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‘The Greek saga: competing explanations of the Greek crisis – A Marxist alternative’, paper presented at the 1st World Keynes Conference, Izmir, Turkey 26-29/6/2013

This is the powerpoint presentation of the paper presented at the 1st World Keynes Conference, organized by the Izmir University of Economics (http://ekolider.ieu.edu.tr/keynes/)

1st World Keynes Conference

Attacking the Citadel: Making Economics Fit for Purpose


The Greek saga: competing explanations of the Greek crisis – A Marxist alternative

Stavros D. Mavroudeas

Dept. of Economics

University of Macedonia

e-mail:  smavro@uom.gr


Dimitris Paitaridis

Dept. of Public Administration

Panteion University

e-mail:  paitird@yahoo.com

Structure of  the paper & Main Arguments

The  paper  reviews  the  alternative         explanations     for   the Greek crisis: 3 broad distinctive currents of explanations:

(1) Mainstream (neo-classical or neo-Keynesian)

(2) Radical (post-Keynesian and Radical Pol. Economy)

(3) Marxist


MAINSTREAM: 3 versions:

(a) a special Greek historical accident (Greek ‘disease’)

(b) the Greek ‘disease’ exacerbated by EMU ’s unrectifiable structural deficiencies (not an OCA)

(c) a ‘middle-of-the-road’ blend: the Greek disease and EMU ’s deficiencies are rectifiable  .

This current attributes the problem to either policy errors or ‘weak’ structural causes (national and/or financial).

RADICAL (‘financialization thesis’): 2 versions:

(a) ‘financialization’ in the context of the North – South divide (imbalances that caused the Greek crisis stem from the EMU).

(b) ‘financialization’ in the national context; the North – South divide is an erroneous dependency argument.

Both versions have a weak structural emphasis (not considering the problems in the sphere of production).

MARXIST: a strong structural explanation (Greek crisis grounded in the sphere of production). Two structural components: (a) ‘internal’: the 2007-8 economic crisis a a-la-Marx crisis (tendency of the profit rate to fall), (b) ‘external’: imperialist exploitation (i.e. unequal exchange) within the EU.



vGreek disease’

•   Initial version (1st  MOU): focus on the public sector and  the fiscal deficit (a piecemeal revelation of the MOU measures).

•   Subsequent version (after the 1st  MOU’s reviews and as the private sector came also under attack): added focus on the private sector and the falling competitiveness.

•   It identifies 2 major Greek deficiencies: (a) large and persistent fiscal deficits financed through borrowing (which created large external debts) and (b) a falling competitivess.

•   This explanation was expressed by the EU, the ECB, commentators and think-tanks of the euro-core countries but also by the Greek politico-economic establishment.

•   These deficiencies  were caused by nationally-specific policy errors, i.e. it is a Greek ‘disease’ (e.g. Greece is a special  type of economy prone to fiscal profligacy, clientelism and relatively high  wages. Structural deficiencies are a mere consequence of these errors.

•   Greek   economy   is   marred   by   low   productivity, relatively high wages and a big public sector. High wages are the product of the big public sector which is clientelist, has low productivity and a falling ability to collect taxes (due to clientelism fomenting  tax evasion).  Consequently,  fiscal  deficits are accumulated. These are financed through loans resulting in a widening external debt (expressed in a deteriorating current account). Cheap borrowing was possible because of accession to the EMU. Moreover, Greece forfeited statistics and violated EMU’s provisions. With the advent of the 2007-8 crisis international financial markets started scrutinizing fiscal deficits and external debts. Consequently, the unsustainability of the Greek debt was discovered and the Greek crisis erupted.

•   As  soon  as  the  1st    MOU  program  started  failing austerity had to be expanded to the private sector. In order to justify it the problem of competitiveness was surfaced. It was argued that not only the public but also the private sector is characterized by low productivity, high wages and rigid labor market regulation culminating in a falling competitiveness. Consequently, the current account was caused by both public borrowing and diminishing exports and increasing imports. High relative wages fueled consumption which was directed towards imports, since  domestically produced  goods  were uncompetitive. Thus, Greek workers collectively (private and public sector) are overpaid and inefficiently working.

•   The Greek ‘disease’ suffered a hit when other EMU countries required bail-out. The initial reaction was to attribute the expansion of the problem to contagion from Greece. This, rather weak argument, was supplemented by collectively branding these countries as      EMU’s  outcasts:  economies  prone  to  fiscal  and banking prof ligacy. Instead of a Greek a South ‘disease’ was discovered.

•   In  analytical  terms,  the  Greek  ‘disease’  explanation hinges upon the Twin Deficits Hypothesis which contends that there is a strong link between the a fiscal deficit will lead to a current account deficit. A number of empirical studies have not verified this hypothesis.

vEMU is not an OCA and cannot be one

•   expressed mainly by Anglo-Saxon commentators either neoliberal or neo-Keynesian.

•   Main argument: EMU is a non-Optimal Currency Area (OCA) which is prone to asymmetric shocks that exacerbate national ‘diseases’.

•   This view centers only passingly on the Greek case per se. It takes it, as well as those of  the other PIGS, as a springboard  to  spearhead its main criticism: EMU is inherently faulty.

•   It does not absolve Greece from being responsible for the   problem.  Particularly the neoliberal accounts reiterate the Greek prof ligacy argument. But the crux of their argument is against the EMU: ‘It can’t happen, it’s a bad idea, and it can’t last’.

•   This anti-EMU emphasis has a twofold explanation:

(a) geopolitical: ‘lead to increased conf licts within Europe and between Europe and the United States’

(b) academic: theory of Optimal Currency Area (the closest thing mainstream economics have to the Marxist disproportionality (or uneven development) thesis).

•   This  mainly  Anglo-Saxon  explanation  of  the  Greek crisis while sharing the fiscal prof ligacy argument of the first explanation recognizes a rather weak structural cause. It concerns mainly the sphere of circulation (i.e. how the common currency is related to diverse national economies) and has not much to do with the sphere of production per se.

vGreek disease cum EMU’s rectifiable f laws

•   Expressed  mainly  by  European  analysts  in  favor  of European unification but with ideological or practical reservations regarding its actual process (neo-liberal etc.). Predominantly Keynesian (or post-Keynesian) origins.

•   Main argument: the Greek crisis has been caused by a combination  of   national policy errors (high fiscal deficits and  debt)  coupled  with              problems created by the incomplete  economic unification of the EMU. A deepening of the economic and political unification of the EU (fiscal and banking union, political union) will solve these problems.

•   Post-Keynesian  emphasis  on  EMU’s  imbalances  and particularly those associated with the balance of payments (hence the current account). As such it points out to a structural characteristic of the EMU which sometimes it has been branded as neo- mercantilism: the Eurozone is structured in such a manner as to merit the trade surpluses of the Northern countries against the trade deficits of the Southern countries. This argument is also in the more radical post-Keynesian ‘financialization’ explanations. On the other hand, the current account imbalances argument has been taken up by more conservative theorists that do not ascribe to the ‘financialization’ thesis but aim for a more unified European integration.

•   It  offers  a  weak  structural  explanation:  structural problems derive from the sphere of circulation but not the sphere  of  production.  It  agrees  with  the  2nd mainstream explanation with regarding OCA theory. But it believes that a more unified economically and politically EU can overcome them. In this belief it departs from the harder versions of the 2nd explanation which believe that an economic and political unification of the EU similar to that of the US is impossible. This is the second major problem of this perspective: Its political and economic voluntarist faith in       European   integration   goes   against   historical wisdom. European national political and economic identities are deeply entrenched and the crisis emphasized them..

vMainstream explanations: A Critique

•   Mainstream explanations of the Greek crisis evolved from monistic to a more eclectic mix. The more articulate discern two sets of causes:

(a) internal causes: exorbitant public expenditure, weak tax collecting mechanism, corruption and clientelism (even cronyism), over-regulated labor and product markets, high wages, non-market friendly institutional environment, deteriorating competitiveness etc.

(b) external causes: EMU’s deficiencies, repercussions of the 2007-8 crisis etc.

Behind  this eclecticism hide versions (or combinations) of the three previously delineated explanations.

The majority of them ultimately understand the internal causes through the Twin Deficits Hypothesis.

•   Wages are posited as the factor triggering both the fiscal and the current account deficits. The typical argument is that Greek (nominal) unit labor costs (ULC) increased faster than those of the other European countries. Thus they worsened both the budget deficit and the current account deficit. They could be other analytical choices: the deterioration of the fiscal deficit can be rightfully attributed to upper- class’ notorious tax evasion and cronyism. The former depresses public revenues and the latter augments public expenditure; thus, in conjunction, derailing the fiscal deficit. However, the mainstream explanations stick, for obvious reasons to the supposedly high wages as the  main  cause  of  the  big  and  persistent  fiscal deficits.

•    Well-established disputes of this argument: (1) (nominal) ULC is not a convincing measure of competitiveness.

(2) The Kaldor paradox argues that competitiveness depends not only on low wages (costs competitiveness) but also on qualitative factors (structural competitiveness).

(3) Wages have been constantly lagging behind productivity (which increased faster than that of Germany). Thus, real ULC (i.e. the wage) have been falling continuously for several decades.

(4) A decrease in wages aiming to restore competitiveness presupposes that rival economies will maintain their wages stable or, at least, will reduce them less.

•   Mainstream explanations have also wider problems:

(a) They totally underestimate the role of the 2007-8 capitalist crisis. This is unanimously considered as a mere financial crisis without origins and causes in the sphere of real accumulation. However, if this crisis is so significant and lengthy as it appears to be, it must surely have some basis on the main sphere of economic activities (the sphere of production).

(b) They consider the Greek crisis as independent of the 2007-8 crisis. The 2007-8 crisis has only an exogenous impact on the Greek economy by worsening the international economic environment and setting off grey expectations about sovereign debts.

(c) They fail to appreciate the fundamental structural dimensions of the problem and relegate it either to policy errors and/or to weak structural origins. The 1st perspective, faithful to the typical neoclassical approach to economic crises, considers the Greek case a national specificity created by bad policies. The 2nd perspective recognizes a weak structural cause concerning the sphere of circulation (i.e. how the common currency is related to diverse national economies). Concomitantly, Greek and the Eurozone crises have to do mainly with EMU’s architecture. The 3rd perspective also attributes the structural problems to the sphere of circulation (with the additional argument that, contrary to the second perspective, these problems can be surpassed) and neglects the sphere of production.


•   The  main  points that differentiate them from the mainstream explanations are the following:

(a) They emphasize the crisis-prone nature of capitalism, thus focusing on its world structure and the 2007-8 crisis.

(b) They are critical of neoliberalism.

(c)They criticize EMU’s neoliberal architecture and argue either for its dissolution or for its radical overhauling.

Overall, radical explanations are shy of recognizing the general deficiencies of the capitalist system; although several of them do mention them but in a rather implicit of disguised manner. They do not think that the immediate problem is capitalism as such but rather its forms of management.

•   The more popular Radical explanations are based on the ‘financialization’   thesis,   which  argues   that  in modern capitalism finance (i.e. the operation of money capital) assumes an increasing primacy in relation to other capitalist activities.

•   Other versions do not exist: e.g. as a fiscal crisis caused by the tax-evading and crony nature of Greek capitalists and/or adding the EMU trade imbalances (3rd variant of mainstream explanations). The more traditional underconsumptionist explanations of crises (either of the  Marxist Monthly Review  (MR)  or the Keynesian variant) are not popular as they do not fit to empirical data (the period preceding the crisis’ onset was characterized by a spectacular growth of consumption.

‘financialization’: a problematic theory

•   Capitalism returned to a pre-capitalist stage: banking in feudalism  was   based on unequal exchange. Once primary accumulation   of capital took   place   the monopolistic feudal rules were abolished and capitalist competition ruled. ‘financialization’ argues that there is a  return  to   the  pre-capitalist    modes  of   operation. Interest  ceases  to be a part of surplus-value and acquires   an   independent existence. Concomitantly, money capital is autonomised from ‘productive’ capital but also dominates the latter. If the latter is the source of    wealth,  this  entails a stifling of productive investment  and  thus  of  the accumulation of capital. How is it possible in the long-run such a deformed capitalism to exist?

•   Regarding  the  2007-8  crisis,  ‘financialization’  argues that it is not an a-la-Marx crisis but a financial crisis (a crisis of financialised capitalism). They agree with mainstream theories. If the current crisis is so deep and prolonged as the ‘financialization’ theories accept then how it cannot be based on the fundamental economic sphere (the sphere of production)?

•   2 ‘financialization’ explanations of the Greek crisis:

(a) ‘financialization’ in  the context of  the North  –   South divide (imbalances that  caused the Greek crisis stem from the EMU) – e.g. Lapavitsas.

(b) ‘financialization’  in the national context; the North – South divide is an erroneous dependency argument – e.g. Milios & Sotiropoulos.

vLapavitsas: imported ‘financialization’?

•   Lapavitsas argues the  Greek  is a debt crisis (agreeing with the mainstream) but he adds that its roots lay in:

(a) financialised capitalism (that caused the 2007-8 crisis which financial and the rate of profit has not role in it)

(b) the  neo-mercantilist character  of the EMU (which is not an OCA and is based on three pillars:

(1) the ECB which follows euro-core’s prerogatives

(2) fiscal austerity

(3) relentless pressure on wages to ensure competitiveness

Point 3 agrees with the mainstream arguments on competitiveness. Euro-core pressurized wages more and got a permanent competitive advantage against the euro-periphery. This is the mainstream argument in reverse: not the lazy South but the over-prudent North caused the problem.

Thus,  the Eurozone was polarized in a North with trade surpluses and a South with debts: the North gave loans to the South in order for the latter to buy its products.

The 2007-8 crisis disrupted this structure as international financial  markets  questioned the creditworthiness of South’s sovereign debts. Eurozone’s  crisis  began as EMU transmitted the world crisis in Europe because of the imbalances that were latent within it.

Till   this   point   Lapavitsas’         analysis         does              not         differ essentially from post-Keynesian analyses which accept a North – South divide argument EMU cannot be rectified. Greece’s only solution is Grexit. Regarding the relationship with the EU (i.e. in economic terms basically the Common Market) he remains agnostic.

•   Lapavitsas  explanation suffers from the general weaknesses of the ‘financialization’ thesis: No reference to the production structure of the Greek and the other EMU economies.

Unable to see the existence of relations of economic (imperialist)  exploitation  between  the  North  and  the South (or else relations of ‘broad’ unequal exchange) and he understands only a reversed and problematic version of the ‘narrow’ unequal exchange.

Uncritically accepts the mainstream arguments about Greek relatively high wages being the cause of Greece’s deteriorating competitiveness.

•   Lapavitsas’ ‘financialization’ suffers empirically:

The  Greek  financial system was significantly less leveraged than the Western ones.

Greek workers’ high private debts: a new phenomenon (began with  euro) and smaller than in the West.

Thus ‘financialization’ cannot be discovered inside Greece and has to be imported (through EMU’s neo- mercantilist structure).

•   Also problematic policy suggestions:

If this is a debt crisis, it can be solved not by exiting EMU but making it a full OCA. If is deeper (grounded to the  sphere  of  production)  then exiting  the  EMU and remaining within the Common Market want suffice. A full exit from the EU is required.

vMilios & Sotiropoulos: ‘strong Greece’?

•   Contra to Lapavitsas, it was not the loss of competitiveness  that  gave  rise    to high indebtedness, but the other way around. EMU (bringing together   countries with very different rates  of  growth  and profitability) gives rise to high levels of borrowing for the euro-periphery (because it has higher profit rates which attract euro-core capital). This was facilitated by euro’s low interest rates. Foreign loans boosted euro-periphery’s domestic demand, therefore  giving   rise to increasing inflation and the deterioration of competitiveness.

•   Reject the North –  South  (as problematic dependency theory): Foreign  loans  did rob Greece but boosted growth (agree  with   the   pre-crisis mainstream argument that current account deficits  were good imbalances because euro-periphery countries with relatively low levels of real GDP   per   capita  were catching up with richer north European economies). This    mainstream    and     Milios & Sotiropoulos argument is erroneous: Sustained current account deficits did  not  finance productive investment imports of euro-core’s.   Greece’s  productive structure instead of being developed it was actually eroded. Because   of this error Milios & Sotiropoulos implicitly accept the mainstream convergence thesis which has been fully disproved.

•   Milios & Sotiropoulos replicate the mainstream success story (‘the strong Greece’) presented before the crisis. Then they add ‘financialization’: Modern capitalism is financialised (extremeleveraging   and   financial bubbles).           With the 2007-8 ‘financial’ crisis the till  then malevolent euro-periphery’s CA  deficits  were  blown  apart.  In  order to sustain them fiscal deficits were augmented and this led to the euro-periphery’s collapse. EMU played only a peripheral role in this affair (although they accept that it not an OCA and it is a neoliberal project). The crisis exposed its weaknesses and its class nature. However, the solution is not the exit from the EMU but the progressive restructuring of the EU.

•   Milios  &  Sotiropoulos  ‘financialization’  explanation suffers from the general deficiencies of this approach already  mentioned  above.  They  share  also  the particular errors characterizing Lapavitsas’ analysis and criticized above. On the points that they differ they err on    the other side. For example, instead of Lapavitsas’ reversed version of ‘narrow’ unequal exchange they throw  out  any  theory  of  unequal  exchange.  Finally, their analysis of the EMU and the EU is simplistic and cannot see the relations of economic (imperialist) exploitation that exist within them. The same holds about their policy proposals.

•   In  toto,  ‘financialization’ explanations have     a    weak structural emphasis by not considering the problems in the sphere of production. For this reason they fail to account adequately for the Greek case.


•   A strong structural explanation of the Greek crisis: the fundamental causes in the sphere of production.

•   2 structural components:

(a) ‘internal’:  the  2007-8  economic crisis is an a-la-Marx crisis (tendency of the profit rate to fall) which rocked the    Greek    economy    (and the other developed economies),

(b) ‘external’: imperialist exploitation (i.e. ‘broad’ unequal exchange)  within  the  EU worsened the position of Greece and aggravated the crisis also  ‘external’  causes.  These  come from the relations of imperialist exploitation (i.e. unequal exchange) that exist within the EU and which divide it between North (euro-core) and South (euro-periphery) economies.

vThe ‘internal’ cause: a falling rate of profit

•   A strong structural explanation of the Greek crisis: the fundamental causes in the sphere of production.

•   The crisis is a consequence of the imperfect resolution of the 1975 structural crisis.

•   2 structural components:

(a) ‘internal’: the  2007-8  economic crisis is an   a-la-Marx crisis (tendency of the profit rate to fall) which rocked the    Greek    economy    (and the other developed economies):  crisis of overaccumulation caused     by falling  profitability  due to the increase of the Organic       Composition of Capital (OCC). ‘Financialization’: a consequence not a cause

(b) ‘external’: imperialist exploitation (i.e. ‘broad’ unequal exchange)  within  the  EU worsened the position of Greece and aggravated the crisis

► 1973-5 crisis:

•    3rd global crisis

•   crisis of overaccumulation of capital caused by a falling profit rate due to the increase of the OCC

•   structural crisis: requires a restructuring of the internal and external (international) systemic architecture

►global waves of capitalist restructuring :

(1) conservative Keynesian policies

(2) monetarism (national economy)

(3) open-economy neoliberalism (‘globalisation’)

However, there are national differences and variations to the global trends.

► Successes and  failures:  silent  depression’

•   Partial recovery of profitability & accumulation via increased exploitation

•   Reinvigoration of absolute surplus-value extraction

•   ‘Globalisation’

•   Failure to solve the systemic problem and overaccumulation/ the flight ahead: ‘financialization’

The 1973 crisis and capitalist restructuring in Greece

•   a doubly onerous crisis: overaccumulation crisis plus post-dictatorship radicalism

•   Contrary to international trends, the belated implementation of progressive Keynesian policies,

‘social-mania’ and the creation of welfare state/ growth and progressive income redistribution

•   Failure: a successful prescription at a wrong time

Neoliberal restructuring policies

•   1990 ND government: mixed introduction of monetarist and neoliberal measures/ catching up with the international trends

•   Restrictive macroeconomic policies and regressive income redistribution/ privatizations, opening of the economy, deregulation of labour relations, welfare cuts etc.

•   PASOK Simitis’ governments: continuation plus religious adherence to the EMU requirements/ the two ‘robberies’: (a) stock-exchange, (b) post-euro mass

consumption goods’ inflation

•   The Balkan ‘Edorado’ and the artificial growth of the 2004 Olympics

Conservative Keynesian capitalist restructuring and the shift to neoliberal directions

•   2nd PASOK governement’s 1985 stability programme: decisive conservative turn→conservative Keynesian restructuring reinforced subsequently

•   EU accession: promises & dangers

•   From 1985: gradual increase of actual work-time (broader phenomenon reinforced by Southern specificities)

Ambiguous esults of Greek capitalist restructuring


A   partial recovery of profitability (mainly through increased exploitation).

An insufficient devalorisation of capital

Conservative Keynesian capitalist restructuring and the shift to neoliberal directions

•   2nd PASOK governement’s 1985 stability programme: decisive conservative turn→conservative Keynesian restructuring reinforced subsequently

•   EU accession: promises & dangers

•   From 1985: gradual increase of actual work-time (broader phenomenon reinforced by Southern specificities)

Results of Greek capitalist restructuring waves:

Ambiguous as elsewhere

vThe ‘external’ cause: EU ‘broad’ unequal exchange

Greece: from the EEC to EU and the EMU

•   Securing the system after the dictatorship

•   Imperialist upgrading & the vital space

•   Danger of the opening the economy and dismantling a coherent productive model

•   Accession at a lucky moment: political willingness and sweeteners (aid packages etc.)

•   Grey times: faltering of capital accumulation, expansion to the East and the beginning of troubles

EU and the EMU

•   regional imperialist bloc with pyramidoid structure

•   Competition with the other major imperialist blocs, internal rivalries and co-operation, exploitation of other countries

•   Internal hierarchical pyramid: North and South

EU’s North-South divide:

•   Competition on the basis of absolute advantage

•   ‘broad’ unequal exchange: capitals from more developed economies (i.e. higher OCC) competing within the same market with capitals from less developed economies (lower OCC) reap extra profits through unequal exchange with the latter.

•   The ‘commanding heights’ (EC, ECB etc.) follow the prerogatives of the dominant Northern economies to the detriment of the South. Thus, the conduct of crucial policies (monetary, trade, exchange rate etc.) and the institutional arrangements favor the North.

Greece in the EU: Greek capital’s modern ‘Big Idea’

•   Loss of competitiveness within the EU (competition with more developed capitals without protectionism)

•   Erosion of Greece’s productive structure: Greek capitals could not compete with Western ones since accession to the Common Market. Several industrial sectors hit hard. The agricultural sector was irrationally restructured via the Common Agricultural Policy (CAP): initially thrived through subsidies and then was shrink abnormally. Greek capital’s retreat to the quasi-protected area of non-internationally tradable goods and creation of oligopolistic structures.

•   1990s  –  a  period  of  grace:  the  Balkan  ‘Eldorado’:  the collapse of the Eastern bloc and the imperialist expansion to the Balkans and Central and Eastern Europe

•   entrance to the EMU (2001): celebrated as the ‘national goal’ of participation in the top EU league. However, underneath the euphoric accounts structural problems continued to amass and worsen (e.g. trade and current account balances). The strong Euro diminished further Greek exports, increased import penetration and weakened domestic  production.  These  were  covered  through  the cheap credit gained because of the EMU.

•   the 2007-8 global crisis and the subsequent EU crisis blew this house of cards apart.

The eruption of the crisis

•   The 2007-8 crisis in the developed economies triggered the latent structural problems of Greek capitalism: the unresolved profitability and overaccumulation problems re-emerged and the imperialist ‘subsidies’ from the Balkans diminished rapidly.

•   State subsidization of faltering capital accumulation (and not excessive wages) → fiscal deficit/ the current crisis increased the need for such counter-cyclical measures but made them more expensive (because of the upheaval in finance)/ competition with other capitalisms over the burdens of the counter-crisis measures → fiscal crisis

•   Fiscal deficit financed through external debt (because EMU effectively prohibits internal borrowing, e.g. national bonds etc.)

•   The loss of competitiveness aggravated both

Figure 1. Surplus value, net operating surplus, and unproductive activities

In figure 1 we observe a constant rise on the unproductive activities which is estimated as the difference between surplus value and net operating surplus (net profits).

Figure 2. Productivity and WageIn figure 2 we observe a vigorous increase in productivity for the period 1960 – 1973 . After 1973, the growth of productivity retards whilst during the decade of 1980s remains stagnant. In the beginning of the 1990s productivity rises again till the middle of 2000s when starts to decline bearing similarities with the 1970s’. Turning now to the real wage, we can observe that for the whole period it follows productivity but it never gets higher.

Figure 3. The rate of surplus value

In figure 3 we observe an increase in the rate of surplus value during the period 1960 – 2009 which  is  characterized  by  ups  and  downs.  during  the  1960s  the  rate  of  surplus  value increases. At the beginning of 1970s till the early 1980s declines and then it is upturned. Finally, at the middle of the 2000s, the rate of surplus value reaches its highest peak and then it sharply drops indicating the predicament of capitalists to extract more surplus value.

Figure 4. The value composition of capital

Figure 4 depicts the evolution of the value composition of capital (C/V) as this is captured by the ratio of gross fixed capital stock (C) to variable capital (V). As we can see the value composition of capital steadily increases for almost the whole period. But at the beginning of the 2000s it stagnates; which can possibly be attributed to the deindustrialization of the Greek economy with the massive escape of Greek manufacturing enterprises to the East.

Figure 5. The general rate of profit

Figure 5 depicts the evolution of the general rate of profit and from its trajectory we can discriminate three phases before the onset of current crisis. The first one is the period 1960 –1973 where the general rate of profit is at a high level though with a small decline. The second one is the period of crisis (1973 – 1985) when the general rate of profit falls dramatically. The third period is that of neoliberalism (1985 – 2009) when the general rate of profit displays a slight recover and then remains stagnant.

Figure 6. Net Rate of Profit

In figure 6 we can similarly discriminate three phases for the net rate of profit. The first one is during the ‘Golden Age’ which is described by a high level of the net rate of profit. The second one is the period of crisis when the net rate of profit declines sharply and the third period is the one of neoliberalism which presents an anemic recovery of the net rate of profit. This recovery is mainly attributed to the implementation of neoliberal policies which were introduced by reforms on the labor market

Figure 7. Real GDP (2005) and real unit labor cost

The  argument  concerning reforms  on  the  labor market which  contributed  to  the  slight recover of the net rate of profit becomes more eloquent in figure 7 where we present the real GDP and the real unit wage cost. Without a doubt from the early 1990s, GDP exhibits a positive growth whilst the real unit wage cost declines.

Figure 8. Net operating surplus and net investment at 2005 prices

In   figure   8   we   can   observe   that   net   investment      measured at    2005 prices  reveals a considerable growth at the mid of 90s’ reaching its highest peak at 2007. At the same time an analogous  growth  is  exhibited   by  the  net  operating                 surplus measured  at  2005 prices. Eventually, net investment falls in 2007 and it is associated with the stagnation on the mass of profits. Concluding, a fall in the net rate of profit is not enough to cause crisis but it must be combined with a falling general rate of profit.

Figure 9. Intra EU15 terms of trade

From figure 9 we can observe the following:

• From 1963 till 1981, when Greece becomes a full member of the EEC, the terms of trade exhibit an annual growth of 2,1% and manage to converge with the other two countries, and especially with Austria.

• From   1981   to   2002,   when   the   EMU   is   officially established, the terms of trade decline annually by 0,06% which reveals a loss of competitiveness in relation with the rest of the EU15 countries.

• Finally, from 2002 to 2009, the terms of trade remain stable which means that the entrance in the eurozone didn’t play any significant role to the competitiveness of Greek economy.

So for Greece, the exposition to the common market and the gradual  loss of  monetary and  fiscal  instruments  it seems that resulted to a decline in the terms of  trade.

Turning now to the other two countries:

• Sweden exhibits an annual increase of 0,5% till the 1995, when it becomes a full member of the EU. From 1995 to 2009 the terms of trade exhibit an annual decline by 0,1% whilst the decision of not entering in the EMU did not actually change the trend.

•Austria exhibits an increase in the terms of trade till the entrance in EU at 1995, by 0,1% per year. From 1995 to 2009 the Austrian economy exhibits an annual increase by 1,1%, whilst the decision of entering in the EMU did not either changed the trend.

Table 1. First Greek MOU’s projections

Source: EC (2010, pp.12 – 13)

2009 2010





Real GDP growth(Percent change over the

previous period)







General governmentbalance (percent of GDP)







General government gross debt (percent ofGDP)


133.2 145.2 148.8 149.6 148.4

Table 2. Actual GDP growth rates Source: EUROSTAT http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tec00115

2009 2010 2011 2012
Real GDP growth (Percent change over the previousperiod)





Table 3. Average annual growth rates

Golden Age

(1960 – 1973)


(1973 – 1985)


(1985 – 2009)

























GDP (real)




UWC (Real)




NOS (real)




INV (Real)






Financial regulation in the light of the current global economic crisis – INTERNATIONAL CRITICAL THOUGHT

International Critical Thought

Financial regulation in the light of the current global economic crisis

Stavros D. Mavroudeasa* & Demophanes Papadatosb

pages 486-499

Version of record first published: 20 Nov 2012


The regulation or non-regulation of finance and its extent and forms has always been an issue in the historical development of capitalism. This issue is crucial for the system’s modus operandi since in capitalism money (and its provision, i.e. finance) operates as capital (i.e. the provider of the means for entrepreneurial activities), whereas its importance in previous socioeconomic systems was significantly less. This paper argues that there is an inherent insoluble contradiction between capitalism’s tendency to unleash finance and its need to rein in the resulting instabilities. The paper argues that although the crisis shows the need for re-regulation, there are significant vested interests that deny this need. The rampant internationalization of money and capital markets in recent decades has created a global power structure that favours internationalized finance. This global power structure has promoted national reforms that have curtailed regulation and led to extreme open-market practices (i.e. the model of private banking). The crisis signifies the failure of this model. However, the global power of international finance remains and thus blocks any moves to circumvent it. The paper ends with a call for public banking as a means of reforming the financial aspects of the current crisis to the benefit of labour.

Ένα ενδιαφέρον άρθρο στους FT που περιγράφει πως μπορεί να γίνει μία χρεωκοπία μέσα στο ευρώ και στη συνέχεια έξοδος απ’ αυτό αλλά παραμένοντας εξαρτημένοι από αυτό


February 26, 2012 6:17 am

‘Greece 2: Revenge!’ – the plot thickens

By John Dizard

Now that “Greece”, this season’s big heist movie, is in the can and on the way to the distributor, the producers are sitting around the pool on the exclusive French Caribbean island of St. Barthélemy, working on the sequel, which starts shooting this summer.

As usual, the problem is how to get the audience back for more of the same: meetings convening and breaking up, riots, opposing talking heads, stock shots of the Parthenon. The answer, I believe, is to leak out that the franchise is still fresh, with great plot twists. Also, several lead characters (civil service unions, state enterprises, and pensioners) from “Greece” face horrible fates in the sequel, including slow starvation.

The key to understanding the story arc of the sequel is the one real success of the negotiators for the private sector lenders to Greece: getting pari passu (equal status) treatment for the payments on their new paper with that held by the European Financial Stability Facility, the official lender of the euro group. The term of art is “the escrow account”.

When, as is likely, the Greek government fails the first major test of its commitments under the restructuring deal, the bondholders and EFSF can be paid, out of the same escrow account, by the same fiscal agent, even as cash for the state is cut.

This is what I’ve heard about the current screenplay for “Greece 2: Revenge!”: fast forward past the close of the current deal, to the setting of the date for Greece’s next parliamentary elections. There was hope among some of the current cabinet members, especially the Pasok (socialist party) people, that those could be put off till next year, perhaps even up to the final deadline of next October. Now that doesn’t look as likely, so let’s say that we get elections by late April, after the signatures on the papers have dried.

Here’s a plot twist: key decisionmakers at the multilateral lenders, leading core Europe politicians, and even bankers, now want the Greek public to elect a rabidly anti-“German”, anti-troika coalition government. Ideally, rabidly leftwing, but even a rabidly nationalist anti-troika coalition will do. That would accomplish two goals of the internationals: forcing a break-up of the ossified Greek parties and their “clients”, and manoeuvring the left and nationalists to take the blame for the post-hard-default cuts.

While the Greek state has to meet specific monthly performance criteria, starting next month, the first really significant review is carried out by the troika, in particular an International Monetary Fund team, in June. No one doubts there will be significant “slippage” in meeting fiscal targets and carrying out structural reforms. That will be reported no later than July.

Nothing surprising so far. The markets have been conditioned to expect that Greek non-compliance will be answered by a wagging finger and another wire transfer. In the script I’ve seen, that doesn’t happen this time. Instead, the new Greek government will be told to get back in compliance with budgets and reforms, on a schedule that even a Nordic country couldn’t meet.

The script says those demands are met, of course, with fist-shaking defiance by the Greeks. This time, though, the troika cuts funding for the Greek state, and continues to pay the debt service into the escrow account. In particular, the September and March interest payments for the new private sector Greek bonds are covered. Since we are now in high summer, there isn’t an immediate shortage of euros for the country, as the tourists are spending their convertible currency. But capital controls, ready for the Greek clearing and settlement system since last September, are imposed. Greek deposits are fenced in.

The Greek government would not meet all its domestic obligations, such as supplemental pensions and much of its civil service pay and benefits. The shortfalls are covered by un-expatriatable deposits or scrip. Foreigners are blamed.

In the meantime, the eurosystem central banks would have put all the software and procedures in place for intra-euro area capital controls. Just temporary controls justified by public policy, public security and prudential supervision.

The scrip issued by the Greek state piles up, and trades around. A market price is established for it, say around 50 or 60 cents on the euro. People in the tourism and export sectors gain at the expense of state employees, beneficiaries, and domestic creditors. The trade and government primary deficits close, at the expense of living standards.

After months, or even a year of this bread and water diet, the Greek public and political leaders come around to the idea of getting back on track with the performance criteria. By then, they have decided whether they want to drachma-tise, and inflate away the primary budget deficit, or formally exchange the scrip for its deflated value in euros.

Then a cosmetically amended bail-out deal is reaffirmed.

Cut. Fade to black. Credits.



Μία λίγο παλιά αλλά ιδιαίτερα ενδιαφέρουσα συνέντευξη του R.Brenner, αναδημοσιευμένη από το LINKS

Το κείμενο που ακολουθεί είναι μία λίγο παλιά αλλά ιδιαίτερα ενδιαφέρουσα συνέντευξη του R.Brenner σε κορεάτικη καθημερινή εφημερίδα. Την αναδημοσίευσε στα αγγλικά το LINKS (http://links.org.au/node/957).

Ιδιαίτερα εύστοχες είναι οι επισημάνσεις του R.Brenner κατά των απόψεων περί «χρηματιστικοποίησης».


Robert Brenner: A Marxist explanation for the current capitalist economic crisis

Robert Brenner.

Marxist economist Robert Brenner was interviewed by Seongjin Jeong for Hankyoreh, one of South Korea’s leading daily newspapers. The interview was published on January 22, 2009.

* * *

Seongjin Jeong: Most media and analysts label the current crisis as a «financial crisis». Do you agree with this characterisation?

Robert Brenner: It’s understandable that analysts of the crisis have made the meltdown in banking and the securities markets their point of departure. But the difficulty is that they have not gone any deeper. From US Treasury Secretary Henry Paulson and US Federal Reserve chair Ben Bernanke on down, they argue that the crisis can be explained simply in terms of problems in the financial sector. At the same time, they assert that the underlying real economy is strong, the so-called fundamentals in good shape.

This could not be more misleading. The basic source of today’s crisis is the declining vitality of the advanced economies since 1973 and, especially, since 2000. Economic performance in the US, western Europe and Japan has steadily deteriorated, business cycle by business cycle in terms of every standard macroeconomic indicator — GDP, investment, real wages and so forth. Most telling, the business cycle that just ended, from 2001 through 2007, was by far the weakest of the postwar period, and this despite the greatest government-sponsored economic stimulus in US peacetime history.

How would you explain the long-term weakening of the real economy since 1973, what you call in your work «the long downturn’’?

What mainly accounts for it is a deep, and lasting, decline of the rate of return on capital investment since the end of the 1960s. The failure of the rate of profit to recover is all the more remarkable, in view of the huge drop-off in the growth of real wages over the period. The main cause, though not the only cause, of the decline in the rate of profit has been a persistent tendency to overcapacity in global manufacturing industries.

What happened was that one after another new manufacturing powers entered the world market –Germany and Japan, the northeast Asian newly indistrialising countries (NICs), the South East Asian «Tigers» and, finally, the Chinese leviathan.

These later-developing economies produced the same goods that were already being produced by the earlier developers, only cheaper. The result was too much supply compared to demand in one industry after another, and this forced down prices and in that way profits. The corporations that experienced the squeeze on their profits did not, moreover, meekly leave their industries. They tried to hold their place by falling back on their capacity for innovation, speeding up investment in new technologies.

But of course this only made overcapacity worse. Due to the fall in their rate of return, capitalists were getting smaller surpluses from their investments. They therefore had no choice but to slow down the growth of plant and equipment and employment. At the same time, in order to restore profitability, they held down employees’ compensation, while governments reduced the growth of social expenditures.

But the consequence of all these cutbacks in spending has been a long-term problem of aggregate demand. The persistent weakness of aggregate demand has been the immediate source of the economy’s long term weakness.

The crisis was actually triggered by the bursting of the historic housing bubble, which had been expanding for a full decade. What is your view of its significance?

The housing bubble needs to be understood in relation to the succession of asset price bubbles that the economy has experienced since the middle 1990s, and especially role of the US Federal Reserve in nurturing those bubbles. Since the start of the long downturn, state economic authorities have tried to cope with the problem of insufficient demand by encouraging the increase of borrowing, both public and private. At first, they turned to state budget deficits, and in this way they did avoid really deep recessions. But, as time went on, governments could get ever less growth from the same amount of borrowing.

In effect, in order stave off the sort of profound crises that historically have plagued the capitalist system, they had to accept a slide toward stagnation. During the early 1990s, governments in the US and Europe, led by the US administration of US President Bill Clinton, famously tried to break their addiction to debt by moving together toward balanced budgets. The idea was to let the free market govern the economy. But, because profitability had still not recovered, the reduction in deficits delivered a big shock to demand, and helped bring about the worst recessions and slowest growth of the postwar era between 1991 and 1995.

To get the economy expanding again, US authorities ended up adopting an approach that had been pioneered by Japan during the later 1980s. By keeping interest rates low, the Federal Reserve made it easy to borrow so as to encourage investment in financial assets. As asset prices soared, corporations and households experienced huge increases in their wealth, at least on paper. They were therefore able to borrow on a titanic scale, vastly increase their investment and consumption, and in that way, drive the economy.

So, private deficits replaced public ones. What might be called “asset price Keynesianism” replaced traditional Keynesianism. We have therefore witnessed for the last dozen years or so the extraordinary spectacle of a world economy in which the continuation of capital accumulation has come literally to depend upon historic waves of speculation, carefully nurtured and rationalised by state policy makers and regulators — first the historic stock market bubble of the later 1990s, then the housing and credit market bubbles from the early 2000s.

You were prophetic in forecasting the current crisis as well as the 2001 recession. What is your outlook for the global economy? Will it worsen, or will it recover before the end of 2009? Do you expect that the current crisis will be as severe as the Great Depression?

The current crisis is more serious than the worst previous recession of the postwar period, between 1979 and 1982, and could conceivably come to rival the Great Depression, though there is no way of really knowing.

Economic forecasters have underestimated how had bad it is because they have overestimated the strength of the real economy and failed to take into account the extent of its dependence upon a build up of debt that relied on asset price bubbles. In the US, during the recent business cycle of the years 2001-2007, GDP growth was by far the slowest of the postwar epoch. There was no increase in private sector employment. The increase in plant and equipment was about a third off the previous the postwar low. Real wages were basically flat. There was no increase in median family income for the first time since WWII. Economic growth was driven entirely by personal consumption and residential investment, made possible by easy credit and rising house prices.

Economic performance was this weak, even despite the enormous stimulus from the housing bubble and the Bush administration’s huge federal deficits. Housing by itself accounted for almost one-third of the growth of GDP and close to half of the increase in employment in the years 2001-2005. It was therefore to be expected that when the housing bubble burst, consumption and residential investment would fall, and the economy would plunge.

Many assert that the current crisis is a typical «Minsky crisis» not a Marxian one, arguing that that the financial speculation bubble bust has played the central role in this crisis. How would you respond?

I don’t think it’s helpful to counterpose in that way the real and financial aspects of the crisis. As I emphasised, it is a Marxian crisis, in that it finds its roots in a long-term fall and failure to recover of the rate of profit, which is the fundamental source of the extended slowdown of capital accumulation right into the present. In 2001, the rate of profit for US non-financial corporations was the lowest of the postwar period, except for 1980.

Corporations therefore had no choice but to hold back on investment and employment, but this made the problem of aggregate demand worse, further darkening the business climate. This is what accounts for the ultra-slow growth during the business cycle that just ended.

Nevertheless, to understand the current collapse, you have to demonstrate the connection between the weakness of the real economy and the financial meltdown. The main link is the economy’s ever-increasing dependence on borrowing to keep it turning over and the governments’ ever greater reliance on asset price run-ups to allow that borrowing to continue.

The basic condition for the housing and credit market bubbles was the perpetuation of low costs of borrowing. The weakness of the world economy, especially after the crises of 1997-1998 and 2001-2002, plus East Asian governments’ huge purchases of dollars to keep their currencies down and US consumption growing, made for unusually low long-term interest rates. At the same time, the US Fed kept short-term interest rates lower than at any time since the 1950s.

Because they could borrow so cheaply, banks were willing to extend loans to speculators, whose investments drove the price of assets of every type ever higher and the return on lending (interest rates on bonds) ever lower.

Symptomatically, housing prices soared and the yield in real terms on US treasury bonds plunged. But because yields fell ever lower, institutions the world over that depended on returns from lending, had an ever more difficult time making sufficient profits. Pensions funds and insurance companies were particularly hard hit, but hedge funds and investment banks were also affected. These institutions were therefore all too ready to make massive investments in securities backed by highly dubious sub-prime mortgages because of the unusually high returns they offered, ignoring their unusually high risk. In fact, they could not get enough of them. Their purchases of mortgage-backed securities allowed mortgage originators to keep lending to ever less-qualified borrowers.

The housing bubble reached historic proportions, and the economic expansion was allowed to continue. But, of course, this could not go on for very long. When housing prices fell, the real economy went into recession and the financial sector experienced a meltdown, because both had depended for their dynamism on the housing bubble. Today, the recession is making the meltdown worse because it is exacerbating the housing crisis. The meltdown is intensifying the recession because it is making access to credit so difficult. It is the mutually reinforcing interaction between the crisis in the real economy and financial sector that has made the downward slide so intractable for policy makers and the potential for catastrophe so evident.

Even if one grants that postwar capitalism entered a period of long downturn in the 1970s, it seems undeniable that the neoliberal capitalist offensive has prevented the worsening of the downswing since the 1980s.

If you mean by neoliberalism the turn to finance and deregulation, I do not see that it helped the economy. But, if you mean by it, the stepped-up assault by employers and governments on workers’ wages, working conditions and the welfare state, there can be little doubt that it prevented the fall in the rate of profit from getting worse. Even so, the employers’ offensive did not wait until the so-called neoliberal era of the 1980s. It began in the wake of the fall of profitability, starting in the early 1970s, along with Keynesianism. It did not, moreover, result in recovery of the rate of profit and only further exacerbated the problem of aggregate demand. The weakening of aggregate demand ultimately impelled economic authorities to turn to more powerful and dangerous forms of economic stimulus, the “asset price Keynesianism” that led to the current disaster.

Some have argued that a new paradigm of «financialisation’’ or «finance-led capitalism’’ has sustained a so-called «Capital Resurgent’’ (Gerard Dumenil) between the 1980s and the present. What do you think of the thesis of «financialisation’’ or «finance-led capitalism’’?

The idea of a finance led-capitalism is a contradiction in terms, because, speaking generally — there are significant exceptions, like consumer lending — sustained financial profit making depends on sustained profit making in the real economy. To respond to the fall in the rate of profit in the real economy, some governments, led by the US, encouraged a turn to finance by deregulating the financial sector. But, because the real economy continued to languish, the main result of deregulation was to intensify competition in the financial sector, which made profit making more difficult and encouraged ever greater speculation and taking of risks.

Leading executives in investment banks and hedge funds were able to make fabulous fortunes, because their salaries depended on short-run profits. They were able to secure temporarily high returns by expanding their firms’ assets/lending and increasing risk. But this way of doing business, sooner or later, came at the expense of the executives own corporations’ long-term financial health, leading, most spectacularly, the fall of Wall Street’s leading investment banks.

Every so-called financial expansion since the 1970s very quickly ended in a disastrous financial crisis and required a massive bail-out by the state. This was true of the Third World lending boom of the 1970s and early 1980s; the savings and loans run-up, the leveraged buyout mania, and the commercial real estate bubble of the 1980s; the stockmarket bubble of the second half of the 1990s; and of course the housing and credit market bubbles of the 2000s. The financial sector appeared dynamic only because governments were prepared to go to any lengths to support it.

Keynesianism or statism seems poised to return as the new Zeitgeist. What is your general assessment of resurgent Keynesianism or statism? Can it help to resolve, or at least, alleviate the current crisis?

Governments today really have no choice but to turn to Keynesianism and the state to try to save the economy. After all, the free market has shown itself totally incapable of preventing or coping with economic catastrophe, let alone securing stability and growth. That’s why the world’s political elites, who only yesterday were celebrating deregulated financial markets, are suddenly now all Keynesians.

But there is reason to doubt that Keynesianism in the sense of huge government deficits and easy credit to pump up demand can have the impact that many expect. After all, during the past seven years, thanks to the borrowing and spending encouraged by the US Federal Reserve’s housing bubble and the Bush administration’s budget deficits, we witnessed what was, in effect, probably the greatest Keynesian economic stimulus in peacetime history. Yet, we got the weakest business cycle in the postwar epoch.

Today, the challenge is much greater. As the housing bubble collapses and credit becomes harder to come by, households are cutting back on consumption and residential investment. As a consequence, corporations are experiencing falling profits. They are therefore cutting back on wages and laying-off workers at a rapid pace, detonating a downward spiral of declining demand and declining profitability. Households had long counted on rising house prices to enable them to borrow more and to do their saving for them. But now, because of the build-up of debt, they will have to reduce borrowing and increase saving at the very time that the economy most needs them to consume.

We can expect that much of the money that the government places in the hands of households will be saved, not spent. Since Keynesianism could barely move the economy during the expansion, what can we expect from it in the worst recession since the 1930s? To have a significant effect on the economy, the Obama administration will likely have to contemplate a huge wave of direct or indirect government investment, in effect a form of state capitalism. To actually accomplish this however would require overcoming enormous political and economic obstacles.

US political culture is enormously hostile to state enterprise. At the same time, the level of expenditure and state indebtedness that would be required could threaten the US dollar. Until now, East Asian governments have been happy to fund US external and government deficits, in order to sustain US consumption and their own exports. But, with the crisis overtaking even China, these governments may lose the capacity to finance US deficits, especially as they grow to unprecedented size. The truly terrifying prospect of a run on the dollar looms in the background.

What is your general assessment of the victory of Barack Obama in the last US presidential election? Do you think Obama is a «lesser evil», compared to the Bush administration? Many regard Obama as a FDR of the 21st century. Indeed, Obama promises a «new New Deal». Do you think the anti-capitalist progressives can give critical support to some of his «new New Deal»?

The triumph of Obama in the election is to be welcomed. A victory for John McCain would have been a victory for the Republican Party and given an enormous boost to the most reactionary forces on the US political scene. It would have been seen as an endorsement of the Bush administration’s hyper-militarism and imperialism, as well as its explicit agenda of eliminating what is left of the trade unions, the welfare state and environmental protection.

That said, Obama is — like Roosevelt — a centrist Democrat, who cannot be expected, on his own, to do much to defend the interests of the vast majority of working people, who will be subjected to an accelerating assault from corporations trying to make up for their collapsing profits by reducing employment, compensation and so forth.

Obama’s backed the titanic bailout of the financial sector, which represents perhaps the greatest robbery of the US taxpayer in history, especially as it came with no strings attached for the banks. He also supported the bail-out of the auto industry, even though it is conditional on massive cuts in the compensation of auto workers. The bottom line is that, like Roosevelt, Obama can be expected to take decisive action in defence of working people only if he is pushed by way of organised direct action from below. The Roosevelt administration passed the main progressive legislation of the New Deal, including the Wagner Act and the Social Security Act, only after it was pressured to do so by a great wave of mass strikes. We can expect the same from Obama.

According Rosa Luxemburg, and recently David Harvey, capitalism overcomes its tendency to crisis by way of geographical expansion. According to Harvey, this is often facilitated by massive state investments in infrastructure, to back up private capital investment, often foreign direct investment. Do you think that capitalism can find an exit from the current crisis, in Harvey’s terminology, by way of a «spatio-temporal-spatial fix’’?

This is a complex issue. I think, first of all, it’s true and critically important to say that geographical expansion has been essential to every great wave of capital accumulation. You might say that growth of the size of the labour force and growth of the system’s geographical space are the sine qua non, the essentials, for capitalist growth.

The postwar boom is a good example, as it featured spectacular expansions of capital into the US south and southwest and into war-torn western Europe and Japan. Investment by US corporations played a critical role, not only in the US but in western Europe in this epoch.

Without question, this expansion of the labour force and the capitalist geographical arena was indispensable for the high profit rates that made the postwar boom so dynamic. From a Marxist standpoint, this was a classical wave of capital accumulation and, necessarily, entailed both the sucking in of huge masses of labour from outside the system, especially from the pre-capitalist countryside in Germany and Japan, and the incorporation or re-incorporation of additional geographical space on an a huge scale.

Nevertheless, I think that by and large the pattern of the long downturn, since the late 1960s and early 1970s, has been different. It is true that capital responded to falling profitability by further expansion outward, seeking to combine advanced techniques with cheap labour. East Asia is of course the fundamental case, and unquestionably represents a world-historical moment, a fundamental transformation, for capitalism. But, though expansion into East Asia represented a response to falling profitability, it has not, I think, constituted a satisfactory solution. This is because, at the end of the day, the new manufacturing production that has emerged so spectacularly in East Asia is to a great extent duplicating the manufacturing production already taking place elsewhere, though taking place more cheaply.

The problem is on a system-wide scale, it’s more exacerbating than resolving the problem of overcapacity. In other words, globalisation has been a response to falling profitability, but because its new industries are not, basically, complementary for the world division of labour, but redundant, you have had a continuation of the problem of profitability.

The bottom line, I think, is that to actually resolve the problem of profitability that has so long plagued the system — slowing capital accumulation and calling forth ever greater levels of borrowing to sustain stability — the system requires the crisis that has so long been postponed.

Because the problem is overcapacity, massively exacerbated by the build-up of debt, what is still required is, as in the classical vision, a shake out from the system of high-cost, low-profit firms, the subsequent cheapening of means of production, and the reduction of the price of labour. It’s by way of crisis that, historically, capitalism has restored the rate of profit and established the necessary conditions for more dynamic capital accumulation. During the postwar period, crisis has been warded off, but the cost has been a failure to revive profitability leading to worsening stagnation. The current crisis is about that shakeout that never happened.

So you think that only the crisis can resolve the crisis? That’s a classical Marxian answer.

I think that that is probably the case. The analogy would be this. At first, in the early 1930s, the New Deal and Keynesianism were ineffective. In fact, through the length of the 1930s, there was a failure to establish the conditions for a new boom, as was demonstrated when the economy fell back into the deep recession of 1937-1938. But, eventually, as a result of the long crisis in the 1930s, you shook out the high cost, low profit means of production, creating the basic conditions for high rates of profit. So, by the end of the 1930s, you could say that the potential rate of profit was high and all that was missing was a shock to demand. That demand was provided of course by the massive spending on armaments for World War II.

So, during the war, you got high rates of profit and those high rates of profit provided the necessary condition for the postwar boom. But I don’t think that Keynesian deficits could have worked even if they had been tried in 1933, because you needed, in Marxian terms, a system-cleansing crisis first.

Do you think that the current crisis will lead to a challenge to US hegemony? World-system theorists, like Immanuel Wallerstein … are arguing that the hegemony of US imperialism is declining.

This is again a very complex question. Perhaps I am mistaken, but I think that many of those who believe that there has been a decline in US hegemony basically view US hegemony as mainly an expression of US geopolitical power and, in the end, US force. From this standpoint, it’s mainly US dominance that makes for US leadership, it’s US power over and against other countries that keeps the US on top. I don’t see US hegemony that way. I see the elites of the world, especially the elites of the capitalist core broadly conceived, as being very happy with US hegemony because what it means for them is that the US assumes the role and the cost of world policemen. This is true, I think, of the elites even of most poor countries today. What is the goal of the US world policeman? It’s not to attack other countries. Mainly, it’s to keep social order on a world scale, to create stable conditions for global capital accumulation. It’s main purpose is to wipe out any popular challenges to capitalism, to support the existing structures of class relations.

For most of the postwar period, there were nationalist-statist challenges, especially from below, to the free rein of capital. They unquestionably were met by the most brutal US force, the most naked expressions of US domination. Although within the core there was US hegemony, outside of it there was dominance. But, with the fall of the Soviet Union, and China and Vietnam taking the capitalist road, and the defeat of national liberation movements in places like southern Africa and Central America, resistance to capital in the developing world was very much weakened, at least for the time being.

So, today, the governments and elites not only of western and eastern Europe, Japan and South Korea, but also Brazil, India and China — most any place you can name — would prefer the continuation of US hegemony. US hegemony will fall not because of the rise of a another power capable of contending for world domination.

Above all, China prefers US hegemony. The US is not planning to attack China and, until now, the US has kept its market wide open to Chinese exports. With the US providing the role of world policeman and insuring ever freer trade and capital movements, China has been allowed to compete in terms of cost of production, on an equal playing field, and this has been incredibly beneficial to China — it couldn’t be better.

Can the US continue its hegemony in the current crisis? This is a much harder question. But I think that, in the first instance, the answer is yes. The world’s elites want more than anything to sustain the current globalising order, and the US is key to that. None of the world’s elites are trying to exploit the crisis and the United States’ enormous economic problems, to challenge US hegemony.

China keeps saying, “We’re not going to continue to pay for the US to continue its profligate ways», referring to the manner China covered record-breaking US current account deficits during the past decade and to the titanic US budget deficits now being created. But, do you think China has now cut the US off? Not at all. China is still pouring as much money as it can into the US to try to keep the US economy going, so that China can keep developing the way it did.

But, of course what is desired is not always possible. The depth of the Chinese crisis may be so great that it can no longer afford to finance US deficits. Or, the assumption of ever greater US deficits and printing of money by the Federal Reserve could lead to the collapse of the dollar, detonating true catastrophe. In either case, all bets are off. If those things happened, there would have to be a construction of a new order. But, under conditions of deep crisis that would be extremely difficult. Indeed, under such conditions, the US, as well as other states, could easily turn to protection, nationalism, and even war.

I think, as of this moment, the elites of the world still are trying to avoid this — they are not ready for it. What they want to is to keep markets open, keep trade open. This is because they understand that the last time states resorted to protectionism to solve the problem was at the time of the Great Depression, and this made the depression way worse, because in effect, when some states started to protect, everybody moved to protection, and the world market closed down. Next, of course, came militarism and war.

The closing of world markets would obviously be disastrous today, so elites and governments are doing their very best to prevent a protectionist, statist, nationalist, militarist outcome. But politics is not just an expression of what the elites want, and what elites want changes over time. Elites are, moreover, generally divided and politics has autonomy. So, for example, it can hardly be ruled out that, if the crisis gets very bad — which would not at this point be a big surprise — you would see a return of far-right politics, a politics of protectionism, militarism, anti-immigration, nationalism. This sort of politics not only could have broad popular appeal. Growing sections of business might find it the only way out, as they see their markets collapse, the system in depression, see a need for protection from competition and state subsidies of demand by way of military spending.

This was, of course, the response that prevailed in much of Europe and Japan during the crisis of the interwar period. Today, the right wing is on its heels, because of the failures of the Bush administration and because of the crisis. But, if the Obama administration is unable to counter the economic collapse, the right could easily come back, especially because the Democrats are really offering no ideological alternative.

You spoke about a potential crisis in China. What do you think of the current state of Chinese economy?

I think the Chinese crisis is going to be a lot worse than people expect, and this is for two main reasons. The first is that the US crisis, and the global crisis more generally, is much more serious than people expected, and in the last analysis, the fate of the Chinese economy is inextricably dependent on the fate of the US economy, the global economy.

This is not only because China has depended to such a great extent on exports to the US market. It is also because most of the rest of the world is also so dependent on the US, and that especially includes Europe. If I’m not mistaken, Europe recently became China’s biggest export market. But, as the crisis originating in the US brings down Europe, Europe’s market for Chinese goods will also contract. So, the situation for China is much worse than what people expect, because the economic crisis is much worse than people expected.

Second, in people’s enthusiasm for what has been China’s truly a spectacular economic growth, they have ignored the role of bubbles in driving the China’s economy. China has grown, basically by way of exports, and particularly a growing trade surplus with the US. Because of this surplus, the Chinese government has had to take political steps to keep the Chinese currency down and Chinese manufacturing competitive. Specifically, it has bought up US dollar-denominated assets on a titanic scale by printing titanic amounts of the renminbi, the Chinese currency. But the result has been to inject huge amounts of money into the Chinese economy, making for ever easier credit over a long period.

On the one hand, enterprises and local governments have used this easy credit to finance massive investment. But, this has made for ever greater overcapacity. On the other hand, they have used the easy credit to buy land, houses, shares and other sorts of financial assets. But this has made for massive asset price bubbles, which have played a part, as in the US, in allowing for more borrowing and spending. As the Chinese bubbles burst, the depth of the overcapacity will be made clear. As the Chinese bubbles burst, you will also have, as across much of the rest of the world, a huge hit to consumer demand and disruptive financial crisis.

So, the bottom line is, the Chinese crisis is very serious, and could make the global crisis much more severe.

So you think the capitalist logic of overproduction is also applied to China?

Yes, just like in South Korea and much of East Asia in later the 1990s. It’s not that dissimilar. The only thing that hasn’t happened yet is the kind of revaluation of the currency that really killed the South Korean manufacturing expansion. The Chinese government is doing everything to avoid that.

Then you do not agree with the characterisation of Chinese society as a kind of «non-capitalist market economy»?

Not at all.

So you think China is currently capitalist?

I think it’s fully capitalist. You might say that China had a market non-capitalist economy maybe through the 1980s, when it had very impressive growth by means of the town and village enterprises. The town and village enterprises were publicly owned, owned by local governments, but operated on a market basis. That economic form, you might say, initiated the transition to capitalism. So perhaps up to maybe the early 1990s, it was still a kind of non-capitalist market society, especially because there was still such a big industrial sector owned and planned by the central state. But, from that point on, there was a transition to capitalism, which has certainly by now been completed.

What do you think of the severity of the coming South Korean economic crisis? Do you think it could be more severe than the IMF crisis of 1997-1998? In order to cope with the coming crisis, the Lee Myung-bak government is now reviving Park Chung-Hee style state-led investment for the construction of huge social infrastructure, especially Korean peninsula’s «Great Canal’’, while copying Obama’s green-growth policies. However, Lee Myung-bak’s government still tries to stick to the neoliberal deregulation policies of the post-1997 crisis period, especially by turning to the US-Korea Free Trade Agreement. You might call this a hybrid approach, combining what seems to be an anachronist return to a Park Chung-Hee style state-led method of development with contemporary neoliberalism. Will it be effective in combating or alleviating the coming crisis?

I’m doubtful that it will be effective. This is not necessarily because it represents a throwback to Park’s state-led organised capitalism or because it embraces neoliberalism. It is because, whatever its internal form, it continues to depend on globalisation at a time when the global crisis is bringing about an extraordinary contraction of the world market.

We were just talking about China, and I was arguing that China is likely to be in serious trouble. But, China has low wages, potentially a huge domestic market, so over time it could conceivably have a better shot than South Korea of confronting the crisis, though I’m far from sure about this.

South Korea, I think, will be hard hit. It was hard hit in 1997-1998, but was saved by the US stockmarket bubble and the resulting growth of US borrowing, spending and imports. But, when the US stockmarket bubble burst in 2000-2002, South Korea went into what promised to be an ever more serious crisis than 1997-1998. Nevertheless, the US housing bubble came to the rescue of South Korea during the recent period. But, now the US bubble, the second US bubble, has collapsed, and there’s no third bubble to get South Korea out of the current crisis. It’s not necessarily because South Korea is doing the wrong thing. It’s because I don’t think there’s going to be an easy way out for any part of what has become a truly global, interdependent capitalist system.

So what you are saying is that external environment is far worse than ever before?

That’s the main point.

What then are the urgent tasks of progressives in South Korea? South Korean progressives are very critical of Lee Myung-bak. They usually support the growth of the welfare state and redistribution of income as an alternative to Lee’s project of investing in Canal construction, of big social overhead capital. This is the hot issue in South Korean society today. South Korean progressives point out that although Lee Myung-bak talks about green growth, his construction project would destroy whole environments. Do you agree with them?

Of course, we should oppose such ecologically disastrous projects.

Do you think that building a Swedish-type welfare state would be the reasonable strategy for South Korean progressives in the midst of the economic crisis?

I think the most important thing South Korean progressives could do would be to restrengthen the organisations of Korean labour. Only by rebuilding the South Korean working-class movement could the left build the power that it needs to win whatever demands it is advocating. The only way that working people can really develop their power is through building new organisations in the course of struggle and, it’s only in the course of struggle, that they are likely to come to a progressive politics, or indeed decide what a progressive politics actually should be at this moment.

I think the best way to forge a left political response today is to help the people most affected to gain the organisation and power to decide what’s collectively in their interests. So, rather than try to figure out now, from above in a technocratic way, what’s the best answer, the key for the left is to catalyse the reconstitution of the power of working people.

The South Korean labour movement has obviously been weakened a great deal since the crisis of 1997-1998. At a minimum, the priority for progressives is to do what they can to improve the environment for labour organising, for restrengthening the trade unions right now.

That goes for everywhere around the world. That’s the key objective. Without the revival of working-class power, the left will quickly find that most issues of government policy are truly academic. I mean if the left is to affect state policy, there must be a change, a big change, in the balance of class power.

Do you expect that there will be an opening for progressives in a world with recent failures of neoliberalism?

The defeat of neoliberalism is definitely creating major opportunities that the left did not have before. Neoliberalism never much appealed to large parts of the population. Working people never identified with free markets, free finance and all that. But I think that large sections of the population were convinced that this was the only alternative, they were convinced of TINA [there is no alternative]. But, now the crisis has revealed the total bankruptcy of the neoliberal mode of economic organisation, and you can already see the change.

It has been very powerfully manifested in the opposition by US working people to the bail-outs for the banks and financial sector. What they are saying today is that, “We are told that saving the financial institutions, the financial markets, is the key to restoring the economy, prosperity. But we don’t believe it. We don’t want any more of money going to these people who are just robbing us.” So there is a big vacuum ideologically. Thus there is a big opening for left ideas.

The problem is that there is very little organisation of working people, let alone any political expression. So one can say there is this very big opportunity created by the change in the political environment, or the ideological climate, but that by itself is not going to provide a progressive outcome. So, again, the top priority for progressives — for any left activists — where they should be active is in trying to revive the organisations of working people.

Without the re-creation of working class power, few progressive gains will be possible, and the only way to recreate that power is by way of mobilisation for direct action. Only through working people taking action, collectively and en masse, will they be able to create the organisation and amass the power necessary to provide the social basis, so to speak, for a transformation of their own consciousness, for political radicalisation.

The crisis of the European Union and the failure of its ‘salvation plans’

The crisis of the European Union and the failure of its ‘salvation plans’

Stavros D. Mavroudeas
Dept. of Economics
University of Macedonia

I. The crisis of European imperialist integration

The year 2011 (and as it seems today quite probable the 2012 also) was marked by the crisis of one of the main international pillars of capitalism: the European Union (EU). What is usually described as a crisis of the Eurozone (strictly speaking the European Monetary Union – EMU) is in fact a crisis of the whole EU edifice system, where EMU is its most avant-gardist structure.

The European integration was one of the most ambitious projects of the 20th century, as Europe’s bourgeoisies tried to form a unified imperialist bloc in the very area of the globe where capitalism was born predominantly in the form of nation-state and where conflicts between national capitalisms took their most brutal forms. In fact, behind the facade of a common European identity, etc. is an imperialist pyramidal structure. On top there are a handful of advanced and strong hegemonic capitalist economies (which have similar structures and are closely linked but never lose their separate national identities). At the intermediate level there are several less robust and less advanced capitalist economies. Finally, the base of the pyramid consists of the countries of the so-called ‘euro-periphery’, i.e. weaker economies. This pyramidal bloc dominates other less developed economies and areas and competes with the other major international poles (most notably the US and the Pacific Basin). But imperialist relations exist also within the European bloc and between its different levels. Imperialist exploitation takes place through the transfer of wealth from weaker to stronger economies.

This project of the European imperialist integration passed through several phases and faced several critical moments (failures of the Common Agricultural Policy and the European Monetary System etc.). Each time it surpassed them through a headlong rush that deepened linkages and the integration process while at the same time ignoring problems and contradictions. It seems that the current economic crisis – that erupted in 2007 – puts an end to this game. It brings to the fore its inherent contradictions in a way that no headlong rush can no longer cope.

II. Understanding the EU crisis

There are two basic mainstream explanations of the current EU crisis. According to the first – derived mainly from EU’s hegemonic top – the European integration has not structural defaults and its problems are basically policy-driven. That is, countries of its lower tier (the PIGS – Portugal, Ireland, Greece and Spain) followed imprudent economic policies by ‘consuming more than they could afford’ (particularly through excessive wage increases); in contrast to their ‘Protestant’ and temperate upper tiers’ ‘partners’. This ‘party’ was supported by fiscal deficits which were financed by external borrowing (facilitated by the low borrowing costs that the euro offered them). By surpassing every limit these imprudent countries were led to extravagant indebtedness which usually took the form of the twin deficits (fiscal deficit and external indebtedness). But PIGS problems threaten to ‘contaminate’ the healthy upper tiers and endanger the whole EU edifice. So their prudent ‘partners’ must come to their rescue through lending schemes but at the same time impose them strict austerity and privatization programs and effectively turning them into economic protectorates for their own sake.

The second mainstream interpretation – stemming largely from the US and England, its closest European ally – recognizes some structural problems in the European integration structure; namely the fact that it is not an optimum currency area. In Marxist terms, this means that the Eurozone is composed of very different economies (i.e. it is riddled by disproportionalities) that have been squeezed into the straitjacket of a single currency (the euro). The latter pertains to some of these economies but not to others. This uneven and dysfunctional structure is prone to problems particularly in times of economic crises that hit differentially its countries-members. To put it simply, economic crises exacerbate the inherent disproportionalities and uneven development levels of the Euroland because they affect dissimilarly its constituent parts. The solution is either the Eurozone evolves into a full economic union (i.e. with fiscal integration and hence wealth transfers from the richest to the poorest in order to balance its disproportionalities) or follows a path of controlled disintegration that does not left it in tatters. The latter because while the U.S. wants to eliminate the threat by the EU against the global hegemony, but do not want an uncontrolled collapse of the EU will create a strategic vacuum in Europe and will likely lead to a reordering of international alliances (e.g. a partnership between the German and Russian bourgeoisies).

Both interpretations are characteristic of the political voluntarism and the apologetic myopia of bourgeois theory. Above all, both interpretations ignore the role of the current economic crisis. Bourgeois theory not only failed utterly to predict the current economic crisis but, once the latter erupted, it hurried to pronounce it as a mere financial crisis. Thus it ignored – similarly to its radical relatives of the financialisation explanation) – the deep roots of the crisis in the very productive structure of capitalism. Put it in a nutshell, bourgeois theory considered the crisis as a chance outcome of wrong actions (primarily financial greed) and not as a structural outcome of the operation-as-usual of the capitalist system. Moreover, it hurried to announce its end by 2011 after the coordinated actions of capitalist states. Of course, today it already fears that this announcement might be proved mere wishful thinking since a ‘double dip’ is nowadays widely expected.

A Marxist interpretation of the current EU crisis should start right from the economic crisis that erupted in 2007-8 (the first great capitalist crisis of the 21st century). The current economic crisis is the consequence of the 1973 structural crisis – which required a radical restructuring of the ‘internal architecture’ of the capitalist system – and the failure of successive waves of capitalist restructuring that followed to create such a new and functional architecture. These capitalist restructuring waves achieved only partially to reverse the declining profit rate and to alleviate the overaccumulation of capital. Especially the last wave, neoliberalism, led to a surge in the internationalization of capital (the so-called ‘globalization’). Once this started faltering it resorted to the extensive use of fictitious capital in conjunction with credit money (the so-called ‘financialization’). This deus-ex-machina managed to postpone the eruption of the crisis but, at the same time, amplified further the problem of capital overaccumulation of capital. As soon as the profitability of productive capital – under the auspices of which surplus-value (and thus total profit) is generated – started tattering crisis re-emerged in all its glory. ‘Financialisation’ gave only a temporary respite to the crisis of profitability but at a very high cost. Namely, it increased significantly the portion of surplus-value extracted by productive capital but accruing to money capital. This aggravated further the falling profitability of productive capital and set the whole house on fire.

For surpassing the crisis capitalist states abandoned hastily their neoliberal credos and resorted massively to state intervention in order to support capitalist profitability. This subsidization of capital accumulation and profit from public funds boosted the usually pre-existing fiscal deficits. Most countries in order to cover these deficits resorted to international borrowing leading to the skyrocketing of external debt. As fears of collapse (the ‘return of the crisis’ and the double dip) increased, this led in the case of several countries to a dramatic increase of borrowing. As a result many countries are flirting with default.

The economic crisis has another crucial repercussion. It aggravates international antagonisms and conflicts, particularly between the major imperialist powers. Each of the major imperialist powers attempts to pass the burden of the crisis on other countries. Here the EU has sought to make a sleigh of hands. With the outbreak of crisis, the U.S. adopted a policy mix characterized by (a) an expansionary fiscal policy and (b) a very loose monetary policy (interest rates to almost zero and successive Quantitative Easing programs). A similar route was adopted by several other economies and, most significantly, China. The latter implemented an expansionary fiscal policy but not a very loose monetary policy (China has no problem of funding since it has plenty of funds). By contrast, the EU has followed a policy mix of (a) a tight fiscal policy and (b) tighter monetary policy (e.g. interest rate cuts were slower and smaller than the FED). This meant that the U.S. and China ‘inflate’ their economies to address the immediate danger of the crisis but also flirt with the perils of a bursting of ‘bubble’ which will rock their international position. On the other hand, the EU seeks to exploit the ‘bubbles’ of its competitors (by selling in their markets) while house-keeping its own economy and of course not providing similar facilities to its competitors. In a telling recent comment (Wall Street Journal, 25/1/2012) Volker Treier, chief economist at Germany’s chambers of commerce declared that Germany’s economy (which accounts for 30% of the eurozone) has benefited from strong growth in emerging markets such as China and a recovering U.S. economy.
Simultaneously, the EU initiated a process of ‘internal chinezation’ by pushing the euro-periphery (particularly the PIGS) into the debt trap. That is, the hegemonic European capitalisms fabricated the explosion of the foreign debt of the PIGS (by manipulating statistics, rumor spreading and calculated attacks). This already led three of them (Greece, Ireland and Portugal) into the straitjackets of the EU-ECB-IMF Memoranda and their austerity programs. Through these Memoranda the euro-peripheral countries are being drawn in a recession spiral accompanied by drastic reductions of wages and rapid deterioration of working relations to the point that they tend towards those of the Chinese economy. In other words, the euro-core is attempting to create its own internal ‘China’. This move does not leave unaffected the bourgeoisies of those euro-periphery countries. They too have to take considerable pain since the Memoranda lead to defaults and falling valuations of enterprises and properties. In a nutshell, these euro-periphery capitalisms are falling back within the international division of labor and are losing their economic sovereignty.

But this EU plan is too cunning to come true. The other major global imperialist poles do not permit the EU to play on their backs. So – especially through the supposedly anonymous ‘markets’ and the rating agencies (two basic tools crucially influenced by the U.S.) – the debt crisis of the euro-periphery was transformed into a debt crisis of the whole EU and as the crisis of the euro. What began as a controlled fire within firewall zones became an uncontrollable fire. Thus, the other global imperialist poles push the EU to ‘inflate’ its economy – both through debt (eurobonds, etc.), but mainly through a European Quantitative Easing policy (especially by printing money). Of course this would put the tombstone on the dreams of a global European imperialist hegemony and will leave the European imperialist pole behind its key competitors. For this reason Germany – having already made in the past (during the SPD-Greens Schroeder administration) its own ‘internal chinezation’ by reducing wage costs and extending flexible labor relations – resists vehemently this prospect.

III. The failure of the successive EU ‘salvation plans’

Once the EU crisis came to the forefront, the European bourgeoisies (headed by the euro-core countries) made several attempts to surpass it. However, all subsequent EU ‘salvation plans’ (including the last one of the December 9th 2011) have been blown apart because of ‘the markets’ distrust of their effectiveness’.

The first batch of plans aimed to show that the EU will not allow any of its members to default. This was based on two axes. The first was that the hegemonic euro-core lends some money to the beleaguered euro-periphery members but with extreme niggardliness. The channels for this are inter-state loans and the creation of an emergency fund, the European Financial Stability Facility – EFSF (inaugurated on May 9th 2010). It is characteristic of their niggardliness the cynical declaration by the German Finance minister Wolfgang Schaeuble that Germany has not actually paid much money into the rescue funds but has given mainly guarantees. The second axis was the acceleration of the process of ‘internal chinezation’ of the euro-periphery. This plan failed very soon as the ‘pressure of the markets’ tested the limits of these salvation mechanisms (and particularly the adequacy of their funds) and as the Memoranda policies led the euro-periphery countries in a steep recessionary spiral that derailed all their projections.

In the next batch of plans the hegemonic euro-core added some more money to the rescue funds. They beefed up a little the EFSF (e.g. agreement of June 24th 2010) and promised the creation of a permanent bailout facility (the European Stability Mechanism – ESM, in October 2010). But the funding for these mechanisms was based mainly on creating certain ‘toxic products’ (in the form of SPIVs with high leverage) that would be sold to China and Russia (and other emerging economies as well). This, of course, was a stupid joke since in times of extreme ‘toxicity’ in the international system none was stupid enough to buy EU’ ‘toxic products’; particularly in times when the EU is at the eye of the debt cyclone. Hence, despite Sarkozy’s humiliating plea to the Chinese, both China and Russia declined to participate .
The recent plan (December 9th 2011) had no better luck and it is already almost dead. This plan envisages a new euro-treaty for deeper fiscal integration with stricter budget rules and more discipline in economic policy for its members. Its main provisions include:

•    a cap of 0.5% of GDP on members’ annual structural deficits
•    automatic penalties for countries whose public deficit exceeds 3% of GDP
•    enshrining these tighter rules in members’ constitutions
•    bringing forward ESM’s introduction (July 2012)
•    reassessing the adequacy of 500bn-euro limit for the ESM
•    EU contributes up to 200bn euros to the IMF to help debt-stricken eurozone members

This new plan, essentially, promises a long term solution to a pressing short-term problem. It offers the ‘cinezation’ of not only the euro-periphery but also of the euro-core countries. This implies a brutal deterioration of the working and living conditions of the working classes in all European countries and, consequently, aggravates social conflicts with unforeseeable outcomes. This is a very long-run solution since it takes considerable time to take place and its very outcome is far from secure. On the other hand, the EU crisis has a much more short-run problem to face: how to solve the sovereign debt problems in its area. This problem requires immediate answers. Moreover, this new plan has several other strategic problems.

First, It implies a further strengthening of the German hegemony (which even France is increasingly hard to tolerate).

Second, the other global imperialist poles know that this will turn against them and are not willing to allow it to proceed unhindered. The opting-out of the United Kingdom is telling. It probably did not happen without the hidden consent of its transatlantic ally (the US). Moreover, it effectively blocked the way for a new EU treaty and led towards the more copious and problematic path of a treaty between governments.

Third, this process of signing a treaty between states is lengthy and fraught with dangers. It requires constitutional coups d’état at both EU and national levels. As the EU crisis deepens – it has already touched not only Italy but also France – it is far from certain whether social and political upheavals will permit its materialization. Already question marks, legal difficulties and politico-economic reservations have started being voiced among its participants.
For all these reasons the ‘Markets Anonymous’ gave already the thumbs down sign to the last plan. In particular, both the US and China are pushing the EU towards the short-term solution of an EU Quantitative Easing. That is why the EU prepares for a new conference and probably another ‘salvation plan’ (at the end of January 2012). But already the ECB is increasingly forced towards a form of mild Quantitative Easing by aggressively buying – or funding the buying – of member-states’ bonds. This is done – at least for the time being – selectively (for example in recent Italian auctions) but with increasing rhythms.

Stavros D. Mavroudeas is an associate professor in the Department of Economics, University of Macedonia, Greece. 


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