Until Oskar Lafontaine's surprise interjection, EMU-bashing was the domain of Germany's right. Now, what can the UK left do?
Europe is deeply troubled, and the trouble is not going away. The problem is at its worst in the eurozone, where unemployment is above 12%, while youth unemployment in Greece and Spain exceeds 60%. Britain is also stuck in the mire and the economies of central and eastern Europe lack dynamism – hardly surprising since the eurozone is underperforming. The legitimacy of the EU has declined and there is a rising tide of virulent rightwing euroscepticism.
Only Germany is doing well, but appearances are deceptive. Germany has become a tremendous export machine towards both Europe and the rest of the world, but it is effectively a substitute for stagnant domestic demand. It is a drag on the world economy, while being a major lender and the political leader of Europe.
Strangely, Germany is also the place where the liveliest debate on the future of the eurozone and the EU is currently taking place. Peripheral countries, despite the disasters that have befallen them, are too terrified openly to contemplate these questions. Even in Greece, where the economy has been destroyed and the ruling coalition looks unstable, the rising leftwing force of Syriza is reluctant to question participating in the European monetary union.
The German right has long been sceptical about the monetary union, although from a neoliberal and nationalist perspective. The conservative economist Hans-Werner Sinn has claimed that peripheral countries would be better off departing the eurozone to restore their competitiveness. The newly formed Alternative für Deutschland party openly argues for the abolition of the euro to avoid the costs of bailouts.
The German left, meanwhile, has been castigating austerity and calling for expanded investment, controls over banks and income redistribution. For the left, Europe's problem lies primarily in neoliberal policies, not the monetary union. Indeed, it appears to believe that abandoning, or abolishing, the euro might make matters worse by ushering in competitive depreciations and causing economic chaos. Its aim is to create a "good" euro in the interests of working people. This is in line with much of the rest of the European left, which has been defending the fundamental structures of the EMU, while complaining about neoliberal policies.
However, a recent intervention by Oskar Lafontaine, still one of the grandest figures on the German left, has upset the applecart. Lafontaine, who as minister for finance in the late 1990s was in favour of the euro, has now called for a return to national currencies in a system of managed exchange rates. The analytical rationale for his argument can be found in our recent study on the euro, sponsored by the Rosa Luxemburg Institute.
Lafontaine has come to realise that the euro acts as a mechanism for Germany's aggrandisement at the expense of its neighbours. By keeping unit labour costs low, Germany has gained a massive competitive advantage within the eurozone, thus accumulating surpluses and becoming a lender to the world. It has ruined peripheral countries by forcing them into a position of deficits and debts. It is now damaging France and Italy, since its entrenched competitive advantage means that these core countries are increasingly faced with deficits and debts. The only clear beneficiaries are big exporting businesses and big banks in Germany and elsewhere.
Europe's troubles are inextricably linked to its monetary union. The euro has allowed Germany to "beggar its neighbours", while also providing the mechanisms and the ideology for imposing austerity on the continent. It is meaningless for the left to reject austerity while pretending that the monetary union is not to blame, or that it might even be desirable. The truth is that peripheral countries are caught in a monetary trap that is generating austerity, while France and Italy are fast joining them. The sooner the euro is replaced with a mechanism of managed exchange rates, the earlier that Europe will be able to breathe again.
The current debate within the German left matters partly because of the forthcoming federal elections in the autumn, but mostly because it offers the prospect of a coherent leftwing critique of the monetary union as well as of the EU. In this regard the British left could play an important role. Britain has been fortunate to avoid the euro, and it has also been fairly immune to the mindless worship of "Europe" so common across the rest of the EU. Yet, the Labour party has forgotten its old traditions of criticising the EU as a creature of big business, abandoning the field to Ukip and similar forces.
The British left could make a vital contribution to the European debate, if it recaptured some of its radicalism, rejected the monetary union and criticised the bloated structures of the EU. By doing so it would provide a much firmer footing for its own struggle against austerity, pull the rug from under the feet of Ukip, and offer decisive support to radical voices across Europe. It might then become possible to create a European left with a convincing economic programme in the interests of working people that would promote genuine co-operation among European countries. Perhaps the affliction currently tormenting the continent could then be confronted.
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