by Johannes Jäger

The victor writes the story of the vanquished. He who beats distorts the faces of the beaten. The weaker depart from this world and the lies remain. 

Bertolt Brecht

History does not speak for itself; rather, a number of narratives compete to influence how we think about the past and present. This is especially applicable when it comes to social issues, since there are always a range of contrasting perspectives. Of course, within this context, the formal milestones of European integration are concrete facts. The Treaty of Rome, signed on 25 March 1957, was the first official step in the integration process. The Maastricht Treaty, which governs many of the EU’s current economic principles, was signed on 7 February 1992. Yet discussion of the course of European integration cannot be approached merely as a timeline of events; instead, it is important to explain why certain events occurred, who the driving forces were and what impact they had. Facts are not self-explanatory; the explanation of historical processes always requires a theoretical understanding of how things are connected.

Why do different perspectives exist?

Interpretations of social reality are typically both varied and contradictory. Media coverage is ripe with controversy over which (economic) policies should be implemented and which should not, while individual points of view are often substantiated by reference to studies or scientific expertise. These scientific approaches, too, are often contradictory. One might initially wonder how economists have not yet landed upon the metaphorical “philosopher’s stone”. On closer inspection, however, this is not surprising at all, since questions of economic policy always revolve around differing interests. What is good for some can be bad for others: for example, while high unemployment can benefit companies by weakening workers’ bargaining power and forcing them to fall in line, it is disadvantageous for wage earners. Political debates on economic issues are typically not conducted in an open manner. Generally, employers are reticent to argue that the purpose of austerity is to bring about unemployment. Rather, they argue that cut-backs are in the public interest and may even contribute to the reduction of unemployment. This has been demonstrated in particularly radical fashion by the recent crisis in the EU, where austerity was enforced on the basis that it would lead us out of trouble. In reality, the opposite has happened: that is, the crisis has worsened dramatically and unemployment has massively increased. Rather than triggering a change in approach, this downturn has been widely adopted as a pretext for restricting workers’ rights and making cuts to the welfare state. Institutions backing wage earners had warned in advance that austerity would deepen the crisis and increase unemployment.

It is important to note that differing views on the effects of economic policies exist not only for current, but also for historical issues. This renders the interpretation of history a political issue. Historical analysis engages with the questions of whether past economic policy rules and measures were “successful” and “good”. This is important to keep in mind, since history is constantly – at least indirectly – used to derive implications and conclusions for evaluating the current system. As a rule, at any given time, the dominant views on current and historical questions of economic policy reflect the interests of the dominant social forces; in other words, the prevailing ideas are those that favour the ruling classes. In capitalist societies, these are primarily capital interests, although the interests of wage earners are often incorporated to some extent as a result of class compromises. Due to a class compromise between capital and labour, the post-war period in Western Europe saw the emergence of a broad consensus that the so-called (social) market economy represented a fundamentally good way of organising society and the economic system. Though, in many places in Europe, wages had already been deteriorating before and especially during the crisis, the notion that a capitalist economy is essentially the only sensible form of organisation remained deeply anchored. But prevailing ideas are often challenged, especially when material promises are not kept. In times of crisis, in particular, critical voices and alternative views tend to gain importance.

Liberal perspectives on European integration

How is the (economic) history of the EU usually interpreted? A look at prevailing narratives, such as those found in textbooks on contemporary history or geography, shows that liberal interpretations tend to be dominant. Liberalism as a basic paradigm for understanding the history of the EU is also present in broad sections of the population, where the EU is seen as a peace project and a basis for prosperity in Europe. The “four freedoms” (free movement of goods, services, capital and workers) tend to be presented in an unquestioningly positive fashion, and are also perceived as such. Moreover, the “stages of integration” – from free trade agreements to a customs union, a single market, an economic union and finally a monetary union – are presented as a natural evolution. Each successively higher level of integration is considered as progress, and the historical progression through these stages over the course of European integration is considered a success. Underpinning this is the notion of European integration as the pursuit of an ever-closer union.

The prevailing view on European integration, namely that more market freedom is always better, is based on ideas that also exist in scientific perspectives. Neoclassical theory – the dominant economic doctrine of the day – is the first and most important of these ideas: a liberal approach that assumes that free markets are efficient and contribute to maximum prosperity. As such, the international liberalisation of markets (goods, services, capital and labour) is considered to be prosperity-enhancing. Some argued that the setting of uniform standards for these markets would increase transparency and therefore efficiency. Central currents in political science take this liberal notion of economics as their base. Within the context of this neo-functional perspective, the emergence of liberal economic institutions in Europe is considered as “natural progress” and is regarded in a positive light.

…and the facts

In fact, European integration was initially accompanied by economic success. The 1950s and 1960s were characterised by an economic boom, and peace prevailed amongst the European states. By the 1970s, however, the scale of this economic growth had begun to decrease on a worldwide scale. In the 1980s, there was a crisis and an ongoing decline in economic growth. The political response to this was further economic liberalisation, as manifested in the creation of the EU single market. However, the result was not – as liberal economists expected – a return to high growth rates, but a further weakening of growth. The general trend towards inequality and unemployment continued, and the promises of liberal economists were not fulfilled. Rather, they were confronted with a paradox: despite neoliberal reforms, economic growth had not increased, but instead was much weaker than in previous years. With the onset of the crisis in 2008, the problems of European integration became ever more apparent.

A critical political economy perspective on the EU

The liberal view can be contrasted with a critical political economy perspective that does not view the economy in isolation, but always places it in the context of society and politics. The jumping-off point for this idea is that different people have different economic and thus different political interests. At a basic level, the approach compares and contrasts the interests of two main classes. One is the large group of wage earners who depend on the sale of their labour to survive: they produce value, but are only compensated for part of that value in the form of a wage. The other group is the owners of capital, who appropriate value in the form of profit. Within the critical political economy approach, clashes between these classes or class factions regarding the organisation of the economic system are the central area of interest, with the main question being how certain classes manage to enforce their interests over others. The goal is not only to better understand these relationships, but also to provide knowledge to improve the situation of wage earners in general and the socially disadvantaged and exploited in particular.

In the critical political economy tradition, the history of European integration has consistently been analysed in the context of global economic and geopolitical developments. Within this approach, the process of European integration is understood as the result of class struggles at different spatial levels: local, national, European and international. As such, integration is not viewed merely as the deepening of economic links at the European level, but is also examined as the outcome of class strategies and disputes in the context of the pursuit of global hegemony. On this basis, the specific form of European integration can be seen as a manifestation of the asymmetric relationship between labour and capital.

Phases of EU integration

Against the background of this critical political economy approach, the following section briefly examines the individual periods of integration. The history of European integration is not a linear process, but rather displays a number of distinct phases and turning points.

Fordist integration (1950s to 1970s)

The first phase of European integration, which occurred from the 1950s to the early 1970s, was characterised by high economic growth, high wage growth and a move towards full employment. Trade between European countries was gradually liberalised, but without undermining growth in individual countries. This phase of economic development is referred to as Fordism and was designed to expand mass consumption on the basis of productivity and wage increases. As a result, quality of life improved rapidly for many people. Industrial development was a central focus, while the financial sector was subject to comparatively strict rules. From a political economy perspective, this development can best be understood in light of the crisis of the 1930s, the associated rise of the radical right in Europe and, eventually, the Second World War. The devastating consequences of an internal “pacification” of the class struggle by fascist regimes were played out to a terrifying extreme.

These experiences led to a certain degree of willingness on capital to compromise with employees, so as to avoid the escalation of conflicts and the associated negative consequences. Concessions were granted in the form of higher wages and improved social standards. Moreover, as early as the 1930s, a new development model had emerged in the United States as part of the New Deal, aimed at increasing wages and establishing a system of social welfare. It demonstrated that such an approach was compatible with dynamic capitalistic development and high profit growth. Productive development was crucial to the Fordist economic model. The division between Eastern and Western Europe was a manifestation of the geopolitical conflict between capitalist and socialist planned economies. As a key victorious power of the Second World War, the US was anxious to establish functional capitalist structures in Western Europe. Concrete measures included the Marshall Plan and the establishment of a stable international financial order, the Bretton Woods system. Both were designed to promote productive development and to re-establish international trade relations with the USA and within Europe. We can also the USA’s efforts to integrate European trade and thereby create the basis for growth against this background.

Crisis and the enforcement of neoliberal integration
(1970s to 1990s)

The dissolution of the Bretton Woods system in the early 1970s marked the end of the era of stable exchange rates and effective capital controls. The European integration process, which had been based primarily on the integration of trade, became increasingly tricky, and oil price shocks triggered the crisis of the 1970s. Initially, a number of attempts were made to counteract this with Keynesian economic policy – but in the early 1980s, as Europe moved towards a fixed exchange rate system, these became ever more difficult to implement. In addition, the policy of high interest rates introduced by the USA in 1979 – and the subsequent crisis – triggered a major crisis in Europe relatively soon afterwards. In view of the fixed exchange rate system and liberalised capital markets, monetary policy could no longer be used to stabilise the economy as a whole, but merely to stabilise the exchange rate. Unemployment rose rapidly – yet instead of persisting with capital controls on capital movement as a way of effectively implementing Keynesian policies, European leaders took the opposite route.

At this point, three different European projects existed – and to a certain extent, it was still unclear which path European integration would take. The trade unions advocated for a social democratic Europe, which would essentially have amounted to a continuation of the previous model. Competing with this were the neoliberal and neo-mercantilist routes: while the former was focused primarily on market liberalisation, the neo-mercantilist approach additionally proposed to create structures to turn European companies into global players, capable of expanding outside Europe. These two options were favoured primarily by large, export-oriented capital interests including the European Roundtable of Industrialists. Eventually, in the 1980s, a combined neoliberal and neo-mercantilist form of integration gained the upper hand. Though it had some sprinklings of social democracy on the surface, it represented a clear break with the previous integration model, and can be understood as a sign of the structural weakening of wage earners in favour of capital holders. In addition, the East was no longer considered an attractive alternative, and ideological competition between the two economic systems came to an end. Accordingly, there was less pressure to make concessions to wage earners; the class compromise was eroded and power shifted in favour of capital. With the introduction of the single market and the Treaty of Maastricht in 1992, the realignment of European integration in its current neoliberal form was formally enforced.

Neoliberal integration and unequal development
(late 1990s to 2008)

The 1990s saw the introduction of further integration measures in accordance with the neoliberal approach. The abandonment of fixed exchange rates in 1992 paved the way for the introduction of the euro. The collapse of the European Monetary System (EMS) and the idea that a single currency would help to curb Germany’s influence also led many unions to advocate for the euro. In the prevailing spirit of the 1990s, however, and in order to gain Germany’s approval for the project, a neoliberal institutional structure was established to administrate the union’s monetary and fiscal policy. Continuing in this spirit, it was decided, with the introduction of the Lisbon Agenda in 2000, that Europe was to become the most competitive region in the world. In accordance with neoliberal logic, deregulation (especially of the labour markets) and increasing competition were to play a key role in achieving this.

The consequence was the highly subdued development of wages and the corresponding redistribution of wealth from wage earners to capitalists. In Germany, wages declined in real terms over a long period, mainly due to Agenda 2010 and the Hartz reforms. Although declining wages usually result in demand problems and stagnation, it was possible, in this case, to prevent this. The neoliberal institutional structure of the euro turned out to be functional in this regard: it made it possible to achieve export surpluses in the centre of the EU at the expense of the European periphery. The lack of demand in Germany and other countries, such as Austria and the Netherlands, was offset by increased exports, while rising debt in the periphery of the EU (partly private, partly public) stabilised overall demand. In this way, economic problems caused by the imbalance of distribution were postponed – at least for a period. At the same time, this created two divergent yet interconnected economic models in the centre and at the periphery of the EU: the export growth-based, neo-mercantilist model at the centre, and the model based on debt and dependent financialisation and import dependence at the periphery.

The radicalisation of neoliberalism during the crisis
(since 2008)

Germany was the first country to be struck by the crisis, as exports to the US and then to other countries began to plummet. Soon, other export-oriented countries were also affected. After a period of delay, Keynesian measures were taken to stabilise the economy, and numerous banks were rescued, thereby socialising losses in the financial sector. The crisis across much of the European Periphery can be attributed to the fact that capital flows from the export-oriented countries had dried up. Triggered by financial speculation against government bonds, they turned into capital outflows. These proved disastrous, since the neoliberal European Central Bank was not intended to act as a lender of last resort for affected euro member states. Bailouts and other similar measures were drafted at the European level to prevent the complete collapse of the monetary union; however, these did not benefit the countries in the periphery, but mainly functioned in the interests of banks and other creditors in the states of the European core. Costs were borne by the peripheral countries, which were forced to introduce austerity policies. At the same time, labour markets were liberalised and wages and benefits drastically reduced.

In the wake of the crisis, this manner of interaction with the European periphery was institutionalised at the EU level, with new and even more neoliberal rules derived from the initial ad-hoc measures. These rules are now in permanent force and, thanks to the associated further loss of democracy in decision-making processes, are authoritarian in nature. As such, the crisis was “solved” in favour of capital, especially in the centre of the EU, and at the expense of wage earners in general and those in the periphery in particular. Capitalists took advantage of the crisis to drive forward radicalised, neoliberal forms of integration in Europe, so it is not surprising that this has already led to violent counter-reactions. While explicitly left-wing projects have so far been rather unsuccessful, right-wing movements have benefited substantially from these developments.

Conclusions

A political economy perspective on the history of the EU shows clearly that European integration has not been a linear process. Over the history of European integration, there have been breakdowns and crises with far-reaching implications. As the brief historical outline above shows, the neoliberal variant is not the only possible form of economic and political integration, but rather one of a number of possibilities. The implementation of this neoliberal form of integration was both the answer to and the result of social class struggles in the crisis of the 1980s. It occurred mainly at the expense of wage earners, while the capitalists reaped the benefits.

In addition, the neoliberal EU integration model has not solved the deep-rooted problems associated with the imbalance of distribution in Europe. Thanks to the establishment of two inhomogeneous, interconnected economic models in the centre and on the periphery of Europe, it managed to overcome these problems for a time. With the onset of the 2008 crisis, however, the fragility of the neoliberal approach became all too apparent. Instead of tackling the fundamental problem of distribution between labour and capital and creating sustainable structures for development in the European periphery, EU powers opted for a radicalisation of the neoliberal integration approach. This was a consequence of both the weakened position of wage earners in relation to capital interests at the European level and the fragmentation of national working classes in Europe.

As a result, contradictions are getting worse. While right-wing movements have benefited greatly to date, left-wing projects acting in the interests of wage earners are still relatively weak. Despite this, there can be no question that this is not the end of this story: the future of European integration remains a hard-fought battle. The answer lies in no small part in countering the prevailing neoliberal interpretation of European integration history and the right-wing critics with a progressive, economically sound perspective.

Literature

Becker, Joachim; Jäger, Johannes and Weissenbacher, Rudy (2015) Uneven and dependent development in Europe: the crisis and its implications. In: Jäger, Johannes/Springler, Elisabeth (ed.): Asymmetric Crisis in Europe and Possible Futures. Critical Political Economy and Post-Keynesian Perspectives. Routledge, 81-97.

Bieling, Hans-Jürgen (ed., 2015) The Political Economy of the European Union. Open Society Foundation.

Bieling, Hans-Jürgen; Jäger, Johannes and Ryner, Magnus (2016) Regulation Theory and the Political Economy of the European Union. In: Journal of Common Market Studies 54 (1), 53-69.

Jäger, Johannes (forthcoming 2019) Introduction to Critical Political Economy in a multi-paradigmatic setting. In: Decker, Samuel/Elsner, Wolfram/Flechtner, Svenja (ed.): Teaching Economics in the 21st Century Routledge.

Jäger, Johannes and Springler, Elisabeth (ed., 2015) Asymmetric Crisis in Europe and Possible Futures: Critical political economy and post-Keynesian perspectives. Routledge.

Van Apeldoorn, Bastiaan (2013) The European capitalist class and the crisis of its hegemonic project. In: Panitch, Leo; Albo, Greg and Chibber, Vivek (ed.): Registering Class. Socialist Register 2014. Merlin Press.

 

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