by Jorge Amar
This year marks the 25th anniversary of the Maastricht Treaty, which initiated the journey to the European Monetary Union (EMU). The lack of publicity and excitement with which this event has been received in Spain is remarkable, but unsurprising considering that we may soon see the abrupt ending of this social-economic experiment –unique in History– which has severed so many countries from their currencies and whose popular support is constantly falling in the polls (GALLUP 2016).
Neither the lessons on the history of previous monetary unions that were not part of a political union (1); nor the reports commissioned by the former European Economic Community itself in the 70s (2); nor the warnings and cautions given by several economists in the 90s (Wynne Godley among others); nor the lack of any proper debate in Spain about the European Monetary Union (questioning the monetary union in Spain amounted to political/professional suicide at the time –let us recall how Julio Anguita, former leader of the Spanish United Left, and many others were derided and insulted by the media for doing just that; History proved them right); nor the shocking evidence of the pro-cyclical failed polices prescribed by the Maastrich Treaty with youth unemployment rates over 50%; nor the crocodile tears shed by the IMF after implicitly admitting that Greece would have been better off leaving the euro area (Financial Times); not even the reluctance to join the ‘economic anorexia’ club by those countries that once pledged to do so (Sweden Poland)… None of that seems to make any difference in the group thinking of eurocrats and their advocates at home.
Why bother? The euro has been a resounding success in terms of dismantling the welfare state and eroding the power of labor in Spain. The tools used to that end were the euphemistically called “fiscal consolidation measures” and, notably, the Maastricht “convergence criteria”. Of course, the “convergence” was merely in terms of financial criteria, with a complete disregard for unemployment. In fact, employment ceased to be a policy goal to become a tool (the management of unemployment) to control inflation (NAIRU). Those measures (enforced by the Treaty) prevented Spain from closing the gap in welfare expenditure as was the aim of the polices implemented from the late 70s to the early 90s and which, if continued, would have closed the welfare gap in one decade (3).
One of the key elements in the construction of the Spanish welfare state was the crucial role played by overt monetary financing of deficits (advance payments from the Bank of Spain to the Treasury), a policy which was strictly forbidden by the Treaty. Another key element was to maintain public fiscal deficits over the 3% limit (even during expansive cycles), likewise penalized at EU level using the excessive deficit procedure. If the Spaniards had had to respect all those arbitrary rules and prohibitions now enforced by the European Monetary Union, we would have been prevented from funding the creation of our welfare state; in fact we exceeded the 3% limit every single year from 1983 to 1996. After signing the Treaty, Spain reduced the government deficit and this same reduction brought about a gradual increase in private deficit (as sectorial balance teaches us), which took the shape of a real state bubble until the Global Financial Crisis put an end to that as well. We all know what happened afterwards: It suffices to take a look at our disappeared saving banks, the record number of evictions and the millions of empty homes.
This year, a full series of events could put us in the way of Eurozone disintegration: The case of Italy, for instance, with the precarious situation of its banking sector and which, under the new “bail in” norms (if followed) could trigger a default on bank securities that would evaporate the savings of millions of pensioners who have trusted the securities of those financial entities. Or the elections in Germany, where many voices demand that the ECB put an end to its purchase program or even that Greece be expelled form the EMU. Any of those could show that the so-called ‘irreversibility’ of the euro was no more than a declaration of intent at the same level as certain fake wedding promises about fidelity and mutual support.
The fact that this marriage between currencies has turned into a nightmare in which some countries are abusing others or that the rules are not the same for all and coercion and insult have become part of the daily routine can only lead us to a re-edition of what Europe experienced in the 30s, when it was subject to the gold standard and mired in economic depression after a financial crash. At that time too, orthodox economists were advising…More austerity! Could we see in France what is happening now in Hungary? Will we watch the ominous rising of Alternative for Germany while the eurocrats continue to recommend some more “waterboarding” to the exhausted Greece, or to Portugal, or to Spain? Will we watch and see how they continue to blame public deficit, reproducing the first of the ‘fatal fallacies of Financial Fundamentalism’ condemned by Nobel-Prize winner William Wickrey? What is clear is that resistance against the ordoliberal project embodied by the Euro will continue to rise. What we should be asking ourselves, therefore, is who will benefit from the collapse of the Euro: The xenophobic ultra right? Is it still possible for the Left to rise to the challenge and start the demolition of the EMU structure for good?
Jorge Amar Benet is Economist, Research Scholar at the Binzagr Institute and President of the Spanish Economic Sovereignty Association APEEP.
(1) and (2) Mitchell, W. Eurozone Dystopia: Groupthinking and Denial on a Grand Scale. Edward Elgar Publishing (2015); p.23. For information on the reports commissioned by the former European Economic Community, see Chapter 3.
(3) Muñoz de Bustillo Llorente, R.: “La transición político-económica y la construcción del Estado de Bienestar en España (1975-1986)” (The political-economic transition and the building of the welfare state in Spain (1975-1986) University of Salamanca (https://dialnet.unirioja.es/descarga/articulo/2906819)