The Life and Time of the European Consolidation State

Since the early 1970s, Wolfgang Streeck argues, “democratic capitalism” has been striving to disavow its oxymoronic nature.1 What the author of Buying Time calls democratic capitalism is a political economy predicated on the conciliation of market competition with the entitlements granted by the outcome of democratic elections and collective bargaining between organized labor and capital owners. Though simultaneously beholden to two divergent guiding principles – merit measured by competitiveness and vested rights defined by social needs – this regime found a semblance of stability during the postwar period, at least in the developed countries of the Western bloc. An expanding welfare State, powerful unions and the commitment of political elites to full employment were the factors that enabled democracy and capitalism to live in relative harmony – for as long as the reconstruction of Europe and Japan generated a robust growth rate.

However, once the conditions under which postwar economies were able to grow rapidly and regularly ceased to exist, the tensions between the respective beneficiaries of capitalist meritocracy and democratic decision-making were quick to mount. Thus, to ward off a full-fledged regime crisis whereby “market justice” and “social justice” would be officially declared incompatible, Wolfgang Streeck explains that the custodians of “democratic capitalism” have endeavored to delay the day of reckoning by successively resorting to three expedients.

At first, Western governments sought to preserve full employment as their overarching macroeconomic objective without interfering with the nominal wage increases obtained by collective bargaining: consequently, they dealt with dwindling growth by letting the rate of inflation rise steadily. Insofar as wage earners kept their jobs and had their income pegged to the prices of goods and services, the stagnation of the economy largely spared them. Capital owners, on the other hand, saw the value of their assets falter. At the same time, by the mid-1970s, the dismantling of the Bretton Woods regime of fixed exchange rates and the deregulation of oil prices provided them with fresh speculative alternatives to a low-yielding “real” economy. Thus, to prompt a change of course in monetary and fiscal policy, they raised the threat of an investment strike that would have made stagflation unmanageable – at least within the framework of a capitalist democracy.

The second phase of what Wolfgang Streeck describes as the “delayed crisis of democratic capitalism” started in 1979, when Paul Volcker, the newly appointed chairman of the Fed, responded to the grievances of capital owners by pushing interest rates to unprecedented heights – thereby quelling inflation once and for all. The ensuing recession, the author of Buying Time explains, compounded with the responsiveness of neoliberal governments to the calls for tax relief emanating from the business and middle classes, precipitated the morphing of an increasingly disabled “tax state” into a “debt state” whose governing agencies made up for declining fiscal revenues by borrowing an increasingly large share of the resources required to fulfill their missions.

The double context of globalization and financialization helped sustain the debt state for about a decade: institutional investors were eager to take in large amounts of putatively safe treasury bills issued by the richest countries, the latter’s rulers used their borrowed funds to ward off social unrest – which could have resulted from stagnating wages and precarious jobs – and the propertied classes understood that a ballooning public debt shielded them from higher taxes. However, by the turn of the 1990s, the size of budget deficits was such that the confidence of financial markets in the solvency of the debt state could no longer be counted on.

Initiated, in the United States, by the Clinton administration, the third expedient put in place in order to prevent the demise of democratic capitalism still involved debt. While elected officials promised and to some extent managed to consolidate their own budgets without raising taxes – thereby restoring the trust of investors in the quality of their bonds – they also succeeded in maintaining the acquiescence of the salaried classes – by virtue of giving them an unprecedented access to commercial credit. Thanks to the prowess and deregulation of financial engineering, private citizens were enticed to acquire with borrowed money what shrinking public services no longer provided – housing, pensions, health care, higher education. Though hampered, especially in the United States, by George W. Bush’s tax cuts and military expenditures, this early version of what Wolfgang Streeck designates as a “consolidation state” remained in place until the financial crisis of 2008 emphatically revealed its fault lines.

Dramatic as it turned out to be, however, the ensuing Great Recession did not act as a wake-up call for the leaders of the developed world. If the return of Keynesian wisdom – and thus of a revamped tax state – was briefly evoked at the outset of the downturn, what public intervention actually entailed was a swift, albeit brief, come back of the debt state – in the form of bailouts aimed at saving the financial institutions that were deemed too big to fail. Yet, as Wolfgang Streeck further recounts, the success of this rescue operation resulted in considerable budget deficits, and freshly salvaged investors were quick to express concern about the sustainability of the public debts to which they owed their survival. Thus, by 2010, the debt state gave way, once again, to a consolidation state.

Despite claims to the contrary, fiscal responsibility is not the chief concern of consolidators. While they certainly publicize their intention of balancing budgets, the purpose of their efforts is not to render the countries they govern less dependent on debt but to make sure that creditors will continue to lend them the funds they need at a reasonable rate. In short, consolidation is about sustaining the attractiveness of the State in the eyes of investors: credit, rather than self-sufficiency, is the name of the game.

Now, to retain the creditworthiness of the territory under their administration, governments are bound to give precedence to the tastes of the lenders who ensure their solvency over the wishes of the citizens who still vote them into office: in Wolfgang Streeck’s terms, the will of the “State’s people” (Staatsvolk) must be subordinated to the exigencies of the “financial markets’ people” (Marktsvolk). Thus, to the extent that postwar economic growth is no longer replicable, consolidation is bound to expose democratic capitalism to a peril that is symmetrical to, yet equally as lethal as, accelerating inflation: whereas runaway inflation amounted to a democratic corrosion of the conditions under which capital remains profitable for its private owners, consolidation gradually reduces democracy to an electoral competition between hardly distinguishable teams of consolidators.

The consolidation state, Wolfgang Streeck makes clear, is by now pervasive, at least throughout the developed world. Yet there are two notable specificities to its European variety. On the one hand, within the EU, and even more emphatically the Eurozone, the mechanisms through which democratic life is subordinated to the confidence-building measures demanded by investors are hard-wired in the institutions purported to deliver Europe’s unity – be it a Central Bank unaccountable to voters and chiefly concerned with price stability or a Treaty limiting the ability of national governments to run a deficit, regardless of circumstances. To put it bluntly, unification and consolidation have become de facto synonyms in the European context. On the other hand, however, European citizens, except in post-communist countries, are arguably more attached to the protective and redistributive features of the erstwhile tax state than their counterparts in the rest of the developed world.

The complex and potentially explosive entwinement between the resistances to austerity politics and to supranational agencies in European societies forms the background of the questions we have addressed to Wolfgang Streeck, regarding the near future of the European consolidation state.

Symbol of European Union in Frankfurt, Germany
Golden stars of the EU flag decorate the euro symbol in Frankfurt, Germany.

MF: In your recent work, you describe how liberal democracies have gradually become what you call “Consolidation States,” a regime whose representatives make it their priority to sustain the value of their public debt in the eyes of investors. The champions of consolidation like to present themselves as traditional and virtuous “fiscal hawks,” that seek to reduce the burden represented by an excessive public debt in order to free their constituents from the hold of financial markets. What you show, however, is that their actual objective is not to alleviate the pressure exercised by bondholders but to deserve their undying confidence.

How are we to decipher the discrepancy between what consolidators actually do and the ways in which they legitimize their actions?

WS: Governments find it hard to tell their voters that the claims of financial investors must take precedence over those of citizens, for example, pensioners or patients. Appeal to old-fashioned bourgeois virtues such as thrift and financial prudence is less risky; so is the promise of fiscal autonomy that is being restored as a result of consolidation. The truth is, of course, that it is not political autonomy that is the objective of consolidation but shrinkage of the public sector, accompanied by extensive privatization of social insurance and public services, including even the military. The smaller the public sector, the more confident financial investors can be that their capital will be repayable and profitable. Typically spending cuts tend to come together with tax cuts for corporations and the rich, restoring the deficit and necessitating further spending cuts.

MF: Elected officials, you explain, are aware that giving precedence to the attractiveness of their countries in the eyes of bondholders is likely to damage their popularity among voters. Thus, in order to prevent a vote of diffidence against their agenda, they endeavor to eschew the political incidence of the discontent they generate by wresting the management of “the economy” from democratic scrutiny. Now, while demonstrating how the pursuit of consolidation disables democracies throughout the developed world, you also insist on the specificities of the emerging “European Consolidation State.” 

What are the latter’s distinctive features in your view, and how can it be compared and contrasted with the state of consolidation in the United States? 

WS: The European Consolidation State is vested in a supranational institution, called European Monetary Union. It comprises several national states and functions as a mutual surveillance and hierarchical enforcement machinery. Being supranational, it is even further removed from democratic control than the national governments. This is needed because the idea of a social welfare state is more deeply entrenched in Europe than in the United States. The U.S. doesn’t need supranational control to reassure “the markets” since consolidation at the expense of citizens in favor of creditors is ideologically uncontested there. Moreover, the United States, unlike European countries, commands the world’s reserve currency, which means that it can essentially print unlimited amounts of money to service its debt and creditors are happy to sit on a mountain of dollars (or can be forced to do so to the extent that their “national security” depends on American aircraft carriers). The U.S. is also the most important safe haven for global capital and can pay for its raw materials in its own currency.

MF: You argue that the strictures of the Economic Monetary Union (EMU) endow the few northern European countries whose public finances are consolidated – because their economic model has long been export-driven and inflation-averse – with the power to force their own choices and practices onto their partners – in particular those whose growth model is traditionally driven by domestic demand and a sizable public sector. In other words, under the guise of European integration, the architecture of the common currency institutes both a de facto hierarchy and a cultural homogeneity, whereby the representatives of member-states running a large deficit are coerced into imitating the ways of the governments whose budgets are balanced, even if such recipes turn out to be counterproductive – as is the case for Greece, where measures meant to consolidate the Greek public finances have in fact considerably increased the country’s public debt.

Do you think that, in an environment where investors’ mobility is unhampered, replacing the euro by national currencies will allow for a return to the “variety of capitalisms” of yore? Under current circumstances, aren’t financial markets capable of undermining the Keynesian proclivities of a government, regardless of whether it belongs to or defects from the Eurozone?

WS: There is no ideal currency regime in a capitalist world in turmoil. In my view, reform of the euro system must first and foremost provide for breathing space for the Mediterranean countries, breaking the stranglehold of Germany and the neoliberal fanatics at the European Central Bank (ECB) over their economies. Also, no full return to national currencies would be needed, only some degree of flexibility for individual countries concerning exchange rates. Right now we have a de facto gold standard in Europe, and it has been well-known since the 1930s that a gold standard is incompatible with democracy. Something like the original Bretton Woods regime with fixed but adjustable exchange rates would help. The euro could continue to exist, but for some or all member countries as a reference currency against which they could revalue or devalue, in a politically agreed-upon process.2 It was a shock to me that the Greeks had no Plan B when they were forced to accept their third “support package.” So they were unable to make something out of the Schäuble proposal of a temporary exit to readjust exchange rates. There is as a matter of fact no case of a country successfully restoring its competitiveness by deflating its economy without flanking by a downward adjustment of its currency. Incidentally, small and medium-sized European countries like Sweden, Denmark, Switzerland and Norway are doing a lot better than comparable EMU countries and note that they have not been attacked by speculation (the Soros robbery of the Bank of England is now almost a quarter century past).

MF: Though briefly disabled by the financial collapse of 2008, the European Consolidation State has successively weathered the Great Recession and regained its footing during the ensuing sovereign debt crisis. Yet, entrenched as it undeniably is, a number of recent events may prove challenging to the current regime of financial consolidation in the Eurozone. Our next questions pertain to these possible disruptions and, more generally, to the near future of the ongoing crisis of democratic capitalism in Europe.

The standoff between the first Syriza government and the representatives of Greece’s creditors ultimately concluded with Alexis Tsipras’ surrender to the austerity measures outlined in the “Memorandum of Understanding.” Yet, the various promoters of this outcome hardly agree on what should happen next. According to some – the IMF, the European Commission and the ECB – the second Syriza government will not be able to make good on its commitments unless it is properly sponsored – by the ECB’s “quantitative easing” program but also by a substantive “haircut.” Though equally convinced that Athens will not meet the objectives set by the Memorandum, others, such as the German finance minister and the chairman of the Bundesbank, believe that the only reasonable solution is not debt relief but Greece’s temporary or permanent exit from the Union. 

In your view, how serious is the ostensibly growing divide between these two approaches and, to the extent that the rift persists, which line is more likely to prevail? 

WS: I think the situation is not that simple. There is a lot of cheap talk here, also a lot of “buying time.” Quantitative easing cannot continue forever, and will never be enough to bail out the Italian banks and the Italian state when it comes to the crunch, not to mention the French banks and the French state. (Greece is tiny, and if it weren’t for the potential precedents of a Greek bailout, its debt would long have been absorbed by the rest of Europe. But even the Italians and the French were in the end against a Greek bailout because Renzi and Hollande were afraid of having to tell their voters that in addition to accepting neoliberal labor market “reform,” they would also have to cover the Greek debt owned by Italian and French institutions.) What the ECB is up to can only be guessed at; it is completely insulated from public control, even more than other central banks. The president of the ECB Mario Draghi, by the way, is an old Goldman Sachs hand and a member of the neoliberal Bocconi club. As I said, a Greek exit, temporary or not, if flanked by debt relief and investment programs (on which the Greeks could have insisted while the Germans could ultimately not have let the Greeks starve, or unilaterally declare insolvency), might have been a good start for a reform of a currency system that is increasingly turning out to be ungovernable. Now the misery in the Mediterranean including France will continue, the mood in Europe will sour from year to year and from crisis to crisis, and right-wing nationalist parties will continue to increase their shares in national electorates, eventually also in Germany. (I will never understand why people think the German electorate would accept the German government subsidizing the economies and the public finances of the Mediterranean countries on behalf of BMW and Audi. Most German voters don’t work for them, and otherwise they are exactly like voters in other countries.)

MF: At once the template and the leading component of the European Consolidation State, Germany relies on the performance of its export industry – especially in non-European markets – to maintain its symbolic and material dominance over its European partners. 

How do you assess the significance of the considerable slowdown currently affecting the Chinese economy, but also of the recent scandals shaking the reputation of the German industry, for Germany’s capacity to hold on to its time-honored economic strategy, and thus to remain the role model that the rest of the Eurozone is compelled to emulate?

WS: Honestly I don’t know, and I think nobody knows. Whether the Germans want to “compel” the other Europeans to become global export champions I really doubt; the same holds for “symbolic dominance” or being a “role model.” For the German export industry it’s enough if you buy its products. Put otherwise, in capitalism you want to make profits, not love. It is true, however, that China and the U.S. are ultimately more important than Europe for the German economy, and any slowdown or crisis in China can be a disaster for it (also any lowering of economic inequality in the United States, which would suppress demand for luxury cars). On the question of VW: we will see. Usually corruption has little influence on market shares; see Siemens, or Bank of America.

MF: On August 30th of this year, Angela Merkel declared that, in light of the ongoing influx of people seeking refuge in Europe – but also in light of Europe’s economic capacities and demographic needs – a more welcoming stance on immigration was both morally mandatory and materially auspicious. In the subsequent weeks – and more drastically since terrorist attacks hit Paris, on November 13th – the German Chancellor’s statement has been met with a growingly fierce opposition, from her European partners and even from within her own government. 

Insofar as living conditions in certain regions of the Middle East, Africa, and the Balkans – not to mention the most impoverished countries of the EU – are not likely to improve any time soon, how do you envision that the potential shifts in Europe’s immigration policy will impact the current European consensus on financial consolidation – especially considering that the changes could involve substantial public investments in housing and education so as to accommodate migrants, but also equally massive investments in military equipment and detention camps so as to repel them in the name of the never-ending war on terror? 

WS: This is another complex story. Right now the German government seems, or pretends, to believe they can shoulder the expenses for the new immigrants out of current tax receipts, or in the worst case by rededicating a tax surcharge initially devoted to rebuilding East Germany. Most other countries aren’t taking any refugees at all, or have stopped taking them, so they would have no additional expenses in the first place. Detention camps, as far as I know, are not being planned; but in any case they would be cheap. The latter applies also to additional border police; unlike what Merkel claimed, it is technically not really difficult to close Europe’s Mediterranean border. The Turks would have to do most of the dirty work, and may in return be admitted to the European Union. The military will only be used for some feel-good bombing in Syria, Libya, Iraq, wherever; this, too, will not cost much.

MF: Debates among critics of austerity have centered on whether the EMU should be reformed or dismantled altogether – with either camp claiming that the other’s approach plays into the hands of extreme right nationalists. Yet, what the Greek “crisis” has revealed is twofold: on the one hand, European governing agencies are prepared to do whatever it takes to keep all member-states on the path of perpetual austerity; but on the other hand, even the people who suffer the most from the policies of the Consolidation State seem to fear that leaving the euro would render their condition even more dire.

In light of this apparent deadlock, how do you think anti-austerity parties and social movements will and should – not necessarily the same question – elaborate their platforms in the near future? How are they to argue convincingly that a change of majority in a single country can produce more felicitous effects than what the Syriza experiment eventually delivered?

WS: Austerity is the only common economic and fiscal policy possible as long as member states insist on their economic and fiscal sovereignty. All of them do this, including Greece, and most certainly France. The only exception may be Germany, but only because Germans expect a Europe without national sovereignty to be a German Europe (which is why the governments of the other countries prefer to carry out their neoliberal “reforms” on their own). As far as anti-austerity parties are concerned, the Greek capitulation was a disaster for them, and one of its results was the weak turnout at the recent Spanish election and the disappointing result for Podemos. Tsipras is now loved by the German government, and I can understand why: he has blown it the big way for the European Left. As I said before, as long as we still need national sovereignty in Europe as a protection against German Europeanism (in the same way as we need national sovereignty globally as a protection against American inter-nationalism), the only way forward is a rethinking of the European monetary system, and more generally a departure from the superstate project behind European integration. The formula in the Maastricht treaty, according to which the goal is “an ever closer union among the peoples of Europe,” sounds like a threat to a rapidly growing number of Europeans. If we do not want Marine Le Pen to be President of France sooner or later, we better begin a serious debate on what used to be called the finalité of the European integration project, with the aim of rebuilding Europe from the bottom up as a community of democratic nations, as opposed to a one-size-fits-all Europe constructed top-down and kept together by technocratic agencies like the European Central Bank.

MF: You explain that in a Consolidation State, employers are primarily accountable to their shareholders – to the detriment of other stakeholders, in particular their employees – while national governments give precedence to the demands of the bondholders in possession of their public debt over the wishes and needs of their constituents. Hence the sorry state in which labor unions and left-leaning political parties find themselves. You also signal that one of the major differences between the sovereign power granted to voters (the Staatsvolk) and the control exercised by investors (the Marktvolk) has to do with timing: people vote periodically, whereas financial markets auction bonds continually. 

Arguably decisive in the current subordination of the Staatsvolk to the Marktvolk, this pace imbalance raises the question of the possible paths toward a re-democratization of the polity. In other words, should the critics of consolidation invest their hopes in the restoration of relatively protected nation-states – in order to re-empower the agencies of “periodic” power such as unions and political parties – or should they endeavor to invent their own techniques and institutions of “continual” rating and auctioning power – in order to challenge investors on their own turf?

WS: A good question indeed, on which I have not thought enough. As an initial response, I do not find the two alternatives you mention necessarily mutually exclusive. My concept of democracy is not elitist-bourgeois but popular–proletarian: populist even, in the sense of the American reform politics in the interwar period. This means that any renewal of democratic government must be such that normal people, the famous little men and women in the streets, must be able to understand what political decisions are about and feel invited to add to the public discourse what they believe they need to say. Time-proven instruments “of ‘continual’ rating and auctioning power” that meet this criterion are strikes and demonstrations: the physical showing of political “body mass” in collective actions of protest or support. We need much more of this to break through the fabrications of the PR agencies and the technospeak of governments and central banks. From here on we will have to see.

Recommended citation: Streeck, Wolfgang (interviewed by Michel Feher). “The Life and Time of the European Consolidation State.” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

Imaginaries of German Economic Success: Is the Current Model Sustainable?

Be careful what you wish for – You might get it!

Not so long ago, the British weekly newspaper The Economist (2013) conjured up the imaginary of Germany as a “reluctant hegemon,” calling on the country to take a more decisive political leadership role in Europe. In a similar vein, Martin Wolf argued in the Financial Times (10.12.2014) that Germany “is too powerful and too central to avoid its new destiny. Upon it rests the future of a politically and economic fragile Europe. The time of thinking small is past. Germany is now a big country with big responsibilities. It will be judged by how it lives up to them.” Imaginaries can be thought of as powerful ideational and material roadmaps in so far as they give meaning and shape to the (European) economic field (Sum/Jessop 2015). By invoking the imaginary of a reluctant hegemon, actors construct a narrative about Germany and use it to change its performativity within and across European organizations and institutions. After escaping the previous imaginary of the sick man of Europe in the 1990s, Germany is now seen as the most successful economy in the Eurozone (Scharpf 2015). This imaginary reflects the yearning for a hegemon that can provide foundational principles and overarching meaning in times of economic, political, and identity crises.

Measured against other EU member states, Germany’s recent economic achievements are quite impressive. It has outperformed the Eurozone average growth rate since the second quarter of 2010. Recently released data shows that Germany’s GDP increased by 1.7 percent in 2015, the best performance since 2011 (Tagesschau, 14.1.2016). Germany now has the strongest as well as the biggest economy in Europe with a 4.5 percent unemployment rate in the Q3 2015, leaving other member states of the Eurozone countries far behind with an average unemployment rate of over 10% (except Austria). While many critics accuse Germany of contributing to global macroeconomic imbalances, it continues as the export nation par excellence. According to the International Monetary Fund’s World Economic Outlook Database, German exports accounted for about 40.6 percent of total economic output in 2014.

Whether Germany is a European hegemon and whether other European member states actually want Germany to perform this role (what has become known as the Germanification of Europe) remains a much-contested issue. According to the theory of hegemonic stability in the discipline of international relations, hegemonic powers are essential to provide the norms and principles needed to resolve international coordination problems (Kindleberger 1973). In calling for an altruistic hegemon it is nevertheless worth remembering that hegemons seldom act against their own self-interests (Ruggie 1998) and that they often do so to advance their objectives against other agents in a tactical manner (Lagna 2015). This European question regarding the role and desirability of a hegemon is significantly connected to Germany’s unique discourse around its deficit fetishism (Stiglitz 2016).

In terms of fiscal prudence, CDU Finance Minister Wolfgang Schäuble has achieved a zero deficit target (die schwarze Null) two years in a row (2014 and 2015), which is all the more remarkable given that this has not happened since 1969. Recently released figures show that the German federal government has achieved a budgetary surplus of €12.1 billion for 2015, which is double the amount forecast in November of last year (n-tv, 13.1.2016). Symbolically achieving this target conjures up the imaginary of German fiscal responsibility versus the imaginary of Southern fiscal profligacy, implying that Southern Europe should change its socio-cultural norms and conventions to become more like Germany. As was demonstrated during the Eurozone debt crisis, Germany is the largest creditor country in the Eurozone and thus wields enormous structural and asymmetrical power against debtor countries (Dyson 2010). In other words, Germany’s strong tradition of deficit fetishism functions as an ideational and material roadmap to advance its objectives to institutionalize restrictive fiscal norms across the EU against a Keynesian focus on boosting aggregate demand.

However, Germany’s strength in creating a discursive environment of fiscal norm-setting must be seen against the background of the weakness of other European member states. The French-German axis and its traditional division between the Grand Nation acting as the political player and Germany as the economic leader has given rise to German domination of both fields. Recognizing the shifting power constellation, both Nicolas Sarkozy, former French conservative president, and François Holland, the current socialist president, have accepted this subordinate role – presumably a necessary concession for remaining at the European helm of power. Outside both the Eurozone and the Schengen agreement, Britain is simultaneously distracted with its internal debate on whether to stay in the European Union, and it is a significant fact that it has mostly been uninvolved in the Ukrainian crisis. As a result, Angela Merkel has strengthened her global geopolitical position. Speaking fluent Russian, she has become the most important interloper between the superpowers for finding ways to resolve the Ukrainian conflict. Her very presence demonstrated this during the 2015 Minsk negotiations in Belarus between Russia, Ukraine, Germany and France. Moreover, she has consecutively been cited as one of the most powerful political European leaders by Forbes business magazine. In addition, Time magazine has chosen her as the 2015 Person of the Year for her engagement in resolving the Greek crisis, her moral leadership in the refugee crisis, her commitment to resolving the crisis in the Ukraine, and her resolute solidarity with France in response to the fatal terrorist attacks in Paris during 2015.

This positive German political and economic imaginary was challenged, however, by the Eurozone sovereign debt crisis. Deep ruptures emerged between the northern creditor countries (Germany, Finland, Austria and the Netherlands) and the economically weaker and indebted southern periphery. The standoff between an economically powerful Germany and the economically weaker peripheral countries has been further aggravated by a new East-West refugee rift. Angela Merkel is hailed by many for her moral leadership in opening the German borders, for disregarding the Dublin agreement (the rule that refugees have to seek asylum in countries of their entry point), and for her response to the closure of the Hungarian borders to incoming refugees from the Balkan route in the summer of 2015. At the same time, many Eastern European member states refuse to accept the refugee quotas negotiated by the EU-Commission to settle within their borders. This present rift between EU member states from the East and West is not only a crisis on humanitarian grounds; it is also a huge challenge to the survival of the European Union itself. Even the President of the EU Parliament, Martin Schulz, has voiced his concern that the disintegration of Europe is a real possibility (SpiegelOnline 25.12.2015).

Germany and the EU are thus faced with manifold and multifaceted problems. In what follows, this essay aims to explain the following:  the German success story in the midst of such regional and global turbulences; the issue of whether the German model can be replicated by other member states; and whether this model is sustainable in both the short and long terms. In order to explicate these questions, two different imaginaries regarding the German economic success story are presented. One relies on a domestic explanation citing the structural reforms of Chancellor Gerhard Schröder (SPD) and the subsequent competitiveness of Germany’s export industry. The other Post-Keynesian approach argues that Germany’s economic advantages are the result of the undervalued single European currency, which has provided a competitive advantage to German export goods at the expense of peripheral countries. It is important to examine both narratives, since German economic and political elites are using the domestic explanation as a model for Europe’s highly indebted peripheral countries to restructure (deregulate and liberalize) their economies. However, if we follow the Post-Keynesian model, then the adjustment for balanced current accounts in the Eurozone lies within Germany itself. Specifically, the focus on exports goes hand in hand with Germany’s underinvestment in domestic physical and social infrastructure. If we thus inquire into whether the German export model is sustainable, the Post-Keynesian model will deny such a positive scenario, precisely because German export surpluses presuppose that other countries finance these through deficit borrowing. This is simply the result of a closed economy in which surpluses in some countries have to be balanced with deficits in others. However, the influx of 1.1 million refugees during 2015 alone could alter the German export-scenario. In fact, the outlays for additional housing and schools, teachers, policy officers, border guards, translators, administrative personnel, and the announced increase in military spending will result in higher public fiscal expenditures and thus will shift the export focus to a more balanced domestic infrastructural investment. That this is not just “wishful thinking” was recently emphasized by the German Finance Minister, Wolfgang Schäuble who stated that the integration of refugees takes priority over the zero deficit target (schwarze Null). Inadvertently, then, the refugee crisis may provide Germany with the incentive to encourage domestic investment at a time when the export markets in emerging economies are declining due to global economic weaknesses.

Two Imaginaries of German Economic Success:
The New German Model versus the Macroeconomic European Monetary Regime (EMU)

In the comparative economic literature on the varieties of capitalism approach (VoC), Hall and Soskice (2001) have characterized the German economy as the archetypical coordinated market economy against the liberal market economy of the Anglo-Saxon type. As such, the authors dispute the assumption that economic globalization will lead to a convergence along the lines of Anglo–American capitalism. Rather, they focus on national institutional differences, which explain the respective economic policies and performances. In the coordinated type of market economies, non-market relations to coordinate economic activities play a more important role than the competitive market arrangements in liberal market economies. However, this coordinated model of German capitalism has undergone a dramatic transformation under Chancellor Gerhard Schröder (SPD) in the 1990s with the introduction of Agenda 2010, which liberalized the highly regulated labor and social welfare markets. This transformation, according to the arguments of many political and economic elites, has helped Germany to escape the earlier imaginary of the sick man of Europe and to prepare Germany for the global challenges of the 21st century.

German Finance Minister Wolfgang Schäuble gazes thoughtfully to the left.
German Finance Minister Wolfgang Schäuble presents a draft of the 2014 budget during a plenary session in the lower house of the German Parliament on April 8, 2014 in Berlin. (Clemens Bilan/AFP/Getty Images)

In contrast to this domestic explanation, Post-Keynesian macroeconomists (Stockhammer/Köhler 2015; Hein et. al., 2015; Flassbeck/Lapavitsas 2015) argue that finance-dominated capitalism (or financialization) has given rise to two complementary European growth models: a ‘debt-driven growth’ model in the Southern periphery and an ‘export-driven growth’ model in Germany (also in Austria, the Netherlands, and to a lesser extent in Finland). As such, some countries are running huge trade surpluses (Germany, Austria, the Netherlands) while many others accumulate deficits, which result from particular currency and monetary imbalances, themselves created through the European Economic and Monetary Union (EMU). These two models are highly asymmetric in that the surplus countries wield power over the deficit countries.

The Post-Keynesian macroeconomic approach provides an alternative to the domestic structural explanation in that it illustrates the missing link between the domestic model and the regional monetary environment (Scharpf 2015). Namely, the policy preferences of economic actors are shaped by their situation in the international economy. In order to explain the German economic success, we thus need to have some understanding of the impact that international (in this case regional) monetary regimes and domestic economic situations have upon policy preferences. This complimentary vertical relationship between the domestic and the international political (monetary) economy helps us to understand how the system of a highly competitive export economy was able to emerge as a result of the introduction of the single Eurozone currency (Jessop 2014; Scharpf 2015; Gourevitch 1978).

The Transformation of the German Model

Most mainstream German economists and members of the government extoll the virtues of the New German model based on the narrative of “living within one’s means,” which is rooted in the imaginary of the Swabian housewife. These ideas of fiscal frugality are a legacy of the traditional ordoliberal school hailing from the 1930s, which sees the culprit of the present Eurozone crisis in the profligacy of peripheral countries whose governments did not abide by a system of ordo (Ordnungspolitik) rule-based fiscal and monetary prudence (Young 2015; 2014). The daily German Bild-Zeitung has extolled this deficit fetishism by targeting and constructing an imaginary of “the lazy Greeks” versus the “hard-working Germans.” Such imaginaries laid the discursive foundation for the normatively tinged discussions about indebted nations being guilty (schuldig) for their own self-inflicted misery.

The re-emerging discourses and imaginaries of fiscal rectitude and of a disciplinary rule-based system followed upon the dismal economic performance of Germany in the 1990s, with its slow growth and its high unemployment. As is well known, this earned Germany the title of the sick man of Europe. The incoming Gerhard Schröder SPD/Green coalition government (1998–2005) introduced Agenda 2010 with its goal of liberalizing the highly regulated labor and social welfare markets. To strengthen Germany’s export-led growth model, the coalition government increased wage-restraints to boost competitiveness and reformed the social insurance system by lowering the social wage. This made part-time work more feasible and thus vastly expanded a low-paid, precarious secondary labor market (Scharpf 2015). As a result, wage inequality and workforce flexibility increased, greatly benefitting the German export-oriented industries (Streeck 2015).

The structural changes of the Red-Green coalition did not fully transform the model of the German coordinated market economy (Hall/Soskice 2001) into a “liberal market economy” along the lines of Anglo-Saxon shareholder capitalism. But it did liberalize and introduce greater flexibility into German stakeholder capitalism. The erosion of collective bargaining agreements, the liberalization of capital markets, the introduction of shareholder value into corporate governance, and the resulting real wage suppression – all of these changes increased German competitiveness against other Eurozone peripheral countries, and thus greatly enhanced the export-led strategy of the German growth model. But they also came with high costs for Chancellor Schröder and the SPD. The introduction of this neoliberal reform agenda cost Gerhard Schröder the 2005 election to the CDU/CSU. It also led to a split within the SPD: the left wing of the SPD joined forces with remnants of the former East German socialist party to form a united German left wing party, Die Linke.  

This domestically focused narrative is not wrong per se. Indeed, it is part of an economic imaginary that is equally shared by macroeconomic Post-Keynesian economists. However, the post-Keynesians argue that this focus on the domestic arena is insufficient as an explanation for the present German economic success story. From this perspective, while the export-driven model is celebrated as the result of German technical prowess and know-how, this growth model cannot be properly understood in isolation. Exports need markets, and these markets were found in the European periphery. They were financed by large German capital outflows to pay for the imports, and in this process the peripheral countries amassed huge amounts of debt (Sinn 2010). While it is undisputed that the Agenda 2010 measure did introduce greater competitiveness through wage restraints, the domestic liberalization and deregulation processes alone do not explain Germany’s economic triumphs. Equally important was the introduction of the European Economic and Monetary System (EMU) and its new monetary and currency regime (the Euro), which made the German export model (with high employment) so competitive against the more demand-led growth of the peripheral Eurozone countries (Scharpf 2015; Stockhammer/Köhler 2015; Hein 2015).

Challenging the imaginary and narrative of a domestically driven economic success story is all the more important since German government leaders and mainstream economists present themselves as moral taskmasters and hold up the imaginary of the “hard” road Germany travelled to reach the present economic triumphs. German political leaders never tire of claiming that the right medicine for the economically malaised periphery is the formula of imposing stringent fiscal rules, lowering taxes, deregulating the labor market, reducing social spending, and privatizing state properties and public goods. But this formula fails to recognize the importance of the Eurozone currency regime for locking in undervalued exchange rates to the advantage of German exports (Cameron 2012; Scharpf 2015).

Two Complimentary Growth Models:
Export-driven and Debt-driven Growth

The introduction of the Euro resulted in two complimentary growth models: one that relied on debt to finance consumption spending (‘debt-led growth’) in the Eurozone periphery; or the other, which relied on export surpluses (‘export-led growth’), mostly in Germany and Northern Eurozone countries. However, as the Eurozone sovereign debt crisis has made clear, the EMU cannot accommodate two concurrent economic models – one geared toward savings and exports, as is the case in northern Europe, and the other relying on borrowing and public expenditures, as is the case in southern periphery countries (Streeck 2015). The conflict of these two models is not restricted to the Eurozone; instead, it was (and still is) a worldwide phenomenon that demonstrated its dysfunctionality once the financial crisis and the sovereign debt crisis started to wreck havoc worldwide. Contrary to the Fordist period of mass production and mass consumption up until the 1970s, these two growth models are not driven by business investment leading to a profit-led growth regime (Stockhammer and Köhler 2015). Instead, Anglo-Saxon countries developed a debt-driven growth model while China’s surpluses financed the US-deficits by either buying US Treasury Bills or mortgage backed securities (MBS) to facilitate strong consumption demand, and a residential housing boom, which led to the financial crash starting in 2007. On the opposite side, Germany, China, Japan and some Middle Eastern oil exporters engaged in an export driven growth model, in which domestic growth is discouraged at the expense of exports. In the Eurozone, the two regimes had equally devastating effects in that cheap credits increased household debts as a percentage of GDP and a real estate investment bubble emerged in Spain, Ireland, and to a lesser extent in Portugal, as well as large public debt accumulation in Greece and Cyprus.

The surge in credit was made possible by the creation of a single European financial market. Once member states joined the Eurozone, countries could borrow on the international capital markets at the same interest rates irrespective of their economic performance. Indeed, looking back to the pre-Euro period in 1998, Greece had to pay an average 8% interest rate. But starting with their membership in the Eurozone, Greece could borrow money as cheaply as Germany and even more cheaply in terms of the real interest rate, since inflation rates were higher than in Germany. This created a massive boost to credit financed domestic demand in the peripheral countries (Young/Semmler 2011).

Initially, the introduction of the Euro had a negative effect on Germany. Entering the EMU at a high exchange rate, the monetary policy of the ECB was too restrictive for low-inflation Germany. In addition, during the 1990s the high cost of German unification caused low economic growth and high unemployment. The strongly unionized West German workforce suffered further from the influx of a highly skilled East German workforce, which added strong wage competition. To avoid large job losses, the industrial unions agreed to wage restraints below the existing collective bargaining agreements. As a result, unit labor costs in manufacturing did not only stagnate but actually declined by 9% between 1999 and 2008 (Bofinger 2015). The wage moderation had an immediate effect on Germany’s price competitiveness and on its exports to the Southern peripheral countries. In effect, the economic weakness of these countries helped to lower the real change rate while increasing the German current account balance. As Scharpf has argued, “(T)he monetary union allowed a dramatic fall of the real effective exchange rate after 2001 which then caused a steeper rise of German export surpluses than at any time since the end of the Second World War” (2015: 97).

From the perspective of currency undervaluation, German export performance and the sustained pressure on nominal wage increases have provided German exporters with the competitive advantage to dominate trade and capital flows within the Eurozone. At the same time, the wage moderation led to a declining real domestic demand in Germany. In the period between 2000 and 2005, the average annual growth rate of domestic demand declined to -0.1 percent, but in the rest of the Eurozone the growth rate of domestic demand amounted to 3.2 percent in the first period and 2.0 percent in the second. The weak domestic demand in Germany implied for the rest of the Eurozone a strong deceleration of their exports for goods and services to Germany. This was different before 1999 when Germany’s imports from Eurozone countries and its exports were growing in parallel (Bofinger 2015). Given the overall weakness of the Eurozone economies, the strength of the German exports did not result in the much-needed corrective effect of increasing the Eurozone exchange rate, as would have been the case during the DM-period (Scharpf 2015; Cameron 2012).

Germany’s export volume grew twice as fast as that of other members in the Eurozone between 1996 and 2008, while the domestic demand of German private households declined 1.5% per year against the rest of the Eurozone members. Labor income moved at an almost identical pace to productivity, while in peripheral countries nominal labor costs rose faster than productivity, with Greece in the lead. The growth rate in unit labor costs from 2000-2008 for Southern European countries increased by more than 24% compared to 3% in Germany. As a result, peripheral countries had been losing competitiveness relative to Germany and showed large current account deficits, which were mirrored by current account surpluses in the North. Because the German current account turned into a surplus, Germany experienced a huge net outflow of capital to peripheral countries, financing the housing bubble and rising household debt (Stockhammer/Köhler 2015). This led to an uneven playing field for peripheral countries and resulted in two different types of boom-bust cycles in the Eurozone: first, Germany/Austria with low unit labor costs, high technological innovations, rising export surpluses, capital exports, and low consumption growth; second, in the peripheral countries, wages rose faster than productivity and there was a visible consumption boom largely based on cheap borrowing on the capital markets, which translated into current account deficits for these countries. Since the Eurozone is a confederation of independent states, one member state’s current account surplus has to be compensated for by a deficit run by another country, or expressed differently, if countries benefit from undervalued real exchange rates (Germany), while others suffer from overvalued real exchange rates (Scharpf 2015). This is particularly true in the Eurozone where there is no mechanism for tax and transfer policies to provide for regional equalization and stability as is the case in federal countries like the United States (Semmler/Young 2011).

The asymmetric imbalances in the Eurozone between those countries with a current account surplus and those with a deficit increased significantly before the financial crisis of 2007. It then decreased during the sovereign debt crisis, only to reach a German all-time high surplus of 8% of gross domestic product in 2015. This is, of course, the opposite of what was expected. For it was expected that the introduction of the Euro would lead to a convergence of the economic competitiveness of all Eurozone countries. Yet exactly the opposite happened, and there seems little incentive to change the fixed exchange rate regime that so overwhelmingly favors Germany’s export-led growth model.

Is the German Export-Led Growth Model Sustainable?

Given that the success of the German export-growth model is the result of an undervalued exchange rate, and much less the result of structural reforms implemented via the Agenda 2010, its long-term sustainability is in serious doubt. The outlook for Germany’s short-term sustainability is less pessimistic, since any shocks take generally about two years to filter through to industrial plant production. Germany continues to benefit from its highly competitive manufacturing sector, having carved out a technological niche at the higher end of a rather price-inelastic product market. Germany was also very quick to substitute the declining Eurozone peripheral export markets with new markets in the United States, in the Middle East, and particularly in China. Accompanying large German business delegations, Angela Merkel’s frequent visits to China (and now also India and Brazil) has put these countries on the map as important buyers of alternative energy and green products. The introduction of quantitative easing (QE) by the Central European Bank has also provided a huge bonanza for German competitiveness, since it lowered the Euro exchange rate against the US dollar by about 20% since 2014. Germany also benefits from the very low oil price. However, it does not reap the full benefit of the price decline, since oil transactions on the international markets are calculated in US dollars.

On the negative side, German exports consist mostly of high-tech machinery exports, factory plants, automobiles, and pharmaceuticals. At the moment, it is difficult to predict the fallout of the Volkswagen emission scandal, but it could be substantial if legal actions in the US and Germany lead to convictions and heavy fines. Germany’s over-reliance on manufacturing is problematic since the country is less competitive in areas of financial services and the cultural and performative arts. Most importantly, Germany lacks the entrepreneurship and start-up culture in digital innovations and services demonstrated by Facebook, Amazon, Google, Yahoo, Twitter, Airbnb, and Uber. Virtually all these digital innovations come from the United States, which means that Germany is cutoff from these innovative branches of digital development. This has much to do with the bureaucratized and underfunded university system where the structure of the curriculum prevents flexibility, entrepreneurship, and innovation. The result is a brain-drain, particularly to Anglo-Saxon countries that often provide lucrative scholarships for German graduates wishing to escape the bureaucratic educational environment.

Screen showing Hong Kong's Hang Seng Index with pedestrians walking in front
Pedestrians walk past an electronic display showing the closing figures of Hang Seng Index in Hong Kong, China on August 24, 2015. Hong Kong’s snowballing stock losses are, by one measure, the most extreme since the crash of 1987. (Jerome Favre/Bloomberg via Getty Images)

But it is geopolitics that provides the greatest challenge to Germany’s over-reliance on exports. European sanctions imposed on Russia for annexing the Crimea and destabilizing the Eastern Ukraine have affected many smaller and middle-sized companies in the Southern German region. Just as Germany is turning to new export markets in the Middle East, the entire region is exploding in warfare. Neither is the outlook very bright for Chinese growth and other emerging economies. Chinese financial volatility in the first weeks of the New Year of 2016 sent shock waves through the developed countries’ stock markets. Christine Lagarde, the head of the International Monetary Fund, has warned that the emerging economies are confronting a ‘new reality.’ Both the US Federal Reserve’s shift towards ending its monetary easing and the subsequent rise of the US dollar value will have negative repercussions for many emerging countries. This is not a one-way street. A slow-down in emerging markets will have negative impacts on the weak growth in advanced countries. While the Chinese shift towards a slower growth can be seen as an important step for sustainable growth in the long run, the short-run impact on global trade and commodity prices can be quite severe, even triggering financial turmoil (FT 13.1.2016: 4). These global developments are not good news for Germany’s export sector. A glimmer of hope may be provided by the Iranian nuclear deal and the repeal of economic sanctions in 2016. The German export industry is anticipating substantial business opportunities and new markets to replace the sanctions-worn Iranian industrial structure. German estimates range from an increase to €10 billion within the next five years from a sanction-induced low of €2.1 billion in 2013, with an expected creation of 100,000 jobs (RTL-news, 17.1.2016).

The largest fault line of this export conundrum lies in Germany’s imaginary of deficit fetishism. The balanced budget policy goal is highly counterproductive given the global economy’s secular stagnation (Larry Summers) or its savings glut (Ben Bernanke); both of these terms suggest a slow growth phase due to insufficient global aggregate demand. According to Stiglitz, “countries like Germany that consistently maintain external surpluses are contributing significantly to the key problems of insufficient global demand” (Stiglitz 2015). In a recent ZeitOnline article, Heiner Flassbeck admonished the Germans to ‘stop dreaming!’ (26.11.2015). The German dream to spend only what the state takes in is a nightmare for everyone else. Yet Wolfgang Schäuble’s zero deficit target (schwarze Null) enjoys support from the Social Democratic leadership, mainstream economists, the media, and it is overwhelmingly backed by the German public. Nobody was surprised when both houses of the German federal parliament passed the debt brake with a huge majority. The upshot is that these restrictive deficit targets will prevent the use of fiscal policy for much needed investment in infrastructure, technology, education, the environment, and social housing (Truger 2013).

This imaginary of deficit fetishism implies that Germans are saving champions. In fact, the household saving rates of about 17% in 2015 Q3 is the highest in Europe, above France, the Eurozone, Italy and Spain (FT tv15.1.2016: 1). Hidden in this saving euphoria lies the unspoken truth that savers need others to incur debts. Since the state, private households and large corporations have amassed huge amounts of savings, Germany needs others beyond its border to spend. Flassbeck estimates that Germany needs €250 billion in new foreign debt for 2015 in order to achieve its zero deficit target at a time of low economic growth. It also makes little sense to put savings in a banking account at a time of zero interest rates, effectively withdrawing the much-needed savings from the economic cycle (Flassbeck 26.11.2015).

Rather than using its economic strength to shift to an economy driven by domestic demand and thus acting as locomotive for the near-stagnating EU, Germany (along with other Nordic countries) has tightened the fiscal policy across the entire EU. The building blocks for this rule-based system consist of the Fiscal Pact with its constitutionally mandated debt brake. To tighten the Stability and Growth Pact, greater macroeconomic surveillance was enacted with the Six Pack, while the Two Pack provides common provisions for monitoring and assessing draft budgetary plans and for ensuring the correction of excessive deficits of the member states in the Euro area. Given that German political leaders and the mainstream economic profession continue to proclaim that reducing the debt rather than investing in infrastructure is the answer to the Eurozone imbalances, any kind of fiscal demand stimulus does not seem to be on the horizon. What is missing is an informed public discussion on how to counter the deficit of aggregate demand. Instead of stigmatizing Keynesians as outdated and ill-informed, a public discussion of these matters would itself be a sign of progress. However, all is not lost. The large influx of refugees may just provide the (unintended) incentive to force Germany to change its export-oriented growth model and focus more on domestic investment expenditures.

Conclusion: The Refugee Crisis as
an Economic Opportunity for Germany

While Angela Merkel was hailed for her human gesture of welcoming the refugees from Syria and Iraq during the summer of 2015, and defended her action against her critics by maintaining that if she has to apologize for this act of humanity, then she would not call this (Germany) her country anymore, the crisis has turned into a political nightmare for the Chancellor. Her often repeated, Wir können das schaffen (we can handle this) is becoming less clear with the arrival of 1.1 million refugees by the end of last year. The turning point came with the New Years’ Eve mass of sexual assaults on women in Cologne and 12 other German cities. In the meantime, some 700 complaints have been received by the police in Cologne alone. The perpetrators were supposedly young men from North Africa and Maghreb states. However, there is still no exact information on their immigrant backgrounds, or whether any recent refugees from Syria were among the perpetrators.

The right wing political parties, such as Germany’s Alternative für Deutschland (AfD) and France’s Front National, have greatly contributed to a mass hysteria about the danger of letting large numbers of single men enter Europe. The political danger for Angela Merkel does not only come from the right wing fringe. Members of her own party as well as Horst Seehofer, governor of Bavaria and party leader of the Christian Social Union (CSU), demand a limit of 200,000 refugees a year, and urge the protection of Bavaria’s borders against refugees entering the country from Austria without papers. He has threatened to call on the German Constitutional Court to arbitrate in the matter of whether Angela Merkel has violated federal law by failing to protect German borders. It is evident that this problem is not just a German task; it is part of the EU’s duty to protect the outer borders in order to safeguard the Schengen agreement (border free) within the European Union. However, the solidarity of other EU member states is surely wanting in this regard. Yet the single European currency depends on free movement (Schengen Agreement) within the European Union. As Jean-Claude Juncker, the President of the European Commission, warned, the single European currency will fail without the Schengen Agreement.

Refugee shelter in Berlin, Germany
Hangers 6 of Tempelhof Airport in Berlin, Germany is transformed into temporary accommodation for some of the estimated 50,000–80,000 migrants and refugees living in the city. (Sean Gallup/Getty Images)

Aside from these geopolitical and security concerns, Germany is confronted with a heated debate about the economic benefits and costs of integrating refugees. Even prior to the refugee influx, discussions in Germany revolved around the shortage of skilled labor and the general gloomy demographic outlook. Many business elites saw young refugees as a means of counteracting the skill shortage facing Germany in the coming years. In this context, a study by the Bertelsmann-Stiftung provides support for the economic net benefits of refugees. However, the president of the Institute for Economic Research, Hans-Werner Sinn rejects this argument. He claims that for every migrant there is an additional net cost of €1,800 of what the migrant contributes, since most refugees do not have the necessary qualifications and thus will become a burden on the German Sozialstaat. To avoid this scenario, he suggests a point system for selecting migrants according to professional expertise, age, health, language competence, and assets (Sinn, 5.1.2016).

Such a negative scenario is disputed by others. Marcel Fratzscher, Director of the German Institute of Economic Research (DIW), argues that quickly integrating refugees into the labor market despite their initial lower qualifications will provide long-run positive effects for the entire German economy. It is also shortsighted to consider educational training only as costs rather than as a long-term investment that creates net value for companies and stimulates future demand. Some positive results are already visible in the latest data on GDP growth for 2015. It was widely expected that last year’s GDP growth would range between 1.2 and 1.4 percent. The higher figure of 1.7% growth reflects the expenditures on refugees in terms of hiring new teachers, social workers and integration specialists, as well as providing the physical infrastructure to house refugees, the additional administrative staff to attend and register those refugees, along with the necessary border guards and policy officers. Herein lies the opportunity for Germany’s shift from an export-led growth model to more domestic investment for physical and social infrastructure. Given that Germany has solid economic growth figures, it benefits from low interest rates and a low oil price. It also has the substantial cushion of a €12 billion household surplus, and it has sufficient spare capacity to invest in the training of refugees. These investments will return as future added value for the economy as a whole (Der Spiegel 47/2015).

Marcel Fratzscher is not alone in this positive outlook. Heiner Flassbeck argues that – rather than pitting the German Hartz-IV receivers against refugees and scrapping the minimum wage and other social benefits – the influx of refugees is an opportunity from which the entire population can benefit. Catching up on the neglected investment in infrastructure, environment, education and technology would satisfy two things at once: it would provide infrastructural investment and thus benefit future generations, while at the same time it would offer trading partners in the European periphery sufficient space to reduce their debts. Germany cannot indefinitely increase its competitiveness against its trading partners and hope that by exporting its surplus these countries will be able to repay their debts in the future. It is a huge illusion to think that the imbalances between German current account surpluses and deficits in Southern Europe will be sustainable (Flasssbeck 26.11.2015).

Despite the hysteria surrounding the refugee crisis at the beginning of 2016, the German situation does not look as bleak as many seem to predict. Even Finance Minister Wolfgang Schäuble has recently declared that the integration of refugees takes priority over the zero fiscal target. This may open the lock to a new imaginary of a domestic-led growth model in Germany. In the process, it may also return the Eurozone to a much-needed balanced current account regime.


Bofinger, Peter. 2015. “German Wage Moderation and the Eurozone Crisis,” Social Europe,
Cameron, David R. 2012. “Why the Eurozone Will Survive,” APSA European Politics & Society Section Newsletter, Summer: 1–4.
Dyson, Kenneth. 2010. “Norman’s Lament: The Greek and Euro Area Crisis in Historical Perspective,” New Political Economy, 15(4): 597–608.
Financial Times, “Emerging economies urged to confront ‘new reality,’” 13.1.2016, 4.
Flassbeck, Heiner. 2015. Deutschland, hör auf zu träumen! Gastbeitrag in ZeitOnline., November 26.
Gourevitch, Peter. 1986. Politics in Hard Times. Comparative Responses to International Economic Crises. Ithaca/London: Cornell University Press.
Hein, Eckhard, Daniel Detzer, Nina Dodig. (eds.). 2015. The Demise of Finance-Dominated Capitalism. Explaining the Financial and Economic Crisis. Cheltenham, UK: Edward Elgar.
Kindleberger, Charles P. 1986 (1973). The World Depression, 1929-1939. Berkeley: University of California Press.
Lagna, Andrea. 2015. “Derivatives as weapons of mass deception and elite contestation,” eds. B. Jessop, B. Young, Ch. Scherrer, Financial Cultures and Crisis Dynamics.  London/New York: Routledge, 208–28.
Münchau, Wolfgang. 2014. “Germany’s weak point is its reliance on exports,” Financial Times, October 13: 9.
Ruggie, John Gerard. 1998. Constructing the World Polity. London/New York: Routledge.
Scharpf, Fritz W. 2015. “Is there a Successful ‘German Model’?” in Brigitte Unger (ed.). The German Model Seen by Its Neighbors. London: Social Europe.
Sinn, Hans-Werner. 2015. “Migration ist ein Verlustgeschäft,” Frankfurter Allgemeine, Wirtschaft, 05.January 2016,äft-für-deutschland/ (downloaded 5.1.2016).
___.  2010. Rescuing Europe, Special Issue CESifo Forum 11, (downloaded 25. November 2010).
Spiegel Online. 2015. “Krise der EU. Ach, Europa.” Markus Becker.
Der Spiegel, “Ihre Botschaft ist fatal” Debate between economist Marcel Fratscher and Daniel Stelter, 47/2015, 70–73.
Stockhammer, Engelbert and Karsten Köhler. 2015. “Linking a post-Keynesian approach to critical political economy: Debt driven growth, export driven growth and the crisis in Europe,” eds. Johannes Jäger and Elisabeth Springler, Asymmetric Crisis in Europe and Possible Futures. London/New York: Routledge, 34-49.
Streeck, Wolfgang.  “Germany can’t solve this alone,” Le Monde diplomatique, May 1–5.
___. 2013. “Gekaufte Zeit. Die vertagte Krise des demokratischen Kapitalismus.” Berlin: Suhrkamp. (English edition: Buying Time. London/New York: Verso, 2014.)
Sum, Ngai-Ling and Bob Jessop. 2015. “Sense- and meaning making in the critique of political economy,” in eds. Jessop, B. Young, Ch. Scherrer. Financial Cultures and Crisis Dynamics. London/New York: Routledge, 27–43.
Stiglitz, Joseph. 2015. “Why the Great Malaise of The World Economy Continues,” in Social Europe,, 2016.
Tagesschau. 2015. “Deutsche Wirtschaft trotzt den Krisen” (14.1.2015) Tagesschau.App.
The Economist. 2013. The Reluctant Hegemon. A Special Report on Germany. June 15:1-20.
Truger, Achim. 2013. “Austerity in the Euro area: The sad state of economic policy in Germany and the EU,” Working Paper, No. 22/2013, Berlin: Berlin School of Economics and Law.
Wolf, Martin. 2014. “Europe’s lonely and reluctant hegemon.” Financial Times. 10.12.2014: 9.
Young, Brigitte. 2015. “The battle of ideas in the Eurozone crisis management: German ordo-liberalism versus Post-Keynesianism,” ed. Sebastiano Fadda and Pasquale Tridico, The Economic Crisis in Social and Institutional Context, London/New York: Routledge.
___. 2014. “German Ordoliberalism as Agenda Setter for the Euro Crisis: Myth Trumps Reality,” Journal of Contemporary European Studies, 22(3): 276–87.
Young, Brigitte and Willi Semmler. 2011. “The European Sovereign Debt Crisis: Is Germany to Blame?,” German Politics and Society, 29(1): 1–24.

Recommended citation: Young, Brigitte. “Imaginaries of German Economic Success: Is the Current Model Sustainable?” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

Return or Revival: The Ordoliberal Legacy

With the onset of the European sovereign debt crisis in the spring of 2010, the name “ordoliberalism” surfaced, or more precisely resurfaced, in public discourse: German authorities, and especially the German finance minister Wolfgang Schäuble, have been infatuated with fiscal discipline and rule-bound governance because they are said to be ordoliberal at heart. European institutions are also reportedly the product of ordoliberal design because they were largely “made in Germany,” though beyond the borders of Germany proper.

Ordoliberalism is the German branch of what the economist and historian Philip Mirowski has called the “neoliberal thought collective.” The multiple offshoots of this family tree include Friedrich Hayek’s section of the Austrian School, Milton Friedman’s Chicago School, and the Virginia School of public choice, or “constitutional economics,” led by James Buchanan and Gordon Tullock. The ordoliberals owe their name to the journal Ordo, founded in 1948 by the Freiburg School economists Walter Eucken and Franz Böhm. However, the ordoliberal intellectual sensibility dates back further to the 1930s, also encompassing the work of Wilhelm Röpke, Alfred Müller-Armack and Alexander Rüstow, among others.

While the ordoliberal doctrine has been widely recognized as the main inspiration of postwar Germany’s “social market economy” – and thus as a major influence on Konrad Adenauer and Ludwig Erhard, the first two Chancellors of the Federal Republic of Germany – its lasting mark on policy-making has long been overshadowed by the pre-eminence of Keynesianism up until the mid-1970s, and thereafter by other strands of neoliberal thought, particularly those of Hayek and Friedman. How are we to understand and assess ordoliberalism’s recent “return” or “revival,” both in Germany and in the European Union? What are the distinctive features of the ordoliberal brand of neoliberalism? These are the questions we asked Thomas Biebricher, whose work explores a variety of neoliberalisms and focuses on the German older sibling of the neoliberal family, namely ordoliberalism.1

WC: Before we discuss the relevance of ordoliberalism in Europe today, perhaps you could begin by recalling the historical context of its emergence. Under what conditions did the ordoliberal doctrine come into being?

TB: My understanding is that neoliberalism in all its variants is a response to a multifaceted crisis – the crisis of what is now referred to in the Anglo–American context as “classical liberalism.” I think that very early on, when the neoliberal movement was in its formative stages, there was a broad agreement between the narrative produced by the ordoliberals and that of other early neoliberals. According to this narrative, sometime in the second half of the nineteenth century liberalism went astray: its doctrine was either impoverished – reduced to slogans like laisser-faire – or distorted – leading liberals to make an alliance with progressive or even social-democratic forces. Early neoliberals saw both the impoverishment and the distortion of the liberal doctrine as major problems – especially as they persisted in the first part of the twentieth century. Thus, neoliberalism actually arose as a response to the crisis of liberalism, and especially to the alliance between liberals and progressives.

Other factors were involved in the crisis of liberalism: first, there was WWI, when a bourgeois liberal world collapsed after thriving for more or less a hundred years – the era that Karl Polanyi describes in The Great Transformation. After WWI there were of course all kinds of economic problems, including the Great Depression, which constituted a major blow to liberal ideas about markets and put their harbingers on the defensive. At the same time, Keynesianism was on the rise, partly in response to the Great Depression, while, in the United States, there was the New Deal – a defining step in the development of the American welfare state.

Still in the 1920s and 30s, very illiberal forces were also on the rise, from Soviet Communism to fascism and National Socialism; so, altogether, the “crisis of liberalism” points to a very complex crisis syndrome. All of these factors put together – grave internal factors within liberalism itself as well as important external factors – led to the formulation of a neo-liberal project, which was not supposed to be a restoration of classical liberalism, but actually a modernization of the liberal creed and in that sense really and properly a neoliberalism.

For the German ordoliberals especially, I think that all of these factors played an important role. In their particular narrative, what is of great importance is the failure of classical liberalism to theorize what a properly functioning market order should be; they thus took on that theoretical task as their main project. They associated the failure of both the discourse and the practices of “old” liberalism with the Weimar Republic, a context which was at once revealing and traumatic for them, not least with regard to what they considered to be the deficiencies of pluralist democracies. I think that, politically speaking – for their political thought – the collapse of the Weimar Republic was the most important event.

In terms of economic policy, the premise of the ordoliberal project was that liberalism got into a crisis because it did not keep the promise of functioning free markets – namely that the latter are supposed to deliver economic growth and welfare for all (pretty much). And so, the new kind of liberalism that the German ordoliberals sought to define centered on the question of how markets are constituted in the first place, and how markets are then regulated in a proper way so that they don’t undermine their own logic.

WC: How would you compare the central features of ordoliberalism with other neoliberal currents? What are the differences, for example, withthe ideas of Friedrich Hayek, who both falls inside and outside of the ordoliberal framework in certain respects? Or with the version of neoliberalism we find in Milton Friedman and the Chicago School of economics?

TB: The term “neoliberalism” was officially introduced during the “Colloque Walter Lippmann,” which took place in Paris in 1938. I think that, in those days – throughout the 1930s, the 1940s and even early 1950s – the ordoliberals were probably the most influential members of the broader family of neoliberal scholars. When you read the things that even the young Milton Friedman wrote around 1951, in an article called “Neoliberalism and its Prospects,” you notice that he still speaks the language of ordoliberalism. Later on, of course, the ordoliberals’ hold on neoliberal thought will loosen, and other strands will become much more important.

But to go back to the ordoliberals: for them, the main issue is really about how to constitute and sustain a functioning market system. Markets operate properly, they claim, when there is effective competition. However, competition does not come about spontaneously: it requires the right kind of infrastructure, norms and regulation. What they call an “economic constitution” is needed to establish markets in the first place.

An important part of this constitution involves the financial order. The idea of “sound” money is very important for ordoliberals because, according to them, it is only when you have sound money, only when you don’t have inflationary bubbles that you will have functioning markets.

Angela Merkel and Walter Eucken in a collage
[left] German economist Walter Eucken (1891–1950) was a founder of the Freiburg school of ordoliberalism. (Ullstein Bild) [right] German Chancellor Angela Merkel speaks at the anniversary ceremony of the Walter Eucken Institute at the Konzerthaus in Freiburg, Germany on January 13, 2016. (Patrick Seeger/dpa/Corbis)

Yet, in their view, economically speaking, the biggest bêtes noires, if you will, are probably monopolies, cartels, and trusts. In their analysis, these processes of capital concentration and centralization – manifestations of economic power, as they would call it, that they had witnessed in the first decades of the twentieth century – are what spells doom for the liberal idea of a market order. So in terms of economic policy, the kind of framework or competitive order that they have in mind must primarily prevent the formation of monopolies. And if monopolies already exist, the watchword would have to be: slash or disentangle them. This is really the radical aspect of what they are proposing.

What you have, then, when a proper “economic constitution” is in place, is what Michel Foucault calls “an entrepreneurial society.” Because if you push the ordoliberal reasoning to its ultimate consequences – as Röpke, Eucken, and Rüstow actually did – what you already find is a notion of the entrepreneurial self that Foucault talks about; that is, if you draw all the consequences of what they advocate. I think the crucial insight on which the ordoliberal doctrine is predicated is that markets are not a “natural” phenomenon. They need to be sustained and supported; they can’t be left to their own devices.

Just in parentheses here: of course when you hear this, it sounds really ironic. For you get the impression that over the course of the last five or six years, we are rehearsing the history of economic thought. Because that’s exactly what people have been saying over and over again, in the wake of the financial crisis of 2008 and as a critique of allegedly neoliberal deregulations: “Oh, self-regulating markets, what a joke! That can never exist.” It’s strange because this is exactly the discourse of early neoliberalism, namely that markets are not self-regulating. Okay, end of parentheses.

Now, regarding the differences between ordoliberalism and other strands of neoliberalism, I’m just going to stress a couple of contrasts – though more could be said.

First, if we compare Hayek and the ordoliberals, there are grounds for claiming that Hayek’s perspective was in fact germane to the ordoliberal ideas, as would be attested by the fact that, toward the end of his career, Hayek went to teach in Freiburg, the alma mater of ordoliberal thought. However, I think that there is a crucial difference between the ordoliberals and Hayek: the former, as I stated earlier, believed that a functioning market order, one based on free and fair competition, required a framework of norms and rules, and that the formulation of these norms and rules was an exercise in economic and political imagination. The latter, on the other hand, especially in the later part of his intellectual career, was highly skeptical about such a vision, which, for him, bordered on “rational constructivism” – namely, the idea that we can use our political, economic imagination, or simply our reason, to draw up rules and regulations and expect that they will actually work. For Hayek, the market order could only arise from a spontaneous evolutionary process – which implies that rules can do no more than facilitate or, at least not hamper, this evolution. In that respect, constitutional economists, like James Buchanan, would come down on the ordoliberal side rather than seconding Hayek’s belief in cultural evolution and his insistence on the fact that norms cannot be invented out of thin air.

As for Milton Friedman, the other great neoliberal luminary, we can say that the famous Chicago School economist was influenced by ordoliberal thought early on but that his thought soon developed in a different direction. Central in Friedman’s contribution to economic thought is of course his monetarist doctrine. Now, to a large extent, monetarism is in line with what the ordoliberals have to say about “sound money.” Friedman’s approach is just a bit more radical and must be understood in light of his adamantly anti-Keynesian stance. His conviction is that the only thing public authorities can do with regard to economic policy is to provide for a steady, slow expansion of the amount of money that is in circulation. And that’s really all there is: you shouldn’t use monetary or fiscal policy to try to engage in anti-cyclical economic policy, as the Keynesians would have it. Friedman claims to be concentrating on what works, which leads him to argue that a number of things – proactive fiscal policy, tinkering with interest rates – just don’t work: all you get when you try to implement those measures is the exact opposite of what you aim to achieve, namely inflation and stagnation.

The consequence is that Friedman’s toolbox of economic policies – of what the state can do to help markets thrive – is all but empty, whereas the ordoliberals believe that a pretty wide set of public policies are necessary to sustain the market order. Overall, Friedman has been incredibly influential, of course, but, in my view, his thought is not the most intellectually stimulating version of neoliberal thinking. But what is distinctive to his brand of neoliberalism is the way in which he combines monetarist ideas with supply side economics and market de-regulations. This is Friedman’s signature, so to speak.

A final sentence on this question: so far, I have only focused on the political economy side, if you will, on the economic dimension of all of these brands of neoliberalism. I think we should add that there are other distinctions to be made when it comes to their political thought.

WC: Let’s push forward a bit historically to what is generally considered the onset of the neoliberal era. How and to what extent did these differences inform the contrasting modes of government deployed by the promoters of the “conservative revolution” in the U.S. (with Ronald Reagan), in the U.K. (with Margaret Thatcher), and perhaps also with their German counterpart in Helmut Kohl?

TB: Well it’s a complex issue to figure out what the relationship is between neoliberal theory and neoliberal practice, or what we call the neoliberal policies of Ronald Reagan’s administration and Margaret Thatcher’s government. There is this wonderful anecdote where Thatcher throws Friedrich Hayek’s Constitution of Liberty on the cabinet table and says: “This is what we believe in.” But of course it is not as if she had just implemented Hayek’s agenda, and neither did Reagan simply implement Friedman’s agenda. There is a book by Daniel Steadman Jones, called Masters of the Universe, where he analyzes how Hayek’s and Friedman’s ideas were respectively translated, or implanted, into Thatcher and Reagan’s governmental practices. But it’s not as if there is a well articulated neoliberal playbook that’s coming from Friedman or Hayek that can just be used and implemented by politicians step by step. The only case where something like a direct transposition of theory into practice actually happened was Chile under Pinochet. I think there is nothing comparable.

Nevertheless, there are policy ideas that you find in Friedman and Hayek, which you also find in the policies of Reagan and Thatcher:

One of the most important examples would have to be the monetarist ideas of Friedman that were implemented both by Thatcher and Reagan. Yet, they have been abandoned just as rapidly – Thatcher, in particular, gave up on monetarism per se after just a couple of years. While monetarism was implemented, however, it certainly had a major impact, triggering a deep recession in the United States, for example, and thus indirectly weakening an already fairly weak labor movement.

Another instance of Friedman’s influence on the Reagan administration was the latter’s attempt to deregulate many sectors. Whether these deregulations were successful is a matter of controversy, depending on where you stand politically. Similarly, under Thatcher, we saw a massive initiative to privatize public assets, which is something that not only Hayek but more generally, all neoliberals were always in favor of.

The introduction of market logic and market imperatives into the public sectors – what later on would be called “new public management” – was also introduced under Thatcher: for instance, new mechanisms such as “opting out” and “competitive compulsory tendering” are injected into the welfare state and in the National Health Service in the 1980s – even though the full-fledged neoliberalization of state apparatuses will only be achieved in the following decade.

The difficult question (and I think so far there have only been tentative answers to it) is really: Why is the story of Germany so different? In the early 1980s, and in some cases as soon as the late 1970s, there certainly have been dramatic policy shifts in a neoliberal direction, not only in the US and UK, but also in Canada, New Zealand and Australia. Not in Germany, though.

There was a change in government in 1982-83: the Christian Democratic Union won the elections and, in coalition with the Liberal Democrats, which is a liberal party in the classical sense, formed the new government. Early on they announced that there would be a massive shift in policy – and not just policy, they also spoke about changing the overall culture of Germany. Ultimately, however, nothing dramatic happened. There were certainly needle pricks, I’d say, with respect to the welfare state and the power of unions, but they were really not much more than needle pricks – at least if you compare them to what happened elsewhere in the developed world, especially the US and the UK, at the same time. So, the question is why.

One answer is that Germany was substantially different from its American and British counterparts in terms of its political and economic structures beforehand. The German economy was considerably less exposed to the triggering conditions of the 1970s stagflationary crisis – to the high inflation rates combined with economic stagnation. So, to the extent that the pain was not as significant, the pressure to steer public policies in a radically different direction was simply not as strong in Germany as it was in other Western countries.

We also have to remember that, before the 1982 elections, the economically liberal Free Democrats were already in government, but in a coalition with the Social Democrats. So all they did was change partners once the Christian Democrats won the election. It’s not as if this were a sort of grassroots movement that demanded a significant shift in policy. Though voters gave the center-right a majority, I’m not sure the newly elected government thought that they had such a strong mandate to enact dramatic policy changes.

The last thing I can say is more anecdotal, but telling. In 1982, but before the elections, when the Liberal Democrats were still in a coalition with the Social Democrats, Otto Graf Lambsdorff, minister of economic affairs from the Liberal Democratic Party, drafted a famous “white paper” where he advocated a number of pro-free market reforms. Once the Christian Democrats came to power, and the Liberal Democrats joined them in the cabinet, the white paper was apparently briefly examined, before the new cabinet decided to put it away in some desk drawer. The irony of the story is that a number of the measures that Lambsdorff proposed were eventually implemented, not by the Christian Democrats and the Free Democrats, but rather by the Social Democrats and the Green Party when they took office – sixteen years later, in 1998. So, the real neoliberal turn in Germany took place under the stewardship of the Red-Green coalition in the 1990s, and thus coincided with the second wave of “neoliberalization” in the US and the UK under Bill Clinton and Tony Blair, respectively, rather than with the so-called Black-Yellow coalition (the Christian Democrats and Liberal Democrats) of the 1980s.

WC: It’s fascinating that neoliberalism – here, as a modified mode of economic reasoning and as a strategy for rationalizing state-economy relations – was so quickly and widely disseminated that the Social Democrats embraced and advanced an agenda that was beyond the reach of the free-market-Right just a decade before. Regarding the connection between this belated wave of German neoliberal reforms, on the one hand, and Tony Blair and Bill Clinton’s “Third Way” push to the “middle,” on the other hand: Do these transnational links help explain the shift toward measures that were once (and that are still) floated by the conservatives (CDU) and the free-market liberals (FDP)?

TB: The first thing to stress is this: you can say that an agenda has been successful, if not hegemonic, when even your political opponents feel obliged to subscribe to it. So, in that respect, you must hand it to the proponents of the neoliberal agenda. For they were able to influence even those who are expected to oppose them at the doctrinal level, like Social Democrats in Germany, the Labour party in Britain or the Democrats in the United States.

Now, regarding the German Social Democrats specifically, they were clearly influenced by the evolution of the center left in the United States and Great Britain. They remained in the opposition for a very long time – from 1982 to 1998 – and, during that time, of course, they noticed what was going on with the New Democrats and with the New Labour – whose leading figures rose to power on a program of “modernization” that largely amounted to infusing social democracy with neoliberal ideas.

Now, to conceal their conversion to the neoliberal creed, New Labour, New Democrats and “modernized” German Social Democrats resorted to a kind of “communitarian” fig leaf – what the British sociologist Nicholas Rose refers to as “governing through communities” and “empowering civil society.” By that token, however, Third Way parties actually added a new discursive dimension to neoliberalism, at least if you compare their appeal to communities with Thatcher’s famous claim that “there’s no such thing as society.”

As an aside, one should recall that, for their part, ordoliberals already insisted on the importance of naturalized communities, small communities at the grassroots level – which they saw as an indispensable complement to the relative coldness of market relations. All of these things came into play in this second wave of neoliberalizations, with the representatives of the Third Way, but you already find them in the writings of Röpke and Rüstow: ordoliberalism is really a unique combination of neoliberalism and quasi-communitarian ideals – another difference between the German strand of neoliberalism and Hayek or the Chicago School.

WC: This brings us to the present political context, and specifically to what some scholars have called “the return of ordoliberalism,” even at the supranational level. This is partly due, of course, to Germany’s relative dominance in the European Union, but it’s arguably also a result of the buildup of EU accords and of the response of the Troika and other actors to the sovereign debt crisis.

Is it pertinent to speak of a “return” of ordoliberalism in Germany and Europe, or rather of its “revival,” the latter implying that the construction of a united Europe (particularly, as a monetary union) was an ordoliberal project from the start? Or should we speak instead of an ordoliberal “turn” across the EU and its members – that is, precisely because of Germany’s hegemonic power over the institutions and other member-states of the Eurozone?

TB: In a way this is a question of perspective. There is reason to speak of a “return” of ordoliberalism insofar as, for a long time, I don’t think ordoliberalism was very present in public discourse or even in the consciousness of the European elites. It was a rather obscure tradition in the academy, and was no longer perceived as being very influential. So to suddenly hear the language and vocabulary of ordoliberalism being spoken again, to hear its merits being extolled again by a number of people – to name just a couple of people, for example, Wolfgang Schäuble, Jürgen Stark (a former chief economist at the ECB), and Jens Weidmann (the chairman of the German Bundesbank). Even Mario Draghi, the current chairman of the ECB, has talked about the ordoliberal foundations of the institution he represents. I think this is kind of surprising. It’s puzzling and it should focus our attention on what’s going on here. So, it is in that sense that we can speak of a “return” of ordoliberalism – because it was not part of our vocabulary for quite a while.

Yet, on the other hand, I think it might make even more sense to speak of a “revival,” considering that ordoliberal ideas have always contributed to the overall architecture of the European Union and its various developments. At the same time, it’s not as if Europe is an exclusively ordoliberal construction; I think that would be way off the mark. There are a number of different and sometimes countervailing logics that have presided over the institutional development of the European Union. But ordoliberalism is certainly one of them. The idea of the common market, for example, is clearly inspired by ordoliberal ideas. There are a number of early and very interesting texts by the ordoliberals, but also by Hayek, that expound the merits of something like the “common market,” something like a federation of states endowed with a common market.

Regarding Europe, the ordoliberals had concerns about the early European Union, the “European Community,” as it was called back then. They worried that too many political competences would migrate up to the supranational level. They were concerned about the advent of some kind of super-state, completely removed from “natural communities.” That hasn’t happened, though. And I would argue that things are much better from an ordoliberal point of view today than they seemed to them very early on, in the first stages of the EU’s development. So I think the proper way to describe what is going on these days is to say that we are looking at a new round of ordoliberalization – which is not to say that the ordoliberal logic is the only one at work in European institutions.

CDU poster with Ludwig Erhard
[top] Ludwig Erhard (1897–1977), former Chancellor of Germany. (© dpa/Corbis) [bottom] A Christian Democratic Union election poster featuring Ludwig Erhard, September 5, 2001. (Tom Maelsa/dpa/Corbis)

Take the Maastricht Treaty for instance: The European Monetary Union (EMU) was strongly influenced by ordoliberal ideas and concerns about sound money. Likewise, the strict rules that were part of the Maastricht Treaty are clearly rooted in the ordoliberal doctrine. For the latter professes that the economy should be governed by rules – and by sanctions that need to be enforced when the rules are not respected. The Maastricht regime established in 1992 was exactly that – although its custodians have since considered that the rules originally established were not sufficiently strict or at least that they had not been enforced rigorously enough.

So what we have seen, especially in the last four years, is the attempt to tackle the alleged laxity of the Maastricht regime by means of introducing more stringent rules backed by more sanctions. In fact, it is not only the stringency of the rules that has been reinforced but also their scope that has been expanded. The point is not merely to crack down on existing budget deficits but, more broadly and preventively, to monitor the macroeconomic imbalances in every member-state – this has been the purpose, since 2010, of the so-called Six-Pack of regulations. The public policies and budgets of the EU member-states are now monitored on a continual basis – not only when they are on the brink of default. The European Commission and, to some extent, the European Council and the European Parliament, are in charge of the monitoring process.

Overall, what we see is a multiplication of enforceable norms at the supranational and also at the national level. The two levels are connected of course, insofar as the Fiscal Compact established at the European level mandates the member-states to introduce legislation or even Constitutional amendments in order to abide by the European rules. Indeed, the 2012 Treaty on Stability, Coordination and Governance, often dubbed “Fiscal Compact,” which was signed by all EU member-states except for Great Britain and the Czech Republic, requires all signees to pass a legal and preferentially a constitutional reform that has the effects of a balanced budget amendment. Practically, this means that, major crises or unexpected disasters notwithstanding, budget deficits must never exceed 3% of the country’s GDP, while in the medium and long-range, the budgets of all member-states ought to be balanced – their deficits should not exceed 0.5% of GDP.

Both the modus operandi and the goals of the Maastricht and, even more pointedly, the recent post-Maastricht regimes are deeply true to the ordoliberal creed. On the one hand, the combination of rules and sanctions purported to keep governments on a narrow track corresponds to the ordoliberal vision of a proper “economic constitution.” On the other hand, the purpose of these rules and sanctions is also in keeping with ordoliberalism, since they are largely about securing an environment of effective competition and about bolstering the competitiveness of every member-state through a process of “internal devaluation.” Since the EMU makes it impossible for the members of the Eurozone to increase their economic competitiveness by an export-boosting devaluation of their currency, the only way they can improve their position in the race is to lower the cost of labor – that is, cap wages – and reduce public expenditures – social benefits and investments in public services. Such measures are not only music to all neoliberal ears but also steeped in ordoliberal doctrine. Politically, this translates into a semi-authoritarian order, to use a harsh word, and one that is definitely technocratic.

WC: That’s an excellent segue to the question of neoliberalism and democracy, a topic you engaged in a recent article. One central claim shared by different branches of the neoliberal family is that the fragile workings of the market need to be protected from democracy’s allegedly illiberal tendencies. Neoliberal policy-makers and their intellectual mentors often concede that democratic procedures should be preserved – at least in the countries where they are part of a longstanding liberal tradition – while simultaneously claiming that they cannot be allowed to interfere with the price mechanism. Could you elaborate further on a question that we’ve already partially taken up, namely: What are the specifically ordoliberal ways of curtailing the unruliness of democracy while leaving its formalities more or less intact?

TB: Before we focus on the ordoliberal response to the threats presented by democracy, it is important to recall that there is a range of positions in neoliberal thought with regard to democracy. The dominant opinion – which is a bit of a cliché – is that neoliberals argue for the replacement of democratic processes and institutions by pervasive market mechanisms: whenever and wherever it is possible, markets and their logic should take over. However, there are neoliberal thinkers who not only pay lip service to democratic traditions but also advocate some forms of direct democracy – at least when they believe that the people can be mobilized to advance neoliberal reforms and thus circumvent the resistance of what they see as the cartel nature of party politics.

Now, with regard to the ordoliberals, the concern that they have with democracy – and which they share with other branches of the neoliberal family – is rooted, in part, in their elitism, the suspicion in which they hold the judgment of the masses. To make sense of their mistrust, we must remember that the ordoliberal doctrine was forged during the Weimar Republic, which was the first instance of mass democracy in the German context. And, as we know, it did not work so well. So, the pathologies of the Weimar regime left a mark on the ordoliberal view of democracy. Carl Schmitt’s critique of liberal democracy had an impact on them, as it did on Hayek.

The ordoliberals’ main concern was that most people did not understand much about economics. So, in their view, it was unwise to let the unknowing majority decide on these matters. However, their argument was less about the ignorance of the masses than about what constitutional economists call the rent-seeking propensity inherent in representative democracy. According to the ordoliberals, what typically happens in a democracy is that different segments of civil society – more or less powerful individuals and groups – will make demands based on their “special interests.” Because they seek reelection, politicians will then grant favors and make promises to satisfy these demands, even at the expense of the general interest. So, the aggregated or cumulative result of all this favor-granting and promise-making business will be really bad economic policy. In short, what ordoliberals don’t like about democratic practices is the erosion they cause to the general rules that ordoliberalism treasures so much. Thus, in their view, it is necessary to insulate the political process of decision-making, or at least to shield it, from the pressures of the “special interests” that make up a pluralist civil society.

Now, it is important to admit that many of us share the ordoliberals’ concern  – namely, that powerful and wealthy private interests besiege the political system. There is no denying that lobbies are a huge problem. So, the ordoliberals’ misgivings about pluralist democracy are not entirely outlandish and, by themselves, their worries don’t make them into authoritarians. Yet, their response to the flaws of representative democracy – namely, that the political process should be sheltered, as much as possible, from popular oversight – is clearly problematic. That all the demands stemming from civil society would be treated as the expression of “special interests” is what I find worrisome.

If it should not be up to the people to decide how the economy should be run, then who? For the ordoliberals, the answer is: economists and experts because their position is predicated on knowledge and competence, not on sympathy with any type of special interests. This is not the answer Hayek gave. But for the ordoliberals, there is such a thing as an “intelligentsia” – in Karl Mannheim’s sense of the word – whose members are not driven by interests and ideologies – which in the ordoliberals’ eyes always go together – but by science – which is necessarily “disinterested.”

WC: Arguments of the sort you just mentioned – expertise over demagogy – were of course used by the Troika and the Eurogroup to discipline the first Syriza government. Perhaps most famously, Wolfgang Schäuble held the neoliberal line and dismissed the Greek referendum by saying, “Elections can’t change the rules.” What did the negotiations between the Eurogroup and the Greek government during the first six months of 2015 reveal about the tensions between neoliberalism and democracy? 

TB: There is hardly any question that the Troika effectively restricted the exercise of democracy in Greece. Of course, some will say that the Greeks have brought this upon themselves – not without motive, for there is no doubt that the Greek state has been plagued by inefficiency and cronyism for many years. Yet, it is not an overstatement to say that, in the past several years, the Troika – meaning the representatives of the EC, the ECB and the IMF – and not the Greek people, has dictated the terms of Greece’s economic and fiscal policy. And this situation continues today, despite the referendum of July 2015, where the Greek people said “No” to the memorandum that European institutions wanted to impose on their country. So, the anti-democratic, and technocratic, nature of the Troika’s exigencies is undeniable.

Another argument purported to minimize the Troika’s assault on democracy states that the infringement of European agencies on Greek domestic affairs is an emergency measure, due to the fact that Greece is nearly bankrupt. So, it makes sense that harsh conditions would apply to those who have to beg for money. Though I don’t want to subscribe to this kind of logic, the broader point is that it is not just countries on the verge of bankruptcy whose democratic institutions are trumped. Because of the permanent monitoring system of the post-Maastricht regime to which I referred earlier, all the member-states of the EU, and especially of the Eurozone are subjected to the same surveillance and sanctioning mechanisms.

The crucial actors in this regime are precisely the ECB, the IMF, and the European Commission – especially the EC, I would say. Since the thrust of the European dynamic is to depoliticize decisions regarding public policies, the EC is the agency that is best qualified to prescribe measures designed to correct macroeconomic imbalances on the basis that they are just sound economics. To the extent that they are accountable to voters, national governments and the European Parliament tend to re-politicize matters, whereas the Commission does not have to worry about elections.

This situation is problematic not only because public matters should not be depoliticized – if democracy is to be preserved – but also because the political reforms pushed by the EC produce winners and losers among member-states, and thus redistribute burdens and benefits. So what is being depoliticized is in fact a supremely political matter.

WC: At the domestic level in Germany, the current government, where the CDU and the SPD rule in tandem, has maintained its commitment to a balanced budget (the so-called “black zero” or Schwarze Null) despite the impending costs of “welcoming” more than a million refugees. At the EU level, the Fiscal Compact and the past year’s developments reveal not simply a similar intention to stay the course, but a determination to intensify the stringency of sanctions for those who might wish to take a break from austerity. In your view, what are the main challenges that this hard line may have to confront, both in Germany and in Europe?

TB: In the German context the Schwarze Null is first and foremost about symbolism. For the government, it is important to be able to claim that the budget will be balanced – or at least that the state will not run structural deficits (I am fairly certain that a number of accounting tricks are mobilized to secure this accomplishment). For the German authorities, the symbolic importance of maintaining and displaying fiscal discipline is twofold:

On the one hand, it is about being exemplary and, by that token, conveying to the leaders of the other EU member-states that they can and must follow the German example: “we are balancing our budget and so should you; with a little effort, any country in Europe could be like Germany.”

On the other hand, the display of fiscal discipline is directed at a domestic audience. For German conservatism is currently experiencing a kind of identity crisis. Though Angela Merkel has been very successful in terms of staying in power, the traditional base of the CDU, the more conservative voters, are no longer sure of what their party is about and so they are wondering what is in the CDU for them. So, showcasing the Schwarze Null is about telling these people: “this is what we stand for. We stand for fiscal discipline, and that’s conservative. We might have gotten rid of all kinds of other tenets that were formerly considered to be conservative, but in terms of economic policy, we’re still the real conservatives because we’ve delivered on what we promised . . . even in the middle of a refugee crisis.” Saying that is especially important because it is the first time in fifty years that the budget of the German state is balanced – and because it may not happen again in the years to come. Thus, making as much as possible of this year’s feat is the best way to make sure that conservative voters will remember it when the next campaign season comes around.

Now, in terms of the challenges that the politics of fiscal austerity may face, we have to remember that, since the beginning of the European sovereign debt crisis in 2010, Germany has been acting as a quasi-hegemon, in terms of economic policy at least, simply because its government had a lot of money that other European countries needed. So, having cash to lend gave German authorities considerable leverage. Of course, the way they used the leverage they had, making themselves into the chief enforcers of austerity, did not produce a lot of gratitude and good will on the part of the peoples who were on the receiving end – in Spain, Italy, Greece, Portugal. So, considering that the role Germany played is hardly forgotten in these countries, the latter are unlikely to show much solidarity towards the country of Angela Merkel when it comes to the sudden inflow of refugees. For the tables have turned now, at least in part: in particular, German authorities are trying to convince their Greek counterparts to keep a large number of asylum seekers in Greece, so as to lighten Germany’s load. But of course Greek authorities are unwilling to comply – not to mention that they cannot afford to do it properly: why should they show any solidarity with Germany, considering the way Germany treated them and continues to treat them, with respect to their public debt? Therefore, I think we are entering a phase that Germany may find quite difficult to navigate – a phase that may prove problematic and worrisome for Europe as a whole.

Interview conducted on December 21, 2015

Recommended citation: Biebricher, Thomas (interviewed by William Callison). “Return or Revival: The Ordoliberal Legacy.” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

The Euro Crisis and the Neoliberal EU Policy Regime: Signs of Change or More of the Same?

The Euro Crisis has painfully exposed the weaknesses of the European economic policy regime. Unlike the Anglo-Saxon countries, where the global financial crisis began, it is the euro area that is teetering on the brink of deflation now and it is only in the peripheral euro area countries that the crisis has turned into a depression. So how do Europe’s elites want to reform the European policy regime? Are they questioning the neoliberal model or merely modernising it? To get a glimpse of the future of the Economic and Monetary Union (EMU) this blog takes a detailed look at the Five Presidents’ Report on ”Completing Europe’s Economic and Monetary Union,”1 which represents the most comprehensive single statement by the European institutions thus far about the direction EMU should be heading. Our assessment is that the report sets out to permanently and institutionally codify the structural adjustment programmes which have been applied to the crisis economies whilst at the same time providing further impetus to cross-border financial speculation. The report recommends a single-minded focus of national policy on “fiscal responsibility” and competitiveness through eroding of labour standards, and a renewed push for financial liberalisation in the form of a Capital Markets Union. The propositions for a common fiscal policy lack detail, and there is no mention of reform of the European Central Bank toward a genuine lender of last resort. The report does not aim at restructuring the two neoliberal growth models that have characterised Europe before the crisis: a debt-driven and an export-driven model. The restrictive fiscal and monetary policy regime which ultimately was critical in turning a financial crisis into a sovereign debt crisis remains essentially unaltered. Hence, there is little reason to believe that the problems of the EMU will be resolved by the implementation of the plans outlined in the report. We will therefore contrast it with progressive Keynesian policy proposals.

The Five Presidents’ Report

The Five Presidents’ Report is divided into five sections. The first section sets out the planned timetable for the proposed reforms which is comprised of three stages, with the final one to be reached by 2025, by which time all reforms, it is hoped, will be in place. As we shall argue, important measures which would be required to be urgently implemented are, if mentioned at all, delayed as far as possible, whereas the most damaging measures are prioritised.

Collage of the members of the Five Presidents council
The five presidents of the European institutions: Jean-Claude Juncker, President of the European Commission; Jeroen Dijsselbloem, President of the Eurogroup; Martin Schulz, President of the European Parliament; Mario Draghi, President of the European Central Bank; and Donald Tusk, President of the European Council.

In the second section, the report reaffirms that a sustainable EMU requires that all member states “converge to the highest level of prosperity” (Juncker 2015: 7). Yet, the report still clings to the belief that such convergence can be achieved through supply-side reforms of the same kind which have been unsuccessfully applied throughout the periphery since the crisis. The idea of establishing “National Competitiveness Authorities” in all member states is the most concrete proposal in this section, and it is believed to be of such importance that it should be implemented as soon as possible. The focus of these authorities is clearly envisioned to be on a fairly narrow definition of competitiveness, related to prices and especially wages. Member states are expected “to converge towards the best performance and practices in Europe” (p. 7) which can easily be read as a euphemism for a race to the bottom in terms of labour standards. The ultimate aim of convergence is supposed to be a similar level of resilience against disturbances, without direct reference to the levels of employment or income at which this should be achieved. The original aim of convergence (i.e. “convergence to the highest level of prosperity”) is apparently presumed to be an automatic outcome of supply-side reforms. “[E]fficient [read: flexible] labour markets that promote a high level of employment and are able to absorb shocks without generating excessive unemployment are essential: they contribute to the smooth functioning of EMU as well as to more inclusive societies” (ibid). There is little reference to the idea of a genuine social Europe beyond platitudes to the effect that “Europe’s ambition should be to earn a ‘social triple A’” (p. 8). Eventually, this new convergence process is envisioned to become binding for member states with standards which “should focus primarily on labour markets, competitiveness, business environment and public administrations, as well as certain aspects of tax policy (e.g. corporate tax base).” The potential pitfalls of this approach are clear: the winners of this intra-European competitive race (which are likely to be those countries currently already enjoying competitive advantages) will continue to rely on the export-driven growth model which characterised economic developments in a subset of Eurozone countries prior to the crisis. The Capital Markets Union, discussed below, on the other hand, will serve to strengthen the forces which led to the debt-driven growth model representing the counterpart to the export-driven one. These growth models emerged in a situation in which wage shares were falling in Eurozone economies, most of which are wage-led (that is, they are economies in which an increase in the share of wages in national income leads to an increase in aggregate demand and GDP), since growth had to come from sources other than domestic demand out of wage-income.2 The report’s proposals, especially those in the second section, may well lead to a further decline in wage shares, and are thus antithetical to what progressive Keynesians advocate based on empirical findings about demand regimes.3

The third section contains proposals regarding the Banking Union and the Capital Markets Union. Out of all the projects described in the report, these two are the furthest developed with detailed proposals for implementation. In addition to the already agreed single supervisory and single resolution mechanisms, the report once more suggests the creation of a European Deposit Insurance Scheme for the Banking Union; a proposal which has so far proved controversial, with Germany frequently opposing it. The creation of a Banking Union composed of these three pillars is indeed desirable to help ensure that banking crises do not turn into sovereign debt crises. However, it remains questionable whether the proposed size of the resolution- and deposit-insurance funds would be sufficient to withstand the collapse of a major European bank.4 If this is not the case, national budgets would again have to be used for bank rescues, which would further reduce the already slim fiscal manoeuvring space available to Eurozone members during crises. But there is an even bigger problem: while the aim of the Banking Union is to improve the stability of the financial system, the report’s proposals for the Capital Markets Union are likely to lead to increased instability.

There is no attempt at serious financial reform or regulation in the report. It shies away from proposing a break-up of large universal banks or at least the ring-fencing of investment banking from commercial banking operations, the taxation of financial wealth, or regulation of the shadow banking sector. At the same time, the proposed Capital Markets Union (CMU), which is to be implemented as soon as possible, is likely to further increase the systemic importance of large universal banks. The proposition for the CMU, which has been interpreted as a concession to the UK and its oversized financial sector,5 is framed as providing an opportunity for channelling financing into productive investments, particularly of SMEs. However, the report makes no practical suggestions as to how this would be achieved. Capital market financing of firms is indeed less developed in continental Europe than in the United States, but even there SME finance is primarily bank-based. Rather than helping SMEs the most likely effect of CMU is to further increase the power of large banks. Indeed, one cannot help but think that the detailed proposals relating to the CMU which have been put forward6 are actually designed to lead to this outcome. For instance, the proposed rules on due diligence and self-attestation in the so-called “Simple, Transparent and Safe Securitisation” (STS) scheme clearly favour market participants with superior resources and analytical capabilities. The whole proposed regulatory framework to a significant extent reflects the interests of the financial sector7 (rather than those of the real economy, which the CMU is allegedly designed to help) and will facilitate the emergence of a renewed era of credit-led booms driven by the securitisation of mortgage loans in which the largest banks are the major players. As such, rather than to act against the conditions which led to the emergence of rising indebtedness and growing current account imbalances in the periphery, the European institutions aim to provide new impetus for speculation. The report argues that the CMU will increase financial stability by “provid[ing] a buffer against systemic shocks” (p. 12). This appears highly naïve in light of the experiences of the peripheral countries during the crisis and those of developing countries with capital market liberalisation. Both examples show that international capital flows tend to be highly volatile and pro-cyclical. They tend to aggravate rather than alleviate difficulties during times of crisis and uncertainty. More financial liberalisation will not solve the problem of financial instability.

In the fourth section, the report attempts to address the shortcomings of the European fiscal framework. Remarkably, and despite the importance of the issue, this section is in fact the shortest in the entire report. The proposals are accordingly vague. The section first reaffirms the commitment to the rules binding national fiscal policies and makes suggestions for stricter implementation. The role of the ECB, and the fact that its restrictive mandate (which prevents it from supporting national fiscal policies as any other modern central bank does) is essentially the only reason that these fiscal rules are necessary in the first place, are not mentioned in the entire document. The report then raises the prospect for fiscal policy at the Eurozone level. In the European context, it constitutes progress that the five presidents make the case for a European fiscal policy, but their understanding of the role of fiscal policy is extremely narrow. The measures, according to the report, will only take the form of automatic stabilisers without scope for discretionary policy.8 However, the crisis has shown that active, discretionary fiscal policy is necessary and can be (and has been) very effective especially during recessions.9 But in Brussels and Berlin, such things cannot be spoken about in polite company. The fiscal policy framework is only envisioned to be implemented at the second stage of the reform process. This is ironic at best. Greece, Spain, Italy and Portugal need government spending now, not in ten years. In addition, the report envisions that economies would only be able to benefit from this framework by meeting the strict conditions outlined in the rest of the report. The framework is not viewed as a tool to promote convergence and is hence a far cry from the fiscal and welfare policy proposal we outline below. Fiscal orthodoxy is thoroughly entrenched in Europe and the priorities set by the report are strikingly at odds with what is necessary to return growth and prosperity to all of Europe.

The fifth section contains a number of token-propositions under the heading of democratic accountability which fall far short of what would be required to address the democratic deficit at the European level. There are to be additional debates in the European Parliament on economic matters. National parliaments of member states are reminded to exercise their right to invite a member of the European Commission. No mention whatsoever is made of additional decision-making powers for elected representatives or a wholesale democratic reform of the European institutions, strengthening the power of the Parliament vis-à-vis the Commission and the Council. The risks of delaying democratic reform are clear, particularly in crisis countries where austerity policies are perceived as being forced by unaccountable institutions. This will further strengthen the support of euro-sceptic parties, which are predominantly on the extreme right. On this dimension, the report thus clearly misses the aim of putting the EMU on a sustainable footing. Again, the section makes some unspecific comments regarding the setting up of a Euro Area treasury. However, the report also reaffirms that “[t]he Stability and Growth Pact remains the anchor for fiscal stability and confidence in the respect of our fiscal rules” (p. 18).

The EU Policy Regime and the Sovereign Debt Crisis

Thus, overall, the report provides little hope for a change of the EU policy regime. That this regime is indeed well-anchored in neoliberal and ordoliberal political and economic thought has been demonstrated at length by one of the present authors.10 Its major features, including restrictions on national fiscal policy, liberalised goods and financial markets, a centralised, independent monetary authority focused on inflation targeting and an emphasis on competitiveness and flexibility of labour markets all fit well into these strands of thought. The regime is characterised by a strong belief in the efficiency of the market system, a distrust of state activity and an anti-labour bias. To these characteristics, one might also add a certain distrust of democracy, exhibited by the meagre proposals regarding the problem of the democratic deficit. It is well known that prominent neoliberals have at times been quite hostile to the idea of democracy, viewing the freedom of markets as the quintessential way to achieve personal freedom for all. These characteristics are also discernible in the Five Presidents’ Report. Especially notable is the fact that the report does not at all touch upon the ECB, which is modelled on the archetypical example of an ordoliberal central bank, the German Bundesbank.11 The crisis has shown that the ECB’s current institutional setup is not feasible in serious economic downturns when a genuine lender of last resort is needed the most, which is the reason why it has found various creative yet overall insufficient ways to circumvent its mandate in practice.

European Central Bank Headquarters
The euro currency symbol sits on a sign outside the European Central Bank headquarters in Frankfurt, Germany. (Martin Leissl/Bloomberg via Getty Images)

What, if anything, can be done to truly fix the flaws in the EU policy regime and the construction of the Eurozone? Several critics regard the fixed exchange rate regime as the root of the problem.12 In this view, the currency union is a vehicle for German/northern dominance through “neo-mercantilist” economic policies. According to them, Germany was more effective in constraining wage growth and gained a competitive edge over southern European countries. The euro system allowed Germany to pursue a growth strategy based on trade surpluses via wage suppression, with the root of the problem lying in fixed exchange rates which enabled this strategy. This reasoning leads some commentators to advocate an exit from the euro of certain countries or a wholesale breakup of the euro area. 13

There is some truth in these arguments, but they miss out on important factors. Financialisation only plays a supporting role in this story as it allows for a recycling of German trade surpluses to finance southern Europe’s imports. In fact, trade deficits were not only forced upon southern European countries by improved German competitiveness. Southern European countries were growing faster than northern countries and their growth pulled in imports. This growth was fuelled by a credit boom based on a property bubble, enabled by liberalisation of capital flows brought about through the monetary union. It came with rising household debt and proved highly unstable, but, from a macroeconomic point of view, it was not the growth rates that were unsustainable, it was their financing structure.

As regards the escalation of the crisis: the neoliberal macroeconomic policy regime of the euro area plays the central role. It is the separation of monetary and fiscal space that explains the uniquely European transformation of the global financial crisis into a sovereign debt crisis. And it is the refusal of the ECB to play the role of the lender of last resort to governments, not the fixed exchange rate regime, that forces national governments to adopt austerity policies. Why did the USA and the UK outperform the southern European countries despite a similar debt overhang? Because they used a strong devaluation to improve their competitiveness? No, the US devaluation early in the crisis was modest and Britain did not devalue at all. Rather it was the central bank financing of government spending under the mantle of quantitative easing that allowed them to run larger budget deficits than European countries while keeping interest rates low.14

A Keynesian Alternative

In contrast with the Five Presidents’ Report, a progressive Keynesian economic strategy15 would involve an economic policy mix that breaks thoroughly with neoliberalism. It would aim to solve the problems of the EMU without the need for a break-up.16 It would use deficit spending for demand stimulation and have full employment as its overall goal. A Keynesian strategy aims for inflationary adjustment, which means higher demand growth in surplus countries.

First, wage policy would not aim at wage flexibility, but at an equitable income distribution that is consistent with relative trade positions. This would involve policies which would create a system of transnationally coordinated wage bargaining that takes into consideration issues of equity, domestic demand, and trade balances. It would not be a framework aimed at convergence to the lowest level of labour costs and requires a strengthening of collective bargaining structures and ought to be complemented by a European system of national minimum wages. This would be an alternative to the current system in which deflationary pressure is put on the deficit countries, and it would contribute, along with the second element of the progressive Keynesian strategy, to lowering current account imbalances in Europe both by increasing demand growth in the north and by leading to a convergence of relative costs.

Second, the financial sector needs restructuring and shrinking. Debt restructuring will in some cases be necessary to make debt manageable, but in general a Keynesian strategy aims at raising income rather than deleting debt. An inflationary environment would facilitate a reduction of debt burdens. To counteract the regressive distributional effects of bank rescues, a substantial wealth tax would have to be introduced. Bailed-out financial institutions would be put under public control to ensure change in management practises. Financial regulation would lean against asset price bubbles to control credit growth. This would help to contain the credit-fuelled booms which were an important factor driving current account imbalances prior to the crisis.

Third, there needs to be a robust mechanism of redistribution across regions, a redistribution that does not rely on generosity and bail-outs. This would consist of two elements. On the one hand, crisis countries require a Marshall Plan style investment programme to help them build up productive capacities and rebalance the structures of their economies away from sectors such as real estate. Such a programme could, for instance, be undertaken by a Eurozone treasury, or by the European Investment Bank. It would help to address any component of the current account imbalances which cannot be eliminated through adjustments in relative labour costs, promote employment and restructure the economies of southern countries toward higher value-added production. On the other hand, a European social security system should serve to redistribute income from prosperous to depressed regions without increasing debt levels. Both these measures would increase the resilience of the Eurozone at large against both symmetric and asymmetric shocks.

Fourth, the Keynesian policy package frees fiscal policy from the shackles of the present regime. Fiscal policy has to be used to ensure that aggregate demand is at a level consistent with full employment. This implies a strong anti-cyclical component. Part of this can be delivered by automatic stabilisers like unemployment benefits and a progressive income tax, but a substantial part will be discretionary policy. States need to be able to react if their economy is facing a recession or high unemployment. Specifically, this means that the southern European countries should see a large increase in government spending as their output levels are well below capacity. Ideally these expenditures would come out of a European budget, based on Eurobonds and backed up by a reformed ECB-mandate.

Quite independently of any economic considerations, a reform of the EMU would also have to seriously address the democratic deficit. Whilst, of course, there is no specifically Keynesian view on democratic reform, sensible proposals which would not impair any of the measures advocated here have been made.17 Overall, the proposed programme would help to provide a change of course away from the policy framework based on neoliberal thought which both caused the crisis and is now preventing a recovery.

Recommended citation: Reissel, Severin and Stockhammer, Englebert. “The Euro Crisis and the Neoliberal EU Policy Regime: Signs of Change or More o the Same?” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

The Politics of Public Debt Structures: How Uneven Claims on the State Colonize the Future

“We don’t owe anything. We won’t pay anything. Cancel illegitimate debt.” Illegitimate, illegal, odious, and unbearable debt should become the focus of our struggle, proclaims the Comité pour l’annulation de la dette du tiers monde (CADTM, “Committee for the Annulation of Third World Debt”). Their doctrinal appeal now extends to all countries – no longer merely to those in the southern hemisphere, but also to those considered “economically advanced.”

In April 2015, at a moment when Greece’s fate in the Eurozone was still subject to tense negotiations, the Greek parliament established the Truth Committee on Public Debt. Chaired by Zoe Konstantopoulo (who then served as the head of the Hellenic Parliament) and scientifically coordinated by Éric Toussaint (a professor of political science, a member of the Scientific Committee of ATTAC France, and a spokesperson for the international network CADTM), the mandate of the Committee was to investigate the origin and contraction of the Greek public debt.

The overarching purpose of the Committee was to expose, first, debts “incurred in violation of sovereignty but also of democratic principles (including consent, participation, transparency and accountability)”; second, debts “used against the best interests of the population of the borrower state, or otherwise debts that are unconscionable, the effect of which is to deny people their fundamental civil, political, economic, social and cultural rights”; and third, “measures attached to the IMF loans to Greece that breached fundamental laws as protected under the country’s Constitution, customary law and international treaties to which Greece is a party.”1

A meeting of the Greek Debt Truth Commission with President of the Greek Parliament, Zoe Konstantopoulou, June, 2015.
After meeting with the Greek Debt Truth Commission on June 11, 2015 in Athens, President of the Greek parliament Zoe Konstantopoulou, Green party member of the European Parliament Eva Joly, and Belgian historian and the CADTM spokesman Éric Toussaint appear at a press conference. (Louisa Gouliamaki/AFP/Getty Images)

The Committee concluded that Greece was incapable of reimbursing its debt and that, regardless, reimbursement was out of the question. The report introduced a definition of the unsustainability of the debt that stands in stark contrast with the dominant perspective, which is distinctive of institutions such as the International Monetary Fund (IMF) or the European Commission – whose mission it is to evaluate the public policies and public finances of the member-states of the Economic and Monetary Union.

Instead of settling for an analysis of “macroeconomic variables and debt projections” of “adjustment programmes” that “enable discussions around the debt to remain at a technical level,” the authors of the Committee’s assessment advocated for the recognition of other criteria of evaluation: “an assessment of the human rights impacts of the macroeconomic adjustment and fiscal consolidation that were the conditions for the loan… the ability or capacity of the government of the borrower state to fulfill its basic human rights obligations, relating, for example, to healthcare, education, water, sanitation, and adequate housing, or to invest in public infrastructure and programs necessary for economic and social development,” and, more generally, to take “the interest of the population” into account.2 This counter-investigation clearly stages the conflict that now opposes, on the one hand, the holders of public debt and state creditors in a broad sense – multilateral institutions, financial investors, financial and bank institutions – and on the other hand, the “populations” whose holdings are limited to public endowments. While the former are determined to be reimbursed at all costs by public powers (so as to make good on their investments), the latter see their benefits sacrificed to the growing share of public funds and investments devoted to servicing the debt – since Greece’s economy has become entirely dependent on the commitment of its government to give precedence to its creditors’ expectations.

From Debt Relief to Public Debt Structures

When a country has been bled dry and the gross domestic product has fallen by 25% in just a few years, it is certainly legitimate to resort to the instruments of judicial recourse and to describe Greece’s debt as “illegitimate, illegal, odious.” For not only is the state ordered to secure a primary budget surplus for the coming years,3 but it is also under the obligation to make its creditors the primary beneficiaries of the money reserves thereby constituted – all of this to the detriment of economic growth and much needed public services. The description of debt as “illegitimate, illegal and odious” would be true for any country, state, or sovereign power pushed into similarly dark corners and led into the kind of impasse in which Greece finds itself today.

However, we must also wonder about what happens – or, more precisely, what else might happen – both prior to and in the aftermath of these emergency situations when the social and political movements calling for an alternative to the status quo see the “cancelation” of the debt, or the possibility of defaulting on it, as the only solution. The public debt question, which every country in the world must address at this point in time, also invites us to examine the political significance of public debt structures.

At stake here is regaining a form of collective control over the financing techniques of the state and over public and social expenditures. The fight for such a re-appropriation must take place alongside necessary struggles that aim at having illegitimate debts recognized for what they are. However, the difference between the two struggles is that activism concerning debt structures is situated upstream from the battles for debt cancelation: indeed, its purpose is to avoid these situations of ultimatum, where the fear of defaulting compels governments to keep their financial commitments, even at the cost of letting the populations under their care sink into misery.

Without casting an a priori judgment on the various forms of state financing, including debt financing, it is important to revisit earlier regimes, if only to dispel the notion that resorting to financial markets and thus submitting to the expectations and exigencies of private creditors is the obvious and only way to proceed. The main issue here is not the specific identity of the bondholders – as when the French Treasury and National Assembly establish a distinction between “resident and non-resident” holders of the French public debt, or between domestic and foreign financial institutions. Politically, the crucial question is that of the concrete modalities through which the state collects funds and issues its own debt. In other words, what is significant here are the chosen techniques of subscription.

What ultimately matters is therefore the composition of a public debt, or its “structure” in the strongest sense of the term: how the modes of financing, dictated as they are by power relations, determine how the collection and the uses of public finances are apportioned between the public and the private spheres, between what is devoted to shared resources and to individual appropriation. History is rich with examples where states did not draw their financial means from a market governed by the appetites and wishes of the financial class, but instead relied on regulations that were politically, administratively, and legally established.

For instance, at the end of the Second World War and in countries like Germany, Italy, and France, the share of the public debt was said to be “non-marketable”; the public debt, which was collected and managed through administrative and political regulations, was considerably larger than its “marketable” or commercial counterpart, which included the bonds that were issued, sold, and distributed in conformity with market procedures. In the United Kingdom, during that same period, the public debt was evenly divided into negotiable and non-negotiable portions. By 1993, however, the commercial share of the debt had risen to 82% in the UK while in Germany, it grew from 8% to 81% between 1953 and 1993.4

Altogether, the so-called “Golden Age” of capitalism – from 1945 to the mid-70s – was a time of intense experimentation with respect to off-market financing of the state. In the countries where the marketable debt had been hitherto dominant, its proportion diminished notably during those years. In Canada, from 1946 to 1976, public debt went down from 85% to 37%; in the Netherlands from 99% to 61%, and in Spain from 100% in 1945 to 22% in 1978. In France, even throughout the 1970s, three quarters of the techniques of state financing still pertained to the “non-negotiable,” or in other words administered, share of the debt. From 1987 onward, however, the proportion was reversed and the “negotiable” instruments, subjected to the law of the financial markets, became predominant. There is thus nothing “natural” or obvious about resorting to the capital markets in order to finance the state; nor is it inevitable to expose the state’s credit by allowing rating agencies and private investors to monitor public policies. To the contrary, between the beginning of the post-war reconstruction and the current period, governments were involved in a social, political, and institutional endeavor designed to undermine and deconstruct the power of banking and financial institutions: their purpose was to discipline the financial industry in order to make it the instrument of collective projects, broad public services, and social progress.

The Golden Age of the French Treasury Circuit

In the last three decades, France has been one among many countries that has followed the international trend of predominantly resorting to financial markets in order to gather public funds. Yet, in the aftermath of the war and right up until the 1960s, the French state had several techniques at its disposal that made borrowing outside its own public circuits merely optional. A brief account of these mechanisms allows us to grasp the extent of the political change that has occurred in the recent period. It also allows us to realize that reclaiming these techniques might produce a departure from the current regime.

The first five-year plan for “modernization and equipment” (from 1945 to 1950) sought to “insure a rapid rise in the population’s quality of life, and particularly with respect to food provision.” Projected in the program were: (1) the reinstatement of basic industries that had been damaged or destroyed during the war (coal, electricity, steel, cement, agricultural engineering, and transportation); (2) the modernization of agriculture; (3) the assistance to the construction industry (buildings and public works); (4) the development of the export industries; and (5) the transformation of living conditions (particularly housing conditions). It is noteworthy how priorities were defined at the time, including by Charles de Gaulle – how what counted as absolute necessity had nothing to do with today’s austerity and budgetary discipline: “as far as the economy is concerned,” and in order to “use common resources for the benefit of all,” de Gaulle declared, “the pursuit of particular interests must always give way to the regard for the general interest.”5

After the war there were no reserves to pay for the first plan, and the structures capable of creating, sustaining, and collecting the necessary funds needed to be reinvented. In 1945, the French Ministry of the National Economy was given the task of supervising the financing of public investments. Economic planning and a tight control of the banking system and financial markets, as well as a public and centralized system of collection and reallocation of savings in the national economy, embodied this deployment of state power. The Treasury established mechanisms that procured easy, regular, and secure resources for the state in order to provide “available liquidities in all circumstances.”6 As for covering public deficits, at the time there were hardly any constraints as we understand them today: the public authorities did not have to deal with interest rates established by financial markets – rates that may be low and profitable, as is currently the case, but nonetheless subject to inherent and often irrational volatility.

The organization of the cash flow at the time made the state the investor and the banker of the national economy: this was known as the “Treasury circuit.” It included a variety of more or less constraining mechanisms and compelled a number of financial institutions to deposit resources they had themselves collected in the economy through the Treasury. The French Treasury thus functioned like a commercial bank, collecting deposits that allowed for a large proportion of public deficits to be covered almost automatically, outside of any market procedure: it received the funds deposited – mandatorily – by its correspondents and settled their expenses for them according to their orders, just like a commercial banker. At the same time, these deposits represented “spontaneous resources” (according to the administrative term of the time) for the Treasury, which passively centralized these flows, there again, like a present-day large commercial bank.

This mode of financing is entirely different from the way we currently think about debt. When it did go into debt, the Treasury did not appeal to creditors outside its own purview but, instead, collected and mobilized the resources of its own network of savers – the “Treasury’s correspondents.” Far from making the state dependent on external lenders, the Treasury circuit was a structure that made for the deployment of a truly public financial capability. The contrast with today’s regime is striking: within the circuit, the interest rates that were applied to the money deposited at the Treasury were determined by the state and thus not subjected to the law of supply and demand. Money circulated within a public network of individuals or institutions that acted as depositors and short-term lenders. The state, via the Treasury, was a privileged financial actor since the resources automatically came under its purview. By 1955, this system had made the Treasury the largest collector of funds (with the exception of the Banque de France) in the French economy: “It alone collects more capital (695 billion francs) than the banking sector (617 billion) and allocates more funds (783 billion) than the entirety of the public and private institutions involved in granting credits (715 billion).”7 This “public marking of money”8 is tethered to the nationalization of the banking and credit industry, two thirds of which – including the Banque de France, nationalized in 1945, and four major commercial banks – was controlled at the time by the public and quasi-public sectors.

Thanks to this system, the issuing of middle- and long-term bonds, which exposes the state’s credit to the judgment of the markets, is no more than an optional instrument – though one that provides a complementary lever to which the French state did resort. Regardless, the Treasury circuit acted as an efficient protection against the return of the so-called “wall of money” (mur de l’argent) – to wit, the obstacles previously raised by financial capitalists in order to undermine a government’s attempt to engage in non-orthodox social, fiscal, and monetary policies, or, more generally, to take measures that go against their class interests.9

Throughout the thirty years following the end of the Second World War, the average debt to GDP ratio was stable: around 15% to 20% as opposed to almost 98% today. The Treasury circuit also enabled French authorities to spare themselves the political liability of turning too systematically to the Banque de France for an advance. While these advances, directly provided by the European Central Bank, are now perceived as the best solution for a member-state in need of money, at the time, a government that would consider such an option needed to get a parliamentary approval and was usually faced with a bit of a popular uproar and a heated public debate.

Though the Treasury circuit model is often associated with the danger of runaway inflation, it must be recalled that in its heyday, namely the 1950s and 1960s, inflation was contained below a 6% average.10 Above all, one must bear in mind that, far from being limited to the management of the cash flow, the tools that were then allotted to the Treasury enabled the state to play an important role as a regulator for the amounts of currency and credit in circulation. For as early as 1948, the state also established a system of liquidities oversight according to which banks were obliged to acquire and keep a set amount of Treasury bills. Such a requirement was understood as a “forced loan.” It was a matter of making sure that the banks did not get rid of the state securities, but also a way of controlling their activity: it worked somewhat as a system of mandatory reserves – but one in which the banks’ liquid assets, instead of being deposited in the Central Bank, were systematically invested in Treasury bills.

Rather than a permanent opportunity for monetary laissez-faire, these obligatory Treasury bill provisions were a lever for monetary action that could work both ways: having to keep a certain amount of state securities in their coffers, banks were restrained in their ability to over-lend to companies or households in times of inflation – while still keeping the state afloat. In the name of the general interest, this technique introduced a political and administrative coordination of monetary and financial functions.

The political organization introduced by the Treasury circuit system seems utterly exotic today. At the time, the state stood above the market. Defining the interest rates on its bills was the state’s sovereign prerogative. It set the value of its securities and issued them continuously: documents speak of “open faucet” or “open window” issuing. There was no market session then, no adjudication of the bonds and no auctioning organized by the Agence France Trésor – the agency currently in charge of financing public deficit, whose task it is to expose the credit of the state to the gaze and the capricious moods of bondholders.

The financing techniques of the “golden age” did establish a particular political relation between public authorities and financial institutions. Making it mandatory for banks to acquire its bills, the Treasury imposed an earmarking of their money supply. The continuous issuing of securities ensured that the needs of state were covered at all times and dispelled the threat that the markets would price its bonds unreasonably. It thus turned the state into an uncommon borrower, endowed with the power to make the rules regarding its own debt and to impose its authority to the banking and financial world. The state placed itself above the fray and, unlike every other debt issuer, did not have to expose its credit to the assessment of market agents.

The Treasury circuit constituted an experiment in the political enlistment of money, which embedded it in regulatory practices and through the mandatory cooperation of financial institutions. The dismantling of these mechanisms began at the end of the 1960s and with the precise goal of removing the state from its pedestal. The banker-state was undone in the name of competition and for the sake of “freeing” a sizeable portion of the financial sector. One must recall that the financial industry had been a longstanding detractor of the Treasury circuit system, accusing it of “financial repression.” If anything, such grievances prove that, until then, the control of financial institutions had not been what it would be for François Hollande in 2012 – namely, a vapid electoral promise purported to give a left-leaning spin to the socialist candidate’s presidential campaign: far from an unsubstantiated wish, it was then a reality, precisely organized by legal and technical mechanisms so as to balance the relation of power between public agencies and private financial institutions, or even to tilt the balance in favor of the former.

The Politics of Marketable Debts

The successive reforms initiated from the middle of the 1960s on aimed at turning the state back into a borrower among others, a vulnerable and fallible agent that had to submit to the litmus test of capital markets. The fatal blow in France was struck between 1966 and 1968 by Michel Debré, the Minister of Finance at the time, and his young technical adviser, Jean-Yves Haberer, who was fascinated by the American model of market financing. Haberer explicitly sought to “dismantle the circuit [and] all the automatic mechanisms that enabled the Treasury, without lifting a single finger, to draw its fill of liquidities from all the French financial circuits.”11 He wanted the state to improve its managerial efficiency by way of undoing the regulatory mechanisms that gave it too much financial security. It is necessary to “make the State live like a borrower,” Haberer claimed; “in other words, to put it in a position where it must ask itself the borrower’s questions about the cost of loans and the service of its debt.”12

Michel Debre at a press conference in Paris, 1966.
The Minister of Finance, Michel Debré, at a press conference in Paris, February 16, 1966. (Jean-Claude Deutsch/Paris Match via Getty Images)

Such an approach already announces the current wisdom according to which it is up to the international financial markets to finance a state’s sovereign debt. Only a real market, the reasoning goes, compels the state to be “transparent” and to prove trustworthy, particularly in regard to its credit and the soundness of its policies, and in the eyes of investors. The financial community thus appears as the privileged interlocutor of the state, as well as the main arbiter of what is good and bad, necessary and superfluous, in the realms of monetary, economic, and even social policy-making. For in order to sell its bonds, the state must always listen to the desires expressed by the financial markets and internalize what market actors conceive as the common good: to please investors, policy-makers must predicate the economy on free trade, give precedence to the fight against inflation, be mindful of fiscal discipline, and allow for a relatively high rate of unemployment in order keep salaries down and give their dues to external constraints.

While public debts have been given over to the markets and their criteria for some time, further developments are still in the works. The institutions that are spearheading neoliberal reforms – the International Monitory Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), and the European Union (EU) – are determined to complete the process that depoliticizes public debts by way of commodifying them. To that end, they seek to turn the state Treasury, as was done with the European Central Bank, into an “independent” agency, by which they mean an institution detached from the government and free from ministerial control. Such an agency for debt issuing and management, presumed to act exclusively in the name of technical imperatives, would transform Treasury bonds into a “pure instrument,”13 entirely determined by market rules. Managed by traders, it would be shielded from political deliberation and emancipated from public oversight. Therefore, this issuing agency should no longer be situated, physically, in the confines of the Ministry of Finance but, instead, find a home in the closest proximity to the financial market – as is already the case for the British and German debt agencies, respectively located in the City of London and in Frankfurt.

The hegemony of marketable debts comes with its own politics. State finances are exposed to the judgments and evaluations of savings collectors and lenders of all kinds (businesses, life insurance companies, banks, public institutions), rating agencies, and financial analysts. Having become regular borrowers, states are now constantly obsessed with their credit: looking attractive in the eyes of private investors and maintaining their rank in the competition for borrowing capital at the best price are their primary concerns. The primacy of marketable debts pulls states into a perpetual race the winners of which are those who satisfy budgetary requirements and manage to be the most market-friendly in terms of taxation and other public policy decisions.

As the credit measured by private investors becomes the state’s chief obsession, the pursuit of a good rating defines what public finances and their management are about, what issues and what solutions must shape the public debate regarding debt. The latter thus focuses on budgetary factors: the state is customarily blamed for spending too much and managing its own finances badly – thereby letting deficits go astray. Within this causal and argumentative regime, there is of course no space for a discussion of the modalities of state financing. And when governments complain about what they must do to attract investors, the representatives of the reigning orthodoxy retort that complacent governments are prone to use the markets as scapegoats in order to present themselves as victims. Better still, the harbingers of fiscal discipline like to marvel about the fact that markets are increasingly attuned to public policies and that their conduct merely amounts to helping governments by means of holding out a mirror in front of them, thereby enabling them to see and correct their errors. Markets, the argument further goes, thus play the salutary role of “watchdogs,” acting as a “normative counter-power” and “a safety rope” for governments.

Jean-Baptiste Colbert French Treasury Securities Poster
A French Treasury Securities poster features a bust of Jean-Baptiste Colbert, a computer monitor, and the phrases “the liquidity of the market” and “the solidity of the state.”

One often hears the accusation that states “live above their means,” that they are overly lax with respect to their budget: the charge that public officials are “big spenders” who do not speak the language of truth is pervasive in the rhetoric of mainstream media and in political debates.14 Yet, omnipresent as these charges are, those who never tire of making them experience themselves as Cassandras, prophets preaching in the desert and endlessly alerting the public without being heard: so they keep at it, repeating on a daily basis that taxes are too high and that France’s competitiveness can only be restored if social programs are slashed and if unproductive public services are no longer allowed to hinder economic growth.

To remain a “good” and thus attractive borrower – thereby dissuading lenders to raise the interest rates on its bonds – a state must exercise a strict discipline and be totally transparent with respect to its financial situation in order to show its budgetary good faith.15 To keep governments under constant pressure, both the European Commission and rating agencies16 resort to ratios, such as the debt to GDP ratio, that are purported to remind ostensibly sovereign powers what their priorities must be. For example, this is the case with the 60% debt of GDP threshold that became famous because it was one of the main public financial criteria that states had to meet in order to be qualified for entry into the European monetary union. Measured by Eurostat, the statistical office of the European Commission, it remains a tool for governing European public finances.

Social vs. Financial Debts: The Looming Competition

Accounting methods, with regard to public expenses and debt, also undergo transformations in order to adapt to the expectations of financial investors. To prove their credentials to creditors, states, having become ordinary borrowers, have to play the game of transparency and furnish all possible information. The financialization of state finances thus leads to the financialization of accounting methods. Organizations such as the International Federation of Accountants (IFAC) and the International Accounting Standards Board (IASB) have long pleaded for the establishment of a metrology applicable to all economic agents, henceforth without distinction between states and private businesses.17 Key in this ostensibly technical reform is the question of the “implicit commitments” – also called “off-balance-sheet” or “future debt.” For the new method requires states to evaluate a still barely visible part of the administration’s balance sheet, namely, the promises of future pension payments to civil servants. At stake is the determination of whether these commitments constitute an actual debt of the state to its employees – as actual, in other words, as the loan agreements that states sign with private creditors. Are future pension expenses to be included as liabilities in the state’s accounts and, if so, do they impact the famous ratio of debt to GDP, which has become the focal point of debates on public finances? Alternatively, should these expenses be considered as one of the state’s implicit, reversible, and amendable commitments, and thus kept off the balance sheets?

What this methodological reform entails is the replacement of “cash-based” accounting, in which expenses are recorded when they are paid – when money actually leaves the accounts – by a mode of accounting based on “commitments.” This mode of accounting, also called “accrual accounting,” takes into account all the debts “accrued-to-date,” that is to say, all the debts that have been incurred up to the reporting day. Such a change in the mode of accounting potentially expands the purview of the public debt by including pension commitments as liabilities. Now, including these future disbursements among current liabilities also serves as an incentive for provisioning these ineluctable commitments of the state. Therefore, the ongoing restructuring of accounting methods can be understood as a “pedagogical” measure aimed at state representatives: as future risks regarding the state’s commitments become more visible, public officials are enticed to reflect on the sustainability of pension plans and thus to reckon with the “necessity” of extending the duration of pension contributions. In other words, they are compelled to push back the legal age of retirement in order to avoid the state from going bankrupt.

To consider future pension payments as a liability of the state, an explicit commitment and an actual debt, is to acknowledge that civil servants have accumulated a claim on the administration and capitalized an asset. Historically characteristic of funded pension systems, this representation of the relationship between the state and its employees clashes with the spirit of the pay-as-you-go pension regime – which is still operative in France – and thus tends to alter its nature. For once a form of reasoning predicated on savings and individual capital accumulation is allowed to penetrate the pay-as-you-go regime, it inevitably undermines the latter’s philosophy – which has always been about keeping the allocation of pensions separate from the logic of individual asset management.

The notion of a contract between generations is at the heart of the discursive strategy deployed by governments when they argue for a new approach to pensions. In France, as in other countries, senior finance officials are fond of claiming that the protection of future generations is a legitimate goal for them to pursue. As they envision them, however, these future generations are always already endowed with very specific moral values and political aspirations: primarily concerned with the protection of their own assets and feeling entitled to demand certain benefits from the social state, their particular sense of social justice seems limited to a form of responsibility vis-à-vis the future generations – and expressed by their wish to protect them from excessive debt. In short, the future generations share the concerns of today’s governments, whose priorities consist of being accountable to their creditors and to the progeny of their constituents by way of revising their modes of accounting, showing more restraint in their expenditures and scaling down the commitments they have made to their citizens in the past.

The new debt order not only reforms the state and the way it spends and collects funds, but more radically, it changes the way the state thinks about the various populations to which it is accountable. How long can this order last, given that it is leaning on a social powder keg? Until recently, in order to remain socially acceptable, the hegemonic exponents of financial capitalism were still careful to allow for a modicum of public and social spending. However, their relentless anxieties about deficits and the perennial austerity to which governments must consent to appease their creditors are rapidly eating away at what is left of the welfare state of yore.

If future pension expenditures are considered as debts in the same way that Treasury bills and bonds are, then these social commitments established and guaranteed by public policies should be as firmly kept as the financial loan contracts, which are subscribed to by the state and which bind it to its private creditors. Herein resides the ambiguity of ongoing accounting reforms purporting to convert all expenses into actual debts. What is at stake is whether the state is equally committed to bondholders and to the future recipients of social benefits – whether the rights of the latter are as robust as the rights of the former, whether both types of “creditors” have the same chance of holding the state to its word. The very nature of what the public debt stands for and encompasses is in a way reopened by the current changes in accounting techniques: does the public debt only involve the contracts, protected by contract law, between a borrowing state and the holders of its bonds, or does it extend to the “promises” made by the state to future pensioners? Paradoxically, it appears that by turning all the obligations of the state into individual contracts, pro-market reformers end up recognizing the existence of a “social debt” that would be as solidly inscribed in contract law as the agreements between issuers and private holders of public bonds. This new approach to debt is not limited to the pension issue: for instance, the French Cour des Comptes, the equivalent of the British National Audit Office, is now in favor of including among the state’s liabilities the cost to the Department of Public Education (Ministère de l’Éducation nationale) of a child from the age of six to sixteen.18

Now, in the mind of pro-market reformers, the idea of representing social benefits as “IOUs” was initially about alerting public opinion to the allegedly excessive weight of public spending: their purpose was to have ordinary citizens realize that the state was living above its means and that such profligacy constituted an unbearable burden not only for today’s taxpayers but also for future generations. However, regardless of its promoters’ intentions, the inclusion of social benefits among state’s liabilities might in fact serve the interests of their recipients, to the extent that it would inscribe public policy commitments into a contract as binding as the ones that behold governments to their creditors.

Since 2010, the sovereign debt crisis that resulted from the banks’ bailouts has certainly slowed down the process of identification between social and financial debts. Yet, at the same time, the social and economic conditions created by the European governments’ responses to the sovereign debt crisis have brought the competition between the two types of claimants into stark relief. In other words, the question of which “creditors” should be given precedence by the state – the holders of its bonds or the recipients of its benefits – has clearly become the defining issue of our times.

Economists have shown that there are many disparities in the relation of citizens to public debt.19 Among children, those who are born in privilege will benefit from the Treasury bonds that their families have in their portfolios, and the interest rates of which are often protected from inflation. Furthermore, the volume and value of such savings tend to increase as the tax burden on the wealthy becomes lighter – allegedly in order to boost economic growth.20 If debt in political debate is considered a liability of the public Treasury and a burden for future generations, it must also be recognized as an asset, at least for some socio-economic portions of the citizenry – today and in the future. At the height of a crisis, these disparities necessarily intensify. Thus, in a still covert fashion, the opposition and potential conflict between those who are on the receiving end of social spending and those savers who hold state bonds tend to structure the current social and political debates.

Though they largely initiated the process, and did so in order to stress the excessive indebtedness of some states, national governments, European institutions, and private actors such as rating agencies are now quite worried about the consequences of treating social and financial public debts on a par – of giving them the same legal status. For instance, Vincent J. Truglia, an executive from the rating agency Moody’s, says that, for his part, he has always been reticent to take a state’s future commitments into account in the calculation of a sovereign debt’s rating:

My fundamental view is that – it may sound very trivial – but there is no future. Everything is always in the present. The real argument is always about income distribution today. The only fundamental political argument there ever is; it’s income and wealth distribution in the present.21

Private financial agents now feel that their own rights to the reimbursement of the bond securities they hold are “threatened” by the claims on the payment of the social debt. They thus reckon with the fact that the interests of bondholders are in direct competition with the “demands” of citizens expecting to benefit from public and social expenses. At the turn of the 2000s, Moody’s even went so far as to predict that most developed states would probably default on their public debts. But, what the rating agency meant at the time, was that it was expecting states to default on their “social debts” and their pension funds:

Moody’s expects almost every industrialized nation to “default” on its pension promises. We have concluded that, with few exceptions, it is nearly impossible for almost every major developed nation to meet the public sector pensions currently promised, including health care for seniors, without significant adjustments to future benefits. Benefits will have to be scaled back, in some cases, significantly.22

Nowadays, the representatives of the financial industry are thus intent on reinstating an almost ontological difference between the social and financial debt. They fully appreciate the fact that public opinions seem to agree – that they also understand the financial debt to be a firm contract whereas the social debt is merely a conditional agreement, that calling it a debt is a social “convention” and that it is no more than a political “promise” that is reversible by definition. In short, bondholders and the managers of their portfolios are now primarily concerned with the rehabilitation of their special status of full-fledged creditor.

However, the consensus between financial institutions and the rest of the population regarding the difference of status between financial and social debts is bound to vacillate when a government’s default on its social debt leads to a major impoverishment of its constituents. This is what happened in Greece, leading, in the general elections of January 2015, to the victory of Syriza. For a while, the new governing coalition was able to embody the hope of a break with the austerity regime of the European monetary zone and the injunctions of the so-called Troika – the representatives of Greece’s main creditors, the European Commission, the European Central Bank, and the International Monetary Fund.

This political change brought about by Syriza’s victory opened a public conversation about the Greek debt: public authorities were asked to decide whether to give precedence to the needs of their constituents or to the claims of their creditors – to determine which types of commitments should be fulfilled in priority and which payments could be either shorn off or at least postponed. In April of 2015, resources and liquidities had grown so rare that the two types of obligations could no longer be met and a choice had to be made. Thus, the government announced that it was bound to take the unprecedented decision of defaulting on a payment to the International Monetary Fund. The Greek state could no longer afford to reimburse the 458 million euros it owed to the IMF on April 9 if it were to pay the salaries and distribute the social benefits that were due on April 14. Sources close to the Syriza party told the media:

We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer.23

Thus, for a brief moment, a political party in power had chosen to act as the protector of the social debt, thereby assuming to challenge the wisdom and interests of the financial community – which, in the case of Greece in 2015, were represented by the various public institutions that had previously bought the Greek debt from private creditors. However, the moment of defiance proved indeed brief: the Syriza experiment ended in surrender, which shows that the competition between social and financial debts remains clearly rigged in favor of the latter. Yet, by virtue of exposing the asymmetric structures of a state’s obligations, the standoff between Athens and its creditors points to the possibility of redeploying class conflict and social activism around the following question: why should we assume that financial contracts are irrevocably binding while, for their part, the state’s commitments to the recipients of social benefits can be nullified by a new law on finances?

Barely a year after Syriza’s first electoral victory, Greece is more than ever a “debt colony,” as Alexis Tsipras called his country before becoming prime minister. Greek public goods and services are currently being auctioned and sold to private investors, under the guidance of Greece’s creditors and the brokerage of the Hellenic Republic Asset Development Fund, in order to reimburse the country’s debt. The objective of this operation is to maximize the value of sold public goods: the latter are listed in a catalogue and their sale to private investors is supposed to give a boost to the Greek economy while taking care of mature debts.24 It is indeed in the name of reimbursing the debt that the Greek territory and its infrastructures are being converted into commodities and wrested from public control. What is happening to Greece is exemplary of a great reversal, still very much at work, whereby the state ceases to be what it was in the post-war period, namely the thing that gives measure and value by way of making political decisions and planning the economy, and instead becomes the thing measured and valued – assessed, rated, but also broken up and traded according to the rulebook of financial markets and under the authority of European institutions.

Current asymmetries between the valuations of social and financial debts sustain the hegemony of bondholders, prevent the political control of money, and give perennial precedence to the service of the debt over any other consideration. Consequently, they not only result in the entrapment of nominally sovereign countries but also in the colonization of their future. Yet, as we have seen, the introduction of the notion that there is a competition between two kinds of debts – financial and social, contract- and status-based – could lead to the reopening of a public debate about the fundamental duties of the sate. Until recently, European governments – whether center-right or center-left – were prone to claim that they had to spend less for social programs and public services in order to “save” the welfare state from bankruptcy. It was a matter of necessity, they argued, and not of choice. However, once commitments made to citizens – in the form of pensions, public education, salaries of civil servants – and the contractual obligations to bondholders are both understood as debts, the question of choice – of choosing which creditor should be given priority in times of money crunches – can no longer be denied by public officials.

To reopen the question of the Treasury’s infrastructure, including at the European level, to reintroduce the idea that the state can resort to a variety of techniques in order to borrow and fulfill its missions: these moves are essential both for challenging the hegemony of the current regime – according to which financial markets are the only place to look for a loan – and for checking the permanent blackmail exercised by financial institutions. Without giving in to the nostalgia of capitalism’s “Golden Age” – with its unbridled productivism and its “dirigiste” governing style – past experiments, discredited as they are by the official account of recent history, can usefully contribute to the critique of the present and to the search for an alternative. If the current debt order is to be subverted, a reassessment of the role and priorities of the state can no longer be deferred.

Translated by William B. Caroline

Recommended citation: Lemoine, Benjamin. “The Politics of Public Debt Structures: How Uneven Claims on the State Colonize the Future.” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

The Fate of an Impasse: Europe, Year 2015

The year 2015 was revelatory of the current state of European politics, but exactly what it revealed about the path ahead remains a matter of perspective. From one angle, it exposed the true depth of the European Union’s impasse – its “unsustainable” commitment to undemocratic institutions and to a fiscal and monetary framework predicated on interminable austerity – from which no escape is in sight. From another angle, the year 2015 represented a kind of rupture, as the sovereign debt and refugee “crises” came together and as emergent parties and social movements (from the left as well as the right) contested the EU’s chosen course of austerity and technocratic rule.

In his recently published book, Europe Entrapped, Claus Offe assesses the predicament of a Europe split into winners and losers – a split that runs between a German-dominated “center” and a southern “periphery,” between the proponents and the skeptics of deeper integration, between technocrats and populists. According to Offe’s diagnosis, Europe is suffering from a fundamental crisis of “crisis management.” While the technocrats in Brussels and at the ECB do not have a democratic mandate, the national governments of its member-states are committed to goals other than the common good of Europe. An economic and monetary union of “ever closer integration” has failed to achieve the kind of “balance” that it forecasted for itself. The self-imposed rules and sanctions it continues to enforce – specifically, the austerity measures imposed on its peripheral members subjected to accumulated debt and speculative financial markets – have resulted in unnecessary suffering and legitimate doubt about its future. The predicament in which the EU finds itself can thus only be resolved through radical institutional democratization and forms of shared economic and social policy, even as the discursive tools and political alliances that could affect these changes appear hidden on the anticipatory horizon.

As 2015 came to a close, we met with Claus Offe in Frankfurt to ask him about the year’s developments, their meaning for the current impasse, and their potential implications for Europe’s fate in the near future.

Q: In a 2013 article that foreshadowed the central arguments of your recently published book, Europe Entrapped,1 you argued that, “in the end, it will depend on the protests and resistance of those who have been hit the hardest by the crisis. Perhaps this resistance can force the elites to steer toward a more productive course. At the moment, their ever more frantic efforts are buying ever less time, on credit.”2 Was Syriza – the leftist movement and party elected in January 2015 to govern Greece, one of the hardest-hit countries on Europe’s so-called periphery – an expression of such a protest?

CO: It’s hard to find a lot of inspiring news here, given the austerity deal that Syriza was forced to sign last summer. For me, there’s the encouraging push toward a kind of internationalization, insofar as Syriza in Greece led to Podemos in Spain. In Portugal there have also been some very interesting and promising developments of resistance to austerity policies. But there’s no mistaking that the trend in Europe is moving toward the right – both in the market-liberal, austerity version of the right and in the nationalist-populist version of the right. This is happening not only in the streets, but also in the national parliaments. In France, the United Kingdom, Austria, and the Scandinavian countries (without even speaking of Eastern Europe), we’re experiencing a strong presence of right wing populism – an anti-European and increasingly authoritarian, right wing populism inspired by the role models of Putin, Erdoğan or Orbán.

On the one hand, this is very worrisome. On the other hand, perhaps it allows for a cautious hope that the EU and the EU elites will now be forced to act. The political forces determining larger dynamics are now in a three-fold crisis – the Euro-crisis, the refugee crisis, and the terror crisis – and thus they’re very ambivalent. From the perspective of future historians, I think that the years of 2015 and 2016 will be seen as a turning point for the European Union.

Q: Do you think that, at the very least, the resistance of the Syriza government succeeded in challenging the hegemonic discourses at the level of the EU?

CO: Yes, to be sure. The protagonists of the hegemonic discourse have begun to have second thoughts. In a country like Greece, it’s all about political stability. The radical right wing political party Golden Dawn is now the third-largest party in Greece – that’s very dangerous. In a situation like this, something could go very wrong. Looking above all at Greece’s history, this much is clear: in 1967 there was an authoritarian regime change, which took place under the protection of the Americans.

I also think that German Finance Minister Wolfgang Schäuble would admit in a private conversation that a certain self-limitation is necessary in this disciplinary prosecution against the Greek economy. Yet it’s certainly also the case that the French and above all the Germans really want to use this example of Greece and to send a clear warning: a leftist government shouldn’t be allowed to pass through with what’s seen as an irresponsible incursion of debt.

It’s clear that the relative immiseration that one sees – not only in parts of the Greek population, but also in parts of the Portuguese, Italian, Spanish, Irish and also British populations – will not continue without potentially destabilizing political consequences. It will lead to a reordering of political forces, and many of these forces are unconventional in the highest degree.

A distinction that I once found quite useful is the distinction between political parties that aim to take governmental responsibility and to play a role in parliaments, on the one hand, and pure protest parties that don’t share this ambition or that don’t have the prospects to attain it, on the other hand. But in some countries, parties that emerge out of protest movements can achieve a fusion of both sides of the coin. These are at once protest parties and parties that actually can partake in governing their countries. One example would be Italy’s Berlusconi and the Lega Nord Party, while the Freedom Party in Austria would also belong to this form of politics – on the one hand, socially protectionist concerning its own clientele and, on the other hand, xenophobic, anti-liberal, and anti-European.

Q: How would you account for what one might call the “populism” of these kinds of parties?

CO: The concept of populism is of interest because it refers to how an allegedly homogenous “we” can form by setting itself against a closed-off block perceived as the “other.” In other words, it’s us against the others. It’s a “we” at the bottom who are directed against those “others” at the top, the “establishment” or the upper “one percent.” This is the “upward-looking” version of populism. But there’s also a “downward-looking” version: It claims that the foreigners, the migrants, the underclass, the minorities, etc. are making illegitimate demands on “our” resources and our capacity for recognition. What we see in the USA’s Tea Party is a combination of both. They are against “Washington,” for example, because for them “Washington” means the universalization of health care reform and the liberalization of immigration policy: the liberal establishment that benefits the undeserving in order to “buy” their support and allegiance.

Populism always opens up a wide front and uses assumptions of homogeneity: “We, the People.” I travel quite often to the states in Eastern Germany where there are other cases of how this works. One formula that is unbelievably catchy, that is easy to grasp, and that is repeated over and over again is this one: “We’re foreigners in our own country. We were thus robbed of something that belongs to us. We were robbed by foreigners who are here illegitimately, and the government is betraying us while it allows them access in irresponsible ways.” This is an obsession that one needs to reckon with. The CSU (the conservative Christian Social Union party in Bavaria) is currently attempting to link itself up with this kind of populism, while the CDU (Christian Democratic Union) is rather attempting to manage it. This is where the split between the two parties lies – parties who are nevertheless (and for the time being) part of the same federal government.

The SDP (Social Democratic Party) also doesn’t know what to do. It’s a party that hasn’t been able to get rid of a “comrade” like Thilo Sarrazin and that has allegedly lost, as a consequence, around a hundred of its top intellectuals. The Social Democrats apparently can’t expel him because parts of its own base think the same way that he does. Sarrazin’s three amazingly successful books effectively articulated the three central themes of the radical right wing AfD party (Alternative for Germany): rejection of migration, rejection of the EU’s monetary union, and rejection of liberal standards of political correctness. This is the situation right now, unbelievable as it may be. There’s a thoroughgoing xenophobia among craftsmen and skilled workers, which forms part of the electoral core of the Social Democrats. As we know, legal and political liberalism as well as cosmopolitan internationalism are clearly not entrenched in the genetic code of the working class – neither in Germany nor elsewhere.

A supporter of the right-wing populist party Alternative for Germany (AfD) displays an anti-Merkel placard during a demonstration against the German government’s asylum policy in Berlin on November 7, 2015. (John Macdougall/AFP/Getty Images)

Q: At the level of the EU, what do you currently see as the key strategies for crisis management?

CO: As far as I can tell, the prevailing strategy at the moment is the relatively mild strategy of bringing interest rates down, delaying the repayment of debt or the conditionalization of repayment by tying it to the rates of economic growth performance of indebted member-states. Governing elites in Germany are apparently beginning to understand that their reputation will be damaged by a confrontation that is too harsh, even though Schäuble is obviously committed to sticking to this path. But maybe this is a case of the classic division of labor between “good cop” and “bad cop,” between Merkel and Schäuble.

But I also think that, from what I can judge at the moment, the strategy of even a weakened conditionalism is hopeless. Christina Lagarde, the chairwoman of the IMF, was completely right: There has to be a “haircut” to lower the amount of debt payments, and indeed a significantly large one; additionally, there needs to be a transnational program for redistribution. In other words: a Marshal Plan for Greece. But even in the case of an investment initiative of a significantly large order, we need to get used to the fact that in Europe – like in other advanced regions of the world – the difference between regional growth poles and stagnating regions or sectors is growing, with overall economic growth curves turning flat, as much of the current literature on “secular stagnation” suggests.

If we think, for example, about the trade between the Länder of Mecklenburg-Vorpommern in the north of Germany and of Bavaria in the south of Germany: the deficit here is presumably at least as large as the foreign trade between Germany and Greece. Within a federal nation-state, this is normal and is balanced out by the federal government according to the constitutional norm of an “equivalence” of living conditions within one country, which is a political accomplishment. We have this principle in the German constitution, but since Europe isn’t a federation, the EU doesn’t have it in the same way; at best, it is only through bureaucratic discretion. We nonetheless should follow such a principle of equivalence so that the entire periphery of the EU can be prevented from falling into accelerating decline.

The question remaining here is what the growth industries of the future should actually consist of. Will it be in solar energy? Will it be in pharmaceutical research? Should it be in electronics or in the shipbuilding industry? Should it be in the service industry, such as in banking? One must decide on a strategy if one wants to conceptualize a growth strategy for the European periphery. Eventually the core of Europe will need to pay for this strategy. The alternative would have economic and especially political consequences that would unavoidably lead to the disintegration of the EU.

Q: How do you see these problems linking up with the EU refugee crisis?

CO: I don’t have a clear answer to this question. It’s a new situation. The European Court of Human Rights decided – against the letter of the Dublin accord – that migrants who arrive in Greece first cannot be sent back to Greece by other countries because the housing and living conditions there constitute a violation of human rights. There were bulldozers that cleared out the refugee camp in Patras. Although there were still people there, the bulldozers piled through and everyone only had five minutes to flee. The terrible pictures from this scene are well known. Since then German officials aren’t allowed to send back refugees who have documents showing that they came through Greece, even though that’s specified in Dublin directives. The refugee crisis is, as I said, a new situation. It’s surely also a bargaining chip for the Greeks, since they can say: We are hit the hardest, so subsidize us for the accommodations of refugees according to your own standards. The political leverage that Greece has lost in the debt crisis may well be recovered in the refugee crisis. Eventually, this may result in a major deal in which the EU not only forgives Greece’s debt but also compensates Greece for the cost of adequately coping with at least parts of the refugee problem.

Q: The Greek state is often depicted in public discourse as the “guilty” party (als “schuldiger” Staat) of the sovereign debt negotiations. In your view, how does this framing device function politically?

CO: The winners and the more powerful parties in the debt crisis adopt an actor-centered model by rhetorically establishing the view that whatever happens must be attributed to the intentional acts of particular actors – actors who enjoy the freedom to act otherwise than they actually do. Once this cognitive frame is established, everything falls into place: Greek politicians run excessive budget deficits because they want to please their voters and buy support, and because they are opportunistic or corrupt; in doing so, they go to extremes, whether it be on the left or the right. According to this frame, “we” don’t want to have anything to do with these people but, unfortunately, we’re stuck in the same boat with them and so we want to use all means available to prevent them from rocking the boat, since that would get us all wet. This kind of argument is sometimes even more cautiously formulated: For example, “We want Greece to stay in the EU, and to achieve this we’re ready to make sacrifices.” That’s Chancellor Merkel. Or for a more direct example, Thomas Strobl, a prominent CDU politician, put it this way: Der Grieche nervt (“The Greeks have been getting on our nerves for far too long now”). It all boils down to a matter of character deficiencies of agents who need to be corrected through the administration of negative sanctions. In contrast, losers tend to use a language of material and institutional constraints and of pressing needs that together make up the driving forces of their action in which choice is severely limited. According to the losers, what is to be blamed is not the character deficiencies of agents, but rather the misconstrual and malfunctioning of institutions that lead to irremediable resources constraints.

Q: The dominant discourse is largely marked by a binary schema: either for Europe or against Europe. Rarely does a third position appear as an option: for a different Europe. Similarly, debates mostly revolve around two standpoints: either for reforms or against reforms; either “rational politics” or “populism.” How do you understand the operation and role of such binary logics?

CO: Yes, such simplifying dualisms are both an indispensable means to organize discourses and a distorting limitation of their fruitfulness. Let me add another binary schematization of the current situation, which would go like this: we either need a federal or quasi-federal European state that is also mandated and capable of major redistributive measures (and reasonably immune from nationalist backlashes opposing them) or we need to move backwards to renationalization and forget about “ever closer integration.” This is the alternative that I actually see at the moment. Whoever opts for the latter is, however, taking a short-sighted and dangerous road toward the regressive disintegration of Europe, in both a political and an economic sense. Either things are going to get much better through a robust solution to the current accumulation of crises, or they are going to get much worse. That is to say: the status quo is not an option. That would be my schematization, but I have to admit that this way of posing the problem is not widely agreed upon. Instead most representative actors tend to think in geographic categories: center vs. periphery, “rational people” vs. “irrational spending,” North vs. South, East vs. West, etc. It ultimately is all about the framing of these kinds of oppositional pairs.

Police tape and barb-wire in front of European Central Bank
In anticipation of a protest against austerity by Blockupy, an alliance of social movements, activists, workers, and trade unions, the police block access to the new building of the European Central Bank in Frankfurt on March 16, 2015. (Daniel Roland/AFP/Getty Images)

Q: What might a thoroughgoing integration of Europe look like? What kinds of institutional frameworks would need to be changed such that the deepening of European integration would not mean the intensification of austerity politics? What conditions are necessary to open up new avenues for progressive alternatives?

CO: That is precisely the question. I think that there’s a difference here between what’s being thought and discussed behind closed doors and what’s actually being said in public debate. I believe there are a lot of people in Brussels – such as Laszlo Andor, former Commissioner for Employment, Social Affairs, Skills and Labor Mobility – who say that, without the socialization of labor insurance and its costs, nothing is going to work in Europe. Intentions, proposals, and visions like these would create a different Europe.

The other axis is of course comprised not only the executive, but also of the parliamentary bodies. For example, Mario Draghi has demanded a European finance minister – supposedly, one who is not just a supervisory agent with policing power to enforce fiscal rectitude. But this is a failing proposition because a finance minister, when deciding on serious matters such as taxation, spending and debt, needs legitimate budgetary authority – that is, if we don’t want to fall back into the times of “taxation without representation.” Budgets are, after all, laws. Laws are drafted by ministries and made by parliaments. Yet there isn’t any parliamentary foundation in the EU, only a very weak one with the power of the purse, which could be strengthened by a European finance minister – if one existed. The EU has regulatory powers, not taxing powers. For the latter, it would need its own democratic mandate to tax and spend. Taxes and dues are painful to those who have to pay them; hence the vote of a law-making body would be necessary in order to make these pains tolerable.

Q: What are the mechanisms preventing this much-needed public discussion concerning a way forward?

CO: My friend and sparring partner, the ever-combative Wolfgang Streeck, has argued that democracy needs a state and a democratic state needs borders. True enough.  Europe is not a state, however, and so it’s also not a democracy; moreover, its borders keep changing and are partly contested. But the concept of the state entails borders. Unlike the states in the USA, Europeans have not grown accustomed to conceptualizing their political identity as being part of larger political whole. Given their history of international wars, they are reluctant to do so. There is no equivalent to what emerged after the US Civil War – namely, a union with a Constitution, with a president, with clearly drawn borders, which, taken together, represent a large political community. This process didn’t take place in Europe and so there’s also always the danger that it will reduce itself to smaller political entities. The enduring weight of conflictual national histories and the absence of a revolutionary, founding act: These are historical obstacles Europe faces in comparison to the history of the USA. If the cold war had only lasted a little longer, perhaps there would have been a chance to merge Europe together into a political union. But this was ultimately unsuccessful. Instead an economic union was established – indeed, in an economic zone that was fully inadequate for such a union and, as it turns out, even for a consistent and reliable trajectory of an “ever closer union” of ever more member-states.

Q: Around what set of demands could different European states come together to form an alternative political movement? It appears that, in the contemporary constellation, the deployment and the role of political concepts have become less clear. Political demands are often made beyond the positions of right and left. There is the option of returning to particular left signifiers, like Syriza. Or, somewhat like Podemos, there is the option of distancing oneself from leftist parties and instead trying to invent a new political vocabulary. This raises the related question: What kind of conceptual scaffolding is required to create new forms of international solidarity in Europe?

CO: You cannot possibly believe that I have a ready-made, conclusive, and valid answer to this question. But I’m watching with great interest, like everyone else, to see which actors emerge, together with their alliances and programmatic objectives. The very latest on the scene is this: Europe as community fighting against terrorism. I doubt that this fear-driven idea can serve as the basis for actual community formation, of course. It won’t solve any European problem.

One thought that is well known from the Stern Report on climate change (2005) is this: “the sooner we get ourselves to do something, the cheaper it will be.” By implication, the longer we wait, the more expensive it will be, and at some point prohibitively so. If a large investment program for Greece had been started in 2010, we would have saved a lot of money as well as, arguably, a lot of suffering.

The most important political questions are questions of “framing.” For example, the framing of time horizons: if we were able to get the framing right, such that the logic of timeliness would follow, a lot would be gained from this. We act rationally insofar as we encounter “now,” rather than defer, foreseeable dangers. Up until this point, a politics of small steps and solutions has dominated, as if we had unlimited time.

So the answer to your question is: the political forces that could directly provoke such changes are hard to find at the moment. But one has to be able to imagine such forces; otherwise it won’t work at all. We will find ourselves in a creeping decay if we aren’t able to act right now. The time to act is now. This is easier to see with the refugee question and the terror question than with the most decisive of all – the economic question.

It’s agonizing that I can’t give a more optimistic answer to the question of what exactly needs to happen. But I think the dimension of time is very important. The year 2015 is a turning point. At the end of 2015, one needs to push for an answer of what needs to happen – indeed, at the institutional level of the European Union. Irresponsible waiting is an activity that turns out, at least in retrospect, to be prohibitively costly – which is not to deny that democratic will-formation, coalition-building, the gathering and dissemination of information and deliberation can be enormously time consuming processes.

Q: But couldn’t this dimension of time be characterized in a different way? Particular relations and structures of power carry their own logic of inherent necessity, which can rob us of a sense of the possible. Determinate necessities appear to dominate, and perhaps we need to sharpen our sense for other possibilities and to point to potential alternatives.

CO: Niklas Luhmann speaks of “the urgency of the short-term” (die Vordringlichkeit des Befristeten). Following a more critical perspective, this is to say: politics has lost the vision and the capacity to keep its eye on the future. We’re living from day to day without a long-term vision or plan for problems of climate, energy, and security.

This is indeed the same critique: we shouldn’t just do something for tomorrow; we have to do something for the days after tomorrow. We need to do something now, because doing something the day after tomorrow is going to be far too expensive. That is an exponentially increasing rate of cost: every passing year doubles, triples, quadruples the costs. At some point it then becomes unaffordable.

Q: In this regard, how do you understand the relationship between time, power, and debt? Indebtedness also has a political dimension since it comes to dominate the temporal conditions and possibilities of political action.

CO: Yes, the debtor needs to pay the next installment until a fixed date. Sure, those who don’t need to pay off any debts have more freedom at their disposal. The disposal of future income is already determined if you have debt; you need to pay the installment and the interest. This is surely also a form of shackling, a form of constraining action. But the avoidance of debt is of course also a form of shackling. The deadweight of debt accumulated in the past precludes choices concerning the future. Yet it is true that only by taking on debt can you “invest” in the future, as creative entrepreneurs supposedly do. So the courage to take on debt is also an impetus for economic creativity.

Q: After Syriza surrendered to its creditors and was then nevertheless successfully reelected by the Greek citizenry in September 2015, what do you make of the political prospects for anti-austerity movements? Might we be able to expect a “swing to the left” in Europe?

CO: The problem is that there aren’t many alliances, and above all there aren’t many alliances between political parties. Central parties for this kind of alliance would be the Greens and the Social Democrats. There’s the strategic cooperation between Podemos and Syriza, a pair of parties with reciprocal bonding. But these are weak signs for the possibility of supranational alliances of political parties. The party alliances in the European parliament are very weakly qualified for this task. In Europe we vote according to national electoral laws. So I see a diffuse and fragmented arena of political actors, which is to say: there are hardly any visible or recognizable alliances being formed across state borders. I just can’t see them. I think I would see them if they existed.

How did Greece become isolated? Why didn’t a southern alliance form and threaten with the creation of a southern currency, a “Seuro,” if you will? Since May 2015 the score was 18-1 against Greece: not a single nation said, “enough is enough,” with the exception of this famous quote from Italy’s Prime Minister Matteo Renzi, who said it on the morning of July 13, after the defeat and blackmail of Greece.

Your question is absolutely the central question. But I don’t see a constructive and inspiring answer, at least if the answer is to be found somewhere in political parties, the media and university research. An idea would need to be developed around which such a transnational European left-alliance could crystalize itself. The current state of Europe is not sustainable. But who is going to change it and which institutional reforms will be successful – all of this must be answered in the (hopefully near) future.

Interview conducted on December 4, 2015

Translated by William Callison

Recommended citation: Offe, Claus (interviewed by William Callison, Jonathan Klein, and Johann Szews). “The Fate of an Impasse: Europe, Year 2015.” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

The Marks of Austerity in Thessaloniki, Greece

In Greece, the combined effects of the financial crisis and the budgetary cuts purported to mend it have been swift and devastating. Since 2008, the unemployment rate has increased over 200%. About 50% of youths under 25 are unemployed – compared to 7% in Germany. More than a million people have been laid off in the last 6 years, and the number of Greeks suffering from depression has increased 300%.

Thessaloniki, the second largest city in Greece, has not been spared. In some of the main shopping streets, more than 50% of the stores have permanently closed down. For the local population, the iron curtains of the closed shops are just the tip of the iceberg; they are the most visible aspect of the austerity shock that hit them in May 2010, when the first memorandum of agreement between Greece and its creditors was signed.

Closed down shops and bankrupted businesses that have turned the nearby industrial zone into a post-apocalyptic landscape; endemic unemployment, long queues in front of soup kitchens, and an ailing health care system: these are the stigmas that have come to traumatize Thessaloniki and its inhabitants.







In March 2014, Kostas Arvanotópoulis, the Minister of Education at the time, broadcast two commercials, in which Greek youths were encouraged to opt for learning a trade and forego longer and more expensive studies. Eight months later, Andréas Lovérdos, his successor in the government of Antonis Samaras, proposed to make up for the shortage of teachers by resorting to unpaid volunteers. The volunteers’ sole incentive was a potential advancement in ranking if a position were ever to open in the future.

Public schools and universities as well as students of working and middle class backgrounds bore the brunt of the austerity measures imposed by the Troïka. From 2008 to 2013, the percentage of youths out of work, school or apprenticeship increased by 92.6%. Throughout the country, the administrative staff in schools and universities were reduced to part-time employment. The ensuing strike lasted several months. As for the teachers, 2500 of them were suspended, recruitment was brought to a halt, and the non-renewal of temporary contracts was thoroughly implemented. In December 2015, tenured professors at the University of Thessaloniki were expected to hold classes until 10 pm in order to make up for the scarcity of teachers.


Signed in August, 2015 by the Greek State and its creditors, the third Memorandum of Understanding allocates a mere 3.5% of the total health care budget to public hospitals. For other member states of the EU, the average share of the health care budget going to public hospitals is 7%. According to hospital practitioners, the Greek system would need an additional 26,000 health care professionals, including 6,000 doctors, in order to function properly.

On the rare occasion that new personnel are hired, their employment is always precarious: a 5-month contract with a salary of 600€ ($652) per month for a young medical doctor. At this point, the entire system owes its survival to the overly exploited staff. Students and seasoned professionals alike are leaving the country in droves: just in the last 3 years alone, the medical association reports, the city of Thessaloniki has lost 2000 practitioners.

Public hospitals often lack basic sanitization material (alcohol gel, toilet paper, soap, cotton…) and pharmaceutical products (serums, injections). Patients are therefore expected to provide the necessary equipment themselves. Doctors com- plain about the recent increase in hospital-acquired infections, most notably in intensive care units.

According to Katsiba Dafni, the President of the Union of Thessaloniki Hospital Practitioners, in the last 6 years, life expectancy has decreased by 3 years for women and by 5 years for men – a devolution that is usually only found in war-torn areas.

Translated by Sacha Le Chêne

Recommended citation: Berthe, Vincent. “The Marks of Austerity in Thessaloniki, Greece.” Near Futures Online 1 “Europe at a Crossroads” (March 2016).

Europe and the Specter of Democracy

Between January and July 2015, Yanis Varoufakis was finance minister of the first Syriza-led government in Greece and, in that capacity, sought to renegotiate the terms of the Memorandum of Agreement imposed on his country by the Eurogroup and the so-called Troika – the European Commission, the European Central Bank and the International Monetary Fund. He resigned after Alexis Tsipras, the Greek prime minister, decided not to act on his overwhelming victory in the July 5th referendum and instead yielded to the exigencies of Greece’s creditors. Since then, Yanis Varoufakis has been working at the foundation of a trans-European movement for the democratization of the EU. We met him in Paris, just a few weeks before the official launching of DiEM 25 (Democracy in Europe Movement 2025), which took place in Berlin, on February 9th, 2016.


MF: I’d like to start with a couple of questions about Greece and the relationship between Greece and its creditors under Syriza II – Alexis Tsipras’ second government. The first question regards the relation between Syriza II and the IMF. In the wake of what could be called the surrender of the Greek government, and in spite of the July 5th referendum, the IMF seemed to soften its position in certain respects. Now that Greece had surrendered to the terms of the “Memorandum,” the representatives of the Washington-based institution conceded, “we have to admit that the Greek debt is in fact unsustainable,” which implies that some measure of relief is necessary. The German Finance Minister Wolfgang Schäuble, as well as the chairman of the German Central Bank and other hard-line members of the creditors’ club immediately balked at the idea of a “haircut,” however modest. While the rift between the ostensibly more forgiving approach of the IMF and the intransigent stance epitomized by Schäuble has not subsided in the ensuing months, Alexis Tsipras has been trying, so far unsuccessfully, to exclude the IMF from the group of institutions involved in the implementation of the third “Memorandum of Understanding.” How do you explain the attempt by the Greek Prime Minister to get rid of the institutional actor that seems the most willing to reckon with the fact that Greece’s debt needs to be partly written off?

YV: Firstly, let’s begin by stating the fact, the historical fact, that there is no new development here. The IMF has been repeating, quite correctly, that the debt is unsustainable since 2011, 2012. There was even a time, when Christine Lagarde in 2012, 2013, proposed to the Greek government of the time, the right-wing/PASOK government, to forge an alliance between Athens and Washington DC, the IMF, in the Eurogroup, in order to bring about debt relief. Then, the Greek government rejected that, choosing instead to remain loyal to Berlin. So what you just described is a repetition and continuation of this pattern. The explanation for this by Alexis Tsipras, the Greek Prime Minster, if you were to put this question to him, would be that the IMF keeps making these noises about the importance of debt relief but only refers to the part of the debt owed to the Europeans. He would tell you that the IMF would never consider debt relief for the part of the debt that is owed to the IMF. So it only puts forward the suggestion of a haircut to other people’s money, and not its own loans to Greece.

In addition, and far more importantly, the IMF, he would say, sets ruthless and rather horrific conditions in the realm of labor relations and pension cuts. Alexis Tsipras has always held this view, even when I was in the cabinet. This was not my view, it was his, and I was ambivalent about whether we are better off getting rid of the IMF because the IMF’s noises regarding debt relief are insubstantial and hypocritical, and they don’t help much anyway. He believed that in order to achieve a better balance between social policies regarding labor markets, pensions, and debt relief, it was best to try to deal with European officials directly. I am of the view that this is a mistake because having the support of the IMF is instrumental to the federal government in Berlin. This seeming contest between Washington DC, Frankfurt, Brussels, and Berlin is a game that Athens shouldn’t be playing. The IMF will stay in the program, possibly without lending more money, because it is absolutely essential for Angela Merkel to be seen in the eyes of the federal government as having the IMF on her side.

The surrender, as you put it, was devastating for one reason: we, the Greek government, did not use the IMF’s internal divisions in order to extract from the Troika an agreement where debt relief and debt restrictions would come first and before anything else. Once that surrender was effected, I think all this gaming, regarding whether the IMF should be part of the program or not, is neither here nor there. It is beside the point, the pot has been lost.

MF: My second question relates to the nexus formed by the consequences of the third memorandum imposed on Greece and the evolution of European immigration policies. Starting on August 30th 2015, there has been this remarkable shift in the German government’s official policy with regard to refugees – especially from Syria. You wrote about it yourself, emphasizing the contrast between the principled nature of the German Chancellor’s stance in the context of the inflow of asylum seekers and her attitude toward Greece a few months earlier.1 Though Germany had de facto already been more welcoming than its European partners (with the exception of Sweden), what was remarkable in Angela Merkel’s speech on August 30th was that she said, first, that welcoming refugees was a moral duty and, second, that Germany and Europe as a whole could afford it. This was maybe the most remarkable part of her statement, since, until then, European governments had always justified their policy of inhospitality by claiming that they just could not afford to let everyone in. Now, after the initial shock produced by Angela Merkel’s sudden turn-about, the French and British governments as well as the representatives of European institutions – and prominent members of the Chancellor’s own party and government – were quick to counter the call for a Wilkommenskultur: though careful to keep their distance from the openly xenophobic position of Central and Eastern European leaders, they managed to impose a “middle ground” whereby the EU would be more welcoming toward certified refugees but, at the same time, show even more toughness than before with economic migrants. In order to sort between “good” and “bad” foreigners, EU officials decided to introduce so-called “hot spots” along the borders of Europe where the selection process would occur. Under the guidance of the German government, they also sought to sign new agreements with “transit” countries – Turkey in particular – whose governments would receive ample European funding to prevent asylum seekers from entering EU territory.

So this is where Greece, all of a sudden, becomes an important player: as the main entry point for refugees, it is granted the status of an internal transit country. In other words, European authorities, and the German government in particular, want their Greek counterpart to keep migrants from pursuing their journey to the north of Europe. Hence, in October and November, there were rumors in the German press that Angela Merkel was about to soften her position with regard to the Greek debt crisis if, in return, Alexis Tsipras’ government agreed both to retain refugees in Greece and to step up the control of its country’s borders. However, what we have heard in the last few months amounts to a shift from carrot to stick, meaning that the European Commission, backed by the governments of several member-states, is now threatening Greece with a new kind of “Grexit” – an exit from the Schengen Area where, in principle, internal European border control has been abolished – if its government does not make greater efforts to protect the rest of the Union from refugees. What do you make of this new development?

YV: If you take the three words “European,” “refugee,” and “policy,” and put them together, you end up with a joke. There is no such thing as a “European refugee policy.” In the same way that you would end up with a magnificent anecdote if you put “European,” “foreign,” and “policy” together. What you described is proof of this fact. There is no such thing as a European refugee policy. The policy, on the one hand, and the instrument implementing it, on the other, which is a body that is supposedly overseeing the protection of the common EU borders – both of these are in a shambles.

The arrival of so many refugees – independently of the Greek negotiations regarding the Memorandum of Understanding – coincided with the defeat of our government, and the humiliation of the Greek prime minster, and all of my comrades who accepted the surrender and stayed in the government. At the time, I said that the surrender was a defeat for Athens’ government and a major injury to the spirit of Europe. The notion that you can drag a country through the mud, and humiliate it by forcing upon its bankrupt government a program that everyone knows is inhuman, as well as another loan with conditions that are absolutely impossible to fathom – all of this expresses a shattered European spirit. Let me give you a simple example. The idea that every single Greek company (whether they are a single person company, a conglomerate or a corporation) has to prepay the whole of their 2016 corporate tax in the last two months of 2015 is a notion that only needs to be directly stated so that you can recognize that this is done to a country specifically in order to crush and humiliate its government. The moment some entity like the Troika imposes such a humiliating treaty on one state in order to bring about an electoral outcome that they prefer – whether you are in Spain, in Portugal, in Ireland – causes you to realize that the very spirit of the European Union has been crushed, broken, shattered. Once the spirit of the EU has been shattered, how do you expect a common, humane, rational, and enlightened approach to the problem of refugees? Once the spirit of the Union has been dealt such a heavy blow, then everyone thinks about their strategy in terms of avoiding their contribution to a common cause, and everybody adopts an envious attitude, a “not in my backyard” kind of attitude. Everybody tries to shed their responsibility regarding refugees, regarding any common burden-sharing.

Angela Merkel at that point responded magnificently. I don’t know why, and I don’t really care. I wouldn’t be surprised if the terrible effect on Germany’s image of how her government had death with ours had something to do with it. Angela Merkel can be accused of many things, but she can’t be accused of not being an astute politician who understands the effect various developments have on Germany’s image and on her own image as the Chancellor of Germany. But again, I am pleased that she made this magnificent decision, whatever the underlying purpose and rationale was.

Of course, once the Greek government was humiliated and the spirit of the Union was crushed, that magnificent decision was not supported by a fragmented European Union. So she found herself in the eye of the storm. She found herself receiving the slings and the arrows of a lot of ultra-nationalist, anti-refugee, blatantly racist, or sometimes quasi- and hidden-racist narratives against her and her decision to open the borders to the Syrian refugees. As a result, she then had to backtrack and create a fudge, a typical European Union fudge. Part of that fudge is what you described: thinking in terms of borders and “buffer zones”; the idea of reconstituting borders within Europe, which was aided by the terrible events in Paris; the idea of creating a wall between the European Union and Turkey, with a buffer zone on the other side of the wall, which could be purchased from President Erdoğan of Turkey for 2–2.5 billion euros; and the idea of having another buffer zone on the other side in Greece, with Frontex or some iteration of Frontex playing the role of border control, which would effectively take over control of Greece’s border with Turkey from Greek authorities. When the Greek authorities resisted this plan based on the fact that we don’t really have a federation, and that we don’t have a federal border patrol like the US does, then suddenly the Greek government was treated with threats just as they were treated a few months before in relation to debt reform. Just as we were threatened with Grexit earlier, the Tsipras government was threatened with the exit from Schengen.

This is what happens when an economic crisis, which was inevitable and created by the bad design of the common currency area, spills over into a crisis of politics, of culture, of legitimacy, of the very constitution of Europe itself – in the final analysis, it spills over into the crisis of European democracy.

MF: Practically, however, don’t you think that, as the pressure Angela Merkel is already under continues to mount, the Greek government could acquire more leverage? To put it cynically, if the Chancellor eventually yields to the demands coming from her majority and adopts a tougher line, at least with respect to the control of Europe’s external borders – which seems to be the trend, especially since the Cologne events on New Year’s Eve – won’t she need to help Greece play its part as a “buffer zone” at the edge of Europe?

YV: I don’t believe that the bargaining power of the Greek government has been increased by these developments. This is because you can only increase something if it is non-zero. If it is zero, and you multiply it by any factor you want, it will still be zero. Greek bargaining power is now zero. And it is zero because of the surrender to the Memorandum of Understanding that I refused to sign and vote for in August. On the first page of this document there is one sentence, “the killer sentence,” as I call it. It states, I think verbatim, that the Greek authorities commit to agreeing with the institutions. Full stop! The implication is that, even if they don’t agree, they commit to the institutions. Any treaty between me and you, where I commit to agree with you, whereas you don’t commit to agree with me, is effectively a surrender of my inalienable rights. It is the transformation of my person into your slave. Once you have done that you don’t have any bargaining power at all.

Greece has always been important. It was important before July and August. If you take one quick look at the map of Europe – Russia, Ukraine, Turkey, but also in relation to North Africa, Libya and so on – you realize what the Americans always understood since the time when they intervened in the Greek Civil War in 1946. The geographical position of Greece renders the place a strategic key point. This has always been the case. Last year when I was a minster, it was clear that the United States, Berlin, and Brussels considered us crucial in the geopolitical developments vis-à-vis Russia, Ukraine, ISIS, Libya, Egypt, and the Palestinian issue. They only put the squeeze on us, with the closure of banks and the threat of the Grexit, when they knew our side was about to capitulate. Once they know you will capitulate, it doesn’t really matter how important you are to them because they know they have you. Therefore I don’t believe that the added bargaining power caused by the refugee issue is going to make any difference since they take it for granted that they effectively rule the roost in Greece.

MF: Let’s move on to some speculation about the conditions under which the critical state in which the European Union finds itself could evolve. We will get to the chances of a democratic awakening a little later but, first, I would like to get your views on a possible external disruption, namely, the considerable downturn of the Chinese economy and its potential ripple effects. It is true that, with the possible exception of Germany, European economies are not decisively dependent on their commercial relations with China, at least at this point in time. However, the indirect effects of a persistently sluggish growth rate in China may be consequential for Europe: the Chinese authorities may react to the downturn of their economy by boosting their export industry, rather than focusing on their domestic market, thereby reducing imports from developed countries in general – Europe and Germany in particular. 

Now, we must remember that what enabled the “surplus” countries of northern Europe to impose perennial austerity programs on their deficit-ridden partners in the south was the fact that the northern export industries were primarily geared toward non-European markets – such as the United States but also China and the other emerging economies – which meant that they no longer needed to keep the southern European populations as solvent consumers. So, the question is whether losing China, and maybe other emerging economies, as a safe outlet for their export industry could suggest to the German authorities and their pro-austerity partners in the Eurozone that the time has come to give back the Greek, Spanish, Italian, and Portuguese people the means to buy German goods . . .?

YV: I wonder! In 2013 I was re-writing and editing a book that I scripted in 2011 called The Global Minotaur, which was my theory of the global crisis of 2008 and 2009. I wrote exactly this story that you just put to me in the book’s last chapter. What I had effectively said in the original draft in 2011 was that – in the immediate aftermath of the great financial sector implosion, which began with Bear Stearns, Northern Rock, and Lehman Brothers in 2007 and 2008 – the Chinese authorities, very astutely, understood what was going on. In a state of panic they decided it was imperative for them to maintain their domestic growth rates at a level that would keep the social economy stable and that would maintain the migration waves within China from the hinterlands to the coastal areas. By doing so, they hoped that – on the basis of building bubbles through real-estate operations that would be financed through asset price inflation – this would provide credit to the economy and then become a kind of investment-spurt that would make up for decreasing export revenues. By doing this, they thought that they would be buying time. They knew they had about 5 or 6 years within which to do this, and they were hoping that within these 5 or 6 years, America and Europe would get their act together and push up the level of aggregate demand globally so as to prevent the bubbles in China from bursting. Neither America nor Europe came to the party, and the Chinese bubble started to deflate. The Chinese authorities have been very skilled at preventing deflation from becoming a complete blowup, but they cannot stop it: they are not even trying to order the tide to return.

While I was finishing that book in 2013, I posed this very question, which you just put to me. It’s a great question. Germany redirected its net exports from the periphery of Europe to China – not to other emerging economies, but to China as well as the economies that are kept afloat by China. I wrote that this was not going to last because the Chinese bubble, which was an intentional bubble, couldn’t be anything else and so it was going to deflate. Slow, fast, or medium-fast: it was going to happen. And now it has happened. Additionally, you have the rest of the emerging economies and China together, which today are characterized by a level of private sector indebtedness that is higher than that of America and Europe prior to the 2008 collapse. That speaks volumes toward what is coming. Even if you don’t have Lehman Brothers-like catastrophes in China, this level of private sector debt is such that it leads to a simple conclusion: we are not going to have investment that grows anymore, not in the emerging market, and certainly not in Europe or the United States. We are simply not going to be able to envisage a situation in which Germany can continue along the lines of beggar-thy-neighbor to maintain its net export growth and to ignore the rest of the Eurozone.

Does this mean some sense is going to be knocked into the heads of the people in the German Ministry of Finance? Or does it mean that denial is going to be maintained through greater authoritarianism in the European Union? It could be either. In the former case, if some sense pervades, there would thus be greater openness to the idea of creating the circumstances of a “New Deal” for Europe by means of, for instance, energizing the European Investment Bank to create an investment that lets growth expand. Then there would be hope. But I very much fear that denial is the order of the day, as it has been in the last 5, 6 years. In this scenario, Germany would become more deflationary and the rest of Europe would descend into an even deeper depression.

If you take into consideration everything we discussed before – about refugees, about foreign policy, about the geopolitical issues confronting us – and you add to the mix the developments of deflation and depression, aided by what is happening in China, then you end up with a picture that becomes bleaker and bleaker.


MF: For almost three decades, the European left has tried to reassure itself that the neoliberal turn initiated by Margaret Thatcher in the UK and Ronald Reagan in the US would be a passing nightmare: neoliberal policies wreak such social havoc, the reasoning went, and the economic theories on which they are predicated are so silly, that people will surely rise up against their enforcers, either in the voting booths or in the streets. However, the kind of short-termism that is the name of the neoliberal game has proved that it was not necessarily short-lived, even in the face of a major financial crisis and the Great Recession that resulted from it. Thus, more recently, the European left has shifted from confidently announcing the impending end of the neoliberal era to warning that, unless ruling elites change their ways, a resurgent fascism is around the corner – under the guise of the French National Front, the British UKIP, the German Pegida and AFD, and of course, Golden Dawn in Greece. These extreme right wing parties may indeed come to power, but it may also be the case that the fear generated by such a prospect is what enables the short-termist neoliberal elites to stay in place – though not without gradually implementing large sections of the extreme right’s program. The recent regional elections in France provide a good illustration of the latter possibility: while poised to win the presidency of several regions, Marine Le Pen’s party ended up winning none. Yet, the reforms to the Constitution that the French socialist President is now promoting largely borrow from the National Front’s rulebook. So, this means that the challenge we are facing does not only involve the electoral victory of the right wing populist parties, but also the undoing of our already-damaged democracy at the hands of the familiar and ostensibly reasonable people who are in charge today.

YV: Spectacularly apt point! Let me give an example. In the spring of 2012, when the neo-Nazi Golden Dawn were emerging out of the woodworks in Greece, soon to take their place in the Greek parliament, they stormed power without going anywhere near government. In the winter of 2012, a Minster of Health in the Socialist Party, in association with another Socialist Party member, the Minster of Public Order (the police), went into cahoots to have women arrested from the streets of Athens. The reason they gave was that the women were posing risks to public health under the pretext that they were operating as prostitutes infected by the HIV virus. They were picked up randomly from the streets, placed in police cells, forcefully tested for HIV, and those who were HIV positive had their photographs posted on the Internet. Now, I cannot imagine what kinds of even worse things the Golden Dawn thugs would have done if they were in power, especially given that all of this was also portrayed in a fully fledged racist manner. The women who were arrested were presented in the press as being black, being Russian, being Ukrainian and, in the end, as being Muslim. At that time, some of us rose up and wrote fiery articles, and there was a beautiful documentary made on the subject. The point here is the same one that you made earlier: the fascists and the Nazis don’t need to enter the buildings of the ministries. They are in power without being in the government, whereas those in the government are not in power. This is the greatest danger, the greatest fear, and the greatest peril that we are facing. I believe this is an intermediate state that we have been in. In a sense, this has surreptitiously, and without any central design or plan, prepared for the moment when we say, well, we have the Nazi policies, let’s have the Nazis as well, or that it doesn’t really matter if Marine Le Pen is the President if her policies are being implemented by the Socialist Party anyways.

My greatest fear is that Marine Le Pen will seem like a decent development as president because at least she has something to say about the incongruities and the irrationality of Europe, whereas President Hollande doesn’t. He allows, in a sense, for an ultra-right wing social agenda to be introduced in order to avoid losing more votes to Le Pen. He does so without having the strength of argument that Le Pen has with regard to the flimsiness of the monetary situation under which the French social economy suffers.

MF: Let’s try to move to a more hopeful subject. Since your resignation from the Syriza I government last July, you have been traveling and addressing a number of audiences all over Europe. I would like to get your report on the spirit you have encountered in the countries you have visited. In the wake of Alexis Tsipras’ decision to surrender to the dictates of Greece’s creditors, there was an understandable fear, throughout Europe, that Syriza’s broken resistance would have a devastatingly depressing effect on the various movements, and more generally the people, seeking to change the course of European politics. And indeed, it seemed, at first, as if the star of Podemos in Spain – which had been Syriza’s strongest ally – was fading (though the young party did not do badly in the December general elections). In Britain, however, just a couple of months after Syriza’s surrender, Jeremy Corbyn unexpectedly surged to the leadership of the Labour Party. More recently, the legislative elections in Portugal resulted in a new kind of alliance between the Socialist party, the so-called Left Bloc, the Communists and the Greens. What is your assessment of the post–July 12th moods of the anti-austerity movements and constituencies across Europe? Let’s start with Britain, where you have spent a lot of time.

YV: Let me begin by saying that when we were running for government about a year ago, just before the election on the 25th of January 2015, our slogan was: “We are challenging the austerity in Greece in order to change Europe.” We challenged austerity unsuccessfully, we were defeated, and so we surrendered in July. Our failure cast a dark shadow over many people throughout Europe, even people of the center-right who were hoping that what we were doing in Greece was going to create a new agenda, a new dialogue, and a new possibility for the European Union. Our defeat had this depressing effect on many people. So the first thing I tried to do, since my resignation, was to connect with as many Europeans as I could to make sure that such a depression would not happen. We acknowledged that we lost the battle. It was an important battle, and then we set it aside. Now we are moving on and taking the battle to many other frontlines. The main frontline is now the whole of the European continent, not just the Eurozone. And this is where Britain comes in.

I started my travels in France, Germany and many other places, where I addressed a multiplicity of audiences – not all from the left, including (even as recently as a few days ago) a bunch of bankers and financiers. The good news is that – and this is the segment of our interview which is more evangelical – the vast majority of people who came to talk or listen to me didn’t do so out of an urge to show solidarity with the Greeks. They arrived with a sense of foreboding, and a sense of concern, about what effect the crushing of the Greek government would have on them, their societies, their welfare state, their pensions, their local hospital, their local schools, and on the capacities of their communities to make decisions pertinent to their own life. That was a great source of satisfaction, joy, and hope for me. Very soon I had this idea and scenario in mind: as Europeans we either harness the feeling that truly binds us together and allows us to redefine European identity on the basis of resistance; or, through the terrible false dilemma according to which, if we don’t accept the powers that be in Brussels and their catastrophic policies, we must espouse the narrative of Grexit and fragmentation, in which case, we are effectively moving back into the cocoon of the nation-state.

We can harness that spirit of concern for locality alongside the concern for the globality of Europe in order to create an alternative. We can stay in Europe in order to challenge head-on the highly anti-democratic processes and institutions of the European Union, and we can salvage Europe and the European Union from it. I experience the glimmerings of this possibility wherever I go in Europe. There are no guarantees and no certainties, but there is enough hope to make me excited, to make me wake up in the morning, and to make me throw all my energies into this lot.

The referendum that the Tory government has called in Britain is a splendid opportunity for the whole of Europe to redefine its identity. Most Brits are opposed to Brussels. They don’t like to be bossed around by an unaccountable bureaucracy in the European Union. At the same time, they are very coy about leaving the devil they know for the realm of the unknown and about sailing into the Atlantic and distancing themselves from the continent without a clear destination. So it is important for those of us who believe in breaking down and opposing the false polarization – between Euro-loyalism (being loyal to Brussels and to Frankfurt) and the fragmentation processes of the European Union – to side with the forces of progress and improvement. It is important to effectively forge a common alliance and a common mandate for contesting the European Union and wrestling it away from the forces that are so loathsome and contentious of democracy and that lead us toward an economic crisis, which only strengthens authoritarianism and the anti-democratic tendencies of Brussels. I think of Britain and the referendum that will be taking place – we don’t know exactly when – as a wonderful opportunity for a new movement that sees the democratization of the European Union as its number one priority; a movement to reunite the parts of the Eurozone and the parts of the European Union that are not in the Eurozone; a movement that wants to see Europe growing stronger through democratization and through confrontation with the current powers that be.

MF: Do you believe that the Labour Party’s new leadership shares your views and feelings on this issue?

YV: Absolutely. I think they understand very well that it is essential for the Labour Party to map out a third path: neither the blind acceptance of what Brussels is and how it operates (which some Blairites are happy to condone or some, very few, Tories like Kenneth Clarke have the tendency to adopt); nor the acceptance of the Euro-skepticism of many of the Tories as well as a few sections of the Labour party, which seem to believe that Britain does not need the European Union. The Labour Party leadership understands that they need to create a radical third alternative that says something very simple: we want to be part of the European Union in order to fight against Brussels, and to fight against the deep contempt that Brussels has for the democratic processes. They understand this while also knowing that an exit from the EU is not going to take Britain on the road to socialism, but towards a kind of isolationism, a “little England-ism,” which would make it more vulnerable to awful trade agreements like TTIP, and towards the loss of sovereignty through free trade agreements.

MF: Now let’s move on to Spain, where there seems to be, not exactly a rift, but a debate between two strategies within the anti-austerity left. 

On one side of the debate, there is Podemos, or more precisely the leadership of Podemos, whose priority is to build a party capable of winning elections at the national level. Early on, as you remarked many times, Syriza in Greece and Podemos in Spain emerged almost at the same time as the twin beacons of hope for those who wanted Europe to stray from perennial austerity and ever-shrinking democracy. In fact, for his part, Pablo Iglesias, the leader of Podemos, has remained loyal to Syriza’s Alexis Tsipras. Though perhaps with less enthusiasm than before, Iglesias has kept his solidarity with Syriza even after Tsipras signed the Third Memorandum of Agreement last July – despite the risk of slightly dampening the hope of radical change that Podemos is supposed to represent. 

On the other side of the debate in Spain, there is the so-called confluencia approach represented by Ada Colau, the mayor of Barcelona, which is also popular in Valencia, Galicia and other places. Its supporters advocate a horizontal alliance between different social movements (some focusing on evictions, others on the tourism industry, others on the privatization of public services, etc.) and the representatives of left-leaning political parties. Instead of giving precedence to national elections, they focus primarily on the local level – municipal and to some extent regional – as the proper springboard to build a trans-European movement.

What is your view on this strategic debate, especially in the wake of the December elections, where the proponents of the confluencia strategy played an important role in Podemos’ relatively good results? 

YV: The recent Spanish election was a magnificent result primarily because it put an end to the toxic narrative of the success story of austerity. It’s clear that the Spanish people rejected the narrative that austerity worked and that Spain was a glowing example of how the policies of the Troika, if adopted enthusiastically by the local elites, are going to work. The Troika’s policies didn’t work, and the Spanish people said so. The second reason why it was a remarkable experience for me is because of the confluencia, as you put it. I’m thinking of the ways in which the variety of social movements – such as Barcelona’s Ada Colau, whom you mentioned, as well as her colleagues and comrades – rose up by targeting predatory tourism and home foreclosures from a banking sector that was being salvaged by the weakest of tax payers. On the basis of that, they went all the way from zero to having control and wrestling power in the great city of Barcelona. This is a great beacon of hope for all of us. The capacity of the cities to produce progressive politics flies in the face of the failures of the left in the last hundred years.

Our pan-European movement to energize and bring together Europeans – whatever it may be in the end – has to be energized from the cities to adopt the methods, the narrative, the esprit and the élan of these movements. Our movement has to adopt such methods and narratives in order to create a potential for reconstituting the dynamics of European progressive politics. I am very pleased that Podemos has adopted this line and embraced those movements.

Having said that, I am convinced that – despite all the right incentives and motives – any progressive party like Podemos is mistaken when its leaders think that we can stop the European Union’s degeneration process through the electoral process at the level of the nation-state. The best thing that a political party like Podemos can hope for is participation in some kind of coalition government such as the one in Portugal. If we, the opponents of the Troika’s Third Memorandum, were to set up a political party, the best thing we could imagine happening would be some kind of coalition with Syriza II, as you put it. But all of these coalitions would only be formed under the conditions of accepting the rules of Eurogroup! These are the rules of the Troika; they are the rules of the game that have been rigged to ensure that all of these mandates of progressive movements are crushed before they even get a chance to find expression at the level of national politics.

This is why I believe that what happened in Barcelona and in Valencia; what is happening in the streets of many cities, villages and towns; what is happening in Greece, in Denmark, in Britain, and so on and so forth: all of these developments will only find an expression that does not betray their initial ideology and impetus if we are able to bind together at the level of Europe and to exert pressure everywhere simultaneously.

MF: What you just said seems to convey that, while local experiments may thrive, there is a real deadlock at the level of the nation-state. To put it crudely, it conveys that the best Podemos can hope for is to broker a coalition like the one that is now governing Portugal, with the prospect of soon becoming something similar to
Syriza II. 

YV: Look at Portugal! In Portugal, the President of the Republic made an explicit condition for the formation of the left coalition government; they had to accept commitments to the Eurogroup and to the rules of the Eurogroup. That is astonishing! It might be that you accept the rules but, at the same time, you have a policy of going to the Eurogroup and demanding that the rules be changed. For instance, imagine this: if a national parliament commits to never changing the constitution and to never enacting new pieces of legislation that contradict the older ones! What is the point? You might as well not have a parliament. So any party of the left that accepts the rules and that commits to not challenging them legally effectively has no reason to exist and cannot affect change through national politics. To get the audacity, the strength, and the courage to go against these prescriptions by the President of the Portuguese Republic, the Socialist Party of Portugal and the left parties all over the periphery would need to have the support of like-mined Europeans throughout the Eurozone and the European Union. If we had such a movement, which effectively pressured the government of Austria through the national parliament of Austria (or those of other countries, whether Slovakia, France, or Germany) to end the pressure on a new government in Portugal and to remove this rule about never challenging the rules, then there would be a possibility that even the Socialist Party of Portugal could find the courage necessary not to effectively commit themselves to political oblivion.

MF: Insofar as the trans-European movement in which you put your hopes – and, as we shall see, your energy – is still very much in the making, where does the current situation leave the parties on the left whose representatives have either won elections or are currently competing in national elections? What possibilities remain for the ruling parties in Portugal, for example? How should anti-austerity parties, such as Sinn Féin, prepare themselves for the upcoming elections in Ireland? What kind of “survival kit,” if there is one, is available to a government intent on avoiding the lot of Syriza I?

YV: It depends on the country and on the state of its finances and banking system. The weaker the banking system and the state’s finances, the easier it will be for Brussels, Frankfurt and Berlin to snuff out any kind of resistance from a newly elected progressive government in Ireland or Spain. The answers will have to be tailor-made according to the respective member-state. The most important aspect of this is precisely what I was saying before: to help create a sense of solidarity amongst the progressives throughout the EU, which would allow progressive parties in the member-states to find the courage to even think of the question you posed. That is the first point: to help them stiffen their lip. Secondly, once that has been achieved, you need to maximize your capacity as a government to fend off threats, and in particular the threat of bank closures. The threat of bank closure is how they pushed us [Syriza I] in a hole, by starting a bank-run, a run on the Greek banks, before we were elected, which they then accelerated through the rumor that the Central Bank was not going to support the Greek banks. At some point, while this self-fulfilling prophecy was creating a bleeding of deposits, they said, “ah, this is what you have done by not negotiating properly,” and then closed our banks down, effectively forcing the Prime Minster to choose a position between surrender and a complete cessation of the banking payment system.

Let me give one brief practical answer to your question of “what is the survival-kit?” In other words: how do you bolster your bargaining power? You would have to digitize your payment system. When the banks closed in Greece on the third of June, 85% of the pensioners didn’t even have debit cards to use and buy things in shops or to take out the 60 euros that the government allowed them to withdraw from ATMs. This, of course, was tantamount to a humanitarian catastrophe – that is, when 85% of pensioners, the elderly, have no access to any payment mechanism. If every transaction was digitized, the threat of bank closures would be far less, and therefore the degrees of freedom for the Greek government would be far greater. These are technical issues, but it is important to keep them in mind because the Central Bank and the powers that be do keep them in mind. I am afraid it’s important that we have defenses in mind that are based on the same logic.

MF: Would these defenses merely represent emergency measures, a way to buy a little time?

YF: Not necessarily; I don’t think there is anything wrong with a digitized payment system. Estonia is the only country I know which has fully digitized transactions and it’s actually a great thing. The Bank of England has suggested it for England. In a sense, it is the way things are going and we might as well get there very quickly. It helps defeat tax evasion completely and utterly, and it even allows us not to use quantitative easing, but to pose negative interest-rates to stimulate the economy. There are many benefits to a digitized system, and one of them is reducing the power of the European Central Bank to blackmail a recalcitrant member-state government.

MF: Such a measure could, for instance, help bolster the bargaining position of a small country such as Portugal?

YV: Of course! Because bank closures mean a humanitarian crisis, and Frankfurt has the capacity to close banks; then your bargaining power is much lesser.


MF: Let’s move to the trans-European democratic movement that you are not only talking about, but that you are also endeavoring to build. Democracy in Europe Movement, or DiEM, is its name; it is in the making and will be officially launched, in Berlin of all places, on the ninth of February 2016. What could be the modes of operation of a trans-European movement such as DiEM? If I understand correctly, it will neither be a political party nor simply a lobby – although you emphasize that it is concerned with a single issue, the democratization of European institutions. This means that its purpose is neither to secure votes – what parties are about – nor simply to influence ruling elites – what a lobby does. And DiEM is not a union either, whose purpose would be to negotiate better political conditions with the representatives of the European institutions. So, how do you envision the modes of operation of the movement: how do you see DiEM exercising the kind of pressure that would prove helpful, for instance, to a government confronted with the demands, and the might, of the European Central Bank and the Eurogroup?

YV: The number one lesson I learned during my five, six months of negotiations at the level of the European Union, the Eurogroup, etc., is that the old way of doing politics in Europe is kaput – finished. The old way was: we set up a party, an organization, or a movement in one country and we work very hard to create a manifesto, an electoral program, or promises of what we are going to do if our compatriots, in Germany, France or Greece, vote us into government. Once elected, we learn how to use the instruments of the member-state’s government in order to effect this mandate. Only then, as an afterthought – once we’ve done all that work, once we are in government, or at least once we have a substantial percentage in the national parliament – only then do we try to find allies with some like-minded parties in Europe.

This tends to be flimsy; very soon, and especially at the level of Brussels and the European parliament, it degenerates into a farce. If it is true that the nation-state-based political organizations have failed to connect to Europe, to create a conversation that leads to a consensus, and to bind various movements and parties together into a force to be reckoned with that stands up against the Troika and the lenders that are running the Eurogroup at the moment, then what is the alternative? The alternative is to invert the pyramid. Instead of starting at the level of the nation-state and forging an alliance, which is flimsy and brittle, how about starting a movement throughout Europe on the basis of a very clear manifesto that binds us together? How about a movement with some very simple ideas of what we want to do as Europeans? To begin this conversation, we are starting in Berlin and taking it to other cities. Anyone who respects and feels for these elements, irrespective of political affiliation or ideology, can join and participate. If this conversation proceeds well, it will be dialectically creative and, as a result of this conversation, it will produce a consensus that will then find electoral expression in the different member-states. The expression can take different forms in different countries depending on the circumstances. So DiEM, or Democracy in Europe Movement, can compete in elections as a party in some countries; in other countries it can go into collaboration with existing parties, or it can effectively lend support to parties. This is not for me to decide; it’s not for you or anyone in DiEM to decide: the whole point is that this would evolve organically.

DiEM is a movement. It is not a party, a trade-union, a think-thank or a conference. It’s a surge: a surge of European democrats who are moving together to seize control, to put the demos back in democracy at the European level, and to infect every nook and cranny of the EU with democracy. It is a totally utopian project, and it’s very likely to fail. But it is the only alternative to the awful dystopia that we are facing if we don’t do anything at all.

MF: Staying with the question of DiEM’s modus operandi, it seems to me that one of the main problems facing social movements today is one of “occupation” – to borrow from the “occupy” initiatives of 2011 – albeit less of space, squares, or parks, than of time. The activities of traditional organizations, such as political parties and labor unions, are geared toward “discrete” moments: elections, strikes, street demonstrations, etc. While these manifestations of popular will may certainly have an influence on policy-making, by definition, they can only occur from time to time: people vote once every few years. Financial markets, on the other hand, and in particular the bondholders who are the ultimate arbiters of a country’s attractiveness, vote every nanosecond. The time in which they operate is “continuous,” and this goes a long way toward explaining why governments give precedence to the wishes of the investors financing their budgets over the demands of their constituents. In such a context, I would argue that one of the major challenges for a movement like DiEM would be to find ways of occupying time and intervening “continuously” so as to compete with investors for the “hearts and minds” of governing agencies. Don’t you think?

YV: You are raising an issue that has been of central importance to liberal democracy since at least the early nineteenth century. The constant triumph of the economic sphere over the political sphere, and the way it has been cannibalizing the political sphere, is part and parcel of the evolution of contemporary capitalism. There is a predatory relationship between the economic and political spheres. The population of predators that are overly successful in eating their prey at some point starve to death and their numbers shrink; the prey would pick up again, and the balance continues. This is more or less the relationship between the financial sector, or the economic sector more generally, and the political sector. Financial capital in particular has the capacity to make inroads into the space of politics and to take over its power. Yet, with its encroachments increasing and with political power shrinking, the economic and financial sphere is destabilized. This is because the economy needs politics to stabilize itself. Thus the political sphere reasserts some of its capacity to control capital, the economic and financial sphere, as it did under Roosevelt, for example. This process continues; it goes on and on. There is nothing new there.

In the case of the EU, because it was stabilized as a cartel in the 1950s and, to this very day, it doesn’t operate like a normal state, we have a very interesting incongruity and paradox. I will phrase it in personal terms. When I speak with bankers in Europe, even though I am admonished as a left winger, a radical left loony, and so on and so forth, I am usually met with a blanket agreement about what I am saying. They are very worried. They see a source of irrationality in Brussels. Brussels’ irrationality might have been useful to them when they were bailed out, but nevertheless they don’t trust the current regime in the EU with creating circumstances amenable to their banking and financial enterprises. So I don’t believe that the great threat to a democratization process in Europe comes from the bankers. It comes from the very bureaucracy of the European Union and the political regime that is centered upon it.

Recommended citation: Varoufakis, Yanis (interviewed by Michel Feher). “Europe and the Specter of Democracy.” Near Futures Online 1 “Europe at a Crossroads” (March 2016)

Vital Space: Humanity – Athens

Vital Space: Humanity – Athens is part of the Vital Space: Nature | Humanity project by Danae Stratou and the Vital Space creative platform.

Vital Space: Nature | Humanity is a video project that addresses the challenges posed by globalization and its discontents; by the plight of the environment; by the ebb and flow of mass migration movements. A momentous urban expansion is spawning the planet’s largest cities, as wave upon wave of migrants abandon the countryside and the periphery, and while economic wastelands are emptied of people and left in a state of ecological fragility. The project focuses on the contrast between the vast, empty, fragile, and uninhabited spaces, and the overpopulated, highly contested, urban environments. For more on Vital Space: Nature | Humanity, see:

Vital Space aims to raise public awareness on issues related to the environment and urbanization by means of wide-reaching artistic interventions. In a time when economic and environmental crises coincide, contemporary art – especially when it takes place in public spaces and is designed to reach and address a wide audience – can play a significant role in dissolving the polarization that characterizes our current relationship with nature and with one another. Contemporary art can activate a deeper awareness about the most pressing issues of our time and inspire a global audience. For more on Vital Space and its projects see: