Introduction: Is the EU Integration Model Viable?
Alessandro di Battista, deputy of Italy’s
Five Star Movement that helped to defeat the government’s Constitutional reform
proposal in December 2016, has hinted that voters decide a possible exit from
the euro-zone during the next election for prime minister. This may or may not
take place, but Italy remains a possible candidate for exiting the euro. This
hardly comes as a surprise after the referendum revealed a decidedly anti-EU
sentiment amid the banking crisis and economic stagnation the country is
suffering.
Is the EU on the eve of disintegrating, or
can it survive without the United Kingdom and Italy with other countries to follow? Does
it really make much difference if it dissolves, considering that countries will
forge bilateral and multilateral trade, investment, environmental and other
agreements? Is the current EU integration model viable for all its members or
merely for Germany enjoying economic hegemony over the euro-zone?
Shortly after the deep recession that
started with the subprime mortgage bubble in the US in 2008 that eventually
spread around the world, the EU began to transform in significant ways. Just
about everyone was so focused on the immediacy of the recession that there was
no focus on the transformation of the integration model. The integration model
under which the EU was founded changed to reflect the sharp division between
the hegemonic core members led by Germany and France vs. the weaker periphery
ones in Southern and Eastern Europe. Largely because the financial sector
needed to absorb capital otherwise going to the middle classes and workers, the
state became the conduit for altering the integration model by using the common
currency, EU rules on GDP-to-debt ratio as a means of limiting public spending,
loans and subsidies, all as leverage to enforce neoliberal policies and
preserve the hard currency. The result was middle class living standards began
to decline along with the prospects for upward social mobility as reflected in
high youth unemployment, including college graduates, as the Organization for
Economic Cooperation and Development (OECD) noted. https://data.oecd.org/unemp/youth-unemployment-rate.htm
Founded on the inter-dependent integration
model, the EU led by Germany adopted the patron-client model once the great
recession began to impact the banks requiring massive capital injections.
Intended to raise GDP and living standards in the periphery countries that
joined the euro-zone, the inter-dependent integration model was replaced with
the patron-client model on which NAFTA and other US-dominated Inter-American trading
blocs are based. The goal was for the hegemonic country to capture greater market
share under low tariffs and low asset values ranging from labor costs to raw
materials.
Under the aegis of Germany, the EU adopted
the patron-client model in order to remain competitive on a world scale by
transferring capital from the periphery to the core through austerity measures
as well as neoliberal policies. These measures entailed the considerable
downsizing of the public sector that sold public assets to corporations, lower
wages and benefits, deregulated market in everything from pharmacies to
transportation, lower taxes and loopholes for big business while small
businesses found it more difficult to compete because their taxes and costs of
doing business were higher.
Because it imposed on its members budgetary
deficit restraints as part of the neoliberal economic course, the EU forced its
members to eliminate the state as an agent of stimulating growth in the
periphery countries. There are many ironies in all this, but I will only
mention two as glaring examples. First, privatizing public utilities and
selling them off while eliminating public service jobs was self-serving for the
core countries where the private companies were based.
Interestingly enough, France, for example,
that had tried privatizing water, had such a bad experience that it reverted
back to public control, given the issue was both of cost and health. Second, behind
the change in the integration model and neoliberal policies were some of the
most corrupt banks in the world, including Deutsche Bank which is still waiting
to find out the amount of fine imposed by the US Justice Department -
originally $14 billion, but still in negotiations for a reduction. These
multinational corporations driving policy not just in the EU but across the
world and backed by the IMF and World Bank brought immense pressure on the
periphery to adopt austerity measures that further wrecked fragile economies
and made them more vulnerable to foreign economic dominance.
The illegal and fraudulent practices of
banks included not only deceptive practices in residential mortgages and fixing
rates, but money laundering, tax avoidance and terrorism financing, all of
which the EU Commission has admitted drained capital from state treasuries and
undermined the economies. The “Panama Papers” of the law firm Mossack-Fonseca
revealed that major banks including many in the EU were deeply involved in
illegal activities including transferring funds into offshore companies where
money is hidden from tax authority. People are well aware that tax evasion by
the wealthy entails that the tax burden falls disproportionately on the middle
and lower classes. The EU, member governments, and the financial elites expected
the average citizen to bail out the banks in the aftermath of the recession in
2008, never raising the option of fair and shared sacrifice.
Concurrent with the change in integration
models was the very clear and sharp decline in the social welfare state and
rise in corporate welfare and neoliberal policies that transferred income from
small businesses and professionals that make up the middle class. Governments also
launched an assault on labor unions and workers with the goal of exacting concessions
on wages and benefits, diluting collective bargaining and strike laws, and
imposing longer working hours. The argument was that workers were to blame for
the recession because they enjoy generous wages and benefits. By embracing
anti-labor and anti-middle class policies, governments of conservative, centrist,
and Socialist parties across Europe began to lose credibility that the social
contract at the national and regional levels was working for the benefit of all
people. For their part, the EU, member governments and its apologist argued
that downsizing the social welfare state and lowering living standards from the
broader working and middle classes was necessary to remain competitive with
East Asia where wages were low.
Globalization under neo-liberal policies
resulted in a sociopolitical reaction across Europe and polarized the
electorate looking for alternatives to the mainstream parties. However, the
ultra right wing was far more serious in opposing the EU than the non-Communist
left running on reformist platform but invariably co-opted by the neoliberal
establishment. Italy’s referendum defeated by both the reformist left and the
extreme right was the latest example of voters rejecting the government’s anti-labor
neoliberal corporate welfare policies intended to concentrate capital in the
name of ‘saving the ailing banks’ while calling it ‘reform’ as though it is
beneficial for the majority of the people.
Italy’s Referendum and its Symbolic Significance for
the EU
On 4 December 2016, Italian voters dealt a
major symbolic blow to neoliberal-corporate welfare policies that the EU has
been imposing across the continent since the start of the great recession in
2008. Voters rejected Prime Minister
Mateo Renzi’s proposals for a stronger executive and a weaker legislative
branch intended to push through neoliberal and austerity reforms that large
banks and corporations demanded at the expense of smaller businesses, the
middle class, and workers whose living standards have been on a steady decline
since 1994 and accelerated after 2009. In 2006, Prime Minister Silvio
Berlusconi tried a similar reform of the constitution of 1948 but he did not
have any better luck than Renzi ten years later. The goal was a stronger
executive to pass legislation that would benefit big capital within the EU.
With the decline of the middle class came
lower living standards for workers and higher poverty rates, with more young
educated Italians leaving their country for a better job; a process that will
accelerate in the coming years regardless of whether Italy stays or leaves the
EU. Italy is the Euro-zone’s fourth largest economy and the world’s eighth
largest in nominal GDP along with Brazil. Interestingly enough, like Brazil,
Italy has major structural problems. Its rising public debt is at 133% of GDP,
but without the large informal economy estimated at $233 billion in 2014, debt
to GDP ratio is closer to 150%. This is accompanied by unemployment of 11.6
percent, or three times higher than Germany’s but half of what Greece and Spain.
Unlike Greece which has no industrial sector of any consequence and relies
heavily on imports while suffering from unsustainable public debt and high chronic
unemployment and underemployment, Italy has a solid industrial sector that
offers some hope for its massive public debt problem and banking crisis.
To address both the public debt and banking
crisis, Renzi, backed by finance and corporate capitalists as well as the
entire weight of the EU establishment, proposed a corporate welfare scheme to
transfer income from the middle and lower echelons of society to the banks and
corporations. This was intended to keep the banks under private control by injecting
public funds, rather than nationalize them. The prime candidate for nationalization
is Banca Monte dei Paschi that has failed stress tests and it has considerable
international links that could have consequences for the entire banking
industry in Europe. Recapitalization and ridding itself of bad loans required
more time than the ECB was willing to permit the bank to raise an estimated at 5
billion euros.
That the ECB rejected Monte Paschi request
for state bailout just a five days after the referendum meant inevitable losses
for shareholders and bondholders as well as Italian taxpayers. Of course the
prospect for some EU assistance remained a possibility because of the domino
effect fear across the EU. Against this background, if the US Justice
Department imposes a heavy fine ($14 billion) on Deutsche Bank it would mean the
only way to save that bank would be for the German government to bail it out
and that would then set off another round of crises across the EU.
The political attempt to resolve Italy’s
banking crisis suffered a temporary setback because the anti-austerity, anti-EU
Five Star Movement opposed Renzi’s proposals along with the nationalist right
wing xenophobic ‘Lega Nord’ (Northern League). For different reasons, all
political parties opposed Renzi’s constitutional reform proposal, but it was the
populists of the left and the right claiming victory over the neoliberals who
represent international finance capital and the multinational corporations in Italy
and in Europe. It should be kept in mind that former prime minister and
billionaire Silvio Berlusconi, who in 2006 tried the same constitutional reform
tactic as Renzi, sided with the Lega Nord against Renzi. This illustrates that
not all Italian capitalists favored existing EU policies and the integration
model, just as not all British capitalists favored remaining in the EU that they
perceived as German-dominated.
Renzi announced his resignation because it
was a clear defeat of his policies and a resounding rejection of the disastrous
road that southern Europe has been following under the aegis of EU and IMF
since 2010. Nevertheless, in the days after the vote, EU stock markets rose
sharply and the euro did not lose its value as a reserve currency as the
neoliberals had been warning to scare voters into supporting Renzi’s policies. Short-term
stock market speculation aside, the reality of Italy’s GDP growth close to
zero, youth unemployment at 40% right behind Spain and Greece, and an economy
about the same size as in 2000 hardly speaks well for Italy’s progress under
the aegis of the EU.
There are many dimensions to the Italian
vote. I would like to focus on the following.
1. Why did Renzi call for the referendum? By substantially reducing the size of the senate, it would be easier
for the executive to pass ‘austerity and neoliberal reforms’ through the
Chamber of Deputies. The changes would entail hastening the process of tax and
labor reform that would in effect weaken labor and transfer income from the
broader social classes to the banks and larger corporations. Italian banks
carry a disproportionate number of unserviceable loans – roughly one-third of
EU’s bad loans for an economy inexorably linked to the rest of the EU and
suffering a growing public debt.
Because the investment in Italian banks
goes beyond the country’s borders, the banking crisis poses a major risk to
financial stability in the EU unless reforms are enacted that would in essence
transfer funds to strengthen the banks at the expense of the social welfare
state and the working class. The insolvency of the Italian banking system will
drag down with it the EU banking system under the ‘contagion syndrome’ that
links the EU financial system, unless Germany permits the EU to inject billions
to save the banks thus further driving down the value of the euro.
2. Why were public opinion polls wrong as they were in
the case of the UK referendum and the US presidential election? By now people across the entire Western World cannot take seriously
public opinion polls because in 2016 in three different countries the corporate
media has been wrong about election results. First, the case of BREXIT clearly
showed that public opinion polls were either manufactured or the polling
companies deliberately preselected a targeted audience for their questionnaires,
so that they could achieve the desired result and influence the undecided
voters to join the fictitious majority. More or less the exact same thing took
place in the US, although one could argue that Clinton won the popular vote and
still lost the Electoral College.
Italy represents the third case in 2016
where public opinion polls were wrong leaving people to wonder if this was part
of a pattern reflecting the interests of corporations backing a certain
politician, political party or policy. It is one thing for polls to be off by
the typical margin of error (3 to 5%) and another to be completely off the
charts as in the case of BREXIT, USA, and Italy. If indeed they conducted
honest polling, then one would think that they would be reconsidering the flawed
method of research. However, it is hardly coincidence that corporate public
opinion polls are not intended to reflect how people will vote but to influence
the result. In short, polls have lost credibility as much as the biased
corporate media that will go to great lengths to mold public opinion in support
of neoliberal and corporate welfare policies as the panacea for the masses.
3. Was the Italian referendum a ‘personal issue’ and ‘insignificant’
as many European officials and corporate CEO’s contended? There were also those who argued that the vote reflected societal shifts
within the country about national sovereignty and the EU’s role in hindering
growth and development. It was amazing to watch various European TV programs where
Italian and European corporate representatives and EU officials argued that the
vote meant essentially nothing and ‘reforms’ (anti-labor, neoliberal and
corporate welfare) must continue as though the peoples’ vote was a futile
exercise. Some argued that Italians did not vote to leave the EU as did their
British counterparts in summer 2016.
Others insisted that the vote was
meaningless because it was all about personalities, namely Renzi vs. Giuseppe
“Beppe” Grillo of the Five Star Movement and Silvio Berlusconi representing the
populist right wing. Still others noted that this vote simply meant a more
flexible policy toward the Italian banks by the European Central Bank. Some
noted that the vote is not as serious because populists on the center left led
by Beppe Grillo could never come together with the rightist populists of the
Northern League. Therefore, the era of coalition government in Italy simply
means a weak state that permits neoliberal and corporate welfare policies to
prevail.
4. Did the Italian referendum weaken the EU and the
neoliberal and globalization course or was it a brief pause until the
establishment political forces with the backing of big capital mobilize for a
new strategy of co-opting both the League of the North and the Five Star
Movement? Russian politicians hailed the vote
in Italy’s referendum as a blow to EU unity, but that may have been wishful
thinking because the blow was not to the head of the EU integration model.
Nevertheless, no matter how much lipstick and makeup EU apologists of
globalization and neoliberal policies try to apply on this little pig, it is
still a pig and voters across Europe see it as such. This is the reason that a
percentage of them turned to populism on the right or the left, leaving an
increasingly weaker centrist arena to become more right wing by embracing
xenophobia and racism. In short, this is not just a matter of the banking
crisis but a crisis in bourgeois democracy.
5. Do the Italian referendum, the US election of
Trump, and UK exodus from the EU indicate a rising tide of right wing populism
undermining globalization and neoliberal policies? It is indeed possible that we could see increased support for
economic nationalist measures across the EU if the US goes that route as Trump
has indicated. However, the structural course of globalization, neoliberal
policies and corporate welfare are so deeply grounded in the political economy
that it will be very difficult to reverse course. The symbolism of right wing
populism is actually more important in so far as periphery EU countries may opt
to follow this path that Trump and Putin hail as the new trend. Because the
structure of the economy will remain essentially the same in the near term,
living standards for workers and middle class will not improve and people will
keep moving away from the centrist parties and toward the left or the
xenophobic right, a phenomenon not just in Italy but across Europe.
As long as the EU represented the
possibility of higher living standards and a higher quality life, people
regarded integration in appositive light. Once the evidence began to show very
clearly that the EU was a mechanism for the hegemony of big capital at the
expense of the rest of society, the EU’s appeal began to decline. This
manifested itself in right wing populism and ultra-nationalism across the
continent, especially in Eastern Europe but also in France and Great Britain.
Although Communist and non-Communist leftist political parties have expressed
adamant opposition to globalization, neoliberal policies, and the patron-client
integration model, political momentum rests with the right wing that has been
riding the populist wave across Europe.
Imminent Demise or Temporary Setback for the EU?
Contrary to many analysts warning of Italy
sending the EU into chaos if it voted against Renzi’s proposed reforms, Italy’s
prospects after the vote are about the same after the referendum as before.
Considering that the banking crisis of Italy can be dealt within the EU by an
injection of both European Central Bank and Italian government capital combined
with private and consortium investment, stability is possible although at a heavy
cost to taxpayers. Moreover, despite the referendum, neoliberal and corporate
welfare policies at the expense of social welfare will continue in Italy as
they have in Greece, Spain, Portugal and much of the EU since 2010.
Given the relative absence of inflation in
the EU, and the European Central Bank’s projection that inflation will rise from
0.5% in 2016 to just under 2% by the end of the decade, the policy of
monetarism (keeping a strong currency by tightly controlling the money supply)
has been responsible for capital concentration, low jobs-creation climate, and
income redistribution from the middle class and workers to the top ten percent
of the wealthiest individuals across Europe.
Speculation by many academics, journalists,
stock market analysts, and politicians that the EU is on its deathbed seems
motivated more by ideological and political factors in some instances or trying
to influence securities speculation in other cases. In most instances, people
simply analyze headlines circulating around the mainstream media. This is not
to suggest that the EU is not at its nadir since the Treaty of Rome in 1957,
not that the EU is more stable after the Italian referendum than before.
However, it is one thing to argue that the EU is indeed suffering a crisis, and
it is entirely another matter to underestimate its resiliency because of hasty
analysis or because analysts are paid by firms speculating on the euro and/or
bonds and stocks, or for ideological and political reasons.
Contrary to alarmist rhetoric from people
in different ideological camps, as the world’s wealthiest economic bloc with
NATO backing up its political and economic global reach, the EU is not in
imminent danger of disintegration. Despite setbacks it suffered in 2016 with
the United Kingdom leaving, Italy in serious banking and public debt crisis,
and Greece remaining in permanent austerity mode after six years of EU-IMF
measures that have only made the economy much worse than it has been at any
time in its post-military Junta era (1974-present), the EU can revive assuming
Germany and France modify the patron-client model of integration and dilute
corporate welfare and neoliberal policies that have wrecked the economies and
undermined bourgeois democracy.
BREXIT was indeed a major blow to the
regional economic bloc, but the UK was never part of the euro-zone and its
economic role will continue with some modest modifications that will result in
higher indirect taxes for the consumers. Considering the performance of the
stock markets across Europe, including England since BREXIT, the alarmist
rhetoric about UK leaving the EU now appears overblown and indeed politically
motivated to persuade UK voters to stay. Not just biased media reporting, but
biased public opinion polls proved that big capital was determine to go to
great lengths in support of maintaining the integrity of the bloc. The barrage
of EU threats against Britain were also revealing about the lengths to which
big capital and its political backers will go to oppose any model of economic
nationalism, even if that model continues with aspects of neoliberal and
corporate welfare policies.
The Italian referendum was a major setback
for multinational corporations, banks and neoliberal-corporate welfare
advocates. However, it is a stretch to argue it signals the beginning of the
end for the EU. The doomsday rhetoric about the consequences did not materialize
immediately as the pro-EU forces claimed and the European Central Bank as well
as central banks of individual member nations is prepared to support the
regional bloc with injections of capital.
Because Italy’s banks need time to
recapitalize and Moody’s rating agency changed Italy’s outlook from stable to
negative, short-term stock and bond speculators influence the entire political
landscape about EU’s dim prospects when combined with the reality of a rising
anti-EU right wing xenophobic tide across Europe. The current ECB 80 billion
euro a month of bond purchases continued until March 2017 and scaled back to 60
billion until December 2017 is intended to stimulate growth in a sluggish regional
economy. Monetary policy is a major tool
that keeps the regional bloc viable. Considering the modest GDP growth of the
core members of the EU, combined with the stronger than expected revival of
China’s economy in the second half of 2016, the world’s largest trading bloc
will remain strong but still wobbly in the next five years.
Neither BREXIT nor Italy referendum will
bring down the EU, but the glaring contradictions within the regional bloc will.
One such contradiction is that members share a common currency and each member
government must abide by certain fiscal policy restrictions despite the obvious
uneven structure of the region’s economies. It defies rudimentary logic that import-dependent
southern and Eastern EU members share the same hard currency as Germany that is
a major industrial power on a world scale. This contradiction points to further
problems that will only become worse under the current patron-client
imperialist model which further strengthens the strongest members at the
expense of the weaker ones.
Europe’s ‘periphery economies’ (Southern
and Eastern Europe) cannot sustain long-term growth and be regionally or
globally competitive under a hard currency, fiscal and trade restraints imposed
by the EU intended to continue with neoliberal policies, and an integration
model designed to strengthen the strongest members at the expense of the weaker
ones. Nevertheless, the large companies and capitalists in the regional
economies share common interests with their northwest EU counterparts and they
enjoy considerable political influence in their respective countries’ political
decision to stay in the EU.
Besides the scenarios under which the EU
will dissolve revolve around the inescapable contradictions of the regional
bloc, as I noted above, there is also the political decision of the larger
members to end the bloc under pressure from national elites advocating greater
national control of the economy and society. Unless Germany and France as the
largest members and pillars of the bloc since the 1950s decide that it is time
to end integration because their national economies would be better off, the EU
will continue to exist until the next global recession.
Even if the EU dissolves after domestic
and regional political and economic pressures because it will cease to serve
the majority of the people, a new integration model of European trade-financial
realignment will replace the existing one. Geography cannot change any more for
Europe than for the Western Hemisphere. For the near future, there will be some
policy modifications at the national level and by EU at the central level in
Brussels to accommodate the rising tide of right wing populism and critics from
the left demanding to save the social welfare state. It is inevitable that the
pro-EU political parties would be able to mobilize support and win elections
because they will move closer to the positions of their right wing populist
political opponents.
Alarmist rhetoric is in long supply by
political element on the extreme right because they espouse nationalism inseparable
from xenophobia and racism. They see EU integration compromising their national
sovereignty and they use the migration issue as a fear mongering tactic. Encouraged
by the rising xenophobia amid the wave of Middle Eastern and North African
migrants, Marine Le Pen of the French National Front and other
ultra-nationalists across Europe has been riding the wave of anti-EU populism
but with limited success as the elections in Austria showed in December 2016.
The containment of the far right is partly due to the conservative parties
adopting some of the right wing rhetoric and espousing the platform of the far
right, especially talking tough about migrants, blaming largely non-white,
non-Christian immigrants for all the problems facing the white Christian
continent.
The transition from the EU inter-dependent
model of integration to a patron-client imperialist model that Germany espouses
will eventually precipitate the downfall of the EU from within as the regional
bloc is the cause for massive wealth concentration and increased social and
geographic inequality. Considering the widening gap between the few wealthy and
the increasingly squeezed middle class and workers, there will be more social
and political instability forcing people to choose between the populist right
wing political camp and the varieties of center-left and left political
parties.
There are many positive elements about
European society that enrich it and make it unique in the entire world and permit
it to make worthy contributions to its citizens and to the world. Those include
the absence of capital punishment and respect for human rights, openness to
global cultural influences, diversity of newspapers and political parties
representing the entire political/ideological spectrum from the far right to
the far left, identity with the nation-state and the EU, to mention just a few
things that make EU members more democratic than many other advanced nations,
including the US where authoritarianism has become mainstream and not just
because of Trump who only reflected prevailing trends and took advantage of
them to secure election to the presidency.
There are also very dreadful elements of
European policies. Those include the expansion of NATO and huge defense budgets
in the post-Cold War era intended to carry out direct and covert military
campaigns with the US as the senior partner under the pretext of ‘the war on
terrorism’. The direct consequence of such militaristic policies have been
jihadist attacks on innocent people in European cities, which in turn has
entailed a sharp rise in Islamophobia and xenophobia as the platforms of
conservative and extreme right wing political parties. These scapegoat issues
distract from the core ones that concern the integration model and social order
responsible for the downward mobility in Italy and the periphery member
nations.
Naturally, the mainstream media and
politicians reinforce xenophobia by the manner they cover related issues, thus
contributing to public distraction from the core issues. Given the current
economic, and sociopolitical trends, Europe will find itself at some point in
the not too distant future in the same course toward authoritarianism as the
US. In a continent that has experienced Nazism, Fascism, and varieties of
authoritarian regimes in the last century the signs are evident that indeed
history is not a steady Hegelian line of progress but one of regression that
reflects the irrational in human nature.
