Is the German Left Saying Good-Bye to the Euro?


(published in German in the Austrian City Paper “Falter” on May 29,2013).

 

We are used to quite a bit from conservative German academics: signature collections against EU integration, appeals to the German Constitutional Court in Karlsruhe on behalf of maintaining German sovereignty (does that not sound familiar in Enlgand?) and the founding of a new party “Alternative für Deutschland” for the forthcoming parliamentary elections, which behind this name hides a single issue, abandoning the Euro.

But now it seems that also a significant part of the German Left joins these efforts. Once again, Oskar Lafontaine, the former minister of finance and leader of the “Die Linke” party is part of this group, as well as his former deputy minister, Heiner Flassbeck, formerly also chief economist of the UN trade organization UNCTAD, but also the leading social democratic ideologues Fritz Scharpf and Wolfgang Streeck (Max Planck Institute), and a growing number of others.

They all deplore (correctly) that the EU Monetary Union was from the beginning “under-institutionalized” (lack of a fiscal union), that the EU Troika acts in  a neo-colonial manner in the Southern crisis countries, and that the Social Democratic dream of  a “Keynesianization” or “Social Democratization” of European economic policy had been shattered, with the result of the deepest crisis since the 1920s, staggering unemployment, the de-industrialization of France, increasing balance of payments imbalances, etc. The only solution to this conundrum is – in their argument – the “orderly dissolution” of the Monetary Union, plus a following 25%-40% depreciation of the currencies of the crisis countries – which would reestablish their economies’ competitiveness.

This latter “solution” is also supported by rightist, such as Hans-Werner Sinn of the ifo-Institute in Munich, and many of the old and new xenophobic and nationalist parties in Europe, such as the FPO in Austria, the Vlaams Belang in Belgium, Marie LePen in France, UKIP in the UK and others. They all decry the “lost sovereignty” of EU integration – ingoring that in today’s world small and medium-sized countries’ sovereignty does not get you very far in solving global problems. The anti-EU and anti-Euro conservatives now get a second wind from their new coalition partners in spirit from the left. Their purported solution, based on the Left’s resignation, is damaging and faulty.

Why is this so? Firstly, the costs of a dissolution of the Monetary Union are incalculable, but surely staggeringly high for all countries. Is this additional uncertainty what the crisis-struck EU needs to get back to “normal”? Who can guarantee (or prevent) that speculators would not drive such depreciations into the infinite (Brits should remember benefactor George Soros’ attacks on the Pound in 1992)? How could the then crushing foreign debt of depreciating countries be repaid – or would the proponents of such solutions be willing to forgive it? With whose money?

Second: If it seems impossible to generate an EU-wide policy in favor of growth and against unemployment, how should this be possible at the then national level – at a time when additional crisis and dissolution costs exacerbate the already precarious situation?

The third argument concerns specifically the export nation Germany: how should this economy which since the start of the Euro has reinforced its export orientation even further make up for the loss in export revenue, when it suddenly becomes uncompetitive because of the changed currency relations? German goods would become much more expensive in the depreciating countries. This would by far outweigh the competitive advantage Germany has gained in the previous years by relatively falling unit labor costs.

Many questions, many more remain. Of course, it is legitimate to think about alternatives scenarios. But that would require to also think deeply about the consequences of such scenarios. I understand the desire for “quick and simple” solutions, such as the dissolution of the Monetary Union. Simple solutions so far were the domain of the xenophobic and populist Right. Justified skepticism is in order.

It would be much more valuable to put all efforts into changing Europe’s faulty economic policy, away from the fetish “competitiveness” and “Standortpolitik” (strengthening Germany) towards an economic policy directed towards the wellbeing of the citizens. There is a lot of space for ambitious Leftists.

Institutional changes by themselves will not lead to a change in substance. Present policy does everything to please the “markets”, the investors, the financial markets, rather than pursue the interests of citizens. A new policy direction would mean to unravel the unholy “Fiscal Compact” (plus “Sixpack” and “European Semester”), which today puts budget consolidation as the prime object and instrument of economic policy. Budget consolidation should be one of several objectives, the most important are fighting unemployment and generate growth, manageable inflation, external balance, income equality – all under social and environmental considerations. Another immediate task would be to prevent the planned “Pact for Competitiveness” which the Commission should conclude with all member states, planned for decision in June. This again would strengthen the existing wrong policy direction which aims to make “little” Germanys out of the other EU countries, an objective which in itself is contradictory, because not every EU country can and should be a net exporter.

The previously internationalist-minded Left should put all their efforts into fighting the disastrous economic policy direction of the EU, rather than promote apocalyptic dissolution scenarios. The record of the EU’s crisis “strategy”, previously unimaginable unemployment, staggering youth unemployment, increasing impoverization of ever larger segments of the population must be made much clearer. It requires urgently a change in direction. Voter abstentions, “fun” parties, the rise of xenophobic forces – all this threatens the basis for a better Europe. EU parliamentary elections a year from now would be the natural occasion to change track. This is where the Left should play its cards. But before they need to construct a consistent strategy which puts the interests of EU citizens before the interests of financial markets.

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5 Comments

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5 responses to “Is the German Left Saying Good-Bye to the Euro?

  1. Peter Neumann

    Dear Kurt,

    Thank you for coming through with this important strategic analysis. It is convincing, although no quck fix but a long haul. To the suggested measures, I would recommend limiting the public funds made available to bail out bail out vre

    • Peter Neumann

      …bail out banks that have engaged in overly risky practices; even with the consequence that some banks then will fail. This may be a more effective way of instilling the necessary caution towards risky dispositions – however rewarding in the shorter term – than a EU banking union.

      • kurtbayer

        Peter, I agree with you that bank bailouts should be handled within a framework to see what the EU banking sector should look like 10 years from now, i.e. let some non-viable banks fail. Europe is overbanked and as the Americans say, there are a number of “zombie banks” around which should be closed. This is one of the advantages the US crisis strategy has done, in this way their banks are already now on a sound basis – contrary from Europe.

        • Peter Neumann

          Yes Kurt, you have again shown the strategic overview to point out the advantage of the US in following an overall strategy, rather than the EU and EuroZone ad hoc approach that is focused on “rescuing” individual Member States and the main creditor institutions.

  2. Werner Kiene

    Dear Kurt,
    An important article.
    Thank you for being so clear !
    Best regards,
    Werner

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