Contrary to popular belief, pigs — or PIIGS — can fly. But they also come home to roost. The EU finance ministers are meeting in Brussels today to consider a bailout for the Republic of Ireland. The Irish government is making huge noises about not wanting a bailout, and key players in the EU are making huge noises about not wanting to give it to them. It is thus certain to happen, along lines that no doubt have already been negotiated by Irish finance bureaucrats and the European Central Bank.
The ritual dance of refusal by both sides has a threefold aim — it allows the leaders of the country being bailed out — really, taken over — by the EU to make a show of defending national sovereignty; it allows Angela Merkel and other north-European leaders to convince their own voters that they aren’t squandering hard-earned Protestant money on freeloader nations. Finally, it allows the EU project to conceal the remorseless manner in which it is drawing national sovereignty, and national democracy, into its quasi-dictatorial maw.
This frantic ritual activity became known as the Zorba dance, earlier in the year, when Greece’s PM, George Papandreou, played both ends against the middle — telling Greek voters that the country was in crisis, but he was standing up to the faceless bureaucrats in Brussels, while at the same time telling the EU that his country would be aflame by nightfall, and bring down the EU project if a bailout wasn’t imminent. This impressive performance allowed him to not only grab a larger-than-expected settlement, but to persuade his one-time militant PASOK party to surrender control of the economy to a bunch of auditors from not only the EU but, of course, Goldman Sachs and other money market players.
Papa’s warning about the threat to the EU was exaggerated at the time; now things are looking more serious. In this week alone, it faces not only the Irish crisis, but a new Greek crisis — with revelations that the real state of the economy is still worse — a 15.4% deficit rather than 12.6% — than was revealed when a set of “honest” accounts was compiled in the lead-up to bailout. To these can be added Portugal, which is getting a knock-on effect from the Irish holdout, as national bond rates for all vulnerable eurozone countries start to rise remorselessly. Portugal’s spread on 10-year bonds is now above 6.5%, the same rates Greece was at when it default was averted by a €110 billion bailout in April.
It is less likely, but not impossible, that this will roll over to Spain. Less likely, because its bonds are at a healthier 4.5% yield, and whose current account is in better shape. Not impossible because the markets may stampede. Spain has €850 billion exposure to the money markets, more than the other three put together. Throw in Italy, the last of the PIIGS, and currently embroiled in farcical political turmoil, and you’re heading well north of €2 trillion.
If, as now seems likely, Ireland is bailed out after holding the EU to ransom, and Greece then requires a second bailout, it will be reasonable to call this a crisis not only of the EU project, but of Western capitalism and elite rule. The distinctive thing about this event is that it is a crisis in every dimension, from economy to sovereignty and back again.
For Europe, the roots of the crisis were laid with the creation of the euro, a currency disconnected from any national sovereignty, in the late 1990s. The euro was the latest stage in the European Union project, which had started with the European Coal and Steel Community in the early 1950s. Throughout its successive stages — ECSC, EEC, EC, EU, and the post-Lisbon EU — the EU project has been founded on the idea that national sovereignty would be delegated to a supranational body, and thus in theory, still under the control of the European peoples.
That was bollocks, of course, and most of the key people involved didn’t believe that at all — aiming instead for a post-democratic technocracy, run by an elite. Key bodies such as the Agricultural Commission were founded decades before anyone got around to starting a European parliament — which, until recently, had no actual power over EU policy at all. The philosophy of EU pioneers such as Monnet, Kojeve and Schumann had always been that a united Europe would be achieved by stealth — a series of common sense steps that no one could object to, starting with heavy industry co-ordination, moving to trade, customs, etc.
These pioneers were statists, intent on building a new Rome. But a funny thing happened on the way to the Forum. The economic crises of the ’70s discredited Keynesianism, and monetarists started to take the lead, and fill out the ranks of governments and the eurocracy. This was especially so in Germany and the northern European elite, whose development had leapt ahead of the south and periphery. Into the ’80s and ’90s, interests diverged. The north was increasingly intent on controlling inflation and stabilising economic process, the south continued to need development. For the south, the problem was that the north had all the money.
The euro was intended to be the compromise solution to this. The EU nations would surrender control of money to an unelected European Central Bank with mandated limits on supply. This would give weak nations access to capital in a currency backed by the stronger nations, and ideally reduce inequality of access and investment. In return for abandoning the advantages of a flexible currency, the south would get “stabilisation funds” for specific purposes — keeping local agriculture viable, etc. They would also commit to restrain their fiscal policy, holding deficits to a maximum 3%.
Sadly, this process was sham from the start. Ireland and Portugal only just made the criteria to get in. Greece didn’t at all but was allowed in anyway, a move connected to the politics of drawing Eastern Europe in to the Western European orbit. Greece solved the problem of having a strong currency for a weak economy, by cheerfully fudging the books for decades, and running a de facto welfare state using civil service salaries and pensions as the mainstay of extended family support (thus the spectacle of people protesting for a retirement age of 55 — such pensions are often supporting two or three generations). Ireland went low, slashing its company tax rate to 12.5%, deregulating local finance and demanding high-tech starter funds with all the subtlety of a Belfast cabbie.
Though the euro has created some impressive investment flows, its overall effect has been to centralise the control of capital — in the north — rather than distribute it. It’s also made it impossible for the smaller southern economies to run their currencies weak and improve exports, thus permanently handing over some production to more flexible currencies outside the EU, and making development dependent on keeping the local credit tap open, and on stabilisation funds. Once their credit ratings start to fall, and their borrowing costs skyrocket, they’re boxed in, unable to devalue and float their debts away. Or conversely, were there a single currency and a single EU government with control of it, the southern nations might have a chance of controlling the euro to their advantage.
The current situation is exactly what the EU’s architects didn’t want — local chaos being wrought by a highly visible, and centrally administered European institution, i.e. the euro. The fault lies with the hook-up between technocracy and transnational finance capitalism, and, as the writer James Heartfield notes, the increasing use of the EU as a vehicle to bypass democratic challenges to capitalism that would occur in the parliamentary nation-state.
So what happens now? What always happens — profits stay private, losses are socialised. Now particularly begins the most absurd stage — blaming the welfare state (such as it exists) for the crisis, and turning structural collapse into personal moral failing. Credit is indefinitely extended to keep the economy flowing, and when people use it as they are encouraged to do, the crisis is blamed on greed, and taken as a warning against hubris. Having run the economy on debt, the state then moves to take money away from the one group that would spend it — the poor, working and on benefit, who would instantly spend any extra cash they got, on essentials they are currently doing without. The result, one can predict with reasonable certainty, are economies that remain debt-ridden and deflated, and a Europe with a richer centre and weaker periphery than ever before.
One real possibility arising from this mess is the break-up of the eurozone. Though there would be huge costs associated with withdrawal, there may be a point at which it is advantageous for a nation to do a triple whammy — withdraw, default on selected debts, and re-issue a devalued currency to pay off the remainder with a take-it-or-leave-it offer. The last of these would then restart a humbler economy based on more viable exports and tourism. I can’t see this happening immediately, and I can’t see it being piloted by a mainstream party. However, it would not be impossible, should things get worse and stay worse, for a populist, nationalist movement to rise from the total failure of legitimacy and discrediting of existing parties who have attached their star so assiduously to the EU bottle-rocket.
In Greece, for example, this could possibly come out of a revolt within or split of PASOK, a party that was nationalist and anti-EU through the 1980s, and that retains an old guard who has always been sceptical of the party’s European turn. EU membership still retains a deal of support among the Greek people, but it is largely based in the upper two thirds. Another 30% remember euroisation as one of the worst days of their life, because the cost of staple foods doubled, plunging many from frugal comfort into desperation. Support for PASOK remains high because many people recognise that they’re at least tackling endemic corruption and book-cooking after a decade of inaction by the right, the New Democracy party. But if playing by the rules offers them nothing but increasing strictures, and the euro’s one great advantage — capital access — dries up, then membership of a monetary union loses any advantage.
In Ireland, should it come, it will emerge from a recombination of political forces, as periodically occurs in Irish politics. One of the likely winners from the current crisis will be Sinn Fein, whose presence in Irish republic politics has been small to date (it has four seats in the Dail). But they are the only major party with a reputation for political integrity, and a clear vision of what they want. Currently, they are reasonably pro-Europe, believing it offers a good framework within which Ireland could be reunited, as the UK breaks up. But in the past they’ve been Marxist-nationalist, and ethnic nationalist before that, and they’d be agile on the question of the euro.
That they believe there may be political dividends from the current crisis is indicated by the fact that Gerry Adams has announced that he will quit his Belfast West seats in the Northern Ireland Assembly and Westminster (the first immediately, the latter when an Irish election has called), and run for the border seat of Louth in the Irish Republic. The seat is already held by a Sinn Fein member, who will quit the seat to let Gerry stand. Adams, of course, doesn’t take his Westminster seat, and he’s kept a low profile in Northern Irish politics, letting Martin McGuinness run the show. This suggests that this move was in the works for some time. Adams has said that the Fianna Fail/Greens coalition (yes, the Greens have let themselves be left holding the bag, again) is “the most unpopular in the history of the state”. He sounds as happy as a PIIG in the proverbial, as the whole of Europe undoubtedly is.