Europe's Wakeup Call

    `Don't be ashamed to ask for the moon: we need it'

By Serge Halimi 
Le Monde diplomatique 
July 1, 2011

http://mondediplo.com/2011/07/01europe

The economic, and democratic, crisis in Europe raises
questions. Why were policies that were bound to fail adopted
and applied with exceptional ferocity in Ireland, Spain,
Portugal and Greece? Are those responsible for pursuing these
policies mad, doubling the dose every time their medicine
predictably fails to work? How is it that in a democratic
system, the people forced to accept cuts and austerity simply
replace one failed government with another just as dedicated
to the same shock treatment? Is there any alternative?

The answer to the first two questions is clear, once we
forget the propaganda about the "public interest", Europe's
"shared values" and being "all in this together". The
policies are rational and on the whole are achieving their
objective. But that objective is not to end the economic and
financial crisis but to reap its rich rewards. The crisis
means that hundreds of thousands of civil service jobs can be
cut (in Greece, nine out of ten civil servants will not be
replaced on retirement), salaries and paid leave reduced,
tranches of the economy sold off for the benefit of private
interests, labour laws questioned, indirect taxes (the most
regressive) increased, the cost of public services raised,
reimbursement of health care charges reduced. The crisis is
heaven-sent for neoliberals, who would have had to fight long
and hard for any of these measures, and now get them all. Why
should they want to see the end of a tunnel that is a fast
track to paradise?

The Irish Business and Employers Confederation (IBEC)'s
directors went to Brussels on 15 June to ask the European
Commission to pressure Dublin to dismantle some of Ireland's
labour legislation, fast. After the meeting, Brendan McGinty,
IBEC director of Industrial Relations and Human Resources,
warned: "Ireland needs to show the world it is serious about
economic reform and getting labour costs back into line.
Foreign observers clearly see that our wage rules are a
barrier to job creation, growth and recovery. Major reform is
a key part of the programme agreed with the EU and the IMF.
Now is not the time for government to shirk from the hard
decisions."

The decisions will not be hard for everyone, following a
course that is already familiar: "Pay rates for new workers
in unregulated sectors have fallen by about 25% in recent
years. This shows the labour market is responding to an
economic and unemployment crisis" (1). The lever of sovereign
debt enables the European Union and International Monetary
Fund to impose the Irish employers' dream order on Dublin.

The same view seems to apply elsewhere. On 11 June, an
Economist editorial observed that "Reform-minded Greeks see
the crisis as an opportunity to set their country right. They
quietly praise foreigners for turning the screws on their
politicians" (2). The same issue analysed the EU and IMF
austerity plan for Portugal:

"Business leaders are adamant that there should be no
deviation from the IMF/EU plan. Pedro Ferraz da Costa, who
heads a business think-tank, says no Portuguese party in the
past 30 years would have put forward so radical a reform
programme. He adds that Portugal cannot afford to miss this
opportunity" (3). Long live the crisis.

Catering only to rentiers

Portuguese democracy is just 30 years old. Its young leaders
were showered with carnations by crowds grateful for the end
of a long dictatorship and colonial wars in Africa, the
promise of agrarian reform, literacy programmes and power for
factory workers. Now, with reductions in the minimum wage and
unemployment benefit, neoliberal reforms in pensions, health
and education, and privatisation, they have had a great leap
backwards. The new prime minister, Pedro Passos Coelho, has
promised to go even further than the EU and the IMF require.
He wants to "surprise" investors.

US economist Paul Krugman explains: "Consciously or not,
policy makers are catering almost exclusively to the
interests of rentiers - those who derive lots of income from
assets, who lent large sums of money in the past, often
unwisely, but are now being protected from loss at everyone
else's expense." Krugman says creditor interests naturally
prevail because "this is the class

that makes big campaign contributions, it's the class that
has personal access to policy makers, many of whom go to work
for these people when they exit government through the
revolving door" (4). During the EU discussion on funding
Greek recovery, Austrian finance minister Maria Fekter
initially suggested: "You can't leave the profits with the
banks and make the taxpayers shoulder the losses" (5). This
was short-lived. Europe hesitated for 48 hours, then the
interests of rentiers prevailed, as usual.

To understand the "complex" mechanisms underlying the
sovereign debt crisis, you need to know about constant
innovations in financial engineering: futures, CDs (credit
default swaps) etc. This level of sophistication reserves
analysis for select experts who generally profit from their
knowledge. They pocket the proceeds while the economically
illiterate pay, as a tribute they owe to fate, or to an
aspect of the modern world that is beyond them.

Let's try the simple political explanation instead. Long ago,
European kings borrowed from the Doge of Venice or Florentine
merchants or Genoese bankers. They were under no obligation
to repay these loans and sometimes neglected to do so, a neat
way of settling public debt. Many years later, the young
Soviet regime announced that it would not be held accountable
for money the tsars had borrowed and squandered, so
generations of French savers suddenly found they had
worthless Russian loans in their attics.

But there were more subtle ways of getting out of debt. In
the UK, debt declined from 216% of gross domestic product in
1945 to 138% in 1955, and in the US it fell from 116% of GDP
to 66%. Without any austerity plan. Of course, the surge in
post-war economic development automatically reduced the
proportion of debt in national wealth. But that was not all.
States repaid a nominal sum at the time, reduced each year by
the level of inflation. If a loan subscribed at 5% annual
interest is repaid in currency that is depreciating at the
rate of 10% a year, the real interest rate becomes negative
to the benefit of the debtor. Between 1945 and 1980, the real
interest rate in most western countries was negative almost
every year. As a result, as The Economist remarked: "Savers
deposited money in banks, which lent to governments at
interest rates below the level of inflation" (6). Debt was
cut without much trouble. In the US, negative real interest
rates were worth the equivalent of 6.3% of GDP per year to
the

Treasury, from 1945 to 1955 (7).

Why did savers allow themselves to be cheated? They had no
choice. Capital controls and the nationalisation of the banks
meant that they had to lend to the state, and that is how it
got its funds. Wealthy individuals did not have the option to
invest on spec in Brazilian stock index-linked to changes in
the price of soybeans over the next three years. There was a
flight of capital, suitcases of gold ingots leaving France
for Switzerland the day before devaluation or an election in
which the left might win. However, this was illegal.

Up to the 1980s, index-linked wage rises (sliding scales)
protected most workers against the consequences of inflation,
and controls on free movement of capital had forced investors
to put up with negative real interest rates. After the
Reagan/Thatcher years, the opposite applied.

The system has no pity

Sliding wage scales disappeared almost everywhere: in France,
the economist Alain Cotta called this major decision, in
1982, "[Jacques] Delors' gift [to employers]" (8). Between
1981 and 2007, inflation was destroyed and real interest
rates were almost always positive. Profiting from the
liberalisation of capital movements, "savers" (this does not
mean old age pensioners with a post office account in Lisbon
or carpenters in Salonika) make states compete for funds and,
as François Mitterrand said, "make money in their sleep".
Moving from sliding wage scales and negative real interest
rates to a reduction in the purchasing power of labour and a
meteoric increase in returns on capital completely upsets the
social balance.

Apparently this is not enough. The troika (European
Commission, ECB and IMF) has decided to improve the
mechanisms designed to favour capital at the expense of
labour, by adding coercion, blackmail and ultimatum. States
bled by their over-generous efforts to rescue the banks, and
begging for loans to balance their monthly accounts, are told
to choose between a market-led clean-up and bankruptcy. A
swathe of Europe, where the dictatorships of António de
Oliveira Salazar, Francisco Franco and the Greek colonels
ended, has been reduced to the rank of a protectorate run by
Brussels, Frankfurt and Washington, the main aim being to
defend the financial sector.

These states still have their own governments, but only to
ensure that orders are carried out and to endure abuse from
the people who know the system will never take pity on them,
however poor they are. According to Le Figaro, "Most Greeks
see the international supervision of the budget as a new form
of dictatorship, like the old days when the colonels were in
charge, between 1967 and 1974" (9). The European ideal will
not gain from being associated with a bailiff who seizes
islands, beaches, national companies and public services and
sells them to private investors. Since 1919 and the Treaty of
Versailles, everyone knows that such public humiliation can
unleash destructive nationalism - and all the more so as
provocations increase. The next ECB governor, Mario Draghi,
who - like his predecessor - will issue strict orders in
Athens, was vice chairman and managing director of Goldman
Sachs when the bank was helping the conservative government
in Greece to cook the books (10). The IMF, which also takes a
view on the French constitution, has asked Paris to insert a
"rule to balance public finances"; Nicolas Sarkozy is already
working on it.

France has let it be known that it would like the Greek
political parties to follow the example of their Portuguese
counterparts, "join forces, and form an alliance"; and the
prime minister, François Fillon, and European Commission
president, José Barroso, have tried to persuade the Greek
conservative leader, Antonis Samaras, to take this course.
ECB head Jean-Claude Trichet considers that "the European
authorities could have the right to veto some national
economic policy decisions" (11).

Honduras has established an enterprise zone, in which
national sovereignty does not apply. Europe is currently
establishing a debate zone for all the economic and social
issues no longer discussed by the political parties because
these areas have gone beyond their control. Inter-party
competition now concentrates on social matters: the burqa,
the legalisation of cannabis, radar on motorways, the angry
gestures or foul language of a reckless politician or
intoxicated artist. This confirms a trend already noticeable
20 years ago: real political power is shifting to areas where
democracy carries no weight, until the day when indignation
finally boils over. Which is where we are.

But indignation is powerless without some understanding of
the mechanisms that caused it. We know the alternatives -
reject the monetarist, deflationist policies that deepen the
crisis, cancel part of the debt if not all of it, take over
the banks, get finance under control, reverse globalisation
and recover the hundreds of billions of euros the state has
lost by tax cuts that favour the wealthy (?70bn in France in
the past ten years, more than $1 trillion in the US,
especially for the top 1% of income earners). And knowledge
of these alternatives has been shared by people who know at
least as much about economics as Trichet, but do not serve
the same interests.

This is not a technical and financial debate but a political
and social battle. Of course, the economic liberals will
claim that what progressives demand is impossible. But what
have they achieved, apart from creating a situation that is
unbearable? Perhaps it is time to remember how Jean-Paul
Sartre summed up Paul Nizan's advice to people who bottle up
their aggression: "Do not be ashamed to ask for the moon: we
need it" (12).

Translated by Barbara Wilson

(1) "IBEC in Brussels on concerns about reform of wage
rules", IBEC, 15 June 2011.

(2) Charlemagne, "It's all Greek to them", The Economist,
London, 11 June 2011.

(3) "A grim inheritance", The Economist, 9 June 2011.

(4) Paul Krugman, "Rule by Rentiers", The New York

Times, 10 June 2011.

(5) International Herald Tribune, Paris, 15 June 2011.

(6) See "The Great Repression", The Economist, London, 18
June 2011, which explains the history of this mechanism.

(7) Ibid.

(8) Jacques Delors was France's economic and finance minister
in François Mitterrand's administration, before becoming head
of the European Commission.

(9) Le Figaro, Paris, 16 June 2011.

(10) See Serge Halimi, "Too big to fail", Le Monde
diplomatique, English edition, March 2010.

(11) Reuters, 2 June 2011.

(12) Jean-Paul Sartre, preface to Aden Arabie, Maspero,
Paris, 1971. (1) "IBEC in Brussels on concerns about

reform of wage rules", IBEC, 15 June 2011.

(2) Charlemagne, "It's all Greek to them", The Economist,
London, 11 June 2011.

(3) "A grim inheritance", The Economist, 9 June 2011.

(4) Paul Krugman, "Rule by Rentiers", The New York Times, 10
June 2011.

(5) International Herald Tribune, Paris, 15 June 2011.

(6) See "The Great Repression", The Economist, London,

18 June 2011, which explains the history of this mechanism.

(7) Ibid.

(8) Jacques Delors was France's economic and finance minister
in François Mitterrand's administration, before becoming head
of the European Commission.

(9) Le Figaro, Paris, 16 June 2011.

(10) See Serge Halimi, "Too big to fail", Le Monde
diplomatique, English edition, March 2010.

(11) Reuters, 2 June 2011.

(12) Jean-Paul Sartre, preface to Aden Arabie, Maspero,

Paris, 1971.

___________________________________________

Portside aims to provide material of interest to people
on the left that will help them to interpret the world
and to change it.

Submit via email: [log in to unmask]

Submit via the Web: http://portside.org/submittous3

Frequently asked questions: http://portside.org/faq

Sub/Unsub: http://portside.org/subscribe-and-unsubscribe

Search Portside archives: http://portside.org/archive

Contribute to Portside: https://portside.org/donate