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Will Angela Merkel Save the West?

16 Mar

TCM contributor Chris Bickerton has an essay on Merkel in the New York Times.

As Ms. Merkel prepares to meet this week with President Trump, many people may hope that she will stride into the White House and issue a robust defense of the liberal international order. Don’t count on it.

If the future of Western liberalism rests on Ms. Merkel’s shoulders, then it really is in trouble. She has often spoken in support of European and Western unity, but her actions have done little to strengthen them. Moreover, it’s not clear how deep her ideological commitment to liberalism really is — or, for that matter, whether she has any ideological commitments at all.

The full article is here.

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Why Brexit is more than Lexit: Left Euroscepticism after Corbyn

14 Sep

Among the many questions flowing from Jeremy Corbyn’s victory in the Labour Party leadership contest on 12 September, is that of Corbyn’s stance on the European Union (EU), and Britain’s place within it. Corbyn has openly expressed his scepticism towards the EU while also claiming he would be happy to stay in a reformed EU. Veteran Guardian columnist Polly Toynbee identified Corbyn’s Euroscepticism as one of the greatest dangers of a Corbyn victory, while Financial Times columnist Phillip Stephens argues that Corbyn’s Euroscepticism has tilted the balance of British politics towards exit from the EU. Leading Blairite Chukka Umuna has resigned from the Labour shadow cabinet, citing Corbyn’s alleged Euroscepticism as the reason. But before launching into predictions of how Corbyn’s victory will affect the referendum’s outcome, it is necessary to examine some of the contradiction and confusion within British left Euroscepticism.

Corbyn’s studied ambivalence towards the EU expresses the currently inchoate character of leftwing British Eurosceptisicm. As Europe’s social democratic parties tacked towards the centre over the last 30 years and committed themselves to the technocratic modernisation embodied in the EU project, Euro-babble has tended to substitute itself for genuine internationalism on much of the left. Only a rump of isolated old social democrats were left clinging to Euroscepticism. The late Tony Benn denounced the EU for its oligarchic model of power that insulates bureaucrats from popular accountability, while late union leader Bob Crow attacked the EU for dismantling the border controls he argued were necessary to protect the welfare state and working class living standards. Corbyn himself has criticised the EU for allowing tax havens to flourish in its borders, and – piling up his ambivalent Euroscepticism to new levels of convolution and complexity – suggested that he would support leaving the EU if it agrees to trade away its vaunted ‘social protections’ in negotiations with British prime minister David Cameron. In other words, Corbyn may argue that Britain should leave the EU if the EU agrees to meet the British prime minister’s conditions for Britain remaining in the EU.

Corbyn’s equivocation on EU membership subordinates questions of democratic principle to a pragmatic calculation of the extent to which membership of the EU will advance or inhibit Labour Party economic and social policy. This unprincipled approach to such a fundamental political question is a warning of what is to come from Corbyn’s leadership, and it characterises the wider left case against the EU.

Earlier this year, Owen Jones sought to rally the Eurosceptic British Left with a call for ‘Lexit’ – the leftwing case for a British exit from the EU. As Jones made clear, much of this newfound Lexit sympathy is driven by witnessing the economic punishment inflicted on Greece by the EU creditor nations. Political commentators are of course entitled to change their mind just as much as anyone else. Yet the ease with which left-wing belief in the EU has dissipated exposes just how thin and naïve that belief in the EU must have been to begin with. To turn against the EU solely for its austerity policies is to obscure the history of EU political diktat, such as the repeat referendums inflicted on Ireland or how the EU ignored the outcome of the 2005 French and Dutch referendums. These crude impositions of technocratic rule were enforced long before the economic crisis gave the justification of urgency to EU technocracy. To accept arguments for Lexit only after its treatment of Greece would be to interpret the EU as a progressive project gone awry, rather than what it is, an institution designed to evade popular rule and democratic choice. Moreover, however brutal the EU’s treatment of Greece, it ultimately tells us little about whether or not Britain should remain a member-state – particularly given that Britain is not even a member of the Eurozone. So where does this leave the case for ‘Lexit’?

The very fact that Jones felt the need to rebrand British exit from the EU as ‘Lexit’ exposes his fear of making an argument openly in terms of national sovereignty. Jones’ fears of boosting nationalism and prompting a xenophobic rampage reveals more about Jones’ contempt and fear of the British working class than it tells us about working class voters themselves. Instead of staking a leftist claim to universal interests, evidently Jones believes he can only coax his readers into leaving the EU if the issue is cast in sectional terms that exclusively appeal to them. Unwilling to make an argument for popular sovereignty, Jones is left unable to provide any political coherence to left Euroscepticism. On the one hand, Jones positions the EU as a sinister foreign power intruding on Britain from the outside to thwart economic nationalisation and redistribution – as if Thatcherism had no domestic roots. On the other hand, Jones claims that the threat of Lexit is more important than actually leaving the EU. The threat alone, argues Jones, will encourage Germany to loosen its austerian stranglehold on the Eurozone’s weaker economies, and boost the flagging electoral fortunes of Podemos and Syriza.

It is difficult to think of an argument for Britain leaving the EU that undercuts itself so effectively, and that sacrifices international solidarity so readily. Let us leave Greece and Spain shackled to a more benign German hegemon, Jones tells us, while Britain retreats behind the walls of a social democratic Jerusalem once the corporate hirelings from Brussels have been thrown out. Here, there is no principled position on British membership of the EU, or even an appeal to the British demos – only an instrumental calculation about preserving the vote of struggling leftist parties across Europe. Surveying the arguments offered by Corbyn, Jones and their allies, the only common position that can underpin Lexit is economic nationalism. In other words, the EU cramps the nation-state’s capacity to protect national industries and defend welfare provisions and entitlements.

The problem with this position is that it is about the content of economic policy rather than the means through which such policy is decided. Ultimately, the democratic case against the EU is not about the content of economic policy – such as nationalisation versus privatisation – but about carving out the space democratically to decide on economic policy – or any other policy, for that matter. What is at stake in the question of EU membership is political form not content. And for better or worse, the political form of collective self-determination is still inescapably national – the sovereign state. There is no avoiding the fact that what is at stake in a British referendum is democratic restoration and popular sovereignty within Britain itself. That alone should be sufficient to garner leftwing support for Brexit.

Of course, democracy gives no immediate guarantee of the economic outcomes that Jones desires – and perhaps it is popular acceptance of austerity that Left Eurosceptics hope to outflank by imagining that an argument over Lexit can also win the popular battle against austerity. Yet popular sovereignty and democracy must remain the political priority for any progressive political opposition to the EU. The case for British exit from Europe is a national and popular one, not one that can be carried by an alliance of Islington Guardianistas and northern Labour voters. The democratic case against the EU also exposes the limited and parochial character of Jones’ Lexit vision, in which international solidarity is restricted to vainly hoping for German magnanimity towards Europe’s weaker economies. The democratic case against the EU requires not just Britain leaving the EU or more votes for Podemos and Syriza, but dismantling the EU as a whole across the entire continent, through a process of internal democratic renewal within each European nation. Brexit would be as good a place as any to start this process.

Philip Cunliffe

Why Torture a Victim Whose Will Is Already Broken?

14 Jul

The draft of the agreement between the Greeks and the Eurogroup is out and, as everyone has noticed, it is not just an act of revenge, it is a piece of legislative torture. It contains old demands, like pension reductions and higher taxes to fund primary surpluses, as well as new demands, like reduction in the power of unions and a massive privatization of state assets using a separate fund controlled by Greece but monitored by the EU’s institutions. In fact the document asks for a massive legislative program touching on every aspect of Greek economic life – tax policy, product regulation, labor markets, state-owned assets, financial sector, shipping, budget surpluses, pensions, and so on. This legislation is demanded within the next few weeks. Such a package is the kind of thing one sees during or just after wartime, not as the product of democratically negotiated decisions. Let’s remember that the programme on which Tsipras and the Eurogroup agreed is something asked of a country that has already experienced a very severe depression, already implemented a number of constraints requested by creditors, has 25% unemployment and a banking crisis. What is the point of torturing a victim whose will is already broken? To destroy all opposition.

I think this should not be read as a proposal for restoring growth to Greece or even as the reflection of an economic blindness in Europe but as the reflux of the EU political project, of which the euro is the purest expression: the preference for technocratic domination over popular sovereignty. This program describes an architecture of rule, one that expresses utter indifference to the attempt by peoples to manage their affairs democratically, and one that demands enormous reserves of discretionary power for the Eurogroup. Note not just the scope of the Eurogroup’s demands but the molecular level of detail with which they lay out demands. For instance, as part of their package of “ambitious product market reforms,” they insist on changes in “Sunday trade, sales periods, pharmacy ownership, milk and bakeries, except over-the-counter pharmaceutical products, which will be implemented in a next step, as well as for the opening of macro-critical closed professions (e.g. ferry transportation).” Then there are the new demands, like “rigorous reviews and modernization of collective bargaining [and] industrial action,” which is Eurospeak for rubbing out labor rights. Other demands make it clear that these decisions are not only extensive and fine-grained, but designed as much as possible to remove responsibility and control from the Greek people and their government. The “scaled up privatisation programme” is to “be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions.” And the “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets” are “subject to prior approval of the [European] Institutions.”

Most telling of all, “The government needs to consult and agree with the Institutions on all draft legislation in relevant areas with adequate time before submitting it for public consultation or to Parliament.” That is to say, on every above named area of reform – from tax policy to labor markets – the government must consult first with its European managers. The piece-de-resistance, however, is that the Greeks are maximally accountable to the Eurogroup while the Eurogroup is minimally accountable and maximally arbitrary. Having listed its demands the document then says, “The above-listed commitments are minimum requirements to start the negotiations with the Greek authorities.” Later, the document says that an ESM programme is possible “Provided that all the necessary conditions contained in this document are fulfilled.” There is no guarantee the money is forthcoming. In other words, the Eurogroup retains maximum discretion to decide that Greece has failed to meet any of the impossible demands made upon it, while the Greeks possess no similar ability to hold the Europeans to account for their failures. Recall, for instance, that the agreement requires Greece to run budget surpluses that the Germans and French have never managed to achieve and that the ECB recently refused to extend sufficient emergency financing to the Greek banks, essentially engineering a near bank-failure in direct violation of its mandate to provide emergency liquidity to illiquid banks.

There are those who think that you can be pro-Euro and anti-austerity. As this round of negotiations show, the economics and politics of the euro are not separated like that. The Euro is a political project. It is unification without sovereignty. It is the delegation of national sovereignty to groups of finance ministers and supranational bodies whose main task is to suppress the re-appearance of the very source of their power. The political institutions and practices that have grown up around the euro and the EU are based on the belief that exercises of sovereignty are dangerous, irresponsible, and unaccountable. Although these institutions are in one sense nothing more than the product of agreements between nations, their raison d’etre is to prevent any further, outright expression of that sovereign power. That is why they insist on total subjection to their decisions, and why Greece became about more than Greece. The Greeks dared to assert popular sovereignty at the only level it is currently possible to do so. The bitter irony being that the discretion demanded by these post-sovereign entities is less accountable than when exercised as the outright power of a democratically elected government. And no less vindictive.

Alex Gourevitch

 

Syriza has not been radical enough

7 Jul

The Syriza-led government has been blamed for much of the current impasse between Greece and its creditors. It may not be responsible for the dire economic state of the country, commentators note, but it has done everything to make that situation worse. Accused of bringing Greece and possibly even the Eurozone to its knees all in the name of its radical Marxist doctrines, the problem of Syriza is in fact the opposite. Syriza has not been radical enough.

The dirty secret of the Greek crisis

A confusing aspect of the Greek crisis has been the extent of disagreement between Greece and its creditors. Commentators have regularly presented the Syriza-led government as a group of dangerous mavericks, led by a student radical and a celebrity academic-blogger. Impatience with what were considered unacceptable demands from the Greek negotiating team spilled out in recent weeks with Christine Lagarde in particular saying that Tsipras and his colleagues needed to ‘grow-up’ and act like adults rather than like truculent children.

This vision of an unbridgeable gulf between the radical demands of Syriza and the German-led austerian orthodoxy masks what is perhaps the dirty secret of the whole Greek crisis: the sheer moderation of the Greek government’s demands. Faced with such economic and social turmoil, the Greek response has been remarkably mild. The Greek demands include some consideration of debt relief, more flexibility on the implementation of structural reform programmes, a slight reorientation of budget cuts so as to hit less the poor and a bit more the well-off, and all this couched within a firm and heartfelt commitment to remain in the Eurozone. There is nothing radical here and as the recent report from the IMF suggests, it is almost conventional wisdom that some amount of debt relief will have to come at some point. We are thus faced with a complete breakdown in negotiations at a time when the actual gap between creditors and debtor is remarkably small. Syriza has been vilified for its extremism but the truth is that its position has not been nearly as radical as it should be.

Syriza’s utopian strategy

From the outset and including last Sunday’s referendum, the Syriza strategy has been based on a completely utopian premise: that the prime minister and finance minister can convert the rest of the Eurozone to a post-austerity economic programme where losses are written off and more breathing room is given to crisis-hit countries. This has been the Syriza wager: that it alone can convince the rest of the Eurozone to change course.

The difficulty is that on this point Syriza has missed the historical boat. Ever since the Maastricht Treaty, European integration has entered into a ‘new intergovernmental’ phase. Member states have moved forward with integration but have kept themselves at the heart of the process. Real and lasting delegations of power to supranational institutions has been kept to a minimum, with national governments preferring to beef up bodies such as the Eurogroup and the European Council. New agencies have been created instead of giving more powers to the European Commission. Even the current vice-President of the European Commission Frans Timmermans declared recently that “ever closer union” was dead. Syriza’s vision of debt mutualisation and hope for an ever closer and more politically integrated Eurozone has fallen on deaf ears. The future is lies in incremental change overseen by national governments.

The only real negotiating power Syriza has stems from the fact that whilst Eurozone membership has long had an existential quality for Greek citizens and the Greek political class, this is also true of other member states. They are also committed to keeping the Eurozone together as it appears to them as a condition of their own statehood. This is why the creditors keep coming back to the negotiating table even when they said they have had enough. There is real no alternative to the Euro for both Greece and the other members of the Eurozone.

Why is structural reform so difficult?

Part of the difficulty faced by the Greek government in its negotiations is that the implementation of structural reform amounts to a profound transformation of the Greek state. It is not laziness or hypocrisy that makes structural reform difficult in Greece.

The post-authoritarian Greek state was rebuilt along two lines. One involved a commitment to EC membership, with the EC serving as a guarantor of the modernity and economic development. Democratization in Greece was made conditional upon integration into EC institutions, as was the case in Spain and Portugal. The other was the ‘Pasokisation’ of the Greek political economy, where state-society ties passed through the dominant role of the Pasok party in redistributing public wealth.

This sort of clientelism survives today in the form of the government’s financial commitments to its public sector employees and pensioners. Reform of these sectors, as demanded by the Troika, amount to a profound restructuring of the social basis of the post-dictatorship Greek state. Hardly an easy task nor one that can be achieved through external monitoring by EU technocrats. The difficulty for Greece today is that the European dimension of its statehood no longer matches its domestic political economy. One of the two has to give.

The Left and self-determination

Syriza’s position has not been radical enough. It has tried to balance a commitment to Eurozone membership with an anti-austerity message. Far from being a strategic or even a tactical choice, this reflects a deep-seated ambivalence that takes us to a basic problem facing the European Left today: its position on national self-determination.

Over the last few decades, European social democracy has abandoned national sovereignty, preferring to throw its lot in with the European Union. This is what gave the recent referendum in Greece its terrible pathos. On the one hand, the ‘No’ was a powerful affirmation of a Greek desire to reject the terms of the agreement with its creditors. On the other, the ‘No’ lacked any real content as no-one was willing to contemplate exit from the Eurozone. The Greeks are left to celebrate their ‘No’ whilst their future remains out of their hands.

To seek ‘ever closer political union’, as thinkers like Jurgen Habermas do, is to pursue a dream that is even less likely to be realized today than ever before. It was often said that those who believe in national democracy are the fantasists and dreamers, the “small state nostalgists” as Habermas calls them. In fact, the real fantasists are those who think that a democratically organized supranational Europe can emerge out of an institution like the Eurogroup or the European Parliament. Compared to that fantasy, exit from the Eurozone appears a much more tangible option that Syriza should embrace instead of shy away from. They talk the talk of national sovereignty but do not follow it through.

Dismantle the Eurozone

The right response to the current crisis is to dismantle the Eurozone. As it stands, there is no way of reconciling national democracy with a continued commitment to Eurozone membership.

Ever since it was created, the common currency has served to sharpen the differences between national economies in Europe. Diverging rates of competitiveness were masked by easy access to credit, something which ended in 2009. We are left with a situation where national populations are expected to bear the full brunt of adjustment whilst governments have no freedom of manoeuvre in either monetary or fiscal policy.

These sorts of expectations about internal adjustment to wages and prices are what brought the Gold Standard to an end, precisely because it became incompatible with national democracy. Only the involution of national democracy and the abandonment by the Left of its belief in national self-determination has allowed the Eurozone to survive thus far. It should be dismantled in order that national populations across Europe have a greater control over their fate.

Chris Bickerton

More German than Left

6 Jan

This post is the first in an occasional series on the European Left and the Euro-impasse that we will run over the course of the next few months. We shall begin with a series of posts from the editors and guest contributors on the German Left.

*** 

More German than Left

The German Left has always been a lynchpin for the international left. For that very reason it has also been a disappointment. From the failed hopes of 1848 to Ferdinand Lasalle’s cooperation with Bismarck; from Bernsteinian revisionism to the SPD’s vote for war credits during WWI; from the failed revolutionary years of 1918-1923 and the split between communists and socialists in the interwar period; from post-war, Brandt-era ambivalence and indecision to the decisive abandonment of socialism by the 1980s, the German Left’s potentiality never quite measured up to its actuality. Nobody has been sharper on its failings than its own progeny. Marx’s famous critique of Lasalle, Luxemburg’s condemnation of reform, to name just two, mark not only the missed historical possibilities but the dashed hopes. There was a moment but it was never realized.

Today, Germany remains the center of Europe, and the German Left the only agent able to shape a different course than the current sadomonetarism emanating from the Bundesbank. The election of Hollande in France yielded the sop of high marginal tax rates, but within the context of a concession to austerity. Some brief sparks were ignited in Greece, during last year’s election campaign, but the leader of Syriza – Alexis Tsirpas – blinked and eventually caved into the prevailing ‘bail-out in exchange for cuts’ consensus. The SPD’s lukewarm reaction to Syriza, replicated in many other Left parties across Europe, contributed to its capitulation.

The historical difference now is that there is not much reason even to view the German Left as…Left. Angela Merkel’s recent appointment to a third term as chancellor, under a Grand Coalition including the SPD, involves a nominal turn leftward on condition that everyone accept more of the same with respect to the major economic issue of the day: the euro and its debt problems. Sabine Lautenschläger’s nomination to replace Jörg Asmussen at the ECB came with a promise to increase German pressure to focus on inflation rather than employment. As Wolfgang Munchau recently commented, among the rather narrow mainstream alternatives, the idea of debt mutualization and bank backstopping appears to have finally lost out to “austerity and price deflation.” The SPD, meanwhile, happy for scraps at the table, refuses to fight for leadership of Germany, let alone Europe.

The problem for the European left is that Germany is the core. Without the SPD breaking from its benighted belief that the rest of Europe needs to follow its decade of ‘virtuous’ wage-suppression, not to mention its ruinous embrace of European-wide internal devaluation, there is little wiggle-room for the rest. The dismal LTROs, ELA, and other monetary efforts, which receive only reluctant German support as it is, all come with the austerian string attached. The German Left has accepted the basic equation that since their workers have been sucking it up, it’s time for everyone else to do the same. This demonstrates a distinct lack of trans-European solidarity, let alone serious assessment of the possibilities. Moreover, the unwillingness of the German Left to articulate a clear alternative strategy means it tacitly participates in the increasingly nationalist terms in which the whole Euro drama has been cast. Ugly nationalist stereotypes have been trotted out to explain everything from ‘Mediterranean’ stagnation to the so-called dangers of eastern immigrants to the ‘virtues’ German prudence. In the absence of a conflict within Germany between concrete alternatives – alternatives that can be repeated across Europe – Germany appears unified around trying to punish the rest of Europe. And as Marx once said: “relations…appear as what they really are.” The German Left really is, at this point, more German than Left. The Left in Germany (and elsewhere for that matter) has never been rewarded for being the junior partner in a national coalition, but until it becomes willing to take risks and challenge its major opposition, it will remain what it appears to be. It could be more.

Sturm und Draghi

23 Dec

The announcement that the ECB “unleashed a wall of money” to prop up ailing European banks has been greeted with general positive noises, and some confusion. The money is €489 billion in three-year loans, meant to inject liquidity into a tightened banking system, and to allow the banks to, among other things, buy up sovereign debt that the ECB won’t buy directly. The confusion arises from the relationship between the words and actions of Mario Draghi, the recently arrived president of the ECB. Draghi has been at pains to say that the ECB will not act as a lender of last resort, buying up sovereign debt that nobody else wants, without a major EU treaty-change that includes enforced austerity. As he said in an interview with the Financial Times “We have to act within the Treaty. In general, there must be a system where the citizens will go back to trusting each other and where governments are trusted on fiscal discipline and structural reforms.” Yet, as any number of commentators have noted, providing this wall of money seems to be a kind of end-run around the treaty problem. Though it might not work in the long-run, it is taken by the likes of Paul Krugman as the admirable ‘subtlety‘ of eurocrats, finding solutions within the legal arrangements.

There is of course something positive about the head of an unelected, somewhat secretive, yet enormously powerful institution formally stating that he must follow existing law – the EU treaty in this case. Indeed such affirmation of the treaty is especially important given that many have called on Draghi simply to ignore the treaty and backstop the sovereign debt of southern European countries, or argued that it wouldn’t really violate the treaty. But there are deeper, more widespread political problems here, not least with Draghi’s own political game. If, in fact, Draghi and the ECB were merely playing the responsible Big Bank, keeping its head down and following the rules, and leaving the politics to the politicians, then that would be…something. But it is quite evidently not what Draghi has been doing.

The two-timing – saying one thing, and coming up with new, inventive ways of doing the other – illuminate something of a power game that the ECB is playing. Publicly, Draghi is holding back the ECB backstop under conditions – namely, judicially or politically enforceable limits on fiscal policy of European states, inscribed in a new treaty. That is a straight-up political demand, backed by the power that only the ECB possesses: the economic power to bail-out the southern states and European banks. It is a political demand, moreover, made upon already hurting European publics to endure not just a period of contraction, but a major restructuring of the relationship between their states and their economies. The idea behind the rewritten treaty, in other words, is not just to impose the pain of austerity measures, nor even to dismantle the welfare states, but to inscribe the logic of constraint and lowered expectations into the new supranational and by extension national political institutions.

Draghi, of course, is not the only political agent here – Merkel has led the charge for treaty-change with austerity written in. But her actions are unabashedly and professedly political, and understood to be so.  Draghi’s statements and positions are taken to be somehow the words of an expert, nevermind the ‘subtle’ coercions of offering a continental bailout only on strict terms. Draghi’s views are supposed to be the limited advice of an economic expert, and one who in some sense a neutral actor, outside and above politics – like the institution he runs. What makes the political ploy here worse is the power that backs it. As noted, the ECB is the only one with the potential to offer a bailout, or at least commit to printing enough money to buy up debt, which might calm the bond markets and save the banking system. In certain ways, then, Draghi is not just more German than the Germans, but has a power they don’t have.

Of course, the two-timing – such as the wall of money – reflects the fact that the ECB is not all powerful. Or at least, that it is not so flush with power resources that it can wait out this game of financial chicken longer than those unwilling to make the sacrifices Draghi demands. After all, waiting too long makes backstopping a whole lot more expensive, risky and potentially less effective – no doubt one reason Draghi felt compelled to engage in this recent refinancing operation. But it has to be said that Draghi is playing a political game, one that favors certain interests over others, with potentially far-reaching consequences depending on the ultimate political and legal changes.

Of course, as mentioned, the point is not that Draghi is some all powerful financial witch-doctor, who can wave his magic wand – or not – and get the world to do his bidding. In fact, the other striking feature of the debate around ECB actions is the way in which it speaks to the restoration of a certain status quo ex ante. Although the financial crisis of 2008, and its potential sequel in Europe, produced numerous arguments that mainstream economics had been discredited, and that a “new economic paradigm” was needed, what is striking is just how little has changed. Before the crisis, the dominant view was that a period of Great Moderation had been achieved, largely thanks to the machinations of expert central bankers who fiddled with interest rates. One of the background assumptions of this view was that monetary, rather than fiscal, policy was a finer instrument of economic engineering, not least because ‘less political’ and thus less prone to the messy distortions of democratic politics. Central bankers were gods, or at least master governors, to be appreciated and listened to (despite their continued interest in things like wage suppression). Little moves with interest rates were guessed at and awaited; the public divined, parsed, and poured over statements by the likes of Greenspan a bit like Kremlinologists looking for the relevant post-Cold War obtuse institution of power. Everybody knew that their economic fate was largely out of their hands, but thankfully in trusted hands.

Now we are supposedly on the other end of that paradigm, yet caught in the Sturm und Draghi of another bewildering central bank’s enigmatic words and actions. It is hard to accept how it is that so little could change. Or worse yet, how much the old pattern in certain ways has become even more entrenched. The most significant economic decisions are placed in the hands of undemocratic figures, even when this means toppling national governments (Italy, Greece) to replace them with technocrats. And the dominant common sense is in favor of austerity, rather than rational, democratic control of the economy. The dead-weight of ideological conformity and (hopefully changing) public passivity is what stands out most strongly. At the end of the day, the power of a figure like Draghi is a back-handed reflection of the relative absence, or at least weakness, of alternatives. The truth in the conspiracies about bankers manipulating everything is so much that central bankers favor certain interests but dress up their policies as the public interest (which they certainly do). Conspiracies are a distorted registration of the weakness of the Left, a distortion dangerous because it replaces the political weakness of a potential movement with the comforting illusion that power is beyond anyone’s reach in the first place. Draghi and his ilk should be put in their place and own up to the political game that they play. But they won’t do it voluntarily, and it will take another kind of politics to expand rather than shrink the horizon of economic possibility.

Who pays?

25 Jul

Reaction to the second Greek bail-out plan has been largely positive. Most commentators have described it as a step in the right direction. Critics of the EU in the financial press have been cautiously optimistic about the plan. Politically, a key component of the plan is its inclusion of private investors. This had been the basis of a long struggle between Eurozone member governments, with Germany in particular insisting that any solution needed to involve the private sector. This reflected the German government’s belief that not only taxpayers should be left shouldering the burden of dealing with the Greek debt crisis. Lying behind the inclusion of private sectors was the hope this might lessen some of the populist critiques of the existing bail-out strategies: not only the people have to pay, but the bankers too. When German leader, Angela Merkel, has to defend the plan in front of German parliamentarians after the summer break, this will no doubt figure as part of her argument.

Looking at the figures of the proposed plan, it is clear that private sector involvement only represents a very small part of what is still overwhelmingly a government-backed plan. The precise nature of private sector involvement is unclear as the EU’s final communiqué pointed to a variety of different options. The FT breaks down the plan in the following way. Of the 109 billion Euros plan, 34 billion Euros will be of the traditional bail-out kind, as offered to Greece, Ireland and Portugal in earlier bail-outs. The remaining 75 billion Euros will in various ways be directed at encouraging private sector involvement. 20 billion Euros will be used to buy back Greek bonds on the open market. Another 35 billion Euros will serve as a pot of money to guarantee the new bonds being offered to private investors. In order for them to give up their existing and more immediate claims on Greece, in exchange for claims with a much longer maturity, private investors are being offered gold-plated, triple A-rated debt.  The last 20 billion Euros, writes the FT, will be used “to repair damage of buy-backs, swaps and roll-overs”.

Overall, it is estimated that private bondholders will be encourage to accept a loss of around 20% in the current value of their loans, relatively little as defaults go. The main provisions for Greece come overwhelmingly from other Eurozone member governments. Much of the political discussion has been around sharing the burden of support for Greece across both Eurozone publics and those private investors who saw in Greece in the 2000s an opportunity for making money. This battle pitched Germany against France, with the ECB a virulent opponent of any kind of private sector involvement tantamount to a default of some kind. The current plan suggests that for all the talk of burden-sharing, the picture remains one of private losses nationalized through pan-European bail-outs. An unsurprising result that reflects the particular configuration of economic and political power which prevails today across the Eurozone.

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