Last week, I wrote how the Labour Party in the Netherlands suffered a historic defeat in parliamentary elections because voters questioned their priorities – and how this is emblematic of Western social democratic parties everywhere. And as if to prove my point, Dutch finance minister and Eurogroup leader Jeroen Dijsselbloem has produced an analogy on fiscal spending about ‘liquor and women’ that has outraged many. Let me put his comments in the proper context here to make a wider point about the European Union.
First, here’s what happened. Dijsselbloem gave an interview that was published Monday in the German daily Frankfurter Allgemeine Zeitung, in which he talked about his role as Eurogroup head and member states’ obligations under the EU’s stability and growth pact. And this is significant because he has played a prominent role in the negotiation of Greece’s bailout packages — so much so that he was one of several targets of letter bombs recently sent from Greece.
At some point in the conversation, according to the paper, Dijsselbloem said – referring to the stability and growth pact 3% deficit and 60% government debt to GDP hurdles – “Ich kann nicht mein ganzes Geld für Schnaps und Frauen ausgeben und anschließend Sie um ihre Unterstützung bitten.” This translates as “I can’t spend all my money on liquor and women and afterwards expect your support.”
Dijsselbloem apparently wanted to make an analogy about personal responsibility that translated from the personal level to national fiscal responsibilities within the EU under the stability and growth pact. But his analogy has created a furore, because it was perceived as sexist – as ‘women’ in that context infers prostitutes – and as “racist and xenophobic” – as his role as bailout enforcer makes his commentary appear directed at southern Europe. Many are calling for his resignation, including the Portuguese Prime Minister.
I should point out that the FAZ reported last Thursday that Dijsselbloem may want to continue on as Eurogroup president despite electoral defeat (link in German). And he could only do that because the Eurogroup has no proper or official status in EU legislation or law. It is merely a now-recognized term for the informal meetings of eurozone finance ministers. The Eurogroup only has status because the finance ministers have status. As such, it is a group that – because it has no legislated official status – adds to the sense that the EU lacks democratic legitimacy, making the bailouts the Eurogroup negotiates more controversial.
For his part, Dijsselbloem has apologized, saying ‘Dutch directness’ and his country’s ’strict Calvinist culture’ led to the analogy. He said “I regret that my message was misunderstood and I regret that it emerged as north against south. I don’t experience a north-south division, also not in the Eurogroup.The sentence referring to alcohol and women was about myself. I said that I cannot expect that if I spend my money in a wrong way that I can then ask for financial help.” And to wit, his characterization rings true because he has made headlines for similarly morality-laced commentary. For example, with the faint hint of moralism, he once described EU Commission President Juncker as a “heavy drinker and smoker”.
But what about the substance of Dijsselbloem’s commentary i.e. that governments in the EU must spend wisely. Here, Dijsselbloem is bang on. He and his party are not looking at Greek finances any differently than they look at Dutch finances. As I put it last week, ”the policies in Greece are just more extreme versions of the policies they want for the Netherlands” – the difference being how much the deficit compels spending cuts and tax increases.
See, the eurozone national governments gave up monetary sovereignty. There is no Guilder, no Deutsche Mark, no Peseta, no Drachma. As the late Wynne Godley put it when the euro was agreed in 1992, when you lose monetary sovereignty “all that can legitimately be done… is to control the money supply and balance the budget….the power to issue its own money, to make drafts on its own central bank, is the main thing which defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or colony. Local authorities and regions obviously cannot devalue. But they also lose the power to finance deficits through money creation while other methods of raising finance are subject to central regulation. Nor can they change interest rates. As local authorities possess none of the instruments of macro-economic policy, their political choice is confined to relatively minor matters of emphasis – a bit more education here, a bit less infrastructure there…”
That’s the situation for every single eurozone country including Germany, by the way – which is why the Germans are the only G-20 country running a budget surplus right now. Germany has to be concerned about its own public finances. After all, at the height of the European sovereign debt crisis, Germany had been in breach of the debt and deficit rules for 8 out of the last ten years. With a massive trade surplus supporting the budget, the Germans now find themselves in a position to spend in ‘social democratic’ ways. That’s why SPD chancellor candidate Martin Schulz has a fighting chance of winning this year’s election.
But, of course all of this goes back to the ‘strict Calvinist culture’ that Dijsselbloem spoke of. In Germany, management of government finances are analogized as the budget of Swabian Hausfrau, a typical housewife in southwestern Germany who uses budgetary discipline with Calvinist pride. But Wynne Goldey put the whole idea of the euro this way: “such a view – that economies are self-righting organisms which never under any circumstances need management at all – did indeed determine the way in which the Maastricht Treaty was framed. It is a crude and extreme version of the view which for some time now has constituted Europe’s conventional wisdom… that governments are unable, and therefore should not try, to achieve any of the traditional goals of economic policy, such as growth and full employment. All that can legitimately be done, according to this view, is to control the money supply and balance the budget. It took a group largely composed of bankers… to reach the conclusion that an independent central bank was the only supra-national institution necessary to run an integrated, supra-national Europe.”
The problem, of course – for a social democratic party – is that this ‘Maastricht’ view of the world makes it much more difficult to actively support your political base when the economy turns down. Dijsselbloem may be speaking frankly about the constraints of eurozone fiscal policy but it won’t win him any plaudits among Dutch voters that are still feeling dislocation and insecurity in the wake of the housing bust and financial crises there. This is why support for the Labour Party imploded after it joined the austerity-centric coalition government.
This is what happens when you lose monetary sovereignty. And for social democrats, it is an electoral disaster. Populists will continue to fill the void, in Europe and in the United States.