Costas Lapavitsas, Professor of Economics at SOAS, and a number of economists associated to one extent or another with the Research Group on Money & Finance, published this book as an examination of the effects and meaning of the economic crisis of our times for the countries in the Eurozone. They limit themselves quite specifically in this manner, not discussing the wider impact on the EU, the non-Euro member states, or the nature of the crisis insofar as it does not immediately relate to the issue of the Euro and the banks of the Euro system. What one does get, however, is a remarkably precise and detailed analysis of the constituent elements of the crisis in the Euro, the European banking system, the nature of the bailout and its failures, and the relationship between debtors and creditors within the Eurozone, which have emphatically been on the political foreground in the past two years or so.
The framework is that of examining the opposition of interests between the core countries of the Eurozone, the creditor states of France, the Netherlands, Finland, Austria, etc., and most importantly Germany, and on the other hand the intra-European periphery, Greece, Portugal, Spain, and Ireland (though Ireland is not the focus of this study due to its idiosyncrasies). As Lapavitsas et al. argue, the European Central Bank and the monetary union which it underpins are essentially constructs created to achieve these purposes: first, to create a European currency which can rival with the US dollar as the ‘world money’ Marx identified capitalism must have in the absence of a metallic standard; secondly, to unify the money market and thereby the competitive strength of the financial institutions of the Eurozone; thirdly, to facilitate the imposition on the EMU member states of a permanent system of austerity, inflation-targeting, and budgetary restraint which would make any serious national opposition to the interests of European finance capital (and industrial exporters and carrying traders) impossible. In this it has succeeded wonderfully well.
However, as skeptics pointed out from the start, the Eurozone contains a serious contradiction between the interests of the capitalists of the core (well served by this) and those of the periphery, for whom this does not work as well. The authors rather unusually emphasize Germany’s primary position within this system, and its dominance over the interests of the periphery, as following not so much from its export strength as from the fact it has had the longest and most enduring neoliberal wage repression of the Eurozone. This then combines with its absolutely high levels of productivity and its political power over the ECB (located there) to make it fundamentally more ‘competitive’ than the southern countries, which have seen rising nominal wages but insufficient corresponding productivity growth. This is supported and further examined by a great deal of graphs and data, unfortunately often not clearly visually presented.
A second major section of the book is to argue the effects of the financialization of the Eurozone, and how this has played out in generating much of the crisis. The crisis started, of course, with the collapse of interlinked financial bubbles in the United States – the real estate bubble and the multiply leveraged debt bubble. But the focus is here on the Eurozone only, and this has experienced similar phenomena. It is certainly worth remarking on how commonplace it has become for commercial banks to undertake financial ‘investments’, for consumer debt to skyrocket in response to stagnating real wages and an increased dependency on credit in the open market for previously ‘shielded’ consumption like education and housing, and to note the enormous expansions of fictitious capital luring in investment from institutional investors, domestic corporations, and so forth, exposing them to much greater degrees. However, this aspect remains somewhat undertheorized in this book. There is little explanation of the political economy of financialization itself, its origins and its relationship to the rate of profit in the overall economy – other than declaring it, rightly, as part of the neoliberal project. This is perhaps defensible as such considerations can be found in various other books, and one cannot expect one book to discuss everything. But a more political economic background might engage the work more with the criticisms of much of the distributionist theories and ‘crowding out’ explanations of financialization as offered by for example Andrew Kliman, and would contribute to that debate. As it stands, financialization appears as an exogenous cause explained merely in terms of ideological drives for deregulation and the economies of scale of large corporations that allow them to self-finance investment, as also summarized by Lapavitsas here.
The third subject of the book is probably of the greatest political-economic interest, namely a practical discussion of the trends in the current crisis and the attempts to resolve it on the part of the ‘troika’, and what the periphery countries can do about it. The focus here is, understandably and rightly, mainly on Greece, although no doubt much of the same applies to Portugal and perhaps also Spain. Lapavitsas et al. take a strong stand against what they see as the failures of the political left to properly understand and critique the presuppositions of the EMU system, thereby paralyzing left politics at precisely the moment it needs to intervene strongly. One might add that this also leaves open the door to other forces to do so instead, as already becoming visible in Hungary and Greece. The left’s response has been a muddled back-and-forth between on the one hand suggesting massive lending and investment by the ECB and Eurozone countries respectively as a simple stimulus programme, and on the other hand an inchoate resistance against the European system as a whole, proposing solutions which would involve a more ‘popular’ Euro policy.
For the authors, this is inadequate and incoherent, and they make a strong case. As they describe it, there are essentially three possible routes: the first is to continue the current policy. That is to say, the troika provides liquidy and limited debt relief to periphery countries in return for severe austerity policies. The purpose of this is purely to retain the credibility of the Euro as a whole and thereby benefit the financial institutions as well as the beneficiaries of the Euro as a world money, and the costs come down entirely on the shoulders of the working people of Europe and especially of the periphery. There is some discussion here, as in many post-Keyenesian arguments, about the inability of the austerity policy to actually revive growth and investment, but this strikes me from a Marxist angle as besides the point: its sole purpose in the short to medium run is to favor financial capital interests, as with Cameron-Clegg’s policies on behalf of the City of London, and the restoration of the investment climate for the national bourgeoisies is left to the mass devaluation that results from prolongued recession and unemployment. Here, Marxism and the theory of the transnational class have considerably greater explanatory power than the (post-)Keynesian analysis, which would have us believe the ruling class is simply unable to see its own interests, and that those interests can partially coincide with those of the population as a whole. We must resist such notions.
However, on rejecting the recipe of austerity and recession, two other options remain. The second is the ‘left-EMU’ option, that is, to attempt to use or reform the EMU institutions such that a genuinely ‘popular’ policy can be followed. This seems to be the notion favored by much of the social-democracy in Europe insofar as it is having second thoughts about the neoliberal turn, and also that favored by the trade union leaderships and the left ‘civil society’ and so forth. Here Lapavitsas et al. are very useful in their denunciation of this approach, at least for the periphery. As they rightly note, there is very little reason to believe even a reform like abolition of the Stability and Growth Pact would be able to overcome the contradictions inherent in the Euro project as currently conceived, and aside from that, it is virtually inconceivable that the ruling classes of Germany, France, the Netherlands and so forth would be willing to move any further in that direction. They have already permitted the ECB to make various direct interventions to restore liquidity, they have accepted partial defaults on creditors’ terms, and they have had to substantially finance the EMU-wide bailout funds like the EFSF – all of which entails in practical terms a distribution of value from the core to the periphery. The middle classes of northern Europe are well aware of this, and are exercising strong pressure not to budge any further. A left option within the EMU is therefore for the periphery actually a more utopian possibility than the third, the option of exit.
The exit strategy is the most politically significant and the most interesting, and especially for Greece appears as the only really viable option purely from the point of view of economic development. While restoration of national fiscal and monetary power and disembedding from the EMU on the part of the periphery might be seen by some as a concession to nationalism and contrary to the international interests of the workers, it is worth considering the substantial economic historical evidence for the importance of sovereignty in achieving developmental goals.(1) Moreover, as Lapavitsas et al. make clear, there is not much choice. The various calculated scenarios of the econometricians of the troika themselves indicate that Greece will not by the current course be able to sufficiently reduce its national debts, both public and private, and the severity of the depression in the country and capital flight are further undermining the state’s tax base. The ECB cannot indefinitely keep propping it up, simply because it is not backed by a federal or united European state of which it can be the monetary-fiscal incarnation, and therefore its risk position from the point of view of transnational finance capital is relatively unstable – one major reason why the ECB’s interventions have been much more conservative than those of the Federal Reserve. More importantly, the current prospect is indefinite high unemployment, negative growth, loss of real living standards, and loss of self-determination for Greece’s working people, never mind the looming spectre of Chrysi Avyi. This cannot be allowed to go on, especially as PASOK, ND, and the ‘Democratic Left’ are by no means capable of convincing the troika of EU, IMF, and ECB to act against their own interests and pressures and let Greece off the hook.
However, as the authors make clear, there are two ways in which exit could be undertaken, and their impact would be significantly different in each case. The first is the conservative exit, which would entail a creditor-led default along the lines of the ‘haircuts’ imposed so far. The creditors would then have to accept a swap of euro-denoted debt for drachma-denoted debt, for which they will impose considerable conditions in return. The Greek small savers, pension funds, middle class small investors and the like will be hit hard, while the primary financiers of the troika will demand exemption from default in return for this manoeuvre. Greek banks would have to be recapitalized, possibly on the basis of nationalization, but managed from the outside by the troika or their comprador forces domestically (as is essentially the case now in both Greece and Italy). The northern creditors would also be hit considerably, but if the exit involves just Greece, the costs would be limited and probably surmountable. However, continued participation in the EMU structure would almost certainly entail continued or more severe austerity as precondition for a later re-entry into the euro.
The option favored by the authors instead is what they call ‘radical exit’, and this is the option which socialists within and without Greece ought to examine and discuss most seriously and earnestly. In all versions, this basically involves a unilateral declaration of default, i.e. bankruptcy, on the part of a Greek government willing to act decisively in favor of the interests of the Greek masses. There would be an enforced shift from the euro to the drachma, by unilateral declaration, and of course the necessary bank holiday and capital controls imposed upon the country to prevent bank runs and capital flight. The troika and the northern expropriators would be expropriated at a stroke, the banks nationalized under public control, and the overall debt audited as to its structure (which is not currently public knowledge) and liabilities. Such a course of action in the short term is only possible if the government is willing not just to intervene, but to intervene radically and immediately, with a clear plan. Any muddled or delayed action would worsen the situation by permitting more capital flight, steeper rises in the inevitable inflation, and worse dislocations and shocks to living standards.
It is almost certain the result would in any case be painful for the Greeks in the immediate term, with inflation, loss of lending facilities abroad, and rising costs of imports (oil, consumer goods, machine tools, and medication especially). But it would permit, as Lapavitsas et al. rightly note, an actual way out that is not permanent austerity. The restoration of national sovereignty in the political-economic sphere must be used immediately to redistribute the very unequal wealth of Greece, as it is no coincidence that the periphery nations are the poorest and the most unequal. An industrial plan must be developed to counteract unemployment, the bourgeoisie and Orthodox church seriously taxed for the first time, and the ossified political and civil society structures crushed. Depreciation can be expected to improve the ‘competitiveness’ of Greece over time, and it is a great opportunity for the modernization in productivity terms Greece has never properly undergone. The prospects for living standards in Greece would over 10 or 20 years be almost certainly considerably better than those under the current policy, and the authors use the example of Argentina’s default and state-led revival programme as analogy.
This book certainly makes a strong argument for why euro continuation is not compatible with the interests of the working people of the European periphery. However, as may be clear from the above summary, its perspective is still somewhat limited. It is in some respects still somewhat too simplistic – for example, the authors seem somewhat naive about the compatibility of the radical course with EU membership overall, handwaving this away in the sense of ‘who knows what will happen’. It seems to me such an exit would, unless shared by several countries at once, necessarily entail an exit from the EU as a whole, given the centrality the euro project now plays in it. Also, the authors do not address the political and ideological dimension adequately. Even among the Greek population there is a great reticence about the exit strategy. This is partially borne out of the real increases in wages and consumption since joining the Eurozone, fuelled considerably by the boom period’s cheap euro credit, but it is also a serious reflection of the sense that membership of the EU and its inner structures acknowledges Greece, Portugal, and similar countries as belonging to the modern, developed, and cooperative European project. Much of this is no doubt illusion, but it is a live one. The very fact that the EU to many people stands for a historically unprecedented peace between the major European states and for a guarantee of a certain formal freedom and equality – the formal equality of money – over the isolation and tyranny of Colonels and falangists cannot be ignored. Here, ideology plays an important role in holding back more radical critiques and strategies, out of fear of throwing the baby away with the bath-water. This is not a wholly unfounded fear, and any left programme of exit must address it.
Another political economic limitation is that the book’s analysis and strategic considerations do not go beyond the immediate logic of the developmental state. Indeed, much of this is no doubt intended to function as transitional demands towards a more lasting change of social formation; this is certainly true for a Marxist economist like Lapavitsas, although perhaps less so for a Keynesian like James Meadway. However this may be, the use of for example Russia’s recovery strategy after 1999 as proof of the possibility of a radical option shows the strength but also the limitation of this strategic idea. After all, how radical is Putin’s militarist, oligarchic developmental nationalism? There is little room here for at least critically discussing the traditional left critiques of nationalism and of the idealization of work, in short, the critique of productivism.
Certainly the conditions of the Eurozone and the crisis are such that the ‘development in one country’ route cannot be avoided – whatever the Trotskyist clichés may be, one must either act or not, and someone has to make the step. One could not blame Greece for a developmental nationalism in this way. But the logic of competition between nation-states under capitalism necessarily forces a contradiction between such developmental nationalism and the interests of the domestic working class, not to mention the working classes of other nations. A more thoroughgoing socialistic approach would be needed to disembed the exiting countries from these logics as well. The difficulty there is, however, that unlike China or the USSR a country like Greece or Portugal has few major resources and a small economic base to start from, and an autarkic developmental state capitalism is likely not a viable option. Here the necessity of solidarity between nations, not just in words but in actually mutually supportive political-economic strategies, is paramount; else a new Greece risks ending up a new Cuba. In saying this, I have by no means solved the strategic problem, and it is one fraught with political and economic difficulties. But in writing Crisis in the Eurozone, Lapavitsas et al. have made a major contribution to the sober and concrete consideration of the possible ways forward; it is now up to other socialist critics to join this debate.
1) See for example M. Shahid Alam’s excellent book Poverty from the Wealth of Nations (Basingstoke 2000) on this subject.