Jun 2 2015

Europe entrapped? An interview with Claus Offe

By Claus Offe and Daniel Whittall

Europe remains mired in a crisis as much political as it is economic. The crisis has been long in the making and its dynamics stem from the institutional structures that govern European politics. 

In Europe Entrapped Claus Offe, Professor of Political Sociology at the Hertie School of Governance in Berlin, lays bare the institutional dynamics of the European crisis. He argues that Europe has entrapped itself in a bureaucratic apparatus and economistic rhetoric, both insufficient to the task of crisis resolution. Daniel Whittall spoke with him about his new book, and about where European politics might be heading next. 

Daniel Whittall: Your new book, Europe Entrapped, argues that the status quo for the European Union is ‘plainly unsustainable’. You call for a ‘major institutional overhaul’ of the EU, and suggest that without such reform the very project of European integration will come apart at the seams. To begin with, could you outline how you came to this argument, and what motivated the writing of this book?

Claus Offe: I think this is what social scientists do, or ought to do: Answering in a truthful way and on the basis of compelling evidence questions such as: Where are we? What went wrong? Which are the forces and their resources that can be held responsible for the present mess? Are there forces that have a chance to prevail over them? What are the challenges to be addressed and opportunities to be explored inherent in our condition? And so on.

All of this needs to be focused, as concretely as possible, on a particular set of problems (here: the situation of the EU after the Great Recession, after the adoption – in 19 out of 28 member states – of the Euro, after the deepening divide between countries in terms of indebtedness, growth, and trade performance and after the emergence of bitter political conflicts both within and between member states).

I am deeply convinced (and say so at the outset) that this configuration of challenges and outright crisis tendencies cannot conceivably be mastered and coped with within the framework of given EU institutions, this is why a “major institutional overhaul” of the latter is called for.

DW: Your argument rests on an analysis of political economy across Europe, centred on the transitions of democratic capitalism against the backdrop of European integration. You place particular emphasis on the role of the state in staging and shaping markets, and yet simultaneously on how actors within a market economy – investors and employers –undermine the political framework of democratic stability on which the state rests. What does this dual dynamic tell us about the workings of democracy and capitalism in Europe, and how sustainable do you foresee their continued intersection?

CO: Perhaps I am trying to elaborate the obvious, or an analytical idea that in no way is originally mine, but has been developed by a great intellectual tradition in political theory and political economy. Yet my personal experience from some 50 years of academic work in research and teaching is that one basic insight stemming from this tradition (say from Hilferding to Polanyi to Hirschman) is all too often ignored or forgotten. To put it in a nutshell: The “economy” is nothing that is governed by something that standard textbooks call “the market”.

Markets, together with the institutions in which they are embedded, are rather themselves political creations. Opportunities and constraints that market actors face are institutionalised by forces operating through the political system. Not a single market transaction could take place without the legal and political provision of court services to enforce property rights and contracts or without central banks defining and managing the currency that mediates market transactions. Policies and legislation and constitutions create licenses for market action, subsidise and promote industries, protect and even bail out some of those who lose in (national as well as international) market competition, establish entitlements, regulate production and distribution and provides the physical as well as institutional infrastructure (transportation systems, harbours, research universities, communication media etc.).

Capitalist market economies are neither “natural” nor in any sense uniquely “rational”; they are artefacts of political action and the outcomes of conflict over social and economic power. To provide all these preconditions of a capitalist economy and, not to forget, clean up some of its negative externalities (from unemployment to environmental disruption), fiscal resources are needed of an ever-increasing volume.

Yet in “globalised” economies, states find it ever more difficult to extract those fiscal resources from the capitalist economy. As a consequence, the management of that economy becomes fiscally more and more expensive. Capitalism is an economic system that tends to become fiscally unaffordable (which explains why states in advanced capitalism turn to debt finance in addition to tax finance), particularly if we also keep in mind the expenditures for social policies that are needed to organise social peace and can stabilise demand – policies that a democratic political system cannot categorically ignore.

DW: You suggest that it is the nature of Economic and Monetary Union (EMU), and the flawed institutional dynamics of the Euro as a currency, that most threaten EU integration. Could you outline why this is?

CO: The EMU is a complex supranational arrangement based on the four freedoms concerning the movement of capital, goods, workers and services as well as the “direct effect” of European law; it culminates in the adoption, sooner or later, of the common currency to which all EU member states (save the UK) commit themselves with their accession.

The underlying theory is that the common currency that drives the common market will automatically lead to convergence of national economies. They are supposedly becoming more similar in terms of their productivity, competitiveness and prosperity, a process that is to be further helped by the allocation of EU funds to overcome structural backwardness. There were plentiful warnings that this theory is dead wrong, which in fact it turned out to be and arguably would have been, even in the absence of the Great Recession.

Entering into a common currency without being able to rely on a political and fiscal union means stepping on very thin ice. The underlying motivation to act as if it were a valid theory was not just careless reasoning, but was also part of the very specific wish to depoliticise the EU economy, i. e. to “liberate” “the market” from political “distortion” and “interference” of national politics and, in particular, to demolish member states’ monetary sovereignty, meaning their right to fix exchange rates and interest rates of national currencies.

What happens if you wilfully adopt a demonstrably mistaken theory is entirely unsurprising: instead of unity and prosperity, as its proponents promised, the Euro has brought the still deepening division between national economies capable of coping with it (and even profiting from it) and the Euro losers in the EU’s periphery who were deprived of both their monetary and economic sovereignty and also of much of their pre-crisis level of prosperity.

DW: In its efforts to respond to the crisis, you argue that Europe has walked itself into a trap. Of what does this trap consist?

CO: A “trap” is my metaphor for a place where you cannot back out, where you cannot move forward and where conditions are unbearable. I argue in the book that the adoption of the Euro, the launch of a monetary union that is not embedded in a political union, was a clear mistake and that backing out, i. e. abandoning the Euro and returning to a regime of national currencies, would be an even greater mistake.

The Euro, in spite of its disastrous consequences, has acquired a practical irreversibility. It has allowed for the unfolding of a transnational system of division of labour and economic integration in Europe that would collapse the moment the currency were no longer the common one. The treaties do not provide for a path on which a member state could leave the Euro while still staying in the EU. Germany, with its exports-heavy economy, has profited greatly from the Euro because the common currency provides for a much more favourable external exchange rate compared to a revived Deutschmark; it can therefore be expected to be ready to pay a substantial price for the rescue of the Euro.

Even in countries suffering most badly from the divisive dynamics of the Euro, vast majorities of voters prefer to stay in the Eurozone, and for good reasons. Exiting from the Euro and devaluing a newly adopted national currency would increase the burden of debt that has become unbearable already. Nobody in his or her right mind would willingly expose themselves to the uncertainties, turbulences and potential domino effects caused by financial market reactions to the exit of even a single Euro-country.

As to the situation in the “trap” being unbearable and unsustainable, one needs only to look at the situation of wage earners, pensioners, patients, students, employment-seekers and loan-seeking entrepreneurs in the loser countries, as well as at the rise of right wing populism in the winner countries, with sentiments of fear and outright mutual hatred rising on all sides.

The most interesting question, of course, is that concerning the final feature of a trap: no way forward. Given the (at best) embryonic nature of EU-level democracy, the absence of an EU-wide party system and the steep decline of “EUphoric” attitudes prevailing in most member states, it is in no way clear what the way out might be and who might take leadership and responsibility for trying it out.

DW: The European Union is beset both by a democratic deficit – a lack of institutional tools for democratic legitimation – and by a lack of comprehensive economic policy tools that could be deployed across the Eurozone as a whole simultaneously. How does this hamper the functioning of the EU, and to what extent does it make it vulnerable to a technocratic mode of governance?

CO: There is an abundance of EU institutions which are euphemistically labelled as being of a “fiduciary” nature meaning they are cut off from the circuit of political accountability and legitimation: the ECB, the Commission in its supervisory role, the ECJ. They operate, as you say, in the technocratic and depoliticised mode, (supposedly) doing the right thing, and largely irreversibly so, without anyone being allowed to tell them what the “right thing” actually should be held to be.

The only institution that does not fit this pattern is the European Parliament which, however, lacks virtually all of the features of a “normal” legislative body: no “one man one vote” rule, no European election law, no European party system, no right to initiate legislation and, most significantly, no budget right.

ECB president Draghi now calls for the launch of an EU level fiscal policy that would consist in making binding decisions, at the expense of the sovereignty of national parliaments, on EU level taxing and spending. In the absence of genuine budget rights of the EP, however, such a demand runs up against the dilemma of “no taxation without representation”. The EP, with its members being elected by member state constituencies according to national election laws and with a focus on national issues, cannot possibly arrogate itself the role of “representation”, i. e. the role of legitimately authorising taxing and spending at the EU level and thus the core element of a “comprehensive economic policy”, as you put it.

DW: Further democratic institutional integration across Europe seems highly unpopular with electorates, as do further reforms towards increased economic integration. As such, European institutions are unable to free themselves from the trap in which the EU finds itself without making itself even more unpopular. Certainly, there could be no democratic legitimacy through the form of a favourable referendum for further integration. In such circumstances, what is to be done?

CO: Honestly, I don’t know. I do not even know anybody who would know with any degree of certainty. I suspect that referenda are not a good idea. A referendum on a particular proposition results in the “no” votes of those for whom the policy in question goes “too far” being added to the “no” votes of those for whom it does not go far enough.

What I refer to by the third feature of a trap is that there is no obvious and easy-to-agree-upon way out. The only thing I can say with some confidence is that if there is such a way out (and a majoritarian readiness to embark upon it), it would involve very substantial measures of redistribution of material resources – redistribution between member states, social classes, generations, and points in time (meaning the present spending of parts of hoped-for future GDP).

Without (hopefully) crossing the fine line that separates thoughtful wishing from wishful thinking, I think that the shared (if differently motivated) fear of both sides, the Euro-winners and the Euro losers – the fear, that is, that the collapse of the monetary system would amount to a vast negative sum outcome – plusthe resistance of the losers, represented by parties and movements such as Syriza and Podemos, to their being further expropriated in both political and economic terms might together generate the energies that are needed for a breakthrough of institutional change.

A third ingredient of an “optimistic” equation is what I think of as a deep and ineradicable ambivalence of the entire project of European integration: While it can be denounced, as some authors on the political left have done, as being nothing but an arrangement to depoliticise production, distribution and trade, thereby subjecting all aspects of social life to fully unleashed capitalist market dynamics.

There are also elements in the genetic code of the project of European integration that point in the opposite direction – the direction of a “social” Europe, integrated and at the same time legitimated by its capacity to domesticate the power ambitions of its bigger member states as well as by its potential for taming markets and correcting their outcomes. This is done through policies aimed at the continuous creation of level playing fields and inclusive socioeconomic conditions.

While so far the logic of “market making” has clearly prevailed in the process of European integration over that of “market constraining”, it is too early, in my view, to give up on the prospects for the latter. Isn’t the rise of Syriza and Podemos precisely a sign that these prospects can still be considered significant?

DW: Concerning the question of the German role in Europe, you claim that German elites are unwilling to see their country take on the mantle of ‘Europe’s hegemon’ (p.93), and that the rest of Europe too remains uncomfortable with this idea.

Others, perhaps most prominently Susan Watkins writing in the November/December 2014 issue of New Left Review, approach the German role in Europe from a different direction. Watkins claims that Europe has seen both ‘a landmark extension of autocratic control by the [European] Commission’, alongside ‘an unprecedented centralization of extra-legal power in the office of the German Chancellor’. Since February 2010, Watkins sees a protracted political struggle across Europe resulting in Germany’s ‘coercive economic power’ being translated into political power through ‘a tacit recognition by the other states [of Europe] that the investors and US Treasury see the German Chancellor as executive head of Europe’. Yet resistance to this position, as much at home as abroad, renders Germany’s a ‘strangely crimped hegemony’.

What do you make of these arguments, and do you continue to see Germany as reluctant to play the role of hegemon for Europe?

CO: Yes, I do. Germany, as the largest member state (“too big to be loved, too small to be feared”), and as a country that has overcome the consequences of the Great Recession comparatively successfully, is currently ruled by a grand coalition government led by a Christian Democratic Chancellor, with the Social Democrats as junior partner. What this government can and must be blamed for is not its “hegemonic” ambitions to rule the EU but its duplicity and dishonesty.

What is self-servingly praised as acts of German “solidarity with the Greeks” is known to have largely been a rescue operation for German banks which have in the past miscalculated the credit-worthiness of their Greek debtors and then needed to be bailed out at tax payers’ expense. What is still being referred to as Greek “debt” – meaning something that is expected to be repaid at some point – is rather, indisputably, something that must be written off as a definitive loss.

What the German government and elites of other Euro winner countries claim to be iron rules, the “Maastricht criteria”, that no member state has the choice to bend, have been violated at earlier points by the very same actors who now sermonise on strict compliance. What is being declared as the only conceivable remedy to the debt crisis and economic crisis of the loser countries, namely austerity and “structural reforms”, turns out to actually perpetuate their economic disaster. And what the EU itself positions as one of its loftiest principles – “democracy” – is blatantly obliterated by the EU’s “Troika” regime, overruling the manifest will of the Greek electorate.

It would, however, be wrong to attribute these inconsistencies to the mendacity or other character defects of ruling elites. It rather derives from a dual logic of “blame avoidance”: trying to avoid being blamed by domestic constituencies for wasting “our” taxes on “them” (with such blame resulting in the further political gain, as in France and The UK, of rightist anti-European forces) and, at the same time, trying to avoid being blamed by the external constituency of other EU member states (as well as being punished by financial markets) for further endangering the precarious balance of the Eurozone by willingly risking the collapse of the house of cards. The duplicity results from the fact that they cannot satisfy the internal and the external constituency with one and the same message.

I think that the metaphor of walking a tightrope is clearly more helpful in capturing the logic of Germany’s EU and Euro policy than is the suggestion of any consistent strategic rationality of achieving hegemony in Europe or serving American interests. I am also inclined to believe that the readiness of centrist political elites in Germany to pay a high price for preserving the advantages that the country derives from the EMU’s survival will eventually by far surpass the proclaimed insistence on strict austerity that is currently being offered for domestic consumption.

This piece was originally published in Open Democracy’sCan Europe Make it” series.

Note: This article gives the views of the authors, and not the position of the Euro Crisis in the Press blog, nor of the London School of Economics.

Claus Offe teaches Political Sociology at the Hertie School of Governance. He has held chairs for Political Science and Political Sociology at the Universities of Bielefeld and Bremen, as well as at the Humboldt-University of Berlin, and worked as fellow or visiting professor at the Institutes for Advanced Study in Stanford, Princeton, and the Australian National University, Harvard University, the University of California at Berkeley and the New School University, New York.

Daniel Whittall teaches Geography at a secondary school in Bracknell. His writing has appeared in Review 31, Red Pepper, Tribune and History Today amongst other outlets, and can be found on twitter @danwhittall.

Related articles on LSE Euro Crisis in the Press:

The Double Death of Europe

Subterranean Politics in Europe after the Greek Elections

Euro-Scepticism Is Here to Stay: Finnish Election Results

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