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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Does Greece have a Tea Party?

26th April, 2010

Dear readers….this is my latest Huffington Post.

“The humiliating surrender of Greece’s economic autonomy came just last Friday, 23 April, 2010. The democratically elected Prime Minister, George Papandreou transferred to unelected officials in Brussels and Washington the power to determine Greece’s fiscal policy. In other words, decisions about taxation, and how tax revenues should be spent.

In a 26 April interview with the Financial Times on the island of Rhodes, the Prime Minister, George Papandreou admitted his country had accepted “a partial surrender of sovereignty”.
“Our struggle” he went on to say, “will be to recover our autonomy and liberate Greece from the surveillance imposed by the forces of conservatism”.

Back in 1765 Bostonians such as James Otis and Samuel Adams regarded “taxation without representation as a form of tyranny”.

Today, a nation that served as the cradle of western democracy will effectively be governed by remote, invisible and unaccountable officials. Continue reading… ›