EU’s Sovereign Debt Crisis – Just Cancel It?

Economists, politicians and protesters have at various times since the global economic meltdown hit,  questioned French membership of Euroland as well they should given what could lie in store with the European Stability Mechanism.

Protester in a Guy Fawkes mask (Credit: Wikipedia)

As the republished analysis that follows shows the Manifeste des economistes atterrés drew a huge response in France for its denunciation of financial excess and its proposals for severe restrictions on the financial activities that had led to untrammeled speculation and crisis. There is a growing Internet-led critique of the power of finance and with the crisis still unresolved expect to hear more voices demanding debt cancellation in Europe — pure and simple.

The report below has been extracted from the an article published in full here.

European alternatives: trajectories of mobilisation responding to Europe’s crisis


Indignados and beyond

The real innovation in terms of social movement action in response to austerity emerged from the civic movements, and in particular the indignados as developed in Spain and Greece, with a limited spillover in Italy, and France. On May 15 (which became the movement’s name) the protesters gathered in central Madrid, and then in tens of other squares across Spain, making the point that they rejected Left/Right political labelling. They asked for ‘Democracia Real Ya’ (Real Democracy Now  ), the name of the organisation which had acted as a platform for a mobilisation mostly conducted online using Facebook and Twitter. Referring to the booklet Indignez vous! (2010) authored by Stephane Hessel, a nonagenarian French activist, which had inspired some of the initiators of the movement, they came to be known as the indignados, common citizens united in their outrage by the injustices of the economic and political system. The occupation soon spread to tens of Spanish cities, reaching even very remote rural locations. The camp in Barcelona was attacked by police on the May 27, sparking an even greater turnout. The camp in Madrid was abandoned on June 13. On June19 a huge demonstration took place in which up to three million people participated in several cities across Spain, showing the immense level of popularity the movement had obtained. After the main camps in Madrid and Barcelona were abandoned, the movement moved into neighbourhood assemblies. The assembly in Sol deliberated over a series of proposals, including ones which affect European policy, for example, the rejection of the continental Bologna Plan for university education.

These Spanish protests have had echoes in Portugal where in March the spontaneous citizen demonstrations of the Geração à rasca’  took place, but also in France, in Italy and several other European countries, where some groups have tried to kickstart similar demonstrations. But Greece was the country where the movement managed to make sizeable inroads. On May 25, Syntagma square was occupied by the local indignants called in Greek Αγανακτισμένων (aganaktismenon). They initiated a series of popular assemblies, whose deliberations were published on the Real Democracy Now! website, the Greek equivalent of Democracia Real Ya. They called for peaceful demonstrations which saw the participation of tens of thousands of Greek citizens. On May 29, 100,000 protested in front of the parliament in Syntagma. On June 5, at least 200,000 people protested peacefully in the same location under the banner of theindignados  . The Greek indignados movement served as a launching pad for the huge two-day general strike of June 28-29, when an estimated 500,000 people took to the streets, and big fights broke out with the police. The camp in Syntagma was evicted on that occasion, putting a temporary end to the movement. Big protests, though not with the same numbers as in June and July continued in the following months of 2011 in Athens, Thessaloniki and other Greek cities.

The indignados mobilisation escalated to the European level through the demonstrations called on October 15 under the slogan, “United for Global Change”. A march of indignados traversed Spain, France and Belgium collecting demands to deliver to the European Parliament. However, in the European capital the protests were quite small. Half a million people took part in the demonstration in Madrid and up to a quarter million in Barcelona. Italy, the country with the second highest turnout saw half million people marching in Rome. In this case though the demonstration was a quite traditional Left demonstration with parties and trade unions behind their respective banners and organised with a final rally. Clashes erupted between police and demonstrators. In Italy different groups have tried to follow in the Spanish path, and have tried to organise occupations and assemblies. But the movement has never taken off as it did in Greece, even though the level of economic hardship among young people in Italy and the politics of austerity pushed both by Berlusconi and his successor the technocrat Mario Monti would apparently favour the rise of such movement.

The indignados have offered a space where different groups of citizens affected by the economic crisis, could have their views heard, and channel their concerns about the dire situation of their countries. Crucial in these movements have been the assemblies, where participants used methods of consensus to reach numerous decisions, not only on the management of the protest camps and of protest actions, but also on the position of the movement on a number of policy issues.

Yet, as we have seen, looking at the proposals that emerged from the assembly in Sol, or the suggestions collected in the ‘book of the people’ produced by the activists who have walked from Spain to Brussels passing through France, the proposals produced through this participatory method crucially lack that kind of systematic focus which might turn them into a basis for goal-oriented campaigning. In fact, whether or not these movements should have demands at all is still an object of debate among activists themselves, as seen most vocally in the case of Occupy Wall Street in the US.

The relevance of Europe in all these actions appears to be minimal. In the original policy platform of the main Spanish group, Democracia Real Ya, the only direct mention of the European Union is the request for  ‘compulsory referenda on laws imposed by the European Union’. There is no talk of more or less integration and any other reform at the European level. Another measure with continental repercussions is the request to introduce the Tobin Tax on financial transactions, petitioning against bank’s malpractices and tax havens. The platform also asks for substantial welfare reforms such as the reintroduction of a euro subsidy for those out of work, but all these requests are made at the national level. The assemblies, the other main actor in the indignados movement, only managed to approve a minimum consensus document which was the product of a very tortuous process of elaboration and is not very substantive in terms of policy proposals.

Another document which worth mentioning was the first declaration of the assembly of Syntagma square. It states, “we will not leave the squares until those who compelled us to come here leave the country: the governments, the Troika (EU, ECB, and IMF), the IMF Memoranda  and everyone who exploit us”. In Syntagma square one could see European flags with the stars replaced by swastikas, in one of the clearest signs of the feelings of many protesters with respect to the European Union. The ‘book of the people’ produced by the indignant march towards Brussels, on which they collected hundreds of proposals to deliver to the European Parliament does not have much significance in terms of a policy document. It has not been approved by any assembly. Yet, one finds a number of requests for political reform, for changes in the agricultural policy of the European union, protection of the environment, welfare state protection, better health and education. This ‘cahier de doleances’ possibly also highlights what has been the main weakness of the indignados movement, that is the low level of articulation of proposals.

The fragmentation of the identities, claims and demands appears that we witness across the board appears to be the result of a further major characteristic of these European mobilisations – the lack of a European political space.

Alternative policy visions 

Three different visions, broadly speaking are driving actions and policy initiatives in response to the crisis in Europe:

–       First, we have the vision of a European adjustment which envisages limited reform of the Monetary Union and financial markets – including the introduction of a Financial Transaction Tax, the creation of eurobonds, an extended role of the ECB and a less restrictive view of fiscal integration within Europe.

–       Second, the reversal of European integration proposes to revive national political processes, and respond to the financial crisis with some debt repudiation, contemplating a break up of the euro and the return to domestic currencies.

–          Third, a Europe beyond neoliberalism argues that greater European integration should not be based on the dominance of the single market and currency but on a vision of sustainable and more equal growth, drastically reducing the power of finance, eliminating tax havens, reducing the burden of debt, protecting welfare and labour rights, and introducing coordinated fiscal policies capable of avoiding a new great depression. 

These three approaches are less mutually incompatible than might be thought, and the importance to attach to them depends on the gravity of the crisis. The proposals for EMU reform, the easiest to realize, if enacted at the start of 2011would have very likely been successful. But now that the crisis has become more extensive and more severe, they appear inadequate. More drastic measures to curb the freedom of action of the financial industry are more and more necessary and are increasingly gaining support among the political and economic élite. The proposals for a different model of European integration, with less power for the markets and an enhanced role for politics and democracy – at first blush, hard to achieve – become the more essential, and the more practical, as the recession worsens. If the crisis gets out of hand, in a perilous scenario of disintegration of the euro and of Europe, this could necessitate a return – amidst a sea of difficulties – to national economies with their own currencies.

European adjustment 

The ‘founding fathers’ of the European Union, such as Romano Prodi, former President of the Commission, and Giuliano Amato, former Vice-President of the European Convention that prepared the draft Constitution, have harshly criticized the way European policymakers have handled the crisis. In lieu of the intergovernmental approach that held sway at the summit on Treaty revision in Brussels on December 9, they advocate a renewed federal model for a ‘United States of Europe’ with not only economic and monetary but fiscal and political integration. They want Europe to impose the Tobin tax on financial transactions, contend that the 60 per cent ceiling on the debt/GDP ratio be guaranteed collectively by the Monetary Union as a whole, and call for the issue of Eurobonds (EU securities to fund development projects) and a larger EU budget no longer dependent strictly on member state transfers. They propose a constitutional convention for the revision of the European treaties, granting observer status to representatives of employer and labour organizations, civil society and local and regional governments.

Some of these proposals rehearse those of the Spinelli Group’s manifesto Against the temptation of a Franco-German ‘coup de chefs d’état’. This Group embraces dozens of prestigious European figures, including Jacques Delors, Daniel Cohn-Bendit, and Italy’s new prime minister Mario Monti, as well as 101 Euro MPs from a range of political forces.

In Italy, the need for a new European policy approach led the industrialists’ confederation daily, Il Sole 24 Ore, to come out with a “Manifesto to put Europe back on its feet” with the endorsement of such eminent personalities as former President Carlo Azeglio Ciampi and Antonio Tajani of the People’s Liberty Party, European Commissioner for Industry. This manifesto called for true European economic governance, a central bank on the model of the US Federal Reserve, Euro project bonds for infrastructure, Euro Union bonds to lower the cost of the public debt, and a single credit market.

On the labour front, at its May 2011 congress in Athens the European Trade Union Confederation denounced the deepening spiral of debt, austerity and unemployment. Its emergency resolution read: “To get out of the crisis, Europe must help countries in crisis such as Greece with an ambitious investment and development programme to generate growth and employment and with that income and tax revenue. However, anybody sticking to the one-sided austerity plan, accepts the collapse of the Eurozone.”

In Britain, in a letter to the Observer on 5 June 2011, fifty economists including Sir Tony Atkinson asked the Government to develop a ‘Plan B’ for the economy comprising the reform of finance, higher taxes on the rich, measures for jobs and more power for workers, a green ‘new deal’ and industrial policy programmes.

Reversing European integration 

Some grassroot protests, coalitions involved in more hardened resistance, and radical groups have reacted to the crisis with a fundamental critique of European integration and of the power of finance. The usefulness of the euro itself is questioned in France while the French debate has also pointed out the popularity of protectionist policies. Again in France, the criticism of dominant policies addressing the debt issue has been voiced by experts and groups, proposing debt cancellation. European appeals and initiatives have demanded debt cancellation for the most indebted countries, without however a specific articulation of policy proposals. The model for such actions has been the campaign against Third World debt which, however, faced a radically different challenge and context.

A variety of positions, highly fragmented and with little coherence, have argued that the constraints put by Europe’s austerity policies are so disastrous that it could be preferable to break up the Monetary Union, giving up the euro and returning to national economic sovereignty.

A post-liberal Europe 

A radical critique of European policies, linking responses to the crisis with the perspective of a post-liberal Europe, has been proposed by expert networks, civil society groups and social movements in several EU countries. The 2012 edition of the annual Euromemorandum, backed by dozens of European economists, has called for limiting the freedom of action of the financial sector, enhancing the role of the European Central Bank as lender of last resort, replacing austerity with policies of increasing public demand, wage support, full employment and shorter working hours.

In France, a hugely popular denunciation of financial excess was the Manifeste des economistes atterrés. This manifesto dismantles the ‘false certainties’ of the virtuous functioning of markets and proposes severe restrictions on the financial activities that brought with them speculation and crisis. A new book by Michel Aglietta suggests that only a federal Europe can make the euro a sovereign currency and end the crisis. He calls for making the ECB a lender of last resort, integrating fiscal policy at European level, issuing Eurobonds, narrowing the gap between the production capacity of the European ‘centre’ and the ‘periphery’. Detailed analysis and proposals on the public debt problem are brought together in the volume produced by the ATTAC campaign (2011).

In Germany a thorough analysis of the mechanisms of the crisis and the missteps of European policy was set out by a hundred academic advisors to Attac Germany, the German affiliate of the international network that for years now has been urging the taxation of the financial industry and the abandonment of free-market policies. They denounced the spread of the crisis from private banks to sovereign debt, pointed to the risk of a crisis of hegemony that could bring new conflicts, and called for an end to the logic of growth, for managed default to reduce the debt, and for the taxation of capital assets and finance.

Even before the outbreak of the sovereign debt crisis, a volume published by the European Trade Union Institute entitled After the Crisis (Watt and Botsch, 2010) brought together the ideas of forty American, European and Italian economists – among them Paul de Grauwe, Robert Kuttner and Jacques Le Cacheux – on themes ranging from the tax on financial transactions to policies to stimulate demand, from controls on capital movements to protection for labour rights and wages. The Institute’s follow-up volume, Exiting from the Crisis, continues the discussion with a preface by the Nobel prize winner Joseph Stiglitz and contributions from thirty labour economists (Coats, 2012). The ETUI’s initiatives were presented at Beyond the crisis: developing sustainable alternatives, a conference organized at the European Parliament by the Socialist, Democratic and Green MPs on February 9, 2012. The discussion between economists, unions and politicians of various extraction was on how to deal with the crisis, reduce inequality, change our model of growth and develop the green economy. A common critique of the rules of European economic governance and the ‘fiscal compact’ adopted by the euro-area governments in December began to emerge, two issues on which the euro-parliamentary groups of Socialists&Democrats, Greens, and European Left (GUE-NGL) were united in opposing the decisions of the Council and Commission. The attack on the disastrous effects of the European policy of austerity being written into constitutions, is developed further in a volume by Hoang Ngoc (2011), a French Socialist euro MP, head of that party’s economic policy unit and an economics professor at the Sorbonne. The proposals include a different role for the ECB, Eurobonds, a public investment programme, the tax on financial transactions, and European harmonization of corporate taxes. Other papers offering analogous proposals have come from the Green and Left groups of the European Parliament.

In Italy, the future of Europe has been debated principally under the heading ‘La rotta d’Europa’ (Europe’s course) on the website Sbilanciamoci! and in the daily il Manifesto. The discussion has been extended to European level onopendemocracy. Starting with Rossana Rossanda’s initial article in July 2011, the debate has involved over fifty economists and politicians, collected in two e-books published by Sbilanciamoci! The initiative provoked a wide-ranging discussion in the social networks, leading to a forum entitled “La via d’uscita” (The way out), attended by 800 people in Florence on 9 December 2011. The forum issued a call for a European manifesto, ‘Another road for Europe,’ underwritten by the Florence gathering plus such figures as Elmar Altvater, Samir Smin, Zygmunt Bauman, and Mary Kaldor. This manifesto has influenced discussion and action in a number of countries.

The most persuasive and widely endorsed policy proposals for Europe that have emerged in these debates among experts and civil society networks can be summed up in three demands with which we shall close this survey: control finance, reshape the economy, practice democracy.

Control finance

Activists and experts have long argued that financial investments cannot yield a real return of 5 to 10 per cent, that is far beyond the capabilities of the real economy. A series of measures have been proposed to curb the activity of global finance. On the taxation of financial transactions there is now an emerging consensus among EU governments, except for the UK under David Cameron, and the EU Commission is drafting a proposal for a Financial Transaction Tax directive.

The imbalances produced by capital movements can be mitigated, and even the IMF acknowledges that some action on this front is needed. China, India, Brazil and other emerging countries have all retained capital controls that have effectively sheltered them from the financial crisis.

Tax havens can be eliminated, but the G20 and the OECD have made no progress on that front. Drastic restrictions are needed on the scope for speculation on environmental assets – carbon dioxide emission permits – and essential raw materials, such as food commodities. The dangerous volatility of world food prices in recent years has been due to the operations of world finance.

The separation between commercial and investment banks needs to be restored, and European bank supervisors must not limit their action to imposing capital increases under the new Basel rules but must institute stricter rules against the most speculative risky assets.

The enormous resources of pension funds could be used to sustain economic growth and investment in the public interest, not financial speculation. Private pension funds could be directed towards less risky assets, and public pension systems could operate within public financial circuits, to guarantee the security of future pensions.

The rules governing financial investment should eliminate the role of rating agencies, as has been proposed in the US. The agencies have proven totally unreliable in assessing risk (Lehman Brothers is a case in point), they are prey to grave conflicts of interest with the corporations that control them, and their evaluation of the sovereign debt of countries in crisis has only aggravated instability. Europe should create a public rating agency that follows sounder, shared standards.

Other suggested measures address the sovereign debt crisis at European level. The public debt of countries adopting the euro as their currency should be guaranteed collectively by the euro area as a whole.

European countries in crisis could form a ‘debtors’ summit’ for collective negotiation of the adjustment plans with the private banks, Brussels and the IMF, as a counterweight to the excessive power of Chancellor Merkel in the EU’s decisions. Creditors and debtors are two sides of a single problem; Europe cannot allow, internally, any repetition of the way Third World debt was handled – a western creditors’ cartel organized in the Club of Paris dealing as one power with the single poor countries, forcing upon them the IMF’s structural adjustment plans. The debtors’ summit might make it possible to cope with the debt problem in a way that is sustainable for the countries in crisis, acceptable to the sound countries, and careful not to destroy the monetary union and the euro.

Such initiatives are all the more urgent after the European summit’s agreement on the ‘fiscal compact’ on 31 January. This obliges all states to reduce the amount of debt above 60 per cent of GDP by one twentieth each year for twenty years. Such measures can be taken only at the cost of widespread privatisation of public assets and severe social lacerations, with further cuts in public spending. In the midst of a serious recession, this would result in great depression in Europe.

Reshape the economy

‘Occupy Wall Street’ slogans have argued that the 99 per cent – the citizenry, the victims of the crisis – must take control of the economy away from the 1 per cent who now decide for everyone. In fact, studies on inequality have shown that 90 per cent of all Europeans are worse off now than a decade ago and that the richest 10 per cent have pocketed all the benefits of growth. In many European countries and in the United States, the degree of income inequality is now as extreme as in the 1930s. This unacceptable redistribution has yet to shape public perceptions and the policy debate. The need for the political system to intervene to alter the operation of the economy is likely to mount rapidly. A ‘great redistribution’ could be placed on the agenda, changing the groups to which austerity policies are applied, protecting labour and wages and defending the welfare system.

The policies of austerity that have been imposed on Europe and made even more rigid by the Treaty revisions decided at the end of 2011 must give way to new rules and policies that employ Europe’s resources to avoid depression, sustain demand, finance sustainable products and the ‘green’ conversion of economic activity, create jobs, raise wages and increase workers’ rights.

Proposals in the debate suveyed above have argued that fiscal policy must shift the burden from labour to wealth, with an ordinary capital tax and, in case of emergency, an extraordinary one. In most European countries government action is crucial to attenuating the inequalities engendered by the market, and the debate on redistribution is already under way. In France the head of the Socialist Party’s economic policy unit and a trade union leader have written a book entitled, Make the rich pay (Drezet and Hoang Ngoc, 2010). Taxation has to be shifted onto non-renewable resources and fossil fuels (with a carbon tax, above all) to favour more efficient, sustainable production methods. In Europe taxation has to be harmonized and new sources of revenue procured to finance spending at European level. Public expenditure – at national and at European level – must serve to stimulate demand, defend the welfare system, expand public goods and services. Part of this European expenditure can be financed by Eurobonds, which must be instituted not only for debt restructuring but in order to fund the ecological reconversion of the economy with investment that can both create employment and protect the environment.

Decisions on what to produce, how and for whom must not be left to ‘the market’ – which is to say, to the multinational corporations – but should be oriented by industrial policy and European and national programmes for innovation aiming at convergence of production capacity within Europe and at sustainable, efficient production with more skilled workers.

A key argument in European mobilisation has been that workers’ rights and welfare are constituent elements of Europe. After decades of policy approaches that have created mass unemployment, job instability and impoverishment, the top priority must be the creation of good, stable jobs at higher wages, and the defense of low-income earners. If Europe is interested in the consensus of its citizens – not just of finance, big corporations and the privileged 10 per cent – it must regain control of the economy and build its common strategies on these foundations. Coordinated policies on demand, supply and labour could reshape the European economy, breaking away with the apporach of the Stability and Growth Pact and the 2011 Treaty revisions.

Practice democracy 

From its birth the European Union has always suffered a democratic deficit; with the recent crisis this deficit has become dramatic. With the erosion of national sovereignty, representative democracy through national governments and political parties is increasingly unable to respond to problems. At European level the crisis undermines the legitimacy of the bureaucracies that exercise power without accountability – the Commission and the ECB – while the Parliament still lacks an adequate role.

European civil society has given rise to movements and practices of participatory and deliberative democracy, such as the Social Forums and the protests of theindignados. But these experiences need to address policy issues and develop a strategy for political change. The link to political processes has to be addressed; possibly the proposals emerging from European mobilisations could be brought up before the European Parliament, presented to the Union’s institutions and political forces, proposing a new Constituent convention to give voice to civil society and design the transformation of Europe.

Wide public opinion debates on the future of Europe can be stimulated. Novel forms of actions have also emerged; 5 November 2011 was ‘Bank transfer day’ for switching bank accounts out of the banks most heavily engaged in speculation to somewhat less toxic institutions. Important efforts are now directed towards rebuilding cross-border networks to exchange ideas, projects and initiatives and to build social alliances with unions, precarious workers, any economic agents open to change, and so forge the conditions for a new politics through which the powerless 99 per cent can speak and act.

In search of European politics

While the content and coherence of this set of proposals emerging from the debate among European networks suggest that alternative policies could lead to a viable political strategy for change, a clear disconnect is present between the patterns of mobilisation of activists, the proposals for alternatives, and the political agency that could bring them together in a strategy for implementing change. This returns us to the lack of a European political space. The lack of a European public space as an arena for common discussion and deliberation on shared problems is a well known weakness of the European construction, and has clearly emerged in this analysis of continental mobilisations, with obvious consequences for the failure to develop a common framework of response.

Even more important, however, could be the lack of a democratic politics at the European level that could provide an ‘entry point’ for contestation. The discussion on how an alternative could be achieved through political processes – at the European and national levels – has not yet started. However, after years of slow responses, European activism is picking up speed. In May 2012 the protest in Frankfurt against the European Central Bank and the power of finance is opening up a new period of intense cross border initiatives, with initiatives at the European Parliament, protests at European summits and plans for a large civil society gathering marking the 10th anniversary of the first European Social Forum in Florence. The search for the construction of a common framing and a common European political space is at the centre of current activism in Europe. This is a necessary step to allow the new subterranean politics forged through fragmented protests to emerge as a new force shaping the future of post-liberal Europe.

This article is based on work for the project on “Subterranean politics” coordinated by Mary Kaldor at the London School of Economics. The results will be published in next year’s Global Civil Society Yearbook

About the authors:
Mario Pianta is professor of economic policy at the University of Urbino and has worked at the European University Institute, the LSE and the Sorbonne. He is among the founders of Sbilanciamoci, a coalition of 50 civil society groups working on economic alternatives. Mario Pianta’s new book is Nove su dieci, Perché stiamo (quasi) tutti peggio di 10 anni fa (Laterza, 2012)
Paolo Gerbaudo is Adjunct Professor of Sociology at the American University in Cairo (AUC) and a freelance journalist. He was the UK correspondent of the Italian daily newspaper il manifesto and is writing a book for Pluto on protest in Arab and European countries.
This article is published by Mario Pianta and Paolo Gerbaudo, and under a Creative Commons licence . and reprinted here with thanks and acknowledgements in terms of that licence.
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