Emiliano Brancaccio

Ricerca, didattica e divulgazione
Research, teaching and media

The Euro is a dead man walking

Revolting Europe – March 1, 2013

Italians have decided – the Euro is now a zombie. It’s time to Exit, from the left says economist Emiliano Brancaccio

‘Signor Euro repeatedly risked a heart attack. Dr. Draghi then decided to put him in an induced coma. With respect to the cure, though, he hesitated. At regular intervals, a Hamlet-like dilemma presented itself: let him sleep or kill him or l? Draghi insisted on the former. But suddenly the Italian people opted for the latter: the euro is now just a zombie, a dead man walking. Like it or not, let’s take note.’

On 24-25 February, ‘populist’ (Pirate?) comedian blogger Beppe Grillo and his upstart Five Star Movement emerged as the single largest party, on the back of a Euro-skeptic, anti-austerity platform. The pro-European centre-Left Democrats, even with their alliance on the left with Puglia governor Nichi Vendola’s SEL, and potentially the votes of former PM Mario Monti on the right, failed to win the hoped for majorities in both houses. Silvio Berlusconi’s right wing coalition, that of late took a distinctly anti-European position, secured almost as many votes as the Democrats.

In a blog posting earlier this week, one of Italy’s foremost progressive economists, Emiliano Brancaccio, argues that no-one should be in any doubt that Italians have given a resounding NO vote to the Single Currency. And Germany certainly won’t be, and will be making plans for exit of the Eurozone’s third largest economy – and potentially the end of the Euro project itself. As for Italy it is a question not of whether, but how it will exit from the Currency Union.

Germany and the ECB

Brancaccio predicts that the Germany-dominated ECB will now start manoeuvering to revert to its non-interventionist form. That is, standing by and letting the ‘markets’ find their balance, whatever the economic and social cost. It wind down the European Financial Stability Facility, which, made up of hundreds of billions of euros from member states (with Germany the largest contributer), was designed to ‘bail-out’ governments and banks in the Eurozone (in return for which they would relinquish to European authorities sovereignty over key financial and economic policy decisions). And it will end its policy of purchasing of sovereign bonds in Greece, Spain, Italy and other struggling Eurozone members. Initially fiercely opposed by the German elite, this was ostensibly designed to bring down bond ‘spreads’ – the borrowing costs that have soared as their economies plunge and debts rise – although it was also a covert way of bailing out the global banking system and made no impact on lending to the real economy (and here).

Says Brancaccio:

‘The most dire predictions of an appeal by 300 economists, published in June 2010, are therefore coming true. The ECB’s claim that it would only protect against speculative attacks countries which devoted themselves to the discipline of austerity, proved to be a resounding failure, both in logic and politically. Italy, which gave the world the Renaissance but also Fascism, has decided that for the euro, there’s nothing left but to recite the De Profundis….​European technocrats, conditioned by the prevailing interests in Germany, have been digging the grave in which to bury the Single Currency for a long time…Germany is no longer interested in the single currency, the hopes for reform of the monetary union are now buried. There’s only one question: how to get out of the eurozone.’

So, he argues, the choices before Italy are what path it chooses to leave the Euro – will be an exit by the Right or the Left?

Exit from the Right

‘As things stand, the most likely way it will happen is by following a “right-wing” path, which would be to promote capital flight, open up bank capital to foreign acquisitions as well as the last major pieces of national industrial capital, and leave wages completely unprotected in the face of a possible surge in prices and especially widening inequalities of income. One can expect to see not only Berlusconi but also many others consider this solution. The so-called “enlightened bourgeoisie’ hordes of mainsteam pundits, will rush to rediscover their virginity, judging the euro a Kantian ideal doomed from the beginning, exhuming Milton Friedman and flexible exchange rates and devaluation in order to make the country attractive to foreign capital on the hunt for cheap acquisitions.

‘The single currency can go to hell, they will cry out, the important thing is to save the single market and the free movement of capital from the so-called populist protectionist instincts! Well, if things go that way, there is reason to fear that the explosion of the euro zone could be a veritable massacre. Moreover, anyone who has studied the economic history of the last century knows that monetary sovereignty, taken in isolation, is not a panacea, and that it was not at all uncommon for the release from a fixed exchange rate regime to have produced a real disaster in terms of the liquidation of the national capital and the destruction of the last remnants of social rights.

‘Of course, it does not always end badly, but in some cases and for some it did indeed go badly. To cite just a few examples: in 1992, after Italy exited the European Monetary System (EMS), the wage share of national wealth fell from 62% to 54%. In 1994-1995, after depreciation, Turkey, Mexico and Argentina recorded a fall in real wages respectively 31%, 19% and 5% in a year, and after the devaluation of 1998, Indonesia, South Korea and Thailand real wages fell by 44%, 10% and 6% (data ILO and World Bank). Not to mention the “fire sales” of national capital favoured by devaluation. The restoration of monetary sovereignty is imperative, but doing it the right-wing way could turn into a nightmare.’

Exit from the Left

‘This is not, however, inevitable. There is also an alternative way to manage the implosion of the eurozone, which is the attempt to build a social bloc around a hypothesis of ‘left’ exit from the euro. That is, in the first place: a stop on capital flight; nationalization, instead of foreign acquisitions of bank capital; an indexation mechanism of wages and control of some prices of basic goods to manage the changes in income distribution; the idea of a free trade area among the countries of Southern Europe. In short, a ‘Left’ solution should focus on the idea that if you leave the single currency you must also call into question some aspects of the European single market.’

What will be the role of the heirs of Italy’s communist, labour movement, the trade union central CGIL and Pierluigi Bersani’s centre-left Democrats?

Brancaccio argues both the Democrats and the trade unions need to take a reality check on any prospects of ‘more Europe’, that is policies on further ‘convergence’ in the financial, economic or social field. ‘Even they see the iceberg now, and maybe they even realize that at stake is their own survival, as the fate of the Pasok [in Greece] teaches.’

And Grillo?

‘To see whether the conditions exist to form a social coalition around a hypothesis of a “left” exit from the Euro also means putting the Five Star Movement to the test. Which, even though it has the wind in its sales, can hardly govern alone, and will in any case soon face the inescapable dilemma of any economic policy, to give priority to small business owners and entrepreneurs, or find a synthesis with the interests of workers.

Emiliano Brancaccio’s blog

Translation by Revolting Europe