Europe: default or devaluation?

At a plenary session of the Historical Materialism conference in London last weekend, there was a debate on what strategy the left should adopt in the Eurozone economic crisis.  Under the auspices of the Socialist Register publication, the speakers were Michel Husson, the well-known French Marxist economist (; Costas Lapavitsas, the Greek socialist economics professor at London’s School of Oriental and African Studies (SOAS); and Ozlem Onaran from Middlesex University (see her excellent article on the Eurozone mess, Fiscal crisis in Europe or a crisis of distribution?, Political Economy Research Institute

As Onaran put it, there was significant agreement on many issues. First, fiscal austerity should be opposed.  The fiscal austerity packages demanded by the dreaded Troika of the ECB, the EU Commission and the IMF on all the European states were designed to ensure that the bankers got paid in full and were destroying the living standards of the 99% in the process.  More important, they would fail in restoring economic growth and employment.  On the contrary, they were ensuring that the Great Recession would become a depression.   Second, Greece should not honour the repayment of the public sector debts run up with Europe’s banks, insurance companies and hedge funds because it is crippling the country’s ability to get out of a deep economic slump and lowering economic growth and living standards for a generation.  Default on these debts would inevitably bust many banks, especially the Greek ones.  So they should be nationalised without compensation to shareholders and bondholders and then recapitalised to provide credit to small businesses and households.  Third, government finances should be put on a proper footing through progressive income taxation, taxes on excessive wealth and unproductive financial transactions (and some cuts – Greek military spending per head is the highest in Europe). Along with transparent and rigorous collection of due taxes, this could provide the funding for a state-led investment programme for jobs and incomes directed towards labour and not profit.

But there was significant disagreement on the question of the euro, Europe’s single currency. Lapavitsas was charged emotionally in telling the audience that the first and most important thing the left had to campaign for before any of the above programme was to break with the euro.  The euro was at the heart of the problem.  It was a  ‘world money’,  not a currency for the people.  By this, I think he meant that it was an imperialist currency like the US dollar.   Capitalists conduct their transactions in dollars and euros.  They hold their reserves in these currencies.  For that reason, the euro’s value was controlled by big capital to the detriment of the likes of Greece, Portugal etc, the weak capitalist states of the Eurozone.  Because the euro was an invention of finance capital, we should have nothing to do with it.  If we did not recognise its pernicious role, we would fail to develop a proper anti-capitalist campaign in Europe.  Worse, we would continue to pander to some imaginary dream of ‘Europeanism’.  The EU and Eurozone did not represent a people’s Europe but a project invented and controlled by finance capital and big business in Europe and we should not give it any credence.  European institutions were capitalist from the beginning and could not be reformed.  The euro was heading for a break-up anyway and it was time the left made it clear that it did not want to be part of this failing project.

Both Onaran and Husson disagreed.  Husson made the tactical point that in France there is no move among the labour movement to leave the euro.  Putting that forward as the first and key demand would receive no echo in the labour movement.  He could have added that the same reaction would be felt in Portugal, Ireland, Spain or Italy, where the Troika packages are being imposed or may be imposed.  In Greece, while 60% of those asked in polls are against the austerity packages, 70% want to stay in the euro.

That’s the tactical argument.  Onaran made some key economic arguments against this policy.  I summarise some of them and add my own.  Leaving the euro and adopting a national (non-world) currency for the Greeks would be no solution on its own. Doing that would mean the New drachma would be devalued by at least 60% against the euro.  That might make Greek exports more competitive, but exports are only 30% of GDP.  Import prices would rocket in new drachma terms and very soon inflation would run through the Greek economy and start to cancel out the gain from devaluation.  History has shown that devaluing a currency to gain competitive advantage does not deliver for long.  Also, debts owed by corporations, banks and households in euros would double.  The government may default on its debts, but what could households do with their euro mortgages or businesses with loans from European banks?  Moreover, if all the ‘bailout’  Eurozone economies also left the euro (as advocated), they would devalue and we would enter a ‘beggar-my-neighbour’ race to get the lowest value currency to compete in Europe’s markets.  The gains from devaluation would disappear.  The break-up of the euro would mean the disruption of trade in Europe, probably taking the region into recession (it’s nearly there anyway).  A programme of default and state-led investment can be used to win over other states to the alternative of austerity and bailouts, but not if the major upfront demand of the left is to leave the euro.

Yes, the euro is a ‘world money’ concocted by imperialism.  But so is the dollar.  The euro is controlled by the Eurozone institutions which are dominated by Franco-German capital to the detriment of the weak capitalist states like Greece.  But is the answer to revert to weak capitalist currencies like the drachma, peseta or lira?   Since when has having the UK pound done much good for British households who suffer from higher inflation and interest rates, rising unemployment and economic growth no better than the strong euro economies, even though the UK has ‘escaped’ from the straitjacket of a ‘world money’ and can devalue when it wants?

Of course, if the Greek government were to default on its debt, nationalise its banks and introduce capital controls on the attempts of the rich to take their euros out, it may well be kicked out of the Eurozone anyway, but that is not the same as saying the first act of an anti-capitalist government must be to make a voluntary exit from the euro and call for everybody else to leave too.   Surely, the issues of investment, growth, economic control and living standards are where the left must direct their policy prescriptions, not towards emphasising nationalist beggar-thy-neighbour policies of devaluation?

A left government in Greece could also lay into the lies and myths about the Greek people as part of a Europe-wide campaign.  The usual lie quoted continually in the tabloid press in Germany and elsewhere in Europe is that Greek workers are lazy and unproductive.  But what is the evidence?  Greeks work more hours in a year than any other country in Europe – and more than even the Americans or Brits!  And surprisingly, it is the Germans who are the ‘laziest’!

Although Greek economy-wide productivity started from a low base when the country joined the Eurozone in 1999, growth in labour productivity since then has been faster than the strong capitalist economies of Germany or France- up 25% compared to  just 10% in Germany.

Greek competitiveness has improved since 1999, more than any other Eurozone state except Germany.

The reason Germany has been so competitive has not been because the growth in its productivity of labour was so good, but because wages have risen the least, just 22% since 1999 compared to nearly double in Ireland and up two-thirds in Greece.

While Greeks saw their living standards improve under the euro, until the crisis came, they did this by working the longest hours and by being exploited productively more than any other workforce in Europe.  The biggest gainers from joining the euro were the Greek capitalists.  The fruits of increased economic growth and trade went to them disproportionately.  The wage share in Greek national income fell nearly 4% pts, a fall only surpassed by Spain and more even than American workers suffered relatively.

Greek capitalism benefited most from the euro and now it will benefit most from the  Troika’s austerity and the EU bailout.

14 Responses to “Europe: default or devaluation?”

  1. Nick Bradley Says:

    Very interesting socialist economist view of the european economic crisis

  2. Mike B) Says:

    Real productivity goes up all the time in every system of wage labour. Workers produce more and are more and more alienated from control and ownership of the collective product of their labour. As Michael Roberts point out, Greek workers have apparently been super exploited as compared with the German comrades as their work days have grown in length.

    Like all commodities, money’s value is based on how much socially necessary labour time is embodied in it. In the case of fiat currencies, this amounts to a promise to pay, out of what the workers will create in new surplus value after more surplus labour time has been extracted. Greek debt and debt to finance capitalists in general is based on the notion that the Euros it is valued in will be worth future amounts of surplus value gotten through the exploitation of wage labour. Lengthening the work days, freezing and/or lowering real wages through government cuts to the social wage and inflating/devaluing the Euro might work to save capitalism from its contradictions for awhile. The point that ‘socialist economists’ should be making, IMO, is that the work days needs to be reduced and ultimately the wage system needs to be abolished and social ownership of the collective product of labour instituted. Anything short of that is reformist twaddle which will only result in the continuation of Capital as a social relation.

  3. Charles Jannuzi Says:

    Excellent analysis. In terms of nationalist agendas, the US’s is the demise of the euro and the EU. They might tolerate an ECB that ties in with the IMF and WB. Their idea of ‘multi-lateralism’ is US-dominated NATO, with Europe helping to finance the military.

  4. anarkysheep Says:

    I would go further and state that Lapavitsas’s position is not only tactically incorrect for the reasons stated above, but it is also inherently reactionary.

    The call to leave the Euro is a purely nationalist demand, one that the UK’s UKIP and the eccentric wing of the Tory party would have no trouble supporting.

    The workers of Greece would be asked to line up behind their capitalists and cheer them on in their battle to pauperise, while these capitalists profited of course, the workers of another country through a currency war.

    And what of the workers of Ireland, Portugal, Spain, Italy? Does Lapavitsas advocate the same demand for them? The logic of his position to first leave the Euro would not only result in the inevitable currency war with the Euro, but also against each other.

    This runs contrary to and undermines the Socialist aim of working for the maximum unity of workers against the interests of capital…

  5. Andrew Loewen (@andrewloewen) Says:

    Yanis Varoufakis argues persuasively that Greece should default within the Euro and simply wait for its inevitable break-up. Most sensible analysis on the subject I’ve found.

    • Charles Jannuzi Says:

      In a nutshell, why does the inevitable break-up make sense to anyone? Of course it’s what American hegemonists want, but why should leftists echo this? It reminds me of ‘leftists’ cheering NATO war on Libya. It makes sense more than sticking one’s thumb up one’s anus, I guess.

  6. John Smith Says:

    What I see in all of this is very sensible economics. As far as it goes, this gives some good recommendations for how to try to ride through the worst to come. But that’s the problem, it is all reformist. And not even the old Bernsteinian ‘babysteps to socialism’ reformism, but merely ‘make capitalism liveable’ reformism.

    This is entirely wrongheaded.

    To be sure, the recommendations suggested by all, despite their differences, are good as tools of propaganda (“See, if the cappies really wanted to ‘save the nation’ they would do this, but they don’t. They are only interested in their own profits, not the good of the nation!”) but such agitation has its own issues with nationalism.

    What Marxists aim for is the overthrow of capitalism, at least as an intermediate goal toward the construction of socialism. As such, the political positions Marxists put forward should correspond to that, and not to some desire to make capitalism bearable for the little guy. We don’t want to moderate capitalism, we want to smash it! To put forward these reformist positions is an abandoning of Marxism, and moreover, preaching the possibility of a ‘capitalism with a human face’.

    The EU is a bloc of Germany and France for the carving up of Europe, and is a none too stable one at that. It can be aptly described with Lenin’s words on the League of Nations: “A den of the imperialist thieves and their victims.” This is why the EU must be opposed. Yes, there are nationalist arguments against the EU, but Marxists must at all times denounce them for what they are, while pushing this one simple fact: The EU is a temporary alliance of Germany and France over the division of Europe without American involvement. Opposition to German and French imperialism means opposition to the Euro. Opposition to the EU and the Euro, therefore, may not currently be popular, but they are anti-imperialist and revolutionary duties.

    Anything else is conscious or unconscious capitulation to capitalism and opposition to the historic mission of the working class.

  7. Charles Jannuzi Says:

    Except when things like the euro and EU come undone, we shouldn’t delude ourselves into thinking this will the little straw that breaks the camel’s back and now everything will be over-thrown in our favor. opposition to the EU and the euro are now VERY POPULAR, but we shouldn’t delude ourselves that it serves the aggrandizement of US power (e.g. through NATO) and that the US government actively plots the downfall of the euro.

  8. Charles Jannuzi Says:

    Sorry, typing issues there. Let’s try again:

    Except when things like the euro and EU come undone, we shouldn’t delude ourselves into thinking this will be the little straw that breaks the camel’s back and now everything will be over-thrown in our favor. Opposition to the EU and the euro are now VERY POPULAR, but we shouldn’t delude ourselves that it does something other than serve the aggrandizement of US power (e.g. through NATO) and that the US government actively plots the downfall of the euro.

    • John Smith Says:

      In saying that, you are actively taking a side, saying that defence of the interests of German and French imperialism is preferable to defence of the interests of US imperialism. That is a decidedly nationalist outlook. The main enemy is at home. The main enemy of the American working class is the capitalist class of American imperialism. The main enemy of the German working class is the capitalist class of German imperialism. This is the only internationalist outlook.

      Opposition to German and French imperialism on the part of the German and French working classes is necessary if capitalism is to be overthrown in those countries. Opposition to US imperialism on the part of the US working class is necessary if capitalism is to be overthrown there.

      To dismiss this all with ‘well a revolution isn’t happening now, so that’s beside the point’ is to not understand a thing about revolutions. On the one hand, there is the flippant point to be made that you don’t know if the Tzar will be overthrown in February, so that kind of ‘planning’ is empty. On the other hand, every piece of propaganda and agitation should be directed at exposing the crimes and failures of capitalism and making explicit the need for its overthrow.

      • Charles Jannuzi Says:

        You don’t think that US imperialism can’t be an enemy of the working class of Europe?

        I’m not actively taking a side. I’m pointing out that neither alternative is pushing the revolution forward. Collapse into US dollar hegemony and NATO might make you wish for the euro again. You will see.

      • John Smith Says:

        ‘You don’t think that US imperialism can’t be an enemy of the working class of Europe?’

        That’s not the question. Where is the main enemy? The main enemy is always at home. Why is this? The question is not merely economic, but political: The proletariat must remain politically independent of ‘its own’ bourgeoisie.

        In choosing to back the imperial ambitions of French and German capitalism against the USA, you have chosen a side. By distorting the issue into which ‘alternative is pushing the revolution forward’ you show you don’t understand a thing. The EU is a temporary bloc between French and German imperialism for the exploitation of Europe. To call for support to the EU and the Euro is to call for support to that inter-imperialist bloc. But that’s not where it stops: You pose the issue as one of ‘Europe or America?’ You accept the imperial rivalry, and choose a side based on… what you think will be in your financial best interest?

        The issue, at each and every turn, is nothing but this: How to move toward the revolution? That can only be done by breaking illusions in bourgeois parliamentarism, by breaking the workers from bourgeois ideology in general, and by building the fighting spirit and unity of the most advanced sections of the working class.

  9. Peter Mayers Says:

    Michael Roberts writes that, since exports only account for 30% of Greek GDP, the boost arising from euro exit would be sharply limited. How’s that? Isn’t that missing something pretty big? Namely, the boost for home-market producers arising from the fact that imports into Greece would become relatively more expensive?

    In other words, we’re not just talking about a boost to that 30% export sector, are we?. We’re also talking about a boost to the 70% domestic sector, because a devaluation would makes its products less expensive on the home market relative to imports.

    As for devaluations, they do indeed have a “beggar-thy-neighbour” aspect, but so do about fifty thousand other economic policies under capitalism; it doesn’t make sense to rule out every such policy under all conditions. What then would be we left with an immediate alternative? Global socialist revolution? A fine idea, but the Great Day doesn’t seem exactly imminent. The needs of the Greek working class and poor, by contrast, are extremely immediate.

    Also, there is every reason to expect that the gains for the Greek economy would not all be eaten up if devaluations were carried out not just by a left government in Greece, but also by left governments in the other countries of southern Europe. There would be lot of gains left over, because the foreign capitalists which have grabbed such a large market share in Greece are not the ones which are based in Spain or Portugal or Italy, but the ones which are based in Germany. Moreover, the German authorities would scarcely be able to counter all the effects of a southern European exit by devaluing as well. On the contrary, they wouldn’t even be able to prevent the German currency (whether a restored DM or a residual euro) from appreciating in value to a considerable extent (although they would likely be able, of course, to moderate its rise in value to a certain extent).

    Yes, German workers would pay a price as a consequence of such a southern European exit from the euro. But that would be salutary! That way, the costs of betraying their class brothers and sisters in the south of Europe — through the “eye-watering wage repression” (Lapavitisas’s expression) that they agreed to some few years ago — would come back to haunt them. Selling your soul to Old Scratch SHOULD come at a cost.

  10. Charles Jannuzi Says:

    John Smith writes:

    >>By distorting the issue into which ‘alternative is pushing the revolution forward’ you show you don’t understand a thing. The EU is a temporary bloc between French and German imperialism for the exploitation of Europe. <<

    And NATO isn't this? It's you who are naive, with your simplistic banter about either or and your naivete about American hegemony in Europe.

    One has to oppose both.

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