The eurocrisis and the crisis of neoliberal Europe: dilemmas for Europe’s transnational corporate elite

The causes of the eurocrisis are as much political as they are economic. In fact I will argue in this essay that we need to understand how the economic and the political aspects are inter-related and how from this perspective, the root causes of the crisis go far deeper and wider than is often acknowledged in the public debate. In particular we need to dispel the popular perception – fed by political leaders of core eurozone countries who have an interest in constructing this myth – that the crisis is borne out of a lack of fiscal discipline on the part of profligate peripheral eurozone countries. Instead, under the guise of worries about rising levels of sovereign (public) debt, a failure of a neoliberal European project driven by a transnational corporate elite in fact lies at the heart of the crisis.

This failure must be seen in the context of a more general failure of the neoliberal global approach to capitalism that has been constructed over the past few decades. The European project has been a regional manifestation of this (albeit with its own institutional and historical particularities). The price of the failure of this project is above all being paid by ordinary European citizens while many of the policies associated with this project are being continued or even strengthened. Yet, it is no longer a project that rests upon a sufficient degree of consent amongst Europe’s population. It has lost its legitimacy. Ultimately this means it is politically unsustainable to continue along this neoliberal path, as well as being economically and environmentally unsustainable.

For Europe, the eurocrisis is an existential crisis that threatens to derail not just monetary union but the whole European integration project that started with the European Coal and Steel Community more than 60 years ago. While it is the lower and middle classes, above all in countries such as Greece, Ireland, Portugal and Spain (but increasingly also throughout Europe), who are currently suffering the most, I will argue that this creates a serious dilemma for Europe’s ruling capitalist elite.

The neoliberal project and Europe’s transnational corporate elite

The European project is at its core a political project, but with a particular socio-economic content which is heavily biased towards the primacy of markets and the freedom of large transnational corporations, or more broadly, transnational capital. As indicated, underlying the eurocrisis is a deeper crisis of this particular European project. This crisis was already developing but has been exacerbated by the current sovereign debt crisis.

Before further examining the nature of this more general crisis, let me briefly elaborate on the socio-economic content of the European project. To characterize this project as neoliberal, we must understand its origins as lying in the global economic crisis of the 1970s. The neoliberal political project and policy programme were formulated as a response to that crisis, aimed at safeguarding the interests of an increasingly transnational capitalist class. This project was intended to open up and deepen markets around the globe – hence the phrase neoliberal globalisation. This marketisation enhanced the mobility and freedom of capital, empowering transnational corporations and the global capitalist elites.

What came to be known as the neoliberal growth model was based on two elements. The first was the globalisation of production and especially the shift of manufacturing to the emerging new centres of growth outside the industrialised North, in particular in East Asia. The second element, which is especially relevant in the context of the eurocrisis, is the globalisation and world-wide liberalisation of finance or more generally the financialisation of global capitalism. This has seen finance become the master rather than the servant of the ‘real’ (productive) economy, and global financial markets and transnational financial investors have become more powerful vis-à-vis more geographically fixed political and social forces.

This financialisation has been characterized by increasingly speculative forms of capital and so is inherently unstable. Although this systemic instability was already building up, it was exposed by the global financial crisis that erupted in 2008 when the global economic system was brought to the brink of complete collapse.

This neoliberal growth model and its concomitant ideology and political project were in theory aimed at promoting ‘free markets’ but in practice were more targeted towards the freedom and power of big corporations. This increasingly came to shape the European integration process from the second half of the 1980s onwards, when there were two major goals: the completion and subsequent deepening of the internal market, and the creation of monetary union. This meant that social, environmental or other possible goals were subordinated, and that any effective deepening of political integration that could have embedded the new European single market within a supranational market-correcting regulatory framework was not pursued.

The result has been a Europe of asymmetrical governance in which transnational capital has been given maximum freedom, making national welfare states compete – and adapt their policies – to attract or retain this mobile capital. What in Eurospeak has come to be known as ‘unfettered competition’ has become part of the European Union’s informal constitution.

On the basis of this supranational constitution, market forces have gained primacy over any democratically legitimated socio-economic order. Critically, the so-called Economic and Monetary Union – in practice merely a monetary union – has through its particular institutional design only reinforced the neoliberal discipline of socio-economic governance that emerged in the 1990s and 2000s. Moreover, the introduction of the single currency has become, as was intended, a cornerstone of the process of financial liberalisation in which money capital gained more freedom than ever; being able to go after any investment opportunity, ever searching for the highest rate of return, while often ignoring or downplaying growing risks.

This neoliberal European project has served the interests of transnationally-mobile capital. Large transnational industrial corporations have benefited from the EU’s large internal market, and from the resulting policy competition between member states to attract business. And the creation of a single financial market was very beneficial for financial institutions and investors. In the process,transnational capital has become the main driving force in shaping this neoliberal project.

This goes beyond the structural economic power of transnational capital (playing off one government against another by threatening to leave and invest elsewhere). The power of transnational capital to set the European agenda and shape European policy-making discourse must above all be understood in terms of the more political role played by a relatively coherent and well organised transnational corporate elite. This elite emerged from the 1980s onwards in tandem with the transnationalisation and globalisation of the European economy. One important vehicle for this elite has been and still is today the European Round Table of Industrialists (ERT), a more or less informal club of around 50 chief executives and chairmen of Europe’s largest corporations who have sought to coordinate their efforts to influence the course of integration.

By acting at this level, these captains of industry, backed up by the structural economic power of the corporations they represent, were able not only to revive and promote the idea of creating the single market in the 1980s, but to go further, successfully shaping the European integration process in a neoliberal mould. This agenda-setting power of European transnational capital, and the neoliberal European project that it promoted, arguably climaxed in the late 1990s and early 2000s with the so-called Lisbon strategy, which set the competitiveness agenda for the European economy, and which was greatly influenced by ideas promoted by the ERT.

The crisis of the neoliberal project and the eurocrisis

What has emerged as a neoliberal programme for European governance struggled from the start to gain and maintain popular legitimacy. This lack of legitimacy exceeds the (institutional) democratic deficit from which the EU arguably suffers, and can be related to the way in which this whole project has been driven, as explained above, by a transnational corporate elite that has above all been serving its own interests. European integration has always been an elite project. But when European integration was mainly limited to trade integration, that was not incompatible with maintaining a certain degree of autonomy for national states and their own national ‘variety of capitalism’. The European project (perceived as contributing to European welfare and stability) could still rest upon a relatively high degree of at least passive consent.

But from the late 1980s and early 1990s onwards, from the creation of the single market and the EMU, European integration has gone beyond trade, directly intervening and seeking to transform the socio-economic order within member states. Simply put, ‘Brussels’ (although we should never forget that this Brussels is also ‘our’ own national governments) has come to interfere with how we at the national level deal with our own welfare state, with our fiscal, social and employment policies, and how we tax and regulate business within our borders. ‘Europe’ has not only become much more intrusive in our daily lives, to such levels that this starts threatening the EU’s democratic legitimacy.

These neoliberal European policies, which do not have any democratic legitimacy, have consequently often been perceived as posing a threat to certain national values and institutions, arguably in part because these policies have also directly contributed to growing inequality and socio-economic insecurity in the name of competitiveness. And in this way, the previous (passive) consent on EU integration has since the end of the 1990s increasingly given way to growing dissent. From rising levels of Euro-scepticism to the rejection of the European Constitution in France and The Netherlands, we have witnessed a deepening crisis over European legitimacy, even before the eurocrisis started threatening to unravel the EU whole project. Even before the current eurocrisis it was becoming clear that the magical Lisbon formula of combining competitiveness (defined in neoliberal terms) with ‘social cohesion’ was not working for most ordinary European citizens. Increased labour market flexibility for instance was not enhancing social security as promised by Lisbon. Obviously, the current crisis has only deepened this pre-existing problem, but both must be seen in relation to the failure of the neoliberal model that has become European policy orthodoxy since Maastricht.

The eurocrisis is not a fiscal crisis but a crisis of the neoliberal financialised capitalism that the same elites identified above have been promoting over the past few decades. Indeed, the Lisbon agenda itself has in many ways been more about further financialisation than about creating ‘more and better jobs’, which was one of its central slogans. If the crisis was really primarily due to a ‘lack of fiscal responsibility’, that is to say, due to governments supposedly running high budget deficits and showing high levels of public debt, then we would have expected not only Greece but also Germany (which was not performing at all well on that score) to have been in trouble before the current crisis broke. On the other hand Spain, and even more so Ireland – both countries which had much lower deficits (and even surpluses) before the financial crisis and which had much lower levels of debt than for instance Germany – would not have been expected to have been hit as hard as they were. In fact, this outcome can only be explained by their overblown financial sector. So when the bubble burst, the state had to come to the rescue through very expensive bailout measures.

Indeed financial markets only really started to worry about Greece (which had arguably held unsustainably high levels of debt for years and years) in the context of the crisis. The eurocrisis, at least in this form, would not have happened without the financial crisis, which in turn would not have happened without the neoliberal financialisation actively promoted by the EU.

The speculative attacks on the bond markets that brought Greece and other weaker eurozone economies to their knees, and which is now creating so much hardship and (hence) social unrest, were only possible because the financial markets had been given a free rein.

At the same time the continued existence of 17 separate national bond markets and the fact that the European Central Bank is not allowed to operate as ‘lender of last resort’, has meant that public authorities do not have many instruments left to contain these market forces.

Finally, the EMU, although nominally an economic union, has not led to convergence but only to even greater divergence, with the more competitive economies such as Germany able to outcompete the rest (almost to the point of destruction). At the same time, the peripheral eurozone economies can no longer use their exchange rate as an instrument to regain competitiveness (i.e. making their currency cheaper and thus promoting their exports).

The current eurocrisis, I have argued, has to be understood in the wider context of the contradictions and limits of the neoliberal European project as constructed over the past few decades. In terms of popular legitimacy, the limits of this project had already been reached before the present crisis. But now it has become all the more difficult to move ahead, not only to solve the eurocrisis in the short to medium term, but also to regenerate the European project in the longer run to make it politically as well as economically and socially (let alone environmentally) sustainable.

In this context, the transnational corporate and political elites that have shaped neoliberal Europe and which are in part responsible for the current mess, find it increasingly difficult to put the European project, that has been so beneficial to them, back on track. As a result they find themselves faced with difficult dilemmas. To at least have a chance of making monetary union work and of saving the single currency in the long term, the structural problems underlying the crisis must be addressed. This could be done in different ways, opting for more or less progressive and socially just solutions. But it most probably cannot be done without creating more of a real economic, including fiscal, union, and by seeking to reduce the current imbalance between creditor and debtor states with their respective high trade surpluses and high trade deficits.

The fiscal union needed is not the version being pushed for by Angela Merkel which is currently going around the different capitals for ratification in the form of a new inter-governmental ‘fiscal pact’. This pact, the so-called Austerity Treaty, based as it is on the false premise that the crisis is all to blame on overspending (corrupt, southern) governments, will only deepen the current crisis inasmuch as, if fully implemented, its überausterity is nothing but a recipe for a depression.

What is needed instead is a European pact to tax and spend, under which transfers between stronger and weaker economies would be possible on the basis of real transnational solidarity in order to absorb the effects of the crises which have affected the Eurozone in uneven ways.

I would also maintain that any durable solution to the crisis in which the single currency is preserved (and of course this is a goal that could be questioned) would need to involve strict re-regulation of the financial markets, preferably at the EU level, which would in effect lead to a much needed ‘definancialisation’ of the European economy. Such a new European project to really take on the finance and banking sectors could undoubtedly count on broad popular support and possibly be a basis for restoring the legitimacy of and enthusiasm for ‘Europe’ in a wider sense. But such a project will of course meet with, and is in fact meeting with the resistance of Europe’s transnational corporate elite, especially of course those sections representing financial capital (see the opposition to even the rather timid proposal for a financial transaction tax).

At the same time, the other steps required, that is a deepening economic and inevitably political union, are not likely to be popular with large sections of Europe’s citizens (and understandably so, given the legitimacy crisis the EU is already facing). Further steps forward on integration would arguably only be possible politically, if at the same time real positive steps were taken to move us beyond the current neoliberal approach to create a Europe in which the needs and interests of most ordinary citizens (rather than of transnational corporations and finance) were central. That is to say, this would go beyond tackling the financial markets, arguably involving transforming the governance of Europe in such a way as to genuinely promote social cohesion and respect the democratically made choices at the national level.

Whether such ‘another Europe’ is possible can be debated. I would say that it is, in spite of all the difficulties of organising mass politics beyond national boundaries. But of course it would mean defeating the transnational elites who have been in the driving seat in recent decades. In other words, while it may be possible to preserve the euro, or more generally to move Europe forward for future generations, this would ultimately have to mean abandoning most if not all of the neoliberal policies that currently characterize European governance. Such a project to restore the primacy of democratic politics is Europe’s only possible way out.