Yanis Varoufakis’ under-estimation of capitalist monopoly Dec 03, 15

Dec 3 2015 By Cat Moir, Sydney

From Green Left:  https://www.greenleft.org.au/node/60764

 

Yanis Varoufakis at the University of Sydney, November 26. We have all heard the story of when, during a visit to the United States, a journalist asked Mahatma Gandhi what he thought of Western civilisation, and Gandhi is said to have replied that he thought it “would be a very good idea.”

Former Greek finance minister and outspoken opponent of the savage austerity programs forced on Greece, Yanis Varoufakis recalled Gandhi's words in the talk he gave at the University of Sydney on November 26.

Varoufakis' message was clear: Like Western civilisation, European democracy would indeed be a very good idea.

Varoufakis' analysis of the reasons for what is sometimes called Europe's “democratic deficit” was on-target, even if his optimism about the possibility of democratising a set of institutions designed to maintain capitalist hegemony seemed naive.

The European cartel

Varoufakis' speech made it clear why Europe's institutions are so far removed from democratic control. In 1945, political consensus in Europe and the US was that measures were needed to stop the atrocities seen in two world wars from taking place again — and to resolve the dangerous enmity between two of its most powerful states, France and Germany.

In 1951, the European Coal and Steel Community was founded, which later became the European Union (EU). The ECSC was a common market in coal and steel intended to neutralise competition between member states (initially Belgium, France, West Germany, Italy, the Netherlands and Luxembourg) for natural resources.

Robert Schumann, the project's architect, said the aim of the ECSC was to make another war on European soil “not only unthinkable, but materially impossible.” Today, Europe's wars for resources are waged beyond the continent's heavily policed borders, in the Middle East and on the frontline of climate disaster.

The framework onto which the political project of European integration was grafted was not that of a state, but a cartel: a collusive price-fixing agreement between already wealthy elites.

The EU's remit has expanded greatly since the days of the ECSC, but at heart it remains a cartel. A monetary union, Varoufakis says, was just another way to maximise the profits of Europe's strongest economies.

Recycling the surplus

The great contradiction at the heart of the eurozone is that monetary union has not worked for the very reasons it was desirable to those who engineered it.

Monetary union makes it easier for Europe's net exporters — above all Germany — to sell more of their goods and services by eliminating the barrier to trade posed by different currencies. This is part of a process Varoufakis calls “surplus recycling”, by which countries with a trade surplus sell that surplus to countries with a trade deficit.

Relatively few consumers in Europe's peripheral economies such as Greece, Italy, Portugal, Spain and Ireland can afford to buy expensive German-made products. But in a monetary union, there is a way to fix this.

German banks were once reluctant to lend large sums to countries who — as long as they had their own currency — had the power to reduce any debt by devaluing in relation to the Deutschmark. But now the whole eurozone uses the same money - the euro is “the Deutschmark in different clothes” according to Varoufakis.

With a common currency, creditors can theoretically expect to get back all money they are owed. So when the euro was introduced at the turn of the millennium, European banks began lending enthusiastically to the peripheral economies. This enabled citizens in the periphery to keep consuming the production surpluses from the richer areas.

But such inflationary lending creates bubbles, with creditors in the surplus countries becoming overexposed to high levels of debt held in the deficit countries. Varoufakis suggests the best way to mitigate the potentially disastrous effects of such a bubble, which have been playing out in Greece since the global financial crisis in 2008, is for companies and governments in the surplus parts of the monetary union to invest in jobs and infrastructure in the deficit parts.

Varoufakis puts the absence of what he calls a functioning Surplus Recycling Mechanism down to poor design at best, at worst the apparent absent-mindedness of European leaders.

But in reality, two things prevented this from happening: first, the absence of a full political union meant there was no federal-level body capable of mandating surplus recycling policies. Second, the price of capital and labour in Greece was already more expensive than in places like China and India, and was only inflated by the influx of financial capital.

Certainly the idea of a monetary union without political union seems doomed to failure. Yet the model of austerity-capitalism that is being imposed in an especially extreme form in Greece, and to varying degrees throughout Europe, can also not but fail either.

As Varoufakis recognises, the creditors who negotiated with Greece's SYRIZA government to again refinance debt the country could not afford to pay clearly cannot want their money back.

The international political class is clearly labouring under the delusion that the capitalist debt train can be kept on track long enough that someone else will have to clean up the wreckage when it crashes again. At the same time, they ignore the victims of the perpetual wreck of such a cruel and exploitative system: most immediately, the people of Greece.

Revolutionising the deficit

How does Varoufakis propose to avert another disaster? Does he, for instance, propose that Greece leave the euro, reinstate the drachma and devalue to reduce their debt?

No. He admits to having had a secret team dedicated to the practicalities of a “Grexit” (a Greek exit from the eurozone) while in office, but remains unconvinced that it could work. With at least a year before a new currency could be printed and minted, euro notes would have to be used in the meantime, stamped with the value of the new money.

Halting the circulation of paper money while you try to intercept billions of banknotes and stamp them all would be a logistical nightmare. The artificial advantage of those who hoard cash as opposed to banking their assets could cause real problems.

Also, every euro note turned into a drachma would mean a loss of the foreign currency needed to import goods. How to decide how many euros to keep and how many to stamp?

These challenges are real and could potentially cause great pain and panic. But Varoufakis' answer to the eurozone crisis stops short of offering fundamental solutions.

His proposal to “democratise” an increasingly internally fragmented and volatile Europe is motivated by the fear that dismantling the eurozone — which would almost certainly spell the end of the EU as well — will worsen the pain in Greece and elsewhere.

Instead, Varoufakis suggests that Greece and the rest of Europe press on with integration. Although he never stated this directly, all of his economic arguments imply the need for a full political union at the European level.

He demands, however, that the institutions be run democratically and transparently.

A truly democratic, peaceful and prosperous, federal Europe would indeed be a wonderful idea, as Gandhi might have agreed. But there are two big problems with Varoufakis' proposal.

First, hegemonic systems remain effective by incorporating opposition into their power structures.

In a recent panel discussion at London's Southbank Centre, Varoufakis made the idea of democratising the European institutions more concrete, specifically suggesting that the meetings of the Eurogroup, which he tells us follow absolutely no protocols and are conducted in complete secrecy, be live-streamed so that the public can follow economic decisions that directly affect them.

Italian Marxist philosopher Antonio Gramsci argued, hegemonic dominance is achieved by creating consent, or at least its appearance. It would be easy for Europe's leaders to integrate a semblance of reform into the system, while subtly engineering a cheat that would allow them to maintain the grossly unequal balance of power (such as televising meetings, but making the real decisions off camera).

However, Gramsci also claimed that hegemony ultimately relies on coercion. In a “crisis of authority”, the “masks of consent” slip away, revealing the true face of power. Europe's mask is slipping as the eurozone crisis becomes further entrenched by the self-same dynamics that created it. This partly explains why, for now, democracy has lost out to capital in Athens.

But the deeper reason for this historical irony is that democracy and capitalism are fundamentally incompatible.

A study by Princeton political theorists Martin Gilens and Benjamin Page has recently demonstrated that the US cannot be called a democracy in any meaningful sense of that word. It operates as an oligarchy in which political power is concentrated in the hands of a small, self-selecting group of wealthy individuals.

A certain degree of representative democracy was able to flourish under capitalism between the end of World War II and the early 1970s, but this uneasy partnership could only be guaranteed by intensive state intervention in markets.

As the Keynesian consensus was dismantled — and as the political left has long warned — the capitalist ruling class in Europe have resisted the establishment of democracy to protect themselves from being governed by a permanent majority dedicated to economic and social redistribution.

In short, if Varoufakis demands a democratic Europe, the revolution will have to be more than televised: it requires real system change. Such change may seem out of reach, but it is undoubtedly possible. As utopian feminist author Ursula Le Guin has said, the divine right of kings once seemed as inescapable as capitalism does today, but it, too, was a human power, and any human power can be resisted.