The original welfare state emerged in circumstances diametrically opposed to those found in the eurozone today. To truly transform Europe, more radical action will be necessary.

In his latest article on the rise of Syriza and Podemos, Paul Mason writes that “something big and real is happening in European politics.” The Channel 4 economics editor is convinced that in Greece and Spain “a new form of social democracy is being born.” While I agree with Mason that the economic programs of the two leftist parties reflect a moderate Keynesianism, I do not share his optimism about the resurgence of social democracy in the eurozone – even in a new form.

The stellar rise of Alexis Tsipras in Greece and Pablo Iglesias in Spain is undoubtedly a positive development. If the frightened denunciations from the right are anything to go by, “something big and real” must indeed be afoot. Unlike most other liberal democracies, voters in Greece and Spain are now actually presented with a real choice: between continuing the status quo of life-ravaging austerity and electing a motley crew of leftist academics and activists who intend to put a definite end to it.

But despite the allure of hope, it is crucial to bear in mind that a marginal electoral victory for the left does not a welfare state make. Political economy is not just about the individual leaders and political ideas voted into office, but also about the often invisible structural dynamics and power relations that underlie (and often undermine) them. While charismatic leaders and Keynesian ideas are certainly staging a comeback, it does not necessarily follow that these leaders and ideas have the force required to overturn the structural power relations at the heart of the EU’s neoliberal project.

There are already some signs that Syriza’s and Podemos’ “new form of social democracy” within the eurozone may in fact be stillborn. Early capitulations on debt cancellation and bank nationalization are a case in point. Both parties initially called for a unilateral suspension of payments followed by a debt audit as well as public control over the banking sector and other key industries, only to abandon these proposals in favor of a more moderate debt “renegotiation” and the claiming of partial stakes in bailed-out banks. Clearly capital exerts its structural power even over radical opposition parties.

Paul Mason, of course, is fully aware of this. In a previous article, he brilliantly exposed the fiscal and financial challenges a Syriza government would face upon assuming office. And here he again poses the right question: “Is a Keynesian welfare state, committed to public ownership and deficit-financed growth either possible, or permissible, in the European Union?” Still the obvious answer seems to escape Mason — and many others with him. While the leftists’ efforts to test the feasibility of “impossible reform” within the eurozone are laudable, they nevertheless remain unrealistic.

The reasons for this are straightforward. The original Keynesian welfare state arose under a very particular set of circumstances that are in every respect diametrically opposed to those in which Greece and Spain find themselves today. Social democracy required a powerful organized labor movement, the threat of Really Existing Socialism, and the widespread destruction of capital in the Great Depression and two successive World Wars. It briefly thrived within a global financial regime that strictly limited the international mobility of capital and that stabilized international monetary and commercial relations through a dollar-gold standard of fixed but adjustable exchange rates.

Combined with its extensive regulatory framework, the success of the original welfare state hinged on “financial repression,” or the wiping out of public debts through systematically depressed interest rates. By keeping finance captive within national boundaries, governments managed to neutralize capital’s exit threat. This not only reduced the lending options open to private financiers, allowing governments to borrow at negative real interest rates for much of the 1945-’70 period; it also shifted the structural power relation in favor of the state, allowing it to take a timid first step towards the “euthanasia of the rentier” advocated by Keynes. It is no coincidence that the welfare state broke down in the 1980s under the increasing pressures of growing capital mobility.

Today’s reality could not have been more different to the Golden Age of Capitalism. Greece and Spain now find themselves in a six-year depression, stuck within the rigid fiscal and monetary straitjacket of a currency union that effectively functions like the 1930s gold standard, automatically imposing austerity by precluding default, exchange rate devaluation or monetary easing. The financial system has long since been thoroughly deregulated. Capital controls and deficit-financing are forbidden. Productive industries, trade unions and militant workers’ movements have all but disappeared. In stark contrast to the 1950s and 1960s, the rentier once again rules supreme.

The only way the moderate Keynesian plans currently proposed by Syriza and Podemos could be mildly successful within the eurozone would be for European leaders (i.e., Germany) to suddenly see the light and recognize the sensible demands coming from Athens and Madrid. Without German approval, the two will never have their debts canceled, they will never be allowed to run expansionary fiscal policies, and they will definitely not be able to count on the transformation of the ECB into a Keynesian instrument of deficit-financing. The ball therefore remains in the German court.

If Merkel and Schäuble refuse the demands of the radical left in Greece and Spain, which they will most certainly do, the only choice left for Tsipras and Iglesias would be to either continue the austerity measures they set out to overthrow, or to unilaterally default, exit the eurozone and go it alone. The battle lines are already being drawn and it is now rapidly becoming clear that these will be the terms on which the struggle is to be waged. In anticipation of the Greek elections on January 25, German officials have been quietly informing the press that Merkel is no longer opposed to a Greek exit from the eurozone, as all necessary provisions have been made to prevent contagion.

In an interview published last week, Michael Fuchs, a senior member of Merkel’s ruling Christian Democratic Party, went even further, threatening to withhold credit and force Greece out of the eurozone altogether: “If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece. The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the euro.”

These words should provide an unambiguous answer to Paul Mason’s important question: is social democracy still possible — or permissible — in Europe today? Clearly it is not. To truly transform Europe, more radical action will be necessary. While it is understandable that Tsipras and Iglesias have elected to pursue a conciliatory tone in the lead-up to general elections, they will have to stand firm in their negotiations with European creditors and they must not be afraid to pursue a unilateral default-cum-exit if their demands are not met. The more radical elements within both parties have long favored such a confrontational approach. They may yet see their preferences come true.

At any rate, it should now be self-evident that the current German government will never tolerate sensible Keynesian policies within its sphere of influence, which now spans virtually the entire continent. The chances that two small and inexperienced leftist parties from two thoroughly weakened peripheral states will succeed in transforming the 19-member currency union from within are virtually nil. The euro has become a fetter to millions — just as it was designed to be. It urgently needs to make way for alternative currencies capable of supporting a truly transformative social and political project.

Jerome Roos is a PhD researcher in Political and Social Sciences at the European University Institute and founding editor of ROAR Magazine. Follow him on Twitter @JeromeRoos.