Chris Bambery explores European political economy and what developments of the last twelve months can lead us to expect about the year ahead

Few will mourn the passing of 2018. The news has generally been grim, though there’s been plenty of it. Our attention has been diverted by the antics of Donald Trump, in Britain by Brexit, in Germany be the imminent departure of Angela Merkel, in Spain by Catalonia or in France by the Jihadist attacks and the protests of the Yellow Jackets. The latter at least are addressing a question which affects nearly all of us and deserves our full; attention, the harsh reality of stagnant living standards. Underlying that is the fact that Europe is falling behind its rivals economically.

In Europe, stagnant or falling living standards has been the norm since the 2008 financial crash and the recession that followed. It is the norm in Europe’s powerhouse, Germany. For half the population incomes haven’t risen in a decade. Before that, the Harz 1V programme of labour “reforms” brought in by the Social Democratic government of Gerhard Schroder in 2003 blazed a trail for other governments to follow. By cutting welfare benefits and lowering the safety net for those who fell ill, were disabled or might consider leaving a lousy job, it created a fear of what might happen if you could no longer work – a fear that meant employees put up with low wages, longer hours and worsening conditions because anything was better than falling out of work.

The resultant reduction of labour costs underlay the rise in exports which created Germany’s economic growth, but masked the reality of low pay in what was billed as Europe’s success story. Schroder presided over a growth in inequality; not that he cared as he headed off to make a fortune in the region of US$20 million.

But today the German economy shows signs of real strain. Stagnant living standards at home effect domestic demand just as Germany’s export drive is flagging.

For a British viewer, Germany seems to offer a different model which still treasures industry, innovation and training rather than finance. Leaving aside the fact that the big German banks did the same as the big British banks pre-2008 in trying to match the dominant US global investment banks, ending in spectacular failure, bailouts and the lingering sickness of Deutsche Bank, plus the exposure of so many smaller Landesbanken and Sparkassen to US subprime mortgages.

But another truth is that Germany is not so innovative.

Once it led the way in patents registered in the USA, but in 2007 it was overtaken by South Korea. Today they register more than double the patents German companies do and China is now breathing down the neck of the latter.

Eight years ago, Merkel promised a big increase in investment and research. German universities were to challenge their US and Chinese counterparts. But today no German university, and no European one, is in the top 15 list for science and mathematics.

In the post-war economic miracle, Germany’s car industry took pride of place: Volkswagen, Mercedes and Audi were symbols of quality and reliability. Today Volkswagen is embroiled in a scandal over falsifying its emissions but that stems from the truth that the German car industry is stuck in the old technology of diesel and petrol run vehicles and lags behind in new electric technology and in the race to mass produce driverless cars.

But looking beyond Germany there are dark clouds gathering that do not bode well for us.

In Europe, France is stagnating economically, Italy has not seen real economic growth for over a decade, and while Spain is recovering from the dreadful recession which hit following the collapse of its property boom, the truth is that it is based on the growing numbers of low paid, low skilled precarious jobs. Easy come, easy go as will be discovered if the economy enters a downturn.

Is a global economic downturn in the offing? Well, the answer is that we seem to have reached the end of one economic cycle which produced steady if not spectacular economic growth in Europe, a bit better in the US and even more so in China, though not up to past standards.

The volatility on the US stock market can be seen as a sign of worries about the future. China has an option which is turning more towards its domestic market. German exporters will not like the implications of any reduction in its exports of machine tools and high quality engineering goods, and their domestic market is sluggish because of stagnant living standards.

If we are seeing the end of the economic cycle then any downturn is probably 12 months off. That would fit the global economic pattern since the first major post-war recession of 1973. These have come roughly every decade. The cumulative damage grows following the retreat back in the mid-70s from the post-1945 Social Democratic and welfarist consensus and the turn no neoliberalism: inequality has grown, welfare has been cut and economies “liberalised” to the cost of the majority and the benefit of a tiny minority.

What causes such downturns? Overproduction and resulting overcapacity, which you can see in the automotive, steel and shipping industries. In the race to mass produce driverless cars, a few competitors will take the bulk of market share, others will lose out with a resulting waste of their investment. Low productivity, very apparent in the UK, stems from lack of investment. That flows from not seeing secure long term profits. Meanwhile, the banking sector remains fragile and there must be doubts that if it hits trouble, states could afford bailouts like those of ten years ago.

So there may be troubles ahead economically. That would increase the political tensions we see between the US and China and within the EU, and of course the social polarisation so apparent in Europe.

As we approach 2019 we need to be on guard that we once again don’t pick up the tab for another mess we did not create, and look to follow the lead given by protesters in France.

What is interesting there is that the protests involve many older workers who recall when the centre left did put forward a programme promising, if not delivering, full employment, cradle to grave care and decent pensions. The Socialist Party jettisoned that in the 1980s when Francois Mitterand was President, but working people cling to that promise even when it’s not on offer from the established parties.

The reduction of what is on offer at election time to different versions of the same neoliberal agenda has left people alienated from the parties they would once have loyally backed. For the SPD in Germany, the Socialists in France or the Democrats in Italy that does not just mean they have lost votes and members but, consequently, they are much less able to restrain and police the working class.

What France shows is how bitterness over stagnant livng standards and the worsening of life in general, particularly work, can lead to that exploding into protest and heading leftwards. Not so long ago, any discussion of French politics centred either on Macron and his new Thatcherite dream or the growth in support for Marine Le Pen and the Front National. Now it’s about whether this is a repeat of May 1968.

As we enter a new year, there is the hope.