Pierre Defraigne

Economic neoliberalism is pushing Europe towards political illiberalism. Social democracy was powerless to stop it. By combining intergovernmentalism and neoliberalism, the EU is rendering itself powerless and creating inequalities. It is also endangering European democracy and threatening its own survival.

Social democracy has failed on two fronts: on the one hand, it failed to create a transnational citizens’ movement capable of transcending the collective power of the Member States, which inevitably leads to nationalism; and on the other hand, the Third Way, with Blair, Schröder, Clinton and later Hollande, embraced neoliberalism. Under the guise of promoting a policy of growth and by banking on the deregulation of labour, the liberalisation of finance and privatisation, social democracy neglected growth through the more egalitarian distribution of productivity profits and wealth. In both cases it was incapable of exploiting the European dimension: there was no effective regulation of global capitalism, no European industrial policy supported by public authority which was comparable to that of the United States of America or China and no controls on finance. But with the de facto consent for fiscal and social competition, social democracy took refuge in its rearguard actions on social rights. A commendable fight, but one that is too often skewed by corporatism and clientelism. Its analysis lead it to the wrong conclusion.
Social democracy failed to realise that after the 30 years of growth that followed the Second World War, the distribution of added value was moving towards an excessive level of profits and a far too unequal distribution of salaries fed by globalisation and innovation. It would have been necessary, then, to identify the causes and take action against them. However, it chose to try and offset these inequalities, notably those that were a result of unemployment, by turning to social transfer policies that were insufficiently financed by taxes and, therefore, required borrowing. Sovereign indebtedness has no other cause, and today the cost of debt reduction is weighing down on the middle classes and those in precarious work, causing a deflationary effect in Western Europe. Social democracy is now paying the political price and we need to find ways of turning things around.

Three challenges for the future of Europe
Let’s start with three challenges that, to be controlled, require a change of political scale and which justify the Europe Union: ecological transition, the rise of inequality due to the financial instability of global capitalism, and finally, the ‘Thucydides trap’ of one rising power – China – confronting an established power – the United States. These three challenges are linked as solving the climate equation both brings up questions of how to share the burden of our changing societies which have been weakened by rising inequalities, and creates the risk of clashes between China, the United States and Europe for access to resources.

With 27 very different states being judged within the context of development if not values, intergovernmentalism once again becomes Europe’s status quo.

EU treaties often impose unanimity in decision-making and the enlargement to the east further complicated things. With 27 very different states regarding their economic development as well as their values, intergovernmentalism once again becomes Europe’s status quo. As a consequence, the right of veto paralyses decision-making. What’s more, it leads to a de facto ranking of the 27 countries. A core group, dominated by Germany, with no other goal than its own prosperity, governs Europe. France makes pledges, but struggles to make itself heard. Italy is rebelling and the United Kingdom is leaving. Time will tell what damage this unequal , deregulated, low tax nation, vassal to Washington can do, alongside a European Union that is unsure of its own project.
Intergovernmentalism is becoming more toxic thanks to this neoliberal passiveness, which is complicating Europe’s already problematic relationship with capitalism. Capitalism has brought progress in Europe, as long as it was kept in check by democracy. In other words, as long as a delicate balance existed between political and economic liberalism, and between politics and the market. Social democracy was responsible for this balancing act. Globalisation broke it. Neoliberalism, an opportunist consensus without an explicit doctrinal foundation, filled the gap left by the absence of a precise European vision of economic policy within the EU.

A weakened social democracy
Neoliberalism turns the European Union into a club for the strong: states, businesses and individuals. On the one hand, the single market has remained an economic area of competition between business, but also between states, through a social and fiscal race to the bottom. On the other hand, the eurozone, without a government or a budgetary arm, is feeling the deflationary pressure of both Germany’s colossal surplus, and policies of budgetary and wage austerity designed to absorb excessive sovereign debt.
The degradation of the regime of sharing wealth and revenue – the distributional paradigm – driven by globalisation and technological innovation, is without doubt the cause of the rise of populism in Western Europe. More so than immigration, which added itself to the growing list of problems experienced by the most vulnerable sections of society, who already felt the pressure of wage drops, rent increases and the overcrowding of social services like schools and hospitals in working class areas. Of course, this phenomenon also has a identitarian dimension. But this menace to the welfare state – a symbol and emblem of the post-war social contract – is destabilising the middle and working classes. Social democracy, which is responsible for the system, now finds itself more vulnerable because of it. It can only bounce back with a two-fold agenda: regulate global capitalism outside of the European Union and re-establish solidarity within it.
During his confirmation as European Commissioner for Trade by the European Parliament, almost 20 years ago, Pascal Lamy challenged the EU to ‘control globalisation’. There’s still a lot of work to be done.