Look not to the peripheries

In recent weeks, Yannis Varoufakis, former Greek Finance Minister, has been under fire because of a secret group he ran, from February to June, whose purpose was to plan for a possible Grexit. Some have charged him with treason – primarily because his group hacked into the Greek Finance Ministry to acquire information they needed for the planning. Others defended him.

Whatever the stakes of this minor power struggle, it is a sideshow. In fact, Greece itself is not even the story. In this post-agreement moment, as the Tsipras government capitulates to the Eurogroup’s diktats, we need to grasp the dramatic failure of Syriza’s strategy in its proper context: the wider exhaustion of Left politics. The primary lesson is not (only) that Syriza failed but that the Left, across Europe, is politically exhausted. It is important to identify this weakness not only to acknowledge the limits of what Syriza could ever have done, but also to counter the emergent left-populist view that this is all about Germany.

To be sure, Tsipras deserves some blame. If the only planning for Grexit was happening in secret, on condition it never be made public and therefore never part of the bargaining strategy, then it was not just a pointless activity but a sign of Tsipras’ opportunistic willingness to use the Greeks as a stage army. They were there to vote, but never to have a real option granted. After all, for an exit to be a democratic act aimed at something like self-determination outside the Eurozone, it could not be a mere technocratic process of figuring out how to print and distribute notes, denominate payments, and sort out IOUs. It might have required seizing banks to prevent capital flight, nationalizing industries to prevent them being bought up by oligarchs who were hoarding euros outside Greece, rationing of certain basic supplies, even subsistence level economic production for a time. That is something the Greeks would have had to have been prepared for, something asked of them, and something which would have needed explicit popular backing. Tsipras made no effort in this direction and one has to think that he did not ultimately believe in his own people enough even to put the question to them.

Nevertheless, we should not lose sight of the extraordinary constraints that Tsipras and the Syriza government generally were under. They took power after Greece had already been through multiple rounds of austerity and seen roughly a quarter of its GDP evaporate. The financial thuggery by the European Central Bank, which engineered a quasi-bank failure in the last days of the negotiations by drastically reducing emergency funding, was illegal and extremely coercive. President of the Eurogroup, Jeroen Djisselbloem, doubled down on the threat, saying “we are going to collapse your banks.” It was clear that Schäuble wanted to turn Greece into something like debtor’s colony and was willing to take only that or let Greece go altogether. Even if Tsipras had, from the very beginning, made more effort to plan for the exit, looked for alternate sources of financing, pre-emptively printed drachmas, readied to seize the banks, moved to nationalize key assets, prepared capital controls, and taken the 50 other steps necessary to minimize the costs of exit, the democratic act would not have been a revolutionary step into a heroic, post-austerian future. It would have been a necessary, high-cost, step away from the clutches of the Eurozone.

The reason Greece was so limited in options is that Syriza had no meaningful support from the rest of the European Left. It had no support because the mainstream left parties, from the German SPD to the French Socialists, on through other Western European parties, have so fully committed themselves to the Eurozone and to some version of austerity that they were in no position to open the space within which a proper resistance to the Eurogroup’s divide-and-conquer sadomonetarism could be challenged. Syriza ran up against some world-historic limits that allowed someone other than the Left to dictate not just the basic terms but also the governing ideas of public discourse.

The best way to appreciate this is to note what could have been said but wasn’t. For one, it is striking how quickly the sovereign debt crisis of 2010 became pitched in nationalist terms, as a competition between creditor and debtor nations. In fact, the sovereign debt crisis had its origins in reckless lending by major French and German banks, which mirrored some of the profligacy and corruption of the Mediterranean spenders, and the majority of the money of the early bailouts was channeled into making those banks whole. This was true across the board but especially true in Greece. As Mark Blyth notes:

Greece was thus a mere conduit for a bailout. It was not a recipient in any significant way, despite what is constantly repeated in the media. Of the roughly 230 billion euro disbursed to Greece, it is estimated that only 27 billion went toward keeping the Greek state running. Indeed, by 2013 Greece was running a surplus and did not need such financing. Accordingly, 65 percent of the loans to Greece went straight through Greece to core banks for interest payments, maturing debt, and for domestic bank recapitalization demanded by the lenders. By another accounting, 90 percent of the “loans to Greece” bypassed Greece entirely.

The European people funded the bank bailouts, preserving their irrational financial system, and effectively nationalizing the debt through the Troika institutions. This could have been the start of more democratic control over the economy. Instead, the price of the bailouts was austerity for the southern countries, even less democracy (remember two elected governments, in Italy and Greece, were replaced by unelected technocrats), and worst of all the transformation of a conflict between the people and their economic system into a conflict between creditor and debtor nations. After all, once the majority of the debt was nationalized through the bailouts, the French, Dutch, other Northern Europeans, but above all the Germans, became creditors for the Italians, Spaniards, Portuguese and Greeks. The parties of the Left in these Northern countries could have tried to resist the nationalist impulse that coursed through the financial circuits of the European Financial Stability Facility/European Stability Mechanism, Emergency Liquidity Assistance, and other conduits of the bailout programs. They were, however, so thoroughly compromised by their commitment to the EU and the euro, not to mention their cooperation with what we now know as austerity, that there was no way out.

Consider the Germans. Any left-wing politician worth his salt could have pointed out that the way Schäuble talked about Greeks in public was likely how he talks about German workers in private. And, further, that Schäuble represented the interests of a fraction of German capital, not the German people as whole. Indeed, a German politician could have further pointed out that keeping Greece in but forcing it into deeper internal devaluation – namely, benefits reduction and wage repression – simply threatens to lower the wage floor for all of Europe, especially since the latest agreement also involved a direct assault on labor rights. However, the German SDP has been imposing wage stagnation on its own working class for the last two decades, most notably with the Hartz reforms of the early 2000s, imposed more or less in tandem with the rise of the euro. These reforms, pushed through when the SPD’s Gerhard Schröder was Chancellor, reduced benefits and contributed to wage stagnation. Even when the SDP lost to Merkel’s Christian Democrats, they agreed to be the junior partner in a governing coalition, in exchange for a few concessions, some lousy portfolios, and fealty to Merkel’s vision of Germany in Europe.

This has left the only significant party with any capacity for opposition utterly compromised. How do you tell workers whom you have been telling to accept wage stagnation and benefits reductions that they should now turn around and spend more money bailing out Greeks? Why save Greek benefits when your own are being chipped away? The SPD has no answers, no capacity even to generate answers, and even if it had generated answers, it could have never presented itself as a credible opposition, able to support the Greeks. That is why the whole affair looked like a unified, German hegemonic operation. Not because Germany really does have a national interest in dominating Europe – no working class has a stake in intensified nationalistic conflict – but because the expression of class divisions has been suppressed by the mainstream Left party itself.

A similar story could be told about the French Socialist Party. As already argued on The Current Moment, the French Parti Socialiste (PS) is not a working class party. Indeed, the abandonment of the working class by the French Left goes some way to explaining the popularity of the Front National amongst the young working class French. They rightly judge that the PS no longer represents them. Hollande’s tepid support for Tsipras soon after the latter’s election quickly turned into hostility. Hollande’s intervention at the last minute to stop Schäuble’s push for Grexit was a matter of French national interests, not of ideological or class solidarity. Hollande calculated that a German-provoked Grexit would make life in the Eurozone quite a bit more difficult, with rules ever more rigid. A similar calculation was made by Italy’s Matteo Renzi.

The PS’s commitment to European integration and monetary union stems from Mitterrand’s u-turn on membership of the European Monetary System (and the Exchange Rate Mechanism within it) in 1984. Whilst Mitterrand justified his decision to remain in the EMS in the language of Europe and peace, it fitted with his wider goals. He had become convinced of the need to reform the French economy through domestic adaptation rather than to use devaluations of the French franc as a basis for economic competiveness. The EMS was a rules-based framework that would help Mitterrand to pursue this strategy. De Gaulle’s attempt at internal reform failed with the general strike of 1968 and a devaluation in 1969. The Barre Plan of 1976 had also failed, which was why Mitterrand’s alternative of ‘Keynesianism in one country’ had been so popular in 1981. When he abandoned it a few years later, he brought the PS in line with the now established view about the need for an external monetary anchor to encourage reform internally. Mitterrand’s conversion to the power of external rules has become a core belief within the PS and there was no chance that Hollande, Valls, Fabius or Macron would challenge this by supporting Syriza. For them, as for the rest of the European Left, there is no alternative to this way of conducting economic policy.

The failure we see is, therefore, not just one of parties taking the wrong stance, or being compromised by their past commitments. It is also the dearth of alternative, left-wing ideas. Being anti-austerity is no longer enough, and it hasn’t been for a long time. It is one thing to say that turning Greece into a debtor’s colony, or undermining the European welfare state, is immoral. It is another to have some conception of and belief in the alternative. No doubt one reason that Tsipras and Syriza were afraid of what Grexit would take is because few found it credible even to consider nationalizing the banks. They only got as far as capital controls, very likely an example of how halfway can be worse than none or all. But the point is that, beyond outrage, there isn’t much in the way of a credible Left alternative to what gets shoved down the people’s throats each time the dollars or Euros run out. In such a political and ideological climate, there is little the Greeks could have done.

In fact, the degree of hope invested in Syriza by the wider European Left, especially around the time of the referendum, was the product of political displacement – not so dissimilar from left-wing support for the ‘Yes’ vote in the Scottish referendum last year. Unable to lead directly, the Left will project its needs and desires onto anything that looks vaguely oppositional, and Syriza had the added advantage of having some actual left-wing elements in it. If Syriza failed to lead, their failure only reflected the wider Left’s failure to imagine itself leading a popular movement that is willing to take responsibility for running society out of the hands of a bankrupt elite.

This is a failure not only of Syriza, but of the only other significant movements that have emerged out of the European status quo. Consider Pablo Iglesias, leader of Spain’s Podemos Party. In July Iglesias took pains to distance himself from Greece and to commit himself, if elected, to staying in the euro. He then openly professed that there is nothing he can do to resist the anti-democratic character of the EU – despite claiming the right to lead 45 million people. What better sign that it is not only the technocrats of Europe that are queasy about democracy. The peripheries and the core are constrained by the weakness of the Left everywhere.

Alex Gourevitch

The time inconsistency of austerity politics

 

At his last European Council summit meeting, at least for the time being, Italian Prime Minister Mario Monti gave some parting advice to his fellow leaders. Written up as a four page letter and reported on in the FT, Monti argued that the main problem with austerity policies is that there was too big a lag between the positive effect of reforms and their negative bite. Giving his own version of the old adage that things have to get worse before they get better, Monti explained that this doesn’t fit very well with the rules of the electoral cycle. The promise of austerity and supply-side reforms is that they bring gains by way of employment and growth in the long term. The difficulty is that politicians are judged according to pain they bring in the short-term. Something needs to be done to bridge the gap in order that reform agendas are not derailed, as he thinks they have been in Italy. From the perspective of the European Commission or the German Bundesbank, the issue is how to make sure that in the time in between enacting reforms and feeling their positive effects, susceptible policymakers are not tempted to give up on earlier promises and go for quick fixes, like expansionary fiscal policy or other Keynesian pump-priming tricks.

This discussion raises a number of issues. As a trained economist, Monti no doubt knew that his argument was a restatement of what macro-economists call the problem of time inconsistency. This is the notion that policy rules – such as a commitment to balance budgets over the medium term – lack credibility when they are made sequentially. As soon as a firm commitment is spread over a length of time, the possibility arises that short-term considerations will assert themselves. Such policy commitments are thus time inconsistent – they fail to hold over time and thus need to be insulated as much as possible from political pressures.

If this is Monti’s analysis, two questions arise. The first is what if the policy rule has no credibility in the first place – irrespective of whether we are talking about the short, medium or long-term? The commitment of EU member governments is that austerity combined with supply side reforms equals a return to growth. We are into our fifth year since the outbreak of the current crisis in 2008, austerity policies have themselves been in place for a number of years, up to three to four years in some countries. Austerity is nothing new, nor is the idea that supply side reforms boost growth and employment, and yet these policies are not being seen to deliver. Monti’s analysis of current difficulties in Italy and elsewhere, that rests upon the idea of extended lag between introducing reforms and securing their rewards, in fact places a great deal of faith on the idea that these reforms will eventually work. At issue today is not people’s short-termism. It is the more fundamental issue of whether cutting spending and raising taxes in a recession is any way to stimulate growth.

The second question is about what Monti suggests we should do. If we return to the idea of time inconsistency, then we find a very clear recommendation. Institutions should be created that make it as difficult as possible to renege on a policy commitment. This is the famous recommendation to favour rules over discretion. These institutions should be given the responsibility for contentious political agendas – like keeping down government spending, being hawkish on inflation, reform labour markets – in order that legislatures and electorally accountable executives are not tempted to go for short-term fixes.

The problem is that we are not in the 1970s anymore. Profligate legislatures have not been driving today’s budgetary crises. The contrary is true, as we see from the Netherlands through to the UK and Spain. Moreover, today’s crisis happened in a world of rules, not of discretion. Problems of sequential policymaking were hived off to independent central banks, independent budgetary offices, fiscal councils and an array of European rules and regulations in the field of macro-economic policy. As a result, the problem surely lies in something deeper and more fundamental than simply the institutional environment for elected policymakers. This won’t stop European commissioners and national politicians arguing for the strengthening of European rules. In fact, as the Fiscal Compact has shown, this seems to be the dominant framework with which European policymakers are working today. We should be wary of such explanations. A policy framework dedicated towards the curtailment of expansionary policies has given us a European continent saddled with debt and a global debt crisis. There is something more to this than the theory of the time inconsistency of optimal policy rules.

Italy: populism versus technocracy?

Article originally published here with Le Monde Diplomatique

Written by The Current Moment co-founder, Chris Bickerton, and Carlo Invernizzi Accetti

Italian politics has reached an impasse. In last month’s elections, the vote split three ways. A roughly equal proportion of votes (almost 30%) went to the centre-left coalition led by Pier Luigi Bersani and to Silvio Berlusconi’s centre-right coalition. Ahead by a fraction of the votes for deputies, the centre left won a majority of the seats in the lower chamber. But with the regional basis for the senatorial elections, no corresponding majority was produced in the upper chamber. The third block, which secured roughly 25% of the vote in both chambers, is Beppe Grillo’s Five Star Movement (M5S). Since the other two blocks are coalitions, M5S actually stands as the single largest political party in the parliament. Mario Monti, who headed the Civic Choice party and whose decision it was to have early elections, secured just over 10% of the vote, leaving him far behind in fourth place.

How will this impasse be overcome? The media are full of speculation. Some predict new elections, others some sort of political bargain between the main players. Grillo is so far refusing to strike deals with any side, making new elections likely. But beyond the political quid pro quos, we can draw broader political lessons from Italy’s election, which also illustrate more general structural trends in European politics.

Several commentators have pointed out that the traditional left-right axis appears to be ceding ground to a different polarity, structured around the opposition between populism and technocracy. The successes of Grillo and Berlusconi were denounced by the leader of the German social democrats, Peer Steinbruck, as the victory of two “clowns” – an assessment taken up by the German media and by The Economist. Yet, opposed to the “clowns” are figures like Bersani and Monti, considered more serious and reliable. More than any concrete difference over policy, at issue is the competence, seriousness and expertise of the political actors: Mario Monti is cast as Italy’s technocrat-in-chief, Grillo as his populist nemesis. Even Bersani himself played the card of the responsible centre-left leader. In an effort to distinguish himself from Berlusconi’s campaign, which blamed Italy’s ills on Monti’s EU-backed austerity agenda, he firmly committed himself to respecting Europe’s fiscal rules.

While this opposition between populism and technocracy is emerging as a fundamental dividing line in Italian politics, the electoral campaign illustrated something further: it suggested that populism and technocracy entertain a far more complex relationship with each other, which involves some unexpected points of contact and elements of complementarity. Many of the key players and party coalitions actually seem to display several of the distinctive features of both.

Reading the Italian election results through this lens may help us to make better sense of them. It also warns us that there is something amiss in the common opposition between European technocrats and national populists.[1] These political categories are part and parcel of the changing nature of national politics and mapping them onto a clash between atavistic nationalists and dry Brussels bureaucrats only reproduces the Eurosceptic discourse.

Let us begin with the figure most widely seen as the victor, Beppe Grillo. It is clear there are several characteristically populist elements in his political style and in his message – the attack against the established political order and elites, the appeal to the wisdom of the ‘ordinary man’ and the central role of Grillo himself as a charismatic authority figure. Yet few commentators have noticed the more technocratic side of his movement. A recurring element of Grillo’s rhetoric is the claim that the Five Star Movement is neither left- nor right-wing but, rather, interested in proposing “effective solutions” to “concrete problems”, thus going beyond “ideological disputes”. And it is in this spirit that Grillo has claimed that even though his movement will not enter into a coalition with any other political party, they are open to giving their support to specific policy proposals, to be evaluated on a case by case basis “on their own merits”. Far from the ideological discourse we are used to associating with traditional populist movements, Grillo’s flaunted pragmatism suggests that if he is to be considered a populist at all, we may have to admit the existence of a new specifically ‘technocratic’ populism. The Five Star Movement’s programme reinforces this impression. It is a long list of concrete measures, backed up with evidence from local experiences: there is no justification of the underlying values or assumptions of the movement, and no political vision. Challenging the empty professionalism of career politicians, Grillo claims that his parliamentarians, selected from all walks of life, are the real experts.

Mario Monti, the great loser in the election, presents the inverse picture. The respect he initially commanded, domestically and internationally, stemmed from his credentials as a competent technician. The moment he decided to forego this a-political stance and enter the electoral contest, he revealed something about the way technocrats understand the notion of politics. For him, becoming a politician meant trying to dumb down his message in an effort to appeal more directly to what he thought were people’s real concerns. This led to several awkward moments in his campaign, where he appeared to be desperately trying to use some of the same theatrical tricks as a Grillo or Berlusconi, without any of the flair. The image of the erstwhile sober European commissioner holding a puppy on TV and trying to endear himself to viewers by saying “I can feel its heart” was perhaps one of the defining moments in his campaign. Just as Grillo appears to be the harbinger of a new kind of ‘technocratic populism’, has Monti created the opposite image, as some kind of ‘populist technocrat’?

Bersani’s failure is different, but falls within the same basic framework. The leader of the centre-left coalition had the opportunity to break out of the technocracy-vs-populism model and present a properly political programme focused on the pan-European debate about austerity versus growth. For the Italian Democrat Party, this would have meant challenging some of the basic assumptions of the austerity framework and contributing, by way of substance, to the question of growth in Italy, and in Europe. But Bersani’s party failed to do this: its overwhelming concern was to reassure doubters of its seriousness and reliability as an enforcer of austerity. During the campaign, the Democrats’ economic spokesman Stefano Fassina said his party was against fiscal stimulus and preferred an EU-level deal in which a softening of austerity measures was the sweetener, received in exchange for handing over extensive powers over national budgets to the EU. The counterpart was his denunciation of both Berlusconi and Grillo as politically and economically “irresponsible”. So the real choice in the election, according to Fassina, was between the populists and Europeanists, a position that avoided criticizing the operating assumptions behind austerity policies. Bersani frequently said that he was not against austerity and had sided with Merkel in her criticisms of Berlusconi in late 2011.

Berlusconi’s own performance deserves some comment. Initially written off as a sure loser, he managed to rally a sizeable part of his previous electorate, preventing a clear victory of the centre left. But this (relative) success did not just come from his populist appeal. Contrary to most foreign media reports, Berlusconi did not transform himself into a German-bashing anti-austerity advocate; his attacks on Merkel were a very small part of his overall campaign. The key to his appeal has long been his capacity to combine a specific brand of populism with a more familiar technocratic discourse. His public persona, his identification with the Italian people, the emptiness of his party and the dependence on his charisma all point to a populist figure. Yet his constant references to himself as a businessman rather than a politician, his managerial and corporate approach to politics, and his emphasis on numbers and ‘practical’ solutions are closer to a technocratic discourse. This combination highlights the similarities between Berlusconi and other prominent political figures in Europe, such as Tony Blair and Nicolas Sarkozy.[2]

This all suggests that populism and technocracy are not two poles of a new political spectrum, replacing the erstwhile contest between left and right. Nor does this division map onto a confrontation between nation-states and supranational bureaucracies. Populism and technocracy amount to complementary political styles, not to different political programmes. In fact, their strength comes from the fact that national political life is no longer organized as a contest between competing world-views. It is because there was little to separate the political programmes of the centre left, centre right and the M5S movement that the opposition between populism and technocracy captured the imagination of the media and analysts. Monti tried his hand – very awkwardly – as a populist whilst Grillo’s adherence to evidence-based policies and refusal to present an integrated, ideological vision of change makes him as much technocrat as populist. Berlusconi has combined these two styles for years. And Bersani – fleeing any real engagement with the debate about austerity and growth in Europe – hid behind comfortable reassurances about the safety of a Democratic Party victory.

Why should populism and technocracy emerge as the dominant political styles of our post-political age? The answer lies in their common affinity over political representation: they share an open hostility to parties and to parliaments. The technocratic vision is based on a very clear critique of the partisanship of elected assemblies and the inherent bias of party cadres. Monti’s strength was his distance from party politics. As soon as this disappeared, his aura evaporated. Grillo’s movement is equally hostile to parties and parliaments. Its operational logic is that of sensible local initiatives raised magically to the level of national policy. Its campaign was not about issues or ends; it was about the veniality of the political class itself. Populism and technocracy are the political styles that best correspond with widespread public cynicism and an elitist disregard for majoritarian democracy. They are symptoms of the demise of politics, not expressions of its renewal.

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[1] See for instance Mark Leonard’s much publicized essay, Four Scenarios for the Reinvention of Europe, published in November 2011.

[2] On the similarities in political style between Berlusconi and Sarkozy, see Pierre Musso’s 2008 book, Le Sarkoberlusconisme (Paris: Aube). On Tony Blair, see Peter Mair’s 2006 essay, ‘Ruling the Void? The Hollowing of Western Democracy’, New Left Review, 42, pp25-51..

The end of insolvency

An arresting fact published yesterday in the Financial Times: the lowest rates of insolvency in Europe in 2011 were in Greece, Spain and Italy, the countries that faced the brunt of the Eurozone economic crisis. The newspaper continues: fewer than 30 in every 10,000 companies fail in these three countries, at the same time as nearly one in three companies is loss-making. There couldn’t be a clearler proof of the fact that Schumpeterian creative destruction has taken leave of Europe.

There are various explanations for this. For instance, the low level of corporate insolvencies is partly a reflection of government action: companies that might otherwise have gone bust have been able to borrow from their governments at very low rates, making refinancing of existing loans possible. Fearful of the political fall-out from lots of businesses going bust, governments have kept them alive. The broader climate of cheap borrowing, made possible by central bank action, has also played its part.

According to the FT, however, action by public authorities is only partly to blame. The real culprit appears to be the banks. Faced with so much pressure on their balance sheets, and saddled with bad loans, banks have been very reluctant to force businesses into insolvency or restructuring procedures. Rather than take the hit, they have preferred to hang on, letting the bad loans sit on their balance sheets. This has been the case particularly in Spain, but also elsewhere across the continent. Here we obviously see the underlying causes of the crisis working their way back into its resolution. Central to the debt-financing that occurred prior to the crisis, it is the same debt that prevents a more decisive resolution of this crisis.

We should, of course, be wary of bullish talk about the constructive effects of insolvency. The FT quotes one company chairman who laments the fact that all the company’s revenues are being taken up by pension payments to retired employees. “We are unable to invest in new growth areas”, he complains, because of these pension obligations. One wonders what his solution would be: renegue on the payments and ask the pensioners to find alternative sources of income?

Clearly, the idea of creative destruction works less well in an age when corporations have welfare obligations. But is also rests upon an expectation that public authorities command enough authority to be able to weather restructuring storms. Evidently in Europe this is not the case. Alongside a fear of social unrest is also a fear and hostility towards change. In countries like Greece, Italy and Spain, and certainly in France, governments talk about supply side reform and a fundamental transformation of their economies but there is little idea of where they would like to go or of what they would like to do. This political impasse is matched at the corporate level. Creative destruction after all rests upon an optimistic attitude towards the future: something new can be built, new energies can be released if the old is torn down. Restructuring is often driven by hedge funds looking to buy up assets cheaply and sell them on for a profit. But in Europe’s current predicament, we also see hostility towards change present across the political and corporate elite. And the banks, supposedly the most gung-ho and reckless of the lot, are the most cautious of them all.

Italy: the return of politics?

Originally published on the 14th December in the Monde Diplomatique

Last Friday, the secretary of Silvio Berlusconi’s right-wing People of Liberty party launched a vitriolic attack against the technocratic incumbent, Mario Monti. Stating clearly that Monti no longer enjoyed the support of his party, Angelino Alfano’s goal was to prepare the ground for Berlusconi’s return to Italian politics. Monti responded by calling everyone’s bluff. He promptly resigned, brought elections expected in the spring of next year forward to February, and made it clear that the rising borrowing costs and tumbling market confidence that followed were all Berlusconi’s fault.

Monti’s move reveals the shallow political foundations of today’s interim resolution of the Eurozone crisis. Temporary stability was bought in Italy via the suspension of partisan politics. In the 1970s and 1980s, economic and political crisis saw the ushering in of military rule in Greece and Turkey. Today, technocratic rather than military solutions are preferred. This was seen at the national level in Italy and Greece with governments led by Monti and Papademos. In Spain, Greece and Ireland, it was managed via bail-out agreements brokered between national and European officials. In the Portuguese case, its bail-out was carefully timed so that it would be finalized and signed off by a caretaker government. The incoming government elected in June 2012, led by Pedro Passos Coelho, was then able to declare that its hands were tied and agreements made by its predecessor should be honoured. The Eurozone crisis has been contained only via the suspension of politics, a course which Monti’s resignation would appear to reverse.

Monti may well now run for office. But on what ticket? If he stands as a candidate in the elections early next year, Monti will no doubt present himself as the candidate who is beyond politics. Already egged on by centrist Catholic parties, and feared by the main centre left and centre right parties, Monti’s whole political persona is that of a non-partisan figure who implements what is sensible and what interest-driven political parties cannot bring themselves to do. Monti’s personal austerity matches his political message. If he ran, he would be a serious threat to those mainstream parties, the Party of Liberty especially, who in the public mind encapsulate the corruption of the political process itself. Monti’s ticket would be a technocratic one.

Against whom would he run? Italian politics is dominated by the centre right and centre left parties. Berlusconi’s return is indicative not only of his relentless desire for public attention but also of the absence of alternatives to him within the party. On the centre left, the new leader, Pier Luigi Bersani, is generally seen as a pragmatic ex-Communist, willing to endorse much of Monti’s programme so far. It is possible, however, that both these parties suffer from public disaffection with organized politics. Many doubt the ability of Bersani to reign in trade unions and have few illusions about the direction Berlusconi would take if re-elected. The alternative to these mainstream parties is Beppe Grillo’s Five Star Movement: a popular political movement that mobilizes the disenchantment widely felt with the political establishment. A well-known comedian in Italy, Grillo’s movement is explicitly anti-establishment and many of those involved in it deny that they are members of a political party at all.

In next year’s elections, Italian politics may find itself squeezed between the technocratic programme and figure of Mario Monti and the populist alternative of Beppe Grillo. Already, some support for the Five Star Movement has disappeared as Monti has soaked up the anti-establishment sentiment of Grillo’s followers. Squeezed in the middle, the mainstream parties are increasingly tempted by either the technocratic or populist alternatives. Berlusconi has already suggested that he plans a virulently populist campaign, focusing on anti-German sentiment in Italy. Bersani may seek to out-manoeuvre Monti by adopting his own version of technocratic austerity.

Italy is in this way a microcosm of wider trends present within European societies. The shrinking of the political mainstream and the rise of technocratic and populist alternatives appear to be one of the main leitmotifs of how the economic crisis is transforming social and political life in Europe. Europe’s political systems are slowly being transformed into populist technocracies. Italy will be worth watching as a barometer of these important trends.

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.