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Building Europe: interstate vs communitary models

The main political meaning of the Maastricht Treaty (1991-92), which prolongs and goes beyond the Single European Act (1985) is that the German, French and English imperialists bourgeoisies agreed to make a (limited) transfer of national sovereignty to start embryonic structures to create a supranational European state.

The introduction of the single currency put the question of state power in the center of the EU: the currency is a key attribute of any state apparatus, so that the euro entailed a waiver of national sovereignty and its transference to supranational institutions (mainly the European Central Bank). From that moment the single currency inevitably would have a decisive influence in the national - state politics of the government, so its introduction supposed the qualitative jump towards a truly central supranational state. However, considering the antagonisms between different national bourgeoisies, accentuated in the context of the present crisis, the European ruling classes have not managed to consolidate completely the project through a fiscal and political union that guarantees the culmination of the European supranational state.1

These antagonisms threaten the process of integration and the survival of the Monetary Union, and perhaps of the European Union. The European and Anglo-Saxon elites (including the USA), are divided and competing as to the integration path: to simplify, part of these European elites (e.g. German bourgeoisie) intend for maintain the intergovernmental model, while others propel the community model, (p.e. bourgeoisies of France, Italy, of the USA), generally referred to as 'federal' on the part of its promoters, given the positive connotations of the word in the progressive environments. The federal model supposes that the states should abandon the levers of direct control in favor of the European supranational institutions.2

The communitary ideas of the EU have been attributed to Jean Monnet3, one of the founders of the EU, who preached that natio-states should be subsumed in a post-national technocratic administration to bring peace in Europe. The idea defended by Monnet was, according to its own words "a union between the peoples, not a cooperation between the states". This reflected his intention to help in the creation of an European Union that moved in the direction of the United States of America, a federal proto-state with great powers at federal level and increasingly smaller state and regional powers4. For this reason he was accused of being an ‘American agent’, which was trying to eliminate the national sovereignty in Europe to create a federal Europe to weaken the powers of the European nations.5 Monnet's ideas were not new. Hayek had already written in 1939 that a federal union had to be created in Europe to act as a supra-national 'negative' power, in his own words, meaning that these new structures would prevent the intervention of nation-states in politics and in the economy.6

By contrast, the more nationalist ideology of the EU can be represented by the figures of the conservative politicians Charles de Gaulle and Konrad Adenauer, which defended that the EU had to be constructed on the basis of classic alliances between the states, especially between France and Germany, in the style of what Winston Churchill famously asked for in his speech in Zurich in 1946. This position reflected the opposition of the national political and economic elites of the time to giving up their power in favor of 'foreign' powers.

If we move forward to the period of the Maastricht Treaty, the supranational model of the European Union can be identified also with the figure of the German ex-chancellor, Helmut Kohl, who presided Germany during the unification of the country and the conception of the project of the European single currency in Maastrich. It should be noted that one of the main motivations for signing Maastricht of this ex-chancellor was to obtain the supports of other European powers in the process of unification of Germany. Kohl, throughout his long career often spoke about the need to abandon "the idea of the state-nation". An example of this was his speech to the Bundestag after the Maastricht summit in 1991, in which he said that "it is not possible to turn back the entry into the European Union. Member states of the European Community are united in such way that makes any outbreak or relapse into the previous thinking of the nation-state impossible."

In the current crisis others have played this role less succesfully. The ex-president of the European Council Herman Van Rompuy in 2012 presented a similar roadmap in his report "Towards a Genuine Economic and Monetary Union"7, otherwise called ‘The Report of Four Presidents’, since it was carried out in close collaboration of the presidents of the Commission, the Eurogroup and the European Central Bank Barroso, Juncker and Draghi respectively. Their main points were that the federal integration must be achieved through an integrated financial framework (ie, a banking union); with an integrated economic policy framework (ie, a fiscal union); with the strengthening of the democratic legitimacy and accountability; and with an integrated budgetary framework (that includes the creation of a common Treasury, ie eurobonds). The rejection of the German government to implement the eurobonds in 2012 buried the report of Van Rompuy temporarily and eroded his political figure. In spite of it, this ideological current has not abandoned his goal and in June, 2015 a similar report was published called “Completing Europe's Economic and Monetary Union”8 also called ‘The Five Presidents report’, which supposes an updated reprint of the report by Van Rompuy.

Understanding the fluctuations of the German goverment with respect to the model of integration and to analyse its defense of its national interests is key to understanding the political dynamics of the integration. Despite the speeches in support for a federal integration, along the crisis German Chancellor Angela Merkel and his powerful finance minister Wolfgang Schäuble have been heading increasingly in the direction of defending the interests of the German nation-state bourgeoisie in detriment of the communitary supranational integration project.

Merkel, for example, on December 2, 2011 was declaring in the Bundestag that the European leaders "had initiated a new phase in the European integration"9. In the same speech she was affirming that quick steps were being taken without much political discussion to promote the European fiscal integration10, through the creation of supranational mechanisms that could help manage the crisis in the eurozone: «We are not talking merely about a fiscal union, [...] Rather, we have begun to create it. We need the budgetary discipline and an effective crisis management mechanism. So we have to change the treaties or create new treaties.»11

Schäuble, ex-member of the cabinet of Helmut Kohl and one of the most powerful politicians in the EU, who took over from Kohl as a promoter of the European integration, was declaring in the middle of 2012 that «there is no alternative to the European integration, [...] we lose together and win together. [...] We need to create new structures of supranational government. It should be the next logical step towards the European Union. "It is vital" to recover the confidence in the European Monetary Union through institutional reforms.» The minister underlined that this required the «transference of national competences» to European level and changes in the European agreements.

In spite of the rhetoric, and of some steps mentioned by Merkel, the German political elites have defended their bourgoise's national interests retrenching on a moralistic story that has increased tension between the populations of the center and the periphery of the Eurozone. Germany and other states like Finland, Holland or Austria have exploited a sense of grievance of their populations with respect to the southern European populations, which according to this narrative, have had a standard of living beyond their possibilities, subsidized by northern countries through EU institutions. With these arguments the German government has resisted international pressure to transfer national sovereignty to EU institutions to create permanent redistributive mechanisms inside the EU, as means for solving the crisis. The German resistance strategy is exemplified by the rejection of the mutualization of debts through the creation of eurobonds, which came together with imposition of a cap to the credit capacity of the European Financial Stability Facility (EFSF) and the imposition of ever harsher austerity conditions on the bailed-out states like Greece.

Limiting the EFSF financial capacity is a case that deserves mentioning. In the context of the current crisis, the creation of the EFSF (and its successor the European Stability Mechanism) could have been a step not only to deal with the sovereign debt crisis, but a step towards a federal fiscal integration. The German government, under pressure from its constitutional court and its parliament, limited the size of the EFSF-ESM at the time of its inception in 2011, and firmly opposed to an increase of the amount of guarantees that Germany could provide, putting an end to the plans of the European Council President Van Rompuy in 2012 of accelerating integration through shortcuts that would avoid treaty changes. With this strategy Germany was blocking the proposal by the European Commission of the creation of the "eurobonds"12, which arguebly could have unlocked the crisis of the Eurozone, creating mechanisms of fiscal redistribution between the states of the Eurozone that would have enabled progress towards a federal EU.

Merkel also has been opposed to other steps towards integration, as for instance the transfer of powers to the European Commission to examine and possibly to reject budget proposals before they are voted in national parliaments, or the transfer of bank regulatory powers on the German savings banks to the Single Supervisory Mechanism (SSM) in the context of the Banking Union. Schäuble, the German minister of finance, meanwhile, has also made proposals to create institutions like the European superministry of finance, which would have the power to decide and dictate on the budgets and the indebtedness of the different member states of the EMU, a project that would continue to mantain the separation of state liabilities. This proposal reflects the current integration spirit of Germany, based on the idea that the most powerful and rich nations of the EMU, mainly Germany, should be in charge of this ministry and the EMU more broadly.

Crisis in the Eurozone: an ideal context for integration?

Since 2010, the Eurozone has suffered severe tensions. Before the crisis the region was in an advanced stage of the integration of its commerce and finance, facilitated by the introduction of the euro in 2002. However, before the crisis, the Member states still had considerable political power at a state level, which allowed them to diverge in important economic policies with regard to their neighbors. A pronounced salary contention in Germany from the beggining of the 2000s increased its competitiveness. These diverse structures in the labor, fiscal and industrial fields conjugated with the homogeneity of monetary policies, creating huge imbalances in the balances of payments between the members of the Eurozone, with the north, especially Germany, becoming a major exporter and financier of the so-called periphery of Europe.13

When the financial crisis erupted in the United States, beating American banks strongly and spreading to European banks, western governments decided to rescue the banking systems with public money. What began as a crisis of private banking, finally became a fiscal crisis in peripheral Europe, whose governments spent enormous sums in these rescues and accumulated huge deficits with the decrease of tax receipts. All this shoot up their public debt levels quickly.

Solving the economic imbalances of the Eurozone would require the turn around of the balance payments of Germany vis-a-vis its importers through wage inflation in Germany or to establish redistributional mechanisms for the recycling of flows within the Eurozone from the countries with current account surpluses towards those in deficit. The imbalances caused by wage dumping in Germany, would be corrected by raising the wages in Germany, or otherwise lowering them in the countries of the periphery. A third alternative, would be to abandon the fixed exchage rate of the European Monetary Union, to accomplish the adjustment in competitiveness through fluctuation of currency values.14

Of these three possible strategies, the one chosen by the economic elites of the EU, principally the German, was to force internal deflation in the countries of the periphery, through wage restraint and spending cuts in the public sector, politicies known better with the misleading concept of ‘austerity‘. These policies have amplified the effect of the already monumental banking crisis, generating an economic and social crisis in Europe similar to the Great Depression, with very high levels of unemployment, falling living standards of the population and of the levels economic activity, which already last 8 years and which given the current signs, threaten to become chronic and even to deteriorate.

However, despite of all the rethoric, austerity didn't reduce the total levels of indebtedness of the economies significantly, and in general public debts continued to grow. Public policies of austerity, combined with the financial and economic crisis, soon led states such as the Greek, Irish, Portuguese, Spanish and Cypriot to the brink of bankruptcy. These viewed how the ability to refinance their debts through bond markets became ever more expensive, while at the same time they were pressured by European political powers to accept bail-outs, which came accompanied by severe adjustment plans.

New institutional architecture: preparing fiscal and political union

To make possible these public bail-outs, mechanisms were established in the form of new financial institutions. Possibly the most relevant institution to that aim was the European Financial Stability Facility (EFSF), mentioned previously, that was created in 2010 to serve this function, avoiding the European treaties which prohibited financial aids between member states of the EU.15

Although the EFSF was created to manage nearly 800 billion euros of public money, its creation suffered from serious democratic deficits, being established in negotiations between senior European officials without any process of consultation with the European population and transgressing treaty rules. In order to avoid the necessary democratic processes to create this institution in accordance with the laws and treaties of the EU, the EFSF was established as a private company in Luxembourg, acting under British law and including clauses of secrecy and inviolability in its statutes. These serious legal and democratic problems were confirmed by the fact that in parallel to the creation of the EFSF in June 2010, the European treaties were modified to create a legal basis for a permanent bail-out mechanism16, the European Stability Mechanism (ESM)17, created in March 2011, which would not break EU law. This new entity, established only six months after the birth of the EFSF, is its current successor, with minor changes but the same mission.

These mechanisms were designed by the European bureaucratic elite not only as temporary crisis mechanism, but to start creating the institutions that move toward a supra-federal EU integration. This institution could if the necessary agreements were reached, function as European Treasury Fund, through which the tax system could be mutualized in the Eurozone. The EFSF-ESM would issue "eurobonds"18 with the guarantee of the tax systems of the members of the eurozone, which would allow the institutions to redistribute these funds in case of crisis. With a deeper degree of risk-sharing new steps toward political integration would have to be implemented.19

As the same institutions of the EU confirmed, the creation of the EFSF and its successor the ESM, should not be considered as a separate response to the crisis of sovereign debt, but rather as part of a new institutional set-up based on a series of measures adopted at national level and at EU level towards fiscal and political integration. These measures are EU initiatives, such as the strengthening of the Stability and Growth Pact (Six-pack), the Treaty of Stability, Coordination and Governance in the EMU (Fiscal Pact), the European Semester, the Euro Plus Pact, the "Two-pack"20 and the new European system of financial supervision and resolution (Banking Union).21 This new European institutions, imposed on the basis of coercion and threats under the pretext of urgency and necessity, have not gone through a debate. In fact it is possible to argue that, rather than trying to solve the problems of governance of the framework of the EU, the main objective of these changes has been to, taking advantage of the political and social stress generated by the crisis, deepening the neoliberal model of the EU, based on privatization, deteriorating labor rights, cuts in social spending and the establishment of all kinds of policies that favor large transnational corporations.

The United States of Europe?

It is necessary to understand the tension between the model of supranational integration, closer to the geopolitical objectives of the French, Italian and Anglo-Saxon bourgeoisie and, the model of intergovernmental integration, which keeps power at a nation-state level, which is closer to the German interests, to see which are the interests that have taken Europe to the current standstill and, especially, the difficulty in coming to a resolution of the Greek crisis.

Since the Greek Syriza took office in January 2015, Yanis Varoufakis, the Greek finance minister tried to convince his German homologue that his ‘Modest proposal’22 was compatible with avoiding the establishment of a permanent system of interestate fiscal transferences, thus permitting not to burden taxpayers of the European core with the recovery of the periphery. Although Varoufakis, Galbraith and Holland argued that their proposal would not entail a permanent mechanism, this would have meant progress towards the implementation of Eurobonds, which would be issued by the ECB in exchange for government debt. This would have meant that the European debt system would pass under the control of institutions European, mainly the ECB, which would acquire a character of lender of last resort in the style of the Federal Reserve. It is no surprising so, that Varoufakis received the support and collaboration of economists such as Larry Summers, former Secretary of the US Treasury and current personal advisor of the president of the USA, and Jeffrey Sachs, advisor to many governments who abandoned the centrally planned economic model of Eastern Europe during the 90s to adapt to the neoliberal model, both of them close to the banking elites of the United States.

Varoufakis ideas were completely contrary to the German anti-inflation doctrine, which allows to hold off the intervention of the ECB in economic policy. In fact a central bank that buys debt in the style of the Fed would indirectly exercise as a permanent system of fiscal transfers, which remains incompatible with the objectives of the German bourgeoisie, focused on maintaining financial control of the eurozone to continue exploiting the mercantilist model allowing them to continue to dominate with an iron fist European politics and competing in the world as a global superpower.

The position of the German government in the negotiations has led to tensions with not only the Greek government, but also with the European bureaucracy, represented by the European Commission and the European Central Bank, and also with the International Moentary Fund, which during the negotiation with the Greek government represented to a certain extent the political interests of the USA and to a lesser extent other powerful states of the Eurzone as France and Italy, interested in reducing German power, and the influence of its institutions such as the Bundesbank. However, the denouement of the crisis has shown that the political representatives of Germany seem ready to accept any possibility for the Eurozone in orther not to lose economic power and national sovereignty. In fact, they came to demonstrate that they preferred the expulsion of the 'weak' members of the eurozone, such as Greece, running the risk of disintegration of the EMU, rather than making concessions of this kind.

In short, the current situation can be framed in an attempt by the German bourgeoisie, especially the industrial, to maintain and extend its hegemony and dominance in Europe, against others that promote a model of integration that would reduce its power, principally the Anglo-Saxon bourgeoisie, and more specifically its financial elites. This is why latest proposal by German finance finister Schäuble, point to the creation of new institutions of control and fiscal governance that keep state liabilities circumscribed to a national level, and that are managed by national executive powers, principally by those of Germany and France. France presidency by François Hollande seems to slowly have moved closer and closer to the intergovernmental model and now seems able to accept the German mercanitist model for Europe.

Any of these two models, neither the supranational integration proposed by the 'Report of the Five Presidents' nor the proposed by the German minister of finance Schäuble, are progressive proposals. Neither of them deviates from the hegemonic neoliberal institutional framework showing any will toward the democratization of Europe and the strengthening of economic, social and cultural rights of the European peoples.

This is why the European left, which has generally adopted the project of ‘more Europe’ that corresponds to the model of fiscal integration and mutualization of debts proposed by the European bureaucracy, must be critical with this proposal, as much as it is with the German proposal, calibrating their high risks and few opportunities, and start planning more consistent strategies with a progressive and humanist ethics that transforms Europe into a region that respects Human Rights above all. It is not surprising then that the lack of progressive perspectives inside of the current institutional architecture of the EMU and the EU, motivate movements requesting a Plan B that thinks of a political and economic alternative to the EU of neoliberalism.

Bibliography:

  1. Vercammen, F. (1999) "Europe: Face aux institutions of the Union européenne." Inprecor: http://www.inprecor.fr/article-?id=1786
  2. Ibid.
  3. Monnet, French diplomat and entrepreneur who lived much of his life in the US, was close to powerful people as John Foster Dulles, André Meyer, the Rockefellers, the Bosch family and the Wallenbergs. He was the first president of the High Authority of the European Coal and Steel Community (ECSC), the first institution of the EU, which later merged with the European Commission.
  4. Monnet wrote drafts of the Schuman Declaration of May 1950 Schuman Declaration: http://europa.eu/about-eu/basic-information/symbols/europe-day/schuman-d...
  5. Marie-France Garaud, an advisor to the Gaullist French President Georges Pompidou and Jacques Chirac, then prime minister, threw this accusation. She felt that was part of an American plan to weaken the French power and declared in the French TV program "Ce soir (ou jamais!)": "He was an American agent. Now we know how much he was paid, because this has been declassified. "
  6. Hayek, Friedrich A. "The economic conditions of Interstate federalism." New Commonwealth Quarterly 131 (1939): 49.
  7. Van Rompuy Herman. "Towards a genuine economic and monetary union. Report of the European Council President Herman Van Rompuy." European Council. June 2012. Available at: www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/es/ec/131290.pdf
  8. Juncker, Jean-Claude. "Making the European Economic and Monetary Union." European Commission. June 2015. Available at: ec.europa.eu/priorities/economic-monetary-union/docs/5-presidents-report_es.pdf
  9. BBC News. http://www.bbc.com/news/business-16030374
  10. The Charlemagne Prize is a prestigious European award. It has been awarded annually since 1950 by the German city of Aachen to people who contributed to the process of European integration. http://www.aachen.de/EN/sb/pr_az/karls_pr/charlemagne_prize/index.html
  11. Speech at an event organized by the French National College of Administration (ENA) and ESCP Europe (European Identity and Global Perspective). September 2012.
  12. European Commission. "Green Paper on the feasibility of introducing stability bonds". Brussels, November 2011.
  13. To illustrate it with data between 2003 and 2009 states like Greece, Portugal, Ireland and Spain saw their net external debts increase by 29%, 53%, 54% and 53% of GDP respectively while Germany saw as its level of net external debt relative to GDP down by 27%. Data bases of the ECB and the IMF.
  14. Flassbeck, Heiner, and Costas Lapavitsas. Against the troika: Crisis and Austerity in the Eurozone. Verso Books, 2015.
  15. Article 125 of the Treaty on the Functioning of the European Union.
  16. Amendment of Article 136 of the Treaty on the Functioning of the EU authorizing the establishment of the ESM under EU law.
  17. Bank of Spain. "The European Stability Mechanism." Articles. Monthly Bulletin. July 2011.
  18. European Commission. "Green Paper on the feasibility of introducing stability bonds". Brussels, November 2011.
  19. To finance itself the fund would issue debt securities backed by states in the markets or provide the securities directly as financial assets "in kind" to the applicant states for bail-out.
  20. See the summary of the reforms related to European stability and growth pact on the website of the EC: http://ec.europa.eu/economy_finance/economic_governance/sgp/index_es.htm
  21. See the summary of the project of European Banking Union on the European Parliament website: http://www.europarl.europa.eu/atyourservice/es/displayFtu.html?ftuId=FTU...
  22. Varoufakis, I., Holland, and S. Galbraith, J.K (2011). "A modest proposal for Resolving the Eurozone crisis." Available: https://varoufakis.files.wordpress.com/2013/07/a-modest-proposal-for-res...