Campaign of the European Parliament in favor of the single currency
by Georges Berthu*
In fact it was all foreseeable and foreseen. You need only take a look at works such as 'A chaque peuple sa monnaie', published in 1999, to be convinced.[] But events have become interwoven in such a complex manner that European leaders and their 'experts' are still managing to pretend it is the fault of the bankers, speculators, the public debt, national egoism, in short to lay the blame on anything that might exonerate them from their own responsibility.
Let us, therefore, try to identify the main themes underlying this complex issue. Today we are seeing the superimposition of two interwoven crises, each of which aggravates the other: the crisis of the euro that has struck the European states that share the single currency, and the crisis of global trade, which has had adverse effects on all the western countries as well as on many less developed countries. In fact, the international trade crisis is acting as an 'asymmetric shock' that is creating an imbalance in the weak structure of European monetary union.
The usual analyses of the crisis that are put forward are partial and therefore ineffectual. Some critics accuse the euro alone, others global trade, yet others financial deregulation. What is important, however, is to understand that these factors have a combined effect. The result is a crisis unlike any other and without parallel.
People feel more and more helpless: no cure really works. Although it looks as though the 2008 financial crisis has been overcome, our countries are still doing just as badly, there is no sign of a return to growth and unemployment remains rampant. People cannot understand the gulf between promises and results: with each reform carried through, the euro, global trade, financial deregulation, our leaders announced that growth was bound to increase by several points and unemployment was bound to fall. Yet it is only too obvious that the opposite occurred. The world of certainties is collapsing and we see ahead, alongside a planned impoverishment, the spectres of despair.
The crisis of unfair global trade
The current globalised trade is, as Maurice Allais put it, a perversion of free trade, applied without any corrective measures to areas governed by entirely different rules. We call it "false free trade" or "unfair global trade".
American leaders launched that policy in the belief that they were going to be stronger than emergent developed countries ; European leaders followed suit, believing this was a kind of extension of the single market, which had worked rather well. None of them realised what a huge problem of principle would arise from bringing in partners as heavyweight and as different as China and South-East Asia.
Any act of trade involves external costs that have no precise figures, aside from the displayed price. For example, buying a certain product may lead to the bankruptcy of competing manufacturers, i.e. to the costs of unemployment compensation, reconversion, training, land redevelopment, etc. In the usual case, where trade partners come from the same country or from areas that are generally on the same level, the external costs can be covered, wholly or in part, by the community, and that will benefit everybody since the advantages of competition will be much greater than its external costs. But if those areas are governed by very different rules, which means that one may be seen as 'dumping' in relation to another, the external costs will be exorbitant and intolerable. That is a major source of the first crisis.
True, there would be no crisis if the state that had to pay the external costs was given the chance to make up for them through the act of trading, on the basis of a countervailing duty that would reflected their true price to society. But we are the victims of a genuine intellectual terrorism, which requires us to prohibit any form of countervailing duty, any correction by the state, any defensive measure, which are all indiscriminatingly labelled 'protectionist'. History will show that this kind of intellectual terrorism was masterminded by those who profited from deregulated global trade, who hide behind the trappings of false free trade and have for many years infiltrated the machinery of Europe, which in fact seems to have been designed purely to serve their purposes.
Despite the debt burden and increasing decline in growth as a result of deregulated opening up, western leaders as a whole have refused to revise that policy, perhaps because it would have meant admitting their own mistakes, confronting the pressure groups of profiteers and facing up to the resistance of the exporting countries. Rather than embarking on a hazardous battle in the international arena, they preferred, therefore, to act at home, injecting cash as a supposed means of relaunching the economy, in various forms depending on the country and the period in time: by discouraging saving and encouraging expenditure, by a low interest-rate policy, by incentives for buying on credit and by budget deficits. This has resulted not in renewed growth – for the international haemorrhage is continuing and cancelling out all those efforts – but an excessive debt burden in general, at household and state level.
It also resulted in the 2008 financial crisis, due to a combination of deregulation and injections of credit, which, inevitably, was exploited by careless and greedy people. Yet we must not lay the blame in the wrong place. What is mainly to blame for the crisis is not finance, deregulated or otherwise. That is only a side effect, however disastrous. The main crisis is certainly the result of the pernicious effect of unfair global trade, which has led governments to throw all caution to the winds and try, desperately, to find a way back to the areas of growth they saw disappear.
The crisis of the euro
Deregulated openness acts as an 'external asymmetric shock', which is particularly destructive for the euro because the euro was conceived in a 'non-optimum monetary zone'.
The Member States of the eurozone are indeed affected differently by unfair global trade. They are all increasingly indebted, but to differing degrees. Growth is declining everywhere, but some countries, such as Germany, still have an enviable level compared with others. The gaps between interest rates on national debts are widening: in mid-August the figures were 2.3% for Germany, 4.9% for Spain, 14.8% for Greece. Not only is the euro not strengthening cohesion; on the contrary, the divergences are widening and tensions growing more serious.
To maintain a semblance of unity we would need iron discipline at European level and a massive system of mutual assistance. However, no provision was originally made for such complementary institutional measures for the simple reason that if they had been laid down in the Maastricht Treaty the euro would never have been adopted. Caught off their guard, governments are now reduced to having to urgently cobble together various aid instruments, such as the temporary "European financial stability facility" which will be ended over by the "European financial stability mechanism", to be inserted in the Treaty by means of a 'simplified revision' that would not have to be put to the people.
Yet all those efforts will be in vain. The 'asymmetric shock' is too powerful. The guarantees the least unhealthy states give to the failing ones will simply weaken the former without curing anyone. For the crisis is not due to any temporary mismanagement or the mischief of speculators. It is due to the breaking up of our economies as a result of deregulated opening up, which in turn will break up the single currency.
Let us note in passing that, even without this crisis, the euro was not viable in the long term. Indeed the European area does not offer the necessary environment for a unified currency. The factors of production are not mobile enough within it. There is less solidarity between countries than within a Nation State. The economic structures differ. The European redistribution mechanisms remain secondary. Under these circumstances, even without an external shock it was inevitable that Member States' economies would gradually diverge and one day give rise to deadly tensions within the euro.
The shock of unfair global trade has merely accelerated a fatal trend.
The combination of crises
At first the combination of the euro and false free trade produced exhilarating effects, only to rebound with devastating effects.
The exhilarating effects were as follows: the euro made it possible to reduce the interest rates many states paid on their loans, gave them additional margins and even encouraged them to borrow more. It is also possible that some European supporters of the single currency originally wanted to SET up this unified system to gain time in face of the noose of unfair global trade.
At the outset, that also gave Europeans a certain satisfaction, a sense of enrichment: indeed, it is a great pleasure, at first, to be able to buy a lot more goods with the same wages (when those goods are imported), but later on it becomes less pleasant to have no wages.
These cumulative exhilarating effects led Europeans to believe that perhaps the euro and unequal trade were both a good thing. It did not last. We are now at the stage of seeing their pernicious effects accumulate.
In the absence of growth, soaring national debts are tearing the eurozone apart, terrifying the markets and leading to increasingly tough austerity plans. Worse still, the euro is aggravating the adverse impact of unfair global trade. The rigidity of monetary union is preventing the weakest countries from defending themselves by using a devalued currency to strengthen their position in international trade (or on the European market vis à vis Germany). In the case of those countries, it therefore amplifies the devastating impact of deregulated opening up while at the same time the asymmetric pressure of this openness is breaking up the eurozone.
Broadly speaking, the euro is a 'straitjacket' for nearly every country: the exchange rates, the interest rates of the Central European Bank are medians, precisely adjusted to the situation of none of them, which makes it difficult for Member States to apply fine-tuned strategies to respond to the crisis.
Taking a closer look, we find that the euro and global trade are contradictions: the euro is based on the implicit premise of a European State and, in the long term, cannot function without it.
False free trade, however, is based on the opposite premise of the eventual decompartmentalisation of all the states. The end result can only be disintegration. One of the ironies of history is that these policies were conducted by the same people, European bureaucrats, who apparently did not realise that they were contradictory.
Another irony is the way the European federalists were duped. In A chaque peuple sa monnaie, published in 1999, we already said that the euro and unfair global trade were both adopted by a small majority made up of the shaky alliance between federalists and globalists.[] In fact, the globalists used the federalists to destabilise the nations, but with no intention of building anything else with them, last of all a European State.
Faced with this deepening crisis, two possible approaches are usually mentioned. Some maintain that the state must give priority to continuing to inject cash to prevent the economy from collapsing. That would mean accepting, or even increasing, the public deficit to finance such a policy. A variant even suggests a boost at European level. Such policies are mad because there is no point injecting money without first repairing the economic framework.
Another approach says priority must be given to reducing the debt burden and therefore conducting a policy of austerity by cutting expenditure and/or raising taxes. That would appear to be good advice since there is no denying that 'over-administration' and the excesses of the welfare state have entailed extra costs. So, yes to austerity, but how far do we go? Will we have to end up aligning with the Chinese level?
In fact those policies do not tackle the causes of the problem – unfair global trade and the euro – and confine themselves to trying to treat the problem from within, which is, however, impossible. Unfair global trade will merely worsen the already intolerable debt burden while the euro will accentuate the already desperate economic decline. Together they will enclose us even more tightly in vicious circles.
Another SET of advisers is even more dangerous, were that possible. It is those who pretend to consider the problem from a higher standpoint, advocating a great leap forward towards federalism in Europe : an economic government with the power to discipline the national budgets, accompanied of course by sanctions, the mutualisation of national debts, the issue of European loans ('eurobonds') and a common tax to feed the European budget (tax on financial transactions?). That is the chain of events we described in 2001 in La normalisation par l’euro (using 'normalisation', or 'standardisation', in the Brezhnevian sense of 'forced alignment').[]
That kind of solution would be ineffectual, dangerous and strategically absurd.
It would be ineffectual because the centralisation of powers at European level would not, in itself, in any way affect unfair global trade (which the federalists do not question) or the disparity among national economies and societies, which do not form an optimum monetary area. We would merely end up with a 'Union of transfers', as the Germans called the prospect of an enormous European machine for subsidies that would plunder the countries with the most rigorous policies and divest everybody of responsibility.
Secondly, it would be dangerous because it is not possible to create, all of a piece and by force, the economic, social and cultural conditions of monetary union when they do not exist in the eurozone. In any case, how could the use of such force be justified? There would have to be a European democracy over and above the national democracies. Well, it does not exist. The vast majority of the people of Europe have more faith in the legitimacy of their national parliaments than of the European Parliament and there is no way of changing that situation without establishing a dictatorship, which obviously nobody wants.
Lastly, this kind of federalist solution would be strategically absurd. All it would in fact do is to increase the powers of the very people who have brought the current disaster upon us. Let us not forget that it is the European leaders who are mainly responsible for setting up this unmanageable monetary system. Let us not forget either that those same leaders already had a quasi-federal instrument at hand in the form of the common trade policy, which they used to destroy rather than build up the defences of the people. Will we go on trusting them now by giving them more powers?
Real solutions are difficult to find
For 15 years now we have been warning of the dangers of the European policies without succeeding in modify them. Today it is becoming extremely difficult to find any solutions, although it would have been easy at the start, because the Gordian knot is becoming ever tighter.
In desperation, governments are strongly tempted to take cosmetic measures, believing – or pretending to believe, in order to persuade people to wait a little longer – that economic recovery will eventually come to pass, and establishing their annual budgets on the basis of exaggerated growth forecasts. Frankly, that is an illusion. There will be no recovery to miraculously resolve our difficulties. Where would it come from anyway? There is no deus ex machina to rescue us from our own stupidity. It is true, leaving aside the little spurts that are wrongly termed signs of 'recovery', that real growth may start again one day when the conditions of production between continents have levelled out and we can compete on equal terms with the Chinese. Yet it will not happen tomorrow. And what state will we be in by then?
If we want to react we must begin by realising that the crises are interwoven and accordingly we need combined action at several levels to unravel the Gordian knot.
Not everybody realises that. Some people, especially on the left wing, are quick to implicate free trade but dare not criticise the euro for fear of seeming anti-European. Others, especially among the right wing, are quick to implicate the 'management of the euro' but avoid referring to current trade for fear of appearing to call into question free trade itself. Yet, as we said, the current trade system is not free trade, just as the single currency is not Europe. But the fears of confusing the two are very real.
Moreover, opening two fronts at the same time is always dangerous in terms of strategy. Yet we have to do so in this case given the combination of crises. In any case, looking to the source of the two crises, surely there is one main culprit, the irresponsible European Union as it is run today.
That is why our first recommendation to our leaders is to stop listening to the federalists, who got us into this impasse and now want to lead us even deeper into it. The Europe they have built to date is a Europe without the people, which is largely to blame for the crisis because, based on the fantasy of a European democracy, it indulges in hare-brained schemes that bear no relation to the people's priorities. Impervious to people's sufferings, instead it is swayed by interests that are not those of the citizens.
The challenge today – which would make a significant contribution to getting us out of the crisis – is to reconnect Europe and its people. That cannot be done by continuing to make the extraneous institutions in Brussels ever more sophisticated. It can be done, however, by establishing new direct relations between national democracies: subordinating the Commission, giving national parliaments the higher position, networking among those parliaments, variable geometry, flexibility. In the case of vital decisions at least, these new relations would allow policies to focus once again on the people's real needs, such as protection, jobs and security, rather than on the pipe dreams of false free trade, the ideology of a Europe without borders, and monetary constructivism.[]
The second recommendation would be to create a status of 'temporary suspension' of participation in the euro for failing countries, as we already proposed at the time of the first Greek crisis.[] That would help make the single currency more flexible and prevent the failing countries from dragging all the others into the abyss. It is certainly not the path followed to date. Member States, still following the pigheaded lead of Brussels, have chosen to adopt support and guarantee mechanisms that lead us to fear that if disintegration occurs, it will be general and disastrous. It is not too late, however, to move towards a flexible currency system.
Some people will say that this proposal for temporary suspension is an underhand way of rescuing the euro, or at least the core of the euro, even though it is harmful and cannot be rescued. Others, on the contrary, will say that it is an underhand way of 'unravelling' the single currency. But let them talk, and let the future decide. The point of this proposal is that it opens the way to
flexible and empirical developments, based on the variable geometry we would like to see prevail in Europe.
The third recommendation is to endeavour to introduce fair competition at world level, by means of new rules of play to compensate at the borders for the differences in social, environmental or food safety standards, a proposal we have been making tirelessly since the negotiation of the Marrakech Agreements in 1993-94. This compensation would apply only in the event of major differences that somewhat resembled dumping. It could be withdrawn gradually as and when national standards become more aligned.
That would mean opening delicate international negotiations, in the hope that the Chinese, our strategic counterparts in this area, will realise that this is also in their interest. Otherwise, we will have to decide on unilateral protective measures, which would without any doubt have a number of undesirable effects for all concerned. But we will have no choice.[]
This proposal would form part of a more general policy of 're-regulation' at Europe's borders, which would be the opposite of the policies pursued by Brussels in recent years. It would certainly not mean a 'withdrawal into oneself' as we can already hear the globalists cry. It would simply mean acknowledging that every human community needs limits within which to frame its laws, values, systems of solidarity and democracies. It would mean putting a stop to the deconstruction of the European nations, which is the main and ultimate source of the manifold crisis we are experiencing today. Lastly, it would mean paving the way for building a solid Europe, founded on its people.
Our fellow citizens are beginning to open their eyes to the gravity of the crisis. It is possible – we hope – that the next campaigns will give rise to a real debate on the subject.
*Georges Berthu is former Member of the European Parliament
[]Georges Berthu A chaque peuple sa monnaie, publisher François-Xavier de Guibert, 1999.
[]A chaque peuple sa monnaie, op. cit. pp. 152 ff.
[]Georges Berthu La normalisation par l’euro, publisher François-Xavier de Guibert, 2001.
[] Regarding these new institutions, see our works Europe :Démocratie ou super-État (publisher François-Xavier de Guibert, 2000) and L’Europe sans les peuples (François-Xavier de Guibert, 2005).
[]See in particular our paper 'Crise de l’euro, crise de la pensée européenne' on the website www.libertepolitique.com 18 June and 25 June 2010.
[] As previous note.
Original publication in french on http://www.observatoiredeleurope.com/La-vraie-nature-de-la-crise_a1523.html
Original publication in french on http://www.observatoiredeleurope.com/La-vraie-nature-de-la-crise_a1523.html