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viernes, 19 de diciembre de 2014

From the Atlantic to the Mediterranean: Portugal, Spain and Greece – the search for a way out of the crisis


Of all the countries in Europe, Portugal, Italy, Ireland, Greece and Spain are the most affected by the financial crises (‘PIIG’ states). Their political, economic and social systems are currently facing a process of structural change, the result of which is extremely difficult to predict. Apart from the special case of Ireland, these countries share many similarities and have endured comparable historical experiences.
However, Italy still tends to differ from the other states in a number of significant respects. Italy was one of the founding nations of the European Community and has always had far greater negotiating power than the other countries. Furthermore, Italy’s economic, political and institutional modernisation took place during three decades of regulated capitalism, and Italy was party to a number of political and social treaties that remained in force for more than two generations. These treaties secured a system of political freedoms and individual rights, a (minimal) balance of interests between capital and labour, and helped ensure a redistribution of part of the profits from the productivity gains achieved by expanding internal markets and increased levels of consumption among broad sections of the population. These treaties were also aimed at securing a similar quality of life throughout the entire country; this was to be achieved through state investment in infrastructure (transport infrastructure, health and education system etc. financed through taxes) as well as the development of an industry and service sector that could absorb the workers freed up by the gradual but planned destruction of their original sectors. Rural populations particularly profited from the Common Agricultural Policy, as they were not only guaranteed material benefits, but also a “fair standard of living” (Article 39(1)(b) the Treaty of Rome). The policy of gradually opening up to world markets explains the emergence of a highly dynamic and innovative export sector, which was consolidated during the decades of ‘regulated capitalism’. This situation was able to develop in Italy because the lira was permanently undervalued, but also because the country’s trade policy was comparable to that of the other countries that co-founded the EU, such as Germany and France. Furthermore, Italy’s export capacity helped ensure the balance of payments remained in relative equilibrium for many years; this has continued since the crisis of 2008, despite the fact that government debt currently exceeds 160% of GDP (Horn et al. 2012, p. 4).

Neither Portugal, Spain nor Greece (referred to below as the PEG states – from Portugal, España, Grecia) entered modern capitalism under similar conditions to Italy. These three countries turned to Fordism relatively late, and they did so without the framework provided by the major treaties that Italy had benefited from, and which were intended to tame capitalist modernisation. By the time these countries joined the EEC (Greece in 1981, Portugal and Spain in 1986), these agreements had begun to lose influence, even in the core countries of central European capitalism. In 1992, the Maastricht Treaty caused this process to accelerate across the continent. Although Portugal, Spain and Greece gained access to a tamed formed of capitalism, they did so at a time when that tamed capitalism was already in decline; this of course significantly increased the costs of EC accession.

The European project and the restoration of the Atlantic area

After the end of the dictatorships in Portugal, Spain and Greece, left-wing forces were predominant in all three countries. In this case, ‘left-wing’ refers to the political spectrum that wished to go beyond the social democratic and Christian democratic consensus of a ‘social market economy’. As such, this was a political project that affected the economy, and though it was not revolutionary had clear anti-capitalist and egalitarian goals. In post-revolutionary Portugal and in Greece there was talk of ‘socialism’; in Spain during the transition years terms such as ‘advanced social democracy’ were used. Although the demands of the left were not as revolutionary as the elite would have liked people to believe (they called for: the abolition of private ownership of strategic means of production; full employment; tax laws that safeguarded the welfare state; and military neutrality), these policies would certainly have helped southern Europe develop towards greater independence from the power centres of the Western world. After the Iranian Revolution and after Reagan came to power, which led to an intensification of the East–West conflict, it was no longer possible to maintain the policy of neutrality which Adolfo Suárez still pursued. The ‘Atlantic consensus’, which apart from unreservedly accepting the private capitalist model, calling for markets to be opened up to capital in search of investment, and advocating accession to NATO, reduced the left-wing alternative to nothing, despite the key role the left had played in the democratic opposition in all three countries. This process was not as simple as it may seem with hindsight. There was in fact no socialist party in Portugal, and Mario Soares’ PSP had been created out of nowhere with funding from Bonn and the CIA (Garcés, 2012, 163). Similarly, although the PSOE was considered the most radical socialist party in Europe, until 1975 it was virtually insignificant. At that time, the majority of Spanish socialists – Rodolfo Llopis, Javier Solana, Joaquín Almunia, Fernando Morán – and also some members of conservative governments – Josep Piqué, Andreu Mas Colell – were Marxists, communists or Maoists. The strength of the left is clear from the fact that Felipe González had to perform an internal party coup – again with massive financial support from Bonn – in order to defeat the Marxist majority (during the 1979 congress). Similarly, until the 1980s, PASOK’s discourse was more radical than that of the PSOE, which had already faced its ‘Bad Godesberg moment’ (when the German SPD dropped its Marxism and hostility to capitalism; the PSP had always been thus inclined). The Greek right-wing denounced PASOK as an extreme left-wing party that indulged in third-world discourse, that rejected the policies of the USA and the EEC and which espoused ‘national sovereignty’ (Moschonas/Papanagnou 2007, p. 87). In Portugal after the revolution of 25 April 1974 and the failure of President Spinola’s counter-revolution, a social radicalisation began that was to trigger alarm bells among Western governments. This demonstrated how difficult and politically dangerous it would be for the right-wing to destroy the leftist project. Consequently, the German social democrats played a special role: they spared no effort in creating a party of the left aimed at ‘destroying the left’ (Grimaldos 2006). In fact, the left was so important in southern Europe that the most important Portuguese bourgeois party chose a name with socialist overtones: the Partido Popular Democrático changed its name to the Partido Social Demócrata. The Spanish right (with the exception of the Basque bourgeoisie) had never been able to create a mass conservative Christian democratic movement, and this explains the names chosen by political parties such as Alianza Popular and Partido Popular. Even the Greek party Nueva Democracia had to poach temporarily from social democracy in order to occupy part of PASOK’s  traditional territory (Pappas, cited in Mosconas/Papanagnou 2007).

Although the Atlantic project prevailed, the crisis that broke out in 2008 undermined a number of its central pillars. Political parties were now only able to shore up the project by resorting to dubious practices such as illegal party financing and political corruption. In Greece and Spain, but perhaps in Portugal as well, after more than thirty years of absolute political dominance, conservative political parties faced disaster at the next elections. This gives the impression that the economic and political basis for the Atlantic project is fragile and untenable in the long term. Furthermore, it also explains Western governments’ concern over illegal financing of the Partido Popular, although this type of issue is normally treated as an ‘internal affair’. Illegal party funding combined with corruption affecting virtually all of the party leadership could further endanger the legitimacy of the government. This government has been tasked with implementing the austerity programmes ordered by Brussels and Berlin: if it is undermined, the chain of austerity could be broken.

The destructive modernisation of the traditional sector

The ‘traditional sector’ refers here to a geographical-social space in which production and consumption and associated forms of life and work are primarily restricted to the local and regional level. The sector has low productivity and the technologies implemented here tend to be craft-based. The organisation of everyday life revolves around the family, kinship, the neighbourhood, and institutions that tend to obey the head of a ‘virtual family’ instead of formal bureaucratic organisations (Petrakis 2012). Homes and businesses still tend to be strongly linked to one another, for example through parcels of land, workshops, small family businesses, and self-employed workers whose services are limited to the local level. In the PEGs, the significance of these spaces extends far beyond the micro-sociological level: they underpin corporate political organisation projects, such as the view of the nation as a ‘large family’ under the regimes of Salazar, Primo de Riveras-Franco, Metaxas and Mussolini. Today’s conservatives also rely on these same spaces as a means of gaining ideological dominance and re-establishing the neo-liberal agenda. There are two reasons for this: firstly, these spaces are capable of replacing the social services provided by both the state and the market. This is because the state is dependent on the political organisation of redistribution and/or debt, whereas the market depends on wage levels remaining stable (see Esping-Andersen 1990). In contrast, the social services provided by traditional spaces only require a stable family model, a distinct division of labour between men and women and traditional forms of solidarity such as family-based, if heavily macho, communism. Traditionally, many of these social services are provided by women: this includes child care and care for the sick and elderly. In Spain, care work is usually provided by the oldest daughter, who is expected to forgo paid employment to provide free labour in the household. However these spaces have further functions, especially at times of crisis: the values of solidarity, reciprocity and morality – the definition of ‘good’ and ‘bad’ – and act as highly efficient social control mechanisms, keeping crime levels low even in difficult economic and social situations. Two years after the outbreak of the crisis (2009), and despite the increase in unemployment, the crime rate (per 10.000) in Portugal was 10.4; Spain 9.1, and Greece 12.3: significantly lower than those in Denmark and the Netherlands, although these two countries were much less affected by the crisis (for Spain, see La Moncloa 2013).

Both factors relieve pressure on public finances and decouple social service provision from developments in the public sector. At times when wages are at risk and budgetary crises are causing social spending to evaporate, the traditional approach provides valuable space in which to deal with such a crisis. Even when people from these spaces enter the capitalist world, their values, life strategies, patterns of behaviour and consumption, such as meal preparation, use of free time, marriage rituals and sexual behaviour, persist largely unchanged in their new environment, and this even holds for the slums in large cities. This leads to a juxtaposition of the modern world with the traditional. These two worlds become more interwoven the faster and ‘newer’ the modernising dynamics, and the less able the state and market are to adequately satisfy social needs. The more institutions are cleared of all forms of solidarity, the more efficiently traditional mechanisms function and the further their modernisation is delayed.

During the 1970s and 1980s, the traditional sector in the PEGs was still dominant. In fact, in some rural areas, the traditional sector completely dominated the landscape, and generated the political and cultural microclimate. The sector also left its mark on the neighbourhoods in which ordinary people live. That mark remains, despite the rapid loss of tradition which Portugal, Greece, and especially Spain experienced during the 1960s and 1980s. Around 1970, 95% of Greek agricultural workers worked exclusively with members of their own family (see Seers 1981, p. 236). In 1980, agriculture in the PEGs, still mainly organised along traditional lines, retained a crucial impact on these countries’ occupational structures (Greece: 29%, Portugal: 28%, Spain: 17%). In Portugal and Greece in 2007, more than 10% of the economically active population was still employed in agriculture (Eurostat). Most of these workers were self-employed subsistence smallholders with low levels of productivity, who were oriented towards the local economy. By around 1980, 86% of Portuguese, 72% of Greek and 68% of Spanish farms were measured than 4 hectares (Lains/Ferreira da Silva 2005, p. 171).

The importance of the traditional sector explains the high proportion of self-employed people and unskilled family labour. In 1980, 50% of the Greek, 32% of the Portuguese, and 30% of the Spanish working population belonged to this category (World Bank). In 1990, almost half of Greek workers were self-employed (Moschonas/Papanagnou 2007). Not all self-employed people work in the traditional sector, however: between 1990 and 2010, there was a big increase in the proportion of self-employed people working in the expanding modern sectors (construction, service provision for enterprise and public administration). Even during the 1980s, a large majority of people were still in traditional forms of employment. The traditional sector comprised thousands of small, family businesses organised along the lines of limited companies, undertaking low-skilled activities and paying very low wages. They focused largely on their national markets, with the exception of Portugal where they produced goods such as textiles, shoes, food, leather and wood. However, since the eastern enlargement of the EU and China’s entry into the international market, exports based on these company structures have been in crisis (Antunes 2005, p. 207; Lains 2006). These company structures remain much closer to the traditional sector than do German small and medium-sized businesses.

The traditional sector is particularly important in Greece. In 1974, almost half of the working population (46%) lived and worked in this sector (see Seers 1981, p. 234). There are historical reasons for this. After the end of the First World War and the final fragmentation of the tsiflik (the large farms that were based on the Ottoman latifundia) small farms became the main form of agriculture. The number of small farmers rose to such an extent that, just as had occurred in France during the 19th century, they hindered capitalist development. It is impossible to properly grasp the political and institutional reality in Greece without considering this development (Pirounakis 1997, p. 13). Many of these farmers vote conservative, although during the 1970s some of them moved to the left with the cooperative movement. However, in the 2012 elections one third of these farmers supported anti-capitalist options (Vernardakis 2012, Table 2). This is quite uncommon among small farmers in Europe, and particularly interesting given the current exceptional social situation in Greece. On the Iberian Peninsula, small farmers mainly operate north of the 40th parallel; the line that divides the peninsula in half. These farmers constituted a mainstay of Franco’s and Salazar’s regimes and today the majority continue to vote for conservative parties. In addition, agriculture in Portugal and Spain is based around day labour, and this gives these two countries the worst levels in Europe in terms of “underdevelopment” (due to temporary employment, unemployment, illiteracy, gender inequality, etc.). In 1970, half a million Portuguese people worked as day labourers; this represented 21% of the country’s working population (ILO 1975). In 1980, the traditional sector was still omnipresent in the large cities, which remained dominated by small traders, family-based transport companies and small workshops.

The first phase of destructive modernisation: growth without development

One of the biggest challenges to modernisation in the PEGs was the question of what should happen to this traditional world. How could it be integrated into the newly-created institutional space that emerged along with democratic constitutions? How could this world be transformed and ‘modernised’ without incurring unsustainable labour and environmental costs? Clearly, such a task is unaffordable without state support; without the development of efficient education infrastructure at both the city and local levels; without high levels of investment in labour- rather than capital-intensive technologies, and without measures to reduce their disintegration (such as  the cooperative model). If such measures are not put in place, the costs are likely to rise dramatically: this could cause uncontrolled urban growth, rising unemployment and social inequalities. In other words: ‘growth without development’.

The modernisation of traditional Western European institutions in highly developed countries such as Germany was made possible by policies that focused on these countries’ internal development. This is certainly not the case for the traditional sectors in Portugal, Spain and Greece. The modernisation which began there in the 1950s – after the devaluation of these countries’ currencies – was driven by a form of investment that was far more capital than labour intensive (for Portugal, see Lains/Ferreira da Silva 2005; for Spain Moral Santín et al. 1981; for Greece, Freris 1986). This highly selective form of investment drove up average productivity levels, but created a dual system that produced growing disparities in regional development and per capita income. Planned economy measures were also implemented in Portugal and Spain during the 1960s (such as funding and development plans), and the Greek government’s industrialisation initiatives can be seen as “highly innovative due to their comprehensive and systematic nature” (Freris 1986, p. 130). Yet these policies also benefited from the regulated nature of global capitalism, which provided for a significant expansion of the public sector. In the PEGs, but also in Turkey and Japan, this combination resulted in the world’s highest levels of economic growth, and sustained increases in productivity. At that time, these countries also saw average per capita income come the closest it has ever been to the European average: in Spain levels rose from 60% in 1960 to 82% in 1975. (For more on the fleeting dream of the nominal adjustment that occurred in the second half of the 1990s, see below). None of these countries’ experiences of modernisation, however, is comparable to that of the French, British or Italian initiatives that occurred at the same time. southern European governments simply did not have the funds to cover the necessary material scope. Ultimately though, it was politics and not economics that proved decisive: there was no alliance between capital and labour that could have paved the way for the creation of a major public sector. In the 1960s, the Spanish public sector (16% of GDP) and that of Portugal (17% of GDP) were far smaller than those of Italy (30%) and France (40%). Similarly, in the mid-1970s, more than 10 percentage points still separated Italy (24%) and France (36%) in this respect. The plans developed at this time proposed state action, and were strengthened by nationalist rhetoric that reinforced the image of an economically active state. However, the state itself was more focused on political repression than economics: the real purpose behind these plans was the promotion of private initiatives (Moral Santín et al. 1980). In fact, the majority of capital invested during this period was private and its overall effect was rather modest (for Portugal see Lains 2006, p. 176; for Spain, Martínez Cortiña et al. 1975). The ‘thirty glorious years’ of domesticated European capitalism had little to do with either the ‘golden age’ of the Salazar regime between 1958 and 1973,the ‘economic miracle’ of Franco’s development policies, or even the push towards modernisation that occurred during the Karamanalis era in Greece, even if some economic indicators seem to say otherwise.

Spain went through this process faster and more radically than Portugal or Greece. In just 20 years, the percentage of rural workers among the economically active population shrank from 50% to 25% (between 1950 and 1975). In contrast, the same process took 33 years in Italy, and nearly 90 years in France (see García Delgado/Muñoz Cidad 1988). This process was part of a Fordist cycle of modernisation, which led to the formation of a middle class and a small but influential class of managers that was more closely associated with administration with large-scale land ownership. A few Fordist oases developed out of nowhere; these were associated with the technologically advanced and capital-intensive sectors of the chemical, energy and automotive industries (Fernández Steinko 2010, p. 258ff). However, these oases were embedded in a vast and increasingly chaotic traditional fabric, which lacked even the most basic physical, human, educational, health and social infrastructure. Of Schumpeter’s ‘creative destruction’, ‘destruction’ prevailed, and this will be clear to anyone who visits the once-beautiful Portuguese, Spanish, and Greek cities and landscapes (for Greece, see Pirounakis 1997, Chapter 9).

The second destructive modernisation: the European Community

Entry into the EEC had contradictory effects on the democratic modernisation of the PEGs. There are two reasons for this: firstly, this entry took place during a period in which the Left had been defeated and the consolidation of the Atlantic project was underway. The Atlantic project focuses on removing legal, geographical and cultural barriers that might hinder the free movement of the most productive capital – the capital supported by internationally influential governments (see Rosa Luxemburg on the capitalist colonisation of traditional space). The elites who controlled this process, but also the majority of intellectuals along with public opinion, linked the Atlantic project to the prosperity Europe enjoyed during the post-war period and thus legitimised the harsh conditions these countries experienced when integrating into the EEC. Although large US American companies demonstrated understanding for the protectionist policies implemented by Western European governments during the post-war period, this had very little to do with the policies prescribed by the Trilateral Commission during the 1970s and 1980s for Portugal, Spain and Greece. The second reason why accession had a contradictory effect on the PEGs is that it took place during a period in which the cooperative basis of the European project had begun to be displaced by competitiveness and neoliberal policies in Brussels.

In 1993, the agreement on the free movement of goods, capital and people and the Maastricht Treaty entered into force. These agreements signalled “the strongest deregulation in economic history” (Huffschmid 1994) and opened up the still-strong traditional structures of Southern (and eastern) Europe to the rapid incursion of major international capital. This left no room for active industrial policies similar to those that had been put in place during the 1960s. Consequently, Portugal, Spain and Greece were exposed to double destruction during their transition to democracy. The common agricultural policy, the rapid reduction of tariffs, road construction funded with European money and other measures that reduced transport costs, all enabled products from central Europe to penetrate into the remotest areas of southern Europe. This led to a new wave of capitalist colonisation of the traditional Mediterranean sectors, which, at least in the case of Spain, took place at an even faster pace than the first wave. This second period of destruction particularly affected the modern, primarily industrial network, which had been developed since the 1950s at not insignificant human, fiscal and technological cost. The reason was Brussels’ demand that active industrial policies be suspended; pragmatism and ideology meant that these policies were also viewed as obsolete by the national elites. Both of these periods of destruction led to the PEGs having the highest unemployment rates in the OECD.

Spain had the highest rate of unemployment due to the fact that it is less protected by natural boundaries than Portugal or Greece. Furthermore, Spain is both closer to the continental centres of production than other countries, and its territory is not as fragmented as that of Greece. The Spanish industrial boom in the 1960s was more capital-intensive than the boom that occurred in Portugal and Greece, and the rigid behaviour of the country’s autocratic Fordist companies during the crisis in the mid-1970s led to a further boom (see Lains 2006, p. 191). The elites in Spain internalised the monetarist and (neo)liberal credo earlier than those in Greece or Portugal: the Atlantic elites were in the majority in Franco’s cabinet from 1959 onwards, and the PSOE adopted social-liberalism quite early on. With the exception of the Basque governments, the Spanish elites prioritised the fight against inflation and labour market deregulation relatively early over the fight against unemployment, the development of industrial policies and policies of internal flexibility. In 1990, the (socialist) minister for the economy, Carlos Solchaga (from Navarra) stated that, “the best industrial policy is no industrial policy”. This was still a few years before the wave of privatisations that followed the Maastricht Treaty. Among former Spanish leftists, Schumpeter’s theory of creative destruction became a ‘classic’, while Keynes was soon considered an obsolete ‘theoretician of demand’. Behind the cult of Schumpeterian destruction lies a model of modernisation that is at odds with the traditional sector. In this model, the traditional sector is a useless obstacle to progress, rather than a key element that cannot be easily replaced as part of the social structure of a country such as Spain. Not only should the traditional sector not be allowed to disappear without considering the costs, it can also produce a variety of resources that are essential for sustainable modernisation. These changes have meant that Spanish unemployment has never fallen below 8% since 1982: it first peaked in 1994 (at 24%) and then once again in 2013 (at 26%), although this second peak occurred under very special circumstances. At the beginning of 2013, nearly 6 million people were unemployed in Spain (36% in Andalusia, 34% in the Canary Islands, and 33% in Extremadura).

In Portugal, however, the destruction of the traditional sector has been less devastating as it occurred more moderately and over a longer period of time. Moreover, part of Portugal’s pseudo-traditional, export-oriented industrial sector (wood, printing, shoes and textiles) survived due to the low wages associated with the sector. The first peak in Portuguese unemployment occurred in 1985 at 10%; the second peak was reached in 2013 at 16% (see Lains/Ferreira da Silva 2005). However, this also meant Portugal became ‘strategically’ dependent this wage structure. Since eastern EU enlargement and China’s entry onto the world market, Portugal has no longer been able to maintain this situation (Lains 2006). Greece was also able to keep unemployment under control longer than Spain. The Greek traditional sector decreased in size much more slowly, and the country’s political elites were relatively late to adopt monetarism and neoliberalism (Moschonas/Papanagnou 2007). The first peak in Greek unemployment occurred in 1998 (12%). This was two years after the rise of a neo-liberal (Kostras Simitris) to the general secretariat of PASOK, and the same year in which the Spanish right was to record its first electoral success since 1934. Greece was able to halt the rise in unemployment at least temporarily by implementing a policy of clientelism, which strengthened the two-party system and created public service jobs (Kadritzke 2010). The Greek military, which represented twice the share of GDP provided to the military in Portugal and four times that of the Spanish military (4%, 2% and 1% respectively), also played a prominent role due to territorial disputes with the country’s northern and eastern neighbours.

This form of integration into the EEC prevented Greece from benefiting from the productivity of highly developed European countries. The Portuguese and Spanish manufacturing industries had closed the gap compared to other European countries by 1975. However, from the early 1980s, this gap began to widen again, despite the bankruptcy of many companies operating in the traditional sector. After 1992, the PEGs’ economies were still split in two. They mainly consisted of family firms with low levels of innovation that could only compete internationally on the basis of the low wages they paid, by destroying the environment, eroding labour conditions and/or evading tax. The productivity of small and medium-sized enterprises (SMEs) in Spain is just 67% that of large enterprises; in Portugal and Greece the rates are 75%, and 79% respectively. In contrast, in central European countries strongly influenced by ‘Rhein capitalism’, the productivity of some SMEs actually exceeds that of larger enterprises. However, the data would be more informative if it were possible to capture the developments in productivity among SMEs linked to the traditional sector. Between 1985 and 1996, Greece had the lowest level of growth in productivity with 11.6% compared to 19.9% in Spain and 39.5% in Portugal.

As we can see, long before the crisis in 2008 clear evidence existed that Portugal, Spain and Greece would not be able to finance modernisation on the basis of an economically competitive and politically non-authoritarian ‘social market economy’. In order to proceed with their voluntarist ‘social market economy’ project and avoid breaking with the Atlantic consensus, the Spanish, Portuguese and Greek governments were obliged to rely on foreign debt; but this merely increased the burden of debt and exposed them to right-wing criticism. In 1992, Portugal used about 6% of its GDP to service its debt, whereas Spain used 5% (1996). This led community transfer payments to increase in importance (2.4% of GDP in Portugal between 1994 and 2000). These payments were used to modernise infrastructure, create a network of schools and clinics, improve efficiency in administration, and provide many people – including women – with skilled employment. Most of these transfer payments, however, were used to strengthen the Atlantic project, for example by reducing transport costs for goods produced by donor countries, instead of sustainable local economic development. The fact that almost all of these funds were diverted into the expansion of private transport and motorways instead of railways speaks volumes. Compared with the medium-term costs caused by this model of modernisation, the European aid  is peanuts. This leads to the question of how the recently-acquired constitutional rights and obligations can been guaranteed in such young democracies under these circumstances?

The dream – and rude awakening – of nominal convergence

After the fall of the Berlin Wall, nominal convergence within Europe and currency stability as part of the radicalisation of the Atlantic project were on the agenda at all levels. The fact that policies to consolidate the real economy were becoming impracticable was decisive for Portugal, Greece and Spain. This at least explains the political turnarounds in Greece and Spain: the conversion of PASOK into the ‘party of the stock exchange’ under Kostras Simitris and the triumph of José Maria Aznar in Spain. In Portugal, serious tensions developed between the government and the head of the Bank of Portugal, and this paved the way for the first purely conservative government since democratisation – the election victory of Durão Barroso in 2002. The objective of monetary convergence required radical measures, some of which went against the spirit of democratisation, such as privatising strategic enterprises and undermining social democracy. This finally forced governments to end devaluation; the policy they had used to: tackle unemployment between 1992 and 1993, address inflation and in particular contain the level of public debt.

Without doubt, currency stabilisation and debt cost reduction represented a step forward for the PEGs. Since the beginning of their industrialisation, these countries had suffered from a chronic lack of credit, and the credit they had received was provided at very high interest rates. The most extreme case is Greece, where, interest rates never fell below 30% before 1840, or 15% during the interwar period. Portugal and Spain (and Italy) had the highest levels of government debt in Europe. This only changed when the First World War distorted the debt structures of those countries embroiled in it (see Lains 2006, p. 46). During the 1970s, the processes of democratisation unfortunately coincided with the worsening global crisis of capitalism, which itself led to a dramatic rise in US interest rates (the ‘Volcker Shock’ from 1979). This led to inflation, and thus the cost of indebtedness exploded; yet the PEG governments urgently needed this money to stabilise their young democracies. The policies of currency stabilisation bore fruit. Inflation fell from 13% in Portugal (1990) to 2% (1997); in Spain, the same period saw inflation fall from 7% to 2%. The fall in Greece was from 20% (1990) to 1% (2009). The nominal interest rate on Portugal’s foreign debt fell from 22% (1986) to 3.9% (2006) and on Greek foreign debt from 17% (1995) to 3.5% (2005). However, this period is unique in the financial history of these three countries. Currency stabilisation and interest rate reductions must be understood in terms of the introduction of the euro, since between 1995 and the summer of 2008, the growth in the PEGs’ debt was reduced in relation to German government loans (Sinn 2010, p. 336f).

Theoretically, this situation could have helped strengthen the basis of production in southern Europe, and initiated real convergence in the context of a European continent based on solidarity. It could have set in motion the modernisation of the traditional sector through investment in human capital, technological innovation and the development of regional clusters. This modernisation could have been undertaken cooperatively, by redefining the division of labour in Europe, in combination with the environmental structural change which was already long overdue. Yet none of this actually happened. Instead, nominal convergence merely helped consolidate competitiveness in a Europe where the winner takes all and the weakest must be content with a fleeting dream. Neither the economic mainstream nor the circles of Western power – including the elites and governments in the South – attempted to tackle the basic problem: how to build an economic system that would be able to create sustainable jobs, and consequently be in the position to finance a just and democratic society. Addressing this issue would have meant redefining the division of labour in the EU and questioning the thrust of the Atlantic consensus. Yet neither was on European governments’ agendas.

After the left had been backed into a corner and the Maastricht Treaty had been signed, the only available option was to focus on sectors that were less vulnerable to international competition, and in so doing to take advantage of the cheap money that was available and the other benefits of currency convergence. This meant sectors that produce non-tradable goods and services such as construction, education, healthcare, financial services, and of course tourism and the military (for Portugal, see Ferreira do Amaral 2006, p. 55ff).

No matter how liberal the spirit of the time may be, the development of these sectors depends on political decisions; this is particularly the case in construction, which can only grow significantly if the local conditions governing development are changed. These political decisions, which can increase the value of a parcel of land more than one thousand times in a very short time, and which can attract huge amounts of investment-seeking capital overnight, remain in the hands of local authorities. It is no coincidence, for example, that the ‘reform of the century’ that was implemented in Portuguese local government, and which provided local authorities with more autonomy, was implemented in 1998. However, the fact that strong momentum for growth could be created locally through a series of political decisions prepared the ground for crimes such as corruption, urban development outrages, forged construction permits and illegal party funding. The €46 billion in profits that Spanish construction companies reaped in 2008, together with a chronic shortage of jobs for the local population, as well as the fact that at least one third of the sector’s workers were  not declared for tax purposes, added to the PEGs’ culture of house buying to create an explosive mixture. This situation arose because these companies were able to count on the complicity and acquiescence of broad swathes of the population in the face of crime and the moral decay of their political system – at the expense of sustainable urban planning, the environment and the health of the democratic system.

In general, sectors that produce non-tradable goods are labour-intensive, and the majority require labourers with few, if any qualifications. The most important of these sectors, the construction industry, acts as a brake on productivity and deprives the production system of financial resources: this occurred in Greece in the 1980s, taking up to 60% of gross capital (see Freris, 1986, p. 166). In addition, high energy, environmental, labour and landscape costs may be incurred if markets are left to operate freely. In Spain, at least one third of the construction sector is affected by undeclared work. In addition, there are up to 16 levels of subcontractors whose capital is distributed throughout the remotest corners of the traditional sector. In Greece, a fifth of all new buildings have been built illegally; on the Canary island of Lanzarote, the proportion is 33%. The rate of accidents in the construction industry is the highest in the entire economy. This is clearly related to the high proportion of undeclared work; these figures make this sector particularly detrimental to public funds and the public interest. Uninsured workers who are injured during undeclared work have to be treated by the public health service, which is thus effectively providing a subsidy to the private sector.

Other branches of non-tradable services depend on increased government expenditure, such as health, education and administration. In 1992, government expenditure began to rise again. However, falling interest rates, and growing currency stability expanded the governments’ scope for action. The absolute increase in government spending was compensated by the increase in GDP that resulted from the expansion of the construction sector in particular, so that at the time when neo-liberalism was becoming an established political force, national debt declined in relation to GDP. The miraculous combination of monetary stability and development in those sectors of the PEGs’ economies that were least exposed to competition produced the highest growth rates in Europe (among the Europe of 15). In Portugal and Spain, growth increased to nearly 5% between 1998 and 2000, and in Greece by 4.5% in 1997. This temporarily led to a significant narrowing of the gap between per capita income in the PEGs and that in the rest of the EU (in Spain income rose from 79% of the figure for elsewhere in 1995 to 91% in 2007). In 2008, 13% of the economically active population in Spain worked in construction; the figures were slightly less for Greece and Portugal, compared with the overall average of 7%. Clearly, this situation was unsustainable, based as it was on resource-destructive and highly speculative activities. But could the Atlantic project really offer any alternatives? It is understandable that many citizens in the south actually began to believe in these policies themselves; if this had not happened, Spanish and Portuguese participation in the Iraq war would have been unthinkable.

The construction boom provided a further means of economic stabilisation that was easy to integrate into a neoconservative vision of society: Portugal, Spain and Greece have one of the highest levels of family home-ownership. This is related to the importance of the traditional sector, but also the support for private residential construction during the dictatorships in these countries. The dictatorships funded housing as it provided them with a means of pursuing social policies and of supporting the financial lobby without increasing government spending. In Spain and Greece in the year 2000, the property index was already well above the 80% mark. In Portugal, waves of returnees from its colonies since 1974 had pushed up rent prices, and meant that the country’s property index rose to around four or five percentage points below that of Spain and Greece. The wide distribution of property counteracted the precarious labour market situation by reducing dependence on the housing market. At the same time, it also meant that housing could be used as security in order to expand private debt – despite the ‘double destruction’ that Portugal, Greece and Spain had experienced during the last four decades due to ‘property and people’s capitalism’ (Fernández Steinko 2003). This is the Mediterranean version of the Anglo-Saxon ‘people’s capitalism’, which was funded by dividends from the financial sector (‘stock market Keynesianism’).

Yet one indicator disrupted the dream of nominal convergence and the unexpected ‘end of history’: the balance of payments. The rapid growth in sectors producing non-tradable goods disguised a well-known reality: if these sectors grow faster than those producing tradable goods, economies experience a gradual loss of competitiveness (Ferreira do Amaral, 2009). The lack of sustainability in this situation is reflected in the developments that led to the negative balance of payments – despite the positive developments in other macroeconomic indicators. This deficit was caused by policies implemented in the years before the euro was introduced, but the deficit increased dramatically after the creation of the single currency. Portugal’s deficit increased from +3% in 1986, to -13% in 2008; in Spain the deficit increased from +2% in 1987 to -10% in 2007; and in Greece from -4% in 1980 to -17% in 2008. However, these figures merely represent the calm before the storm. Although there were some differences in the development of Portugal, Spain and Greece, these figures certainly demonstrate that all three countries were developing in the same direction. They show that   within the Atlantic project there was no alternative – the ideological convergence of the centre-right and centre-left – and that monetary convergence also hid something very ugly, something that did not work.

“For quite some time, Portugal had departed from the EU average on the level of tradable goods it was producing. This indicated a situation of possible relative impoverishment in the long-term. This impoverishment began to be felt in the first decade of the century” (Ferreia do Amaral, 2009, p. 57).

Portugal had to deal with significant productivity differences, a strategic focus on low-wage sectors and a small economy. These meant it paid a particularly high price: between 1991 and 2001, the Portuguese economy lost at least 17% of its competitiveness. The same occurred to Spanish and Greek productivity between 1995 and 2008 (see Petrakis 2012, p. 53). From 2000 onwards, the modernisation of trade and transport led Greek productivity to start growing faster than productivity in other countries (McKinsey 2012). However, the basic trends reflected in the balance of payments are the same – as are the ruins currently faced by society. These are the ruins of the Atlantic project which, we were assured, would produce a more equitable, sustainable and democratic society.

Conclusion

The Atlantic project is an example of successful political engineering. It has contributed to the modernisation of Portugal, Spain and Greece; it has changed the institutional systems of these countries; it has broadened cultural horizons and provided access to resources for millions of people who were previously tied to the localism of the traditional sector. Women have benefited most of all: decent jobs have been created for them, structures of inequality have been swept aside, and abuse and discrimination now attract prosecution. However, the Atlantic project has been unable to create a productive basis with which to secure democratic modernisation and sustain its achievements for the long term. The Atlantic project undermined the majorities which, in the 1970s, championed the idea of ​​a society based on solidarity; a society in which the interests of the people were viewed as more important than those of business, and internal expansion was prioritised over external expansion. The Atlantic project opened up the traditional sectors to western capital, but no attempt was made to adapt to the cultural and social realities in Portugal, Spain and Greece. Monetary convergence only provided a temporary solution, and it is impossible to calculate the costs incurred by the Atlantic project to the environment, urban planning, the creation of jobs, and even morality – due to the ethical decline of professional politics. In fact, Portugal, Spain and Greece are experiencing what many Latin American societies have already been through: the downfall of their middle classes, the brutal decline of their cities and landscapes and the destruction of their traditional networks, after being ‘financialised’ due to a debt crisis.

This raises the key question as to whether Portugal, Spain and Greece will be able to defend their democratic achievements while remaining part of the Atlantic project; a project that is primarily built on competition, on the fundamentalism of large property ownership and private control of the means of production. It also begs the question as to how the traditional sector, with its current limitations (its atomisation, and hidden inequalities), but also its enormous civilising potential – such as the possibilities it provides for self-determination in employment, the development of a culture of solidarity and reciprocity, greater intensity of labour than capital, and greater communicative density – can be integrated into a process of democratic modernisation. How can areas that currently languish on the periphery of capitalist modernity, spaces that breed particularism and undeclared economy, be transformed? Finally, how can this be achieved in a manner that remains in the public interest, that secures sustainable development, that furthers democratic values ​​and social justice?

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[1] I would like to thank Júlio Marqués Mota, Margarida Antunes (Coimbra), Ricardo Vergés (Seville), Agustín Cañada (Madrid) and Michel Vakaloulis (Paris), all of whom were generous enough to send me documents that were important for writing this article.


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