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Are Political Finance Regulations Helping to Combat Party Corruption in Europe and Latin America?

By Fernando Casal Bértoa

As has been repeatedly stated, money is the main fuel of politics. Without it political parties cannot function, elections cannot take place, and democracy – at least as we know it – cannot exist. It is for this reason, but not the only one, that most political systems in the world guarantee (at least some) political parties access to state resources either to finance their electoral campaigns or to keep their political organizations running, or both.

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Global Restructuring Comes to Portugal: The “Good Pupil” and the Eurozone Crisis

 

Recently, I presented at a workshop at Roskilde University (Denmark) titled ‘Structural Adjustment Comes to Europe’ (14-15 November). One of the primary aims of the workshop was to discuss whether the concept of ‘structural adjustment’ was a suitable analytical lens to understand the changes occurring to Europe’s political economy, especially in relation to the Eurozone crisis. If developed, it was argued, it may provide a concept to relate the experience of states in the ‘Global South’, which had experienced similar structural adjustment programmes (SAPs) under the guise of the International Monetary Fund and the World Bank, primarily during the 1980s, to states such as Greece, Portugal and Ireland in Europe. In this post, I will analyse Portugal’s experience to demonstrate that the term ‘global restructuring’, understood as the transnationalisation of production and finance, is more efficacious in understanding and explaining the processes unfolding, and that SAPs continue to provide an important political economic tool in which to bring this to, in this case, Portugal.

How has Portugal’s national model of capitalism changed during the crisis? To understand this, industrial relations, corporate governance and the role of the state must be analysed. In relation to industrial relations it is important to note that the bailout documents state very clearly that adjustment by labour is central to restoring competitiveness to Portugal, and in turn, will assist the European Union to compete more effectively in the global economy. Due to this, there has been a decentralisation of collective bargaining, with agreements over pay and conditions moving from the state to the firm level. This has assisted in moderating wages as the strength of labour’s position vis-à-vis capital is weakened. This has only been exasperated by the growing number of unemployed, especially amongst the young, and through mass public-sector redundancies, who begin to accept ever more precarious employment ‘opportunities’.

In terms of corporate governance, due to the relatively short-period of time, the relationship between firms has not demonstrated any major change. There is still a prevalence of small and medium sized enterprises, generally with a low-technology mix, historically the case for a number of decades. However, with traditional bank lending drying up, and the conditions present in the bailout package, there is a strong emphasis on increasing the financialisation of the Portuguese political economy. Whether this can be achieved is for history to tell, but the contradiction of decreased liquidity through banks, and the shutting out of financial markets does not make for strong prospects for the national economy.

In relation to the Portuguese state’s changing role in society, it is moving from its more traditional ‘pervasive’ role in the political economy, toward becoming an ‘enabling’ state which allows market forces to flourish. This is not to say that we are witnessing ‘the retreat of the state’, but to highlight the vital role it plays in structuring and restructuring capitalist social relations. The privatisation programme is evidence of this, as public utilities and services, energy and travel companies, are sold off in the name of competitiveness and efficiency, allowing market forces to play a more dominant role in societal organisation.

However, we cannot simply understand the changes occurring in a ‘transmission-belt’ manner, where national-states are the passive recipients of these restructuring processes through bailout programmes designed by supra-/inter-national forces. Nor, simply is it sufficient to analyse national social relations and institutions as purely endogenous. Instead, it is important to demonstrate how actors’ interests, both before and throughout the crisis, are oriented in a manner which produces a relationship across scales, which in this case, includes the international and transnational. This will demonstrate therefore how Europe’s political economy, and Portugal’s within this, is mutually constituted across and beyond a number of jurisdictions.

It is no accident therefore that Portugal has been deemed “The Good Pupil” of the bailed-out states by the supra-/inter-national bodies which oversee the SAPs. The government has continually, and on a number of occasions successfully, attempted to go beyond the conditions required, highlighting how a focus on competitiveness, primarily through labour market restructuring in favour of capital is the only game in town. This highlights the mutual reciprocation that is required in interest formation to ensure that the conditions are implemented. This process supranationally is, in turn, reinforced by the ‘New European Economic Governance’ framework which, strengthens the disciplinary ‘Stability and Growth Pact’; highlights the continued role of the state through the legislative/constitutionally enacted structural deficit, restricted to 0.5% of GDP; and the heightened surveillance emanating from the ‘European Semester’.

Finally, it is evident that Portugal is witnessing a greater transnationalisation of its production structure. The inward flows of foreign direct investment (FDI) during the period of 2005-2007, the pre-financial crisis average, amounted close to $6 billion, before falling to $2.7 billion and $2.6 billion in 2009 and 2010, respectively. However, in the year in which Portugal’s bailout programme was initiated, 2011, the inflow of FDI rises to $11.1 billion, before falling slightly to $8.9 billion in 2012. Demonstrating the increased structural dependency Portugal’s political economy now has on transnational capital flows for economic performance, the pre-crisis average for the period of 2005-2007 for gross fixed capital formation (GCFC) was 12.7 per cent, whilst in 2011 this more than doubles to 25.8 per cent, increasing further in 2012, despite lower flow volumes, to 26.1 per cent. The structural adjustment that Portugal’s political economy has therefore undergone has opened space for transnationally-oriented capital to increase its importance.

Coming full circle then, it seems far more appropriate to speak of Portugal’s experience throughout the Eurozone crisis as one of ‘global restructuring’ enacted via ‘structural adjustment’. To simply focus on the latter would mean that we inadequately compare experiences externally to one another, and fall into a methodologically nationalist lens. This would negate the ability to develop an understanding, and be able to explain why these structural changes within national-states are related to one another in a mutually constitutive manner within the global political economy, whether they have experienced a structural adjustment programme or not. This is not only importantly analytically, but also politically. To demonstrate the transnationalisation of capitalist social relations, in turn, highlights the need to organise politically on a transnational basis. This is no mean feat, but for those resisting the austerity and restructuring in Portugal and wider, it may be important to begin to redress the balance which has skewed further out of their favour in recent years.

Jamie Jordan is a first year ESRC PhD Candidate, studying in the School of Politics and International Relations, University of Nottingham. An extended version of this post can be found on his academia.edu page. He is also a Board Member of the Critical Political Economy Research Network (CPERN), affiliated to the European Sociological Association, which promotes critical scholarship on capitalism and capitalist societies across a range of disciplines. Jamie can be contacted via his university email or on twitter @jamiejordan23. Comments or questions are welcome.

Czechs and balances: The Bank of England and the Nazi seizure of Czech gold

Image by den99

Image by den99

The publication last week of the Bank of England’s internal ‘war history’ offers a fascinating insight into the workings and ‘mind set’ of one of the key institutions affecting government policy-making between 1939 and 1945. At 1175 pages, the History, can hardly be read in a single sitting, so it is not surprising that attention has focused on what the Guardian has dubbed the Bank’s ‘most shameful episode’; its involvement with the Basle based Bank of International Settlements (BIS) in assisting Berlin’s disposal of looted Czech gold in March 1939. The episode occurred five days after German troops entered Prague, when the Reichsbank co-opted the BIS to help it secure control over Czech overseas assets. The Bank of England’s part in the drama amounted to agreeing to a BIS request to transfer £5.6m of gold held in the BIS’ ‘Czech’ account in London to that known to be earmarked for the Reichsbank.

The Bank’s behaviour triggered a storm in the House of Commons and, in the eyes of the government’s critics, quickly came to epitomise the moral bankruptcy of Neville Chamberlain’s policy of appeasement. While the Bank’s part in the Czech gold controversy has been known for some time, the History sheds fresh light on the views of the Bank’s senior staff; its governor, Sir Montagu Norman, and vice-chairman, Sir Otto Niemeyer. In particular, it reveals that the Bank was far from innocent in the affair. Norman was perfectly clear about what the BIS’s instructions entailed and knowingly connived in the sale of plundered gold.

To understand the episode, and the Bank of England’s part in it, we need to step back and consider the wider context. This is something I did in an article in 2009, ‘Loot, gold and tradition in the United Kingdom’s financial warfare strategy, 1939-1945‘, and more generally in my book Britain, Switzerland and the Second World War, where I suggested that British financial measures against Germany were undermined by Britain’s excessive attachment to established orthodoxies and policies, despite the mounting evidence that pointed to both the scale and significance of Germany’s sale of looted gold.

What is striking about the Bank’s conduct during the Czech affair is its insistence on defending the BIS’s autonomy rather than halting German plundering. Norman remained resolutely opposed to attempts by the British Treasury and French National Bank to force the BIS to suspend further transactions on the Czech account. ‘Questions by certain members of the House of Commons do not change my views on, nor my attitude towards, the Bank of International Settlements’, he bluntly informed the Chancellor in early June 1939. Even after the outbreak of war, Norman held to the view that London should leave the BIS alone. It took, in the understated words of the History, a ‘long controversial meeting’ with the Chancellor of the Exchequer on 10 October 1939 for him to agree to have the BIS rein in its activities on Czech gold. Thereafter, the Bank’s fondness for the BIS continued to colour its judgement. Although the BIS’s ‘contribution’ to German gold operations over the course of the war was relatively slight, its activities were not as innocuous as the History implies. Basle frequently justified transferring gold ‘from places which were relatively unsafe to others which were relatively safe’, but much of this trade entailed moving Reichsbank gold to the Iberian peninsula, where it was needed to cover Berlin’s trade deficit, exchange transactions and espionage activities, in and outside Europe.

My research findings suggest that Norman’s outlook was dominated by a desire to uphold the fabric of international finance; a system which he had been personally instrumental in creating. Although the BIS had been initially set up in 1930 to oversee German reparation payments, it soon evolved into one of the primary vehicles of central bank cooperation over fiscal and monetary matters. Norman’s affection for the institution can be seen from the fact that by 1939, the sixty-eight year old took five days out of his busy schedule to attend the BIS’s monthly board meetings.

Norman’s fondness for central bank action was not unique. In mid-1942, Sir Otto Niemeyer admitted to feeling that while ‘the present tendencies both in Whitehall and Washington are in the direction of Government action to the exclusion of Central Banks., … when it comes down to practice it will be found, as it was found 25 years ago, that Central Bank co-operation will be essential to get things done’. Such views were not without their effect, and by the summer of 1944, opinions in Whitehall had clearly softened. News that Washington was intent on calling for the BIS’s early dissolution prompted the Treasury to hammer its colours to the mast. It was, remarked one official, ‘the height of intellectual modesty to think that the only way of not being outwitted after the war by the defeated Germans is to cut our connection with the BIS now with all the immediate loss to the war effort that that entails’. That the BIS survived to take its place in the post-war financial structure, had much to do with British sponsorship of its interests during the final months of the war.

Finally, a full reading of the extant papers suggests that the Bank staff, as much as their counterparts in the Treasury, were unwitting heirs to a tradition of British war fighting that ran counter to the kind of vigorous action proposed by the French in 1939/40, or the Americans in 1944. Ever since the Napoleonic wars, finance had been acknowledged as one of the Britain’s foremost strategic assets. But the ‘fifth arm’, as it became known, was principally viewed in defensive, rather than offensive, terms. Thus, in the autumn of 1938, when serious war-planning in Whitehall belatedly began, officials instinctively assumed that Germany’s financial position could best be weakened by protecting Britain’s financial resources, not indulging in offensive measures. ‘We do not consider that any regulations or restrictions of a general character are required for the purposes of exercising financial pressure on Germany’, noted a Committee of Imperial Defence paper, ‘over and above those which will be required to conserve our own financial resources’. Britain therefore entered the war wedded to a financial policy that privileged the defence of its own interests above attacking those of its enemies.

This policy ensured that Britain’s priority, both in the months leading up to the 3 September 1939 and in the curious ‘twilight war’ that followed, lay in shoring up London’s status as the centre of global finance; leaving sterling as a convertible currency and allowing foreigners to access their deposits and securities in the United Kingdom for as long as Britain’s finances could bear. It was ultimately this wider goal that Norman had in mind in ‘sacrificing’ Czech gold reserves to the Reichsbank in 1939, and explains why he fought so tenaciously to hold London to its international obligations and convince his febrile colleagues that Hitler could best be beaten by a policy of ‘business as usual’

Neville Wylie

The rise of euroscepticism in Croatia

Despite the current challenging economic times and the alleged enlargement fatigue, on Monday, July 1st 2013 Croatia became the 28th EU member state. Further Western Balkans countries, such as Montenegro, the Former Republic of Macedonia and Serbia, are waiting to join, while Albania, Bosnia and Herzegovina and Kosovo hope to gain official status as candidate countries soon.

Croatia applied for EU membership in 2003. In June 2004 it was granted official EU candidate status, and in October 2005 the negotiation process started. Between 2004 and 2005 the high levels of public enthusiasm in Croatia towards EU integration decreased and opposition to it increased markedly, while the EU itself experienced a slowdown with the double rejection of the EU Constitution in France and the Netherlands.

Figure 1. Public support for EU integration in Croatia (2000-2011)

Figure 1

Source: Ministry of Foreign and European Integration (Ministarstvo Vanjskih i Europskih Poslova: MVPEI) For comparative public opinion data, see Eurobarometer surveys.

Lower levels of public support are to be expected after the opening of the negotiation process. The post-communist countries that joined the EU in 2004 and 2007 showed similar patterns of attitudes towards the EU. As Figures 2 and 3 illustrate, levels of opposition towards EU integration increased after 1998 in the Czech Republic, where public support has never been high. The same happened in Poland where positive attitudes towards EU integration were high until 1997, when the EU opened the integration process.

Figure 2. Image of the EU in the Czech Republic (1993-2003)

Figure 2

Source: Central and Eastern Eurobarometer (1991-1998) and Candidate Countries Eurobarometer (2001-2003)

Figure 3. Image of the EU in Poland (1992-2003)

Figure 3

Source: Central and Eastern Eurobarometer (1991-1998) and Candidate Countries Eurobarometer (2001-2003)

In Croatia, the costs of the integration process and the demands of political conditionality – in particular facing the past, war crimes, and passing through the removal of immunity for its former Prime Minister, Ivo Sanader, who opened Croatia to the EU integration process – have affected Croatian attitudes towards the EU. If public opinion is now a measure of the process of European integration and citizens can express their protest and opposition through referenda and European Parliament (EP) elections, Croatia joined the EU when opposition was at its highest since 2000 (see Figure 1).

Although, in 2006, there were growing fears about the implications of EU integration, Croatian political elites were optimistic. The vast majority of Croatian citizens referred to the advantage of open borders (80%), economic development (79%), and general significant progresses (80%). The partial loss of independence was not that relevant at the time (36%), but the necessity for regional cooperation (55%) and negative consequences for the national economy (53%) already concerned more than half of Croatian citizens. The 2004 enlargement of the European Union had shown that the waiting time for EU membership and the perceived lack of relevant information could negatively impact on levels of public support.

In order to avoid rising levels of public Euroscepticism, the Croatian government adopted two communication strategies, in 2001 and 2006. The main aim of these strategies was to inform citizens on the progress toward European integration and enhance the quality of the debates on EU integration, but the two communication strategies and the information campaign did not garner much interest. In 2006, the Croatian public were growing increasingly concerned about the impact of EU membership on the economy (87%), everyday life (84%), and the impact of membership on sovereignty (84%). Unsurprisingly, surveys showed that more and more Croats were willing to vote against EU membership (14% in 2003, 39% in June 2004, and 45% in 2006).

It is also fundamental to note that the case of Croatia can be seen as both typical and different compared to the wider post-communist region. The Croatian Democratic Union (HDZ) has had a dominant position in the democratization process, and its role is viewed as a negative factor in the transition. Its focus has been on independence and statehood, less on democratization; with its leader, Franjo Tudjman, representing the Croats more than Croatia.

In comparison with the countries of the post-communist region, Croats assume distinct positions, with a very dissatisfied attitude towards how democracy is developing in the country, but a very high (the highest in the region) positive value on democracy in principle. This resulted in critical attitudes towards the way democracy was developing in Croatia; while the conditions for EU membership were challenging public opinion and were perceived as insulting Croatian national pride.

Further perspective challenges arise from the possible impact of membership on the policy-making process, being a small member state. If, in the 1990s, EU integration could be viewed as a civilizational choice (leaving behind the past and the war), the awareness that Croatia was not just a victim of war crimes and the slowing down of the negotiation process, in particular on the border dispute with Slovenia between 2008 and 2009, affected the early Euroenthusiasm. In January 2012 only one out of three Croats voted ‘Yes’ at the accession referendum on a 43.51% turnout, still valid after a Constitution amendment in 2010, but resulting in a meagre one third of Croats overall supporting EU integration on the EU referendum day.

The Croatian case is also distinctive in the region, as a very low percentage of young voters were mobilized by the referendum. While generally young Europeans were the most in favour of EU integration in the post-communist region ten years before, the benefit of travelling and studying abroad did not make any difference in Croatia. Levels of participation in the country remained at a record low (20.84%) at the first European Parliament elections, held on 14 April 2013. At the domestic level, that was the lowest turnout since Croatia’s independence. Low levels of turnout are common across the post-communist countries and the ‘second-order’ dimension of the European elections can be detected.

The literature distinguishes between ‘first-order’ elections, such as general elections at the national level, where citizens vote on who should govern the country, and ‘second-order’ elections, such as regional or local elections, and European Parliament elections, where citizens do not vote on the executive, but national party politics still affect the outcome. Compared to national elections and depending on the electoral cycle, ‘second-order’ elections are characterized by loss for governing parties, while opposition and protest parties can gain from the lower turnout. Although the model fully applies to western member states, voting can also show a second-order dimension in the new member states. In Croatia, the HDZ and the Social Democratic Party, representing the opposition and ruling coalitions in the country, gained respectively 6 and 5 seats.

The global financial crisis and high levels of unemployment rates (about 22% in Croatia in 2013) have affected the results and turnout at the EU accession referendum and EP elections, and help explain the persisting low levels of enthusiasm. Croatia joins the EU after the entering into force of the European Fiscal Compact, in a difficult domestic economic situation, and while corruption is still rampant. It should benefit from EU accession and the internal market, and it is important for the EU to have a foot in the Western Balkans and more voice to preserve democracy and securitize the region. The enlargement of the EU to Croatia definitely represents a ‘win-win’ situation for the newest member state and the EU itself.

Simona Guerra

Though currently indifferent, young Germans may begin to reject the EU if economic conditions worsen

Image by Malik_Braun

Image by Malik_Braun

Until the start of the Eurozone crisis, sociological research on integration in the European Union depended very much on the idea of “permissive consensus” by the people, meaning a tacit acceptance of EU policy. In this context and in Germany in particular, the political and economic elites who pushed for the deepening and enlargement of the EU, and for the introduction of the euro, were not forced to consider their relationship with, and the approval of, Europe’s citizens.

But this has changed. The newest research into public opinion in Europe has found a loss of trust and an increasingly unsettled relationship between Europe’s governing bodies and voters. Now, the prevailing notion of the EU’s relationship with its citizens has developed towards a “constraining dissensus”, as belief in the comprehensive projects aimed at closer European cooperation is no longer shared by the majority of the people. In this context, political and economic elites in the member states, as well as at the European level, are aware that the EU and its political institutions are dependent on a certain degree of public approval. Particularly in those member states where the constitution does not allow for a referendum (like in Germany), politicians are acting between two partly contradictory levels: the domestic and national state level, and the European level.

We focus on two different Euroscepticism ‘stances’ that have been developed:

  1. Soft stance: This represents the criticism of single manifestations of the EU, such as its policies and institutions, without putting the entire EU into question;
  2. Grim stance: This is a general rejection of the entire political and economic process of EU integration.

In Germany, according to Eurobarometer data, the sense of “EU integration harmony”, between voters, social elites and political parties, which until relatively recently had been very stable, has crashed. According to surveys from 2011, the proportion of Germans that feel that Germany benefits from the EU is 48 per cent, lower than the EU average of 52 per cent. Using net-benefit figures (the number of people who recognise benefits, minus those people who do not see any benefits), the picture sharpens even more. Whereas the EU average rate for net-benefit is 15 per cent, this rate is 6 per cent for Germany. Only the rates in Italy (2 per cent), Cyprus (2 per cent), Latvia (0 per cent), Austria (-2 per cent), Greece (-3 per cent), Hungary (-9 per cent) and the UK (-19 per cent) are lower.

In particular, the further enlargement of the EU is now viewed very critically by Germans. Eurobarometer demonstrates that in no other EU member country, with the exception of Austria, is the rejection of further EU enlargement so strong, at 71 per cent, whereas only 22 per cent are pro-enlargement. What makes these figures all the more worrying is that all German governments have acted as a driving force (together with France) for the further integration and enlargement of the EU.

At present, it is unclear how Germans would react if the country’s €190 billion share of the European Stability Mechanism (ESM) loan guarantee was to actually turn into real payment obligations. Considering that the people in Germany opposed the creation of the euro more than in any other member state, we assume that Germans (including young people, whose futures might be deteriorating because of the Eurozone crisis) would become openly hostile towards the EU. This cannot be ignored by the economic and political elites.

As part of the European MYPLACE project, in the late autumn of 2012 we interviewed 30 West German young people between 16 and 25 about politics. When they were asked about the European Union and the role of Germany within it, young people generally mentioned some positive aspects, but were critical of the current political state of the EU. They perceive the EU as an elitist project which does not encourage or enable the political participation of young people.

Positive aspects of the EU 

The positive points most often highlighted by young people were the freedom of travel within the EU and the fact that there is no longer a need to change currencies when traveling. Some also pointed out that the abolition of strict border controls also means easier import and export routines for the economically strong and centrally located Germany:

“Well, we are for sure a very, very important country in Europe, because of our economic strength. There are many people living here, so we also play an important role, because of the density of our population … . In former times, we were also considered as ‘Europe’s heart’ … or we considered ourselves that way.”

Indifferent/ambivalent views on the EU 

For some young people, the central role of Germany in the EU is also the reason that they have a critical view of the EU. They see that it is difficult for Germany to play an important position in the EU, because of its former involvement in the two World Wars. Nevertheless, Germany now has an economically strong position within the EU from which many commitments have arisen: e.g. payments for countries which are not able to follow financial EU guidelines. Thus they think:

“Well, I think Germany is important for Europe. But actually I don’t think that Europe is that important for Germany.”

Moreover, the majority of young people criticised the obligations that are being placed on Germany to support indebted countries such as Greece. These respondents fear that their country is being exploited and believe that the financial support should be lower. Additionally, the interview participants expressed a critical position towards tendencies towards globalisation as these are connected with the clash of very different cultures and a loss of sovereignty. They already feel that they (as individuals) have very little political power within Germany. But one voice among 82 million voices counts more than one voice among 500 million voices in the EU:

“There are so many problems connected with it. First of all … suddenly there are not 80 million voices any more, but, I don’t know, one billion voices? […] This means I suddenly have much less power with my voice.”

Finally, our qualitative interviews illustrated that EU politics is not at all transparent for German young people. They feel that there are fewer prospects for participating at the EU level than there are at the national level. This leads us to the conclusion that there are emerging parallel worlds. 

On the one side, the parliamentary democracy of an EU member state fosters tendencies towards professionalised participation of its citizens at the national level, which is then much more complicated at the EU level. Even though a range of youth projects and initiatives that aim to foster commitment to the EU formally exist, these reach only a minority of young people. None of the individuals that we have interviewed in this context has ever referred to participation in an EU-funded project or organisation.

On the other side, there are young people who engage in projects and institutions that display a form of self-organisation, mostly at the local level, that is distant from the conventional political engagement patterns that make any reference to the EU. Youths prefer to shift their engagement from smaller to bigger things – as they perceive it “from feasible projects to more abstract things”.

Currently young people in Germany prefer the “soft stance” towards the EU. But if the ESM’s loan guarantees turn into real payment obligations (which has already started with a real cash payment of €730 million for 2013), and if the socio-economic conditions in Germany worsen and thus the currently record low youth unemployment rate of 7.9 per cent in January 2013 (the EU average is 23.6 per cent) increases, a majority of young people could move to a “grim stance” towards the EU, much sooner than expected.

EuroscepticismThis post is part of a collaboration between British Politics and PolicyEUROPP and Ballots & Bullets, which aims to examine the nature of euroscepticism in the UK and abroad from a wide range of perspectives. Read more posts from this series.

Britta Busse is a Research Assistant at the Institute Labour and Economy, University of Bremen (project funded by the EU: “MYPLACE”).

Alexandra Hashem-Wangler is co-leader in the EU-research project MYPLACE (“Memory, Youth, Political Legacy and Civic Engagement”) at the Institute Labour and Economy at the University of Bremen. 

Jochen Tholen is research director at the Institute Labour and Economy, at the University of Bremen, Germany.