Sunday 5th October, 2008
The decision tonight by Germany to guarantee 100% of all savings in German banks first flagged up by the BBC earlier this Sunday evening, but modified later, is a clear signal that there is panic afoot. A run on German banks must be imminent. Why? Because the only way to prevent a run on banks is to guarantee 100% of savings. The fact that Germany has done so, or hinted that she will do so, means that her government is taking urgent, unprecedented and unco-ordinated action, to prevent such a financial catastrophe occurring tomorrow morning. Others must now follow to prevent a systemic run on the global banking system. To avoid armageddon.
But this decision illustrates one more frightening fact: EU leaders do not appear able to act in a disciplined and co-ordinated way in addressing this crisis. Remember they preside over a single market – in goods and money. They created a single market. Yet they cannot rule over that market. Their decision yesterday – to abandon the Maastricht (neo-liberal) criteria for keeping government spending below 3% of GDP – was itself a historic capitulation to the inevitable. But its clear there are divisions. At the 2007 G8 Summit, Angela Merkel tried to persuade George Bush and Gordon Brown to include improved surveillance of the international financial system on the agenda. Both vetoed the the proposal from the German Chancellor – a conservative Christian Democrat.
EU leaders met yesterday, but failed to agree to act in a co-ordinated way. Instead there were statements criticizing Ireland and Greece for acting to prevent a run on their banks. According to reuters, the new “Business Secretary Peter Mandelson criticised unilateral moves by individual countries to guarantee deposits….He said “The danger of this crisis is it may spark a new wave of economic nationalism, with each country looking for a ‘get out of jail free’ card.”
He is, as always, naively misguided. Economic nationalism was always going to be the ‘counter-movement’ – to quote Karl Polanyi – to the inevitable financial crises sparked by the recklessness of unfettered capital flows, unregulated credit creation, and then the hugely destructive de-leveraging of that debt. Economic nationalism is not the action of a selfish and greedy child. It is the rational reaction of a very frightened country, trying to protect itself from the forces of ‘globalisation’. In just the same way the 1929 Credit Crunch sparked a counter-movement of economic nationalism. It was the natural reaction of people desperate to be protected from wildly gyrating and destructive economic forces. That is why capital and credit were so carefully regulated in OECD economies from 1947 to 1971.
The difference between the 1920s and today, is that then governments protected their markets in trade by e.g. the Smoot-Hawley Tariff Act. Today some governments are taking action to protect their financial markets: to act as ‘guardians of their nation’s finances’. The question is this: can the people of Britain rely on a confused Labour government – joined at the hip to the finance sector – to fulfil its duty as guardian of the nation’s finances?