Europe unraveling

S P SETH

Europe is going through all sorts of problems emanating from its economic crisis. The May Day rallies and protests in its cities were a sharp reminder of the mess Europe is in.  The main problem is that whatever is done to shore up the economic image with pledges of more money for troubled economies of Eurozone, it is just not doing the trick in terms of investor confidence. At the same time, the enforced solution of austerity packages imposed on troubled economies like Greece, Spain, Italy, Portugal and others to rein in their debt and deficits is sending these countries further into recession. The result is rising unemployment due to shedding of labor force, cutting of wages, cuts in pensions and other social benefits, thus creating an explosive mix of economic decline and increasing social unrest.

The growing unemployment speaks for itself with Spain nearing 25 per cent (with youth unemployment at over per 50 per cent), Greece 22 per cent, Portugal 15 percent, Ireland 14.7 per cent, France around 10 per cent and so on. Amid such economic gloom, the incumbent governments of whatever persuasion are bearing the brunt of people’s wrath for their inability to deal with the situation. France is a case in point.   President Nicolas Sarkozy looks like losing his job to his Socialist rival, Francois Hollande, who supports growth over austerity. Whatever the result, social unrest is unlikely to abate. And political and social turmoil in Greece is likely to get worse with elections making the situation even murkier.

 Another problem is that the induction of unelected technocrats to head governments in some of these countries, like in Greece and Italy, is raising doubts about the efficacy of the democratic processes to deal with difficult economic problems.

The project Europe, with 17-member Euro zone of a common currency with another 10 members as part of the larger European Union (27 members in all) was a tremendous political advance in overcoming Europe’s traditional distrust and hostility that triggered the two world wars. Germany’s inclusion and its lead role in the EU made it not only a normal state but also a dynamic and respectable part of Europe—a tremendous achievement in the wake of Hitler’s destruction of Europe during WW 11. Germany is now the largest and strongest economy in the European Union and economically the most conservative with emphasis and requirement for the EU of fiscal rectitude and austerity. In the process, Germany is blamed for constricting growth.

Even though so far its European partners are not targeting Germany but it is certainly being blamed for favoring austerity over growth. As Italy’s technocratic Prime Minister Mario Monti said recently, “…it [Germany] can’t remain an island of prosperity in the middle of an ocean of recession.” And if France under Socialist Francois Hollande, as its incoming president,  also deserts Germany, the latter is in danger of  becoming the target for everything that is going wrong with project Europe. Europe is, therefore, cursed economically, socially and politically.

The crisis in Europe is in fact the crisis of capitalism. The cycle of booms and busts seems to have finally busted. Which is not to say that it is the end. What it means is that the patient’s revival, at times, will be episodic with periods of remission and relapse like with a cancer patient. This is evident from the way the markets respond to new or fortified financial packages to rescue the sick European economies, going up and down like a pendulum. At this point, one can’t help being reminded of what Karl Marx wrote in The Communist Manifesto in 1848, “…the bourgeoisie [capitalism] has left remaining no other nexus between man and man than naked self-interest, than callous ‘cash payment.’…. Commercial crises put on trial, each time more threateningly, the existence of the entire bourgeois society. In these crises a great part of the existing products, but also of the previously created productive forces, are periodically destroyed.”

As we have seen, there has been a mad rush to create new consumption patterns and products and a continuing campaign to convince us, the consumers, that without these new products we might as well be living incomplete lives. Indeed, there has been a supplementary economy of dodgy financial products and services to continue expanding economy beyond the actual production and exchange of goods. In the process, there has been a multiple increase of money supply. The 2008 financial crisis, still haunting the world, is a crisis of debts incurred way beyond the productive and repayment capacity of affected countries. Europe is now in a situation where fiction can no longer be paraded as reality.

With real money run out, phony money of credit instruments, is not doing the trick, though in the United States (and in Europe too) they are still continuing to print more money believing that another new financial package might revive the patient to turn things back to the good old days of illusion and delusion of prosperity.

And it is posing a threat to western democracy. As John Lanchester writes in the London Review of Books, “The financial system in its current condition poses an existential threat to Western democracy far exceeding any terrorist threat….”

The pictures on the television of workers and ordinary people protesting and, sometimes, rioting in some of these countries are only a mild version of what might follow. The model of unlimited consumption now has also to confront with the limits of our planet to sustain such growth trajectory. A disjunction has developed between the capitalist growth model and planetary constraints. And Europe is experiencing this.

At the same time, in the United States, the Federal Reserve Chairman, Ben S. Bernanke, is still following his predecessor Greenspan’s economic strategy of continuing to inject more liquidity by printing more money and issuing bonds.  As former US Federal Reserve Chairman, Alan Greenspan said, “The United States can pay any debt it has because we can always print more money.” In a world where the US dollar is virtually the only reserve currency---there are still buyers of US bonds (governments, institutions and others) who are prepared to finance the US---, there is still hope that the US economy would turn around to kick-start the world economy. It might give US economy remission like a cancer patient, but an enduring cure for Europe and, for that matter, the US is unlikely.