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… ›
I appeared on Al Jazeera’s ‘Inside Story’ yesterday to discuss Greece and was joined by Greek Journalist Matina Stavis and Political Analyst George Kapopoulos. During the panel discussion I stated that:
“The Troika are trying to ensure that the money goes straight to the creditors to prevent Greece from defaulting, but in doing so they are stripping Greece of her economic and political sovereignty. They hope to stabilise the situation and make sure that the bankers and hedge funds get paid, and that pensioners and the poor don’t take priority over them.”
Last week I gave a talk in Brussels at a debate moderated by Pierre Defraigne, Executive Director of the Madariaga – College of Europe Foundation. It was ACitizen’s Controversy with Lars Feld, Professor of Economic Policy at the University of Freiburg and Member of the German Council of Economic Experts.
As mayhem breaks out on stock markets; as Eurozone banks freeze up; and as the global financial system approaches a frightening ‘danger zone,’ the champions of the globalised ‘free market’ and of the Euro are in search of a scapegoat.
Instead of accepting that it is the broken banking system; the de-regulated financial Eurozone, and the deflationary monetarist policies of the Maastricht Treaty that are the roots of the crisis, the Troika (the IMF/EU/ECB) want to identify a convenient whipping boy.
Instead of going after the real culprits — un-regulated bankers that lent recklessly, confident they would always be bailed out by taxpayers — the approach of the Troika is to scapegoat Greece. The implication is that the whole fabric of the Euro, and with it the global economy, is torn apart because one poor country, Greece, will not enforce ever-deeper austerity on her people.
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.
The austerity brigade is rattled. Young Daniel Knowles over at the Daily Telegraph is so worried, he has had to rise to the defence of the Treasury and Office for Budget Responsibility – and then resorts to proposing Greece’s economic strategy for the UK. Why? Because orthodox economic ideology has been challenged by none other than Daniel’s ‘hero’ that notorious womaniser, President Bill Clinton.
“(the) UK’s finding this out now. They adopted this big austerity budget. And there’s a good chance that economic activity will go down so much that tax revenues will be reduced even more than spending is cut and their deficit will increase.”
Daniel Knowles challenges his hero, on these grounds:
“The government cannot spend so much that net revenues actually increase. By Clinton’s logic we should increase spending until our deficit goes away. ”
“The Office of Budget Responsibility..using a Keynesian model, estimates that the fiscal multiplier is about .35”……that means that…overall the deficit is will be smaller than it would have been without cuts….. (Note: Knowles Update: I actually made a mistake with that statistic – 0.35 is the estimate for the multiplier for VAT. Estimates of the fiscal multiplier overall, including those of the OBR, IMF and others, are closer to 0.)
Greece: spending cuts have reduced the deficit from 15.4% of GDP in 2009 to 9.5% now.
The first two points are rightly, morphed together in Knowles’s argument. The first is to do with the impact of government spending. In a slump – which we are living through now – it is vital for the government to spend to fill the investment vacuum created by an over-indebted and extremely nervous private sector, desperately trying to de-leverage its debt. Right now the UK private sector is busily hoarding cash, because they are – rightly – worried about their levels of debt; and because they fear – rightly – that if they do invest, customers (both private and corporate) will not walk through the door – because customers too, are heavily indebted and worried about the threat of unemployment and falling house prices.
So given these circumstances of widespread fear and paralysis in the economy – what the ONS calls ‘flat-lining’ – say the government invests £1 billion in libraries. What would happen next?
The olive grove harvest. Image source: www.oxfam.org
As a follow-up to yesterday’s post on Greece: the Greeks are doing the one thing that hurts bankers most – they’re turning down invitations to their party.
In my book, ‘The coming first world debt crisis‘ I tried to spell out what actions individuals could take to defend themselves against the predations of voracious lenders.
“After all,” I wrote, “the finance sector depends on us, the world’s debtor-spenders, to come to the ball. We can turn down the invitation. We can decline the credit card, overdraft or loan. We can refuse to dance to Finance’s tune. We can live within our means.”
Well the Greeks have taken the advice, but gone further. They are taking their money out of banks.
Unemployment poster ‘jobless men keep going, we can’t take care of our own’, 1931.
We write to encourage you – to urge you on in your resistance.
In your defiance, you understand Greece is slave to the interests of private wealth.
You must understand too that it is private wealth that needs Greece. Greece does not need private wealth.
As is obvious to you – if not to EU finance ministers – Greek and other EU taxpayers are asked to shore up the immense wealth and reckless lending of private French, German, British and American banks.
Without your taxes, your sacrifices, the privatisation of your government’s assets, these bankers once again face Armageddon – as they did in autumn of 2008.
Just as then, so now they have rushed behind the ‘skirts’ of their defenders at the IMF and the EU. On their behalf, these unelected officials and some elected politicians demand that Greek and EU taxpayers shield private sector risk-takers from the consequences of their risks. The very antipathy of market principles.
In the process, the European Union is torn apart. Politicians, backed by officials, now defy the founding goals of the Community and, in the interests of private wealth, set the peoples of Europe against each other.
On 20 June, 2011 the acting Head of the IMF called for “immediate and far-reaching structural reforms, privatization, and the opening of markets to foreign ownership and competition.”
Which proves our point: private wealth needs Greece. Greece does not need private wealth.
So Sir James Sassoon has joined the Eton boy, Osborne, and the Barclays banker, David Laws, at the Treasury, as Commercial Secretary – a post invented and designed for him. Sir James was vice chairman Investment Banking at UBS Warburg between1985-2002, where he specialised in privatisations.
The capture of the Treasury by the City of London is now complete.
The war on industry and the public sector can now begin in earnest.