The debate about retaining the Euro is a live one for the European left. In this article Joe Carter of Socialist Democracy in Ireland argues that exiting the Euro is not part of a working class programme.
The perspective behind exiting the Euro is one that is held on the right of the political spectrum as well as on the left, although so is accepting the framework of the Euro, so in itself this is no very convincing argument to employ in rejecting it; except that those accepting the Euro do not see this as in itself something to fight for. On the other hand those seeking exit from the Euro see it as a progressive step and a necessary component of change. Their alignment with the right thus has more significance both in logic and in political content.
The policy of exiting the Euro has been criticised because its purpose is to achieve a quick reduction of costs in order, supposedly, to restore competitiveness and so ensure maintenance and creation of jobs. We have already noted that question marks have been put against the efficacy of such a strategy, questioning that it might actually work. As Ozlem Onaran puts it:
“I do not share the optimism about the international competitiveness effects of devaluation, which would follow an exit from the Eurozone in the periphery. Devaluation means an increase in the costs of imported inputs, and the pass-through effect of import costs to domestic prices in an import dependent country soon erodes the international competitiveness effects. Empirical evidence shows that the initial positive effects of devaluation on exports are offset within a couple of years via inflation in import dependent countries; at the end of the day competitiveness is about real forces of productivity rather than monetary variables like the exchange rate.”
The second objection has been that leaving the Euro must assume that one of the costs to fall must be wages, as their payment in a necessarily devalued currency will leave workers worse off in real terms regardless of the numbers on the notes they receive.
The third criticism is that its purpose is to make capitalist production in the peripheral states more competitive, in other words that this production succeeds against that of other countries, necessarily those both more advanced and other peripheral states as well. It accepts, indeed is absolutely based on, the capitalist market and subordination of workers to it; reflected in setting the competitiveness of one group of workers against that of others.
But if it succeeds, and to the degree that it does, in advancing production of poorer states against production of other states, why would workers of these other states not also seek the same remedy? Why would the workers of Germany not also seek to support devaluation in any remaining Eurozone area to protect its production against encroachments by that from Greece, Ireland or Portugal? Why would the workers of the latter have any privileged option to seek a devalued currency in such competition?
If workers in Germany saw their jobs and wages hit by lower cost competition from other peripheral countries why would they not also be justified in seeking to devalue their currency in order to remain competitive? It is quickly apparent that what we would then be involved in is a race to the bottom via a different route than normally considered.
But perhaps it is claimed that Germany is too strong an economy to seek currency devaluation. In that case its workers must seek some other means to defend themselves. If so, then why is exiting the Euro so necessary for the workers of Greece and Ireland?
Thus when we say that leaving the Euro is a nationalist slogan this means it sets workers of each nation against each other in a very practical and easily understood way. If Greek workers must find a means to be competitive with German workers why not the reverse? Why would Greek workers not also be justified in seeking to be competitive with Irish, Portuguese or Spanish workers?
For workers and the socialist movement this is a dead end from which, if we ever ended up there, we would have to turn round and march away.
To return to an earlier theme: in no way would it create a new framework favourable to the working class. In no way would it tilt the balance of forces in the direction of workers.
We will refer to three other arguments presented by the Marxist economist Costas Lapavitsas in support of leaving the Eruro.
The first is that it is simply not possible to default on debt while inside the Euro. It is against the rules and it would be stupid to think that those German or French banks to whom the debt is owed would accept it.
Whether it is against the rules or not is neither here nor there. Defending the interests of workers inside capitalism always runs up against the rules, the more so in a severe crisis. What matters is not that the rules are broken but that the workers movement has the power to break them. If not, then it has no solution, whether it sticks to the rules or not. Inside or outside the Euro the Greeks and Irish would still owe the German and French banks and it would require a very good lawyer to win any claim that because the former had left the Euro these debts did not have to be repaid. In short, repudiating the debt would still be against the rules.
If these rules are such a factor then it should be appreciated that exiting the Euro would devalue the debt owed to the German or French banks if it was redenominated in the new drachma or punt, which in itself would merely be another form of default, or if it wasn’t redenominated the existing debt in Euros measured in the new local currency would be significantly higher because of the depreciation that was supposedly the solution. By not breaking the rules exiting the Euro would make the debt problem worse.
Will the German and French banks accept debt default? Certainly not! But they will not change their opinion just because the debtor has left the Eurozone. The question in either case is how do workers fight their demands, which will be backed up by their respective states?
Firstly the workers would call for solidarity from French and German workers by claiming that their actions are not directed against them but against the same banks that have cost them so much as well. How credible a claim would this be if the strategy it was part of was to out-compete these French and German workers?
The second argument by Lapavitsas is that the alternatives to exiting the Euro “do not deal with the pressing nature of the crisis.”
Here we will make some general points that we do not accuse Lapavitsas of being guilty of, merely that his argument has similarities to others of this ilk.
The need for haste has always and ever will be one of the proffered grounds for opportunism in socialist politics – the sacrifice of principle for expediency; of the long term interests of the movement for imaginary immediate gain; of seeking short cuts that weaken socialism in the longer term and that betray an ignorance that no short cuts are possible in the task of winning workers to their own liberation.
The need for urgent action, only possible by leaving the Euro, has been presented as the only solution by mainstream economists faithfully wedded to the capitalist system. The prominent and perceptive economist Nouriel Roubini has argued in the Financial Times ( 20/09/11) that “all of the options that might restore competitiveness require real currency depreciation.” He notes that a “rapid reduction in unit labour costs” took Germany 10 years but that Greece “cannot wait a decade”. The only option therefore is “a return to a national currency and a sharp depreciation (which) would quickly restore growth and competitiveness as it did in Argentina. . . Of course this process will be traumatic.” Or, as the ‘Economist’ puts it – “Rather than a process of forcing down wages to regain competitiveness, the devaluation would be a prompt remedy.” (17/09/11)
In other words socialists should not seek ‘technical’ solutions that are no substitute for the transformative actions of the working class itself, and if workers do not look like being able to see these solutions, fight for them and implement them then there is no substitute for this failure.
The third argument put forward is that irrespective of reasoning for or against leaving the Euro it is going to happen anyway.
If this is so it is no argument for advocating such an eventuality anyway. It is simply an argument against predicating one’s strategy on the country remaining within the Euro, and no one is doing this.
A second point to make is that, while for Greece default is inevitable, exiting the Euro, at least more or less in the short term, is not quite as inevitable. The EU and its most powerful states do not want Greece or any other state to leave, do not want to expel it and will seek all sorts of solutions short of this, including limited default and their carrying the cost. Not for their love of Greece but because of their own plans for the future of the Euro as a world reserve currency and the benefits this would bring to them.
This argument of inevitability might be said to stand for a practical view that eschews what some might characterise as a rather ‘high-minded’ outlook presented in this series of articles. However far from such a ‘practical’ view lending itself to the argument for leaving the Euro it speaks against a perspective of euro exit.
The left was not enamoured with the traumatic effects on the Argentinian working class when that state left its de facto currency union with the US dollar. As in Argentina, the savings of better off workers and middle classes would be decimated, while the rich would get their money out of the country to avoid it being frozen and turned into the devalued local currency. The rich would then be in a position to bring it back and make a profit by converting their Euros into local money.
Workers would see the price of the goods they buy rocket. Many firms reliant on imported inputs would go bust. For those countries such as Greece, which are unable to sell to the rest of the world what they buy from it, there would still be a mountain to climb to prevent the local currency’s value from continuing to fall. This would be the solid pretext for yet more calls for the open wage cuts that a new currency was supposed to avoid. Interest rates might have to rise and further cuts to state expenditure introduced. For the Irish State the dependence on US multinationals would be even more pronounced as its reliance on these for exports would rapidly be transparent.
We have already explained what effect a new devalued currency would have on the level of the national debt, the burden of which would increase. Exit from the Euro would, in itself, make the debt problem worse.
The argument for leaving the Euro is not presented on the left, at least in the argument examined, as a substitute for debt repudiation. It would therefore be unfair in this context to criticise it on the grounds that in itself this measure would make the situation worse. The reason for raising this point is to isolate the effect of the measure in order to demonstrate that it has no inherent progressive qualities.
This demonstrates that it does not clarify the steps that workers need to take – it confuses and blurs them. It points away from the international tasks that alone offer a solution. It does this theoretically and, as we have seen, practically.
By refusing to leave the Euro despite breaking its rules we would be saying that there is a different international solution, not one based on rebuilding the walls of the capitalist nation state. It would be part of a strategy to internationalise the struggle of workers in any single country in opposition to austerity and for repudiation of debt. It would signal that from day one socialist workers would attend all the political and economic forums of the EU and Eurozone to speak over the heads of the capitalist governments and their bureaucrats to appeal to the workers they supposedly represent. This appeal would be for solidarity – not simply to help us but to copy us in order to help yourselves!
Workers would demand the abolition of the reactionary EU treaties, of Maastricht, Nice and Lisbon, not pursue an attempt to simply escape their effects while leaving them in existence. We would demand a European Central Bank owned by the workers and use our own representation on the existing one to abolish banking secrecy. We would offer the blueprint of an alternative united Europe of workers, not retreat into divided nation states. We would challenge the fraudulent claims of the EU to democracy and seek to undermine its credibility. We would not seek to ignore it, bypass it or fool ourselves into believing it irrelevant but challenge it head-on.
Of course such actions would be possible only if the working class came to political power in any one state, it would be ridiculous to imagine or demand that our various capitalist states should take such actions. Nevertheless our strategy for working class resistance must see beyond the borders of the nation state and not seek to corral the power of workers within fences already being broken down by capitalism.
In such a perspective there is no room for demanding leaving the Euro. Were the capitalist class of any state to seek such a solution, obviously for its own ends, we could not support it. This would be without for one second thereby signalling support for the Euro as our own answer to the crisis. Much less therefore should we support the call for leaving the Euro as some part of the working class programme. Such a demand should be rejected.