“The Crisis in the Eurozone“
by James K. Galbraith
“(T)he ECB refuses to solve the crisis at a stroke, which it could do by buying up the weak countries’ bonds and refinancing them. The argument against this is called “moral hazard,” buttressed by old-fashioned inflation fears, but the real issue is that to do so would admit loss of control by creditors over the central bank. Actions parallel to those taken by the Federal Reserve – nationalizing the entire commercial paper market, for instance – would repel the ECB, even though it does buy up sovereign bonds when it has to.
[MF: This is all a polite, econ-theoretical way of saying that the ECB is the tool of financial capital, not a manager of social or economic welfare.]
So instead the zone has gone about creating a gigantic toxic CDO called the European Financial Stability Fund, which may shortly be turned into an even more gigantic toxic CDS (like AIG, they will call it “insurance”). This may defer panic at most for a little while.
Technical solutions exist. The most-developed of these is the “Modest Proposal” of Yanis Varoufakis and Stuart Holland, widely backed by older political leaders in Europe. It would 1) convert the first 60 percent of GDP of every eurozone country’s debt to a common European bond, issued by the ECB; 2) recapitalize and Europeanize the banking system, breaking the hammerlock of national banks on national politicians; and 3) fund a New Deal-like program of investment projects through the European Investment Bank.
Variant proposals include Kunibert Raffer’s call for a sovereign insolvency regime modeled on the U.S. municipal bankruptcy statute, Thomas Palley’s proposal for a new “government banker” and Jan Toporowski’s proposal for a tax on bank balance sheets to retire excess public debt.
These are the best ideas and none of them will happen. Europe’s political classes exist these days in a vise forged by desperate bankers and angry voters, no less in Germany and France than in Greece or Italy. Discourse is sealed off from fresh ideas and political survival depends on kicking cans down roads so that the fact that this is a banking crisis does not have to be faced. The fate of the weak is at best incidental. Thus every meeting of finance ministers and prime ministers yields treacherous half-measures and legal evasions.
Political fragility also explains the fury in France and Germany when George Papandreou [the calmest man in Europe, by the way, having been born and raised in Minnesota] sought to cut the knot of his rebellious ministers, irresponsible opposition and angry public by putting the latest austerity package to a vote. God help the bankers! The move was fatal to Papandreou in short order, and Greece will now be turned over to a junta of creditors’ deputies if such can be found willing to take the job. It won’t be anyone who wants to continue to live in Greece afterward.
Greece and Ireland are being destroyed. Portugal and Spain are in limbo, and the crisis shifts to Italy – truly too big to fail – which is being put into an IMF-dictated receivership as I write. Meanwhile France struggles to delay the (inevitable) downgrade of its AAA rating by cutting every social and investment program.
If there were an easy exit from the Euro, Greece would be gone already. But Greece is not Argentina with soybeans and oil for the Chinese market, and legally exit from the Euro means leaving the European Union. It’s a choice only Germany can make. For the others, the choice is between cancer and heart attack, barring a transformation in Northern Europe that not even Socialist victories in the next round of French and German elections would bring.
[MF: Here, I would demur. This explains why Greece hasn’t exited so far. But at this point, why not choose exit? Everybody proper said, following orthodox theory, that exit wouldn’t work for Malaysia, Argentina, etc. as well. But it did. Considering the empirical evidence at this point in history, and adding to that game theory logic, I think exit is the only rational option now.]
So the cauldrons bubble. Debtor Europe is sliding toward social breakdown, financial panic and ultimately to emigration, once again, as the way out, for some. Yet – and here is another difference with the United States – people there have not entirely forgotten how to fight back. Marches, demonstrations, strikes and general strikes are on the rise. We are at the point where political structures offer no hope, and the baton stands to pass, quite soon, to the hand of resistance. It may not be capable of much – but we shall see.”
There remains a popular or perhaps professional conservative economist’s insistence that the cause of economic crisis in Europe is immoral Greek consumer and political behaviour. That might be an opportune, EZ, resonant, discursive tactic if you’re a Greek with a meso-political axe to grind or a conservative economist clinging to the wire monkey mother of your dogma.
As someone who was hounded by bankers and real estate agents to buy a house in the US at the peak of the bubble (and of course I was! I was even given a whole book by the realtor explaining in simple terms that if I bought a home, I could be part of the Infinite Pyramid Scheme (TM) and someone would without fail buy that home from me for an even-more inflated price.), when I had just graduated from my PhD program with grotesque mounds of student debt, I know good and well that moralistic arguments about the consumer root of economic crises are full-on undiluted bullshit, toxic CDOs, if you will.
To still buy those toxic funds, you would have to be completely autistic; hallucinating nothingness in the face of mass marketing, highly-unequal social status and institutionally-flogged hegemony; utterly blind to the global quality of the economy; and abjectly deaf to the extreme variations in money-borrowing and -lending power. You would have to be a conservative economist, or the slave of some such defunct economist).
Debt + No Class Compromise > Delay > Asset Liquidation
If you get your rocks off by pursing your lips sourly and pointing fingers at more-or-less hapless pawns, here’s a link to Greg Palast’s observation of one of the proximate causes of Greek economic crisis. The conservatives had to borrow from financial capital in order to temporarily prop up the pretense that the financial capitalist’s order works, and the conservatives can operate it. The order, one of primitive accumulation, doesn’t, cannot work for most societies and people and environments. So what were conservatives supposed to do? Admit that, and lead the socialist revolution? THAT WAS NEVER GOING TO HAPPEN. Did I even have to caps-lock that? No. Conservatives’ only (pro-system) choice was debt-to-delay. So that is not a choice.
Now, should any working class person ever elect a liberal, let alone a conservative, to represent her in the political sphere? No. Absolutely not. Because that debt-to-delay non-choice is exactly what you get from them. Fetishizing the politicians’ systematic corruption is kind of perverse and creepy and stunted, given it’s about “catching” them doing what they are ideologically-constrained and coached to do.
Regardless of Keynesians’ belief that states can deficit spend, everyone believes in debt–or money liquidity, as it’s known when we’re not being manipulatively moralistic. It’s a fundamental part of economies, as well as pious, exploitative moral economies. Debt was the key to US military-economic dominance in the latter half of the 20th century, and this constrained everyone else’s options–especially in Europe, not to even mention how the financialization/debt model was sold, was saturation-marketed as the 1-Tru (TM) path to infinite economic expansion and happyness.
But of course the underlying problem is that actually-existing financialized capital is principally a tool for primitive accumulation–appropriating, concentrating and controlling value and exchange. In other words, debt-to-delay leads inexorably to wicked public and smallholder asset liquidation and a continuous and depleting debt-to-liquidation cycle, or else one helluva social fight to force garbage investors to take the losses on their garbage investments and to clean up their investment practices.
Our elites are very diligent at reminding us about the terms of their protection racket: that if investors are forced to be prudent, they will withhold liquidity and offload the costs onto the working class and the public. However, the traditional threats have begun to mean nothing, because the primitive accumulation debt-to-liquidation cycle has resulted in withheld liquidity and economic crisis offloaded onto the working class and smallholders anyway. When there’s no class compromise, the hegemonic leverage wears down quickly, leaving bare brutality.
Unless we fight to reduce its power, we cannot escape capitalist primitive accumulation and our own over-determined economic dispossession and depletion. Yet we still have a wide range of commentators declaring TINA on austerity. There are alternatives. The alternatives simply do not support financial-military global monopoly capitalism.
Thus, faced with this impassible dilemma, (much like the 20% (a low) of Americans who still somehow believe that they will be in the top 1% of wealth accumulators) paid experts somehow still desperately pretend to believe that there is a universal, moral path to wealth accumulation in a fictitious 2-D world without power, and that little Greece, if they’d just been more moral, could have followed that yellow brick road, paved by the benevolent financial system devoted to unproductive accumulation and geo-political power moves undertaken by the financial capital centers of the US (US banks own over 10% of Greek risk), England, France and Germany in the west, and oil capitalists and China eastward. The level of political- economic and geopolitical naivete required to maintain this moral handwringing and within-Greece fingerpointing is flabberghasting at this point in history.
Within the context of global monopoly capitalism, nothing could have been done for the welfare of peripheral small economies (countries) like Greece. Financial-military capital has not been and is not aligned for this. That this mal-alignment destroys capital and undermines the Greek, European or global economy is not a problem to financial-military capital–especially not when the dollar as world reserve currency automatically secures such resolute US dependability for capital. (Which is why OWS is so important to disciplining global speculation.)
Someday, the capitalist lords and retainers claim, global monopoly capital may get in the mood or accidentally do something to benefit non-elites. You just never know. It’s happened (with some considerable drawbacks, including population explosion, scarcity and environmental catastrophe. But dammit some of us did get those nice SUVs for a while in some places.) In the face of their brutal solipsism and frigidity, the deity-bankers only ask for assurances that, as long as you or your politicians are worried about liquidity for your society’s survival (assuming of course that we’re not interested in bothering to establish a global network of rebellion), they are entitled to the wealth your society creates into the future. This is the blackmail of late monopoly capitalism. To really paraphrase Nixon all out of recognition, perhaps we all have Stockholm Syndrome now. You give your wealth. You get a steady supply of bloody fingers, etc. in the mailbox. It all ends when you open up the envelope to find your own bloody heart muscle wrapped in a tissue.
And for what? Regardless of what happens to the body, the economy or societies or the environment, as long as they get the wealth, financial capital wins. –Perhaps we go along with it because we think the capitalists are sexy (Thanks for the beer goggles, Frank Luntz!), because even all the militarized cops can’t follow all of us around in our daily rounds of assiduous obedience.