The Eurozone: A Crisis of Policy, Not Debt
Three months ago, I wrote here about the risks that the European authorities were posing to the US economy and asked what the US government was going to do about it. It was clear at that time that "the Troika" – the European Commission, European Central Bank (ECB) and the International Monetary Fund (IMF) – was once again playing a dangerous game of brinksmanship at that time with the government of Greece. They were trying to force the Greek parliament to adopt measures that would further shrink the Greek economy and therefore make both their economic situation and their debt problem worse, while inflicting more pain on the Greek electorate. The threat from the Troika was putting the whole European financial system at risk, since it raised the prospect of a chaotic, unilateral Greek default.
My hope was that someone in the US Congress would step up to the plate and try to hold the US Treasury Department accountable. Treasury is still overwhelmingly the biggest power within the IMF – in fact, it has dominated the fund for the past six decades. Since the IMF is one of the three key decision-makers in Europe, the US government could at least use this avenue of influence to prevent them from making things worse there. And since that crisis in June, the Troika has also played a similar game of chicken with Italy – a country with more than five times the sovereign debt of Greece.
Last week, President Obama woke up to the fact that the Troika could pull the US economy down along with Europe and sent Tim Geithner to crash the eurozone ministers' meeting. His job was to tell them to get their act together before their mess spreads across the Atlantic and costs Obama his re-election. On Monday, Obama took the even more unusual step of making his criticisms public, saying that the crisis in Europe was "scaring the world" and that the European authorities had not acted quickly enough.
Yet, there is no sign that the administration is even using its influence within the IMF to avoid disaster. One of the main triggers to the most recent financial turmoil was another fight between the IMF and Greece over a measly €8bn loan disbursement. The fund – presumably with US approval – has been threatening to hold up this money unless the Greek government implemented further budget tightening. In the face of massive protests and Greek public opposition to further punishment, this intransigence by the IMF once again threatened to push Greece to a chaotic default. That, in turn, could bring major European banks to insolvency and risk a full-blown financial crisis. And all because the Greek government couldn't meet its budget targets for an €8bn loan disbursement.
If that sounds incredibly irresponsible or even stupid, it gets worse. The reason that Greece cannot meet its budget targets is that the policies imposed by the Troika have succeeded in shrinking the Greek economy and therefore its tax base. The IMF has repeatedly had to adjust downward its forecast for the Greek economy; it is now projecting a decline in GDP of 5% this year, as compared to one of 3% just six months ago. When the first "bailout" package for Greece was negotiated in May of 2010, the country's debt was about 115% of GDP; it is now projected to hit 189% of GDP next year. Clearly, the Troika's policies have had the opposite effect of their stated intention.
Now, the IMF has revised its projections for Italy downward as well, most likely because of the $65bn budget tightening that the Italian government has agreed to in the last month. This can set in motion a process similar to what has happened to Greece, where the economy slows and budget targets get more difficult to meet, and then interest rates on Italian bondsrise, increasing the government's budget deficit. Bondholders and speculators then sell or short the country's bonds, driving interest rates up further and reducing the value of the bonds held by European banks. A London bond trader described the process from his own point of view on 4 August:
"The SMP [the ECB's Securities Market Program] is back but it's not in the right places – what's going to stop us attacking Spain and Italy over the summer months, [be]cause I can't think of anything. There is no buying of Italy and Spain going on and there won't be, so why can't we push these markets to 7% yields. I think we can quite easily."
Of course, this kind of unrestricted speculation is also part of the problem. But in the first sentence, the trader was describing what had opened up his opportunity at that moment: the ECB was threatening not to buy Italian bonds, in order to pressure the Italian parliament into more budget tightening.
The European authorities have the ability and the potential firepower to do whatever is necessary to resolve the crisis: restructure the Greek debt; end speculation against Italian and Spanish bonds by buying enough of them to push interest rates down, and committing to keep these rates down; and guaranteeing liquidity for the banking system. The US government has repeatedly shown its willingness to provide dollars as necessary to prevent any foreign exchange crisis.
But most importantly, the European authorities have to reverse course and ditch the contractionary fiscal policies that are at the heart of the problem.
There are a number of technical fixes under discussion, including allowing the European Financial Stability Fund to leverage its resources by loaning to another entity that could issue bonds. But the main point is that the ability to provide the necessary resources is there. The Fed has created more than $2tn since our recession began, without any detectable impact on inflation here; the European central bank can do the same. There is no risk of inflation getting out of control: in fact, the IMF projects that inflation in the eurozone will fall from 2.5% this year to 1.5% next year. If Angela Merkel is listening to her FDP coalition partners' bizarre rants about the threat of inflation, she needs to be thinking about another coalition.
The "European debt crisis" is misnamed; it is not so much a crisis of debt as a crisis of policy failure. There are always alternatives to a decade without growth, trillions of dollars of lost output and millions of unemployed that the European authorities are offering to the people of Spain, Portugal, Ireland, Greece and now Italy. All that is lacking is the political will and competence to change course.
new phase of capitalism
By Tatsuo, Miyachi at Oct 03, 2011 19:42 PM
1. Historic characteristic of 20 C’s capitalist production is expansion of
> integument of capitalist production against socialization of labor.
>
> 2. Transition from control currency to floating exchange rate system which began
> at suspension of conversion between dollar and gold, 1971 was a starting point
> of increasing socialization of integument of capitalist production to its
> limit.
>
> 3. Transition to floating exchange rate system created economic condition which
> enervate to recapitulate civil society by nation state. Eurodollar market grew
> as private international financial market, each nation regulator of currency
> were enervate , and capital export were replaced by international capital
> transfer. Multinational financial capitals market developed by online system
> based upon multinational real capitals, thus single-world capital market was
> formed not be swayed by national border.
>
> 4.. The base of single-world capital market is formed by concentration of
> production.. Today, Large firms become mulitinational companies and monopolize
> world widely ,and its every profit is as large as middle class countries. On
> the other hand, technological innovations by competition of capitals result
> in information revolution by computer, and usual account systems owned by
> bankers privately, become to connected to single-payment system, thus account
> system reaches to its socialization limit.
>
> 5. As single-capital market is formed, its political representation is
> developed. Globalization is its motto. American government is political form
> of nation state of USA, as well as functions as political delegation of single
> capital market, sponsors G 8 ,reforms GATTO into WTO, restructures IMF and
> world bank , and props up UN.
>
> 6. By forming worldwide single capital market, capitalism enters into new
> credit capitalism Dept -Claim relation is .the original form of credit, but on
> this original form, money dealing capital developed, and commoditifying of
> capital expanded , thus by forming worldwide credit system , capitals split
> into two part which are real capital and fictitious capital ,thus socialize
> integument of capitalist production. Usually fictitious capital and financial
> market functioned as means of real capital accumulation, and it expanded
> fluctuation of trade cycle. But fictitious capital which was originally the
> right of claim of money, got out of regulation by nation state, and organized
> themselves as world wide market, thus accumulation of real capitals depend
> upon movement of fictitious capitals.
>
> 7. Under ruling credit capitalism, the world differentiates into the Global,
> the Nation state and the Local.
>
> 8. The Global consists of mulitinational companies and multinational financial
> capitals organized as single world capital market and tries to organize USA,
> WTO, IMF, World bank, UN as its political delegation.
>
> The nation states are in the middle position between the Global and the Local,
> and are being disolved by the two But try to form network through UN or EU.
> The Local is ecological economy as its core. The local also connects each
> other internationally.
>
> 9.The three differentiation of world reorganize the usual division of developed
> countries, middle class countries, and developing countries. The political
> delegation of The Global is not elected by anyone and not responsible for
> anyone. So the indiscriminate movement of valolization process necessarily
> produces counter-movement by the inhabitants which is the entity of the Local
>
> 10. These inhabitant movements raise Global ecological problems. Essence of
> environmental crisis is that circulation of value in accumulation of capital
> forces to precede circulation of matter. If possible, Capital doesn’t matter
> ecological condition.
>
> 11. The Local In contrast with the Global is in fact natural force as
> productive force. Sunlight, water, air, soil, microbe, plant, animals, these are
> production forces in itself. Economy of ecological system upon?these nature
> productive force is no matter for the Global. ????????????????
> ?It is not enough that the conditions of labor are
> concentrated in a mass, in the shape of capital, at the one pole of society,
> while at the other are grouped masses of men, who have nothing to sell but
> their labor-power. Neither is it enough that they are compelled to sell it
> voluntarily. The advance of capitalist production develops a working-class,
> which by education, tradition, habit, looks upon the conditions of that mode
> of production as self-evident laws of Nature..The working class faces the fact
> that accumulation of capital is circulation of valolization process, and works
> as destructive force on earth. And they face the fact that the destructive
> force destruct working class’ life ability. In this sense, The local is not
> only some region, but also economy of existence systems, which can resolve the
> problems emerging from accumulation of capital, and can change the capital
> system itself as as Alternative Global.
>
> 12.The forming of Credit capitalism is producing new social movement rather
> than usual communist movemnet which aimed to take over political power.
>
> 13.Past usual communist movement aimed on the level of tactics of social
> revlolution to abolish commodity, money and capital by political will, and
> was intelligible as a tactics of de-commoditifying. While new social
> movements are producing tactics to abolish money by forming social relation
> which is made by detour to transform action into useless, action of
> unconscious collective instinctive behavior which produce commodity and money.
> This line is the de-reification tactics which reduce the force of power ruling
> people’s will , de-reification behind fetishism of value form, i.e. commodity,
> money.
>
> 14.Capitalism in20C are producing conditions of emerging social movement which
> facilitate de-reification o f commodity, money and capital.?Information
> revolution produces technical condition of
> cooperate regulation of bank accounts of individual account. It also forwards
> automatization of industrial sector, thus socialization to this limit, and
> produces material condition for the non-profit project out of big
> cooperation for profit-seeking.. In consumption area, it produces the
> possibility
> of gaining necessary information for inhabitants and deciding consumption
> sublectively.
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