which got rid of the US and IMF and World Bank yokes, and in China and Russia. Especially, president Putin of Russia is an extremely capable patriotic politician, who has saved this world from the dominance of the US and European imperialisms.
    Actually, Russia and the USSR have saved this world: first defeating Napoleon, then Nazis Germany and Putin has prevented the US from riuing Russia and now led the US dolar to the declining path. And thanks to Obama, the US has become the largest debtor country in the world, and there is no way out of this.

    Posted by kotoko, 05/18/2012 2:30am (4 years ago)

  • Comrades
    It would be hard to know where to start in replying to John and his piece above. The starting point is not to think like the bosses and to see events in their language or terms.

    Austerity is working as planned. It was and is about the redistribution of wealth from workers to the monopoly corporations. Its about transferring wealth from the bottom to the top. Its the same in the USA as in Europe.

    Capitalism does as capitalism is supposed to do make profits the bigger the better regardless. So it was not "reckless" it was doing what it needed to do.

    The forces dominating and controlling the EU now are the same as they where when it was established - European monopoly capitalism.

    There is no society or economic policy that monopoly capitalism can deliver that will be in the interests of workers or their families. That has to be our starting point.

    The EU and the dominant economic power Germany have locked countries like Greece,Spain,Portugal and Ireland into a permanent debt trap. There will be permanent transfers of wealth for these countries to the dominant economic and political power such as Germany and France.

    The whole drive towards greater EU integration is not about democracy but its very opposite. It is deliberately being constructed to break national democracy and national sovereignty. The strategy is to limit the ability of working people in the member state from being able to affect change at a national level never mind at a EU level.

    It is constructed to remove economic, social, financial policy from being influenced or challenged by national class struggles and place they beyond democratic accountability.

    Can't speak authoritatively on Obama, but surely was his "fiscal stimulus" not a policy to throw trillions of dollars at the financial sector and the big monopolies who quickly did as their class interests dictated stuffed it away to pay their own debts or used it for further speculation. It was never intended to help small businesses or working people.

    It is not the job of the left never mind communist or anti-imperialist forces to present solutions to the crisis of monopoly capitalism that saves capitalism form itself, but rather to present policies that bring the class into struggle to defend its immediate interests but at the same time to present a vision of a new and better world.

    This crisis can only be solved by one of two ways either the ruling class crush the workers movement and all resistance and take back all the gains won by workers in the 20th Century or we mobilize workers to defend and present them with a socialist path forward.

    For a more accurate understanding of the current situation in Europe I would recommend readers to the statement below issued on the 1st May 2012.

    Joint statement by European communist and workers’ parties

    1 May 2012

    Joint statement issued by communist parties from across the European Union calling for maximum opposition to the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and the revised Treaty on the European Stability Mechanism (ESM).

    The European Union and the ruling classes of the member states are determined to make working people pay a very heavy price for the deepening crisis of the system.
    We Communist and Workers’ parties of the member states of the European Union call on workers across the EU to resist and oppose the adoption of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and the revised Treaty on the European Stability Mechanism (ESM).
    These two treaties would make “Eurozone” member states and practically all other countries signing these agreements into permanent regimes of economic austerity involving deeper and deeper cuts in public expenditure, rises in indirect taxes, reductions in wages, sustained liberalisation of markets and privatisation of public enterprises, services and vital national assets.
    The strategy is to have low wages, low public spending, mass poverty and workers having few rights. The treaties are designed to make these measures into a permanent feature of the EU that are impossible to reverse.
    The impact of these treaties will not be confined to the member states of the Eurozone. They will provide the bench-mark for further attacks on workers’ rights and conditions across the whole of the EU. The ruling classes have declared open warfare on workers in a generalised offensive.
    These treaties are designed to neutralise the potential of national working class formations to influence or change national economic and social policy. They, along with previous treaties, are about blocking any avenues for the working class to defend itself or to promote policies of social progress and a socialist alternative.
    They will make austerity permanent by continuous external interference of EU institutions in the affairs of member states in relation to economic and social policy, in the interests of monopoly capitalism.
    In this they have the active collaboration of the ruling class and its political representatives in each country. These treaties will further negate and deeply undermine national and sovereign rights.
    Any policies that the ruling classes across the European Union can deliver will inevitably make the people pay for this crisis of capitalism. Promoting the interests of the working class is only possible by confronting and breaking with this destructive system.
    We, Communist and Workers’ Parties value and salute the mass response from the workers and other social strata affected by the measures and policies of big capital, in Greece, Ireland, Portugal, Spain and Italy and call upon workers and their trade unions, and people’s mass organisations, to resist these renewed attacks and to mobilise and assert a working class response to the crisis of state monopoly capitalism.
    In the immediate battles of today our parties will present the vision of Socialism as the answer to the crisis of the capitalist system.

    Workers’ Party of Belgium
    Communist Party of Britain
    Communist Party in Denmark
    Communist Party of Finland
    German Communist Party
    Communist Party of Greece
    Hungarian Communist Workers’ Party
    Communist Party of Ireland
    Party of Italian Communists
    Communist Party of Luxembourg
    Communist Party of Malta
    New Communist Party of the Netherlands
    Communist Party of Poland
    Portuguese Communist Party
    Communist Party of Spain
    Communist Party of Sweden

    Posted by Eugene Mc Cartan (Dublin), 05/17/2012 6:44pm (4 years ago)

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