Neoliberalism is embedded in the European Union’s DNA. But for the continent’s left, there are few good alternatives.
European flags fly at the EU headquarters in Brussels, Belgium, on September 9, 2022. (John Thys / AFP via Getty Images)
For decades, European nations appeared to many on the US left as a model of the kind of social democratic society worker power could win: these were countries with large socialist and even communist parties, where labor could flex its muscle in the streets in a way hard to imagine in the United States. They were places, however short of utopia, that featured government-run health care, lengthy paid parental leave, social housing, and long, leisurely vacations.
Today, European politics evokes a persistently rising, anti-migrant far right, a struggling left, and more than a decade of severe political and economic crisis that has provoked intense criticism of the European Union (EU) from left and right alike. The EU has emerged as an elusive and slippery institution that’s difficult to define. It, without a doubt, has been a force for neoliberal discipline, but it has also been an alibi for national leaders who had converted to the neoliberal creed well before Brussels could have made them do so.
The episode of The Dig from which the transcript below is excerpted featured an expansive historical overview of Europe and the EU, from the crises of Keynesian social democratic welfare states of the 1970s and 1980s to the Maastricht Treaty of 1992 that created the EU — which, in turn, went on to preside over the eurozone crisis that exploded out of the 2008 global financial breakdown.
Joining host Dan Denvir to discuss those historical developments were Anton Jäger and Dominic Leusder. Anton Jäger is a postdoctoral researcher at the Catholic University of Leuven in Belgium. His history of basic income welfare for markets will appear in April 2023 at the University of Chicago Press, coauthored with Daniel Zamora. Dominik Leusder is an economist and writer based in London. He is currently the research director at the Global Economic Governance Commission at the London School of Economics and a regular contributor to Jacobin. Anton and Dominik also recently started Eurotrash, a podcast about European and international politics.
Let’s start with a big definitional overview. What is the EU, this body that contains the European Council, the European Commission, the European Parliament, the European Central Bank (ECB), the Eurogroup, the European Court of Justice, and the Court of Auditors? (I don’t even know what that one is.) What are these institutions? What sort of powers do they exercise, and how do they all add up to something called Europe or the EU?
That is indeed a very big definitional question, and, as usual, it needs to be historicized insofar as the EU is not a sort of constant body that exists through time; it does change quite heavily. And I think there is a tendency to see a continuous history of European integration, from the immediate postwar period, basically teleologically extended into the 1980s and 1990s and then into the present. But the EU we have today and the one we knew in the past do actually differ quite profoundly.
So the EU and the agglomeration or collection of institutions that fall under it are very much a product of the early 1990s — of a treaty called the Treaty of Maastricht, a city in the southern Netherlands. And there are essentially two ways of seeing what the EU is. There is a tendency, both on the Left and also on the Right, to see it as essentially a superstate. So it is a massive governmental machine that hovers above national states and that dominates them and basically exerts power over them. And then there’s another tendency to just see it as a sort of practical arrangement by European nation states as such, which doesn’t really stand above them but is just an extension of them.
I think the institutions you mentioned are actually far more hybrid. They have some of what you could call supranational features, like bodies like the ECB, the European Commission, or the European Parliament, which do have a relative degree of independence from nation-states. But then you also have bodies like the European Council (where you have the gathering of the prime ministers and presidents of respective European countries), which are actually not supranational. And it’s precisely this hybrid status between a supranational body and an intergovernmental body that makes the EU so difficult to define.
Dominik A. Leusder
Just to add to that, what is peculiar about this, and what makes it even more difficult to understand, is that it seems that macroeconomic competences — fiscal policy and monetary policy — are in a way unified and centralized at the European level, at the level of the Commission and the Council and the ECB.
There are binding economic rules in the Maastricht Treaty, but there isn’t really a polity in which these rules can be discussed with any level of democratic input.
But politically, these are still independent nation-states that don’t benefit from transfers among each other and that still issue their own debts. And I think it’s worth recalling what one commentator said about the Maastricht Treaty: it’s an economic constitution but a political treaty. And the implication is that there are binding economic rules, but there isn’t really a polity in which these rules can be discussed with any level of democratic input.
One political scientist used this phrase from Louis Althusser: “a process without a subject.” And I think this is actually an elegant way of capturing the paradox or the bizarre nature of the EU. It’s not a sort of solid body that sustains itself through time, but, as Dominik says, it’s mainly to manage a collection of a set of responses to different kinds of conflicts and challenges.
One more general question before we get into the history. Does the EU have a demos or people? And how do people experience the EU as a governing force in their lives or in terms of Europe as this political community that they ostensibly belong to?
Dominik A. Leusder
It does go back to the Maastricht Treaty, and something that one of the sharper commentators at the time said about the treaty shortly after it was signed in 1992. Wynne Godley, a famous economist, wrote an essay for the London Review of Books entitled “Maastricht and All That,” where he points out this paradox that you’re getting at, which is: here was a fairly obscure, very large treaty with strict, binding measures that would irrevocably fix exchange rates between European countries. And that would have quite a profound impact on people’s lives over generations because of how important management of the economy is, and how fiscal policy in particular was surrendered to European policymakers.
But Godley notes that the public discussion was very impoverished, and that there was very little public input and very little public understanding about the exact provisions of this treaty, which was written by lawyers and which was based on a certain form of economic thought that happened to be ascendant at the time. And this hasn’t quite changed, I think.
This is the result of the European project from the beginning, in particular in the later phase, being an elite project and driven quite self-consciously by elites who were responding not only to economic problems after the fall of Bretton Woods — in other words, trying to stabilize European monetary arrangements after European countries’ currencies had become de-pegged from the dollar — but also, as they saw it, problems with democratic governance of the economy, something that they saw as problematic. It was certainly a time in which there was little confidence in the ability of governments to responsibly conduct economic policy.
So it was not only a reshaping of the economy but also of the states. And the EU was, I think, firstly conceived as a quasi-state or a proto-state that would not really have a demos in the original sense — one that has a certain amount of purchase on public policy, at least in the policy domains that were considered important.
This is something that the British historian Eric Hobsbawm noted quite early, in the 2000s, already as this whole constitutional process was taking off in the EU. And one of his points was about all this talk of a “democratic deficit.” The idea that the EU lacks the classical democratic legitimacy, which nation-states in Europe do have, actually obscures the fact that so much of European integration presupposes this democratic deficit itself. Hobsbawm says it wouldn’t have worked without this democratic deficit; integration could actually not have taken off if there had been more legitimacy, because it would have been massively difficult to actually gather a European demos.
Now, one of the opposing views is, of course, that of the German philosopher Jürgen Habermas, who wrote a very famous book on so-called postnational constellations, or the idea that since the 1990s, European nation-states no longer have this correspondence between the state and the nation. And therefore the European Democratic Community is now the forum of the future. Of course, he’s right insofar as every nation is a historical construction. I mean, we know that peasants were turned into Frenchmen in the nineteenth century as well, and national citizens can now be turned into Europeans.
But as Dominik already pointed out, what is distinctly problematic about this process of European integration — which calls forth this political backlash in 2005, and then in 2016, but already also after 2008 with the debt crises — is that the EU itself was built on profoundly demobilized societies. So it was the intent to contain and discipline domestic populations and working classes, mainly, which actually led to the process of European integration. And it also means that the construction of a European demos becomes much more difficult in societies in which the public sphere is so evacuated of political content. And it’s very difficult to actually have real discussions about the policy choices that governments make.
Therefore, I think the EU is still stuck between a rock and a hard place. It’s not yet a superstate, or it can’t go fully supranational. But it’s also no longer the classical postwar nation-state that we knew from the 1950s and 1960s.
Dominik A. Leusder
The main issue that people pointed out at the time of the European Monetary Union was essentially the tendency of politicians to conduct economic policy in line with their election cycle, and particularly with regards to currency devaluations that would resuscitate the export competitiveness of their firms. In other words, if they devalued their currency, their goods would be priced cheaper and therefore be more competitive in global markets. And this was quite frequently done, especially in countries like Italy, which were more prone to inflation and high deficits. This was seen as a huge problem because it exposed European countries to currency speculation and wild fluctuations in the exchange rates.
This is premised on the assumption that governments cannot be trusted with economic policy levers. And this is quite telling because it follows from a set of ideas that the economy is self-regulating, that the only thing that needs to be done by the government is controlling the rate of change of the price level — in other words, conducting monetary policy responsibly — whereas the real economy would adjust as long as you kept budgets in line.
The early 1990s were that triumphalist moment in which anti-Keynesian and neoliberal thought were at their peak, and unfortunately it was then that the European Constitution in this form was written.
So I think very important to understanding Europe, as it currently is, is also to see which economic thought at the time was ascendant. And I think the early 1990s were that triumphalist moment in which anti-Keynesian and neoliberal thought were at their peak, and unfortunately it was then that the European Constitution in this form was written.
To what extent is neoliberalism, or more specifically, German ordoliberalism, baked into the very architecture of the EU and the eurozone? And how was that, to the extent that it was accomplished, accomplished? Because on the one hand, there are debt breaks, and the ways that the euro imposes a sort of monetary dictatorship upon member states, something we very much saw during the debt crisis.
But on the other hand, there are these massive agricultural subsidies secured in significant part by France, but also other countries — subsidies that I imagine neoliberals absolutely loathe. So generally speaking, does the EU service these Hayekian neoliberal ends of protecting the economy from democracy, or does it also reflect a more variegated balance of class and social forces across Europe?
Dominik A. Leusder
In the way that matters most, namely in monetary arrangement, it is a child of the late 1980s and 1990s, and it does reflect a particular brand of neoliberalism, if you like, which you refer to as ordoliberalism. And the ECB indeed was built on the blueprint of the German central bank, the Bundesbank.
There was a very heavy emphasis on tight money, responding to any sort of aberration in the price level by hiking interest rates and emphasizing the importance of price stability, keeping inflation within certain bounds. The agreed-upon target was eventually around or just under 2 percent, and it was made the so-called lexicographical priority of the ECB — unlike, for instance, with the US Federal Reserve, which has price stability in its mandate, but also financial stability and full employment, which is the legacy of the Keynesian period. Unfortunately, because the ECB was created in an anti-Keynesian context, it didn’t have those priorities in its mandate.
It should be said, however, that the power of the Bundesbank reflected in the ECB did eventually wane. So they made decisions after the Maastricht Treaty that do not reflect the preferences of the ordoliberals among the European policy elites — the inclusion of Italy in the currency area; the way the East German mark was converted into the West German deutsche mark. And I think nowadays a lot of the hawkery in monetary terms, and also in fiscal issues, doesn’t simply rest on the influence of ordoliberals. It also rests on quite old-fashioned conservative policymakers in countries that suffer a great deal under sort of German monetary dictates. In Italy, for instance, or Spain, you’ll find fairly hawkish policy elites where you look.
To what extent does the EU serve the interests of particular member states, namely high-value, export-powered, wage-suppressing Germany? And where does France, which is not as powerful as Germany economically — but does have a large population, the second-largest economy, and geopolitical power — fit into that? Or Italy, which I’m always shocked to remind myself has the third-largest economy in Europe, but whose growth has flatlined since Maastricht?
Do the reality of the EU and debates about it and its future neatly reflect these geopolitical interests and strategic wagers of its most powerful member states?
Dominik A. Leusder
I think one has to be quite cautious here. The notion that there was the lack of sovereignty within the eurozone, especially vis-à-vis Germany, and that this was something that was caused by monetary unification, I think doesn’t quite hold up to scrutiny, if you look at the previous arrangements.
Before the eurozone, which started around 1999 and 2000, there were different kinds of monetary arrangements in Europe that somehow bound all these different currencies — and, with them, their economies — to something that was more stable. So since the fall of Bretton Woods, there had been something called the Snake, in which there was some pegging of currencies to a fixed parity. Then there was something called the deutsche mark block, in which countries were successively compelled to peg their currencies to the deutsche mark, which was quite stable and therefore had to run similarly restrictive and onerous tight monetary policies. And then there was the so-called European Exchange Rate Mechanism, which formalized these pegs to a sort of proto-euro currency that was some sort of a weighted average of all the other currencies.
The fate of these countries within these arrangement was actually more severe. In other words, they were more bound to German monetary orthodoxy and didn’t have, as they do in the euro, some sort of forum in which they can influence how the institutions actually work. In this case, European elites from everywhere participate in the ECB. They staff it, they staff the Commission, and they have a voice in the European Council. So I think it’s certainly an improvement over those previous arrangements.
You mentioned that French president François Mitterrand, in his turn to austerity, still hoped that European integration might be a way to secure social democratic ends. And preparing for this interview, I read this introductory essay to a really nice volume that Phenomenal World put out on social democracy in Europe. It reads,
The popular story of neoliberalism’s rise justly associates the turn with personalities such as Ronald Reagan, Margaret Thatcher, and Paul Volcker. But in much of continental Europe, it was socialist parties and their social democratic governments that liberalized the economy — against their stated programs and the interests of their constituents.
This was a huge shift. These days, we think of social democrats colloquially as being to the right of socialists. But even when these socialist and social democratic parties turned away from revolution in the postwar period in Europe, their goal really remained achieving socialism by way of these transformative reforms.
How did that all change with the onset of the crises of the 1970s, most dramatically, perhaps with Mitterrand in France? And how did the provisional resolution of those crises in the 1980s neoliberalize those parties and pave the way for the rise of an EU, which would make even basic Keynesian social democratic policy measures so difficult to implement?
I think we need to keep a double lens as we’re answering this question, insofar as the neoliberal transformation of some of these social democrats doesn’t always have the same chronology. For example, the German Social Democratic Party had a conversion to the social market economy already in the late 1950s, while in France, actually it’s more a product of the 1980s. So they don’t all conventionally experience the same adjustment process.
And I think what’s important to understand the 1970s and 1980s context is that there are ideological factors involved. So you have a faction in the French Socialist Party, mainly grouping around someone like Michel Rocard or Jacques Delors, who were always far more open about their desire to integrate market-friendly reforms and socialism, or to pursue a form of market socialism that would let go of certain plans for nationalization or state steering of industry. There was an ideological faction within those parties that was trying to turn those parties toward the market.
To turn toward neoliberalism was both ideological and pragmatic, in that the social democrats tried to maintain some of their previous electoral goals, but they had to do so in an environment that was completely inhospitable to anything they were pursuing.
But at the same time, as Dominik mentioned before, it’s also the currency instability and the breakdown of the Bretton Woods system in the 1970s and1980s that coerces or heavily conditions how these social democratic parties actually conducted policy. There, you don’t need a so-called seduction thesis — this idea that social democrats suddenly began reading Friedrich Hayek and were seduced by his ideas — to actually see that many of them made a pragmatic turn toward the market as the only way of both securing the electoral base and avoiding a conflict with capital that would be too dramatic.
The Mitterrand government is a very good example of this, insofar as there were voices in the government in the early 1980s elected on a so-called Common Program — designed together with the Communist Party — which promised a very ambitious program of nationalizations and of welfare expansion, and would also mean a retreat from the Atlanticist order and a distancing from NATO. But this program proposed an “Albanian solution,” where France would become economically autarkic, would entirely rely on nuclear energy, would not need dollars to actually buy oil and gas on international markets, and would basically insulate itself both from Germany and from these other countries that were steadily transitioning to neoliberalism.
The issue with the Albanian option, of course, is that it doesn’t just require a huge sacrifice on behalf of the French population but also internationally, both at the Bundesbank and the Fed, which had just gone through the Volcker Shock. The policy space in which these French social democrats in government operated was much more constrained. So to turn toward neoliberalism was both ideological and pragmatic, in that the social democrats tried to maintain some of their previous electoral goals, but they had to do so in an environment that was completely inhospitable to anything they were pursuing. And then the promise of European integration was that you could transfer some of those goals from the national to the international level.
But, of course, they then had to contend with a recently reunified Germany that now had a massive labor pool to draw from, that still had a strong industrial base that could industrialize the East while maintaining most of the industrial capacity in the West. And they completely misjudged that process. It turned out that this new European sphere was actually not the arena for socialism, as they imagined it was in the 1980s.
We’ve talked about the neoliberalization of European socialist parties. What then drove their PASOK-ification, referring to the Greek social democratic party PASOK’s sudden collapse in the midst of the eurozone crisis? And does that collapse of social democratic parties amid the eurozone crisis relate to or maybe even just echo the precipitous fall of all of the major communist parties still giant in France and Italy as late as the 1990s?
I think this is a difficult question. Most of the social democratic parties we talk about were hemorrhaging or losing members already throughout the 2000s. So I think the 2008 or post-2008 crisis management sealed their fate in a way that was happening for a long time already, partly because of the disappearance of some of these classical social actors, who usually made wage demands. These social democratic parties basically became parties that presided over market transitions in their countries and wanted to facilitate generalized access to credit rather than stimulate wage growth. This is something you very clearly see in the Spanish case.
It’s mainly that many of these parties have also undergone a very deep change of personnel in the 2000s and 1990s, where most of the trade union members or people who had sort of long political histories within the party were traded or exchanged for a meritocracy, mainly of academics or consultants, who have a very distinct or different philosophy when it comes to governing. And when they were faced with the fallout of the 2008 crisis in Europe and then with the debt crisis, their response was not the usual reflex that the social democratic parties might still have had in the 1960s and 1970s. But as Stephanie Mudge shows in her book Leftism Reinvented, they were mainly quite technocratic and actually quite hawkish — not as hawkish as their right-wing opponents, but they certainly didn’t go for the classical left-wing recipes that their predecessors went for.
These social democratic parties basically became parties that presided over market transitions in their countries and wanted to facilitate generalized access to credit rather than stimulate wage growth.
Of course, there is what you saw in Greece with the case of PASOK. If you have a 25 percent contraction of GDP over a period, there is no way you could actually camouflage or masquerade what’s happening with any amount of PR, and you’re basically also undermining your own base. You can also clearly see this with the French Socialist Party, which then got elected under François Hollande in 2012 on a promise to take on the financial sector and the speculators, but which basically ended up continuing the austerity program that it was elected to get rid of.
I don’t think anyone needs a visionary view into the future to see that this will PASOK-ify a party, or will remove any remaining bases of support for the social democrats at the time. If you just buy into the governing philosophy and thereby take away any way to buy off consent from your constituency, then you’re going to disappear as a party.
Dominik A. Leusder
I think that the epic punishment of social democratic and left parties in the 2010s was the culmination of a long process — in most cases, anyway — of acquiescence to neoliberal policies and of internal struggles that turned out in favor of the reformist elements that, in Britain, for instance, are called Blairites, or in the United States are equivalent to the Clintonite turn in the Democratic Party. In some cases, it’s more severe.
In Germany, for instance, the Social Democratic Party was heavily involved not only during the eurozone crisis but actually at the beginning of the euro, in both drafting and signing off on the worst kind of labor market reforms that are implicated in actually causing the eurozone crisis, in the sense that they repressed German wages. That leads, as you know, to excess savings, which deny import to the periphery, which caused the debt crisis there.
There is a left critique of the EU; we have been developing one throughout this conversation. But could there have been a “lexit,” when the actually existing Brexit movement was a movement led by the UK Independence Party and the Tory right? There’s a tendency on the Left, represented by people like German scholar Wolfgang Streeck, or in the domain of parliamentary politics people like Die Linke’s Sahra Wagenknecht, that maintains that the left alternative to this antidemocratic EU is a return to a nationalist and sovereigntist position.
This tendency would say that democracy is best exercised through the nation-state in its democratic conquests, rather than the pseudo-internationalism of the EU and its supranational bodies. Others might say that such a nationalist position is anathema to an emancipatory politics and also a dangerous move for Europe. Just look at what ratifying right-wing positions on migration has accomplished already in recent decades.
Anton, has the European left picked up this mantle of sovereignty with success, or are there consequences that are worrying about doing so? What’s your response to that and to Dom’s point there?
I think this is the point where the disagreements between Dominik and I come out most clearly, although I must say I was more of a “lexiter” in the past, and I’ve recently cooled some of my hardened secessionist tendencies. In that sense, I think several distinctions need to be made in this debate.
I think your position on European integration is very dependent on the respective national context. I think of lexit terrorism in Greece, or “Grexit terrorism,” if you want to call it that; considering a French context implies very different strategic calculations. And I’m certainly of the opinion, as Dominik said, that anyone who is criticizing the policy architecture of the contemporary eurozone has to realize that it was a very bad response to a very real problem.
So the idea that you can just return to this almost irenic or peaceful world of currency floating of the 1980s, which is supposedly not German-centric, is obviously illusory. The burden of proof is on you to provide a better monetary order that is not prone to the same pathologies. In that sense, the euro is again a bad solution, but it solves a real problem. And what is the alternative you’re putting forward?
What you saw in the Greek case, at least when the Grexit option was seriously being considered, is that the options outside of the eurozone were not very pretty either. So, again, you could choose your own suffering, but it would still be suffering nonetheless. And both Alexis Tsipras and Yanis Varoufakis, for example, tried to solicit both Russia and China when it came to emergency loans so they could stay out of the troika quagmire and not have to return to the IMF or to the European Council or the Eurogroup, rather, for emergency aid.
What they heard from China mainly was, “We have some loans we could actually give you, but we also have these established commercial interests with Germany. And this would make it very difficult for us to engage in this type of lending. And we don’t actually want to imperil our import and export interest with that country.”
So there, I think, the lexit option might have been useful as a match that was held over a pool of gasoline, which would conflagrate the entirety of the eurozone at the time. But I don’t think it would have been a very pleasant process, certainly for the Greek working classes.
As we have seen in the last ten years, despite the obsessive adherence to treaties, most of the treaties actually are used by stronger players within the European states system against weaker players.
If you look at the French case, I think the calculus is slightly different. There’s definitely been very strong Euroscepticism coming from parts of La France Insoumise. But also, because France is such a key constitutional player in the EU, has a much bigger economic share in the general European economy than Greece does, and has a very different economic base, you can use threats toward your German counterpart in a very different way. As we have also seen in the last ten years, despite the obsessive adherence to treaties, most of the treaties are actually used by stronger players within the European states system against weaker players.
So Emmanuel Macron, in the case of the COVID-19 pandemic, was able to tout many of these rules on public spending. I think the more pragmatic players within La France Insoumise also realized, well, if we do win an election and we ascend to the presidency, it’s not clear if the Maastricht order is going to be the iron cage that many people pretend it has to be. So the burden of proof is again on the lexiters to come up with a plausible alternative.
At the same time, where I would push Dominik a bit is that since so much of the European construction has been built with demobilization and the absence of popular pressure as its presupposition, it also locks in this kind of infernal cycle. You see this in Italy, where parties make ever wilder promises to make the crash out of the eurozone and remedy the country’s economic problems, but then they just end up electing governments that are replaced by technocrats, which completely perverts the political culture in the long run.
So my question is always, how do you break out of this Italian cycle without considering something like a dirty break or a catastrophic crashing out?Original post