"The demands of the lender become reasonable because the lender is the lender." -- Stephen Berger, NYT on the New York fiscal crisis, 1975
"The Greek economy is returning steadily to European normality," says Alexis Tsipras. Having reduced the deficit and seen the economy grow by 0.4% in the first quarter of this year (the IMF predicts annual growth at around 2%), the country is said to be on the road to "sustainable growth".
To mark this momentous occasion, the government has announced that it's going to try to sell government debt again. Brussels, for its part, has announced that Greece has achieved its goals by reducing the deficit to within EU limits, and has called for an end to the "excessive deficit regime" -- although both the EU and IMF are insisting upon continued macroeconomic 'reforms' if Greece wants to continue getting its tranches of bailout funding.
As a point of terminological clarification, an "excessive deficit regime" is instituted under the rules of the European 'Stability and Growth Pact'. The rules state that the regime will be triggered if either a member state has a deficit of above 3% of GDP, or debt above 60% of GDP. In the event that a member state is in breach of the rules, the EU will impose measures (basically austerity) to bring the debt into line -- on pain of sanctions.
Technically, the EU is bending its own rules here. The Greek budget has been returned to surplus by means of cuts in public services, employment, pensions and welfare, as well as the privatisation and sale of public goods at firesale prices, which have thrown a third of Greeks into poverty (this doesn't even begin to scratch the surface of the humanitarian catastrophe inflicted on Greece). However, the debt-to-GDP ratio is still way, way above the acceptable level within the EU, closing 2016 at 179%. It's unlikely to go down rapidly.
This debt is simply unpayable. It is too huge a burden for the Greek economy, even in growth -- which is relatively shaky. What is more, the creditors always knew this. And the creditors are not private banks, they are public sector, state institutions, above all the European Central Bank. And the bailout funds were mostly transferred directly to those creditors, almost none of it being filtered through the Greek economy. So the memoranda and bailouts were acts of political exigency, reflecting the embedded, codified, rules-governed ordoliberal orthodoxies of EU governments -- above all Germany.
Nonetheless, you might say, even a sputtering return to growth is good news, and the end of this particular emergency regime -- even if austerian 'reforms' are to continue -- is a step forward. Well, it obviously is for the European institution. Notwithstanding general eurozone weakness (growth rates of 1.9% are nothing to brag about), the crisis of the currency area is over for the time being. The 'normalisation' of Greece is part of the recovery. However, this is to miss the point. The point is that, of course, if the EU can bend its own rules to secure a return to normality, it could have done that anyway.
But what, you might wonder, do you call it when you're outside normality? Back in the day, Greece was dubbed a "failed state". It could not secure the means to reproduce itself. Its political cohesion was in breakdown, propped up by the intervention of the troika to oversee austerity. Its population had been pushed to the point of near-insurgency. The state's ability to deliver the basic services that maintained social reproduction was stretched to breaking point.
But the term "failed state" is a descriptive category, which explains nothing in itself. Ideology fills in the gaps. In the case of Greece, the story is as follows: for years, this country’s irresponsible and corrupt rulers offered citizens unaffordable perks, instead of reforming taxes; it allowed inefficient and uncompetitive practices to flourish in its state sector instead of disciplining labour markets; and above all, it borrowed beyond its means.
Now, this is simply unsustainable. The eurozone is structurally asymmetrical. Some states must be in deficit, even in the good times. Germany has a big current account surplus because it is a net exporter to other eurozone countries; by definition, that means other eurozone countries have to be in deficit, because someone else has to be a net importer. Aside from that, of course, imposing austerity measures during a recession is an excellent way to ensure that the recession will be deepened, thus depriving the economy of the wherewithal to pay off the deficit.
You can only understand the 'abnormal', 'failed state' position of Greece in relation to the European project, one riven with antagonisms from inception. Although it had a progressive, rationalising impetus in the beginning -- Jean Monnet thought that a common market would not only help suppress rivalries, but it would drive the modernisation of old polities and forms of production, within a broadly pro-business framework.
The European Coal and Steel Community (ECSC), the precursor to the Common Market, initiated by the French foreign ministry in 1951 at the behest of Monnet, was a way of unifying French and West German capitalist interests with respect to the coal and steel region of the Ruhr. French state personnel thought it would prevent renewed German expansionism, to rationalise production in the economic sectors affected, containing the effects of intermittent gluts and shortages, and stabilising a state system under threat from labour and leftist insurgencies.
In the new Franco-German axis, France would provide political leadership and Western Germany would serve as an economic powerhouse. This division of labour isn't quite intact any more, as Merkel has been elevated to "leader of the free world" status'. But France retains the military power. The institutions developed by the ECSC, from the High Authority to the European Court of Justice, prefigured the institutional forms that would dominate the European Economic Community (EEC) and later the EU.
However, this was a bloc of free trading nations, not economic and monetary union. Only with the economic and political crises of the 1970s, with the collapse of Bretton Woods, and the open manipulation of the dollar as the global currency by the US Treasury, did European elites come round to the idea of economic and monetary union as a possible solution. And it was clear that, if West German policymakers had the initiative in this, the approach would be what I have called 'ordoliberal', the distinctively German, statist strain of neoliberalism identified in Foucault's lectures.
West Germany’s response to the crisis of the Seventies was to invest in new technology, suppress domestic demand in favour of export-led growth, and shift production overseas to exploit cheaper labour: a strategy that a reunified Germany has pursued to this day, and which orients Germany within the EU. It also supported an austerian response to crisis -- restoring industrial profitability by attacking wages and reducing taxes on profits by cutting expenditures -- in opposition to the French Mitterrand administration's brief flirtation with left-Keynesianism, an argument that the German Treasury had won by 1983. At the same time, the EEC's planners began to develop a common monetary strategy to stabilise exchange rates in a volatile international environment, culminating in the European Monetary System, and later the Exchange Rate Mechanism. Logically, this entailed the deepening alignment of European economies, as no stable currency system could emerge while nation-states pursued radically different fiscal policies. And, because West Germany and France were in charge, that meant the new European order would be a neoliberal one. Consumption would be held down to stabilise the new currency, and ease inflationary pressures; public spending would be kept low, and labour organisations weakened; where necessary, demand would be stimulated by private sector borrowing or supplemented by exports.
Ongoing, austerity lite policies (demanding low inflation, controlled wage growth, fiscal conservatism and flexible labour markets) became the bedrock of the Treaty of European Union (1992), and especially the Stability and Growth Pact (1997) that underpins the euro. An exceptionally powerful European Central Bank, which you might describe as a material condensation of ordoliberalism, was created to help enforce these rules. Implicitly, each step in the integration of European economies demanded a further pooling of political sovereignty. Following the collapse of the Warsaw Pact and the absorption of a host of formerly Stalinist states into the European community, the political thrust of integration became more important. Acceptance into the EU offered these states a means of rapid economic expansion after recent stagnation (while also supplying dominant European capital with cheap labour markets). But to qualify, they had to accept not only a plethora of economic and fiscal rules, but also the liberal political structure codified in the EU’s laws and reinforced by its courts. With this centralisation and concentration of political authority in the EU, the logic was increasingly tending towards federalism.
The basic contradiction at the bottom of all this is that, while the EU represents itself as a community of interests, it is organised as a hierarchy of states. The ability of capital in dominant economies such as Germany to make profits in peripheral economies depends upon their being organised in a hierarchy of national states. This is a pivotal ‘contradiction’ in the project of European unity; any tendency toward centralisation hits against limits imposed by its organisation as a chain of national states. These limits are visible in the failures of the union, such as its inability to develop a centralised political authority to rival the United States, or its floundering efforts to pioneer a Europe-wide defence initiative. The lack of political unity has also thus far retarded the development of a single, centralised stock exchange of a scale which would enable the EU to compete with rivals.
All of this, it goes without saying, was enacted with barely a nod to electorates, barring some scattered plebiscites seeking popular mandates for decisions already taken. Organised labour occupied a subordinate role – for example, it was incorporated into the Consultative Committee of the ECSC. Some toothless forms of democratic representation have been created in the form of the European parliament. But otherwise, popular constituencies have simply been marginalised. And that has led to its own problems for the EU. The development of mass resistance to the Lisbon Treaty, whose provisions were inspired by the European Round Table of Industrialists, illustrated that unification was not taking place in a way that incorporated all classes. Indeed, the success of wage repression across the EU, where the share of income going to labour has fallen on average by more than 10 per cent, is to a considerable degree the result of policies pursued under its rubric.
The sovereign debt crises following from the financial crash and subsequent recession exposed, as an earthquake exposes foundations, the two key antagonisms structuring the EU: the class conflict, and the core/periphery conflict. The decision by leading European states to resolve their debt crisis by looking out for the interests of a few large banks, socialising their debts and transferring the costs to the PIIGS economies, illustrates this very clearly. Certainly, the PIIGS economies were in deficit but, whatever the misdemeanours of their governing elites, given the nature of the organisation they were gladly inducted into, they could not help but be once the credit crunch struck. They were being punished, in effect, for being at the bottom of the pile.
But what's excruciatingly telling is how natural this punitive project has been made to seem. Think about it. Greece has been offered 'bailouts' which are destined for the banks and no one else. 'In return' for these 'bailouts' -- in return for meeting the demands of the lenders, in other words - the Greek government was thus enjoined to slash public sector wages by 20% for a start, raise taxes to levels unaffordable for most of the population, starve pensioners, drive up unemployment, and sell public assets worth $71 billion at fire sale prices: public industries, post offices and airports, infrastructure and acres of prime real estate. As with all austerity projects, none of this was supposed to restore growth by paying off the debts. The deficit was the easier part to deal with, since that could be cut through a crude wealth transfer -- slash the social wage. But the debt was never meant to be paid off in these terms, and probably most of it will never be paid off. The goal was akin to shock therapy. Yes, it was to reduce wages and the costs of doing business, by driving down the social wage and increasing market dependency. Yes, it was to modernise the tax system. Yes, it was to open up new frontiers for capital accumulation, and create grounds on which profitable investment might one day resume. But above all, it was to break those embedded, organised forms of social resistance to this new order. It was to impose a defeat so comprehensive, swift and demoralising, so ruinous in its effects, that 'normalisation' under the new order would be welcomed with relief.
Meanwhile, the power and majesty of the EU Presidency, the Secretary-general and the High Representative in respect of Greece was demonstrated in their intransigent insistence on being allowed to enter Greek ministries and oversee the day to day decisions of elected politicians. Any hint of deferring to popular opinion on matters pertaining to a rules-based order for capital accumulation were laughed or scowled at. Papandreou's referendum was howled out of court, and he was forced to resign. An unelected, technocratic austerity regime was imposed in his wake, and the ongoing accumulation of social miseries provoked something close to an insurrection among Greek workers, among whom leftist traditions and trade union militancy remained strong. Further miseries and the growing deadlock of the political institutions, and the breakdown of representative links, gave fertile ground to a violent neo-Nazi surge, which attained dangerously close links to the repressive apparatuses of the state. In the face of all this, EU technocrats responded with eye-rolling puzzlement, and persisted, suggesting only that the rules of the Union, the single market and the currency area could not be reversed by a democratic choice.
Greece became a "failed state" largely because that was how the European elites wanted things. And if it is now being slowly, cautiously, suspiciously welcomed back, 'normalised', it is because Syriza's comprehensive capitulation, and the pacification of Greek resistance, means that the shock doctrine has achieved its objectives.