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Thursday, May 24th 2012

Michael Roberts | Europe: default or devaluation?

Author: Donagh of Dublin Opinion

Published: November 17th, 2011

Section: Best of the Web

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Michael Roberts | Europe: default or devaluation?

Marxist economist Michael Roberts has an excellent post which goes through the arguments made at a plenary session at the Historical Materialism conference last weekend. The most interesting part of the discussion, and the most heated, was on whether or not the left should advocate that a peripheral Eurozone country should leave the Euro, or if instead it should remain and under what conditions.

“There was significant disagreement on the question of the euro, Europe’s single currency. Lapavitsas was charged emotionally in telling the audience that the first and most important thing the left had to campaign for before any of the above programme was to break with the euro.  The euro was at the heart of the problem.  It was a  ‘world money’,  not a currency for the people.  By this, I think he meant that it was an imperialist currency like the US dollar.   Capitalists conduct their transactions in dollars and euros.  They hold their reserves in these currencies.  For that reason, the euro’s value was controlled by big capital to the detriment of the likes of Greece, Portugal etc, the weak capitalist states of the Eurozone.”

Ozlem Onaran, who’s excellent 2010 paper Fiscal Crisis in Europe or a Crisis of Distribution? I recommend, made some key economic arguments against leaving the Euro and Michael Roberts agrees.

“Leaving the euro and adopting a national (non-world) currency for the Greeks would be no solution on its own. Doing that would mean the New drachma would be devalued by at least 60% against the euro.  That might make Greek exports more competitive, but exports are only 30% of GDP.  Import prices would rocket in new drachma terms and very soon inflation would run through the Greek economy and start to cancel out the gain from devaluation.  History has shown that devaluing a currency to gain competitive advantage does not deliver for long.  Also, debts owed by corporations, banks and households in euros would double.  The government may default on its debts, but what could households do with their euro mortgages or businesses with loans from European banks?  Moreover, if all the ‘bailout’  Eurozone economies also left the euro (as advocated), they would devalue and we would enter a ‘beggar-my-neighbour’ race to get the lowest value currency to compete in Europe’s markets.”

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