Greece and the Eurozone: The Real Stakes

The events of this week approach the level of the world historical. As so often, the weak link in any claim to systemic rationality proves to be in one or another periphery, in this case Greece. The crisis makes bare the underlying logic propelling certain actors or institutions, their attitudes as well as their internal conflicts.

The observation that the actors do have such conflicts is the point that I would like to focus on here. It may seem at first that this is hardly newsworthy. However, from a certain perspective it is. The European Union has been constructed largely according to rules that have repressed conflict and obscured opposing interests. More generally, developed countries, almost entirely belonging to the geopolitical alliance headed by the United States in the postwar second world war era, have acted in remarkable concert where economic and financial matters are concerned. The lack of debate in the governing boards of the World Bank and IMF, even where the imposition on others of contentious policies such as structural adjustment were concerned, and the boring communiques and relative lack of drama of G-7 meetings, testified to this for decades. Such conflicts of interest and dilemmas of systemic management as arose from time-to-time were handled under American aegis through one-off episodes such as the Plaza Accord or WTO Green Room negotiations.

Is this occasion different? It seems that it might be. The fissures are wide and in the open, even if the disagreements are muted. The gaps that exist, as we know, are not only between countries belonging to the Eurozone but between those countries and other developed countries, including the UK, Japan and most importantly the United States. Marx and Engels famously averred that “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” This formulation is compatible with the idea that there are shared interests on the part of capitalists as well as conflicting ones which are managed by the state in the interests of furthering the shared ones, in effect moderating and even overcoming the collective action problem of capitalists. Of course, implicit in the idea of a collective action problem is that potential conflicts of interest and a resulting impetus to secede partially from any regime, even a successful one, continue to exist for some parties at least. This is part of what gives special importance to dominant force and political authority (such as exercised by the United States in the second half of the twentieth century) in such a system of cooperation.

It is hard to make sense of the punitive attitude, and expenditure of political resources, undertaken by the creditor countries in the Eurozone to discipline Greece, even at the risk of severely undermining the conditions of long-term political cooperation (not only with Greece but between Germany and France, or less crucially such countries as Italy) in terms of the financial stakes or in terms of the political benefits of pleasing their more hard-line domestic constituencies (which in any case have been actively created by the choice of the political class to focus on the image of untrustworthy and spendthrift Greece) . Large amounts have been spent on other bailouts (most especially of the private sectors in the same countries, both in relation to post-2008 crisis management generally and Greece in particular) with this being prevented from becoming as large a public issue. What then is the real reason for the creditor militancy in this case? As always, the explanation involves multiple causes. Adorno and others’ theory of the authoritarian personality, whatever its limitations, would suggest that those who have been brutalized into conformity with a dominant order are most likely to demand it in turn, especially from those who they suspect of having evaded such demands, and this certainly has some apparent applicability to the demands of the electorate in cases such as Finland or Estonia, which have undergone searing prior programs of austerity and market-oriented structural reform of their own. Similarly, the pro-austerity conservative governments in power in other vulnerable countries, such as Portugal, have been eager to forestall concessions to Greece lest it make it seem that they failed to get a similarly available deal for their own people and thus empower their political competitors. There is little doubt that Greece needs structural reforms, but this is not all that underlies the ferocity of the demands made of it.  The approach of intrusive creditor oversight ignores the fact that such necessary reforms cannot succeed unless they are a political project of the Greeks.

The explanation of creditor extremism which seems to me most appealing from a structural and not merely conjunctural point of view is this:

An important consequence of the Eurozone has been to help to institute pressures to increase ‘competitiveness’ through real as opposed to nominal means. These include lowering wages and taxes (which in turn has meant lowering the size of the state, especially through diminishing welfare expenditures, which are much larger in Europe than in the US) and increasing productivity, not least through increasing ‘flexibility’ in the labour market and creating consequent labour disciplines. Germany is the country to most deliberately introduce such reforms, under the pressure of reunification, but many countries have in varying degrees done so.  It is also almost the only country to successfully face Chinese and to a much lesser extent other emerging country competition, because of its particular manufacturing niches and engineering expertise. This competition has in recent years challenged the viability of traditional sectors of industrial production almost everywhere else in Europe.

In the absence of nominal devaluation, labor cost reducing and tax slashing real devaluation as well as productivity enhancement are the only available tools to address such competition, but the institutional, social and political barriers to implementing them in light of European public attitudes and historical legacies are profound. The external deficits of the peripheral European countries are ultimately driven not merely by the euro-raising effect of German external surpluses but also by the import increasing and export-competing effect of exports from China (and to a lesser extent other countries). The open and hidden internal imbalances in the Eurozone are indirect manifestations of the larger problem, which has not been dealt with and would have had to be addressed in any realistic economic strategy.

The project of creating a Europe of low wages, flexibilized and disciplined labour, high productivity, and lower state expenditures (and accordingly taxes) is in the interest of European capitalists, and has been thus far implemented incompletely and unevenly across Europe.  On the other hand prolonged austerity and the resulting continental and worldwide crisis of effective demand is not in their interest.  The more pragmatic attitude of the US Treasury to the Greek crisis and to sovereign debt in general, as well as that of the IMF, reflects this implicit realization, even if they too are of two minds.  As a consequence, various ‘fractions’ of the European and the global capitalist class are to different degrees in tension over the management of this crisis. [The idea of such fractions is associated, appropriately enough, with the important Greek-French thinker, Nikos Poulantzas].  From a systemic point of view the individual case of Greece does not presently affect the vital interests of countries outside the Eurozone enough for them to go beyond restrained words, but it does suggest the potential for a deeper conflict, especially if the creditors’ fundamentalism should get further in the way of the proper functioning of the world market.

A more inclusive alternative would have emphasized not merely more robust aggregate demand but a strategy for investing in the productivity of all of Europe, including its weakest countries,  and changes in Eurozone rules which would have more automatically shared risks and rewards.   The real debate is nowhere near to taking place.  The ultimate stakes are about the future of an economic and social order and not merely about a few bounced cheques, ‘moral hazard’ or financial contagion in the Eurozone.  This is why the people’s voice is such a dangerous thing.

3 thoughts on “Greece and the Eurozone: The Real Stakes

  1. Sanjay. an un-examined theme in your various essays on the Greek situation is the ugly rise of nationalism in Europe. Episodes such as economic crises are usually accompanied by the rise of xenophobic parties. The European ideal is under threat not only from a narrow application of ideas rooted in economism, but also the sub-conscious expression of nationalism as in the stereotype of the lazy Greeks in northern European countries. Marx wrote on the politics of nationalism in Europe in 1848.


  2. The people’s voice is indeed a dangerous thing I am in Paris for a week and it is interesting that aspects of your discourse on Greece have been put to me by (1) a Professor at sciences Po ( fractions and Poulantzas) (2) a diplomat at the Quai d’Orsay ( executive committee of the ruling class (3) a Portuguese waiter ( why should they not suffer like others have?)


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