Clash of economic classes, not of nations

Employment & Income04 Jan 2016Frans Bieckmann, Evert-jan Quak

The argument that pits the lazy Greek or Spaniard against the hard-working Dutchman or Fin is clearly too simplistic. Instead of a clash of nations, we should rather speak of a clash of economic classes.

Background article

This is a background article for our longread Debts and imbalances – The making of the euro crisis.

Click here to go to the full longread

Until now many Europeans, in particular in Germany, the Netherlands, Austria and Finland, have understood the crisis primarily in terms of differences in national character and economic virtue and as a moral struggle between prudence and irresponsibility, between the ‘lazy’ Greeks, Spaniards and Portuguese and the ‘hard-working’ Dutch, Fins and Germans. According to Michael Pettis, professor of finance at Peking University’s Guanghua School of Management, this interpretation is ‘intuitively appealing but it is almost wholly incorrect’.

As the longread ‘Ideals versus Reality – a false start for the eurozone’ showed, with all the suffering in the wake of the financial crisis in places such as Spain, Ireland and Greece, many forget that German workers have suffered from stagnant wages for a much longer period. Countries like Germany and the Netherlands embraced the flexibilization of labour markets and kept wages low, especially in Germany, which contributed to what is called ‘job polarization’ in these countries, which means that more jobs have been created in the lower and highest wage segments, but not in the middle wage segment. They started a ‘race to the bottom’ among their export sectors in the search for competitiveness.

Economists Heiner Flassbeck and Costas Lapavistas show the downside of this policy in their book Against the Troika. For example, one-third of the labour force in Germany live in precarious conditions, with wages that are lower than expected based on productivity levels. ‘This explains why the German people are annoyed and angry when it comes to sending money abroad, paying for others,’ says Lapavistas in an interview. ‘Of course, I would be angry too in that position: you live in a very tight way, you count your beans and then somebody comes and tells you, you have to pay. On the other hand, German exporting business, the German banks, this is a different story. They‘ve done very well.’

From that perspective, the more accurate description of the division in Europe is not between countries but between groups of citizens. In his blog, Pettis says ‘…if you separate those who benefitted the most from European policies before the crisis from those who benefitted the least, and are now expected to pay the bulk of the adjustment costs, rather than posit a conflict between Germans and Spaniards, it might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other.’ According to him this is a ‘conflict among economic groups’ and not a ‘national conflict’. What frustrates him most is that the creditor countries (e.g. Germany, Finland, and the Netherlands) deliberately keep this illusion alive, because it works in their favour. This clash of countries stereotype allows them to argue that they cannot make any exceptions and that the debtor countries can only blame themselves for not following the rules, rather than blaming the incompetent economic and financial system.

And the economic and financial system that is based on neoliberalism in Europe is very much interconnected with the liberal democratic political system. The current model of competition and the market economy not only dictates policy decisions, which has resulted in a democratic deficit, but, as the longread ‘Ideals versus Reality’ showed, it cannot deliver welfare for all, upward job mobility and quality jobs. There is a longstanding trend of rising inequality, low wage jobs, job polarization and low productivity growth all across Europe. The argument that pits the lazy Greek or Spaniard against the hard-working Dutchman or Fin is clearly too simplistic. It is not a clash of nations, but of economic classes.