Comments on the Eurozone
I am commenting on a subject despite my limited knowledge. Any comments or suggestions would be appreciated.
Robert Guttmann and Dominique Plihon have put together an extraordinarily comprehensive analysis of Europe’s single-currency project. Even if I had some expertise in the subject, I suspect that I would not have many criticisms. Instead, I would like to raise a few of questions because the paper whetted my appetite for more information.
First of all, the paper tells us about the project from the perspective of the people who were in power to make the decisions that led up to the final arrangement. According to Thomas Sargent:
“The people who set up the euro clearly … strove to set things up to protect the euro from any adverse consequences … Indeed, the whole system was designed to force governments to balance their budgets in a present value sense, adjusting appropriately for growth. Indeed, the Maastricht Treaty actually put in fiscal rules that amounted to overkill in the interests of creating a fail-safe system.”
The casualties of that overkill are now obvious, but I would have liked to learn more about voices raised against this project from the perspective of class interests.
Sargent went further, proposing that “The euro is basically an artificial gold standard. The fiscal rules in the Maastricht Treaty were designed to make explicit the present-value budget balance that was unspoken under the gold standard.”
I would have liked to have learned more about people in the European periphery who recognized the contradictions within the system. Or was most of the resistance nationalistically motivated?
On a deeper level, I am interested in the broader subject of national and international integration. Here in the United States, the southern states remained quite backward until New Deal policies (and two decades later capital’s escape from the power of unionism in the North) created cores of economic growth. Italy still remains divided internally. Even closer to the subject, German reunification still seems to be embarrassingly incomplete. Did leaders from the peripheral countries really expect to catch up or did they expect the smaller economies to remain less developed nations serving the core economies?
Within the European Union, Germany appears as a more developed version of China within the global economy. Just as the peripheral countries of Europe are experiencing vicious internal devaluations to compensate for their declining industrial status, so too is the United States. Perhaps a closer analogue might be New York in 1974, when the banks withheld credit from the city, a key event in the evolution of neo-liberalism.
The German-China metaphor is far from perfect. German industry seems to be directly displacing industries in the periphery, while China, which is only now beginning to assert itsself in a few industries, is largely being used as an alternative to domestic production in the United States.
In this respect, the difficulties of the European Union seem to have a great deal of relevance for the neoliberal theory of international economic development. The present system precludes the creation of the kind of development state, which might have the capability of breaking out of backwardness.
If the neoliberal project in Europe with its long history of institutional development is incapable of breaching the gap between the core and periphery, what could give anybody any confidence that neoliberal economic development models would have anything to offer the less developed nations of the world?
Of course, what we are witnessing today is that neo-liberal failures only serve to strengthen neo-liberalism, while weakening its opposition.
The paper describes labor mobility within the European Union as relatively limited. I would like to learn more about the extent of labor mobility and how much remittances meant for the economies in the periphery. Was this system designed to provide more low wage labor in the core than Turkey or North Africa have provided in the past?
On another level, the EU as a whole does have some promise in terms of taking regulatory action. Although it is a capitalist arrangement, for the moment, it is decidedly more rational than what the US offers. I am thinking in terms of the respective stances on global warming and the increasing monopolistic powers of US corporations. I realize that this is a tiny straw to grasp at, but in this bleak environment, even something this minimal is worth mentioning.