Core vs Periphery in the EU

21 June 2011 by Eric Toussaint


From 1980 to 2004 joining the European Union was quite popular among large sections of the populations in concerned countries. Portuguese, Greek and Spanish citizens regarded their countries’ participation in the European integration both as a guarantee of democratic stability (indeed all three of them were emerging from a period of dictatorship [1] ) and as a real opportunity to improve living conditions (there were significant transfers from richer countries in the EU towards the new members from the Mediterranean region during the first years of their adhesion [2]). Their joining the euro zone during the 2000s was also well received since it went together with increased consumption levels, albeit financed on credit. Something similar occurred among countries of the former Eastern bloc: there too, people saw joining the EU as a guarantee of democratic stability, a perspective of transfers, the possibility to move around within the Union, perhaps even of finding a better paid job in the West, and access to credit to finance consumption. However, very soon, the transferred amounts were drastically reduced and some productive sectors, particularly farming, were badly affected by competition with much more industrialized and competitive West European agrobusiness.

The years 2008-2010 marked a turning point in the perception European peoples have of the EU. Many became quite critical, which was largely a result of the European Commission accumulating neoliberal measures while claiming to promote the notorious ‘free and undistorted competition’, to which were added from 2009-2010 the crisis of the euro and the deep impact of the economic crisis.

Core and Periphery within the EU

The hierarchical relationship at global level with a ‘Core’ consisting of the US, the EU and Japan (the Triad) and a Periphery consisting of so-called ‘developing’ countries is reproduced within the 27 member states of the EU. The Core consists here of the most powerful countries among which Germany and France, but also the UK, Italy and the former Benelux (the Netherlands, Belgium and Luxembourg). The Periphery is subjected to decisions made by this hegemonic Core and mainly consists of countries lying to the south and east of the EU, not forgetting Ireland to the West. At the more limited level of the euro zone (16 countries) [3], the same distinction resulted in the acronym PIGS (Portugal, Ireland, Greece and Spain), that has prompted outragously racist puns.

The EU’s refusal to develop genuinely common policies to help new members reduce their economic drawbacks compared with the Core is largely responsible for structural discrepancies that work against the process of European integration.

Over the last ten years Germany (as well as the Netherlands and Austria) has developed a neo-mercantilist policy: it has increased its exports particularly within the EU and the euro zone by reducing workers’ wages. In September 2010 in Germany 7.3 million wage earners only had a small part-time job paid 400 (four hundred) euros a month [4]. So its competitiveness has clearly increased compared with its partners, particularly countries such as Greece, Spain, Portugal, but also Romania, Bulgaria or Hungary (which do not belong to the euro zone). Those other countries had to face a growing trade deficit towards Germany and other countries of the Core. Their current balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. -of-payment deficits reflect surpluses in countries of the Core, especially Germany. Such financial deficits, which can be either private or public, have to be compensated for by external contributions: foreign investments or debts, i.e. loans. The current balance deficit can be traced for the most part to private deficits, a majority of which were financed by loans from banks of the Core, for investments were relatively limited (except in the case of Spain) or were neutralized by significant capital outflow in the guise of TNCs taking their profits home. In some Eastern European countries (Hungary, Slovakia and the Czech Republic) such profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. repatriation (capital outflow) have been definitely more significant than investments (capital inflow) [5].

It can thus be argued that the debts to be paid by countries of the Periphery are essentially due to the behaviour of the private sector within the EU. Unable to compete with the Core, companies of the private sectors have contracted debts with banks of the Core but also with internal agents as the economy of these countries is increasingly controled by the financial sector since they joined the euro zone. Consumption boomed in those countries and in some of them (Spain, Ireland, Hungary, Romania, Bulgaria) a real estate bubble finally burst.

Higher and higher interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
paid by countries of the Periphery for new loans contracted since the crisis started will further drain capital from the Periphery to the Core (to the private financial institutions that buy debt securities issued by countries of the Periphery or governments of the Core that are involved in ‘aid plans’ by lending money at 5.2% interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate in the case of Greece). Germany, France and Austria, for instance, borrow at 2% and lend at 5.2%. This is a highly profitable move. Financial markets demand double or triple interest rates compared with 2007-2008 and the borrowed amounts are impressive. The money lent by countries of the Core to Greece, Ireland or Portugal is paid back to private banks in countries of the Core, and interest rates with these banks are 10% or more. There is indeed a drain on resources from the Periphery to the Core.

On the other hand, given the productivity edge of Germany and of other countries of the Periphery, financial drain also occurs through trade exchanges according the mechanism of unequal exchange Marx describes in Das Kapital: Capitals invested in foreign trade can yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. a higher rate of profit, because, in the first place, there is competition with commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries. [. . . ] The same may obtain in relation to the country, to which commodities are exported and to that from which commodities are imported; namely, the latter may offer more materialised labour in kind than it receives, and yet thereby receive commodities cheaper than it could produce them [6].

Democratic foundation of another European Union based on solidarity

Several provisions in the treaties that preside over the EU, the euro zone and the ECB ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html
have to be cancelled. For instance, we must do away with articles 63 and 125 of the Lisbon Treaty that prohibit any move of capitals as well as any aid to a state in difficult circumstances. We should also do away with the Stability and Growth Pact. And replace the current treaties with new ones in the context of a genuinely democratic constituent process so as to achieve a pact of solidarity among peoples that is mindful of both employment and the environment.

We must thoroughly revise the monetary policy as well as the status and practice of the ECB. The inability of the political power to force the ECB to create money is a heavy handicap. When it set the ECB above governments and thus above the peoples, the EU made a disastrous choice: it subjected man to money instead of the other way round.

A Europe based on solidarity and cooperation must allow us to turn away from competition, which draws all standards down. The neoliberal logic has resulted in the crisis and proved a failure. It pushed social indicators down: less social protection, fewer jobs, less public services. The minority that benefited from the crisis did so by tramping on the rights of others. Those who are guilty are rewarded while victims have to pay! We must change this untenable logic, on which all founding texts of the EU are based, with the Stability and Growth Pact in the lead. More than ever, we must strive toward another Europe, based on cooperation among states and solidarity among peoples.

This new democratized Europe must strive to establish non negotiable principles. It must uphold and improve social and fiscal justice, make choices that will raise the standard of living of its inhabitants, engage in arms reduction and a radical decrease in military spending (including withdrawing European troops from Afghanistan and leaving NATO NATO
North Atlantic Treaty Organization
NATO ensures US military protection for the Europeans in case of aggression, but above all it gives the USA supremacy over the Western Bloc. Western European countries agreed to place their armed forces within a defence system under US command, and thus recognize the preponderance of the USA. NATO was founded in 1949 in Washington, but became less prominent after the end of the Cold War. In 2002, it had 19 members: Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, the UK, the USA, to which were added Greece and Turkey in 1952, the Federal Republic of Germany in 1955 (replaced by Unified Germany in 1990), Spain in 1982, Hungary, Poland and the Czech Republic in 1999.
), choose sustainable energies so as to avoid nuclear power, and refuse genetically modified organisms Genetically Modified Organisms
GMO
Living organisms (plant or animal) which have undergone genetic manipulation in order to modify their characteristics, usually to make them resistant to a herbicide or pesticide. In 2000, GMOs were planted over more than 40 million hectares, three quarters of that being soybeans and maize. The main countries involved in this production are the USA, Argentina and Canada. Genetically modified plants are usually produced intensively for cattle fodder for the rich countries. Their existence raises three problems.


- The health problem. Apart from the presence of new genes whose effects are not always known, resistance to a herbicide implies that the producer will be increasing use of the herbicide. GMO products (especially American soybeans) end up gorged with herbicide whose effects on human health are unknown. Furthermore, to incorporate a new gene, it is associated with an antibiotic-resistant gene. Healthy cells are heavily exposed to the herbicide and the whole is cultivated in a solution with this antibiotic so that only the modified cells are conserved.


- The legal problem. GMOs are only being developed on the initiative of big agro-business transnationals like Monsanto, who are after the royalties on related patents. They thrust aggressively forward, forcing their way through legislation that is inadequate to deal with these new issues. Farmers then become dependent on these firms. States protect themselves as best they can, but often go along with the firms, and are completely at a loss when seed thought not to have been tampered with is found to contain GMOs. Thus, genetically modified rape seed was destroyed in the north of France in May 2000 (Advanta Seeds). Genetically modified maize on 2600 ha in the southern French department of Lot et Garonne was not destroyed in June 2000 (Golden Harvest). Taco Bell corn biscuits were withdrawn from distribution in the USA in October 2000 (Aventis). Furthermore, when the European Parliament voted on the recommendation of 12/4/2000, an amendment outlining the producers’ responsibilities was rejected.


- The food problem. GMOs are not needed in the North where there is already a problem of over-production and where a more wholesome, environmentally friendly agriculture needs to be promoted. They are also useless to the South, which cannot afford such expensive seed and the pesticides that go with it, and where it could completely disrupt traditional production. It is clear, as is borne out by the FAO, that hunger in the world is not due to insufficient production.

For more information see Grain’s website : https://www.grain.org/.
(GMO). Furthermore, Europe must resolutely put an end to its “besieged fortress” policy regarding candidates for immigration, so that it can become a partner trusted for its fairness and true solidarity towards the peoples of the South.




Éric Toussaint, doctor in political sciences (universities of Liège and Paris VIII), president of CADTM Belgium, member of the President’s Commission for a full audit of Ecuador’s debt (CAIC), member of ATTAC France’s scientific council, author or co-author of several books Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers (Monthly Review Press, New York, 2010, with Damien Millet), Your Money or Your Life!: The Tyranny of Global Finance (Haymarket Press, Chicago, 2005), The World Bank: A Critical Primer (Pluto Press, London, 2007). Most recent book (June 2011): La Dette ou la Vie, Aden-CADTM, 2011 (collection of essays edited by Damien Millet and Eric Toussaint, not yet published in English).

Translated by Christine Pagnoulle.

Footnotes

[1Salazar’s and Caetano’s regimes in Portugal (1933-1974), Franco’s dictatorship in Spain (1939-1975), military junta in Greece (1967-1974).

[2Belonging to the EU was definitely less popular in rich countries of the north of Europe (UK, Scandinavian countries).

[3In 1999 the euro zone included eleven countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. They were joined by Greece in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009, and Estonia in 2011.

[4Frédéric Lemaître in Le Monde, 17 May 2011

[5Ozlem Onaran, “Fiscal Crisis in Europe or a Crisis of Distribution?”, Department of Economics, SOAS
Discussion Paper n°18, 2010

[6Karl Marx, Vol. III, Part III, Chapter V, Foreign Trade
http://www.marxists.org/archive/marx/works/download/pdf/Capital-Volume-III.pdf

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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