By Tomasz Konicz
Translated from the original German by Joe Keady
Can a catastrophic collapse of the eurozone still be avoided – and what would have to be done to prevent it? Part I of a series on the crisis of capitalism.
Anyone who wants to study panic printed in newspaper columns would be well advised at the moment to read all of the economics articles and commentary in the foreign press calling on the German government to end its blockade against credit-financed stimulus packages once and for all. Perhaps an overview would be helpful?
The popular Keynesian economist and Nobel Prize winner Paul Krugman has admitted to his large readership that he is frightened by German politiciansâ€™ attitudes toward the crisis. The obviously distressed Krugman writes that, ‚All one can say is, My Godâ€ in light of the line taken by German politicians who still believe that the crisis was caused by ‚fiscal irresponsibility.â€ Their insistence on imposing austerity packages and structural reforms on Europeâ€™s economically collapsing crisis countries provides ‚a terrifying pictureâ€ of perpetual ideological blindness. While the euro is approaching a critical juncture, Krugman says, officials in Berlin ‚are living in Wolkenkuckucksheim – cloud-cuckoo land.â€ He ends with the resigned question, ‚If top officials in Germany are this disconnected from reality at this late date, what chance does Europe have?â€
Meanwhile, the Financial Times (FT) is also of the opinion that panic is a rational response to the worsening crisis dynamics. FT columnist Martin Wolf writes that until recently he had never really understood how the Great Depression of the 1930s happened. Now, on the basis of crisis policy in the eurozone, it has become clear to him:
All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events.
Wolf says that policy makers have to work toward eliminating the emerging panic, but the eurozone is failing at precisely that. Referring to Berlinâ€™s refusal to issue common European loans, Wolf warns that, ‚If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy.â€
The Economist, however, is calling on Chancellor Angela Merkel to start of the engine of credit-financed stimulus packages immediately because the global economy may sink otherwise. ‚Outside Germany, a consensus has developedâ€ on what Berlin has to do to stabilize the eurozone: a shift from the crisis policies of austerity programs to supporting ‚economic growthâ€ and a banking union along with euro bonds. But this ‚refrain from Washington, Beijing, [and] Londonâ€ is falling on deaf ears in Berlin, perhaps because Chancellor Merkel ‚has still never really explained to the German people that they face a choice between a repugnant idea (bailing out their undeserving peers) and a ruinous reality (the end of the euro). One reason why so many Germans oppose debt mutualisation is because they (wrongly) imagine the euro could survive without it.â€
The Italian economic journal Il Sole 24 Ore has also addressed a dramatic appeal for the introduction of euro bonds to Angela Merkel: ‚You will not get far if you continue to apathetically oppose the Greeksâ€™ anger and remain indecisive on the Spaniardsâ€™ wounded pride, the Italiansâ€™ fears, and Franceâ€™s agony.â€ The commentary states that Germany cannot prosper amid European economic ruins.
Meanwhile, the rapidly swelling international calls for Berlin to back away from its austerity dictates and ultimately restart the debt process of past decades are even being noted in the German media, such as in the online edition of die Welt: ‚The economy is caving in everywhere, the eurozone is threatened with collapse and, looking for someone to blame, the entire world is pointing its finger at Germany.â€
The Vicious Cycle of Austerity Politics
The eurozone is, in fact, on the brink of a total collapse that could produce dislocations bad enough to overshadow even the Great Depression of the 1930s. Indeed, we are on the cusp of an economic panic. Berlinâ€™s crisis policy, aimed at pan-European implementation of severe austerity measures and neoliberal structural reforms modeled on Germanyâ€™s own Hartz IV labor laws, has failed spectacularly. The austerity dictate, pushed through largely by Germany in the form of the European Fiscal Compact, is allowing the economic crisis to escalate in more and more euro countries, which are actually ’savingâ€ themselves into socio-economic collapse.
In all of the countries affected by it, the results of austerity policies have been similar: austerity measures lead to a massive decline in domestic demand, causing a recession and a spike in unemployment. This reduces a governmentâ€™s tax income while confronting that government with higher public expenditures due to the increased unemployment. The economic slump triggered by the austerity programs further increases the national budget deficit, which in turn makes new austerity programs necessary, triggering another round in the economic death spiral.
This brutal austerity dictate was taken to an extreme in Greece, where the economy has de facto collapsed after a number of ‚austerity packagesâ€ imposed by Berlin and Brussels and where industrial production has fallen by 33% to levels not seen since 1978. Similar developments, which ultimately amount to de-industrialization, are now underway in Spain and Portugal. Industrial production in Portugal has fallen 26.1% from its pre-crisis high; Spain has had a 28.5% drop. These countries in the southern part of the eurozone, where youth unemployment is, without exception, around 50%, are not going through any ‚ordinaryâ€ recession – they are changing into socio-economic disaster zones that may become Third World countries. Italy is now firmly in the grip of a similar de-industrialization tendency as well. South of the Alps, industrial production in April sank by 11.9% in comparison with the previous April leaving it at 1990 levels. The austerity policies that have largely been imposed by Berlin have therefore accelerated the collapse of industrial production in the southern periphery of the eurozone which, within the German discourse on the crisis, is then held against southern Europeans and redefined as a kind of cultural deficiency.
But this economic cooling is not limited to the eurozone. Rather, it is seizing an increasingly large segment of the entire global economy. Among those affected are developing countries like China, Brazil, and India that were once hailed as the global economyâ€™s new economic engines. In the United States as well, where massive stimulus is being applied in advance of the coming presidential elections, the (debt-financed) economic recovery has come to a standstill. This miserable global environment is making the situation within the eurozone that much less stable. Meanwhile, mild shocks (like the Greek elections) are enough to destabilize the system entirely and lead to a collapse. Alongside the rapidly increasing differences in interest rates within the eurozone, one initial sign is the massive cash-reserve withdrawals that have reached a particularly enormous scale in Greece, but are picking up in other southern countries as well.
Debt-Financed Stimulus Packages Are a Flash in the Pan That Can Only Keep the System Running in the Short Term
It is obvious that German austerity policy has led the eurozone into a disaster that will have, to put it delicately, catastrophic socio-economic consequences if new money isnâ€™t printed up as quickly as possible. Yet the German government continues to stick to its chosen crisis path and euro bonds and other Europe-wide stimulus plans are publicly rejected in Germany as well. Merkel finally declared her rejection of any socialization of debt on June 12 at the economic council of her own ruling Christian Democratic Union (CDU) party. According to the Chancellor, euro bonds would be ‚absolutely the wrong path.â€ The Deutsche Bundesbank, Germanyâ€™s central bank, likewise recently confirmed its rejection of additional debt-financed stimulus packages, calling them ‚a flash in the pan.â€ Bundesbank president Jens Weidemann literally told the French newspaper Le Monde that, ‚I donâ€™t believe that you can successfully resolve the debt crisis with more debt.â€
In that regard, the German hardliners are supported by the most recent crisis history. The stimulus packages that were initiated worldwide in 2009 to prevent an economic collapse after the start of the global financial crisis amounted to US$ 3 billion. Apparently these gigantic expenditures of nearly 5% of the global economy at the time were only enough to keep that global economy afloat for three years before it began sinking again. This also makes it clear that stimulus packages are only effective for short periods and are ultimately nothing more than Weidemannâ€™s debt-financed economic pan flashes.
In fact, both sides are broadly correct, in part, in these debates around future crisis policy. Evidently, debt-financed stimulus packages do only keep the system running for the short term as a kind of flash in a pan – and it is also correct that austerity programs lead the countries affected by them to socio-economic collapse. The only logical conclusion that can be drawn from these facts and the corresponding debate is the insight that capitalism evidently cannot function anymore without permanent debt creation. The participants in both sides of the debate – the German austerity fanatics and the Anglo-Saxon Keynesians – simply cannot reach this conclusion because they consider the current social order to be an unquestionable law of nature.
Ultimately, this real system-wide debt mandate only points out that capitalism has reached the furthest extent of its capacity to develop as a social system and is being destroyed by an internal limit: Capitalism is being suffocated by its productivity – by the tremendous productive powers that make more and more labor ’superfluousâ€ and lead to waves of de-industrialization and exorbitant unemployment rates as is happening is the southern part of the eurozone. Capitalism has simply grown too productive for itself – and it is being destroyed by this potential material wealth, which can no longer be forced into the tight corset of the commodity form. ‚Weâ€ have not lived beyond our means, as per the permanent neoliberal drumbeat. On the contrary, society is too rich for capitalism. Germany is affected by this crisis as well, but it will only break through in this country when the German trade surplus collapses completely. The current crisis therefore simply cannot be resolved within the framework of the existing social order. The political and economic elites that are socialized and dominant in this system are arguing over outdated crisis strategies that were dug out of past centuries and are absolutely unsuited to preventing the collapse that is now becoming manifest.
Obsolete Crisis Strategies
Within the framework of the existing societal constellation, the crisis can only be delayed by concessions from Berlin and new stimulus packages that include euro bonds. The dynamics of debt can still be supported for a while – maybe even a couple of years – keeping the system running in a makeshift way. Insofar as the odds of warding off the urgently threatening fractures are extremely poor, Germanyâ€™s political elite will have to fundamentally change their perspective immediately and then sell it to the German public, which in turn is held in Wolkenkuckucksheim by a mass media that blames the ‚lazy southern countriesâ€ for the crisis. Spiegel Online columnist Wolfgang Münchau whittled this process of uninhibited ideology production in Germany, which is now turning against its authors in politics and the mass media, to the following diplomatic phrasing: ‚The narrative of this crisis has gone completely out of control and the politicians donâ€™t know how to recapture it.â€
At least the first smoke signals from Berlin indicate that the German government is slowly becoming aware of just what it is about to cause. The Wall Street Journal recently reported that Berlin is currently sending ’strong signalsâ€ that it is willing ‚to give up its objections to euro bondsâ€ if other countries are willing ‚to transfer more authority to Europe.â€ Along with supervision of borrowing and euro bonds, the WSJ says that common financial market oversight and deposit insurance, strict coordination of national tax policy, and ‚bolstering European foreign and security policyâ€ are also being discussed. And so European crisis policy has once again degenerated into a power struggle in which divergent national interests are at odds. It only raises the question of whether this drawn out process can be completed before an urgent rupture in the dynamics of the crisis.
Without a quick change of course in Berlin, however, German austerity madness will unavoidably lead to a speedy collapse that even hardened critics of capitalism would not hope for in light of the dominant ideological blindness. There is a literally murderous difference between a chaotic collapse and an emancipative overcoming of the present social order, as the most recent developments in the Arab world illustrate. Actually overcoming the long-term capitalist crisis is only possible beyond capitalism – but that is not something that neither Ms. Merkel nor Mr. Weidemann can do for us.
The next article will investigate who – or what – is responsible for the present crisis.