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So if austerity is only half working at best to restore capitalism in
the Eurozone, what is the alternative? Well, there is another that is
gaining prominence, especially within the distressed Euro states like
Portugal, Greece and Italy. It is the Keynesian alternative of leaving
the euro and restoring a devalued national currency. For example, in
Portugal, economist Joao Ferreira do Amaral has published a book urging
Portugal to exit the euro. This has become a best seller and is backed
not just by the Communist Party but also endorsed by the Supreme Court
President! The book argues that austerity won’t work and the divergence
between rich Germany and poor Portugal will only get wider if the
current government’s policy is maintained. The only answer is to exit
the Eurozone and for Portugal to restore its escudo as in the 1990s.
The claim of these ‘exit’ supporters is that the cost of exiting the
euro to the economy will be much less than the continuing cost of
austerity imposed by the Euro leaders on the likes of Portugal or
Greece. These arguments are presented more theoretically by a new paper
from Heiner Flassbeck and Costas Lapavitsas (Systemic_Crisis).
Flassbeck is a former Vice Minister of Finance under left Social
Democrat Oskar Lafontaine and seems to have formed an alliance with
ostensible Marxist economist Lapavitsas to argue the case for exiting
the euro as the only solution. In doing so, they seem to have arguments
very similar to those of many neoliberals like Dr Werner Sinn, now a
leader of the new ‘exit party’ in Germany that calls for a return to the
mark. Lafontaine has also moved to this viewpoint. So there is an
alliance between some nationalist neoliberals and Keynesians for an exit
policy.
The problem that I have with this exit policy is that it is a bit like
the position of the Irish Republican Army (IRA) on the issue of Irish
unity. The IRA argued that first we must end ‘the border’ that divided
north and south Ireland and then we can adopt socialist policies. Yet
Ireland is still divided and still capitalist and the former leaders of
the IRA now work within the existing two regimes for social change – a
reversal of their old position. The euro exit is also a ‘two-stage’
theory: first, we must exit the euro as the top priority and then we can
talk about socialist policies to end the crisis. I am sure that
Lapavitsas and Amaral want to adopt policies for public ownership of the
banks and major industrial sectors, public investment and a plan for
Europe, but I think they obscure the battle against austerity by
emphasising euro exit and devaluation as the major cure. Surely, this
is a diversion.
Why? Well,as I said in a previous post
(https://thenextrecession.wordpress.com/2013/03/16/workers-punks-and-the-euro-crisis/),
it is because the euro crisis is a crisis of capitalism and not a crisis
of the euro. In other words, even if the euro were to collapse and EMU
states returned to running their own monetary and currency policies, the
crisis would not go away and may even get worse. That’s because the
euro crisis is the product of the failure of the capitalist mode of
production globally. It has had the worst impact on the weaker
capitalist economists like Greece, Portugal or Slovenia, but it has hit
all economies. The crisis is only partly a result of the policies of
austerity being pursued, not only by the EU institutions, but also by
states outside the Eurozone like the UK. If that is right, then
alternative Keynesian policies of fiscal stimulus and/or devaluation
where possible, will do little to end the slump and will still make
households suffer income losses. Austerity means a loss of jobs and
services and thus income. Keynesian policies also mean a loss of real
income through higher prices, a falling currency and eventually rising
interest rates.
Take Iceland, a country outside the EU, let alone the Eurozone.
Devaluation, or Keynesian-style ‘beggar-thy-neighbour policies, have
still meant a 40% decline in average real incomes in dollar terms and
nearly 20% in krona terms since 2007 (see my post,
https://thenextrecession.wordpress.com/2013/03/27/profitability-the-euro-crisis-and-icelandic-myths/).
If not Iceland, then Argentina in 2001 is dug up as a successful
‘exit’ strategy. Argentina ended the peso’s peg with the dollar and
devalued, apparently escaping its depression. But for Greece it is not
just a question of breaking a peg with the euro. It will have to
introduce a new drachma. Would this new currency issued by an
effectively bankrupt state have any exchange value whatsoever? Will the
Russians accept a Cypriot pound in exchange for oil, and the Americans
drachma in exchange for medicines? Greece, which, unlike Argentina, is
not a net exporter of raw materials with rising prices and so has little
to support any new currency. Greeks can print as much as they like of
it, but will they be able to buy electrical appliances, cars or even
foods produced abroad with it?
And anyway, Argentina did not escape its crisis by breaking the peg with
dollar. Guglielmo Carchedi and I are just about to publish a paper (The
long roots of the present crisis: Keynesians, Austerians and Marx’s law)
that will show that it was not competitive devaluation that restored
Argentina’s growth after the 2001 crisis, but default on state debt
caused by the previous destruction of productive capital. Argentina’s
recovery was fuelled neither by devaluation nor by redistribution
policies, but by the re-creation of previously destroyed private capital
in the private sector with a low organic composition; a rising rate of
exploitation; and improved efficiency. This is the cause—rather than
Keynesian policies—of Argentina’s economic revival.
full:
https://thenextrecession.wordpress.com/2013/05/30/the-euro-recofvery-half-full-or-half-empty/
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