Trade unionists rally against French President Emmanuel Macron's attacks on labour rights with a banner saying "Macron, puppet of the employers" (AFP)

Eurozone’s architects opt for ‘internal devaluation’

What conditions are required for a monetary union to work?

WHAT are the necessary requirements for a common currency to actually work effectively to the benefit of all its members? Why do the dollar-zones in the US, Canada and Australia not experience the same level of crisis, divergence and stagnation as the Eurozone has been plagued with? Simply put, the institutions in place in federal states such as these allow for the smooth, timely and effective recycling of excess profits from surplus states to those experiencing deficits. They also have central banks that have a mandate to ensure full employment, as well as price stability. In comparison, following the Bundesbank model, the ECB’s mandate is solely to maintain price stability and it is not to concern itself with employment.

When a downturn or crisis hits a common currency area, it will cause an asymmetric shock unless there has been sufficient convergence in the economies of the union. Divergent economies would be affected differently by different external and internal developments. This danger was understood by the architects of the euro, but for ideological reasons they focused only on attempting to achieve convergence in government debt and deficit levels at Maastricht and ever since, instead of looking at the more important role of divergence in balance of payments between members.

In 1961, economist Robert Mundell articulated his ‘optimum currency area’ theory on how currency unions could work to overcome asymmetrical shocks. The adjustment mechanisms identified through this theory include price and wage flexibility; mobility of labour and other factors of production; financial market integration; a high degree of economic openness; the diversification of production and consumption; similar inflation rates; fiscal integration; and finally, political integration. Some of these mechanisms can be seen to work effectively in the US. The three most important factors in place in the US economy identified by Stiglitz and others are: (1) the ease of migration across states, (2) federal spending on national programmes, and (3) the fact that the US banking system is a federal and not state-based system.

If one state in the US experiences a shock, workers can easily migrate to another state in a better economic condition in order to look for work. Technically there is freedom of movement of labour in the EU, but in practice migration within the US is far easier due to the fact states share a common language, a common culture and national identity, and the same access to federal welfare programmes. National government programmes such as social security and Medicare are available across all states, which means that if one state is experiencing a downturn, the federal government will automatically recycle surpluses towards the state in trouble in the form of, for example, increased unemployment benefits. Around one-fifth of GDP is spent at the federal level in the US. The federal government can also choose to boost investment or spending in certain federal projects at the state level in order to aid economic recovery. By comparison, in the Eurozone there is very little fiscal capacity to redirect funds towards depressed states because the European budget is around one per cent of member states’ GDP. Almost all spending occurs at the member state level. US banks are also guaranteed at the federal level by the Federal Deposit Insurance Corporation, preventing capital flight from one state to another in times of crisis.

Clearly the EU lacks similar institutions. But with the exception of a common deposit insurance scheme, the creation of such adjustment mechanisms in the Eurozone is either impossible in the short-to-medium term, or completely undesirable from a left standpoint by virtue of the fact that increased economic, fiscal and political integration require unacceptable trade-offs in the ability of people to participate in the decision-making process democratically at the local and national level.

Eurozone’s architects opt for internal devaluation

Of the various adjustment mechanisms identified by optimum currency area theorists, the Eurozone’s founders have clearly focused single-mindedly on attempting to achieve ‘flexibility’ of wages. Countries inside a common currency area cannot engage in competitive devaluations by devaluing their currency to make their exports more competitive. But they can implement policies domestically to bring about an ‘internal devaluation’ – lowering their real exchange rate vis-à-vis their neighbours. The main way this takes place is by compressing or reducing wages, which causes prices to fall. Germany has consciously implemented this policy for several decades, at the expense of German workers, millions of whom are working but living in poverty. This long-term strategy was intensified in 2003 under the then social-democrat/Green coalition government, which carried out a radical and vicious reform of the labour and welfare systems entitled Agenda 2010.

The competitiveness of prices largely determines the performance of a country’s exports, and the key factor determining prices is the nominal unit labour cost (the nominal unit labour cost is the ratio of labour cost per employee to productivity – the value added per worker). Unit labour costs in Germany stopped growing in the mid-1990s. Between 1998 and 2007, the rise in unit labour costs in Germany was zero. But in the rest of the Eurozone over the same period, average wage costs mainly increased with inflation, of around 2 per cent per year. This difference greatly increased the competitiveness of German exports and reduced it for the exports of other Eurozone members. So the success of Germany’s economic model is at the expense of the rights and living standards of its workers. The Agenda 2010 strategy has been deepened under successive governments and by 2015, more than 12.5 million Germans, out of a population of 80 million, were living in poverty in Europe’s “economic powerhouse”.

The EU’s focus on structural reform, particularly labour market reform, with a view to achieving increased “flexibility” has been a constant feature of its agenda since Maastricht. This was a major element of the Jobs Strategy of 1994, and the Lisbon 2010 Agenda adopted in 2000. The Lisbon Agenda originally set out to make the EU “the most competitive and dynamic knowledge-based economy in the world” by 2010. It included an economic pillar, a social pillar and an environmental pillar. In 2005, the Lisbon Agenda was revised by the European Council and Commission. Their verdict was that the agenda was failing to achieve its goal, and so they decided to drop the social and environmental pillars and focus on the economic pillar. In 2010 the Lisbon Agenda was relaunched as a new 10-year plan, the Europe 2020 strategy – “an agenda for new skills and jobs: to modernise labour markets by facilitating labour mobility and the development of skills throughout the lifecycle with a view to increasing labour participation and better matching labour supply and demand”.

The “progress” of member states in implementing structural reforms that will facilitate downward movement on wages is monitored through the European Semester process, a yearly cycle of policy “coordination” between member states and the Commission. In spring each year, Member States submit their plans for managing public finances – including keeping debt and deficits within the Stability and Growth Pact limits – and their National Reform Programmes to achieve “smart, sustainable and inclusive growth”. These plans are then assessed by the Commission, which proposes country-specific recommendations to member states, which are discussed and adopted by the Council. Then each autumn member state governments are graciously permitted to present their draft national budgets to their respective parliaments. The Five Presidents’ Report of EU leaders of 2015 proposed the creation of National Competitiveness Authorities to advance this agenda further.

The Eurozone elites believe (or claim to believe) that if only “wage rigidities” in the member states were overcome, both unemployment and trade imbalances would disappear. If only a country’s population could be forced to work for poverty wages, there would be a job for everyone; and the resulting stagnation in domestic demand would mean prices would fall and this country’s real exchange rate, which had become misaligned and risen too high, could regain its balance. This view underpins the repeated attacks on the rights and wages of French workers, set to intensify fiercely under President Macron, as well as underpinning the EU’s overall agenda and forcing structural reforms in the member states in order to increase productivity and competitiveness – and profit, of course. The austerity imposed by the Troika was not only designed to regain market “confidence” in peripheral governments, but also to facilitate internal devaluations in member states by a form of shock therapy. Of course, this adjustment facilitates not only the reduction of trade imbalances but also a sharp increase in the amount of wealth transferred from labour to capital.

There has certainly been an internal devaluation process in the Eurozone countries, affecting primarily the peripheral economies. But as Stiglitz points out, “this has not worked – or at least not fast enough to restore the economies to full employment. In some countries such as Finland, low inflation not been enough to even restore exports of goods and services to the levels before the crisis”. An increase in exports in these countries should have boosted growth and employment. But with the exception of the hugely distorted “globalised” data from the Irish economy, this has not been the case. The restoration of trade balance that the Eurozone has experienced since the crisis has largely been due to the fact that imports fall when demand stagnates – “one can achieve a current account balance by strangulating the economy”. For the crisis countries, the reduction in their trade deficits post-crisis largely resulted from a reduction in imports and not an increase in exports.

Crucially, internal devaluations also increase the level of debt of households, firms and governments who have borrowed in euros – as the value of their income is depressed, they owe a higher proportion of their income. High levels of debt were a major factor in causing the recession, because those in debt cut back on spending on both imports and domestic goods, causing a decline in GDP. It has also contributed greatly to the lingering problem of non-performing loans burdening Eurozone banks, particularly in the crisis countries.

This is an excerpt from the economic discussion document launched by MEP Matt Carthy on October 27, entitled The Future of the Eurozone. Download the full document for a referenced version of Chapter Five, above.

 

Basque Country: Dealing with the consequences of the conflict

From left: Brian Currin, Mark Demesmaeker MEP, and Frieda Brepoeles

From left: Brian Currin, Mark Demesmaeker MEP, and Frieda Brepoeles

South African lawyer and conflict resolution expert Brian Currin was the main speaker at a conference held in the European Parliament in Brussels on 24 March to mark five years since the ‘Brussels Declaration’ was made in support of building a peace process in the Basque Country.

The conference was organised by the Basque Friendship Group, which includes MEPs from across the political spectrum in the European Parliament, and was introduced by New Flemish Alliance representatives Mark Demesmaeker MEP and former MEP Frieda Brepoeles.

The event ended with the launch of an international campaign for the release of jailed Basque pro-independence leader Arnaldo Otegi and for the repatriation of Basque prisoners to the Basque Country.

In her opening remarks, Brepoeles described the Brussels Declaration, a statement made by a group of 21 international conflict resolution leaders including several Nobel Prize winners, as “an indisputably pivotal moment”.

“From that point, the international community organised to take initiatives in support of the peace process. Among the Basque people, the belief in a durable peace grew. Madrid appears to fear an outbreak of peace. But pessimism, for us, is not an option,” she said.

Demesmaeker outlined his view that the role of the European Union in the final resolution of the long-running Basque conflict was to pressure Spain and France to end the current stalemate in what has been, to date, a one-sided peace process.

Brussels Declaration

Brian Currin was the driving force behind the Brussels Declaration in March 2010. He was then instrumental in establishing the International Contact Group – a group of high-profile conflict resolution experts from around the world – in November that year in order to help promote a peace process in the Basque Country.

Speaking at the conference to mark five years since the Brussels Declaration, Currin said: “The Brussels Declaration of March 2010 was a challenge to ETA – it called on ETA to declare a permanent and verifiable ceasefire.

“In January 2011, ETA responded positively and announced just that – a permanent and verifiable ceasefire. We, the International Contact Group, assumed that the Spanish and French governments would be part of any verification body. It was incomprehensible to us that they would choose not to be part of such a process.

“We established an independent international verification body of conflict resolution experts, the International Verification Commission (IVC), and in the process we approached Madrid and Paris. They didn’t respond. To this date we have had no support for the disarmament process from either government.”

A definitive end to armed activity

The next milestone in the current peace process, Currin told the conference, was Declaration of Aiete, made on 17 October 2011.

The Declaration consisted of five recommendations that called on ETA to implement a definitive cessation of armed activity and request negotiations with the Spanish and French governments; and urged the governments to respond positively to such a request and put in place a process of addressing the consequences of the conflict. three days later, ETA announced a “definitive cessation” of armed activity.

Aiete signatories included former UN Secretary General Kofi Annan, former Irish Taoiseach (PM) Bertie Ahern, Sinn Féin President Gerry Adams, former Norwegian PM Gro Harlem Brundtland, former French Interior Minister Pierre Joxe and former Chief of Staff to British PM Tony Blair, Jonathan Powell. It was soon endorsed by Blair and former US President Jimmy Carter.

“The key goal of the Aiete Declaration, in addition to obtaining a verifiable commitment to the definitive end of armed activity from ETA, was for the Spanish and French governments to enter dialogue with ETA – exclusively on dealing with the consequences of the conflict,” Currin explained.

“I stress this word, exclusively – the call was not for the Spanish and French governments to enter into political talks about the future of the Basque Country, the constitution, or any issue other than dealing with the key consequences of the conflict that lasted for five decades.

Addressing the needs of victims

“There are three main consequences that I believe need to be dealt with in order to build a lasting peace in the Basque Country – victims, disarmament and prisoners.

“Notwithstanding the failure of the two governments to move on the issue of disarmament or prisoners, a great deal of excellent work has continued in the Basque Country in recent years on the sensitive and moving issue of victims.

“Basque organisations and the Basque Government [the government of the Basque Autonomous Community] have worked tirelessly to try to move this forward. So a lot of work on the issues of victims and reconciliation is taking place – but it needs institutional support from the Spanish and French governments.”

Refusal to engage in disarmament process ‘incomprehensible’

“ETA has been unequivocal in putting its arms beyond use,” Currin said.

“It has made commitments and kept them, and it has put a quantity of its weapons beyond use through the IVC in February last year.”

For their efforts, the IVC members were summoned to appear before the special Spanish court, the Audiencia Nacional, for questioning.

“For this process to be carried out properly, it needs the cooperation of the Spanish government. It needs to involve official security personnel,” he said.

“Madrid’s approach has been to say, ‘hand over the weapons to us’. But it’s not that simple. These arms may be associated with individuals who are still in exile or being sought by Spanish authorities who would be targeted. What the Spanish government is asking for amounts to a surrender in the eyes of ETA.

“But the issue must be dealt with, and it cannot be dealt with by the international community alone. The fact is there are arms in caches in Spain and France and they need to be identified and destroyed. International actors, were they to enter the Spanish state and carry this out, would be engaging in a major crime under Spanish law.

“Can you imagine if, anywhere else in the world, a group that had been engaged in an armed campaign against the State for decades announced that it wanted to disarm, and that government refused to engage with a disarmament process?

“It would be considered to be outrageous. A solution to this stalemate needs to be found, and key to this will be the international community – particularly the EU – putting pressure on Spain and France to engage positively in decommissioning.”

Political prisoners are the key to achieving peace

Currin said that in his experience, “in every peace process, resolving the status of politically motivated prisoners is the key”.

“It cannot be overstated. This has been true for all the peace processes I have been involved in, in the Basque Country, in Northern Ireland and in South Africa.

“When I began working in the Irish peace process in the 1990s, I was engaging with both republicans and loyalists on the issue of prisoners. Soon, the British government asked me to chair their prisoner early release commission – something that showed significant political maturity on their part.

“The issue of political prisoners, again, needs to be dealt with institutionally. Before we even begin addressing the issue of early release, we need to insist that the exceptional punitive measures used against Basque prisoners come to an end.

“The words the Spanish government is asking Basque prisoners to say in order to end the exceptional measures used against them are deliberately designed to ensure the prisoners cannot say them. They’re being asked to reject everything they’ve been involved in, their beliefs and their actions. And the prisoners are not prepared to do that.”

Dispersal – an inhumane, colonial-era penal policy

Currin then spoke about his background as a human rights lawyer, and then a human rights activist in South Africa in the 1980s. Ten years later he became involved in the conflict resolution processes in South Africa and Ireland.

“But now,” he said, “I am going to be an activist again for the next five minutes to speak about an issue that I feel very strongly about, and that is the dispersal of Basque prisoners.

“Dispersal is a rather innocuous word. Is it the right word to use in this context, to convey the consequences of the policy? I don’t think it is, when I think about the policy of dispersal and what it does.

“Today around 500 prisoners are ‘dispersed’ hundreds and hundreds of kilometres away from their homes and their families. Think for a moment about the impact this has on these families – the husbands, wives, parents, grandparents, brothers, sisters and close friends of these prisoners.

“Every weekend, you drive for hours and hours; maybe it will take you 10 hours to get to the jail. You have a 40-minute visit in the jail with your relative and then you drive back. Think of the cost in terms of time and finances, and think of the emotional distress this would result in. You would almost want to forget this family member. But you can’t, and you won’t. And you will make the journey each weekend.

“If we consider that there are 500 prisoners held under this policy, I would estimate that this affects around 50,000 people in the small Basque community – around 10 people per prisoner if you take into account siblings and grandparents.

Europe has a responsibility to help break this deadlock

“And it is completely illegal. It is a violation of the European Convention on Human Rights and the Spanish government’s own Constitution. It is absolutely incredible that this is happening right here in the centre of ‘civilised’ Western Europe.

“It reminds me of the colonial days when prisoners were sent to faraway islands to make sure they lost touch with their families and communities as a punitive measure. It was a policy carried out by Spain, France, Britain, the Netherlands and other European colonial powers.

“This is happening today in Spain and France when there is no threat of violence whatsoever from ETA. What can justify the dispersal of prisoners in this way, other than simply revenge and spite?

“It is utterly inhumane and it is affecting 50,000 people in the Basque Country. We should not call this dispersal, we should call it what it really is – 21st century Spanish colonial penal policy for the destruction of Basque families. As we sit here now, it is destroying families.

“There must be a way in which the European institutions can play a role in facilitating the end of the mistreatment of Basque prisoners, and the decommissioning of ETA’s arms, and to break through the current deadlock caused by the failure of the Spanish and French governments to engage.

“I cannot accept that there is not a way for these institutions to assist this process and put this conflict in the past for good. That is our challenge – to find a way.”

 

Basque youth activist interviewed

Sinn Féin Republican Youth

Sinn Féin Republican Youth

Published by Sinn Féin Republican Youth in November 2009

Representatives from the Basque pro-independence youth organisation Segi visited Belfast from 13-15 November to participate in the Ógra Shinn Féin (now Sinn Féin Republican Youth) National Congress.

One of the Segi representatives spoke to An Phoblacht‘s Emma Clancy about the criminalisation of the pro-independence movement by the Spanish government; the recent Batasuna call for a democratic resolution to the Basque conflict, and the need to build solidarity between the Basque and Irish movements for independence. (As Segi has been banned by the Spanish government, the representative will remain anonymous.)

“As Ógra Shinn Féin celebrates 100 years of the Irish republican youth movement since the foundation of Na Fianna Éireann, we in Segi are celebrating 30 years since the formation of our predecessor organisation Jarrai,” the Segi representative said.

“Segi is a revolutionary socialist, feminist, pro-independence youth organisation. We organise young people across the Basque Country in struggles for their rights – for national rights and language and cultural rights, but also to improve their living conditions, housing, and their rights in the workplace or on campus.

“But while we celebrate three decades of struggle for Basque independence and socialism, our movement is coming under increasing repression.”

Segi (formerly Haika) was declared illegal in 2005 by the Audiencia Nacional (National Court, a Diplock-style political court in Madrid).

The court ruled that, while it was an “unauthorised” organisation, it could not be considered “terrorist” because it had no connection to political violence. But in 2007 the Spanish Supreme Court revised the ruling – despite there being no new evidence – and declared Jarrai-Haika-Segi to be a terrorist organisation.

“Now more than 100 of our comrades are in prison,” the Segi woman said.

“Now you can be jailed for eight years simply for membership of our organisation.

“The repression by the Spanish state against the youth movement is not only arrests and imprisonment, although these are its most obvious forms. The criminalisation goes much deeper and broader; it is structural.

“There are continual attacks against youth centres, youth demonstrations and gatherings. They are targeting not just pro-independence activists, but all community activists who provide leadership to strengthen their communities.”

The representative said that this year judgments have begun being handed down by the Spanish courts against Segi activists.

“Many have been held in ‘pre-trial detention’ since 2005 – four years being the maximum amount of time a person can be jailed before trial under Spanish law. The average sentence most young activists are receiving for their political activism is six years in jail,” she said.

“You can see the impact of the criminalisation campaign here in Belfast where Basque youth activist Arturo Beñat Villanueva is fighting extradition to Spain charged with membership of the youth movement.

“Each time a Basque political activist is arrested, the police come in the early hours of the morning and hold the person in incommunicado detention for five days, during which they are interrogated and often tortured.

“In many cases, police have forced the prisoners to sign statements saying they are members of a banned organisation, and judges will use these statements to convict the prisoners, even if is the only ‘proof’ offered by the prosecution.”

The activist said Segi “reaffirms its full support” for the proposal by Batasuna for a democratic resolution to the Basque conflict through a process in which the Basque people’s rights are recognised.

“This initiative is very significant and is the outcome of a process of discussion, consideration and reflection among the broad Basque pro-independence movement,” she said.

“As the initiative for peace and democracy was due to be announced in October, 10 leading Basque pro-independence activists were arrested and five of them remain in jail, including Batasuna spokesperson Arnaldo Otegi.

“The Spanish government clearly fears such an initiative that would pave the way for a democratic resolution to the Basque question.

“Only such a democratic process in which people’s rights are respected can lead to peace in Euskal Herria. Until then, there will be no lasting peace.”

She said that in as well as introducing legislation to criminalise all expressions of political support for Basque self-determination, the Spanish government was engaged in a “dirty war” of targeting political activists.

“Former prisoner and ETA volunteer Jon Anza disappeared in April this year,” she explained. “We believe Jon, who was ill at the time, was kidnapped and killed during the course of an illegal interrogation by the Spanish security forces and his body buried in France.”

“Several activists have been kidnapped, interrogated and beaten by security forces throughout the year as the Spanish government steps up its efforts to intimidate the movement and to recruit collaborators.

“We have to struggle against these actions, to bring about a situation where the state forces can no longer target political activists like this. We have no alternative.”

The Segi activist said that the PNV’s (conservative Basque Nationalist Party) loss of control of the parliament of the Basque Autonomous Community in elections in March (which the left-nationalists were prohibited from participating in) showed the true nature of the so-called “autonomy” that had been granted to the Basque Autonomous Community after the death of fascist dictator General Franco in 1975.

The two main Spanish parties, the PSOE and PP, formed an alliance to oust the nationalists from power after the election in March this year in which more than 100,000 Basques were disenfranchised as the parties they supported were banned.

“When Franco died and the Spanish constitution was introduced, the PNV helped blind people to the fact that what was on offer was not self-determination for the Basque people, but an attempt to divide us and have the Basques assimilate into the Spanish state,” she said.

“We can see 30 years later the impact of this strategy – in combination with repression and disenfranchisement – when the same parties that rule in Madrid are in power in the supposedly autonomous Basque parliament. There is no autonomy, only assimilation.

“The repression has certainly intensified since the PNV lost power. Over the summer almost 1,000 people were arrested under the charge of ‘glorifying terrorism’ for displaying photographs of the 740 Basque political prisoners in Spanish and French jails.”

The Segi activist said she believed “the best answer to these attacks is to develop the initiative proposed by Batasuna, to build the conditions in which the Spanish state forces feel pressured to sit down and have the discussion about the Basque nation’s rights that needs to be had”.

She said the Segi delegation was proud to participate in Ógra’s centenary celebrations as the Basque youth movement was celebrating its 30-year anniversary of struggling for independence and socialism.

“Our organisations share the same goals and have many similar experiences,” she said.

“At the moment, although we share the same objectives, we are working in different conditions and it is very important to develop links of solidarity between our sister organisations. Over the years Jarrai-Haika-Segi have sent many representatives to Ireland, and many Ógra activists have visited Euskal Herria.

“We have much to learn from each other, and these links of solidarity enrich the struggle, experience and knowledge of both organisations.

“Segi views the progress of the Irish republican movement in advancing national and democratic rights as a reference, a model, and as a source of hope and inspiration for our struggle.”