Fiscal Crisis in Europe or a Crisis of Distribution? A transitional program for an alternative Europe

10 May 2011 by Ozlem Onaran

1. Introduction

We are in a new episode of the global crisis: the struggle to distribute the costs of the crisis. This crisis has been an outcome of increased exploitation and inequality, since the post-1980s across the globe. Neoliberalism tried to solve the crisis of the golden age of capitalism via a major attack on labour. The outcome was a dramatic decline in labour’s bargaining power and labour’s share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. in income across the globe in the post-1980s. However, the decline in the labour share has been the source of a potential realization crisis for the system –one of the major sources of crisis in capitalism according to Marxian economics. The decline in the purchasing power of workers limited their potential to consume. Demand deficiency and financial deregulation reduced investments despite increasing profitability. Thus neoliberalism only replaced the 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. squeeze and over-accumulation crisis of the 1970s with the realization problem. Financialisation and debt-led consumption seemed to offer a short-term solution to this potential realization crisis. Since summer 2007 this solution has also collapsed. The crisis was tamed via major banking rescue packages and fiscal stimuli. Now the financial speculators and corporations are relabeling the crisis as a “sovereign debt Sovereign debt Government debts or debts guaranteed by the government. crisis” and pressurizing the governments in diverse countries ranging from Greece to Britain to cut spending to avoid taxes on their profits and wealth. The pressure on wages associated with budget cuts is great news for the corporations! However the push for public debt reduction is the biggest threat to recovery.

The realization crisis at the origin of the crisis based on wage suppression was deeply connected to global imbalances. In the European context, the wage suppression strategy and current account surpluses of Germany in particular created imbalances within Europe in the form of current account deficits, public or private debt in the periphery of the Eurozone, in particular in Greece, Portugal, Spain, and Ireland or in Eastern Europe, in particular in Hungary, Baltic States, Romania, and Bulgaria. The crisis laid bare the historical divergences within Europe, and led to a European crisis and a new stage in the global crisis. The restrained policy framework, which is based on a strict inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. targeting, and which lacks a common fiscal policy has failed to generate convergence within the EU in the first place. In countries of the periphery like Greece where both public debt and budget deficit to GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
ratio is high and is coupled with a high current account deficit, the attack of the speculators asking dramatically higher yields has brought the country to the edge of a sovereign debt crisis in 2010. Indeed before Greece, in 2009 Hungary, Baltic States, and Romania were under attack. It looked as if the euro saved Slovakia and Slovenia from the turbulences in the currency markets, but their problem will be a permanent loss of international competitiveness as is unfortunately illustrated by the problems of the periphery of the Eurozone. Initially Eastern Europe was seen the only problem zone in Europe. However, together with Greece, the attention of the speculators turned to the public debt and deficits in Portugal, Spain, Ireland, and then towards the core to Italy, Britain and Belgium.

The governments agreeing to the cuts are avoiding taxing the beneficiaries of neoliberal policies and the main creators of the crisis. The public debt would not be there, if it were not for the bank rescue packages, counter-cyclical fiscal stimuli, and the loss of tax revenues during the crisis. Finally, the crisis would not have happened without the major pro-capital redistribution and financialisation. Thus this is a crisis of distribution and a reversal of inequality at the expense of labour is the only real solution, which in turn needs to connect the demands for equality with an agenda for change beyond capitalism.

This chapter focuses on the crisis in Western Europe as another chapter in this book by Catherine Samary analyses the situation in Eastern Europe. The rest of the chapter is structured as follows: Section two analyses the main pillars of neoliberalism and the road to the global crisis. Section three discusses the crisis in Western Europe in both the core and the periphery. Section four outlines the costs of the crisis. Section five concludes with a transitional program for an alternative Europe.

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A transitional program for an alternative Europe

Ozlem Onaran

Professor of Economics, director of Greenwich Political Economy Research Centre, University of Greenwich

Other articles in English by Ozlem Onaran (5)



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