Saturday, May 12, 2012

The Birth of Austerity and the Death of "Europe"

Europe has occupied a special position in the world as humanity hurtled into the new millennium. It provided the example of societies that could successfully combine market-based capitalism with a commitment that even the least citizen would be provided for. It was a place where workers could take pride in their roles, however minimal, and find comfort in economic security. Europe provided the counterpoint to the US model in which workers are mere economic units, united and motivated mainly by a fear of being fired. And Europe provided hope that one day the US could revert to a kinder, gentler, calmer version of itself. 

Abraham Newman provides an article in Foreign Affairs that reminds us that yes, the good do die young, and to hope is often to take refuge in fantasy: Austerity and the End of the European Model: How Neoliberals Captured the Continent. In Newman’s account of Europe’s economic travails one is forced to ponder various conclusions: the absurdity of life, the existence of a neoliberal conspiracy, or even that a cruel and vengeful god is at work—take your pick.

Before the financial disaster and the Great Recession, social democrats in Europe were in retreat from the ascendency of unfettered capitalism and the demand for market solutions to all problems.

"At first, the global financial crisis seemed like a turning point; it made clear that markets do not always efficiently distribute goods and services. Banks had taken advantage of limited regulation to repackage bad investments and sell them to unwitting customers. Policymakers, particularly in Europe, seized on the turmoil to push back against neoliberal policies that had dominated since the turn of the millennium. They also championed their own social-market model, which had cushioned workers from the initial blow of the financial crisis. In 2008, German Finance Minister Peer Steinbr├╝ck declared that ‘the cause of the crisis was the irresponsible exaggeration of the principle of a free, unrestrained market’."

The markets grew angry at such disrespect and returned with fury. The weakest were separated from the herd and attacked.

"Some countries, such as Greece, face an old-fashioned debt crisis: Governments borrowed too much money during the boom and have no viable means of repaying it. In other countries, such as Ireland, the financial crisis forced governments to bail out the banking sector and absorb its debts. Still other countries, such as Spain, suffered a crisis of liquidity after bond purchasers demanded higher interest rates on government debt. In the latter two, markets, not governments, were the primary culprits."

Many within the herd quickly lost faith and were caught up in fear. One, in particular, concluded (for the third time) that it was necessary to destroy Europe in order to save it.

"But that has not stopped politicians in Germany and the Netherlands from singling out government -- inefficient, bloated, and profligate -- as the problem."

The strongest became traitors to the cause and forced others to commit to a path of social destruction.

"Given the need to conserve public sector resources, proponents of austerity argue, firms and individuals are required to step in to provide core services, as is the case with the Big Society initiative in the United Kingdom. At the same time, governments are increasingly forced to privatize segments of their economies; Spain and Ireland have put everything from electricity to airports up for auction. What’s more, in the name of labor productivity, workers are asked to bear the burden of economic recovery through cuts to wages, pensions, and other benefits. German Chancellor Angela Merkel’s focus on structural reform in her 2012 speech at Davos typifies this trend. Austerity politics, then, necessarily reinforces the belief that in the wake of the crisis only markets can determine the contours of the European economy."

Newman suggests that there is more at work here than merely a response to an economic crisis.

"Austerity politics in Europe is not simply a short-term fight between the surplus countries in the center and the deficit countries on the periphery. It is a long-term political agenda that privileges lenders over debtors and capital over labor and, as such, should be seen through the lens of partisan politics. Center-right governments in Germany, the Netherlands, and Spain have been among the most vocal proponents of austerity."

Newman chooses to see "irony" in the turn of events, while "absurdity" might be more appropriate.

"What is clear is that austerity will transform Europe’s political economy in the long term, lending credence to neoliberal ideas of limited government and loosely regulated markets. The irony of this transformation is that it reinvigorates the very ideas that helped cause the financial crisis in the first place; after all, it was the unyielding faith in markets and weak regulation that allowed the financial bubble to swell. At the same time, a response to the sovereign debt crisis based on austerity precludes any alternative social-democratic framework that would emphasize growth and protect citizens from the vagaries of the market."

The world wants and needs its Europe back.

"For a middle-class worker in India worried about corruption, or an Indonesian farmer fearing the shock waves of financial crisis, European austerity offers little hope. Gone is the idea of Europe leading a global third way between laissez-faire capitalism and managed socialism."

The final chapters of this tragedy have yet to be written.

"Reviving an alternative agenda for the political economy of Europe would first require social democrats to convince voters that the crisis is not just a story of profligate governments but also of reckless markets....For if austerity is allowed to run its course, and Berlin and Brussels continue to starve the beast, Europe could quickly become a hotbed of widespread social unrest."

Newman’s article was written before the recent elections in France and Greece. France is important, and surely he was anticipating Sarkozy’s fall. Stay tuned. Perhaps other voices will be heard and the neoliberals and their market allies can yet be defeated.

Soyez un homme courageux, Monsieur Hollande!

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