The legitimation crisis of the EU: what is to be done?

August 13, 2015

On 12 July 2015, Paul Krugman aptly entitled his column in the New York Times “Killing the European Project”. Since SYRIZA’s devastating capitulation, the cosmopolitan Left in Europe has been perplexed by a great dilemma. If the price of a solidaristic rebellion by one government is to become in effect a protectorate, and if there really is no reasonable way of changing the German-dominated neoliberal EU in the foreseeable future, should the Left now side with the populists and nationalists and demand a return to national currencies?

Two cosmopolitan rejoinders come instantly to mind. The first is to evoke the spectre of a new round of 20th century -style disasters. From the beginning, peace has been a justification for the European integration process. According to a modified Hobbesian argument (in reference to the political theory of Thomas Hobbes 1588-1679), it is rational to keep this process rolling to avoid sliding back to the world of jingoist nationalisms and geopolitics. The main problem with this response is that the EU has now become a dividing force in Europe rather than a force of unity and solidarity. Whether we decide to support the prevailing neoliberal project or turn to renationalisation of the European political economy, the likely outcome points towards more divisions and conflicts. Neither path is viable.

The second obvious rejoinder is that the EU can be changed. Anyone interested in changing the institutions of the EU, however, must change the EU Treaty. If the Left in the broad sense of the term prefers a more Keynesian, social-democratic or socialist Union, it will have to get the majority in most member states. Yet it is difficult for the Left to win elections if the voters realize that the Left parties and politicians are powerless to make any significant difference unless the majority of member governments are leftist, which they clearly are not. And even if they were, the process of revising the Treaty could turn out arduous.

What about the possibility of alternatives within a national context, while pursuing changes at the EU level, however hopeless these changes may seem at the moment? Not every member state is in as difficult a situation as Greece. Especially countries with relatively low levels of public debt could perhaps conduct alternative economic policies involving, for instance, large-scale public investments and experiments with democratic institutional arrangements. Assuming a continuing recession, or weak growth and high unemployment, the idea could be (i) to invest in physical, technological and social infrastructure, (ii) to stimulate the economy by using the multiplier effect and (iii) to create the basis for future ‘comparative advantage’ in areas that are socially and ecologically sustainable.

Anyone considering this option must take into account that the EMU, as well as many mechanisms of the world economy, place various constraints also on euro-countries that have retained more room for manoeuvre than Greece. All euro countries have given up their monetary and exchange rate policies. If a country is dependent on rolling over or taking on more debt, it must watch the anticipations and judgements of the credit rating agencies. If a country’s public debt approaches 60%, or is already over this threshold, the member state must get the approval of the Commission and related agencies for its budgets. The allowed annual structural deficit is limited to either 0.5% or 1%, depending on the debt level (a natural disaster or exceptional economic circumstances can entitle some more flexibility).

The “structural balance” is supposed to be the budget balance cleaned from temporary effects. The structural balance is not observable and its estimation implicates major theoretical and ideological difficulties, uncertainties and controversies. For instance, a “structural deficit” may exist even when there is actually a major budget surplus. Currently the EU is in effect assuming that almost all presently unemployed people are useless from the perspective of the production potential of the economy. From this assumption it follows that the currently prevailing budget deficits are not supposed to be recession-related but “structural”. This is neoliberal politics in the disguise of objective-technical calculations. What is more, there are also control mechanisms that tie each member-state into the Commission’s vision of competitiveness (involving internal devaluation, labour market flexibilisation etc.).

In 2014 it seemed still plausible to assume some willingness on the side of the Commission to discuss the precise interpretation of the set budget constraints, especially given a long-lasting recession and relatively low levels of debt in countries such as Finland. After SYRIZA’s capitulation, any genuine negotiations – not to speak of rational argumentation – seem out of question. The EU has come to represent a hard will and strict Herrschaft (domination).

Should a government’s policies clash with the requirements of the Commission, credit raters, German leadership, the ECB, the IMF, or other related agencies, we should expect the possibility and likelihood of capital flight, at least to some degree. The exit option is open to both productive and financial capital. For the transnationally mobile capital, any political uncertainty translates quickly into economic risk. From the point of view of the government in question, this configuration means that transnational capital has structural power over – and thus conditions – its economic policies. Furthermore, the experiences of SYRIZA indicate that the EU is quite ready and willing to aggravate the situation to ensure compliance or to punish. Any Leftist government would thus have to be prepared for:

• Capital flight and banking crisis
• Punitive actions by the EU institutions, possibly deliberately aiming at manufacturing an economic crisis within a member state
• If nothing else helps, exiting from the euro

This analysis gives some credence to the idea that the Left should be prepared for the re-establishment of national currencies. From a cosmopolitical point of view, if it really comes down to exit, the aim must remain solidaristic: to politicize the EMU for the sake of empowering others to transform the Union. Perhaps SYRIZA did not have the mandate or capacity for exiting, but the next Left government must be better prepared for all contingencies.

The worry is that any euro exit will contribute to the renationalisation of Europe. We must recall the wider context as well. The problems of sovereign debt and financial dependency have persisted for centuries (according to Karl Polanyi, the strings of the British Empire were in fact pulled from the City of London). The Third World debt crisis that started in the early 1980s led to worldwide struggles over the so-called Structural Adjustment Programmes (SAPs), imposed by the IMF and others. The stringent conditions now enforced by the Troika on Greece and other euro crisis countries are merely a new variation of these SAPs.

During the Third World debt crisis, many movements and organisations called for one-time debt cancellation. Others concluded that something more sustainable is needed. The establishment of a legally binding debt arbitration mechanism was seen – particularly in the aftermath of the Asian financial crisis of 1997-8 – as the most feasible way forward. More generally it was realised that to tackle asymmetric power relations in the world economy and in the systems of global governance, new institutions are needed, based on equality of different parties and the democratic “all affected” -principle. This has led to various calls for global democracy; we can respond to the domination of financial institutions and global megacorporations by building global democratic mechanisms.

Because the Third World debt campaign failed to attain new global-democratic institutions such as debt arbitration mechanism, also major parts of Europe have now come to be subjected to SAPs. At last, in August 2015, a UN Committee has agreed on a set of principles to guide further sovereign debt restructuring processes. This seems to be a modest step forward in the right direction. By mid-September, the UN General Assembly will vote on a new Resolution to adopt these principles and decide on the follow-up process that should create the next building blocks of the multilateral debt restructuring framework.

Current account deficits and surpluses is a closely related issue. A key problem of the Eurozone has been the persistent surplus of Germany and a few Northern European member states. The deficit of a number of other euro countries is just the other side of the coin; deficit and surpluses cancel out, assuming trade balance with the rest of the world. Yet imbalances are not only a European but a global problem, as J.M. Keynes realised in the 1930s and 1940s (or perhaps already in 1919, during the Versailles negotiations). Keynes made a brilliantly simple proposal. His plan for an International Clearing Union involves an impartial system for the management of currencies, and a kind of world central bank responsible for a common world unit of currency, the Bancor. Keynes proposed that surpluses beyond a given amount should be fully confiscated for a global fund. His later and more modest formulations also included transferring resources from the surplus to the deficit countries.

A withdrawal from the euro would not solve any of these problems, neither would it undo asymmetric power relations in the global political economy. What the disintegration of the EU might well do instead is to facilitate and further encourage a return (already happening at an accelerating speed) to the late 19th century style of imperialism and geopolitics, which were radicalised in the 1930s. Moreover, an exit from the euro would also present dangers and problems to the individual country in question. For instance, following Argentina’s at first relatively successful recovery from the default and socio-economic crash in 2001-2, it has continued to struggle with vulture funds and trials about its debt. Unilateral solutions do not work miracles.

As local and global struggles are closely interwoven, a sensible possibility is to increase and intensify political collaboration across the world. Consider for instance the case of the Party of the European Left (European Left, EL), formed in 2004 in response to the development of the European Parliament. This internationalist formation of 27 national parties has been divided between the nationally inclined Eurosceptics and those willing to build a social-democratic or democratic-socialist EU. The problem is that the EL is a loose framework of cooperation among national parties. It tends to follow the principle of consensual decision-making. EL’s political documents are mostly dedicated to defining current problems and to characterizing negatively the opponents of the Left, rather than developing viable solutions. The haphazard way of organizing committee work and the consensual decision-making system make it difficult to forge a sufficiently ambitious and coherent programme – or to adopt specific proposals. To provide genuine and credible alternatives, the EL should build much more integrated and democratic structures and organizational forms, capable of making meaningful decisions and adopting an ambitious programme. This conclusion applies to other European political parties, such as social democrats and greens, equally well.

Because many of the underlying problems are global, mere European political organizations are not sufficient, however capable and democratic they may become. There is a quest for new forms of agency such as a world political party. The raison d’être of the left-democratic world political party would lie in furthering transformations and various new institutional forms in which the planetary public realm can be organized. We can distinguish between three moments of transformative global-democratic action:

1. Activities within the confines of established institutions.
2. Advocacy to transform global institutions and create new ones.
3. Participation in the newly formed global institutions.

Obviously, the full cycle of these activities would take years even in the best of circumstances. Meanwhile, the question remains: is there anything the European Left can do in the short run to change the course of world history that now seems increasingly headed towards a catastrophe? The stakes are high; and our historical responsibility profound.

The key point is this: European or global solidarity does not necessarily imply a commitment to stay in the euro regardless of what happens. Normatively, the EU is now in a legitimation crisis. Therefore it seems increasingly rational for European citizens and political parties to withdraw support from this project, but only on the condition of assuming responsibility for the possible and likely consequences of one’s actions. Advisory referenda about the euro would be a way of politicising the prevailing institutional arrangements and power relations. Citizens could be asked for instance these three questions:

• Do you prefer your country to stay in the euro; or leave it?
• Which one do you prefer: the current monetary union with budgetary discipline and no solidarity; or a democratic economic and political union, involving elements of common fiscal policy and redistribution?
• If we had a democratic political union in Europe, involving elements of common fiscal policy and redistribution, would you prefer your country to stay in the euro; or leave it?

The main aim of the referenda would be to politicise the EMU and create momentum for major changes. However, if the mandate given by the referendum is strong, it can also justify a well-planned and orderly exit from the euro. The possibility of exit must be genuine.

Heikki Patomäki