The Debt Crisis and European Democratic Legitimacy

H. Macartney

• Publisher: Palgrave Pivot
• Year: 2013
• ISBN:
  9781137298010
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

Huw Macartney examines the conflicting movements gripping Europe. He explains why 'more Europe and less democracy' seems to be the order of the day. He argues that state managers responses reflect a long-term disquiet about the economic consequences of democracy. Through a critical engagement with ordo-liberal and neo-liberal intellectual traditions, Macartney explains why participation and consent have given way to coercion and depoliticisation. Financial speculation and growing social unrest have thus fuelled attempts to further mystify the political character of economic policymaking. This comes at precisely the time when the everyday life of European citizens is most affected by the decisions of political classes at the heart of Europe. There are strong reasons to believe though that the kind of violent outbreaks in Greece and elsewhere point to the limitations of this authoritarian, undemocratic governing strategy. The end-result could prove devastating for Europe.

1

The Free Market and Democracy

Abstract: This chapter begins with a critical analysis of the ordo-liberal and neoliberal intellectual traditions. It shows how this neoliberal mindworld gave shape to early efforts at economic and monetary integration. It also explains that the neoliberal project – to re-structure European social relations in favour of capital and insulate policymaking from democratic pressures – was incomplete at the time of the global financial crisis in 2007.

Macartney, Huw. The Debt Crisis and European Democratic Legitimacy. Basingstoke: Palgrave Macmillan, 2013. DOI: 10.1057/9781137298010.

As the previous chapter explained, Europe is facing both a political crisis of democracy and legitimacy and an economic crisis of debt and competitiveness. Pithily, it suggested that as segments of an increasingly politicised European society press for less Europe so the Europeanised mechanisms of economic adjustment are tightened and strengthened. Policymakers have struggled, in the first instance, to construct a coherent strategy; yet the determinant factor, it has been suggested, is the requisite legitimacy in the eyes of European society. This chapter aims to explain – in conceptual terms – why this legitimacy will not centre on greater democratic participation, but rather on the success or failure of depoliticisation as a governing strategy. Subsequent chapters then trace the struggle between this attempted further depoliticisation in EU politics and the re-politicisation of European society, before the conclusion addresses the limits of depoliticisation through a look at Habermas and Luxemburg.

Debt and democracy crises

To begin, let us return to the notion of democracy and debt crises. The dominant narrative for explaining the debt crisis emphasises the impact that the global financial crisis (GFC) had on sovereign debt. The connections between rapidly escalating deficits post-2007 and (longer term) issues of structural reform and competitiveness are therefore less prominent. Indeed, this would seem sensible given that debt levels (as a percentage of GDP) rose rapidly from 2008 and bond yields only began to widen from late 2009 onwards. Greek debt, for example, remained relatively stable at 97–107 per cent of GDP until the end of 2007 and Euro area debt remained below 70 per cent of GDP until late 2008 (ECB, 2012).

Yet no astute observer could also fail to recognise the contradictions at the heart of the Eurozone, specifically those that contrasted with expectations of productivity convergence within the single currency area (see Hall, 2013 for an excellent critique of the economic perspectives shaping monetary union). These contradictions were such that, in the lead up to the global financial crisis there were clear signs of a two-tiered Europe, or of export-led growth driven primarily by the core and supplemented, at least in part, by markets in the periphery. For example, whilst Germany, France, Holland and Finland maintained an average fiscal deficit of only 1 per cent for the period 2004–2006, Italy, Spain, Greece and Portugal had a mean deficit of 4.4 per cent for the same period. Moreover, these same periphery countries witnessed a significant decline in competitive position vis-à-vis the rest of the Euro area (Commission, 2008a, p.58). This, of course, reflected a variety of factors, not least (those enigmatically captured under the umbrella of) the historical, cultural, institutional and economic starting points of entry to the Economic and Monetary Union, which gave rise to structural imbalances within the zone. The contradictions, however, also reflected a fundamental tension between the elite-driven aspirations that underpinned the integration project, and residual democratic settlements at the domestic level. Indeed, the literature on the so-called ‘democratic deficit’ in the European Union indicates as much.

This literature is vast. A ‘standard version’ was however proposed by Follesdal and Hix (2006). It focused on the following themes. First, at the European level, the European Parliament held relatively weak legislative powers vis-à-vis the executive powers of the Council and Commission (Andersen and Burns, 1996; Raunio, 1999). At the national level in all EU member states, the traditional model of democratic politics centres around executive government accountable to the electorate through an elected parliament. In principle, though parliaments have relatively few formal powers of amendment the structure of politics at least allows for the scrutiny of ministers.

This strand of the literature then argues that national ministers operating in the European Union are far more independent of this (national) parliamentary scrutiny. Accordingly, European integration ‘has meant a decrease in the power of national parliaments and an increase in the power of executives’ (Follesdal and Hix, 2006, p.535, Coultrap, 1999, p.107). Put differently, democracy – referred to as a method by which society exercises influence on the executive apparatus – would seem to have broken down. A ‘democratic deficit’ indicates that the intended flow of influence from people to government is inadequate in the European context.

Second, the European electorate has little or no input into the selection of parties and personalities at the European level or the direction of the EU policy agenda, in spite of the growing power of the European parliament (Marks et al., 2002). Instead, national elections are fought on domestic issues with parties deliberately avoiding ‘European’ questions wherever possible. Then European elections themselves are treated as ‘second-order national contests’ (Reif and Schmitt, 1980), with parties and the media construing them as mid-term national elections. The result is that EU citizens have, at best, an indirect influence over the political agenda of Europe’s elected officials.

Third, is the argument that both institutionally and psychologically the EU remains too ‘distant’ from voters. Not only is electoral control over the Council and Commission ineffectual as discussed above, the EU itself is also markedly different from national systems, making it difficult to comprehend for EU citizens. Connected to this, of course, are relatively opaque and unusual institutions like the Commission, neither government nor bureaucracy and elected through an obscure procedure; and the Council, which is part legislature, part executive and makes its most important decisions in secret.

The fourth theme, however, is particularly illuminating for the argument presented here. Here there is evidence of ‘policy drift’ whereby ‘the EU adopts policies that are not supported by a majority of citizens in many or even most Member States’ (Follesdal and Hix, 2006, p.537). To suggest that policy decisions are taken without the participation of the citizens would only be the sum of the previously mentioned weaknesses. Yet this claim goes further still. In particular, governments are able to pursue policies at the European level which are constrained by social democratic-type compromises at the national level, meaning that the pursuit of neoliberal regional regulation and monetarist policy tend to be to the right of the domestic policy status quo. Indeed, one might add to this collection the work of Fritz Scharpf, who also sought to emphasise how the institutions of the European Union asymmetrically structure interest representation and policy negotiation; here policymaking is dominated by non-political actors and negative, rather than positive, integration (Scharpf, 2010, pp. 213–214). In his view the more socially inclusive market economies of continental Europe thus struggle to re-produce their institutions and policies at the European level.

In essence, this begins to reveal the fundamental tension between the elite-driven European project and residual democratic settlements at the domestic level. The counter-argument proposed by – inter alia – Giandomenico Majone is that such tensions are inevitable given the desire to achieve Pareto-efficient outcomes at the European level (Majone, 1998, p.6). Regional economic integration is in the best interests of European citizens, while political authority is best maintained at a national level (ibid., p.7). Put differently, European elites have a better view of what constitutes the European economic interest – that will simultaneously benefit European society in the long-run – than do segments of the European electorate who would, almost inevitably, opt for their own short-term, individualistic self-interest. As we shall see below, this counter-argument resonates with the writings of both ordo- and neoliberal intellectuals and the architects of European integration, though with important qualifiers. For now, suffice it to note that there was evidence – even prior to the onset of the Eurozone debt crisis – of resistance from domestic social groups to the policies consistent with the elite vision of European (economic and monetary) integration.

Ordo- and neo-liberals on democracy and the free market

To explain this more fully I now turn to a reading of the ordo- and neoliberal traditions on the question of the free market and democracy. In essence, the challenge posed by democratic demands is a familiar one. This is because there has long been – across the advanced economies – a growing disquiet over the ‘economic consequences of democracy’ (Brittan, 1976). Put simply, ‘excessive expectations’ on the part of electorates were fuelled by the ‘democratic aspects of the system’, whereby social demands were seen to have overstretched the welfare state (ibid., p.97). The post-war settlement had allowed for full employment and welfare because of the booming economy, and thus signalled a ‘conscious acceptance on the part of national governments of [the demands of] mass society and mass democracy’ (Bonefeld, 2002, p.122). Yet the end of the post-war boom revealed the merely formal involvement of the dependent masses, integrated into the political economy of capital only to contain their political aspirations. Thus the post-war welfare state was embedded in a European structure of market competition (Moss, 2000).

As these crises of accumulation emerged two intellectual traditions were pivotal to attempts to understand the causes. One was closely associated with the work of Milton Friedman, Friedrich Hayek and the Mont Pelerin Society, and is commonly characterised as (Anglo-Saxon) neoliberalism. The other which emerged from the Freiburg School was closely associated with the work of Walter Eucken, Franz Böhm, Alexander Rüstow, Wilhelm Röpke and Alfred Müller-Armack and was known as ordo-liberalism.

For Hayek and Friedman, the aim was to free the economy from political interference, depoliticising economic relations such that the market could self-regulate (Hayek, 1949). Thus ‘active public economic policy [was, in their view] either redundant or, more likely, perverse’ (Best, 2005, p.92). Not only governmental intrusion but strong trade unions too were to be avoided. Instead, the relationship between the money supply and labour productivity would be strengthened through the deregulation and flexibilisation of the labour market, accompanied by the shift from welfare to workfare. Thus, in response to what they perceived as the inflationary consequences of Keynesianism, Hayek in particular advocated the depoliticisation of economic policymaking from political – that is discretionary – intervention in the short-term interests of the working classes.

For Müller-Armack and the ordo-liberals, regulative laws and institutions were needed in order – not to interfere with the market process but –to sustain it (Müller-Armack, 1947, p.95). This meant that the ordo-liberals favoured a strong state – not of the dirigiste type but – as the pre-condition for the free market, since the mass of society lacked the ‘moral fabric’ to absorb economic adjustments, preferring short-term policy responses that favoured employment and welfare (Röpke, 2009, p.52; 1942, pp.246–247). An ‘extra-democratic’ body would thereby govern in the name of technical efficiency and expertise, without interference from mass demands. Given that the true interest of the worker lay in continued accumulation, social security and employment, the threat that democracy posed to liberalism was not insignificant (Müller-Armack, 1979, pp.146–147). The movement of the free-price mechanism, the ordo-liberals concluded, had the capacity to regulate between multifarious individual preferences, except that its participants ‘rebel against that movement’ (Böhm, 1937, p.11; Bonefeld, 2012, p.5). This could occur equally through entrepreneurs opposing the pressures of competitive adjustment as it could through the self-destructive demands for welfare on the part of workers. Thus, for the ordo-liberals the solution was the depoliticisation of society to tackle the subordination of the political to mass democratic demands.

The point is that both ordo- and neoliberal traditions had concerns about the distortive potential of democracy. Indeed, and to (mis)quote Simon Clarke, ‘there is no doubt that the rise of [German and Anglo-American traditions are] the ideological expression of fundamental changes in the form of the state, that have reflected, and reinforced, the massive political defeat of the working class’ (Clarke, 1988, p.223). For this reason, and because both traditions were fundamental to the construction of economic and monetary union and particularly the German vision of how to resolve the Eurozone crisis, I will henceforth predominantly refer to neoliberalism. For despite protestations to the contrary, rhetorical differences between the two mystify the fundamental re-structuring of class relations and political intervention, in favour of capital, that has characterised variegated processes of neoliberalisation (Macartney 2010).¹ In what follows, I address the former component – the design of European integration – whilst the latter – attempts to resolve the Eurozone crisis – frames the analysis of later chapters.

It was thus Hayek whose vision of a federal interstate system in Europe was remarkably prescient. He contended that a supranational political architecture would foster competitiveness, and the depoliticisation of economic relations, whilst – of course – allowing for the free movement of capital, labour and goods (Hayek, 1939, pp.255–268). Since national governments, committed as they claim to be to the objective of price stability, necessarily retain a degree of discretion that, in his view, makes them liable to exploit it to gain electoral popularity by granting concessions to the dependent masses. Giving monetary policy to an institution that is not subject to political influence would thus enhance its credibility (Padoa-Schioppa, 1994, p.188). Put differently, and here there was a certain confluence with the work of – in particular – Müller-Armack, a domestic politics of austerity could be anchored in a supranational regime (Müller-Armack, 1979). Thus supranationalism, and especially the primacy of the rule of law, and an independent central bank were ‘endorsed as a way of keeping the masses away from the centre of decision making’ (emphasis added Bonefeld, 2002, p.130).

The structure of integration

The first attempt, the so-called ‘snake in the tunnel’ – a European exchange rate system where currencies fluctuated within an agreed margin against the dollar, failed; countries were repeatedly forced to suspend membership because of speculative pressures. Importantly though, these speculative pressures were themselves the product of working class resistance to the imposition of tougher working conditions. Then, in the late 1970s, the European Exchange Rate Mechanism – part of the European Monetary System (EMS) – was introduced to combat currency fluctuations and address underlying domestic challenges. It too struggled.

The 1980s witnessed a much more severe approach as brief experiments with fiscal and monetary expansionism – particularly under Mitterrand in France – were ill-fated and led to a stricter EMS and tighter monetary policy. The disciplinary effect on wage demands and working conditions was undeniable, with wage increases and higher productivity moderated by the threat of unemployment. Disinflation would be achieved by shifting the burden of adjustment onto labour. The logic was clear: fiscal, social, and labour-market policies were now subordinated to the holy grail of price stability through labour-market deregulation and flexibilisation (Bieler, 2006, p.13; van Apeldoorn, 2002).

In turn, the shift from welfare to workfare took hold: poverty would be addressed by equipping individuals for employment. Though a plausible way to reduce the apparently ‘overstretched’ state, the cruel irony was that the overall size of the workforce was maximised so individuals would be forced to compete for employment, with competition itself made as intense as possible (Cammack, 2007, p.16). For domestic state managers European integration provided a means of externalising the imperative for austerity, thereby eroding working class opposition, and anchoring currency stability in a supranational framework.

Hence Europe was necessarily an elite-driven project (Anderson, 1997, p.62). For centre-left parties, integration was a ‘way of defending the market economy against Communism while retaining a humanitarian internationalist identity’ (Moss, 2000, p.251). Yet according to Moss, this masked the reality that the single market and monetary union reflected tightened capitalist domination (ibid., p.252). For centre-right parties this reality was more apparent, as Europe provided the means to impose market disciplines on industry, to increase labour productivity and competitiveness. As De Gaulle (1971, p.143) surmised, ‘international competition ... offe...

Table of contents

• Cover
• Title
• Introduction
• 1  The Free Market and Democracy
• 2  From Re-structuring to Debt Crisis
• 3  From Debt Crisis to Depoliticisation
• 4  From Depoliticisation to Resistance
• Conclusion
• Bibliography
• Index