Guest Post: Europe’s Soft Coup d’Etat Part 2

Editor’s Note: This is the second of a two part analysis of the politics of the euro-crisis by James Heartfield. Part 1 found here.

In this current moment some of those who are standing up to the EU’s austerity packages have shouted about the attack on democracy. They think that the EU is attacking democracy so that it can push through its spending cuts. So it is. But much more so it is using the debt crisis to push through the abolition of national sovereignty. So often it has.

Two and a half years ago a very prescient sociology professor Ulrich Beck wrote ‘The crisis cries out to be transformed into a long overdue new founding of the EU’. Beck went on: ‘until now there has been no joint financial policy, no joint industrial policy, no joint social policy – which, through the sovereignty of the EU, could be pooled into an effective response to the crisis’. The only real barrier, thought Beck was ‘the national self-delusion of its intellectual elites’ who ‘bewail the faceless European bureaucracy’. (Guardian, 13 April 2009)

December’s Brussels summit, drawing its moral imperative from the sovereign debt crisis, ended with a commitment to create a much-greater coordination of economic and financial policy. Under the agreement national governments must submit balanced budgets, and face ‘automatic penalties’ if they do not. The thesis behind the agreement is that the southern European countries’ spending and indebtedness has undermined confidence in them and because of that in the Euro.

Shifting the blame onto Greece, Spain and Italy for the Euro crisis twists the truth. Throughout the buoyant years of the noughties the success of the European periphery was cited proof that the European Union was working. More, exporting countries, including Germany, were glad that easy credit boosted Greek and Spanish buying of their goods.

Apart from the economics, though, the important shift is towards ‘stronger economic union’. When the crisis began Greece’s troubles suggested to many that the European Union would ‘fall apart’.Professor Beck’s intuition that the crisis would drive the greater integration of economic policy proved to be as insightful as the fears that the whole thing would fall apart. Where he misleads us is in portraying this movement as a greater democratisation ofEurope. On the contrary, the trajectory is towards a much-diminished role for democratic oversight, and a much enhanced role for unelected officials dictating terms to elected governments. ‘Automatic penalties’ is European code for ‘not subject to political negotiation’.

The reason for the ‘automatic penalties’ is that as national elites European governments do not have the authority to see through tough measures. For many years now, governments have leaned on the European Union as an extra-national source of authority. Governments that are not willing to make the case for tighter budgets honestly in their own terms, have hid behind the claim that they must make adjustments to meet the external restraints imposed by Europe.  That is what Italian Minister Guido Cali meant when he said that ‘the European Union represented an alternative path for the solution of problems which we were not managing to handle through the normal channels of government and parliament’.

Not just Italy or Greece, but Britain and Germany sought again and again to ‘tie’ or ‘bind’ themselves into European Union rules that would limit the political temptations of excessive spending. Quite why sovereign states should choose to bind themselves and their successors in obligations that they cannot change or renegotiate is a conundrum for students of international relations. The answer to the puzzle is that these elites no longer derive the same authority that they used to from national electorates or constituent assemblies that once they did. Instead it is in the international summits, most notably the European summits that leaders feel secure, bound together in their mutual fear of the unruly electorates.

Fear of economic crisis is driving the integration of European policy, and it is not being consolidated as a democracy, but as a technocracy, where officials follow procedures, rather than make policies. Six years ago the voters of France and Holland voted down the centralisation of Europe under its then proposed constitution – which was abandoned soon after. Now, using fear of economic collapse, European elites have talked themselves into submitting to a more onerous set of impersonal and bureaucratic rules.

Guest Post: Europe’s Soft Coup d’Etat Part 1

Editor’s Note: Mainstream commentators for the Financial Times, like Wolfgang Munchau, are now giving titles to their op-eds like ‘Greece must default if it wants democracy.’ Meanwhile, ECB bankers argue that you have to scare democratic publics into sado-monetarist bailout packages. And finance ministers, like the Netherlands’ Jan Kees de Jager, want to radicalize Europe’s democratic deficit: “I am in favour of more control, more supervision … Money is the thing we can control Greece with.” The conflict between democracy and technocratic management is becoming increasingly clear. Today and tomorrow we run a two part analysis of these developments by James Heartfield, who argues that this tension is embedded in the logic and political structure of the European Union itself, not just the euro and monetary union. James Heartfield is a writer based in London. His most recent book is The Aborigines Protection Society: Humanitarian Imperialism in Australia, New Zealand, Fiji, Canada, South Africa, and the Congo, 1837-1909 (Columbia University Press).  

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Europe’s Soft Coup d’Etat Part 1

Winter 2011/12. The Greek parliament is besieged from without by angry protestors. They riot burning down banks and government buildings. The Italian government, too, faces mass opposition – a general strike in protest at government €450 billion spending cuts. InIreland,Spainand many other European countries there are angry protests. But the Greek and Italian governments are not only under pressure from the public. They are answerable to other masters than the electorate.

Greek Prime Minister Lucas Papademos took office on 11 November 2011, though he stood in no election. Before becoming Prime Minister Papademos had been a senior official at the European Central Bank, and an advisor to the outgoing PM George Papandreou. Italian Prime Minister Mario Monti was appointed on 12 November 2011, having been made a life senator three days earlier by President Giorgio Napolitano. Before becoming Prime Minister Mario Monti had been an economics professor and a member of the European Commission. On the face of things, both Papademos and Monti draw their authority from their own parliaments – but everyone knows that is not so. Both of these unelected experts came to power in a ‘Soft Coup’; both deals were brokered by the European Union, in the middle of a harsh public debt crisis.

In the case of Greece, the European Union had been dealing with Prime Minister George Papandreou, leader of the largest, and best-polling political party in the last democratic elections, PASOK, twisting his arm to agree spending cuts. Talks were held between the Greek government, and the ‘Troika’ of the International Monetary Fund, the European Central Bank and the European Commission. Having agreed one round of cuts after another, Papandreou baulked at just how unpopular these were, and in October said that he would let the people vote on more cuts in a referendum. The European Union was outraged at the idea that the voters should be asked.

‘The announcement has surprised the whole of Europe,’ said French President Nicolas Sarkozy. ‘Giving the people a way to express themselves is always legitimate, but the solidarity of all the euro-zone countries cannot be exercised unless everyone agrees to make the necessary efforts.’ In a parliamentary session in The Hague, Dutch Prime Minister Mark Rutte called the threatened vote a ‘very unfortunate development’ and said ‘we have to do everything to prevent it.’ (Wall Street Journal Europe, 2 November, 2011) After crisis talks Papandreou agreed to cancel the public vote and to suspend normal party politics in favour of a government of ‘national unity’, and to stand down as Prime Minister in favour of Papademos. Robbed of a voice Greek people were more willing to protest and even to riot. German Finance Minister Wolfgang Schäuble wants the Greeks to cancel future elections and have a government without any politicians, only ‘experts’.

Around the same time another European leader – of the right in this case – was forced to stand down. Silvio Berlusconi had often been attacked by the European Commission, charged with corruption. But each time the question was put to the polls the wily Berlusconi won over voters. In November 2011, though, the debt crisis gave the Commission the lever it needed to prize Berlusconi out, and he resigned. European Council President Herman van Rompuy told Italians on 11 November 2011 that ‘the country needs reforms, not elections.’ Mario Monti was appointed Prime Minister and, in turn, appointed a ‘Professors’ Cabinet’, or ‘technocratic government’. Monti’s first reforms were to cut spending and to attack trade unions.

In a single week the elected governments of two of Europe’s democracies had been swept aside. At the very moment that Italian and Greek people needed to deal with the problems they faced, they were robbed of the chance. Before they could see their own political representatives argue out the best outcome on party lines, with the parliamentary contest mirroring the contest for votes. The party political system was a lever for ordinary people to push their goals right into the centre of government. But without it, public administration stopped being democratic, or even political. It was called ‘technocratic’ – government as technique, not as a negotiation; mechanical, not through dialogue. Instead of leaders there were experts. Instead of a contest ‘national unity’ was imposed (though many outside did not feel they were a part of it).

The events of November 2011 were called a ‘Soft Coup’, or a ‘coup without tanks’. But what Junta was taking over? Even the angriest protestors were not sure who to blame. If there were no tanks, where was the confrontation?

It would be hard to avoid the role that private financiers played appearing at every corner to warn against any backsliding on cuts. The ‘technocrats’ were not experts in juggling or medicine, but in finance. Mario Monti has been an advisor to Goldman Sachs, Coca Cola and the listing agency Moody’s as well as European Commissioner responsible for the Internal Market, Financial Services and Financial Integration, Customs, and Taxation. Massachusetts Institute of Technology graduate Papademos taught economics at Columbia University and even served as senior economist for the Federal Reserve Bank of Boston in 1980, before taking up positions at the National Bank of Greece and the ECB. Not surprisingly the anti-cuts protestors have been outraged to learn that Monti is a member of the secretive Bilderberg Group – all of which adds to the sense that government has been subverted by a secret coup led by high finance. Still, pointing the finger of blame at ‘capitalism’ or finance seems too vague. Down with capitalism, for sure, but does that really tell us any more about the forces arraigned against democracy?

Greek protestors have seen a German hand behind the changes, and they are not wrong. Chancellor Angela Merkel has called loudly for tighter rules on government spending, and for wayward governments to be reined in. In Athensthe protestors have even burned the German flag (and alongside it the Swastika flag to heap on the insults) while the newspaper Demokratia reports the new austerity agreement with a parody of the sign over the gates at the Auschwitz Concentration Camp ‘Memorandum macht frei’. Greeks talk more often of the wartime occupation when the German Wehrmacht starved the country. Pointing the finger at Germanyseems to make sense, except that Angel Merkel is not alone in her demands for Greek probity. Nicolas Sarkozy (whose country was also occupied by Germanyin the Second World War) is so close to Merkel that the press have coined a collective noun Merkozy. Just before he was bundled out of office, Silvio Berlusconi, too was lecturing the Greeks on the need to stick to their promises. Greek protestors wish that their enemy was justGermany’s leaders.

The Coup d’État against democracy inGreeceandItalydoes have a shape, however soft it looks. Its shape is the European Union. The pressure brought to bear on both countries came through the European Union. The ‘Troika’ of the European Central Bank, the European Commission and the International Monetary Fund brought pressure to bear on the Greek government to change its policies and make-up. Though an ad hoc body, the Troika is reported to be renting an office inAthensto keep an eye on spending there.

The Troika does not just oversee Greek spending. There is a Troika looking at Portugal’s budget, too. Jürgen Kröger, Head of EC mission, Rasmus Rüffer for the ECB and

Poul Thomsen of the IMF visited in May 2011, returning in February 2012 to spend two weeks looking at the budget there before deciding whether to release the latest batch ofPortugal’s €78 billion rescue loan.

In January 2012 all but two of the 27 heads of state at the European Summit agreed to German Chancellor Angel Merkel’s new fiskalpakt with binding limits on budget deficits and quasi-automatic sanctions on countries that breach deficit and debt limits enforced by the European Court of Justice. ‘The debt brakes will be binding and valid forever,’ said Merkel: ‘Never will you be able to change them through a parliamentary majority.’ (Guardian, 31 January 2012). From the European Union viewpoint to put questions of government beyond democratic control is a great success. Binding limits, with automatic sanctions, policed by unelected officials is what they want. ‘Parliamentary majorities’ overriding the expert officials is what is to be avoided.

Nor is it always the case that the enemy is the left. In the same month that the European Council was cooking up the fiscal compact, the European Commission wrote three separate letters of warning to Hungarian President Orban charging him with bringing in ‘undemocratic’ laws. By ‘undemocratic’ they meant that the new constitution put the Central Bank under the control of the democratically elected government, instead of leaving it in the hands of the expert technocrats, while threatening, too, that judges and information commissioners would be subject to the rule of parliament. Step through the looking glass into the EU-world where the rule of the people is dictatorial, but the rule of unelected experts is democracy.

Ex-sixties radical Daniel Cohn-Bendit stood up in the European Parliament to demand that Orban’s constitution be investigated for breaching the EU’s Lisbon Treaty. The man once known as Danny the Red ranted on that the Hungarian leader was striving to beEurope’s equivalent of Hugo Chávez or Fidel Castro (Guardian, 18 January 2012).

Cohn-Bendit as a student radical wrote

“The emergence of bureaucratic tendencies on a world scale, the continuous concentration of capital, and the increasing intervention of the State in economic and social matters, have produced a new managerial class whose fate is no longer bound up with that of the private ownership of the means of production.” (Obsolete Communism, the Left Wing Alternative, London, Penguin, 1969, p 249)

It was far-sighted indeed to spot the very trend towards bureaucratic-managerial rule for which Cohn-Bendit himself would become a spokesman. The only thing he did not foresee was that the bureaucracy that was emerging would be transnational, not just national.

“In a democracy you have to push people to do things by scaring them”

This past Tuesday, at a roundtable on ‘the future of the euro’ at Harvard University, we heard Lorenzo Bini-Smaghi utter these exact words. His Royal Smaghi-ness was a member of the ECB executive board until last November, and was advising his audience on more than his personal political views. He was giving us a glimpse deep into the technocratic vision that predominates in Europe at the moment, and the particular techniques in play to manage the situation. What stood out in the banker’s comments was, first, an extraordinary ideological commitment to the euro and, second, a somewhat delusional vision of social control.

The context for the banker’s comments was a discussion of the austerity measures being rammed down the throats of the Greek public. The measures are but one of the preconditions for a bailout package that will include other disciplinary measures, like international monitors of Greek spending decisions. The ‘people to be scared’ that B-S had in mind were, most immediately, the Greeks. They were to be scared into believing that there was one way and only one way to resolve their debt crisis, and that if everyone did not get in line, the withdrawal of European help would lead to even worse consequences. But it became clear that Bini-Smaghi’s comments applied to more or less the whole European public, perhaps minus the ‘sensible’ Germans. At another choice moment, LBS said “The Italian situation is different from the Greek one, but don’t tell the Italians. That is only something you say outside Italy. Inside, you say the opposite.” In other words, you want them to be scared, even if you have to lie to them.

Why? Because otherwise two things will happen. For one, the majority of Italians or Greeks might get the crazy idea that they don’t have to screw themselves in order to save themselves. There might be alternatives to massive austerity and a bailout of the banks. For another, the greater the fear the greater the limits on political outrage, or at least, the more the local ruling political parties will feel pressure not to attend to local outrage.

Bini-Smaghi’s comments speaks volumes both about a certain technocratic vision or political method and its limits. The method is based on the thought that central bankers and related technocrats possess the technical expertise and know-how to know what the rational response is to an economic crisis. This knowledge is supposedly value-free, and a matter of pure economics. However, most people not only lack this knowledge, they take to the streets in a mistaken, irrational pursuit of their own interests. BS dismissively called this ‘politics.’

So far, so familiar. But the most striking thing about Lorenzo’s BS is that the technocratic vision of control is far more expansive. It is not an attempt simply to apply expert economic knowledge to economic policy. It is a more radical ideological project. The delusion is that the political domain can be subject to the kind of fine-tuned control ‘at the margins.’ It is not just that technocrats ought to run national governments, or at least monitor their spending, but that national publics themselves can be pushed, pulled and cajoled with precision. Bini-Smaghi was talking about incremental doses of austerity until public outrage boiled over, and then stepping off the gas. And if outrage becomes too threatening to the background project, then more and more fear of a withdrawal of bailout funds to scare political leaders into imposing budgets and repressing unrest. One almost wonders if there isn’t some model floating around technocratic circles in which the relevant variables are ‘fear’ ‘austerity’ ‘bailout money’ and ‘outrage.’ The policy strategy being a kind of optimization function in which the aim is to get as close to ‘outrage’ without it boiling over into revolution.

Of course the dream of total social control is nothing new. It rattles around in the mental recesses of any expert claiming a monopoly on the legitimate possession of pure knowledge. But it is in play here in a substantial way. The coyness of the troika – demanding one package of reforms one day, another the next, promising money then imposing more terms, softening stances when protests get too dicey but putting the screws to national leaders, and above all playing a long game of amorphous indecision so as to maximize the space for deception – is all part of this managerial political approach.

Aims are not the same as success. The aim of total social control, especially when it becomes ideological, and especially when it sees politics exclusively as a domain of irrational, emotional behavior that has to be manipulated by various techniques, is its own foolishness. For one, it leaves actors without the ability to acquire actual political knowledge – there appears to be no knowledge to acquire, beyond that of the techniques of manipulating irrational publics. For another, the social world simply is not amenable to that kind of technical, fine-tuned control. Tweaking with the margins of outrage in relation to doses of austerity and fear is not just a creepy and outrageous political project, it is a fool’s game.

National horizons to Europe’s crisis

One the one hand, the Eurozone crisis seems to be a quintessentially European one. Economists line up to describe it as a product of regional economic integration in the absence of full political integration. The rolling force of contagion suggests that national frontiers mean little when international markets begin to worry about a government’s ability to repay its debts. On the other hand, the conventional wisdom about the causes of the crisis points to national roots: weak-willed Greek politicians have funded an overly generous welfare state through excessive borrowing; Italy’s problems stem from Berlusconi’s unpredictable antics; a Spanish fondness for home ownership, sanctioned by regional banks willing to lend to all and sundry, explains Spanish economic woes today.

Europe’s crisis is a complex mix of national and European-wide dynamics. Whilst a single European currency zone exists, composed of 17 countries, there is no single European economy. Here national differences co-exist alongside systemic features of the Eurozone as a whole. One such feature is the deep and reoccurring division between surplus and deficit countries. Luxembourg, Netherlands, Germany, Austria and Finland all ran current account surpluses consistently over the 2002-2008 period. Italy, Ireland, Spain, Slovakia, Cyprus, Portugal and Greece ran systematic current account deficits over the same 6 year period. This imbalance alone, in combination with the convergence in interest rates across the Eurozone, helps explain how some governments found themselves so indebted. Add an unplanned bail-out of banks and we arrive at today’s sovereign debt crisis. However, there are also a crucial set of intervening national details. Germany’s ability to achieve what was to all extents and purposes a competitive devaluation within the Eurozone was made possible by the hold of its government over wage-setting in key export-oriented sectors. This made an overcoming of the deficit/surplus divide very difficult. Greece’s public borrowing problems reflect a combination of social democratic expectations and weak public institutions: the result of Greece’s particular historical trajectory in the post-1945 period.

In terms of the politics of the crisis, we see the same curious mixture of national and European dynamics. Take the protests. These might seem the perfect example of a pan-European movement: based on the occupations of public squares in Madrid and Athens, similar movements have mushroomed around Europe (and in the US of course) with surprising speed. A closer look at these movements, however, suggests they are closely tied to national contexts. As observed by Christian Scholl, political scientist at the University of Amsterdam, the language of the Occupy movement in Amsterdam is Dutch, with little English spoken (see its website here). Scholl also recounted in a discussion with The Current Moment that before the recent occupation began, Amsterdam’s central Dam square had seen in June regular meetings of hundreds of Spaniards – there as part of a solidarity movement with their fellow Spanish Indignados in Madrid. As the Dutch occupiers took over the Beursplein (Amsterdam’s equivalent of Wall Street) there was no sign of the Spanish protestors. With different national preoccupations, the protests have not combined.

Looking at national politics, the European dimension is inescapable. The Eurozone’s sovereign debt crisis has led to an unprecedented degree of Brussels-based negotiations between national leaders. Ad hoc Franco-German summits have become the norm. Germany’s Angela Merkel has gone from being a staunch opponent of making amendments to the European Treaties to a supporter of such changes, even though they would imply years of negotiation, summits and national referendum campaigns. New European institutions have been created, like the European Financial Stability Facility; others, like the European Central Bank, have been thrust into the limelight. The European Commission has adopted its own plan, the ‘six-pack’, which involves strengthened supervision of national budget procedures.

And yet, the story of recent weeks has all been about the ups and downs of national political leaders. The fate of the Eurozone was in the balance when Greece’s Prime Minister, Papandreou, called for a referendum in Greece on the austerity measures demanded by the EU and IMF as a condition for their loans. Spreads on Italian government bonds have been tied to Silvio Berlusconi’s political fate. Once his resignation was confirmed, the issue became who would replace him. Today, we see two technocratic governments in place in Athens and Rome. Whilst decisions are made at the European level, everyone also knows that these decisions will only matter if political stability can be guaranteed in national capitals.

There is no way of avoiding this confusing mixture of the national and the European. Years of European integration have seen national governments steadily embedded in a set of promises and obligations at odds with their commitment to represent – first and foremost – their own citizens. Political parties have become unconnected from domestic constituencies, transformed into governing parties rather than forces of political representation. Growing politicization from the public squares of national capitals challenges these developments but the protests remain embryonic and remarkably unconcerned with providing their own analysis of the crisis and what to do about it. The present crisis is reshaping some of the basic rules of the political game in Europe but as yet we are still some way off knowing what the new political landscape of Europe will look like. One thing we can probably count on is that the confusing mixture of national and European dynamics, an engrained feature of European politics today, is here to stay.

A plan for growth?

Guest post by Wolfgang Streeck

Several recent posts insisted that without a “plan for growth,” in particular in Mediterranean countries, the European crisis of debt, austerity and international solidarity will continue and get worse. That may well be so. But where is growth to come from? Regarding Greece, Spain and Portugal – I will turn to Italy shortly – it is not that there hadn’t been a “plan for growth” for them in the past. Accession to the European Union gave them access to a huge “internal market,” in fact the largest in the world. European Union regional and structural funds were to help them build the infrastructure they would need to make use of their new opportunities. And the Euro, once introduced, combined with comparatively high national inflation, made for very low real interest rates.

In fact in the years before 2008, Spain and Portugal especially were booming (while Germany, incidentally, was stuck in stagnation and high unemployment, due to low inflation and, as a result, high real interest rates). But as we now know, the money that was flooding the GIPS countries and that could have prepared the ground for sustainable growth and long-term competitiveness went into the wrong channels. Low interest rates and European-funded infrastructures, rather than attracting investment in internationally competitive manufacturing or services, went mostly into speculative ventures in real estate. The experience does not exactly bode well for another round of “planning for growth.”

Why was the window of opportunity in the 1990s and early 2000s missed? It seems that even the best macroeconomic conditions and the most generous infrastructural support must fail to kick off development unless there is a domestic middle class of entrepreneurs willing to make long-term investment in local industrial progress, throwing in their own fate with that of their country or region. (Ireland, because of its English language and its patriotic expatriates everywhere in the world, may be an exception.) Foreign direct investment is apparently not enough as there are almost always opportunities elsewhere for footloose capital to make more money faster. What is needed is a patriotic business class willing to tie their fortune to that of their local society – which is a tall order in a world reshaped by globalization and financialization.

Not that there was no patriotic local entrepreneurship at all in the Mediterranean. There is, for example in regions like Catalonia and the Basque country (as well as in Northern Italy, see below), and indeed these are least affected by the crisis. But where the money has remained in the hands of an oligarchy of aristocratic and pseudo-aristocratic families, very little happens. Financial deregulation has created ample opportunity for those who do not want to dirty their hands to invest in United States Treasury Bonds or in Fifth Avenue real estate, if they are not content with breeding fighting bulls or operating Korean-built ships under Caribbean or African flags and with Chinese crews. It is not all true that there is no money in Greece. Quite to the contrary, the Onassis and Niarchos family clans rank high among the world’s superrich. The problem is that they do not want to invest in their country and that they are freer today than ever to take their money abroad.

There are also good reasons to believe that the Mediterranean superrich pay even fewer taxes at home than their counterparts in Northern Europe. In an interesting way this seems related to European integration. European Union structural funds, later low interest on government borrowing under European Monetary Union, and now the transfers that are being paid in various forms to refinance the Greek and the Portuguese national debt compensate for Mediterranean countries’ inability to tax their money aristocracies. At the same time, they make it unnecessary for governments to invest in more effective tax collection. Northern economic aid has filled and still fills the gaps in public coffers caused by national money migrating abroad or avoiding to be taxed. It thereby in effect subsidizes a latent social compact under which post-Fascist Mediterranean democracies left pre-democratic quasi-feudal elites alone to allow for national reconciliation, instead of expropriating them one way or other in favor of, for example, a new entrepreneurial middle class. Note bene that Greece is among the countries with the highest concentration of wealth, in the hands of a very small number of old families.

Does this seem far-fetched? Take Italy, which is a country consisting of two countries. Northern Italy is part of the Western European heartland, in the same league as Bavaria, Austria, Switzerland or the Rhone Valley. The Mezzogiorno is Italy’s Mediterranean, much like what Greece and Portugal and large parts of Spain are to the European Union. Note how long the Mezzogiorno has had the same currency as Northern Italy, access to the same markets, the same interest rates, and in particular extensive structural aid, far above in fact what Greece and Portugal and Spain and Italy as a whole can ever hope for to receive under even the most extensive and generous European “plan for growth.” All to no avail because of an archaic, pre-capitalist social structure that for political reasons was left essentially unchanged. In fact, in a complicated story that could, however, easily be replayed elsewhere, Northern Italian support for modernization in effect enabled the old elites of the South to make sure that they remained in control and everything remained as it was, in the famous Gattopardo way.  Since there was money flowing in from the outside, nobody in Rome needed to pick a fight with those diverting the money from the inside into unproductive luxury consumption or even more uncouth activities. In fact increasingly, the outside money was diverted to buying political support for governing parties in a socially unchanged and economically stagnant Mezzogiorno, with cynicism over “growth” plans that were in reality corruption schemes growing from year to year.

It is interesting the see how categorically Northern Italians today object to further transfers from North to South. Quite a few – viz. the enormous electoral support for the Lega Nord – are even willing to let the Italian national state break up so they can keep their money for themselves. If Northern Italians don’t want to pay for Southern Italians any more, having given up hope after so many years that a “plan for growth” can be devised that really works, how can one expect German or Dutch or Danish taxpayers to agree to an institutionalized transfer-cum-economic development regime for Greece and Portugal and, very likely, others? Remember that one reason why the Italian Southern experiment with accommodating a pre-industrial power structure was for a long time politically acceptable in Italy was that it was subsidized by Northern European countries, in the form of European Union regional aid (which originally went almost exclusively to Italy). As this ran out, in part because after 1989 so many other countries began claiming assistance, the Italian North-South social compact is breaking up. Currently the hope is that Europe will pay, not just for Sicily, but for the Italian state as a whole. But unlike Northern Italy paying for the Mezzogiorno, there is no third party helping Northern Europe pay for the Mediterranean.

Economic growth is not just about macroeconomics but also about social structure. Mediterranean countries may, some nationally and some only regionally, have missed the opportunity to acquire a class structure conducive to industrial competitiveness in a post-Fordist world. Now it may be too late, both because the local money, which is still largely preindustrial money, can more easily than ever exit, and because building post-Fordist competitiveness may simply take too much time in a world whose markets are already divided up between economic power houses like Germany and China. Perhaps when Spain, Portugal and Greece broke free from fascist dictatorship in the 1970s, they would have been better advised not to follow the Social-Democratic recipes offered by the European Community: of liberal democracy rather than social and political revolution (land reform!), economic growth through admission to international markets and assisted by subsidized infrastructural investment, and in particular exclusion from power of the radical Left, Euro-communist or not, on the postwar Italian model.

With respect to the latter, it may help to remember the peculiar starting point of the trajectory that has now come to a climax: the 1970s, when Enrico Berlinguer, leader of the Italian Communist Party, under the impression of Kissinger’s putsch in Chile (1973), abstained in the middle of the decade from joining the Italian government, afraid that the same could happen to him that had happened to Allende (Aldo Moro was killed in 1978); when the Revolution of the Carnations (1974) brought a Communist group of military officers to power in Portugal; when the best-organized opposition at the end of the Franco regime (1976) were the – Communist – Commissiones Obreras; and when it was not clear at all who would take power in Greece after the military junta had to give up (1974). Promising post-Fascist transition governments accession to the European Union was above all a tool for containment: for preventing a (Euro-) Communist Mediterranean from happening. Keeping the Communists out of power meant neutralizing the most committed enemies of the old elites, which allowed for and made necessary accommodation with the latter under a policy of national unity. The hope was for a Social-Democratic kind of progress: for class compromise, liberal democracy, a social market economy reinforced by European integration, and a slowly rising middle class modernizing the new Mediterranean, while the old elites would slowly wither away. Having lured post-Fascist Mediterranean democracies onto the Social-Democratic path to stabilize their Southern rim, Germany, France and the others now have to pay the bill, in the form of unending transfers supporting ever new “plans for growth” that will again and again turn out to be, at best, plans for keeping the Mediterranean poor house of Europe from exploding.

Professor Wolfgang Streeck is director of the Max Planck Institute for the Study of Societies (MPIfG), based in Cologne, Germany. His most recent book is Re-Forming Capitalism: Institutional Change in the German Political Economy, published by Oxford University Press.

A further look at ‘Social Europe’

Much is made about the virtues of ‘Social Europe’. Higher standards of living, broad and deep welfare support, lower working hours, a better work/life balance: these are just some of the advantages of living in Europe cited by commentators. Back in 2004, Jeremy Rifkin published The European Dream: a paean to Europe’s embrace of a more human and environmentally friendly sort of capitalism. In previous posts, we’ve been critical of the notion of ‘Social Europe’. There is a sense in which the rise of ‘Social Europe’ coincides with the rise of a distinctively anti-social society.

There are different aspects to this emergent anti-social Europe. One is the way in which Europe’s growth model rests upon the ability of national governments to contain wages. Wage moderation – and with it declining or stagnant levels of household disposable income – is thus the flipside to the “success stories” of countries like Germany and the Netherlands. A previous post cited the high levels of flexible employment in these bastions of ‘Social Europe’, in contrast to surprisingly lower levels of flexible employment in post-Thatcherite Britain. Here we can look at the figures for household disposable income. Though variations exist, there is a striking difference between the ability of core Eurozone countries to contain wage increases and the wage increases seen in the now crisis-ridden peripheral economies of Greece and Ireland. There is only so much these figures can tell us but they are at least part of the story of contemporary European political economy. The minimal increases in household disposable income in Germany are striking. Household income in the Netherlands fell in 2002 and 2003, falling 2.4% in 2003.

The ability of national governments in Europe to impose cuts on household incomes has become a determining factor in the European growth model. We see this today in the context of the Eurozone crisis where the negotiations between unions, employers and governments are critical to the resolution of the sovereign debt crisis. This is the case in Italy today: the European Central Bank recently wrote to the Italian government, stressing that its buying up of Italian bonds was based on a quid pro quo that would see the government in Rome push through its planned austerity budget. The Financial Times warned yesterday (16/08/11) that the success of these plans depended upon unions and professional associations acting “responsibly”. Susanna Camusso, leader of Italy’s largest union, the CGIL, has said she may recommend a general strike in opposition to the planned cuts. The ECB and the Italian government are pushing for a replacement of fixed national labour contracts with flexible company level contracts. Given the transformation of Italian corporatism into a mechanism for guaranteeing union compliance with government programs, and the history of successfully using Italy’s membership of European Monetary Union as a reason to moderate union demands, there is a good chance the CGIL will back the government’s plan. This might please the markets but it would be another step away from a properly social Europe.