The Euro – exit stage Left?

It hasn’t gone away, you know. Although much of the media and political commentary would suggest otherwise, the eurozone crisis is very far from resolved. The economies on the periphery of Europe all face deep economic crisis, the burden for which has been heaped upon working class and poor people, with the devastating social consequences seen at their most extreme in Greece.

It hasn’t gone away, you know. Although much of the media and political commentary would suggest otherwise, the eurozone crisis is very far from resolved. The economies on the periphery of Europe all face deep economic crisis, the burden for which has been heaped upon working class and poor people, with the devastating social consequences seen at their most extreme in Greece.

The situation in much of the rest of Europe is not much better. The political consequences of this ongoing crisis have been seen with near government collapse in Greece, Spain, Portugal and Italy over the course of the summer – with mass disillusionment with austerity a key underlying feature in all cases.

The Irish capitalist class has long tried to separate itself from the other peripheral countries – repeating the mantra that Ireland is not Greece and trying to demonstrate it by more effectively implementing austerity. It has been assisted in that task by the leadership of the trade union movement, which tied to the Labour Party, has attempted to stifle opposition

However, the facts and the crisis remain. The debt to GDP ratio is now at 125% in Ireland and rising. Another dramatic wave of the eurozone crisis could be unleashed at anytime by political or economic developments, the effects of which would be strongly felt in Ireland. The euro will again be at the centre of political developments.

As Ireland moves into primary surplus, the euro could become an important justification for austerity used by the political establishment and a battering ram against the Left. An important reason given not to default on debt or break from austerity policies may be the possible consequence of Ireland being forced out of the common currency. If the experience of Greece tells us anything, it is that an important argument of right wing forces in the next local and European elections, but in particular in the next general elections could well be – if you implement left or socialist policies, Ireland will be out of the euro and economic disaster will result.

Socialists and the Left must prepare to tackle this scaremongering, to demystify the euro and to put forward a left ‘exit strategy’ from the crisis that accepts the possibility of exiting the euro and puts forward radical socialist economic measures to deal with the consequences. There are two pitfalls common on much of the left to be avoided here.

The first is the approach of the Syriza leadership which in the last Greek elections was to deny the likelihood of being pushed out of the euro – claiming it was possible to both refuse to implement the Memorandum of Understanding and to stay in the euro. The second is that of separating euro-exit from the question of radical socialist change – posing exiting the euro as a solution to the economic crisis, without acknowledging the problems of euro-exit on the basis of the continuation of austerity and the rule of capital.

The alternative is an approach which sees the question of the euro through the prism of the need to break with austerity and the capitalist system and for radical socialist change. That means refusing to be blackmailed into not raising the need to reverse the cuts and attacks on working class people by the fear of being kicked out of the euro.

Euro’s ideological shroud

The first task is to tear-down the ideological shroud which surrounds the euro. It is often put forward as simply a convenient means of exchange making cross border transactions across Europe easier, making it easier to travel from one country to another and pay in the same currency. Taken to its extremes, as Angela Merkel does best, it becomes a “peace project”.

The reality of course is very different. The euro is a central part of the neo-liberal and imperialist project of the European Union. It plays multiple roles for the dominant, primarily German, section of the capitalist classes within Europe.

Above all the European Union in its various guises was a political project, initially constraining the redevelopment of German dominance in Europe, as well as trying to provide ‘stability’ against the threat of strong working class movements internally in Europe as well as acting as a bulwark against the Soviet Union. It also became a means by which sections of the European capitalist classes aimed to compete on the world stage, with the dominant imperialist power of the US, as well as other rising powers to the east.

Internally, the launch of the euro and the European Central Bank were an integral part of enshrining neo-liberal orthodoxy throughout the European Union and were an explicit weapon in trying to undermine workers’ wages, conditions and organisation.

The establishment of the European Central Bank as a supposedly ‘independent’ bank, with a mandate only to control inflation, with no reference to the need to achieve full employment, was a victory for neo-liberal forces within Europe.

The Maastricht criteria and the Stability and Growth Pact which were justified by the need to ensure economic convergence between the European economies in advance of a common currency, were used to codify in law neo-liberal prescriptions about debt and deficits. They became a justification for slashing public services in many countries.

In ruling out currency devaluation as a means to regain competitiveness for the weaker economies in Europe, the establishment of the euro locked workers into a race to the bottom. The primary means of gaining export competitiveness within the European bloc came through attacks on workers’ wages and conditions. German capitalism won this race with this method through the vicious ‘Agenda 2010′ pushed through by Gerhard Schroeder and the SPD government in the early 2000s. For example, wages in Germany’s private sector increased by 21.8 percent on average from early 2000 to the first quarter of 2010, compared to 35.5% over the same period in the EU.

In this way, the euro facilitated a further divergence rather than convergence in the European economies, copperfastening the extremely uneven development of capitalism across Europe. German exports in particular became increasingly competitive, while the exports of the peripheral states went in the opposite direction. This helped to create a massive imbalance of trade between the south and the north of Europe, an important factor in the particular European features of the crisis that exploded five years ago.

By driving down wages and conditions effectively and removing the possibility of currency depreciation from the weaker economies, the euro has also been a means for German capitalism to establish itself as the clearly dominant capitalist class within Europe. The uneven development of the European economies, which was partly hidden by the easy availability of cheap money in the early days of the euro, has been exposed by the crisis and in reality has been deepened by the euro.

The euro-crisis has been used by the German capitalist class, and more generally northern European capitalism, to exert its imperialist domination of Europe over the weaker peripheral capitalist economies. This is personified by the central role of Angela Merkel in determining the ‘price’ for so-called bailouts and in reality, together with the Commission and ECB, dictating austerity to the weak capitalist classes of the periphery. Ironically, as Costas Lapavitsas has pointed out, illustrating the craven and subservient nature of those capitalist classes, “the harder the periphery is buffeted by EMU policies, the more desperately its leadership clings on to EMU membership.” This certainly rings true for the vast majority of the Irish political establishment.

The common currency also had the effect of lowering transaction costs for corporations across the EU, facilitating the flow and allocation of capital in a way to maximise profit.

Externally, the euro also has an imperialist character. It is part and parcel of the attempt to create a bloc that can rival US imperialism on a world-scale. One major advantage of US capitalism is that the dollar is the only true ‘world money’, an international reserve currency. This enables the US to sustain larger debts than would otherwise be possible because of the worldwide demand for US bonds, together with enabling the extraction of a form of rent from weaker economies forced to hold large dollar reserves and makes the US the centre of the world of finance, together with giving important political advantages.

The euro is an attempt to create a world money to rival that dollar, in order for more of these advantages to accrue to European-based capital. In that, it has been partially successful. Although the dollar has remained pre-eminent, and the euro crisis has weakened the euro’s prospects of replacing it, Germany in particular became a key financial centre as a result of the euro being a secondary international reserve currency.

Therefore the euro is not a creation that favours working people across Europe. It is a project of big business and finance capital within Europe, in particular those in the core countries such as Germany. The sense of the euro as a weapon against living standards and for right-wing policies is something that is instinctively felt by increasing numbers of people in the peripheral countries in Europe with the impact of the crisis. At this point, it is weighed against the fears that people experience about the return to weak national currencies, which was a factor in the June 2012 Greek elections.

Of course, the capitalist classes across Europe are not a monolithic bloc. The euro itself is a source of disputes and rivalry within and between the capitalist classes within Europe. Major tensions exist between them and differences over how to respond to the euro crisis have repeatedly resulted in clashes between French and German governments over the future direction of Europe. This currently finds expression in disputes over the road to a ‘banking union’, which fundamentally comes down to who should pay for ‘resolutions’ to banking crises.

These differences also exist within the various capitalist classes. In a number of countries, there is a minority section of the capitalist class which has concluded they would be better off without the euro.  This viewpoint was expounded, for example, by Hans Olaf-Henkel, the former head of the Federation of German Industries, in the Financial Times in August 2011 and has been repeated since:

That is why we need a plan “C”: Austria, Finland, Germany and the Netherlands to leave the eurozone and create a new currency leaving the euro where it is. If planned and executed carefully, it could do the trick: a lower valued euro would improve the competitiveness of the remaining countries and stimulate their growth. In contrast, exports out of the “northern” countries would be affected but they would have lower inflation. Some non-euro countries would probably join this monetary union. Depending on performance, a flexible membership between the two unions should be possible.

This, of course, is seen most strongly in Britain, with right-wing eurosceptic forces prominent within the Conservatives and in UKIP. This reflects the historic strength of British capitalism, which they cling to, and an ‘Atlanticist’ view of the importance of the ‘special relationship’ with US capitalism. However, even in core European countries, such as Germany, there is a growing right-wing euroscepticism, reflected in the launch of the new ‘Alternative for Germany’ party, which wants to tap into opposition to so-called bailouts, and paints a picture of a Germany stronger outside of the euro.

In many of the peripheral states, under the impact of the crisis and austerity measures, there is a growth amongst the bosses and right-wing populist politicians, of support for leaving the euro. In Italy, for example, Beppe Grillo’s attacks on the euro and his promise of a referendum on euro membership was an important factor in the big vote of his Five Star Movement in the February general election. In Greece, the right-wing anti-euro ‘Independent Greeks’ draws support from Greek capitalists who think that a dramatically devalued drachma would make them competitive. In Ireland, given the extremely servile relationship between Irish capitalism and the elite within the EU, this is currently a muted development, with only individual right-wing economists like David McWilliams promoting euro-critical views. However, the next number of months may see the likes of Declan Ganley advocating a referendum on the euro.

In any case, this is an approach which working people and the Left should have no truck for. It reflects the interests of a section of capitalists who would like to get the benefit of increased exports from a declined currency. It is simply another means for them to place the burden on workers for the crisis, this time through devaluation and a significant real decline in workers’ incomes.

How should the Left take up the euro?

The euro is increasingly at the centre of political debate in left parties and formations across Europe. A decisive change has taken place in the last number of months, with significantly more people in left parties in Europe now questioning the euro. The immediate impetus for this questioning have been the actions of the European establishment in Cyprus and the publication of a new euro-critical paper co-written by Hannes Flessbeck, a Keynesian economist who has worked closely with leading Die Linke figure and former SPD Minister, Oskar Lafontaine, and Greek radical left economist, Costas Lapavitsas. The underlying reason is the exposure of the role of the euro to many working class people.

The Cypriot Communist Party, AKEL, has come out in favour of a referendum on the euro, in which they would argue for a Yes vote. A heated debate has taken place within Die Linke in Germany, polarising the party, with the left of Die Linke taking a more critical position towards the euro and the more openly reformist wing defending the euro. In Syriza, the euro has become the central pivot of much of the debate between left and right. Discussions have developed in other left parties in Europe too, with the vision that the euro and European Central Bank can be reformed into progressive institutions being set back.

The pre-election discussion within Die Linke illustrates some of the complications in the debate as it is currently conducted. The crude attacks within Die Linke on those criticising the euro should be rejected and the ‘anti-euro’ wing should be generally defended against the ‘pro-euro’ wing for breaking with a key tenet of the capitalist European Union project. However, the conceptions held by some of those in the ‘anti-euro’ wing are also not without problems.

In contrast to the work of Costas Lapavitsas alone, which explicitly links euro-exit to a fundamental social change, in the joint Flassbeck-Lapavitsas paper, this is explicitly envisaged as an “orderly exit”, facilitated by the EU, even raising the prospect of a revival of the European Monetary System. This is wishful thinking at best.

While it may be theoretically possible to envisage “orderly exits”, these will not happen in the real world of tensions between capitalist classes in Europe and above all they would not be exits in the interests of working class people. They would be designed to safeguard the stability of those economies left within the eurozone and to ensure maximum payment of debt by the exiting countries. The domination of the societies by the interests of bondholders and European big business would continue, as would the destruction of public services and workers’ rights in order to pay off the debt.

Any left euro exit is inevitably tied up with debt repudiation. This would not be simply accepted by the Commission, or the powerful capitalist classes within Europe, in particular the German capitalist class. Instead, it will be the starting gun for a major class struggle across Europe, within which the various economic weapons of the EU would be used against the people of the country exiting.

Therefore, the left cannot put forward the idea of a euro-exit alone as a solution to the crisis. The key question is the implementation of radical socialist demands – the repudiation of debt, democratic public ownership of the banking system, a democratic plan for the redevelopment of the economy etc.

What programme?

Particularly in Ireland right now, in the absence of major struggles that threaten the dominance of austerity and capitalism more generally and pose the possibility of an alternative way of structuring the economy, a demand even by the Left to leave the euro would be widely understood simply as a call to exit on a capitalist basis. Given the fears that exist about euro-exit among broad sections of the population, it would also play into the hands of the right.

Instead, a key point is that in or out of the euro, a continuation of austerity and policies designed for the interests of the rich both in Ireland and internationally, is disastrous for working class people. Exit without breaking from the neo-liberal and capitalist rules would see a huge shock and economic dislocation, a likely massive flight of capital and a further decline in the already historically low levels of investment. In the medium term, the likely significant devaluation would allow for the development of exports as well as import substitution, however working people would shoulder a large portion of the burden with the price of imported goods rising dramatically.

It is therefore necessary to pose the question the other way around. Can working class people afford to continue with austerity, the repayment of odious debt, mass unemployment and emigration? Evidently not. It is therefore essential to break with these policies – first and foremost through debt repudiation, saying that investment in jobs and decent public services takes priority to paying bondholders. This is what is necessary and people should refuse to be blackmailed with the threat of exit from the euro. No more sacrifices, in terms of increased austerity, should be accepted in order to remain within the euro.

While accepting the likelihood that following this course will mean a clash with the European Central Bank and could well mean being forced out of the euro, it is necessary to say that exiting from the euro in those circumstances does not have to herald economic disaster. In order to manage euro-exit, it requires a series of socialist economic measures to protect the economy and society from the potential negative consequences. Although these are not likely to be on the immediate agenda for Ireland, it is necessary to explain and popularise the socialist measures necessary to point the way out of the crisis.

The first would be the immediate imposition of capital controls to prevent the flow of large amounts of money out of the economy. In a perverse way, the fact that capital controls have been implemented in Cyrpus at the instruction of the Troika, illustrates how they can be implemented in today’s age of electronic transactions. Of course, the capital controls introduced by a left government would have a fundamentally different purpose and character to those seen in Cyprus.

The second would be the imposition of democratic public control over the banking system. That means the full nationalisation of the key banks and their transformation into public utilities run for society. Linked to a programme of repudiation of national debt would be an imposition by the banks of losses on the European Central Bank and other bondholders in order to ensure that the banks do not collapse. Under public control, they could become important tools for enabling the redevelopment of economic growth, with credit directed to small businesses. Linked to this would probably be the establishment of a Central Bank under public control to print domestic currency.

Third would be the initiation of large projects of public investment which would create jobs, in, for example, the insulation of homes and public buildings, the development of renewable energy resources, upgrading water and sewerage infrastructure and the building of new homes and adaptation of already built homes. These could be funded through the savings from the non-payment of debt as well as progressive taxation on the rich and major corporations.

Fourth, an investment plan and a democratic plan for the economy as a whole would be necessary to ensure a redevelopment of productive investment. This would necessitate public ownership and democratic control of the key sections of the economy – construction, telecommunications, energy production, pharmaceutical companies, the major retail multiples – in order to co-ordinate the activities of the different economic sectors and implement a plan for sustainable economic growth.

Of course such a programme amounts to the essentials, on an economic plane, of a socialist transformation of society. It could only be carried through with a fundamental struggle against the opposition of domestic and international capital. Such a struggle, as has already been seen embryonically in Greece, would inevitably throw up the institutions of popular assemblies, neighbourhood and workplace councils that could be the basis for an alternative, infinitely more democratic, socialist state.


One argument raised by those on the Left who are more ‘pro-euro’ is the need for Europe-wide struggle and the need for Europe-wide social transformation. Some suggest that a country leaving the euro amounts to a nationalist solution and that it would undermine solidarity between workers across Europe.

This argument ignores the uneven development of the economies in Europe and of consciousness and the class struggle within the continent. It also misses the radical impact on a European plane which a euro-exit as a result of the implementation of radical Left policies would pose. Instead of being a break to common European action, it is likely that such a policy could be a spur to action in a number of countries.

In reality, this ‘internationalist’ and ‘European’ argumentation is often simply a cover for a thoroughly reformist position and a lack of confidence in the ability of working class people in Europe to fight back and co-ordinate struggles based on their own strength and not that of capitalist institutions. Instead of engaging fully in the struggles against austerity across Europe and the institutions and governments which are driving it, appeals are made instead for “euro-bonds” and a more “social” European Union. In suggesting that the European Union and its institutions can be transformed or can play a progressive role, this line of argument serves to prettify those institutions and also promotes a fatalistic attitude that undermines the importance of struggles now against austerity in favour of a view that progressive change can only come through change at a European level.

It is a reality that class struggle today in Europe, despite attacks being co-ordinated at a European level, still takes place in a primarily national context – whereby governments and employers implement austerity measures and they are resisted primarily on a national plane. It is the job of socialists to engage with those movements, to seek to develop them to the highest level possible, to argue for workers’ unity across Europe and to seek to develop them into joint Europe-wide struggles. However, this Europe-wide struggle is not a precondition for fully engaging in the fight.

Workers in all countries in Europe do not have to wait for there to be the basis for a struggle on the same level continent-wise before struggling against austerity. Even in one country, there is always an uneven development of political consciousness, understanding and activity. This is many more times the case across a continent such as Europe. The struggle will inevitably be at a significantly higher level at particular points in some countries than in others.

Therefore, it is entirely correct to seek to develop struggle, including the prospect of genuinely left governments and a break from the rule of capital, to the furthest extent possible in the peripheral countries of Europe. It may well be the case that capitalism will once more break at its weakest link. If linked to a thoroughly internationalist approach, victories and battles in one country can have a decisive role in developing a movement that can have a Europe-wide impact.

None of that is to deny the fact that a conscious internationalist approach and appeal is absolutely necessary, and would be even more so in the event of a break with capitalism in one country. One peripheral country exiting from the euro and trying to implement socialist policies would face major difficulties within a relatively short period of time. In order to survive, it would be necessary to try to expand this change, with the establishment of governments of workers in a number of other countries.

It is likely that the conditions for this would be extremely favourable. A left exit from the euro is overwhelmingly more likely in one of the countries of southern Europe at this time. Conditions and struggle are increasingly converging in Greece, Spain and Portugal in particular, with workers seeing a common enemy in the Trioka and taking confidence from each others struggles.

With a conscious internationalist appeal, a Left government and a euro-exit which flowed from that could well result in major movements in other peripheral countries resulting in similar revolutionary change. This could open up the prospect of a coming together through federation of a number of economies who are struggling for socialist change and may establish, alongside favourable trade agreements based on solidarity and sharing of resources, fixed currency exchange rates.

A class appeal would also be necessary to workers in the core of Europe, in particular in Germany. This would aim to clarify that this is not a question of German workers paying for the crisis, but rather that working people throughout Europe have been the losers of the EU and euro project and that big business and finance capital must pay. In that way, even if revolutionary change wasn’t immediately placed on the agenda, the room for the German capitalist class to go on the offensive could be restricted.

While some on the left promote the idea of some easier solutions, based on a renegotiation of the debts and the terms of the Memoranda, the reality is that these don’t exist. With the systemic crisis of capitalism and the contradictions within the capitalist integration process in Europe, the room for concessions by the dominant capitalist classes within Europe is limited. The experience of Cyprus underlines this. Of course, the best way to maximise the concessions is through a powerful struggle of working class people – but in order to have a lasting success it needs to be armed with socialist ideas that pose a fundamental alternative.

This sort of revolutionary change is not on the immediate agenda in Ireland. However, as the euro crisis deepens further, these are becoming increasingly immediate questions for socialists and activists in Greece and other countries in southern Europe. Major struggles and ruptures in other parts of the European periphery, as well as the impact in Ireland of the deepened crisis, can speed up events in Ireland dramatically. Having a clear position on the euro, rooted in a socialist and internationalist perspective, is necessary in advance of these movements if the Left is to take advantage of the opportunities that will present themselves to argue for fundamental change.

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