1. The Euro-Crisis as a Process of Conservative Transformation
Jean-Claude Trichet, as President of the European Central Bank (ECB), noted in a press conference in March 2008: “The fundamentals of the euro area economy remain sound and the euro area economy does not suffer from major economic imbalances”. When asked about the implications of the US subprime crisis into the euro area (EA) economy, he raised concerns about inflation. Six years later, all these statements sound like black humor.
The EA is experiencing a severe sovereign debt crisis. Growth prospects are weak and fragile. Unemployment levels in the countries of the so-called European ‘periphery’ have reached hitherto unthinkable levels and the risk of deflation is by no means negligible.
The monetary aspect of the EA is unique. No solid and uniform fiscal authority stands behind the ECB. The latter, thus, cannot be effective in its role as lender of last resort and market maker of last resort. In this context, governments will not always have the necessary liquidity to pay off bondholders.
This should not be taken as a real sacrifice on the part of the ruling economic elites. On the contrary, it is considered as a welcome condition for the organization of restrictive neoliberal strategies, because wage cuts and the disintegration of the welfare state can be presented by the political elites as the only route to financial stability. Nevertheless, this has turned out to be a risky trade-off. In other words, for the ruling neoliberal elites crisis is just the other way to implement the neoliberal strategies, more unorthodoxly and violently this time.
This strategy justifies the principle of austerity in the context of the EA: the crisis (low growth) is by and large being used as a means to further neo-liberalize state governance. The debt problem is used as means to reinforce neoliberal reforms throughout Europe.
2. A Progressive Alternative
The European Left fights against austerity and for a resolution of the sovereign debt problem at the European level. This is the reason why SYRIZA insists on a political resolution of the country’s debt problem, which should contain on the one hand the writing-off of a considerable part of the Greek sovereign debt, and on the other a revised repayment schedule of the rest, based on the concept of a ‘growth clause’, according to the ‘model’ put forward by the London Debt Agreement in the year 1953, regarding the restructuring of the sovereign debt of the Federal Republic of Germany.
However, what is appropriate for Greece and other small over-indebted EA economies may not be appropriate for big European economies. In other words, debt forgiveness all over EA is rather unfeasible, given the magnitude of the overall EA sovereign debt (9.2 trillion euros). However, an alternative progressive approach is possible:
The ECB acquires a significant part of the outstanding sovereign debts (in market prices) of the EA countries and converts them into zero interest perpetuities. These will appear as assets in its balance sheet while there will be a proportional increase in the monetary base in the side of liabilities. Debts will not be forgiven. Individual states will agree to buy them back in the far future.
A simple illustration can clarify the point.
Let’s suppose that the ECB buys at market values Italian sovereign debt to the level of 100% of the country’s GDP, and carries its nominal value forward for 7 decades (with a discount rate of 1%). Assuming a 3% average annual nominal growth for the next 70 years, by the time that Italy buys back the debt from the ECB its nominal amount will correspond approximately to 25% of its future GDP. This would be a manageable addition to the existing debt of the time.
This model of unconventional monetary intervention will give to progressive governments in the EA the necessary condition to develop social and welfare policies to the interest of the working classes and social majority, and to replace the neoliberal agenda with a program of social and economic reconstruction.
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