Europe’s economic crisis needs to understood not only in the context of the crisis of credit-driven speculative finance capitalism worldwide, but also in the larger context of the economic, social and cultural history of Western Europe, writes John Samuel.
If the number of people marching on the streets, and the growing discontent among citizens are any indication, a great many European countries are on the way to becoming volatile economies.
Greece is more than a country. It is a civilisation that deeply influenced the culture, society and political process of western and southern Europe. Though Greece’s economy does not make up a huge chunk of the economy of the European Union, the deep economic -- and consequently political -- crisis in that country is indicative of the direction in which a number of countries in the Union are likely to go. In the wake of the economic crisis of 2008, the Greek economy suffered a setback, with major contributors to the economy like shipping and tourism taking a hit, resulting in unemployment and decreased tax revenue for the government. Over five countries, including Ireland, Italy, Spain and Portugal are currently dealing with a possible debt trap and consequent economic recession.
In spite of the relatively stable economies of Germany, France and the Netherlands, there is the likelihood of a vulnerable euro and possible economic recession. This will have wider political and policy implications, in terms of new contestations at the national level and debates over the mutual responsibility of countries within the European Union. The present financial crisis in Europe will also affect the quantity and quality of international development aid of many countries in the context of new austerity measures.
In a way, the ongoing crisis in Europe is phase two of the financial crisis that began with the demise of Lehman Brothers in 2008. In a largely credit and consumerist-driven advanced capitalist system, the greed of speculators in the financial capital market through new derivatives and bonds eventually resulted in the fall of speculative finance capitalism driven by paper money and ‘fictitious’ capital movements on paper. European banks exposed to the US market were affected by the crisis. Within Europe, low rates of interest and easy credit led to increased borrowings and consumption, fuelling greater demand which showed relative resilience in the wake of the financial crisis in the US in 2009. However, easy credit also increased credit in the housing and financial sectors. The banking sector in Iceland collapsed during the first phase of the financial crisis, in 2008. Though many countries such as Spain and Ireland had surplus budgets, the bailing out of private banks and increasing public expenditure eventually increased the deficit.
As the economic crisis began to unfold in many countries, factories were closed leading to unemployment and financial hardship at the household level and fuelling state expenditure towards unemployment benefits and other welfare measures. Increased unemployment led to defaults in credit card repayments as well as decreased revenue for the state from taxes. Governments in many countries, therefore, were spending more even as tax receipts decreased significantly. This had a catastrophic effect particularly in countries with speculative real estate and property markets driven by credit. Interest rates surged and the credit rating of individuals, firms and governments dropped radically. As the cost of getting new credit increased, many countries including Greece, Ireland, Italy, Spain and Portugal fell into the debt trap, to varying degrees.
The ongoing debt crisis in many European Union countries will have possibly long-term implications for the economy and politics of other countries and the region as a whole.
While it is important to understand the present economic crisis in the context of the larger crisis of credit-driven speculative finance capitalism, it is also important to situate the present economic crisis in the larger context of the economic, social and cultural history of Western Europe. It is possible to argue that cumulative economic, social and cultural factors in the last 20 years led to a saturation of the market and labour force, resulting in the ongoing economic crisis. A relatively low birth rate, in the context of high individualism and dysfunctional families, resulted in a significant decrease in a younger workforce that could fuel innovation, push forward new technology, and increase the efficiency of production.
Cumulative socio-economic factors also led to the erosion of Europe’s ‘comparative advantage’ in the world, particularly in the area of manufacturing. In the last 10 years, the baby boomers of the post-Second World War phase have retired, pushing up pension and social welfare costs. And so Europe got into a peculiar predicament of ageing population, less availability of skilled workforce, greater social welfare costs and lower comparative advantage in terms of cost of producing goods and services in a highly competitive global market.
Ageing populations with better life expectancy increased social welfare and pension costs. An older and less inspired workforce in many countries of Europe pushed the comparative advantage of the manufacturing and technology sectors in favour of those countries with a cheaper and better skilled workforce, and more technological innovation. The paucity of skilled labour can also lead to competition in the labour market, pushing up labour costs, production costs and the cost of living. All these decreased the global comparative advantage in terms of quality and price of goods and services in a highly competitive global market.
The import of cheap migrant labour created new political and social tensions because most migrant labourers in Europe happened to be Muslim. In the post-9/11 context of increasing socio-cultural paranoia, the trust between ‘local’ populations and migrant communities was eroded, resulting in new forms of violence in many countries including France, the UK, Germany, Sweden, Denmark and even peaceful Norway.
The economic crisis in Europe also needs to be understood in terms of the history of a surplus economy created during the colonial era, the character and nature of economic growth, and political developments in the region during the post-Second World War era.
(These are the personal views of the author and do not reflect the views or positions of any of the organisations with which he is associated)
Infochange News & Features, November 2011