Europe and the limits of neo-liberalism

From the mid-1980s onwards, the European Union (EU) pursued a path of neo-liberal restructuring internally around the Internal Market programme and Economic and Monetary Union as well as externally in several enlargement rounds and its Global Europe free trade strategy (Bieler 2012). The Eurozone crisis, however, has shown the internal contradictions of this strategy. Neo-liberal restructuring in Europe has reached its limits.

In 1985, the EU embarked upon a radical strategy of neo-liberal restructuring. The Internal Market programme, institutionalised in the Single European Act of 1987, established the free movement of goods, services, capital and people by deregulating and liberalising national economies. Economic and Monetary Union (EMU) as part of the Treaty of Maastricht in 1991 further consolidated the neo-liberal course. In order to qualify for the Euro, countries had to comply with the convergence criteria including strict limits on budget deficits and national debt levels leading to a range of austerity budgets across Europe during the 1990s. The European Central Bank (ECB), in turn, was given the primary task of safe-guarding price stability, with a focus on economic growth being relegated to a secondary place at best. The Social Dimension, initially perceived by many as a potential counter-weight to economic restructuring, turned into an instrument of market building.

Nevertheless, internal restructuring was not enough. The EU focused on restructuring in its external relations too. First, in 1995 Austria, Finland and Sweden were incorporated. This implied significant restructuring of the Austrian political economy, while earlier neo-liberal tendencies in Sweden were intensified and secured. Even more drastically, the 2004 enlargement round secured neo-liberal restructuring in a whole range of Central and Easter European countries. In a way, the EU functioned as an external anchor for restructuring, ensuring domestic stability in these countries despite widespread social disruption, high unemployment and rampant inequality as a result of the application of savage neo-liberal policies. Beyond its immediate neighbourhood, it was the Global Europe free trade strategy in 2006, which pushed other countries towards neo-liberal restructuring. Based on an extended free trade agenda, Global Europe has had the task to open up and deregulate other countries for the export of European high-value added manufacturing goods, investment, services and public procurement. The Economic Partnership Agreements (EPAs) with many African countries are formally separate from Global Europe, but pursue the same line of reciprocity in opening up other economies. And it is Global Europe, which makes the close link between external and internal neo-liberal restructuring clear. As Peter Mandelson, then the EU Commissioner for Trade, stated in 2006, ‘there are two critical factors in European competitiveness. First, having the right policies at home which reflect the external competitive challenge and maintain our openness to trade and investment. Second, ensuring greater openness and fair rules in other markets round the world’ (Mandelson 2006).

The results of neo-liberal restructuring since the mid-1980s have been far from impressive. Unemployment rates since 2000, for example, have hovered between 7 and 11 per cent across the EU (Eurostat 2012). And yet, every economic problem is met with yet more neo-liberal restructuring. The current crisis of the Eurozone is no exception in this respect. The Fiscal Compact, signed on 2 March 2012, with its focus on austerity through the requirement of balanced national budgets is a continuation of neo-liberal restructuring. The main focus is on nation debt reduction, the private economy in turn would secure economic growth. Nevertheless, this neo-liberal response to the sovereign debt crisis indicates clearly that neo-liberalism in Europe has run up against its limits. The fundamental underlying contradiction of uneven and combined development within the EU cannot be tackled. Germany has fared well economically in recent years. On the basis of wage cuts and a flexibilisation of working conditions its exports have boomed. Germany has got an enormous trade surplus, of which 60 per cent are with other Euro countries and about 85 per cent are with all EU members together (de Nardis, 2 December 2010). However, what works for Germany cannot work for all EU members. If some have a trade surplus, others must have a deficit. This fundamental imbalance further deepens the overall crisis. German super-profits need to find new investment points. State bonds of the peripheral EU countries such as Ireland and Greece seemed to offer a reliable investment product. It is not surprising that German banks together with French banks are heavily exposed to Greek debt. German investment into Greek state bonds were then used to continue buying German exports, which again led to super-profits looking for investment opportunities. This circle could not go on forever. It has exposed the fundamental unevenness within the European political economy, in which countries such as Germany focus on the export of high value added manufacturing goods such as machinery, while Greece continues to export mainly fruit, vegetables, olive oil, textiles, steel, aluminum, cement, and various manufactured items such as clothing, foodstuffs, refined petroleum and petroleum-based products, all products based on more labour intensive production processes with lower productivity levels.

Again, the Fiscal Compact will not be able to address this fundamental underlying unevenness. A radical departure from neo-liberal economics is required, if the situation is to be turned around. Perhaps, innovative, radical solutions are more likely to emerge from the streets in Athens than as a result of high-profile negotiations in Brussels, Berlin, Paris or London?

References

Bieler, Andreas (2012) ‘Globalisation and European integration: the internal and external dimensions of neo-liberal restructuring’, in Petros Nousios, Henk Overbeek and Andreas Tsolakis (eds) Globalisation and European Integration:Critical Approaches to Regional Order and International Relations. London: Routledge. PP.196-216.

Mandelson, P. (2006) ‘Foreword to Global Europe – competing in the world’; http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130379.pdf; accessed 29 May 2009.

Prof. Andreas Bieler

Professor of Political Economy

University of Nottingham/UK

Andreas.Bieler@nottingham.ac.uk

Personal website: http://www.andreasbieler.net

2 June 2012