The impact of the Global Capitalist Crisis on the eurozone_page proofs
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The Global Capitalist Crisis
and its aftermath
The Causes and Consequences of the Great recession
of 2008–2009
Edited by
Berch Berberoglu
University of Nevada, Reno, USA
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1 Chapter 6 1
2 2
3 The impact of the Global Capitalist 3
4 4
5 Crisis on the eurozone 5
6 6
7 David L.Elliott 7
8 8
9 9
10 … the euro zone is now essentially an economic prison, with Germany as the 10
11 jailer and the common currency as the bars. no matter what happens they face 11
12 a future of stagnation—as aging societies with expensive welfare states whose 12
13 young people will sit idle for years, unable to find work, build capital or start 13
14 families. (douthat 2013) 14
15 15
16 16
17 a hundred years ago, coal miners would take caged canaries into mines because 17
18 canaries were more sensitive to the effects of carbon monoxide (CO) than humans, 18
19 and when a canary showed distress or died, the miners would leave the mine. 19
20 if the miners had been scientists possessing the instrumentation to measure the 20
21 Co, there would have been no need for the canaries. in 2008, the tiny nation of 21
22 Iceland suffered a financial crash that should have served as the canary for the 22
23 capitalist system; one economic scientist had used his own instruments and saw 23
24 it coming and raised the alarm. but his advice was shelved and probably never 24
25 even read by those with authority. The Icelandic crash accompanied financial 25
26 crisis in the united states and was followed in rapid succession by heightened 26
27 crisis in the european union, especially the eurozone countries that adopted the 27
28 euro as official currency. Outside Europe and the United States, the impact was 28
29 more transient though appearing in almost every other country, giving China the 29
30 opportunity to invest in building its own infrastructure (harvey, 2011). 30
31 recurring crises have characterized capitalism throughout its history. each 31
32 succeeding crisis to a greater or lesser extent saw the enhanced concentration of 32
33 capital in the hands of the capitalists vis-à-vis the working classes and peasantry, 33
34 and a reconfiguration of sectors within the ruling capitalist class. The Great 34
35 Depression of the 1930s was an extended crisis that started on Wall Street in 1929 35
36 but spread across the capitalist world over the next decade while its recovery 36
37 coincided with the second World Warand the war’s end and recovery.This chapter 37
38 explores the continuing European crisis and explains why it differs from that of 38
39 the united states (at least as of this moment) and what its impact has been upon 39
40 the working and middle classes of europe. analyzing why the crisis occurred, 40
41 how and why the european manifestation was unique, and what the prospects 41
42 are for the future of the eurozone are the main goals of this chapter. The chapter 42
43 argues that the leading economic policies of each capitalist state impact the rate 43
44 and nature of its crisis recovery with the important exception of nations within 44
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140 The GlobalCapitalist Crisis and Its Aftermath
1 the eurozone. in the eurozone, the policy leadership resides in the largest national 1
2 economy, Germany, and this is realized by actions of the european Central 2
3 bank (eCb). The concentrated economic power across the eurozone means that 3
4 monetary policy exercised by the ECB is often in conflict with the fiscal policies of 4
5 the more seriously crisis-impacted nations:Portugal, Italy,Ireland, Greece, Spain, 5
6 and Cyprus. 6
7 The recovery from the Great depression, followed by a lengthy period 7
8 of robust capital growth, was occasioned at least in part by economic policies 8
9 advocated by John maynard Keynes who published The General Theory 9
10 of Employment, Interest and Money (Keynes, 1936), a work that suggested 10
11 “Keynesian” counter-cyclical pressures—monetary and fiscal—that helped to 11
12 stabilize the growing capitalist economy for several generations. beyond Keynes, 12
13 traditional economists have generally failed to provide an explanation for the 13
14 repeated crises that, though smaller, continue to confront the capitalist system. 14
15 While many, such as schumpeter(1939), have traced the economic indicators and 15
16 identified a number of apparently concurrent cycles of boom and bust,persuasive 16
17 systemic theoretical explanation is lacking. Schumpeter was willing to let crises 17
18 continue in the process that he called “creative destruction”—a process that is 18
19 superficially apparent today as the ruling class has concentrated and reconfigured 19
20 ownership of the means of production. however,economists following delusional 20
21 ideologies that include creative destruction, invisible hands, or free and efficient 21
22 markets are self-precluded from analytical thinking and they usually reduce each 22
23 recurring crisis to isolated idiographic episodes,each with its own largely unique 23
24 explanation. 24
25 25
26 26
27 The Recurring Crises of the Capitalist System 27
28 28
29 Critics of the capitalist system, however, since the time of Marx, have identified 29
30 an elegantly simple explanation that provides for critique of the contradictions 30
31 of capitalism as a system and for its recurring crises. The foundation for this 31
32 explanation is the labor theory of value: all economic value is produced by human 32
33 labor power. This is not to say that there are no other manifestations of value. 33
34 The defining contradiction of capitalism is the purchase (by capitalists) of the 34
35 labor power of the worker and collectively paying workers less in wages than the 35
36 total value of the goods and products that they produce.The profit realized allows 36
37 the capitalist class to accumulate capital for its own purposes at the expense of 37
38 the working class. What does a capitalist do with the accumulated profits? If it is 38
39 spent on conspicuous consumption, this removes it as a key factor in the capitalist 39
40 system. In capitalism the accumulated profits are reinvested in additional wage 40
41 labor and the materials of production to produce yet more goods and products. 41
42 The contradiction here is that, sooner or later, more goods that are produced by 42
43 the working class are placed for sale than the working class as a whole has the 43
44 wages to purchase. There are temporary solutions that may appear “creative”: 44
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The Impact of the Global Capitalist Crisis on the Eurozone 141
1 bankruptcy of some merchants or industrialists, extension of credit to workers, 1
2 globalized commerce and production, etc.; however, eventually the system enters 2
3 a crisis of overproduction (or under consumption)that often results in cut-backs in 3
4 production, rise in unemployment, and it may take months or years for the system 4
5 to recover. Japan is only now recovering from its crisis of the 1990s. 5
6 While this analysis is based on a more simple systemofthe nineteenth century,6
7 in essence, it remains valid today. of course, today’s world is more complicated. 7
8 in addition to the economic spheres of production and consumption that were 8
9 most salient during most of the nineteenth century,the spheres of distribution and 9
10 exchange have in many respects become the key elements of globalization in the 10
11 twenty-first century. A century or more ago, Lenin identified the emergence of 11
12 finance capital as the defining element of imperialism and published his famous 12
13 treatise, Imperialism, the Highest Stage of Capitalism in 1917. he argued that no 13
14 longer were goods, alone, exported forsale abroad; capitalwas exported to support 14
15 capitalist production in the periphery (lenin, 1975). The accumulation process 15
16 was thus extended to otherparts of the world and the crisis of overproduction was 16
17 forestalled as some profits made at home were invested for production and sale 17
18 abroad, rather than for the home market. 18
19 This developmentsignaledtheemergenceofimperialismand today’s heightened 19
20 importance of the spheres of distribution and exchange vis-à-vis production and 20
21 consumption. Computers and electronic communications in the internet age 21
22 have contributed significantly to neoliberal capital accumulation as goods and 22
23 products may nowbe produced, marketed,and distributed to consumers across the 23
24 world much more quickly and with fewer workers involved in the process. This 24
25 contributes to capital accumulation at the expense of the workers employed in the 25
26 distributive industries. But of greater interest here is financialization, a moment 26
27 in the sphere of exchange. Finance capital has provided credit for workers, 27
28 consumers,and students.It has also provided leverage for firms to buy out others 28
29 for expansion through monopoly, as well as for research and development. No 29
30 longer is direct extraction of surplus value in the process ofproduction the sole, or 30
31 necessarily the main, means of capital accumulation. Now, extraction of surplus 31
32 value from the working class via interest on debts, especially consumer credit, 32
33 car loans, and home mortgages, has appeared. This contributed to the dot-com, 33
34 real estate, and other speculative economic bubbles that disproportionately impact 34
35 working individuals negatively, as opposed to corporations, even corporations that 35
36 invest at high risk, sometimes unknowingly. Corporations, however, have access 36
37 to derivatives that offer insurance against major investment losses. 37
38 While world production and commerce have changed markedly in the past 38
39 century, finance capital still plays a key role within the capitalist system.But today, 39
40 the cause of the crisis may be traced directly back to the role that finance and 40
41 growing debt have played in the accumulation process of neoliberal globalization. 41
42 it is here that we turn our attention to analyze the current crisis, particularly in 42
43 Europe. A key factor that makes the European crisis experience unique was the 43
44 evolution of the european Community (eu) and the single currency, the euro. The 44
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142 The GlobalCapitalist Crisis and Its Aftermath
1 euro is used in the eurozone, comprised of many (not all) eu member states.The 1
2 eu has emerged as a politically weak, policy-setting body for sovereign states 2
3 as members of the Community alongside the eurozone’s relatively strong, semi- 3
4 independent central bank, the eCb. 4
5 by the 1980s and 1990s, Keynesian policies had fallen from use in favor of 5
6 neoliberal policies—deregulation, financialization, and other economic practices 6
7 of the ruling class—largely due to the efforts of followers of economist milton 7
8 friedman and politicians ronald reagan and margaret Thatcher. Whereas 8
9 Keynesianismwas designed to stabilize the capitalist system asa whole,neoliberal 9
10 ideology is more firmly rooted in classical economic thought dating backto Adam 10
11 smith and is designed effectively to enrich the individual capitalists and the class, 11
12 itself, vis-à-vis the system as a whole, and especially the system that includes 12
13 the working class. indeed, the last three decades have seen the massive shift in 13
14 the ownership of social wealth toward a smaller number of wealthy families and 14
15 individuals owning an increasingly larger proportion of society’s wealth.and this 15
16 time period also saw the increased accumulation of concentrated wealth for most 16
17 capitalist countries (Germany excepted) that measured in terms of nation-based 17
18 accounting data now looks more like the extremes of global inequality, as seen in 18
19 the nineteenth century (piketty and Zucman, 2013). 19
20 The current crisis, first manifested in 2007–08, is second in severity only to the 20
21 Great depression.it, too,has spreadbeyond thenorth atlantic rim largely through 21
22 financialization, with varying degrees of intensity, landing early-on in Europe 22
23 where it continues with its own recurring episodes that seemto repeatedly throw 23
24 the political and economic institutions of the european union and the eurozone 24
25 into turmoil (lapavitsas, 2012). by spring 2013, capitalists in the us and europe 25
26 had largely recovered and enhanced their profitability when financial crisis in 26
27 Cyprus erupted, throwing the eurozone into turmoil far beyond what one might 27
28 have expected given Cyprus’s heretofore modest role within the capitalist system 28
29 of europe. The european manifestation of the crisis thus appears to continue with 29
30 little sign of systemic recovery. 30
31 The epicenter of the crisis was the United States; its financialization had bled 31
32 into the economies of most of Europe. The key financial activities in the United 32
33 States that precipitated the crisis were debt-centered and included: 33
34 34
35 • fraudulent and other questionable acts related to securities 35
36 • home loans to persons with insufficient resources that caused a real estate 36
37 bubble along with improper or illegal foreclosures that helped burst 37
38 the bubble 38
39 • massive mismanagement of debt and consolidation of risky toxic assets 39
40 • inept or fraudulent assessments of debt risk, etc. 40
41 41
42 many of the tainted debt packages were marketed internationally such that 42
43 financial institutions abroad were placed at high risk when they purchased toxic 43
44 US financial products,or engaged in similar activities of their own. But the US is 44
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The Impact of the Global Capitalist Crisis on the Eurozone 143
1 not the only country that suffers from fraud and mismanagement; we see similar 1
2 practices across the capitalist world, and this contributed to the crisis of the entire 2
3 system. 3
4 4
5 5
6 Iceland, 2008: Prelude to the Eurozone Crisis 6
7 7
8 for most of its more than one millennium of human habitation, iceland has 8 9
depended upon the sea for its economic base, indeed even well into the twenty-first 9
10 century. for most of this time, iceland was associated with the nordic countries— 10
11 often ruled (sometimes nominally) by norway or denmark—though its annual 11
12 parliament, the Althing, first met in the tenth century. In the twentieth century, 12
13 iceland was occupied by the nazis, but after the second World War, once freed 13
14 fromGerman occupation, iceland began to emerge as a modern democratic country, 14
15 notwithstanding disputes with its neighbors as it extended its claims for fishing 15
16 rights out to 320 kilometers, and with the international Whaling Commission over 16
17 whale hunting (macheda, 2012). 17
18 By the last decade of the twentieth century, class conflict had emerged as 18
19 iceland developed a robust trade union sector that challenged management and 19
20 had a record of work stoppages that rivaled other capitalist economies. however, 20
21 as iceland’s three major banks adapted to the neoliberal, deregulated international 21
22 system of financialization, profitability rose thus advantaging shareholders and 22
23 depositors. Iceland emerged as an international financier, purchasing toxic US 23
24 assets with funds earning high interest rates deposited by europeans and by 24
25 icelandic union pension funds.after the crash, british and dutch bank depositors, 25
26 through their respective states, kept intense pressure on iceland until the bank 26
27 deposits were finally honored, though the Icelandic labor movement increasingly 27
28 collaborated with capital and quickly lost its progressive nature (macheda 2012). 28
29 Macheda identifies the five characteristics of financialization in Iceland: 1) 29
30 Deregulated financial sector; 2) Increased profits outside the productive sector; 30
31 3) Shareholder profit-making became more salient; 4) Household credit driven 31
32 increasingly by consumption; and 5) finance capital penetrated workers’ own 32
33 social and economic reproduction. These characteristics and others reappeared 33
34 across Europe in various configurations as the crisis spread. 34
35 Meanwhile, as the US economy stumbled in late 2007 and the first half of 35
36 2008, Congress and the Federal Reserve began to execute a series of extraordinary 36
37 measures to save the capitalist system. This action was the key difference between 37
38 the US and the EU response to the crisis: the US used Keynesian fiscaltools while 38
39 the eu/eCb largely restricted themselves to monetary tools. for the us, this 39
40 included authorizing hundreds of billions of dollars in currency swap lines with 40
41 britain, sweden, norway, Canada, switzerland, Japan, australia, and the european 41
42 Central Bank. More importantly, the US Treasury made available in excess of 42
43 $800 billion to subsidize financial and manufacturing companies. Iceland, with 43
44 far fewer resources and clout in the world, and with overexposure to the toxic 44
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The Impact of the Global Capitalist Crisis on the Eurozone 145
1 financial products from the US, saw its three major banks collapse in October 1
2 2008, and in November it received IMF approval for a $2 billion loan.This should 2
3 have come as no surprise to the bankers: Joseph Stiglitz was the economist who 3
4 authored a working paper for the Central bank of iceland in 2001 cautioning them 4
5 about the financial risks of crisis for small economies, specifically Iceland’s,in the 5
6 midst of growing global financial instability (Stiglitz 2001). 6
7 iceland’s center-right government fell after the october 2008 crash but it 7
8 was the workers that paid the price. pension funds were reduced in value and 8 9
used to prop up the nationalized (later re-privatized) banking system. each 9
10 Icelander effectively was expected to pay $8000 to restore the economy. By 2010, 10
11 unemployment had shot up to over 10 percent (see figure 6.1). and during this 11
12 time, since 2008, trade unions have continued their collaborationist relationship 12
13 with the bankers and other capitalists responsible for iceland’s economic crisis, 13
14 paid for by the workers. By 2013, the crisis had resulted in significant hardship for 14
15 the working and middle classes with the state still deep in debt (see figure 6.1a 15
16 and 6.1b). 16
17 17
18 18
19 European Union and the Eurozone 19
20 20
21 What made the crisis experience of the eurozone countries unique? In the 21
22 year 2000, european union countries seemed to be strong economically—but 22
23 belgium, italy, and Greece had debts greater than their Gdps. by 2005, on the 23
24 cusp of the crisis, belgium’s debt had fallen somewhat, but portugal, france, 24
25 Germany, and Austria had each accumulated debt that exceeded 60percent oftheir 25
26 GDPs, the maximum mandated by the 1992 Treaty of Maastricht and subsequent 26
27 amendments (european Commission 2010). by 2011, portugal and ireland were 27
28 added to Greece and italy as having debt over 100 percent of Gdp, and france, 28
29 britain, and Germany had each seen their debt rise above 75 percent of the Gdp. 29
30 spain’s debt level remained below 50 percent in the years leading to the crisis (less 30
31 than Germany’s) but rose to the 60s in 2010–11 and then jumped to 84 percent 31
32 in 2012. ireland’s debt was likewise less than 50 percent before the crisis but 32
33 then rose sharply to 117 percent in 2012. The corpus of this debt was the result 33
34 of financial speculation and manipulations including rampant extension of credit 34
35 to those who could not repay the inflated prices of the goods (especially housing) 35
36 when the bubbles burst. high government debt, above the 60 percent of Gdp cap 36
37 as established by the maastricht Treaty, was a sign of concern but government 37
38 debt, alone, did not define the most troubled economies, especially prior to the 38
39 crisis (see figure 6.2a and 6.2b). 39
40 It might seem at first important to identify those countries that suffered most 40
41 (portugal, ireland, italy, Greece, spain, and Cyprus) and name the factors that 41
42 led these countries to their present situations, noting the negative implications for 42
43 workers and consumers. however, the eurozone is an inclusive system in itself 43
44 within the EU, with its own central bankplaying a key role that must be examined. 44
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The Impact of the Global Capitalist Crisis on the Eurozone 147
1 A nation’s central bank (for example, the Bank of England or the US Federal 1
2 reserve bank [the fed]) traditionally sets the monetary policy related primarily 2
3 to inflation and interest rates. The capitalist ideological environment of the late 3
4 twentieth and early twenty-first centuries advocated using interest rates as a tool 4
5 for keeping inflation low. All states may exercise fiscal policy (taxes and spending) 5
6 and that is part of the Keynesian tool box for regulating the overall economy. 6
7 however, the rightist, neoliberal ideology rooted in milton friedman’s monetarist 7
8 perspective was the one that held sway with the eCb. in addition, the eCb wanted 8
9 the euro to replace the dollar to become a new global currency—irrespective of 9
10 the implications for individual nations that were members of the eurozone, as 10
11 a system. The eurozone, as a whole, thus lacked the authority to exercise fiscal 11
12 policy as this was the responsibility of each state. The result is that important 12
13 fiscal resources—such as in the United States, the $840 billion in fiscal tools that 13
14 had been used as of June 2012—were not directly available to the eCb, even if it 14
15 had wanted them. The european union, however, did agree to a 200 billion euro 15
16 stimulus plan in late 2008. 16
17 Fiscal policy relating to taxes and state expenditures has rarely been used 17
18 explicitly to regulate the economy by most countries in the neoliberal period; 18
19 capitalists have been loath to employ the counter-cyclical pressures advocated by 19
20 Keynes for those purposes.Taxes and expenditures have generally been employed 20
21 to reinforce the ideological goals of nations’ ruling parties, including making 21
22 the rich, richer. In the United States, for example, Democratic administrations 22
23 of obama and Clinton have tended to spend more than republicans for social 23
24 purposes, but even so, the overall shift in ownership of wealth has been toward 24
25 the rich—the capitalist class. The biggest exception, the Obama administration’s 25
26 use of national debt to bail out corporations in 2008 and later, has been excoriated 26
27 by the right-wing Tea party ideological advocates ofbalanced budgets. in today’s 27
28 neoliberal world, ruling parties have generally only resorted to Keynesian tactics 28
29 when confronted with imminent collapse,and not always then.in many cases,when 29
30 the state can no longer increase its debt, increase the money supply, and chooses 30
31 not to default, it turns to the international monetary fund (imf) that follows a 31
32 neoliberal path often including severe austerity measures that disproportionately 32
33 impact the workers. The IMF essentially dictates the fiscal measures a nation must 33
34 take to receive the bailout funding. 34
35 35
36 36
37 The Central Role of Germany in the Eurozone Crisis 37
38 38
39 in europe, britain and especially Germany have been most strident in opposing 39
40 fiscal policy for counter-cyclical purposes. Britain and Germany have also been 40
41 most successful in oppressing their working classes (lapavitsas, 2012), with 41
42 Germany extracting sufficient surplus value to minimize economic crisis—other 42
43 than the cost of ongoing economic stagnation. The German situation was fairly 43
44 unique as the federal republic struggled to incorporate many workers from the 44
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148 The GlobalCapitalist Crisis and Its Aftermath
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20 Figure 6.3 European unemployment rate, selectedcountries, 2003–13 20
21 Source: Eurostat. Last update: 30.06.14. Extracted: 30.06.14, http://appsso.eurostat.ec. 21
22 europa.eu/nui/show.do?dataset=une_rt_a&lang=en. 22
23 23
24 former east Germany into the labor market. many of these workers lacked the 24
25 experience needed for the high-tech capitalist economy of the west and various 25
26 means were attempted to integrate them into the work force. While bureaucratic 26
27 solutions with respect to employment search,etc.,may have helped in some regard, 27
28 in the final analysis,it appears that reductions in the benefits for the unemployed 28
29 and introduction ofmore low-wage job helped to raise the employment rate (bonin, 29
30 2012) (see Figure 6.3), and certainly the profit rate of corporations nowwith access 30
31 to more low-wage labor. how long this will remain effective is questionable but 31
32 the “success” ofthis hard line would seem to have emboldened the German state 32
33 to force othernations to apply austere measures to their workers and consumers to 33
34 resolve the crises brought by the neoliberal capitalist system. 34
35 moreover, as the largest economy in the eurozone, Germany was able to 35
36 play a heavy-handed role within the eu, as well with its own workforce. in the 36
37 early years of transitioning to the euro, 1999–2002, Germany’s current accounts 37
38 balance vis-à-vis portugal, italy,Greece, and spain went steadily down from 2003 38
39 until 2008, meaning that Germany exported increasingly more than it imported 39
40 with respect to these countries. in addition, Germany’s overall current accounts 40
41 balance as a percentage of its Gdp went from a slight negative in 1999–2000 up 41
42 to 6–7 percent in 2007–10. Clearly something was happening here, and rosenthal 42
43 43
44 44
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The Impact of the Global Capitalist Crisis on the Eurozone 149
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20 Figure 6.4 Eurozone current account,
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21 Source: OECD. Current account balance of payments 2012. http://stats.oecd.org/. 21
22 22
23 argues that currency speculation and manipulation was in Germany’s favor as the 23
24 individual currencies were finding their value with respect to the euro before the 24
25 euro actually became a fact (rosenthal 2012) (see figure 6.4). 25
26 Germany began to experience the effects of the crisis in 2007–08, especially 26
27 with respect to its tainted us investments. The Christian democrat dominated 27
28 government (with social democrats) did not move rapidly when the scope of the 28
29 problem became obvious,and refused to carry out the Keynesian counter-cyclical 29
30 policies advocated by the social democrats. The Christian democrats did all 30
31 they could to avoid any apparent nationalization (unlike the us approach that 31
32 took partial ownership of some companies) and focused primarily on lowering 32
33 taxes to stimulate the economy. Even though France in 2008 recommended 33
34 a common eurozone bailout fund, Germany opposed it. france and Germany 34
35 have the two largest economies in the eurozone. When they are in agreement, 35
36 their view generally guides eurozone policy. but when they disagree, eurozone 36
37 policy and eurozone action effectively reverts to the positions of the eCb and 37
38 the imf, which are largely monetarist. by 2009, in German internal politics, the 38
39 governing coalition fell and the election brought back the Christian democrats 39
40 with the social democrats suffering heavy losses (Zohlnhöfer, 2011b), an election 40
41 that seemed to provide evidence of public support for angela merkel’s hardline, 41
42 rightist approach. 42
43 43
44 44
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150 The GlobalCapitalist Crisis and Its Aftermath
1 The Eurozone’s TroubledPeriphery 1
2 2
3 elsewhere in europe, the crisis that already hit iceland and the us had not 3
4 manifested itself fully, if at all. The ultimately hardest hit countries--portugal, 4
5 Italy,Ireland, Greece, Spain, and finally Cyprus—were occupied with national and 5
6 intra-european issues.in portugal,increased fuel prices caused demonstrations by 6
7 fishermen. Ireland was more preoccupied with remaining political issues related to 7
8 northern ireland vis-à-vis the republic. italian electoral politics drifted to the right 8
9 with berlusconi once again the prime minister, and the right taking on the mayor’s 9
10 office in Rome. Greece was feeling the impact of pervasive fraud in the pension 10
11 system and, unlike the more compliant icelanders, Greek workers protested 11
12 repeatedly against plans to reduce benefits and add years to the retirement dates 12
13 of some workers, primarily women (who could retire at earlier ages than men). of 13
14 greater significance, by the end of 2008, Spain had the highest unemployment rate 14
15 in the eu and was moving to pay for the repatriation of immigrant workers whose 15
16 unemployment rate was 17 percent. 16
17 The most troubled eurozone members of the european union, however, 17
18 faced a more complex situation; since monetary policy was centralized and not 18
19 necessarily designed for the good of any specific country most member nations 19
20 had little control over their monetary environment. moreover, the way the euro 20
21 was established and each country’s currency linked to it favored the largest and 21
22 strongest economy,Germany. One result was that German exports of machinery, 22
23 expensive automobiles, etc. could sell at high prices since during this period there 23
24 was little competition abroad; however, portugal and spain were in competition 24
25 with low-wage areas such as China, and their exports suffered.In fact, in the years 25
26 leading up to the crisis, even the value of internal eurozone trade increasingly 26
27 favored Germany over the countries in the mediterranean region—Greece, italy, 27
28 spain, and portugal. in addition to the european Central bank that sets monetary 28
29 policy for the 17 member nations out of 27 members of the eu, there are other 29
30 institutions including a parliament and a european Commission ofnational leaders. 30
31 since technically the eu is an international organization built upon a patchwork 31
32 of treaties,it has no internal police powers to hold states to theirtreaty agreements 32
33 and obligations. However, the European Commission does exercise some power 33
34 over the ECB and exercises influence within the 27 members of the Union. The 34
35 chair of the european Commission rotates annually among the membership of the 35
36 union, not a source of strength. 36
37 sarkozy of france had tried and failed to orchestrate a change in eu rules to 37
38 appoint a permanent european Commission chairperson (presumably himself), but 38
39 instead the new member of the eu, the Czech republic, took on the rotating chair 39
40 responsibilities. This caused both personal and structural fissures in the EU and 40
41 decreased its already weak political influence. As a consequence, monetary policy 41
42 executed through the ECB remained the primary means by which the EU and 42
43 the eurozone addressed the growing crisis. The political weakness of the eu was 43
44 further illustrated by european Commission Chairman Topolanek of the Czech 44
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The Impact of the Global Capitalist Crisis on the Eurozone 151
1 republic openly and publicly criticizing obama’s bailout of us corporations 1
2 and banks, much to the consternation of many EU nations. Exercising national 2
3 fiscal measures (raising taxes and cutting expenditures) was politically risky 3
4 without significant external pressure and without leadership from the European 4
5 Commission. The external pressure was primarily the threat of IMF demands if a 5
6 loan were offered, as european union treaties alone were not generally effective 6
7 in implementing the drastic measures seen by many as needed to save the system. 7
8 european parliamentary elections were held in early June of 2009 with 8
9 a low turnout (43 percent), but significant indications of dissatisfaction with 9
10 contemporary political and economic issues. a small number of ultra-right 10
11 candidates were elected that generally signaled a shift to the center-right across 11
12 europe. 12
13 in 2009, the impact of the eCb ideology was felt by the eurozone’s second 13
14 largest economy, France: 14
15 15
16 … thehead of theeuropean Centralbank, Jean-ClaudeTrichet, warned european 16
17 governments against accumulating more debt. ‘There is a moment where 17
18 you cannot spend more and accumulate more debts. We are at that moment,’ 18
19 mr Trichet said during an interview on french radio europe 1. 19
20 20
21 further stimulus spendingwould present aseriousproblemfor futuregenerations 21
22 to deal with he said, adding that the current packages were ‘completely 22
23 extraordinary’ and also ‘sufficient’ to deal with the downturn. (Willis, 2009) 23
24 24
25 At the time, France’s budget deficit (taxreceipts minus spending) was expected to 25
26 exceed 7 percent and her overall debt remained well over the Maastricht Treaty’s 26
27 limit of 60 percent of the GDP. The strong arm of the ECB thus reflected the 27
28 ideology of externally-designed monetary policy that placed pressure on a nation’s 28
29 own fiscal policy, an act that was followed three years laterby President Sarkozy’s 29
30 loss to socialist françois hollande in a bid for re-election. but the french 30
31 government was not the only eurozone state on the line in 2009. 31
32 by the end of 2009, after a year of strikes, demonstrations, and other violent 32
33 protests, Greece began to face ECB pressure as deputy finance minister Philippos 33
34 sachinidis announced that debt had reached 300 billion euros, 113 percent of 34
35 the Gdp (bbC news, 2009). This was just the beginning of a continuing public 35
36 debacle that pitted rivalideologies against one another(right vs.populist)as wellas 36
37 geopolitics (in eurozone terms: core vs. periphery or north vs. south). Greece was 37
38 still basking in the glory of the debt-funded, over-budget 2004 XXViii olympiad 38
39 games (Harvey, 2011) and civil servants were provided with enviable benefits. 39
40 but as the eurozone would soon learn from a 2010 eurostat report (european 40
41 Commission, 2010), Greek national accounts suffered from both methodological 41
42 and governance issues that called into question the quality of reports that Greece 42
43 had issued (with known inconsistencies) in its attempt to respond to the growing 43
44 crisis. as Greece slid toward default at the end of 2009, the eu and imf pledged 44
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152 The GlobalCapitalist Crisis and Its Aftermath
1 a three-year, 110 billion euro bail-out package in exchange for Greece’s austerity 1
2 agreement that would raise taxes and cut the income of public sectorworkers and 2
3 retirees. 3
4 Greece was not alone in facing the looming crisis in 2009; spain began the 4
5 year with the bursting of a housing bubble. for decades spain’s warm weather 5
6 and cheap prices had attracted northern europeans for vacation and as long-time 6
7 residents, thus driving up real estate prices during the boom years that ended 7
8 in 2008. unemployment rose, and prices that had risen during the boom years 8
9 dropped precipitously until by April they had become deflationary. As Paul 9
10 Krugman remarked in his blog at the end of the year, spain 10
11 11
12 needs to become more competitive—but it can’t have adevaluation, becauseit’s 12
13 a euro country. so the only alternative is wage cuts, which are desperately hard 13
14 to achieve (and create big problems for debtors). 14
15 15
16 Contrary to what everyone seemed to be saying even a few weeks ago, being a 16
17 member of the eurozone doesn’t immunize countries against crisis. in spain’s 17
18 case (and italy’s, and ireland’s, and Greece’s) the euro may well be making 18
19 things worse. (Krugman, 2009) 19
20 20
21 At the end of2009, Ireland was similarly afflicted: still recovering from the decades 21
22 of rebellion in northern ireland, the housing bubble that had been encouraged by 22
23 banks prior to 2007 had burst sending housing prices in a freefall (26 percent drop 23
24 since 2007) and unemployment rose to over 12 percent. by 2010, most european 24
25 Union members were in technical violation of the Maastricht treaty that expected 25
26 nations to maintain public debt below 60 percent of the Gdp (see figure 6.2a and 26
27 6.2b). 27
28 in Greece the crisis was most acute. not only did Greece have the highest 28
29 debt as a percentage of its Gdp, but the Greeks continued to struggle against the 29
30 austerity measures prescribed by Germany and the eCb. Greek workers and civil 30
31 servants protested vigorously and the first bailout of 2009 had not fixed the debt 31
32 problem. The continued pressure on the Greek government by eCb to enhance 32
33 fiscal austerity measures met by mass mobilizations against these measures winter 33
34 and spring (psimitis, 2011) continued through 2010 as did the eu/imf loan 34
35 promises. 35
36 asof2010, ireland (to be followed byportugal, spain,and italy) hadembarked 36
37 on a similar path toward default as Greece. and two long years after the crisis 37
38 erupted, the eurozone and the imf (minimally under the circumstances) propped 38
39 up their economies: 39
40 40
41 • to the tune of 85 billion euros for ireland; 41
42 • a permanent eurozone bailout fund of 500 billion euros was created; 42
43 • 78 billion euros went to portugal; 43
44 44
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The Impact of the Global Capitalist Crisis on the Eurozone 153
1 • the eCb purchased spanish and italian bonds; 1
2 • italian debt rating was cut; 2
3 3
4 and the crisis was spreading to britain, belgium, and france. meanwhile, austerity 4
5 spread across the hard-pressed eurozone members with heightened alarms 5
6 sounding for the entire eurozone experiment. 6
7 During the next year,2011, Greece continued to flirt with default, and dealwith 7
8 repeated rounds of austerity and protests as eurozone leaders added an additional 8 9
109 billion euros of support—in light of the 90 billion euros owed to Germany and 9
10 france, alone. in october, eurozone leaders offered a 50 percent debt write-off, 10
11 conditional upon yet another round of austerity measures which prime minister 11
12 Papendreau offered up as a referendum for the public. Next month after intense 12
13 criticism of the referendum plan, papendreau resigned. by the end of 2011, Greece 13
14 had been granted another 8 billion euros in loans, and banks agreed to another 14
15 21 percent loss on loans to Greece. but the banks had little say in swallowing 15
16 the losses on the Greek bonds. Cyprus would emerge a year and a half later with 16
17 its own crisis rooted, in part, on the severe impact of the Greek bailout upon its 17
18 own banks that had invested heavily in presumably safe Greek bonds. ironically, 18
19 in a report issued in spring 2013, the imf admitted to the ineffectiveness of 19
20 some austerity measures it had extracted from Greece (Executive Board of the 20
21 international monetary fund, 2013). 21
22 The following year, 2012, started in January with the downgrading of both 22
23 French debt and the eurozone bailout fund, itself.The next month,Greece executed 23
24 severe austerity measures that resulted in an additional 130 billion euro bailout, 24
25 but the measures once again sparked violent protests.Greekelectoralpolitics went 25
26 into a tailspin with the conservative new democracy party winning the election in 26
27 June, but it took until year’s end to renegotiate loans and facilitate the next bailout. 27
28 meanwhile, the eurozone economy as a whole began to shrink and eurozone 28
29 unemployment grew to a record of 10.7 percent across the board for January, with 29
30 19 million people out of work. spain was hardest hit with an unemployment rate 30
31 of 23 percent (see figure 6.3). 31
32 The same year, 2012, sawthe most recent eurozone country,Cyprus,approach 32
33 the eCb for assistance. The losses Cypriot banks realized on the loans to Greece 33
34 enormous: they amounted to about 22percent ofthe nation’s GDPin 2011(Higgens, 34
35 2013). And only four to five years after joining the eurozone in 2008, national 35
36 politics were on the rocks and the russians (whose money of questionable origins 36
37 was deposited in the Cyprus banks, and lost) refused to bail the Cypriots out. in 37
38 march 2013, the latest of the heavy-handed eCb actions brought the Cypriots to 38
39 their knees as well. 39
40 by the end of 2013, the worst crisis episodes were past and europe settled 40
41 into a new stasis of German hegemony in the eurozone and what may prove to be 41
42 high and prolonged levels of unemployment in the european union, especially 42
43 the eurozone (see figure 6.5, euro area ea17 and eu28 unemployment rates as 43
44 published by eurostat in January 2014). 44
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154 The GlobalCapitalist Crisis and Its Aftermath
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 Figure 6.5 Euro area EA17 and EU28 unemployment rates, 2000–2014 17
18 Source: Eurostat Newsrelease: Euroindicators, 17/2014–31 January 2014. Eurostat news 18
19 releases on the internet: http://ec.europa.eu/eurostat. 19
20 20
21 21
22 The Future: Stalemate? 22
23 23
24 both the working/middle classes and the ruling capitalist class are plagued with 24
25 national and other divisions that have, on the one hand, prevented the workers 25
26 of europe from effectively uniting to confront capital. on the other hand, the 26
27 divisions prevented the ruling class from more effectively exploiting the workers, 27
28 peasants, and middle classes across the world as they continue to compete with 28
29 one another within the framework of imperialism inherited from the nineteenth 29
30 century. at the same time, eu leading perspectives were characterized by the 30
31 use of national units of analysis or points of view rather than, for example, the 31
32 eurozone as a transnationalsystem.Thus the european Community including the 32
33 eurozone is trapped in a stalemate: a web of nationalist, neoliberal, monetarist 33
34 economic policy spun by Germany, the imf, the eCb, and supported by britain 34
35 and othernon-euro members ofthe eu versus thefragmented workers and middle 35
36 classes. 36
37 if the workers and middle classes continue to fail to see their shared interest 37
38 to unite across national lines, and if the capitalists retain their unholy marriage 38
39 between centralized euro-monetarism and decentralized political nationalism, this 39
40 crisis is likely to continue indefinitely. Japan has stagnated fornearly two decades 40
41 of monetarism and only recently, under Prime Minister Shinzo Abe’s pro-fiscal 41
42 approach,is Japan beginning to see its way out of its late twentieth-century crisis. 42
43 Will Japan’s experiences over the next few years serve for Europe as a roadmap 43
44 44
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The Impact of the Global Capitalist Crisis on the Eurozone 155
1 out of the stalemate the eurozone is in? and till then,what willhappen to portugal, 1
2 ireland, italy, Greece, spain, and Cyprus? according to eurostat (2014) as this 2
3 book went to press, their unemployment rates in december 2013 ranged from12.1 3
4 percent in ireland to 25.8 percent in spain, with the latest rate for Greece 27.8 4
5 percent in october 2013. by contrast, iceland’s unemployment rate had fallen to 5
6 5.2 percent and the us rate to 6.7 percent at the end of 2013. 6
7 7
8 8
9 Conclusion 9
10 10
11 The focus of this chapter was an analysis of the divisions that have stalemated 11
12 european capitalist development; the european ruling class is unable to effect a 12
13 full and viable capitalist auto-recovery with the people of europe unable to unite 13
14 and take advantage of the contradictions of today’s capitalism to finally end its 14
15 reign once and for all. 15
16 The historic eurozone experiment in financialization—European Central Bank 16
17 monetary policy concentrated within the EU but decentralized tax and spending 17
18 fiscal policy in nations across the EU—has worked poorly for both the ruling 18
19 classes and the working classes. It has essentially subjected each nation’s fiscal 19
20 policy to international law through treaty obligations and placed the eCb beyond 20
21 the bounds of national law and leadership. 21
22 The eurozone experience stands in striking contrast to the immediate EU 22
23 response to the crisis in the ukraine that began to unfold as this bookwent to press. 23
24 While the eCb and imf forced severely debilitating monetary measures upon 24
25 Greece (especially) and portugal, Cyprus, spain, italy, and ireland leading to the 25
26 fall of many governments, the EU offered $15 billion in aid to the Ukraine, much 26
27 of it designed to support the rebel government and to soften the harsh terms they 27
28 expected the IMF to impose. Once again, we saw the hegemonic posture in the 28
29 euro crisis by the German-french powers that undermined the southern european 29
30 periphery, but this time it appears as anti-russian and directly fromthe european 30
31 Commission, itself. The balance of fiscal-monetary measures was reversed for the 31
32 ukraine to better serve the immediate political and ultimate economic goals of the 32
33 eu to maintain a power imbalance within the eu with an eye toward ukraine’s 33
34 eventual joining the eu. 34
35 This is the outcome of an ideology of weak, laissez-faire political control over 35
36 a rigid, centralized financial structure. European civilization is deep-rooted and 36
37 the accompanying national/ethnic antagonisms and prejudices go back centuries; 37
38 but, it would be a mistake to read too much into these beliefs. The failure of the 38
39 eurozone experiment is nothing if it is not the ultimate failure of an economic 39
40 ideology rooted in the enlightenment but now moribund, and slipping relentlessly 40
41 toward the next cataclysm that may eventually lead to the final collapse of global 41
42 capitalism. 42
43 43
44 44
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156 The GlobalCapitalist Crisis and Its Aftermath
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