Authored by Rodrigo Serrano of Rational Capitalist Speculator,
Since the 2008 financial crisis the foundations of the global economy have been in repair, translating into a prolonged period of economic frailty. Against this backdrop, social and political tensions have increased between citizens and government, international institutions and governments, and individual nation states. This murky political environment is fertile ground for international relations theory to: produce a better understanding of the forces affecting these developments, as well as offer potential solutions to these increasingly apparent conflicts.
The European debt crisis remains the largest challenge facing the global economy. A negative resolution emanating from the world’s largest economic bloc would cause harmful ripple effects worldwide in global trade flows. More importantly, it could also mark a paradigm shift in international relations, dealing a critical blow to what has been a relentless trend towards liberalism since the end of World War II, while providing fecund ground for a resurgence in realist ideology. Interestingly though, constructivism may be at the forefront in explaining the current dilemma between the European core and its periphery. It is therefore important for officials and institutions in leadership positions to analyze the situation through a constructivist lens.
Given the fast-paced nature of the political situation in the Eurozone, it is important to invoke a constructive approach when analyzing the competing forces affecting the region. Presently, we are witnessing a clash between long-standing and embedded “regulative norms” versus relatively recent “constitutive norms.” Both classes are best defined in Margaret Keck and Kathryn Sinkkink’s article: International Norm Dynamics and Political Change. “Scholars across disciplines have recognized different types of categories of norms. The most common distinction is between regulative norms, which order and constrain behavior, and constitutive norms, which create new actors, interests, or categories of action” (Keck and Sikkink 1998, p.891).
In peripheral nations such as Spain, Greece, and Italy, long-standing social welfare systems have served to entrench a cohesive array of regulative norms among society commensurate with a distinctive and generous standard of living. Meanwhile constitutive norms, such as the desire to erase the horrid memories of World War II along with the desire for economic prosperity, converged in the mid-to-late 1990s to create the European Monetary Union (EMU). Ironically, the bloc’s defining characteristic, the Euro, is now the impetus of the current conflict between these norms.
“Whereas Germany, still staggering under the financial burden of reunification, impressively massaged down its labor costs, trimmed its welfare spending, and became competitive again, many of the peripheral countries allowed their unit labor costs to soar” (Garton Ash Sept/Oct 2012, p. 3). In order to resolve the crisis, labor productivity must improve and labor costs lowered throughout the periphery to better compete in today’s demanding global marketplace. This means that social welfare systems in these countries will need to be substantially curtailed. In essence, for regulative norms throughout the periphery, the Euro and kryptonite are akin.
The discordance of these two powerful sets of norms has given rise to political activist groups such as Los Indignados in Spain and anti-Euro protesters in Greece, respectably demanding a softening of austerity measures and in the extreme case, advocating an exit from the EMU altogether. Like the Arab Spring, these groups bring to light what Ann-Marie Slaughter calls The New Foreign Policy Frontier. “But [Hillary] Clinton herself insists that 21st-century diplomacy must not only be government to government, but also government to society and society to society, a process facilitated and legitimated by government. That much broader concept opens the door to a do-it-yourself foreign policy, in which individuals and groups can invent and execute an idea -- for good or ill – that can affect their own and other countries in ways that once only governments could.” (Slaughter 2011, p.1-2). The aforementioned groups are having an increasing effect on German and European Union (EU) policy, with Germany’s Christian Social Union party leader Horst Seehofer recently softening his stance on Greek austerity and Angela Merkel appearing more receptive toward Spain requesting aid without further conditionalities.
Moreover, the conflict of these norms increases the threat of internal war, which adds another layer of complexity to the tenuous balance of power between sovereign states versus the supranational organization that is the EU. “As such, free trade that jeopardizes a state’s key industries or allows potential adversaries to become relatively stronger may not be in a state’s interest even if the economy of the state gains in an absolute sense. Better to subsidize an inefficient group of producers than face the threat of a violent challenge to the regime” (David 1998, p. 89). In simple terms, core countries demanding further austerity from an already recession-wracked periphery should tone down their rhetoric and give these countries a much needed breather or risk an anti-Euro political faction upending all progress up to date.
While examining the current situation in Europe through a constructive viewpoint seems most prudent, it does not significantly discount realism as a viable alternative when analyzing the current state of affairs. On the contrary, realism remains an underlying force in the current precarious condition between the core and periphery nations. “The economic expert, dominated in the main by laissez-faire doctrine, considers the hypothetical economic interest of the world as a whole, and is content to assume that this is identical with the interests of each individual country. The politician pursues the concrete interest of his country, and assumes (if he makes any assumptions at all) that the interest of the world as a whole is identical with it… Laissez-faire, in international relations as in those between labor and capital, is the paradise of the economically strong. State control, whether in the form of protective legislation or of protective tariffs, is the weapon of self-defense invoked by the economically weak” (Carr 2008, p. 74).
Furthermore, beneath the veneer of constructivist analysis and potential solutions that such analysis may provide, lies the specter of a powerful resurgence of crude realist ideology. A negative settlement within Europe could lead to a fragmenting EMU in tandem with a significant reduction in the perceived power of a panoply of liberal-style institutions such as the European Commission, the European Parliament, the European Central Bank (ECB), and the International Monetary Fund (IMF); dealing a critical blow to a bedrock of Institutional Liberalism, one espoused by Robert O Keohane: “Collapse is avoided because as Joseph Nye and I wrote in Power and Interdependence, ’a set of networks, norms and institutions, once established, will be difficult either to eradicate or drastically rearrange’” (Keohane 2012, p. 136). Additionally, the likely subsequent global economic downturn would create an effective incubator for a renaissance of realism not only in Europe, as discarded ex-EMU nations are once again left to fend for themselves, but abroad, as a worsened economic climate leads to declining trust and an increased focus on individual interests.
While liberals may point to the importance of economic interdependence as well as an eventual climatic repeat of “the Monnet method” as key factors in the ultimate creation of a political and fiscal union, the chronic competitive divide between European core countries and their peripheral counterparts increases the likelihood that austerity will continue, further fueling the popularity of nascent nationalistic political parties, such as the Golden Dawn in Greece, the 5 Star Movement in Italy, and both the Basque Nationalist Party and EH Bildu in Spain. At some point, one of these parties will assume power setting the stage for a repudiation of the country’s “odious debt”. As Dani Rodrik stated in The Globalization Paradox, “When globalization collides with domestic politics, the smart money bets on politics” (Rodrik 2011, p. 188).
From a realist point of view, Kenneth Waltz’s thoughts on the security of organizations deserve intense introspection. “Organizations have at least two aims: to get something done and to maintain themselves as organizations. Many of their activities are directed toward the second purpose… In making political decisions, the first and most important concern is not to achieve the aims the members of an organization may have but to secure the continuity and health of the organization itself” (Waltz 1979, p. 111 – cf. Diesing 1962, p. 198-204; Downs 1967, p. 262-70). Indeed, to ensure its own survival an institution is likely to “break the rules”.
An ongoing and increasingly appropriate example of this behavior is the ECB and its recent announcement of Outright Monetary Transactions (OMT), a policy that seemed unthinkable only a year ago. This policy ventures into the gray area with regards to monetizing government debt, which is illegal as per Article 123 of the bank’s founding treaty. While Mario Draghi continues to reassure that the bank will under no circumstance begin printing money to buy government debt without strict conditionalities from Eurozone governments, it would be naïve to confidently think that they would simply stand by if the survival of the Eurozone solely depended on committing to cap government bond yields. While there’s a significant probability that, if faced with extinction, the ECB would resort to monetary financing, would Germany, haunted by its past experience with Weimer hyperinflation (due to printing money), acquiesce to such a policy?
In the face of such significant and critical challenges facing the global economy and political order, what can be done? Using a constructivist approach, one must be cognizant of the strengthening trend of nationalistic sentiment and possible development of ensuing norms in periphery countries. It is of great import that these trends are arrested by implementing various targeted, profound, and didactic educational campaigns throughout Europe, most importantly in core countries, so as to encourage continued cooperation (fiscal stimulus?) in exchange for sustained efforts on the part of periphery countries to reconstruct their labor markets. Nations under intense economic hardship need to feel that core countries understand their dilemma and that they are committed to their long-term prosperity.
Demanding continued austerity without some sort of relief risks a breakdown of trust between both poles. Additionally, award-winning Czech journalist Jan Machá?ek, speaking at Columbia’s School of International and Public Affairs on October 4th, advocated educating European citizens about the constitutional structure of Federalism and the fact that it is not centralism. Perhaps these educational policies will lead to the socio-dynamic version of critical mass. All in all, these strategies require immense patience from all parties. An alternative policy may also lie in the realization that we have a tension between national democracy and global markets that is extremely close to its breaking point.
From Dani Rodrik’s The Globalization Paradox: “How do we manage the tension between national democracy and global markets? We have three options. We can restrict democracy in the interest of minimizing international transaction costs, disregarding the economic and social whiplash that the global economy occasionally produces. We can limit globalization, in the hope of building democratic legitimacy at home. Or we can globalize democracy, at the cost of national sovereignty… The menu captures the fundamental political trilemma of the world economy: we cannot have hyperglobalization, democracy, and national self-determination all that once… We cannot fudge the role of nation states and proceed on the assumption that we are witnessing the birth of a global political community… Hyperglobalization cannot be achieved, and we should not pretend that it can” (Rodrik 2011, p. 200). Perhaps it would be more sensible to pare back visions of supranational governance in exchange for increased flexibility within the current political order.
The financial crisis in 2008 has resulted in a protracted period of economic frailty, which has tested the resiliency of today’s global political order. Increased tensions, not only in Europe but also throughout the world, must be diligently analyzed to determine their causes in order to present effective and sustainable solutions to ameliorate their negative effects.
In a theoretical sense, liberalism helps little to solve the current dilemma in Europe. In fact, one could say that the region is experiencing an overdose, as institutions such as the European Parliament, European Commission, IMF, G-8, OECD have thus far failed to resolve the crisis. Today’s circumstances require thinking outside the box and embracing constructivism as a tool to both evaluate the brisk-paced nature of the Eurozone debt crisis as well as produce potential solutions that focus on educating the citizens of Europe on the intricacies of a currency union and constitutional federalism. It would also be wise to ponder the idea of whether a supranational government could exist. Proceeding down a path with a likely dead end would consume precious resources and lead to widespread suffering among every day citizens.