Monetary Union and the Transatlantic and Social Dimensions of Europe's Crisis

Click to increase image sizeClick to decrease image size Notes We thank Daniele Caramani, Ben Clift, Colin Hay, Eric Helleiner, Otto Holman, Johannes Jäger, Bob Jessop, Paul Lewis, Johnna Montgomery, Leila Talani, Matthew Watson, Daniel Wincott and NPE's anonymous reviewers for comments and help. The usual disclaimers apply. 1. Charles Kupchan, The End of the American Era: US Foreign Policy and the Geopolitics of the 21 st Century (Vintage, 2003), p. 22. See also Jeremy Rifkin, The European Dream: How Europe's Vision of the Future is Quietly Eclipsing the American Dream (Polity Press, 2004); Stephen Hasler, Superstate: The New Europe and its Challenge to America (I. B. Tauris, 2004); T. R. Reid, The United States of Europe: The Superpower No-One Talks About (Penguin, 2005); and Mark Leonard, Why Europe Will Run the 21 st Century (Fourth Estate, 2005). 2. Martin Rhodes, 'Why the EMU is – or May Be – Good for European Welfare States', in Kenneth Dyson (ed.), European States and the Euro (Oxford University Press, 2002), pp. 305–33; Anton Hemerijck, 'The Self Transformation of the European Social Model(s)', in G⊘sta Esping-Andersen (ed.), Why We Need a New Welfare State (Oxford University Press, 2002), pp. 173–244. 3. Assumptions of basic force relations between the economics and politics also permeate historical materialist analyses. For example, Immanuel Wallerstein, 'Entering Global Anarchy', New Left Review, No. 22 (2003), pp. 27–35 and Giovanni Arrighi, 'Hegemony Unravelling', New Left Review, No. 32 (2005), pp. 23–80 & No. 33 (2005), pp. 83–116. For a critique, see Leo Panitch & Sam Gindin, 'Superintending Global Capital', New Left Review, No. 35 (2005), pp. 101–23. As they argue, the fallacy of the former analyses is caused by a regress to a base-superstructure conception and hence a failure to adequately theorise the structural relation between the economy and the state in capitalism. 4. W. G. Runciman, Social Science and Political Theory (Cambridge University Press, 1963), p. 114. 5. Jürgen Habermas, Legitimation Crisis (Beacon Press, 1975), p. 1. 6. This is different from the functionalist fallacy where things are held to happen, because the system 'requires' it. Runciman, Social Science, pp. 109–34. 7. Habermas, Legitimation Crisis, p. 2. 8. Antonio Gramsci, Selections from the Prison Notebooks (International Publishers, 1971), pp. 175–85, 210–8, 365–6. Gramsci's definition removes any teleological assumption that the crisis will be resolved. 9. Robert W. Cox, 'Towards a Post-Hegemonic Conceptualization of World Order: Reflections on the Relevancy of Ibn Khaldun', in Ernst-Otto Czempiel & James Rosenau (eds), Governance without Government: Order and Change in World Politics (Cambridge University Press, 1992), pp. 132–59; James Caporaso (ed.), Continuity and Change in the Westphalian Order (Routledge, 2000). 10. Kees van der Pijl, The Making of an Atlantic Ruling Class (Verso, 1984); Bastiaan van Apeldoorn, Transnational Capitalism and the Struggle over European Integration (Routledge, 2002). See also Stephen Gill, American Hegemony and the Trilateral Commission (Cambridge University Press, 1990). 11. For example, A. Claire Cutler, Private Power and Global Authority (Cambridge University Press, 2003). This is, of course, not the least the case in the EU, given the status that the principle of 'direct effect' assigns to EU law. 12. Panitch & Gindin, 'Superintending Global Capital', pp. 102–4. 13. Göran Therborn, What Does the Ruling Class Do When It Rules? (Verso, 1980). 14. Graham Allison, The Essence of Decision (Little Brown, 1972); Charles Lindblom, Politics and Markets (Basic Books, 1980); Nicos Poulantzas, Political Power and Social Classes (Verso, 1978). 15. For example, Amy Verdun, 'The Role of the Delors Committee in the Creation of the EMU: An Epistemic Community?', Journal of European Public Policy, Vol. 6, No. 2 (1999), pp. 308–28. 16. Panitch & Gindin, 'Superintending Global Capital', pp. 106–13, 115–8. This analysis is heavily influenced by Nicos Poulantzas, 'Internationalisation of Capitalist Relations and the Nation State', Economy and Society, Vol. 2, No. 1 (1974), pp. 145–79. 17. On the transformation of transnational capitalist accumulation strategies, see van Apeldoorn, Transnational Capitalism; Hans-Jürgen Bieling, 'Social Forces in the Making of the New European Economy: The Case of Financial Market Integration', New Political Economy, Vol. 8, No. 2 (2003), pp. 203–24. On how such a mode of integration also has served the profitability and merger objectives of such capital, see European Commission, The 1996 Single Market Review: Background Information for the Report to the Council and the European Parliament (European Commission, 1996). 18. Verdun, 'The Role of the Delors Committee'. 19. 'The fact of hegemony presupposes that account be taken of the interests and tendencies of the groups over which hegemony is to be exercised and that a certain equilibrium should be formed – in other words, that the leading group should make sacrifices of an economic-corporate kind'. Gramsci, Prison Notebooks, p. 161. 20. Alan Cafruny, 'A Gramscian Concept of Declining Hegemony: Stages of US Power and the Evolution of International Economic Relations', in David Rapkin (ed.), World Leadership and Hegemony (Lynne Rienner, 1990), pp. 97–118. 21. Steven Lukes, Power: A Radical View (Macmillan, 1974). 22. Van der Pijl, The Making of an Atlantic Ruling Class, pp. 76–106, 138–243. 23. Eric Helleiner, States and the Re-emergence of Global Finance (Cornell University Press, 1994), pp. 25–50. 24. John Gerard Ruggie, 'International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order', in Stephen Krasner (ed.), International Regimes (Cornell University Press, 1983), pp. 195–232. 25. Riccardo Parboni, The Dollar and its Rivals: Recession, Inflation and International Finance (Verso, 1982). 26. Alain Lipietz, Mirages and Miracles: The Crisis of Global Fordism (Verso, 1985). 27. David Calleo, The Imperious Economy (Harvard University Press, 1982). 28. Magnus Ryner, 'Disciplinary Neoliberalism, Regionalization and the Social Market in German Restructuring', in Alan Cafruny & Magnus Ryner (eds), A Ruined Fortress? (Rowman & Littlefield, 2003), pp. 204–7; Peter Katzenstein, Small States in World Markets (Cornell University Press, 1985). 29. Ben Clift, 'The Changing Political Economy of France: Dirigisme under Duress', in Cafruny & Ryner (eds), A Ruined Fortress?, pp. 178–83. 30. Stephen Gill, 'The Emerging World Order and European Change', in Ralph Miliband & Leo Panitch (eds), The Socialist Register 1992 (Merlin Press, 1992), pp. 157–96. Neo-constitutional disciplinary neoliberalism refers to the practice of 'binding' discrete day-to-day policy through framework agreements, so as to insulate policy makers from market-protecting demands and in order to socialise actors so as to behave in a market-confirming manner. 31. As the traditional industries such as steel and automobiles declined, in part as a result of a geopolitical decision to remain open to Japanese imports, the US government sought to establish liberal regimes in sectors which it could dominate, including not only finance, but also pharmaceuticals, communication equipment and even agriculture. 32. Kees van der Pijl, Transnational Classes and International Relations (Routledge, 1998), pp. 57–63; Gerard Dumenil & Dominic Levy, 'Costs and Benefits of Neoliberalism: A Class Analysis', Review of International Political Economy, Vol. 8, No. 4 (2001), pp. 578–607. 33. Leonard Seabrooke, US Power in International Finance: The Victory of Dividends (Palgrave Macmillan, 2001), p. 10. 34. Ibid., p. 19; Peter Gowan, The Global Gamble: Washington's Faustian Bid for World Dominance (Verso, 1999), pp. 3–59; Gerard Dumenil & Domenic Levy, 'The Economics of US Imperialism at the Turn of the 21st Century', Review of International Political Economy, Vol. 11, No. 4 (2004), pp. 657–76. 35. Seabrooke, US Power, p. 48. 36. Ibid., p. 60. 37. Ibid., pp. 64, 66–70. 38. Ibid., pp. 73–106, 111, 118. 39. Processing data from the French state and the Federal Reserve, Dumenil and Levy ('The Economics of US Imperialism', pp. 664–5) show that yields on US direct investments abroad are about three times larger than the yield on foreign direct investments in the USA. With regards to total holdings, the yield on the holdings of the USA to the rest of the world is more than twice that on the holding of the rest of the world in the USA. Consistent with our argument, they attribute this asymmetry to the USA being 'at the centre of a system in which capital is simultaneously exported and imported, to and from the rest of the world . … Agents of other countries may want to protect their holdings from national risk or constraints. … Such investments are seen as risk free and liquid, but are remunerated at comparatively low rates' (p. 665). 40. John Grahl, 'Globalized Finance: The Challenge to the Euro', New Left Review, No. 8 (2001), pp. 23–47. 41. Michael Loriaux, France after Hegemony: International Change and Financial Reform (Cornell University Press, 1991), pp. 10–1. 42. Clift, 'The Changing Political Economy of France', p. 179. 43. Carl Lankowski, 'Modell Deutschland and the International Regionalization of the West German State', in Andrei S. Markovits (ed.), The Political Economy of West Germany: Modell Deutschland (Praeger, 1982), pp. 96–8. 44. Seabrooke, US Power, p. 163. 45. Alain Lipietz, 'The Debt Problem, European Integration and the New Phase of World Crisis', New Left Review, No. 178 (old series 1989), pp. 37–50; 'The Post-Fordist World: Labour Relations, International Hierarchy and Global Ecology', Review of International Political Economy, Vol. 4, No. 1 (1997), pp. 1–41. 46. Jonathan Story & Ingo Walter, Political Economy of Financial Integration in Europe: The Battle of the Systems (The MIT Press, 1997). 47. Stephen Gill, 'European Governance and New Constitutionalism: Economic and Monetary Union and Alternatives to Disciplinary Neo-Liberalism in Europe', New Political Economy, Vol. 3, No. 1 (1998), pp. 5–26; see also Kenneth Dyson, The Politics of the Euro-Zone (Oxford University Press, 2000), pp. 11–64, who calls the macroeconomic constellation produced by the EMU 'asymmetrically ECB-centred'. 48. Ibid.; Otto Holman, 'Asymmetrical Regulation and Multidimensional Governance in the European Union', Review of International Political Economy, Vol. 11, No. 4 (2004), pp. 714–35; ECB's chief economist states bluntly a doctrine amounting to asymmetrical regulation through ex post policy coordination in Otmar Issing, 'On Macroeconomic Policy Coordination and the EMU', Journal of Common Market Studies, Vol. 40, No. 2 (2002), pp. 435–58. 49. Stephan Tidow, 'The Emergence of European Employment Policy as a Transnational Political Arena', in Henk Overbeek (ed.), The Political Economy of European Employment (Routledge, 2003), pp. 77–98. 50. Hans-Jürgen Bieling & Thorsten Schulten, '"Competitive Restructuring" and Industrial Relations within the European Union: Corporatist Involvement and Beyond', in Cafruny & Ryner (eds), A Ruined Fortress?, pp. 239–47. 51. Longer-range US concerns include the loss of seignorage. While the euro will displace the dollar in eastern Europe, it is doubtful that, in the absence of a generalised global economic crisis, the overall impact on the dollar would be large. Another concern is the protectionist potential of the EMU. Between 1999 and 2002 the euro declined by 25 per cent against the dollar, benefiting German and French export interests. See Leila S. Talani, 'The European Central Bank: Between Growth and Stability', Comparative European Politics, Vol. 3, No. 2 (2005), pp. 204–31. While a strategy of 'neoliberal mercantilism' is consistent with Franco-German interests, it does not provide a basis for the euro to mount a challenge to the dollar. Transatlantic economic integration has accelerated dramatically over the last 25 years and Europe's growth remains heavily dependent on the US economy. See, inter alia, Joseph P. Quinlan, Drifting Apart or Growing Together? The Primacy of the Transatlantic Economy (Johns Hopkins University Paul H. Nitze School of Advanced International Relations, 2003) and Alan Cafruny, 'Europe, the United States and Neoliberal (Dis)Order: Is there a Coming Crisis of the Euro?', in Cafruny & Ryner (eds), A Ruined Fortress?, pp. 285–305. 52. OECD, Historical Statistics (OECD, 1999), Table 3.1; OECD, Economic Outlook 75 (OECD, 2004), Tables 1, 12 and 20. The 2.5 per cent average annual real GDP growth rate of the eurozone since the 1990s should be compared to the 5.1 per cent over the period 1960–73, 2.7 per cent 1973–9 and 2.2 per cent 1980–9. By contrast, US growth figures returned almost to the same level as during the 'Golden Age' in the later part of the 1990s (3.8 per cent between 1994 and 2000 as opposed to 4 per cent 1960–73). In 2005, growth for the eurozone was 1.4 per cent and for the US, 3.6 per cent. See OECD, Economic Outlook 76 (OECD, 2005). Average annual growth of business sector labour productivity 1994–2003 was 1.15 per cent in the euro-area and 2.11 per cent in the USA, reversing by one fifth the tendency towards a European 'catch-up' in the post World War II period. See also Robert Gordon, Why Was Europe Left at the Station When America's Productivity Locomotive Departed, NBER Working Paper 10661, August 2002. The eurozone employment rate in 2002 was 63.9 per cent, compared to 71 per cent in the USA. 53. OECD, Employment Outlook (OECD, 2000); Stephen Nickell, 'Unemployment and Labor Market Rigidities: Europe vs. America', Journal of Economic Perspectives, Vol. 11, No. 3 (1997), pp. 55–74; Robert Buchele & Jens Christiansen, 'Do Employment and Income Security Cause Unemployment? A Comparative Study of the United States and E-4', Cambridge Journal of Economics, Vol. 22, No. 1 (1998), pp. 117–36; Andrew Glyn, 'Inequalities of Employment and Wages in OECD Countries', Oxford Bulletin of Economics and Statistics, Vol. 63, No. 1 (2001), pp. 629–46; Eurostat, Structural Indicators: Labour Productivity, Eurostat, 11 December (2001); J⊘rgen Goul Andersen, 'The Danish Welfare State as 'Politics for Markets': Combining Equality with Competitiveness in a Global Economy', New Political Economy, Vol. 12, No. 1 (2007), pp. 71–8. 54. Paul Pierson, 'Post-industrial Pressures on the Mature Welfare States', in Paul Pierson (ed.), The New Politics of the Welfare State, (Oxford University Press, 2001), pp. 80–104. 55. See, for example, the European Commission's own analysis, European Economy 6 (Office for the Official Publications of the EC, 2003). 56. For elaborations see, for example, Rianne Mahon, 'Swedish Model Dying of Baumols? Current Debates', New Political Economy, Vol. 12, No. 1 (2007), pp. 79–85. 57. OECD, Economic Surveys: Euro Area 2003 (OECD, 2003), p. 22. 58. Ibid., pp. 22, 27. 59. Ibid., pp. 22–3, 27. 60. OECD, Economic Outlook 75, Table 10. 61. Robert Boyer, 'Capital-Labour Relations in OECD Countries: From the Fordist Golden Age to Contested National Trajectories', in Juliet Schor & Jong-Il You (eds), Capital, the State and Labour: A Global Perspective (Edward Elgar, 1995), pp. 18–69; Robert Boyer,'The Unanticipated Fallout of European Monetary Union: The Political and Institutional Deficits of the Euro', in Colin Crouch (ed.), After the Euro (Oxford University Press, 2000), pp. 42–88; Robert Boyer & Pascal Petit, 'Technical Change, Cumulative Causation and Growth', in Francois Chesnais (ed.), Technology and Productivity: The Challenge of Economic Policy (OECD, 1991), pp. 47–67. Data from the European Commission supports this interpretation. The Commission finds that EU's lower productivity growth, compared to the USA, is due to inadequate investment and innovation outside the non-ICT sectors of the economy (inadequate diffusion). European Commission, European Economy 6. For more 'mainsteam' analyses that also point to adverse effects of macroeconomic austerity for productivity enhancing structural policy, see IMF, 'Euro Area Policies: Selected Issues', IMF Country Report No. 04/235, 2004, pp. 48, 58. 62. Robert Boyer, 'The Impact of the Single Market on Labour and Employment: A Discussion of Macroeconomic Approaches in Light of Research in Labour Economics', Labour and Society, Vol. 15, No. 2 (1990), pp. 109–42; Harvie Ramsey, 'Le Defi Europeen: Multinational Restructuring, Labour and EU Policy', in Ash Amin and John Tomaney (eds), Behind the Myth of European Union (Routledge, 1995), pp. 174–97; Lipietz, 'The Post-Fordist World', pp. 23–4. 63. Gregory Albo, '"Competitive Austerity" and the Impasse of Capitalist Employment Policy', in Ralph Miliband & Leo Panitch (eds), The Socialist Register (Merlin Press, 1994), p. 147. 64. See Deborah Mabbett & Waltraud Schelkle, 'Bringing Macroeconomics Back into the Political Economy of Reform: The Lisbon Agenda and the 'Fiscal Philosophy' of EMU', Journal of Common Market Studies, Vol. 45, No. 1 (2007), pp. 81–103, for empirical substantiation. 65. Lionel Barber, 'Eichel's Second Thoughts', Financial Times, 21 August 2001. 66. ECOFIN reached an agreement to 'amend' the Pact on 21 March 2005. See Council of the EU, Improving the Implementation of the Stability and Growth Pact 7423/05 UEM 97 ECOFIN 104; European Commission, Proposal for a Council Regulation: Amending Regulation (EC) No. 1466/97 on the Strengthening of the Surveillance of Budgetary Positions and the Surveillance and Coordination of Economic Policies, 20.4.2005 COM (2005) 154 final; Proposal for a Council Regulation: Amending Regulation (EC) No. 1466/97 on Speeding up and Clarifying the Implementation of the Excessive Deficit Procedure, 20.4.2005 COM (2005) 155 final. Whilst being presented as an 'improvement', it can be no doubt that the amendments represent a radical retraction of the objectives initially set for the SGP. They represent a belated admission of the between macroeconomic in the and As such the Pact is as more than the it is it can be a at The is of and the for a of of structural and potential growth up for and The same is the case for and to the the is the one that will be given to any other which in the of the state are in order to in the over the In that will be given to towards or at a level and to European policy the of Europe it has a on the growth of of a of the EU, Improving the Implementation of the Stability and Growth p. The up for and it should be seen against the of of its of German and of its on as a to the Common Foreign and Security Policy during the leading up to the to … with a that in to Reform Stability Pact Financial Times, March 2005). of the Financial Times, 21 August p. 9. Report of the Study on the Role of Public Finance in European Integration (European Commission, David The of 1990), pp. The Global New and University Press, Hans-Jürgen Bieling, 'Social Forces in the Making of the New European Economy, pp. 203–24. See Grahl, 'Globalized pp. 39. Matthew Watson, the in Europe: A Study in the Institutional of Growth', Economy and Society, Vol. 3, No. 4 (2001), pp. Making the between and is more than Bieling that integration of will as a result of They with Grahl, on the on European of An to and Economic and Industrial Vol. No. 1 (1998), pp. Colin and Economic and Monetary Union', in Crouch (ed.), After the pp. Van Apeldoorn, Transnational pp. See, for example, Alain Lipietz, 'Social Europe: The Review of International Political Economy, Vol. 3, No. 3 pp. Magnus Ryner, Capitalist Restructuring, and the from the Model (Routledge, 2002), pp. and Integration in the Political Economy of European Welfare States', in & (eds), Governance in the European Union pp. & Anton Hemerijck, 'A Welfare Reform and in the University Press, 1997). Employment Growth by Corporatist and A of an New Political Economy, Vol. 6, No. 1 pp. Ryner, Capitalist Restructuring, pp. within of the Danish Welfare State', Journal of European Social Policy, Vol. No. 1 (1999), pp. Goul Andersen, 'The Danish Welfare & Relations within the International of Labour: or Structural in (ed.), The of the German Political Economy: Evolution of a Press, 1992), pp. OECD, OECD Economic Surveys: (OECD, p. No. (1997), pp. Europe, New Europe and the Comparative Economic and of European and Studies, Vol. 12, No. 2 (2005), pp. Financial Times, May & Economic Reform and the Political Economy of the German Welfare State, Working Paper No. 2 (2005), p. 22. Rhodes, 'Why the EMU Is – or May Be – Good for European Welfare States', pp. Ibid., pp. Ibid., pp. Hemerijck, 'The Self Transformation of the European Social Model(s)', pp. Rhodes, 'Why the EMU Is – or May Be – Good for European Welfare pp. G⊘sta The of Welfare Capitalism 1990), p. 19. Rhodes, 'Why the EMU Is – or May Be – Good for European Welfare pp. State in Europe: Politics, and Review of Vol. (2003), p. are more since in the of only an after a such as in the French will See, for example, the French Welfare State', West European Politics, Vol. No. 2 pp. 4 2005, in Mabbett & Schelkle, Macroeconomics Back into the Political Economy of State in Europe', pp. & State Public Restructuring, and in Advanced Capitalist World Politics, Vol. No. 1 (1998), pp. Boyer, Relations in OECD Bieling & Schulten, '"Competitive Restructuring" and Industrial Relations within the European Union', pp. T. H. and Class and other (Cambridge University Press, in (The Press, pp. & Regulation: The Crisis of Fordism and the Transformation of the in West in & (eds), Capitalist and Crisis Theory Press, 1989), p. Kees van Social Study of and the Welfare State (Routledge, 1995), p. 2. Boyer, 'The Unanticipated Fallout of European Monetary Union', pp. Ryner, 'Disciplinary pp. the French Welfare State', pp. Integration and the French in Andrew Martin & (eds), and (Cambridge University Press, 2004), pp. Clift, 'The Changing Political Economy of France', pp. of the government a towards more the of and and the Agenda with the See Martin or Social Policy after of 3 and German Welfare in Martin & (eds), and pp. Martin & Systems and in Peter (ed.), The West European (Oxford University Press, 1990), p.