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«MILLENNIUM Journal of International Studies Article Millennium: Journal of Financial Crisis, Orthodoxy International Studies 40(3) 647–673 © The ...»

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442300MIL0010.1177/0305829812442300RynerMillennium: Journal of International Studies

2012

MILLENNIUM Journal of International Studies

Article

Millennium: Journal of

Financial Crisis, Orthodoxy

International Studies

40(3) 647–673

© The Author(s) 2012

and Heterodoxy in the Reprints and permissions: sagepub.co.

uk/journalsPermissions.nav

Production of Knowledge DOI: 10.1177/0305829812442300 mil.sagepub.com about the EU Magnus Ryner Oxford Brookes University, UK Abstract Although the financial/Eurozone crisis has profound effects on the EU, European integration scholarship failed to even recognise that there might be a problem. This article argues that this is due to the highly orthodox nature of European integration scholarship and the blind-spots that inhere in its instrumentalist basic code. It makes the case for a heterodox recasting of the production of knowledge about the EU, and argues that post-Keynesian, post-Marxist and neo- Weberian political economy can make significant contributions in that regard.

Keywords Eurozone crisis, EU integration theory, financial crisis, political economy Introduction The global financial crisis is a test case for European integration scholarship that poses anomalies that are too heavy for it to bear. As such it raises serious foundational ques-

–  –  –

bailouts. The alternative would have been nothing less than the collapse of global capitalism.

It was at first commonplace to contrast European prudence with American profligacy and to speculate about a European ‘decoupling’ from the American economy.1 Such wishful thinking was quickly abandoned after the collapse of Lehmann Brothers. The exposure of European finance to ‘toxic’ assets became all too evident, not the least in the form of real estate loans in Southern Europe. Attendant crisis measures required to keep the European economy afloat unceremoniously abandoned norms pertaining to state aids, the Growth and Stability Pact (GSP) and European Central Bank (ECB) lending.

Following the G20 London Summit in 2009, large injections of liquidity primarily from the US Federal Reserve, massive government deficits and exports to emerging markets that used their accumulated foreign reserves to maintain growth, the recession abated and financial markets were temporarily stabilised. Yet, difficulties of forging EU stability on an uneven recovery and a fragile financial system soon re-emerged as the costs of socialising the losses of ‘too big to fail’ banks transformed the banking crisis into one of public solvency and debt. Eager to return to ‘stability culture’, the EU soon commenced an ‘exit strategy’ from crisis management. Thus, growth rates remained too anaemic to keep fiscal balances in the EU’s periphery within parameters required to maintain confidence in the recently rescued financial sector. As bond yields spread between Germany and the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain), the very being of the euro was suddenly in question. In a bid to avert regional and global contagion, this prompted further departures from Maastricht norms and understandings. Only after 11th-hour prodding from the International Monetary Fund (IMF) and the United States, a ‘Special Purpose Vehicle’ – that is, an embryonic ‘euro-bond’ – backed up by €750 billion collateral, was established in May 2010: a temporary European Financial Stability Facility (EFSF), to be replaced in 2013 by the European Stabilisation Mechanism (ESM).2 None of this stopped the bleeding because of, as widely reported in the financial press, doubts that the measures add up: the conditionality for access to the EFSF and ESM premise a PIIGS export-led recovery. But short of devaluations – that is Eurozone exit – it is unclear how this could be achieved. It implies a huge reduction of unit labour costs relative to Germany, which has virtually no inflation at all. Absent a Eurozone surplus of a magnitude that is unlikely when the US badly needs to consolidate, only counterproductive deflation that will exacerbate fiscal crisis seems to be on the cards.

Hence, a succession of inter alia unravelling speculative attacks and EU summits has progressively increased the stakes and costs of crisis management far beyond the capacity of the EFSF. On 26 October 2011, following increased spreads of Italian and – even more ominously, French – bonds, Angela Merkel declared that Europe’s half a century of peace was at risk as it faced ‘the worst crisis since the Second World War’.3 In November

1. For example, International Monetary Fund, Spillovers and Cycles in the Global Economy: World Economic Outlook (Washington DC: IMF, 2007), ch. 4.

2. Tony Barber, ‘Saving the Euro: Dinner on the Edge of the Abyss’, Financial Times, 10 October 2010.

Available at: http://www.ft.com/cms/s/0/190b32ae-d49a-11df-b230-00144feabdc0.html#axzz1mHU6XLkB (accessed 13 February 2012).

3. Angela Pop, ‘Merkel Wants “Permanent” Supervision of Greece, Warns of War’. Available at: http:// euobserver.com/19/114075 (accessed 11 February 2012).

649 Ryner 2011, the situation was becoming so acute that it threatened the basic functioning of European inter-bank markets. The title feature of the 26 November 2011 issue of The Economist on the Eurozone read ‘Is This Really the End?’. To Financial Times columnist Wolfgang Münchau, the euro only had ‘days’ before collapse.4 Only the ECB’s injection of €489 billion into European banks averted meltdown, conducted against the backdrop of ECB President Mario Draghi’s extravagantly bullish spin on the 9 December Summit agreement on a fiscal pact that may not even have resort to EU law and institutions. Yet, at the time of writing, the underlying imbalances remain. In short, together with three decades of anaemic growth,5 growing divergence within the Eurozone and a legitimation crisis expressing itself in increasingly parochial nationalism and the rise of xenophobic politics, misallocation and destruction of values as represented by the financial crisis continue to cast a long shadow over the future of the EU.





What did established European integration scholarship have to say about these developments? What warnings were issued by its most prominent representatives and organs?

The answers are: not much, and virtually none. A survey of the discipline-leading Journal of Common Market Studies from the time of the inception of the Single Market in 1993 to mid-2009 revealed that, at a generous interpretation, only five of 732 articles (0.7%) had anything of pertinence to say on the topic. The verdict is somewhat qualified by a number of studies conducted by economists affiliated to the ECB itself. But as has been said about the last Bourbon King of France: they have forgotten nothing and learnt nothing. It is no exaggeration, then, to assert that the situation is reminiscent to that faced by International Relations (IR) at the end of the Cold War, which took the discipline almost entirely by surprise.

The aim of this article is, firstly, to offer an explanation for this failure of European integration scholarship to even identify, let alone predict, the developments in question that have such profound implications for the essence of its very object of analysis. The second aim is to propose a recasting, not unlike that of post-Cold War IR, of the production of knowledge about the EU that faces the full implication of the anomaly that the financial crisis represents for integration scholarship.

Concerning the first aim, I argue that European integration scholarship is symptomatic of the dangers of producing the ‘worst of two possible worlds’ that are entailed in interweaving theory and practice.6 Significantly, I cut through variations in the complex ecosystem of integration theory to identify their common code that is ‘prior to any theoretical rule’,7 and which owes its success primarily to instrumental reasons. Instrumentality is not in and of itself a problem, and the capacity of European integration scholarship to

4. Wolfgang Münchau, ‘The Eurozone Really Has Only Days to Avoid Collapse’, Financial Times, 27 November 2011.

5. On a decade-by-decade basis, Eurozone (original 12) average aggregate annual real GDP growth has declined since the inception of the Single Market. It was 2.4% in 1981–90, 2.2% in 1991–2000 and 1.1% in 2001–10. By contrast, during the so-called ‘stagflation’ decade 1971–80, it was 3.4%.

European Commission, European Economy Spring (Brussels: DG ECFIN, 2011), Statistical Annex, Table 10.

6. Andrew Hurrell, Opening Panel of the 2011 Millennium Annual Conference ‘Out of the Ivory Tower:

Weaving the Theories and Practice of International Relations’, 22 October 2011.

7. Thomas Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1962), 24, 66–7.

650 Millennium: Journal of International Studies 40(3) address certain particular questions is not in doubt. Anxious to shroud itself in the aura of science, however, European integration scholarship conflates the particularity of its instrumentalism with general knowledge about the EU. It thereby constitutes itself as an orthodoxy that is unduly intolerant towards forms of research on the EU that do not conform. Hence, there are important questions and issues pertaining to the EU that fall outside the borders of admissibility as defined by the code of European integration orthodoxy, and which it cannot address. These could be called ‘blind-spots’. It is the argument of this article that the generative mechanisms and emergent forces of the financial crisis are located exactly at such a blind-spot of European integration orthodoxy. To invoke Puchala’s oft-cited metaphor about the blind and elephants,8 one could say that the financial crisis points to a central part of the proverbial beast – perhaps the trunk – that European integration orthodoxy does not touch at all.

Concerning the second aim of the article, I suggest that a more productive heterodoxy can be discerned from post-Keynesian, post-Marxist and neo-Weberian political economy. These approaches have the distinct advantage over the European integration orthodoxy that they conceive production, power and hence a significant element of arbitrariness as co-constitutive of ‘integration’ itself. Hence, they are better placed to discern the arbitrary elements that generated the financial crisis, with attendant implications for the Eurozone. It should be stressed that my intent is not to replace one orthodoxy with another. A focus on the financial crisis, which is the special remit of this article, leads one rather naturally to a focus on political economy. That is not to suggest that the heterodox recasting of EU scholarship should be confined to political economy if it is to capture the complexities of power and subjectivity that are entailed in the dynamics of the EU.9 Indeed, the ‘broad church’ of heterodox IR that developed after the end of the Cold War would be no bad role model to follow. Nor is it to suggest that current European integration scholarship should be generally abandoned. As stated, European integration adequately addresses some pertinent questions about the EU. Furthermore, a heterodox sensibility opens the prospects for recasting aspects of European integration scholarship.

I will conclude this article by indicating how this might be done with respect to the understanding of the financial crisis. The institutionalist turn10 provides opportunities for such recasting; it is a turn that contemporary integration theory shares with postKeynesian, neo-Weberian and post-Marxist political economy.11

8. Donald Puchala, ‘Of Blind Men, Elephants and International Integration’, Journal of Common Market Studies 10, no. 3 (1971): 267–84.

9. For an excellent comprehensive survey of works in the liminal realm of EU studies that apart from political economy includes works in cultural studies on identity and Foucauldian works on ‘governmentality’, see Ian Manners, ‘Another Europe Is Possible: Critical Perspectives on EU Politics’, in Handbook of European Union Politics, eds Knud-Erik Jørgensen, Mark Pollack and Ben Rosamond (London: Sage, 2006), 77–95.

10. For example, James March and Johan Olsen, ‘The New Institutionalism: Organized Factors in Political Life’, American Political Science Review 78 (1984): 734–49; Peter Hall and Rosemary Taylor, ‘Political Science and the Three New Institutionalisms’, Political Studies 44, no. 4 (1996): 936–57.

11. For example, Ha-Joon Chang, ‘Breaking the Mould: An Institutionalist Political Economy Alternative

to Neo-Liberal Theory of the Market and the State’, Cambridge Journal of Economics 26, no. 5 (2002):

539–59; Michel Aglietta, ‘Capitalism at the Turn of the Century: Regulation Theory and the Challenge of Social Change’, New Left Review (old series) 232 (1998): 41–90.

651 Ryner After specifying my understanding of European integration orthodoxy, the article critiques orthodox treatments of the Economic and Monetary Union (EMU) and the Single Market in financial services and points to the aforementioned blind-spots. The final section presents openings to a heterodox recasting.

Orthodoxy, Heterodoxy and European Integration The terms orthodoxy and heterodoxy are derived from the concept of doxa. Doxa refers to unconscious, taken-for-granted and habitual assumptions of the world that define the universe of possible discourse in a social meaning system. Related to the concept of habitus, doxa determines what resonates and what is recognisable or ‘sensible’.



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