European monetary fables tell a story, but for whom?

By Pete Dolack

Fables have long been used to tell stories and impart “moral” lessons. Not limited to bedtime stories, fables are a common device to propagate “lessons” that powerful interests wish to suffuse through a society. A favorite fable nowadays is that of the virtuous Germans and the lazy Greeks. Punishment – excuse me, “structural adjustment” — is the natural denouement of this oft-told fable.

In reality, this mythology has about as much to do with reality as the big bad wolf blowing down grandmother’s house.

Greek workers actually work many more hours than do Germans, and earn less. The “secret” to Germany’s economic dominance within the European Union is cuts to German wages. Germany has undercut other countries that use the euro as their currency by suppressing wages, a process that took form under a Social Democratic government.

According to the Organisation for Economic Co-operation and Development (an intergovernmental club of the world’s advanced capitalist countries), Greeks worked, on average, 42.3 hours per week on their main job and 2,109 hours for the year 2010. Germans worked, on average, 35.7 hours per week on their main job and 1,419 hours for the year 2010.

To put those figures in further perspective, Greeks worked more hours than any other people in the European Union; only South Koreans worked more among the world’s advanced capitalist countries.

So much for “lazy” Greeks. Moreover, the average annual wage of a Greek worker is 73 percent that of the German average, despite the cliché of the pampered, overpaid Greek trotted out at every opportunity.

Nonetheless, it was written above that it was suppression of German wages that is a major underlying cause of European economic imbalance, although the already low and falling-further wages in Greece are leading to a collapse of domestic demand there. European Central Bank policy is to target inflation at two percent per year. But, according to the International Labour Office, German wage increases since 2001 have averaged half of one percent per year, consistently below the German inflation rate. To put it another way, the ILO has calculated that German productivity has remained virtually unchanged in relation to the productivity of all countries that use the euro, while German wages have declined by more than ten percent relative to the composite wages of all other euro-zone countries.

In other words, the prosperity of German manufacturers has come at the price of a decade of wage cuts (adjusted for inflation) suffered by German workers. Sound familiar? Reduced income leads to reduced consumption, so exports account for a steadily rising portion of German gross domestic product. In relative terms, it becomes more difficult for other European Union countries to compete with German products, particularly in other countries using the euro, because German manufacturers increasingly can undercut them. Manufacturing capacity elsewhere is shuttered, reinforcing German dominance and increasing unemployment in the countries on the receiving end of the exports.

A British economist, Engelbert Stockhammer, in a paper published last year, described this phenomenon bluntly:

“Germany has pursued a policy of aggressive wage restraint resulting in large current account surpluses. German gains in competitiveness (since the introduction of the Euro) have not been founded on superior technological performance, but on more effective wage suppression. … Simply put, German wage suppression rather than fiscal profligacy is at root of the crisis of the Euro system. … Europe needs a set of economic institutions and policy rules that addresses such imbalances and their underlying mechanisms.”

The imbalances within the European Union, the economic crisis caused by financial bubbles and reckless financial speculation, the ever increasing ability of capitalist elites to impose their preferred policies on governments, the increasing ability of financial speculators to maintain a stranglehold on capitalist economies and the pervasive ideology of neoliberalism to the near total exclusion of alternatives has led to the precipice. The punishing austerity being imposed on Greece had previously been reserved for countries in the developing world or outside the capitalist core; now these immense social forces are attempting to crush an advanced capitalist country.

The particular constellation of forces that have led Greece to its present position originate in Brussels as well as in Berlin. At the European level, there is a conscious project at work. The European Union is, at bottom, an attempt by European capitalists to remold their societies to be more like the United States, with its extreme disparities in wealth and privilege. An impediment to such a goal is that people across Europe have the habit of asserting themselves, not only to defend their social gains but sometimes to push forward. There was a general strike in Denmark in 1998, as an example, in which one of the key demands was for a sixth week of paid vacation. (We in the United States ought to let that one sink in.)

European capitalists also desire the ability to challenge the United States for economic supremacy, but cannot do so without the combined clout of a united continent. This wish underlies the anti-democratic push to steadily tighten the European Union, including mandatory national budget benchmarks that require cutting social safety nets and policies that are designed to break down solidarity among wage earners and different regions by imposing harsher competition through imposed austerity. These rules are designed by central bankers to benefit European big business. Europe’s capitalists and central bankers are no less shy about adopting neoliberal ideology than their counterparts elsewhere, but are reliant on a supranational project to override national governments that must contend with popular resistance.

Thus, economic downturns and stagnation are always portrayed as the fault of working people refusing to be more “flexible” or earning too much money or “selfishly” expecting to retain hard-won benefits.

The European Union, in its current capitalist form, is a logical step for business leaders who desire greater commercial power on a global basis: It creates a “free trade” zone without social accountability while giving muscle to a currency that has the potential of challenging the U.S. dollar as the world’s pre-eminent currency. The weakness of the supranational form is that it collides head-on with nationalism, which acts as a disorganizing force within the E.U., whereas in countries like the U.S. and China nationalism is a potent unifying force.

An irony here is that it is precisely nationalism that German capitalists and their corporate media outlets wield to maintain the policies that have worked out so well for them. The German newspaper Bild — the equivalent of a Murdoch tabloid — is fond of screaming headlines such as “Now they want more!” in response to further loans to Greece. Never mind that the Greek government is merely a pass-through; the loans are going straight to the banks, bond traders and hedge funds that hold Greek debt, and it is Greek workers, not German workers, who will be paying the price. A terrible price it is: During 2011, Greek public- and private-sector salaries were cut by one-third and pensions reduced, while many employees and pensioners have ceased being paid at all. This month (February 2012), the Greek parliament, literally on the orders of the European Central Bank and International Monetary Fund, voted to cut the minimum wage a further 20 percent, unilaterally end job security and begin to lay off 150,000 government workers.

Recall late last year, when former Prime Minister Georgios Papandreou dared to suggest a popular referendum on the then latest round of austerity. The Guardian reported that French President Nicolas Sarkozy and German Chancellor Angela Merkel “summoned” the Greek prime minster to a meeting to inform him there would no referendum. A remarkable word. “Summoned” is what a government does when it calls in an ambassador to issue a complaint. Heads of sovereign states are not “summoned.” One imagines that French and German bankers and bond traders were proud that day.

By no means, however, are German capitalists dependent on Merkel’s Christian Democrats remaining in power. It was none other than the Social Democratic Party — a party that righteously proclaims itself the party of working people — that codified austerity on those same working people. Back in 2003, Gerhard Schröder, then the Social Democratic chancellor, pushed through his “Agenda 2010” legislation. Schröder said, “We must not get trapped in defending our past achievements, but instead must work to our future.” Since those “past achievements” included old-fashioned concepts such as good wages and pensions, Schröder said, “The core challenges before us are accepting the reality of globalization, the ‘digitalization’ of our economy and an aging society.” Classic Right-wing code words. “Accepting” this “reality,” Agenda 2010 cut business taxes while reducing unemployment pay and pensions.

German unions represent workers across industries, and contracts are negotiated industrywide so that one company can’t play off its employees against those working for a competitor. Despite this advantage, unions allowed wages to decline in exchange for job security as German industry became stronger. Unemployment has been dropping — at least Germans received the promised job security — but their purchasing power is slowly declining, reinforcing the trend toward Germany becoming overly dependent on exports. More than half of Germany’s exports go to European Union countries.

Meanwhile, in Greece, the main Right-wing party, New Democracy, went on an arms buying spree when last in power a few years ago, unneeded military hardware paid for with loans. And the rich in Greece don’t pay taxes, in a country with one of Europe’s biggest economic disparities. Government workers are being demonized as the biggest problem in Greece, but it is precisely government workers who can’t evade paying taxes — their employer makes sure of that.

How does Greece get out of its vicious circle? Ultimately, there is no Greek solution, only a European or global solution. International solidarity and working people in all countries acting in concert to defend themselves and working toward a better world than the unsustainable scramble of all against all we currently live in are the routes out of economic crisis.

In terms of immediate steps, Greece is not without a defense against the downward spiral of austerity. Comparisons are being made with Argentina, which defaulted on its debt that was too big to pay and allowed the foreign-exchange market to drastically devalue its currency. There is much talk of Greece defaulting, but that is only one half of the “Argentina” option — Greece simultaneously would have to drop the euro and re-adopt its old currency, the drachma.

Argentine’s fascistic military dictatorship of 1976 to 1983 laid waste to the country’s economy, and a civilian president, Carlos Menem, imposed an austerity program in the early 1990s in conjunction with selling off state enterprises at below-market prices. As a result, Argentina’s foreign debt grew to unmanageable proportions. When neoliberalism had reached its logical conclusion there — economic collapse — working people set up barter clubs and in some cases took over factories that had been shut down, restarting production and converting them into cooperatives. A new president, Néstor Kirchner, suspended debt payments after taking office, eventually paying only 30 percent of the odious debt after negotiations.

One of the reasons why the Argentine economy collapsed was because the country’s rulers had insisted on maintaining the value of the Argentine peso even with the U.S. dollar, and wouldn’t allow its currency to decline in value. Greece uses the euro and therefore can’t devalue. Without a currency devaluation, internal cuts are the remaining option to meet market demands. When Argentina defaulted and allowed its peso to float freely, the peso’s value fell drastically. As a result, Argentina’s exports became attractively cheap and because imports became expensive, a stimulus to internal production was created. Within a year, Argentina’s unemployment rate fell by two-thirds and it had achieved budget and trade surpluses.

If Greece did return to the drachma, the currency’s value would be pummeled by foreign-exchange markets, making Greek products and tourism a value. Because imports would become very expensive, there would be no choice but to increase domestic production. There would also be uncertainty: Greece doesn’t have the same material resources as Argentina does nor does it have export industries as strong, so it is impossible to say that Greece would rebound as fast as Argentina did a decade ago. Taking the “Argentina option” would be a gamble and would have to be accompanied by capital controls and the nationalization of banks.

Dropping the euro would not be free of additional pain in the short term (especially because the cost of imports would rise) and a Greece with its own currency would not have the same measure of independence that Argentina possessed. Moreover, such moves would not touch the underlying instabilities of the global capitalist system nor would it in any way lessen the requirement of international solidarity to find a global solution to a global crisis. But could anything be as bad as the steady diet of austerity, punishment and humiliation Greeks are now enduring?

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4 comments on “European monetary fables tell a story, but for whom?

  1. kaneprior says:

    Really good post about Greece, Germany really tend to dominate the Eurozone, it’s almost like the monetary policy of Germany dictates the monetary policy of the Euro.

    http://economicinterest.wordpress.com/2012/02/15/is-germany-the-new-role-model-for-europe/ An article I wrote about Germany being seen as the role models for Europe.

    • Hello Kane. Having just looked over your article, my response is that you are too focused on government debt ratios. That Germany has debt comparable to other countries using the euro does not disqualify (or qualify) Germany from being a “role model.” The point in my article is that workers across Europe (and elsewhere) are bearing the brunt of neoliberal policies. It is not a matter of Germany “dominating” the euro zone or European monetary policy, it is a matter of the concentration of power in capitalist systems making life harder for working people.

  2. John A. Holt says:

    Good work Pete, only one minor critique;

    The Wolf was blowing down the three pigs
    houses, not Grandma’s* (or were you making
    an observation on the fallacy of applying
    such a fable to the Greek debt?

    *(Modern, sanitized versions, have the Germans,
    oops, the Wolf, sneaking in while Grandma
    was out. The original “Grimm” version had
    Grandma consumed by her creditor, …I mean, wolf-)

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