To save Europe we have to abandon the euro

23 Jun, 2018 at 12:30 | Posted in Economics | 9 Comments

The euro crisis is far from over. The tough austerity measures imposed in the eurozone has made economy after economy contract. And it has not only made things worse in the periphery countries, but also in countries like France and Germany. Alarming facts that should be taken seriously.

The problems — created to a large extent by the euro — may not only endanger our economies, but also our democracy itself. How much whipping can democracy take? How many more are going to get seriously hurt and ruined before we end this madness and scrap the euro?

The ‘European idea’—or better: ideology—notwithstanding, the euro has split Europe in two. As the engine of an ever-closer union the currency’s balance sheet has been disastrous. Norway and Switzerland will not be joining the eu any time soon; Britain is actively considering leaving it altogether. Sweden and Denmark were supposed to adopt the euro at some point; that is now off the table. The Eurozone itself is split between surplus and deficit countries, North and South, Germany and the rest. At no point since the end of World War Two have its nation-states confronted each other with so much hostility; the historic achievements of European unification have never been so threatened …

Anyone wishing to understand how an institution such as the single currency can wreak such havoc needs a concept of money that goes beyond that of the liberal economic tradition and the sociological theory informed by it. The conflicts in the Eurozone can only be decoded with the aid of an economic theory that can conceive of money not merely as a system of signs that symbolize claims and contractual obligations, but also, in tune with Weber’s view, as the product of a ruling organization, and hence as a contentious and contested institution with distributive consequences full of potential for conflict …

NLR95coverNow more than ever there is a grotesque gap between capitalism’s intensifying reproduction problems and the collective energy needed to resolve them … This may mean that there is no guarantee that the people who have been so kind as to present us with the euro will be able to protect us from its consequences, or will even make a serious attempt to do so. The sorcerer’s apprentices will be unable to let go of the broom with which they aimed to cleanse Europe of its pre-modern social and anti-capitalist foibles, for the sake of a neoliberal transformation of its capitalism. The most plausible scenario for the Europe of the near and not-so-near future is one of growing economic disparities—and of increasing political and cultural hostility between its peoples, as they find themselves flanked by technocratic attempts to undermine democracy on the one side, and the rise of new nationalist parties on the other. These will seize the opportunity to declare themselves the authentic champions of the growing number of so-called losers of modernization, who feel they have been abandoned by a social democracy that has embraced the market and globalization.

Wolfgang Streeck

Great article — and it actually confirms what Wynne Godley wrote more than twenty years ago:

If a government stops having its own currency, it doesn’t just give up “control over monetary policy” as normally understood; its spending powers also become constrained in an entirely new way. If a government does not have its own central bank on which it can draw cheques freely, its expenditures can be financed only by borrowing in the open market in competition with businesses, and this may prove excessively expensive or even impossible, particularly under “conditions of extreme emergency.” greece-feb12-bank__3197265k If Europe is not to have a full-scale budget of its own under the new arrangements it will still have, by default, a fiscal stance of its own made up of the individual budgets of component states. The danger, then, is that the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression it is powerless to lift.

Wynne Godley

9 Comments

  1. […] To save Europe we have to abandon the euro Lars P. Syll […]

  2. “Anyone wishing to understand how an institution such as the single currency can wreak such havoc needs a concept of money that goes beyond that of the liberal economic tradition and the sociological theory informed by it. The conflicts in the Eurozone can only be decoded with the aid of an economic theory that can conceive of money not merely as a system of signs that symbolize claims and contractual obligations, but also, in tune with Weber’s view, as the product of a ruling organization, and hence as a contentious and contested institution with distributive consequences full of potential for conflict …”

    I agree with the above. Bretton Woods dollar based ‘gold standard’ worked after 1945 until the end of the Vietnam War because the US had the moral and other authority and international commitment to support it. And international capital flows were not yet liberalised. For many reasons, Germany does not have that authority, from within the country or from outside it to direct capital flows to where they are needed and thereby redistribute resources – something made worse by the neo-liberal international liberalisation of capital flows. (As the writer above implies, neo-classical economic theory cannot offer a sufficient challenge to this liberalisation and, being philosophically rooted in the liberal economic tradition, naturally tends to support it.) If European wide institutional integration is impossible, I feel it should proceed on the basis of a two-speed Europe.

  3. Yes indeed Lars, Wynne Godley, another greatness, there are not so much of that around today! ​Sadly!

  4. A free-trade area is very understandable and desirable, everybody is unrestricted but the local industries that are doing badly have to be either helped by investment or eliminated. When the currency is the same for all countries it has the effect of showing up which industries cannot compete. Otherwise with independent currencies this problem is less clear and some competition is still possible, but at least there is no need for serious losses where no solution is possible, and each government has more control on its prosperity.

  5. I have tried to answer that question — and some closely connected issues — here:
    https://larspsyll.wordpress.com/2017/07/18/the-balanced-budget-paradox/

    • Thanks for the link, Lars.

      Public debt is indeed not comparable to private debt.
      I have two basic questions about this topic:
      1) Do you think there would be any private debt if citizens could finance their expenses by simply taxing their fellow citizens?
      2) Why do you think it is a progressive policy to finance government expenses by offering a secure investment opportunity (government bonds) to relatively wealthy citizens instead of taxing them?

  6. Dear Lars,
    Can you explain to me and perhaps to other readers why the goal of a balanced budget is such a bad idea?


Sorry, the comment form is closed at this time.

Blog at WordPress.com.
Entries and Comments feeds.