A political and economic case for voting to Remain

The case for Britain to Remain within the EU is to my mind, largely a political case. The political forces pressing for a rupture with the Union are not on the whole progressive, although there are many sincere Leave campaigners on the Left of the spectrum. ‘Brexiters’ are mostly insular, nationalistic and sometimes racist, especially in relation to immigrants and refugees.

With few exceptions the Brexit leaders are market fundamentalists, anxious to blame foreigners for the state of our economy; to attack European ordoliberalism rather than the – if anything more damaging – Anglo-Saxon Osbornomics. Their approach is particularly ironic, given that today’s European Union is today much more like Britain than it was before, as Jan-Werner Müller [1]  argues in the latest edition of the London Review of Books. European populist discontent owes much to the impact of Anglo-Saxon economic policies for the liberalisation of finance and the privatisation of public assets.

There are politically progressive arguments made by some on the Leave side against membership of a political Union which has hollowed out democratic institutions across Europe, and transferred power to unelected technocrats. One in which right-wing politicians actively use state intervention and the rhetoric of the Social Model to reshape Europe into what José Palma defines as “a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital.” [2]

These liberal finance principles have led to high levels of private debt, bankruptcies, unemployment and public humiliation in many European states. It is clear to many Europeans that the workings of the self-regulating market system threatens to destroy their societies. And so they are engaged in what Karl Polanyi defined as “the self-preserving actions of communities” to interfere with the system’s free functioning by turning for “social protection’ to the strong leaders of right-wing, and even fascist parties.

At this critical turning-point in Europe’s history I believe it would be wrong to walk away from the fight against authoritarianism, and to spurn European partnerships in managing the market system, and curtailing the rent-seeking practices of oligopolistic capital.  Above all, after a catastrophic world war still fresh in European memories: one in which at least sixty million people died worldwide, it would be wrong for Britons to exacerbate inter-European tensions and divergences with a Brexit. It would be wrong to shun the yearning for peace, stability and neighbourliness common to most European societies.

The economic case for remaining a European partner

There are two points to be made in support of the economic case for membership of the European Union.

The first has to do with the evolution of geopolitical forces. As American power wanes and in the process becomes more dangerous, it is paralleled by the rise of a powerful, autocratic Chinese state. Given these developments, I believe it important for Britain to be part of strengthening and upholding a third bloc: one built on long-established European struggles for protection of fundamental human and democratic rights of citizens, and for security and justice. A genuinely Social Europe whose struggles, values, culture, traditions and institutions are distinct from those of both the Americans and the Chinese.

The importance of strengthening such a unified third bloc is made clear as we face three great challenges that do not recognise national borders. The first is the grave threat of climate change, when infinite expansion hits the buffer of finite natural resources. Global warming knows no boundaries, so European-wide cooperation will be vital in adapting to it. Second, the wars, catastrophes and poverty of the Middle East have triggered mass migrations of refugees which can best be managed in a co-ordinated, co-operative and (hopefully) humanitarian Union.

Third, given the global interconnectedness of an out-of-control finance sector, we face another financial crisis. It is extraordinary that almost nine years after inter-bank lending froze on the 9th August, 2007, we as an international community have failed to re-structure or reform the current system, and are stumbling mindlessly towards the next grave global calamity.

Tackling the first of these two crises as a small island state will be nigh impossible. But alone, we have no chance of dealing with the aftermath of the next global financial crisis.

While there has been much tinkering with the complexity of global finance by the Basel Committee on Banking Supervision, little has been done to re-structure the international financial architecture and system to restore stability. On the contrary: unrestrained, finance capitalism has expanded further into shadow banking, aided and abetted by government guarantees, and the European Central Bank’s largesse. This has enabled the finance sector to engage in immensely lucrative debt-creation and other rent-seeking activities – without public oversight, and without the immediate fear of failure or losses. Business for this sector, backed as it is by European taxpayers, is better-than-usual, even as it becomes mired in tax evasion scandals, fraud and corruption.

There’s fear too in the eyes of global technocrats, conscious that they are driving blind, having lost control of the financial system. They lack up-to-date information and data about the activities of anarchic finance; and they have used up the monetary tools at their disposal during the last crisis. To compound their fears, social democratic politicians in Europe and the US remain fixated by neoliberal dogma, unable to pull the levers of government spending that would stimulate demand, lift their economies out from under mountains of debt, and halt stagnation and decline.

As this goes to press, the IMF, in a paper titled Neoliberalism. Oversold?  has released a belated mea culpa regarding the destructive effects of neoliberalism, and arrived at

“three disquieting conclusions:

•    The benefits (of neoliberalism) in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.

•    The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.

•    Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.” [3]

This climb-down comes too late to reverse the economic and social destruction wreaked by neoliberalism over many decades. Nor will it alter the direction of events. A crisis is now unavoidable. When that day arrives, it will be necessary for progressive forces to combine across the continent.  First, to amend the Union’s treaties and their embedded orthodox economic policies.  Second, to fight to restore democracy, security and justice to European countries and institutions; to replace anarchy with stability and order; and to subordinate mobile global capital markets to the interests of democratic societies.

That will only be achieved by international co-ordination and co-operation of progressive forces across borders. It cannot be achieved in isolation.

Ann Pettifor is Director of Policy Research in Macroeconomics (PRIME)


[1] Jan-Werner Muller, Europe’s Sullen Child, London Review of Books, 2 June, 2016.
[2] José Gabriel Palma:  The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature. June, 2009. Cambridge Working Papers in Economics (CWPE) 0927
[3] Jonathan D. Ostry, Prakash Loungani, and Davide Furceri. Neoliberalism: Oversold? IMF Finance and Development, June, 2016


Why not join the Euro, Mr Osborne?

There is nothing original about George Osborne’s proposal that governments of both the left and the right should in future embrace

“a permanent change in ….our approach to fiscal responsibility – just as they have done in recent years in countries like Sweden and Canada.” (My emphasis)

“Governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future.”

It’s an idea that is older than Lord Palmerston’s  Victorian Commission for the Reduction of the National Debt convened 150 years ago.

And it is an idea that is revived periodically. Indeed the principle of stripping elected, democratic governments of fiscal policy autonomy underpinned the “corset” that was the gold standard – Keynes’s “barbarous relic” – both before and after the First World War. [1]

And we know how that ended.

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The ECB Has Shaken The Eurozone’s Utopian Foundations

European_Central_Bank_-_building_under_construction_-_Frankfurt_-_Germany_-_14New building of the European Central Bank in Frankfurt Main, Germany by Norbert Nagel, 2014

The 4th February late-night decision by the European Central Bank to reject Greek bank collateral for monetary policy operations will, I confidently predict, precipitate not just a run on Greek banks; not just greater price instability across the Eurozone – but ultimately, the collapse of the fantastic machinery that is the ‘self-regulating’ economy of the Eurozone.

As is well known, the primary duty of the ECB is to promote price stability. Subject to price stability it has a duty to promote the union’s Treaty objectives that include:

balanced economic growth… full employment, social progress and solidarity amongst member states.

Before the decision of 4th February, the ECB had failed lamentably in its primary duty: to maintain price stability and to do so at a self-imposed target, at or close to 2%. In December, eleven out of eighteen Eurozone countries were in annual deflation. This is not just lamentable monetary policy failure, it is technocratic misconduct on a grand scale. The Spanish economy has recorded months of negative inflation. Italy registered -0.1% deflation in December, 2014; Ireland -0.3%; Portugal -0.3%; Belgium -0.4%; Greece -2.5%. Greece has been in annual deflation every month since February, 2013.

While failing in their primary mandate, ECB technocrats bypassed their European political masters and last night flouted wider EU Treaty objectives for social and political stability and for solidarity amongst member states.

But this arrogance, this disregard for the governments and the political will of the Greek people in particular and the peoples of Europe in general – is wholly in line with the Maastricht Treaty’s utopian vision for the Eurozone. As Wynne Godley argued way back in 1992, the architecture of the Eurozone is premised on the notion that economies are

self-righting organisms which never under any circumstances need management at all.

This machinery was made to fit a financier-friendly ideology based on contempt for democratic government. According to this ideology governments are ‘rent-seeking’ and should be marginalized. Economic policy (monetary and fiscal) must be privatized in the hands of financial markets that, surprisingly, are regarded as having no such ‘rent-seeking’ instincts.

The ECB’s mandate, as Godley argued, is premised on a belief that

governments are unable, and therefore should not try, to achieve any of the traditional goals of economic policy, such as growth and full employment.

Instead the fantastic machinery of invisible, unaccountable capital markets is entrusted with the task of managing and above all, disciplining Eurozone economies, governments and peoples.

This enhanced Treaty-embedded role for the private finance sector led to the profligate financing of speculative activities in Greece, Spain and Ireland by German, French and British bankers before 2007. It led to the immense enrichment of the financier class; and to the sector’s co-responsibility for the inevitable financial and economic crises of 2007-15. The crisis in turn demolished the mythology of the free market. Instead financiers socialized losses and extracted government and taxpayer guarantees to protect them from risk.

But just as in the 1930s, the ideologues that laid the foundations of the Eurozone, and those that have against all odds upheld it, were not prepared for the Greek election result. They were not prepared for the fact that, as Karl Polanyi once argued, society would take measures to protect itself from the fantastic, unaccountable and ruthless machinery of capital markets.

For on 25th January 2015 the people of Greece took a second, bold step at reversing austerity and restoring some form of social and political stability. They did so by electing a Syriza government dedicated to resolving the debt crisis and reversing the “fiscal waterboarding” policies of the Troika.

This followed an earlier attempt by Greek society to restore some accountable form of government. In October 2011 an angry reaction to the terms of a Troika-imposed economic programme led to social upheaval. According to the Finanical Times:

thousands of anti-austerity protesters, including rightwing radicals and anarchists, stormed (the President’s) parade route, forcing Karolos Papoulias, to flee.” In a panic, Prime Minister Papandreou called a national referendum.

The capital markets immediately sprang into action and proceeded to discipline not just Greek but other European governments, their firms and their peoples. The Financial Timesagain:

Eurozone bond markets, which had briefly rallied after the Greek debt restructuring was agreed, sold off in a panic. Yields on Greece’s benchmark 10-year bond spiked by 16.2 per cent in a single day. More worryingly, borrowing costs for bigger eurozone governments began to approach levels where others had been forced into bailouts: yields on Italy’s 10-year bond jumped to more than 6.2 per cent.

European leaders, including President Sarkozy and Chancellor Merkel rallied behind the capital markets and forced the Greek Prime Minister into a humiliating climb-down.

Today’s Eurozone’s architecture and associated economic policies are not different in intent from the “fetters” or “corset” that was the Gold Standard, and that regarded the role of governments with the same contempt. They are the same policies that led 1930s Europe into unbearable degradation, poverty, and misery. Today these policies once again threaten to unleash dangerous tensions. Society – locally, nationally, and internationally – is making ‘concerted efforts to protect itself from the market’. History is repeating itself. Current resistance to market liberalism echoes past resistance. As Karl Polanyi argued in his great, and increasingly relevant, work, The Great Transformation, the second ‘great transformation’ of the 20th century, the rise of fascism, was a direct result of the first ‘great transformation’ – the rise of market liberalism.

Adherence to this utopian vision of how economies work explains the ECB’s crude and inept handling of the democratically elected Greek government’s attempt to resolve its debt crisis. Their actions will shake the foundations of the Eurozone.

Just as the collapse of the Gold Standard in Britain and the United States led to a dramatic pre-war recovery in those countries, so the collapse of the utopian blueprint that is the Eurozone may herald good news for Europe’s economies, for its thousands of firms and for its millions of unemployed. Above all it may revive popular faith in a united, peaceful European Union based on collaboration, shared responsibility and solidarity.

Indeed we may yet come to thank ECB technocrats for shaking the very foundations of the current, ill-constructed Eurozone.

An open letter to the leaders of Europe: Abandon the Euro's 'gold fetters'

(Image source: Bloomberg Businessweek)

I am posting below my latest contribution to openDemocracy published on May 28.  In an open letter to the leaders of Europe, I argue that they need to abandon the fetters that chain them to the interests of private wealth, and threaten European disintegration:

“On May 15th, in what can only be described as an act of coercion, an impoverished and effectively insolvent Greece acceded to the handover of a bond payment – €436 million – to private financial ‘vulture funds’. The Greeks had little choice. However, in acquiescing to this handover – facilitated by its paymasters,‘the Troika’ – impoverished Greeks protected reckless private wealth from the consequences of their risks. Namely: losses and bankruptcy, and the discipline of market forces. Continue reading… ›

The architects of the Euro hung by their own petard

With acknowledgements to the Economist: front cover 26 November, 2011

Dear readers…posted this last night, but  failed to add links…so have updated this morning….And now at 12.54 on 28 Nov, following revelations from Bloomberg, am adding in a reference to the extent that Morgan Stanley was bailed out in 2008.

A petard, I am reliably informed by the Web,

“was a bell-shaped metal grenade typically filled with five or six pounds of gunpowder and set off by a fuse. Unfortunately, the devices were unreliable and often went off unexpectedly. Hence the expression, where hoist meant to be lifted up, an understated description of the result of being blown up by your own bomb.”

Correct or not, this is a helpful analogy for the crisis of the Euro. The grenade that is the Euro has a fizzing fuse that threatens to explode imminently, causing visible panic in markets, in parliaments and treasuries across the world. Mainstream economists are either dodging the bullets and like the cowards they are, pretending that ‘it’s nothing to do with me guv’.  Or else they’re panicking in ways that are crass and unhelpful, banging their heads against the brick wall that is the Bundesbank and ECB, and demanding that someone, somewhere defuses the bomb.

The Economist has a dramatic leader this week (“Is this really the end?”) warning of grave threats and offering Chancellor Merkel and other EU leaders ways of avoiding a comet-like crash. Like many others, leader writers on the Economist, somewhat belatedly, want the ECB to act as a central bank, and to  provide liquidity to sovereign members of the Eurozone.

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Labour must never again be captive to bankers

The following is the text of a speech to a joint meeting of the Christian Socialist Movement and the Co-op party on Tuesday 27th September, by Ann Pettifor, director of Policy Research in Macroeconomics (PRIME), co-author of “The Green New Deal” and a fellow of the new economics foundation.

“I have just returned from a lecture tour of Australia where I came across the story of the Sydney Diocese and what the Aussies call the GFC – the Global Financial Crisis.

The Sydney Diocese, far from chasing the money-lenders from the temple that is their faith, invited them in, borrowed money against the diocese’s collateral, and used the borrowed money to invest – some would say gamble – on the stock market. When the financial crisis broke in 2008, stock market losses were amplified by the church’s huge borrowings. Archbishop Dr. Peter F. Jensen broke the bad news while addressing the church’s annual Synod in 2010, and according to ABC, said that the synod’s “losses total more than $100 million.”

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Greece - a symptom, not a cause

I appeared on Newsnight last night, to discuss the Eurozone crisis – and Greece in particular. (You can watch it with the BBC’s iPlayer..our slot is about 7 minutes into the show.)

Argentina/Greece: De-fault lines?

So, five of the world’s biggest central banks have decided on co-ordinated action to bail out – once again – the European private banking sector. In other words, central bankers are hoping to shore up private bankers, help their defer their losses, and prevent them being disciplined by market forces for their reckless lending to EU sovereigns.

Shareholders and investors in these banks must be delighted. Once again, reckless speculation and lending has paid off. Once again the world’s taxpayers have ridden to the rescue.

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Making the boom pay....radio interviews and upcoming talks

It has been a busy week in Australia – I will be posting in more detail very soon. But for now you can listen to an interview with me on ABC Radio National Breakfast:


For any of you in Sydney – come along to the Catalyst event: ‘Making the boom pay… if not now, when?‘. I will be speaking along with others, more details are here:


Bankers: draining funds from taxpayers courtesy of finance ministers

Irish Finance Minister Noonan and Luxembourg Treasury Minister Frieden attend an EU finance ministers meeting in Brussels. Image source: www.reuters.com

I find it hard to write about the crisis in Greece….because the tragedy unfolding there is so reminiscent of the tragedies that unfolded in Africa, Latin America and South East Asia in the 80s and 90s – and I was very close to those. Seeing the same economic mismanagement replicated in well-armed Europe is scary. Watching as tensions rise between the peoples of Europe…given our bloody history….is frightening.  So I have been silenced by rage.

But my outrage boiled over today, because of what the FT wrongly calls a ‘subtle’ change unveiled by EU finance ministers to the terms of the massive Eurozone bailout fund – a fund backed by European taxpayers. This is how the FT explains it:

Any bonds issued in future by the eurozone’s new €500bn rescue fund on behalf of Ireland, Greece or Portugal will not enjoy “preferred creditor status” – an alteration to the fund intended to help those nations return more swiftly to private capital markets.

For those who do not dabble much in sovereign debt, let me explain. Common to the whole of the international financial architecture/system for sovereign lending, there is one principle that overrides all others. That the IMF/World Bank are ‘preferred creditors’. Just as when a company goes bankrupt, the supplier that sold it widgets, is ranked lower than the bank that provided the overdraft – so in international ‘law’ – taxpayer-backed lending from the IMF and World Bank is ‘preferred’ when it comes to repayment – over all private commercial lending. And it is preferred because it is public money.

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