“The stock exchange simply adjusts the distribution of the surplus value already stolen from the workers” – F Engels, 1883

What exactly was decided at the recent European crisis summit? It seems no one is entirely sure because the reported outcomes seem include a set of impossible policy prescriptions that might assuage shaky markets for a couple of months (if lucky), but have no hope in hell of being implemented (the annual 0.5% structural deficit limit being an obvious example). The aim of this post is to step back slightly and survey some of the economic fundamentals behind the Eurozone crisis.

No reader need be reminded that throughout the course of the crisis there has been persistent demonization of what are daubed the ‘peripheral’ members of the EZ. Television news anchors and pundits happily label Portugal, Italy, Ireland and Spain as the ‘PIIGS’, while constantly referring to these states’ governments and populace as profligate spenders and lazy respectively. This of course flies in the face of facts, including how Greeks work the longest hours in Europe and Italian’s maintain higher household wealth and lower debt than their British counterparts.

It’s Still the Banks’ Fault

This narrative has effectively come to dominate the public discourse and attitude towards austerity measures. Not only has the fact that the current sovereign debt crisis is almost entirely due to the banking sector crash of 08 been lost down the memory hole, but many people have come to regard austerity measures as the only feasible and justified policy to deal with the economic death spiral said crash has caused. As this RMF report reminds us;

    “The collapse of Lehman Brothers in 2008 led to recession in both the core and the periphery of the Eurozone as exports and investment fell. Eurozone states faced falling tax revenues, while attempting to support aggregate demand and to rescue banks. Rising budget deficits followed, the direct result of the crisis and not of state profligacy, even in Greece.

A Balance of Payments Crisis

In a recent op-ed piece in the FT, Martin Wolf goes further in dispelling the role of debt in the Eurozone crisis.

Looking at the average fiscal deficits of 12 significant eurozone members from 1999 to 2007 showed that every country, except Greece, fell below the 3 per cent of gross domestic product deficit limit. The four worst exemplars, after Greece, according to Wolf were Italy, France, Germany and Austria.  Ireland, Estonia, Spain and Belgium were in good positions until the banking crisis. Estonia, Ireland and Spain also had far better public debt positions than Germany, again only changing after the 2008 meltdown.

Wolf goes on to point out that by looking at current account deficits over 1999-2007, this measure was a useful indicator of which member states would be most hit following the financial crisis. Estonia, Portugal, Greece, Spain, Ireland and Italy were all vulnerable on this score…

    “This, then, is a balance of payments crisis. In 2008, private financing of external imbalances suffered “sudden stops”: private credit was cut off…The failure to recognise that a currency union is vulnerable to balance of payments crises, in the absence of fiscal and financial integration makes recurrence almost certain. Worse, focusing on fiscal austerity guarantees that the response to crises will be fiercely pro-cyclical, as we see so clearly.”

Eurozone current account imbalances

Nothing can be done about this balance of payments crisis within the current structural framework of the eurozone, as Michael Burke argues;

     “It is also entirely impossible in a single currency area for all other economies to maintain government balances if one or more key countries have large current account surpluses, as is presently the case with Germany and others. Other countries must then run current account deficits and to simultaneously maintain a government balance they are faced with two unacceptable alternatives. They must either hugely increase household savings even though incomes are declining; that is, household spending must fall even faster than incomes. Alternatively, businesses must reduce investment to well below the level of its income, which could only lead to a further reduction in competitiveness and a renewed widening of the current account deficit. This is the downward spiral that countries like Greece have already entered.”

Squeezing German Workers

After dealing with the widely held fallacy that the sovereign debt crisis is entirely down to the profligacy of peripheral governments, we should analyse the interests behind the current structure of the Eurozone. It is clear that German capital has been enjoying the fruits of the current EZ framework, at the expense of workers in Germany and the periphery.

It is important that the current crisis does not offer an opportunity to inflame national rivalries any further than it already has done. German (and wider core EZ) capital has effectively been able to divide and rule workers throughout the eurozone. The Greeks and Portuguese blame harsh austerity measures implemented by their governments as dictates’ from Berlin, while German, Dutch and Finnish citizens feel aggrieved their tax Euros are being funnelled into a bailout package. The anger and distrust on both sides is understandable considering the high stakes, but Left parties and anti-austerity groups in every EZ member state (and outside) need to vigorously challenge the dominant narrative.

German workers are not creaming off the results of increased German competitiveness. The profits from this increase are going straight back to German industrial and finance capital. This has been achieved through frozen nominal labour costs in Germany, as this graph makes clear;

German real wages have decreased by 4% over the past decade, whilst inequality rose more than anywhere else in the OECD.

German industry has enjoyed the increased competitiveness the Euro has brought with it, this competitiveness being largely due to the fact that smaller economies can no longer depreciate their own currencies in the face of German exporting power.[1] Stagnation in the German economy was offset by German banks lending to today’s crisis countries, which got into debt importing German goods en masse. As Fabian Linder notes, Merkel now wants all eurozone members to follow economic policies which have caused stagnation in Germany for over a decade.

A Democratic Recovery

We have seen how the current crisis did not begin as a debt crisis, but a crisis borne of two major structural weaknesses facing the eurozone – lack of fiscal union and a corrupt global banking sector. These have combined to create the perfect storm throughout Europe, one which is likely to take decades to fully recover from if EU leaders continue on their current path of politically motivated austerity measures.

BBC Newsnight economics editor Paul Mason has highlighted how the proposed new rules on eurozone fiscal policy would effectively make counter-cyclical deficit spending illegal. The stimulus implemented in the US and Britain (prior to the 2010 election), which brought both economies back from the brink of utter catastrophe would no longer be options for eurozone governments. This is a cynical attempt to woo back the support of the bond markets, which in reality, aren’t actually stupid enough to think this can be done. Saumil H. Parikh of PIMCO (the world’s largest bond trader) warns investors of the dangers of Europe’s contracting fiscal policy;

     “…both fiscal and monetary policies ought to be expansionary, but both have actually been contractionary. With external demand weakening, and domestic demand contracting, fiscal austerity measures will cause European aggregate demand to contract even further over the next 12 months or so…”

This should be a warning to government’s (especially the UK coalition) which believe their debt reduction will somehow please or fool bond traders into thinking their respective economies are attractive investments. While ruthless, the bond traders aren’t dumb.

Nevermind what the bond markets think, it is far more important to work out economic plans and policies which would actually benefit the wider population and can be campaigned for by Leftist parties and groups. These could include a debt jubilee of the sort economist Steve Keen and anthropologist David Graeber have suggested in recent months, involving a write-off of almost all household debt, most importantly mortgages.

Of course, the entire European and global banking system needs to be brought bank under democratic control. This would require going beyond mere regulation which some bright spark at the banks will always be able to find a loophole through. Ensuring that banks service investment in productive industries, preferably green ones, is also critical. A Green New Deal implementing major structural changes in national and international financial systems, whilst also creating jobs via investment in renewable energy generation and energy conservation would be a good place to start.

Such policies could boost growth across Europe and rebalance the economy away from the grip of parasitic finance capital, which has done so much to siphon off wealth from the ‘real’ economy in recent decades. To attain such goals would require a political programme and strategy not yet evidenced in the global protests against austerity, but may develop in the coming months and years if reactionary economic policies continue to be forced onto citizens across Europe at the behest of the continents political and economic elite.

It was too late for Wednesday’s morning list of 36 operations, including two breast cancer operations, which was cancelled as a precaution.

Another 45 operations scheduled for the afternoon were also cancelled after a meeting.” – BBC News

This is perhaps what should be expected to take place in a society with a sclerotic economy, record levels of youth unemployment and the highest inequality levels in Europe during a period which has witnessed soaring global commodity prices. Although, if you listen to our social betters,  it’s probably just the criminal actions of ‘feral youths’, lacking paternal discipline.

“…here’s a photo of the police earlier this week clearing out Occupy Chapel Hill in North Carolina; the Baghdad-like scene is but a small taste of how para-militarized America’s domestic police forces have become and what we’re likely to see much more of if (more accurately: when) protests, disruptions and other forms of unrest continue to emerge in the face of a disappearing middle class and exploding inequality.”

                                                                                                                                            -Glenn Greenwald, Salon

“Italy needs reforms not elections” – EU President Hermen van Rompuy

As the birthplace of liberal democracy, Europe seems to be going cold on the venture all of a sudden. Elected officials in both Greece and Italy have been deposed by men euphemistically referred to as ‘technocrats’, who are in reality the preferred candidates of Paris and Berlin. Referring to the new Italian PM as a recent employee of Goldman Sachs is perhaps slightly too unpalatable in these banker bashing times. The same goes amongst a generation of Eurocrats who have regularly lectured other less enlightened peoples about the advantages of liberal democracy (regularly going hand in hand with military action to emphasise their love of democratic values).

The mainstream media outlets seem happy to trot out the line that the decisions made in Greece and Italy to appoint entirely unelected heads of state has been deemed necessary to secure ‘stability’. Ironically, this is the same language and narrative that has been deployed outside of the US/Europe for decades. A local strong man (almost always a man) opens his country to Euro-US capital, offers up land, cheap labour and vital resources (most notably oil) and abuses against civil and human rights are happily ignored. At the moment the Troika takeover of Italy and Greece is limited to asset stripping and economic restructuring.

These developments follow months of Troika imposed austerity and restructuring, again, hitherto confined to the Global South. Now it is clear that to get their way European capital and the French (mainly acting due to terrified concern regarding the exposure of their banks to Greek, Italian and Spanish bonds) and German governments are required to force a –hopefully temporary- bureaucratic/technocratic coup. The sight of EU president Hermen van Rompuy pleading Italian officials to avoid prompt elections in that country says much about the true nature of the EU, an institution known for its democratic deficit almost as much as its member states’ economic deficits.  The same fear of public opinion in Greece of course led the government there to reverse calls for a referendum of the latest ‘bailout’ conditions, at the behest of the French and German governments.

Will such utterly undemocratic and hypocritical actions work? The answer is strictly no, mainly for two reasons;

(1)    The grasping for ‘stability’ will only lead to greater instability with austerity measures being forced through by governments with even less of a democratic mandate to do so than previously. While aiming for stability in ‘the market’, Euro politicians are ensuring increased social instability on the ground, which will in turn, increase market instability.

(2)    There has been no attempt to deal with the actual root causes of the crisis, the utterly fraudulent and immoral behaviour of the (and of course, US) banks. In Britain, we continue to witness the dark hedonism of banker welfare recipients, a single example being bankers at RBS attempting to pay themselves £500 million in bonuses. Of course, such matters are small beer compared to the constant ticking time-bomb stalking the global economy in the form of the $500+ trillion derivatives market set to explode at any given time.

It’s clear that Merkel and Sarkozy’s pound of flesh has not bought off (or fooled) the financial markets today, with Italian borrowing costs at their highest in years. Will the banks and speculators be contented with their victories in Greece and Italy? It’s very unlikely. The people of Spain, Portugal and Ireland should be extremely concerned right now that their economies are next in line for attack.

If market players now know that pressure on the Eurozone can overturn elected representatives, in turn allowing unelected technocrats to be placed in power who will be less fearful in the face of mass action against austerity measures, this circus will surely continue into the rest of the peripheral economies. The only thing that can stop this is direct pressure from the bottom up, which would require an exponential growth in Occupy style protests and increased militancy on the part of organised labour. Our financial and political masters are now openly admitting that in a crisis caused by the banks, they regard democracy as an option, not a right. They cannot be allowed to continue on this path without a fight.

                                                                                       – via zerohedge.com

Show not only the goal; show also the road.

So inseperably grow goal and road into each other,

That the one always changes with the other;

Another road brings another goal into being.

                                                                                    – Ferdinand Lassalle

While its UK off-shoot struggles to make any major headway, the US Occupy movement is continuing on a pace, with towns and cities all over the country joining daily. Of course, as the movement grows, so the response from the police and local government becomes increasingly heavy handed.

In the short term, some of the major challenges facing the Occupy protesters include said increased hostility from the state apparatus, being ignored or ridiculed by the mainstream media and sustaining a protest long-term, without an over-arching political strategy (the latter is discussed in-depth in relation to Occupy LSX by Richard Seymour here).

There are of course other obstacles to challenging the seemingly all-pervasive power of finance capital in our economy and daily lives. However, one challenge I would like to focus on is Barack Obama’s presidential campaign and The Democrats generally.

Many progressives either side of the Atlantic still continue (or at least try) to believe that Barack Obama’s presidency marks a shift from the G W Bush presidency that proceeded his own. This is easily refuted with regards to almost all major policy areas, but especially economic and foreign policy (while I will not go into the latter here, head over to Glenn Greenwald’s blog, which offers analysis of numerous examples of where the Bush and Obama foreign policies overlap almost entirely).

Obama’s 2008 general election victory came partly thanks to donations from top Wall Street firms (including JP Morgan, Goldman Sachs & Citigroup Inc), who would not have provided money to Obama the candidate had they not expected to receive support in return. On taking the presidency, Obama repaid the street’s generosity be leaving Ben Bernanke in place at the Federal Reserve and offering key economic posts to those with close ties to Wall Street, including Larry Summers and lil’ Timmy Geithner (like many other members of the 1%, a tax cheat).

Moving forward to 2011 and Obama has received more money for his 2012 campaign from Wall Street than the nine Republican candidates have received combined. This is likely thanks to the continued support for the status quo Obama has exemplified and the total lack of regulatory policy and prosecutions being pushed by the administration. William K Black, a key prosecutor who landed bankers behind bars in the wake of the Savings and Loan scandal of the 1980s, has continuously made plain that widespread fraud has been committed by the banks, which needs to be thoroughly investigated by the Department of Justice. For his part, Obama regards the 2008 crisis as the result of a moral crisis, one which happily for his fundraising team, sidesteps the issue of criminal prosecutions.

As Obama made plain to bankers himself on election to office, Wall Street is aware that the president may be the only thing that stands between themselves and the pitchforks of public anger and discontent.  This is the likely reasoning behind their continued support for Obama, when they may even prefer some of the policies being posited by his Republican rivals. The president’s backers are astute enough to realise that a seemingly ‘progressive’ president is more likely to contain the frustrations and angers of the electorate than a Romney or Perry who may be (wrongly) regarded by the public as even more of a Wall Street shill than Obama.

Of course as the 2012 election approaches, Democratic candidates and the president will attempt to co-opt the Occupy movement still exists and has transfigured itself into a political movement with a more coherent strategy and set of demands. Expect individuals up for election to Congress and the president himself to vent many of the arguments made by protesters, while continuing to accept money from Wall Street firms and a continuation with business as usual following the election.

While personally I feel many of the Occupy protests are in many ways being hamstrung by their lack of strategic vision and clear leadership, conversely these factors may be a positive development at the moment. As Matt Taibbi argues in this interview, self-proclaimed leaders could be bargained with and clear demands watered down by those in and with power. As it stands, the demands of the Occupy protesters are so varied and in many ways, lacking in coherence, it’s almost impossible for mainstream politicians to co-opt and limit the movement’s potential.

This won’t necessarily last though.  In 2012 there will be plenty of populist rhetoric coming from Obama and the Democratic Party’s ranks. If the Occupy movement does not manage to make any solid gains in the coming months and its constituent members fear its peak, many may be easily lulled into support of the ‘least worst’ candidates. For the energy and imagination displayed by the Occupy protests to be wasted on securing the re-election of a Wall Street ally would be equal parts tragedy and farce.

(1)   Government borrowing has increased this year, linked to the continuous downgrading of UK growth forecasts since coalition came to power, as a result of an austerity programme sapping demand from the economy. This stands in contrast with the drop in net borrowing in early 2010. The UK gov can take some pride in the fact that these dangerous austerity measures are being implemented in other countries to some extent due to its role in tipping the ideological balance away from deficit spending for growth (as in US, UK etc after 08), to austerity.

(2)   Cameron apparently wants us to pay off our credit cards, yet the gov’s own growth forecasts rely on increasing levels of household debt (to keep spending levels up)! Savings are also falling, rather than rising. People aren’t hoarding money away, they’re having to spend their savings and reduced wages just to get by.

(3)   Austerity measures mean households increasingly rely on credit, which is set to lead to a £245bn increase in personal indebtedness over the next three years. Again, totally at odds with Cameron and Osborne’s constant attacks on the apparent debt culture.

(4)   I’m all for reducing levels of debt (the banker’s favourite addiction, second only to cocaine), but reducing debt fuelled consumption in a consumption driven economy in the middle of a recession is insane. It also seems pretty much impossible when wages are stagnating and inflation is at its highest in years.

(5)   The Tories may also want to stop boasting about the UK’s low interest rates on government borrowing (their one ‘achievement’). The Japanese have ‘enjoyed’ low interest borrowing, while simultaneously experiencing low growth or recession for years (the first link questions the US and Japan’s low borrowing costs relative to European nations, considering both nation’s poor fiscal fundamentals).

(6)   Number six doesn’t relate to the Tories directly, but belies the lack of resolve and a workable programme on the part of the global financial elite. The IMF has actually released a statement today calling on Euro governments (INCLUDING Greece!) to implement policies boosting long-term growth, which includes lessening the pace of public sector cuts. These people have got to be fucking with us, right? How does the IMF release a statement like this, at the same time as having a hand in crushing the Greek economy under the weight of growth killing austerity programmes and piecemeal ‘bailouts’ in its attempt to placate bondholders, bankers and the German (and Finnish) political class?

Discussing the kind of bizarre policy contradictions and rhetoric is probably fairly moot at this point. Europe and North America’s financial and political elite have probably made every possible decision they could have to further inflame the global economic collapse.

The current generation of political leaders, whose economic outlook is deeply influenced by the neoliberal orthodoxy of the era and are electorally dependent on their nation’s respective financial sector, cannot even conceive of meaningful alternative measures and programmes to turn this clusterfuck around. The pseudo-Keynesian fix of pumping cheap money into insolvent banks after the 08 crash was a short term calmative then and just seems laughable now.

This graph shows how expensive the cost of insurance credit for European banks is and underlines that the market is preparing for what our elected representatives probably already accept now as a fait accompli.

See you on the other side of the bankocalypse!