Will a Hollande victory change Euro-economics?

Submitted by Matthew on 2 May, 2012 - 8:43

John Palmer, former European editor of the Guardian, spoke to Solidarity about the background to, possibilities of, and implications of the call by François Hollande, who looks likely to win the presidency of France in the run-off poll on 6 May, for a reshaping of European Union economic policy.

Hollande’s position to some extent reflects a shift in the thinking of important sectors of capital and the political elite outside social democracy. It is clear that even among finance capital there is growing scepticism about the coherence of a deflationist austerity strategy.

There is a broader shift in the economic consensus taking place, which is both reflected by and contributed to the position which has been taken by the French Parti Socialiste.

That shift is also reflected within German social democracy, at least as far as some parts of Hollande’s programme are concerned. There have even been sympathetic and supporting noises coming from the centre-right Monti government in Rome and the beleaguered conservative regime in Madrid.

The significance of Hollande’s position is all the greater for it being related to these other developments.

There are already negotiations taking place between Merkel’s officials and the Parti Socialiste on what exactly they have in mind for the fiscal compact. It is clear that we’re talking about addendums rather than structural changes.

The crucial question is how far will the Merkel regime go to meet Hollande. It is clear that Hollande will go, and has already gone, some way to meet the German conservative position. He is for example no longer calling for Eurobonds to deal with sovereign debt, but Eurobonds to enlarge the capital base of the European Investment Bank so it can lead an investment-led recovery.

On the Merkel side, there are signs that she is ready to give ground because of the domestic political situation in Germany. There are elections next year.

If she wants to stay in office, it looks as if she will be obliged to do a deal for a Grosse Koalition [grand coalition] with the Social Democrats, and therefore she wants to put herself in a good position for that result. She can’t go into the election with too big a gap between her and the SPD.

So I think there is likely to be some result. How effective will it be? I think the measures will be of limited effectiveness. The likely programme of an investment-led recovery, Eurobonds for the EIB, a further increase in the so-called firewall to deal with potential new crises in Spain and Italy — those things and some other measures will almost certainly go through.

The European Commission is coming forward with proposals which are aimed at the European Council summit meeting in June. We may get some flavour of them at an informal summit which van Rompuy is considering for May.

But as against that, the double-dip recession danger in the US, in Britain, and in the European Union is increasing. The ground they have to cover to mend the downward spiral in the economies is increasing. The steps they are taking will fall short of what is necessary. What is necessary, I think, is the programme that Euro-memorandum and others have outlined, which goes to the heart of the fundamental internal crisis of the euro-area, which is the asymmetry of the economic cycles and the economic management of the key euro-area economies.

The need for growth measures is the position of sectors of capital. The intellectual milieu around big capital has been shifting in that direction for some time. That reassures the social democrats that their programme is not going to be overtly confrontational, or that they can exploit the space where there are divisions over what to do within capitalist opinion.

The IMF position in favour of growth measures is to do with the French director-general. That has been her position for some time. And the facts of the deflationary course of the crisis — i.e. the spiral of stagnation, the deficits increasing not withstanding austerity — are shrieking out now, so it’s not surprising that there are shifts taking place.

Social democracy has been a marginal force in European politics in recent years. Twelve years ago the great majority of EU governments were led by social-democratic parties, and today there are only a few countries where they have any role in government.

There are also divisions emerging on the political right, with the growth of populist and far, which also in a distorted way reflects this sense of failure of the system, has also has opened up space.

In France, a section of the Parti Communiste vote went to the National Front, and maybe a section of it will be returning to the social democrats in the second round of the presidential election. That shows the instability of that vote.

The social democrats are coming back from a long time out of influence. The Social Democrats are back in office in Denmark, and there are signs of the political pendulum swinging in other countries, but not everywhere as yet.

If the Parti Socialiste is seen to be changing the direction of euro-area policy, in however restricted a sense, that will probably encourage other social democrats in other countries to join in.

[In the Netherlands there has been a government crisis over budget cuts, ending with a new coalition for a cuts package. But no major party in the Netherlands has been ready to propose a “euro-Keynesian” policy of deliberately continuing a deficit in a country like the Netherlands, which has a relatively mild debt problem.]

The Dutch Socialist Party, the ex-Maoist party, has called for tax increases of various kinds, but they haven’t supported the reductions in course. The Labour Party, the PvdA, is not joining the new coalition government — not because it is against any cuts, but because it is against these cuts. But the scale of the cuts in the Netherlands is tiny compared to the scale of the cuts in Greece and Spain and Ireland so on.

The Green Left party in the Netherlands calls for an expansionary Euro-area strategy, although it has supported the new budget.

Any government, including a workers’ government that took over and was operating in the global system and not attempting a North Korean party, would have to look at its budget deficit position.

In Greece the left position should have been to focus on issues like the arms deal with Germany [under which Germany insisted that Greece go through a contract to buy submarines from Germany] and the refusal to collect taxes from the rich.

There is a caricature Keynesian position that says that there are no problems with deficits. There are problems with the deficit. The class differences relate both to the scale and the speed of the adjustments, but also the nature of the adjustments — whether they focus on armaments, wealth taxes, bank reserves, profits, and so on.

An issue which has been under-debated on the left in Britain, in my opinion, is the enormous cash reserves which non-financial companies have accumulated, and they don’t know where to put them. The left should have a position on that issue.

I don’t say that it is reactionary or unprincipled for a left party to have measures to reduce the deficit. If borrowing will be necessary to fund essential services, how do you prevent the cost of that spiralling out of control unless the overall deficit is dealt with in some way?

But the whole issue of deficits should be conducted on a European-calculated basis. Any budget policy which is calculated on a purely national basis, from the left or anywhere else, will inevitably end up in a reactionary position because of the inherent contradictions.

Social democracy and other progressive forces are running behind the shift that is taking place among sectors of capital: I think that’s true.

I don’t accept either the position that the current EU policies are shaped by a German drive for domination, or the one that they are shaped by German ruling-class stupidity.

Certainly there is a bias in all bourgeois state policies to seek state advantage and to seek the extension of national power and influence. That is not unique to Germany. In fact since World War Two it may have been less true of Germany than of other EU member states, for obvious historical reasons.

I think the conspiracy theory, that current EU policies are shaped by German ambition for a Fourth Reich, is entirely mistaken. And I do not think the position can be entirely put down to intellectual stupidity in the ruling classes.

It is down to the incompatibility of the traditional framework of national-state politics and the necessity for a broader politics. It is analogous to the contradiction which the German statelets were experiencing in the run-up to and immediately after Prussian-led German unification.

The German national market was a reality which their politics could not encompass. The same sort of thing is true of globalisation and in particular of Europeanisation today.

The whole construct of the national debate, set by bourgeois forces including social democracy, is incapable of understanding that the contradictions of the system have moved beyond national borders and require solutions which transcend national borders.

That is the genesis of the fact that everywhere states have been making calculations which, when aggregated, cannot produce a solution to the crisis they face.

Added to that is an ideological factor. The media moves politicians. In Germany Bild-Zeitung came out with the famous headline, “Alle wollen unser Geld!” — everyone wants our money! That was a very powerful Sun-type articulation of a politics that was shamelessly nationalist (not so much imperialist, but rather nationalist).

Just as the politics of the Murdoch empire captivated Conservative and Labourite politicians here, so the chaotic nature of the system means that a factor like the media can exploit the vacuum and articulate a populism which is a very powerful driver of irrational policies.

Look at Cameron. What drives his stance of vetoing the fiscal treaty and then urging the other EU countries to integrate as fast as possible? He is driven not by British capital saying that is the optimal policy, but by fear of the media.

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