Lafontaine. The euro is de-industrializing European countries to the benefit of Germany. The example of Syriza in Greece demonstrates the impossibility of a government alternative and anti-austerity. The Italian left must join forces and build a new monetary system.

Letter to the Italian Left

Dear comrades,
After the defeat of the Greek government, led by Syriza, before the Eurogroup, many on the European left are wondering what chance does a leftist government, or a government in which a left-wing party is a minority partner, have to carry on a policy of improving the social situation of workers and employees, pensioners and retirees, and of small and medium-sized companies in the framework of the European Union and the European treaties.

The answer is clear and brutal: There are no possibilities for a policy aimed at improving the social condition of the population, as long as the ECB, outside any democratic control, is able to paralyze the banking system of a country subject to EU treaties.
There are no possibilities to actuate leftist policies in a government where the left has no share of the traditional tools of macroeconomic control, such as interest rate policy, exchange rate policy and an independent fiscal policy.

To improve the relative competitiveness of your own country under the euro umbrella, under the conditions of the European treaties, your only tools are wage policy, social policy and the policies of the labor market.

If the strongest economy, the German one, practices wage dumping in a monetary union, other member countries have no choice but to implement wage cuts, social cuts and dismantling workers’ rights, as the neoliberal ideology desires. Then, if the dominant economy enjoys lower real interest rates and the benefits of an undervalued currency, its European neighbors have virtually no chance. The industry of other countries will lose more and more shares on the European and non-European market.

While German industry produces today as it produced before the financial crisis, according to Eurostat data, France has lost about 15 percent of its industrial production, Italy 30 percent, Spain 35 percent and Greece 40 percent.

The European right has been strengthened also because it questions the Euro and the European treaties, and because in the member countries awareness is growing about flaws in the European treaties and in the European monetary system.

As the German example shows, the European right does not care about shrinking wages, the dismantling of workers’ rights and stricter austerity. The right wants to return to the nation state, while offering economical solutions that represent a variation of the nationalist and neoliberal policies that would lead to the same results: higher unemployment, increased job insecurity and decline of the middle class.

The European left has found no answer to this challenge, as Greece demonstrates.

Waiting for the formation of a left-wing majority in all the 19 member states is a bit like waiting for Godot, a political self-deception, especially because the socialist and social democratic parties of Europe are following the neoliberal model.

A leftist party should make the end of austerity policies the first condition of its participation in the government.

However, this is only possible under a monetary constitution that preserves European cohesion while allowing individual countries to enact policies that increase growth and jobs, even if the largest economy practice wage dumping.

A prerequisite for this is a return to the improved European Monetary System (EMS), which would allow revaluation and devaluation. This system would return control to countries’ central banks. It would give them flexibility to achieve steady growth and increase employment through higher public investment, serving to counteract, through devaluation, unjust wage dumping operated by Germany or any other member state.

This system has worked for many years, and it has prevented the emergence of the serious economic imbalances that currently exist in the EU.

Speaking to the Italian labor unions, I want to underline that the EMS has never been perfect, dominated as it was by the Bundesbank. But in the Euro system, the loss in purchasing power of workers through lower wages (internal devaluation) is greater.

To me, a German observer, it is very difficult to understand why official Italy assists more or less passively in the loss of 30 percent of its industries’ market share.
Silvio Berlusconi and Beppe Grillo have questioned the Euro system, but this has not prevented the Eurogroup from imposing neoliberal policies on Italian politics.

Today the Italian left is needed more than ever.

The loss of market share, the rise of unemployment and precarious employment, and the consequent compression of wages may please the short-sighted interests of Italian companies, but the Italian left can no longer stand by and watch this process of de-industrialization.

The developments in Greece and Spain, in Germany and France, show that the fragmentation of the left can be overcome not only by unifying the existing left parties but especially by bringing together the creative energies percolating outside traditional political circles.

Only a sufficiently strong left in each country will change European politics.

Now, the European left needs a strong left in Italy.

I greet you warmly from Germany, and I wish you every success in the process of building a new Italian left.

Oskar Lafontaine was the finance minister of Germany, and he is the former chairman of the German Social Democratic Party (SPD) and of the Left Party (die Linke).