The Eurozone Crisis and the Silence of Social Democracy

By Jon Bloomfield
Social Europe Journal
14/11/2011 

For the last eighteen months Europe has been the epi-centre of economic attention. The world’s largest single market has proved unable to tackle an initial little local difficulty in Greece, one of its smallest economies. The institutions of the EU and its senior politicians have dithered as the crisis has snowballed. As the people of Greece have resisted and protests have spread to Spain and elsewhere, the political response has always been slow, confused and mired in monetarist orthodoxy. Within all the drama one voice has been noticeably absent: that of the mainstream European Left. Social democracy has been silent. Why?

At the end of the 1990s thirteen of the then fifteen members of the EU had governments of the Left. Many of these, most notably the British, bought wholesale into the Clinton Third Way. They were deceived by the easy, early fruits of globalisation arising from the computer revolution and the sudden opening of the ex-socialist economies of China, Russia and Eastern Europe to world markets. Others, such as the Spanish and Portuguese socialists, the Italian Left as well as the German SPD, accepted the neo-classical orthodoxies of the Maastricht Treaty and the European Central Bank (ECB) as they embarked on the single currency project.

The crash of 2008-9 revealed the limitations of this approach. Firstly, this model of financial, de-regulated globalisation was unstable. It did not end ‘boom and bust.’ Secondly, it promoted ever larger inequalities. Thirdly, the world did not follow the neo-conservative dream of American hegemony but instead was becoming increasingly multi-polar. Fourthly, to exert any control on this turbo-capitalism, you have to be big. The EU’s Single Market which with enlargement from Central and Eastern Europe had grown to 500 million people has the potential to be a player in this globalised economy, in a way that European countries acting on their own cannot.

European social democracy has not grasped these realities, which mean that markets must be controlled and their regulation can only be done at a European level. Throughout the 20th century social democrats across Europe had won concessions at national level for workers and citizens. It was here that they forced compromises on business and secured social gains on pensions, wages, health and welfare provisions. It was a settlement that mainstream Christian Democracy accepted after World War Two. Globalisation has broken that hinge economically, while Thatcherism and neo-liberalism more generally have led the political assault. Currently, across Europe, they have turned a crisis caused by reckless financial globalisation into a crisis of government revenues and demanded a policy of austerity. The European Left has stood open-mouthed and paralysed in response.

What are the options? The first which has been basically followed by the Spanish, Portuguese and Greek Left in government is to accept the neo-liberal story and pursue an austerity course. The consequences are dramatic: social democratic governments confront both the weakest sections of the population and their own supporters with predictable electoral consequences. Here and elsewhere the acquiescence of the Left to monetarist orthodoxy opens up political space for the xenophobic right. The second option is to argue that the game is up for Europe and to accept in the words of Guardian commentator Martin Kettle that “the nationalist right and the global bond markets have won. The internationalist social and Christian democrats have lost.” (Guardian 23 June 2011). That defeatism is pervasive in Labour’s ranks – Blue Labour as well as New Labour.

Neither option makes sense for social democracy. Instead it should do what it has traditionally attempted: adapt to new terrain and come up with realistic programmes for social advance. On both the economy and the environment that means thinking and organising at the European level. The core story is fairly clear.

Firstly, the Left should state clearly that the priority for Europe is economic growth, more particularly green growth, not austerity. That means rejecting the orthodoxies of Maastricht, the ECB and the Bundesbank. Instead there should be an immediate cut in ECB interest rates and active intervention to weaken the euro against other currencies. The ‘strong’ euro policy of the ECB penalises all the weaker economies of southern Europe making their exports much more expensive and meeting the conditions of EU and IMF loans all the harder. Secondly, it should support a range of measures which Europeanise the debt problem. Former Prime Ministers Amato and Verhofstadt have proposed a transfer of Maastricht-compliant debt of up to 60 per cent of national gross domestic product to a Union debit account that is not traded. Its interest rates thereby would be decided on a low and long-term basis by Eurozone finance ministers rather than rating agencies. This would strengthen governments and curb the speculators. Thirdly, the ECB should issue Eurobonds, drawing on the basic economic strength of the European currency. This would attract funds from the central banks of the emerging economies and sovereign wealth funds and should be used for an extensive programme of green investments. Fourthly, the Left should strongly back the Commission’s proposal for a financial transactions -’Tobin’-tax both to rein in financial speculation and to raise significant revenues for new European-wide initiatives.

None of this is rocket science. Neither does it require any change to EU treaties. This is absolutely the last thing that anyone should contemplate now. But it does require a coherent challenge to the monetarist mantras of the German financial establishment and the ECB. So far it has been left to economists like Stiglitz, Krugmann and Stuart Holland to suggest alternatives. If social democracy wants to offer Europe-wide solutions, it urgently needs to get its act together. Francois Hollande is well positioned to challenge Sarkozy in France. The SPD-Green alliance is regularly winning regional elections in Germany. Ed Miliband has signalled his break from Blair and neo-liberalism. When are they going to meet up and thrash out a common programme to meet Europe’s crisis?

Jon Bloomfield is co-author with Robin Wilson of ‘Building The Good Society: A New Form of Progressive Politics. (Compass)