The Future of the Euro Area
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- Published on Friday, 21 October 2016 00:15
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A Socialist Project e-bulletin .... No. 1318 .... October 21, 2016
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The Future of the Euro Area
Frederic Heine and Thomas Sablowski
The unequal development of the countries of the euro area since the outbreak of the crisis is causing increasing friction that threatens to tear the monetary union apart. Contrary to what many critics of the monetary union suggest, responsibility for this development lies not alone with its internal structure, but is rather a general feature of capitalist development. It is illusory to believe that under the dominance of the capitalist mode of production a spatially even development would ever be possible. Rather, the current monetary regime reinforces the cycles of capitalist crisis.
During the boom phase of the economy before the crisis, the economic and social gap between the centre and the periphery... within the EU decreased due to a strong growth of capital flows toward the periphery. Because inflation rates in Europe's periphery were higher than in the centre, the ECB's key interest rate led to lower actual interest rates in the periphery and this provided an incentive to borrow and hence to greater growth than in the centre. However, this financialized form of development was not sustainable.
Since the outbreak of the crisis, financial integration has begun to unravel, and the differences in structures of production are again gaining greater importance. Austerity policies underpin this unequal development. Currency devaluations, typically used by less competitive nations as a mechanism to adapt to changing world market conditions, are not an option within the euro area, pressure is therefore chiefly on wages and working conditions. Furthermore, the monetary union has no adequate fiscal clearing mechanism. The budget of the European Commission is negligible compared to the budgets of individual member states. This form of integration, however, is not a product of chance; it was intended. Historically, it was imposed by the dominant groups in Germany and is in the interests of capital in as far as it puts pressure on and disciplines wage earners across Europe.