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Greek parliament passes austerity plan

Press TV – June 29, 2011

Photo credit – Bleeps.gr, Athens

The Greek parliament has voted in favor of new austerity measures, in a move that is expected to infuriate thousands of demonstrators outside the parliament.

The austerity measures were approved on Wednesday with 155 votes in favor, 138 against and seven abstentions.

Greece’s newly-approved austerity plan is worth some EUR 28 billion and includes a privatization program aimed at raising EUR 50 billion and further budget cuts as well as tax increases so that the government may receive further international financial assistance.

The passage of the bill means the European Union and the International Monetary Fund will release EUR 12 billion in aid to Greece — the fifth tranche of Greece’s EUR 110 billion bailout program.

Violent clashes were reported outside parliament on Wednesday, where protesters earlier tried to prevent lawmakers from entering.

A 48-hour general strike is under way in protest at the proposed changes.

The EU ramped up pressure on the parliament ahead of the vote, stating Greece had no “plan B” other than to accept the austerity measures.

Inspectors from the EU, the IMF and the European Central Bank have been in Athens for nearly a month to see if the country is successfully implementing the promised reforms in return for the bailout.

Greece has a debt of over EUR 300 billion, which is worth more than 150 percent of its annual economic output.

Anti-government demonstrations in Greece have turned violent at times, leaving scores of protesters and security forces injured.

June 29, 2011 Posted by aletho | Economics | Leave a comment

GREEK PARLIAMENT MAY REJECT EU/IMF AUSTERITY MEASURES

Historic vote on Wednesday, euro hangs by a thread

By Jane Burgermeister | June 27, 2011

*Greek Prime Minister’s  majority cut to one ahead of crucial IMF and EU austerity vote in parliament on Wednesday

*Rejection of austerity package will lead to a default by Greece and eurozone exit

*Greece is set to spend 131 billion euros on interest payments to banks between 2009 and 2014 according to IMF

*Germany’s Die Welt says Germans would rise up in rebellion if they had to accept equivalent austerity measures

*Protests and strikes intensify in Athens ahead of historical vote on Wednesday that could spell the end of the euro currency

Four Greek lawmakers from the ruling PASOK party have indicated they will vote against the new EU and IMF austerity package in parliament on Wednesday.  If the Greek parliament votes against the legislation, it would pave the way for Greece to default on its debt to foreign banks and exit the eurozone in an historic victory for democracy.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_4_26/06/2011_396030

Greece is set to pay a staggering €131bn in refinancing and interest payments to American, German and French banks between 2009 and 2014 , the IMF has estimated.

Prime Minister George Papandreou’s socialist PASOK party has a slim majority of only 155 deputies in the 300-member parliament. The defections of any more lawmakers may mean the government not be able to pass the new austerity measures and an implementation law on Wednesday and Thursday, which the EU, IMF and ECB are insisting on to enable the next interest payments to be made to banks on time.

The main opposition leader, Antonis Samaras, has said the austerity measures are a “medicine that is worse than the sickness they are meant to cure” and that he will not vote for them.

The draconian package of latest tax hikes and budget cuts include measures forcing people earning as little as 8000 euros a year to pay 10% in taxes to help the government meet the multi-billion euro interest payments to banks while universities close due to funding cuts.

“Crucially, bailout funds are not used to pay civil servants’ salaries and pensions, but to pay off debt held by German and French banks. According to IMF estimates, Greece will pay €131bn in refinancing and interest payments between 2009 and 2014, far more than the initial bailout loan of €110bn,” reports The Guardian.

The new austerity package is so harsh that if it were implemented in Germany, the people would rebell, Germany’s Die Welt newspaper admitted. The new Greek austerity measures would be the equivalent of German government cutting 117 billion euros from the budget and selling assets worth 555 billion worth of euros, estimated Die Welt.

http://www.welt.de/wirtschaft/article13451154/Wenn-Berlin-so-sparen-muesste-wie-Griechenland.html

Even the Greek Finance Minister Evangelos Venizelos said over the weekend that the measures were “hard and unfair.”

The austerity measures would drain the economy of the last of its liquidity and bust those businesses that are still solvent. Andrew Lilico points out that the Greek money supply has  been falling at about 10 per cent a year.

The new IMF, EU, ECB austerity package comes on top of cuts that resulted in shrinkage in the economy and an increase in the country’s mountain of debt. Greece’s debt is set to rise to 170% of the GDP next year.

A 48-hour general strike is to be held in Athens tomorrow and Wednesday against the privatisations and austerity package.

Protesters outside the parliament in Syntagma Square, have said that they will block lawmakers from entering the building and voting on the austerity measures.

Greek lawmakers began debating the new austerity plans today.

If Greece does not pass the package, it will not receive a 12 billion euro installment of loans from its international bailout plan to make payments to banks in the USA, Germany and France forcing it into a disorderly default.

A recommendation by German economists to introduce an insolvency mechanism for the eurozone in autumn 2010 was buried by the German government.

The threat of a disorderly default and financial disaster is being used by banks and eurozone officials to pressure the Greeks to accept the transfer of  wealth to the banks and acceopt the loss of their sovereignty.

A disorderly default would, however, pave the way for a rapid recovery of Greece’s economy outside the eurozone.

Papandreou faced down a rebellion by lawmakers this month after making a cabinet reshuffle and changing his finance minister, but the protests by people are continuing to put pressure on parliamentarians.

Even Überbankster George Soros — who has held regular private meetings with Papandreou and who called on eurozone governments and continue to loot the tax payers to save the banks in an article in the Financial Times — was forced to admit at a discussion yesterday in Vienna that the collapse of the euro currency is likely.

The euro collapse will spell the end of the bankster’s financial eurozone empire and ambitions to loot the assets and taxes of the 400 million people under the pretext of having to pay the debts of governments and banks that are actually insolvent and should have been put through insolvency mechanism long ago.

June 27, 2011 Posted by aletho | Economics | Leave a comment

Bankers Gear Up for the Rape of Greece, as Social Democrats Vote for National Suicide

Only a Referendum of the People Can Stop Them Now

By MICHAEL HUDSON | CounterPunch | June 24, 2011

The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil – in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury).

As Vladimir Putin pointed out some years ago, the neoliberal reforms put in Boris Yeltsin’s hands by the Harvard Boys in the 1990s caused Russia to suffer lower birth rates, shortening life spans and emigration – the greatest loss in population growth since World War II. Capital flight is another consequence of financial austerity. The ECB’s proposed “solution” to Greece’s debt problem is thus self-defeating. It only buys time for the ECB to take on yet more Greek government debt, leaving all EU taxpayers to get the bill. It is to avoid this shift of bank losses onto taxpayers that Angela Merkel in Germany has insisted that private bondholders must absorb some of the loss resulting from their bad investments.

The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past. They are demanding privatization of public assets (on credit, with tax deductibility for interest so as to leave more cash flow to pay the bankers). This transfer of land, public utilities and interest as financial booty and tribute to creditor economies is what makes financial austerity like war in its effect.

Socrates said that ignorance must be the root of all evil, because no one deliberately sets out to be bad. But the economic “medicine” of driving debtors into poverty and forcing the selloff of their public domain has become socially accepted wisdom taught in today’s business schools. One would think that after fifty years of austerity programs and privatization selloffs to pay bad debts, the world has learned enough about causes and consequences.

The banking profession deliberately chooses to be ignorant. “Good accepted practice” is bolstered by Nobel Economics Prizes to provide a cloak of plausible deniability when markets “unexpectedly” are hollowed out and new investment slows as a result of financially bleeding economies, medieval-style while wealth is siphoned up to the top of the economic pyramid.

My friend David Kelley likes to cite Molly Ivins’ quip: “It’s hard to convince people that you are killing them for their own good.” The EU’s attempt to do this didn’t succeed in Iceland. And like the Icelanders, the Greek protesters have had their fill of neoliberal-learned ignorance that austerity, unemployment and shrinking markets are the path to prosperity, not deeper poverty. So we must ask what motivates central banks to promote tunnel-visioned managers who follow the orders and logic of a system that imposes needless suffering and waste – all to pursue the banal obsession that banks must not lose money?

One must conclude that the EU’s new central planners (isn’t that what Hayek said was the Road to Serfdom?) are acting as class warriors by demanding that all losses are to be suffered by economies imposing debt deflation and permitting creditors to grab assets. As if this won’t make the problem worse. This ECB hard line is backed by U.S. Treasury Secretary Geithner, evidently so that U.S. institutions not lose their bets on derivative plays they have written up.

This is a repeat of Geithner’s intervention to prevent Irish debt alleviation. The result is that we enter absurdist territory when the ECB and Treasury insist on “voluntary renegotiation” on the ground that some bank may have taken an AIG-type gamble in offering default insurance or bets that would make it lose so much money that yet another bailout would be necessary. It is as if financial gambling is economically necessary, not part of Las Vegas.
Why should this matter a drachma to the Greeks? It is an intra-European bank regulatory problem. Yet to sidestep it, the ECB is telling Greece to sell off its water and sewer rights, ports, islands and other infrastructure.

This veers on financial theater of the absurd. Of course some special interest always benefits from systemic absurdity, banal as it may be. Financial markets already have priced in the expectation that Greece will default in the end. It is only a question of when. Banks are using the time to take as much as they can and pass the losses onto the ECB, EU and IMF – “public” institutions that have more leverage than private creditors. So bankers become the sponsors of absurdity – and of the junk economics spouted so unthinkingly by the enforcers, cheerleaders for the banality of evil. It doesn’t really matter if their names are Trichet, Geithner or Papandreou. They are just kindred lumps on the vampire squid of creditor claims.

The Greek crowds demonstrating before Parliament in Syntagma Square are providing their counterpart to the “Arab spring.” But what really can they do, short of violence – as long as the police and military side with the government that itself is siding with foreign creditors?

The most effective tactic is to demand a national referendum on whether to accept the ECB’s terms for austerity, tax increases, public spending cutbacks and selloffs. This is how Iceland’s president stopped his country’s Social Democratic leadership from committing the economy to ruinous (and legally unnecessary) payments to Gordon Brown’s Labour Party demands and those of the Dutch for the Icesave and even the Kaupthing bailouts.

The only legal basis for demanding payment of the EU’s bailout of French and German banks – and U.S. Treasury Secretary Tim Geithner’s demand that debts be sacrosanct, not the lives of citizens – is public acceptance and acquiescence in such policy. Otherwise the imposition of debt may be treated simply as an act of financial warfare.

National economies have the right to defend themselves against such aggression. The crowd’s leaders can insist that in the absence of a referendum, they intend to elect a political slate committed to outright debt annulment. International law prohibits nations from treating their own nationals differently from foreigners, so all debts in specified categories would have to be annulled to create a Clean Slate. (The German Monetary Reform of 1947 imposed by the Allied Powers was the most successful Clean Slate in modern times. Freeing the German economy from debt [including reparations to Greece for the havoc of WW2, Editors] it became the basis of that nation’s economic miracle.)

This is not the first such proposal for Greece. Toward the end of the 3rd century BC, Sparta’s kings Agis and Cleomenes urged a debt cancellation, as did Nabis after them. Plutarch tells the story, and also explains the tragic flaw of this policy. Absentee owners who had borrowed to buy real estate backed the debt cancellation, gaining an enormous windfall.

This would be much more the case today than in times past, now that the great bulk of debt is mortgage debt. Imagine what a debt cancellation would do for the Donald Trumps of the economy – having acquired property on credit with minimum equity investment of their own, suddenly owing nothing to the banks! The aim of financial-fiscal reform should be to free the economy from financial overhead that is technologically unnecessary. To avoid giving a free lunch to absentee owners, a debt cancellation would have to go hand in hand with an economic rent tax. The public sector would receive the land’s rental value as its fiscal base.

This happens to have been the basic aim of 19th-century free market economists: tax land and nature – and natural monopolies – rather than taxing labor and capital goods. The aim was to keep for the public what nature and public infrastructure spending create. A century ago it was believed that monopolies such as the privatizers now set their eyes should be operated by the public sector; or, if left in public hands, their prices would be regulated to keep them in line with actual costs of production. Where private owners already have taken possession of land, mines or monopolies, the rental revenue from such ownership privileges would be fully taxed. This would include the financial privilege that banks enjoy in credit creation.

The way to lower costs is to lower “bad” taxes that add to the price of production, headed by taxes on labor and capital, sales taxes and value-added taxes. By contrast, rent taxes collect the economy’s “free lunch,” and thus leave less available to be pledged to banks to capitalize into debt service on higher loans. Shifting the Greek tax burden off labor onto property would reduce the supply price of labor, and also reduce the price of housing that is being bid up by bank credit.

A land tax shift was the primary reform proposal from the 18th and 19th century, from the Physiocrats and Adam Smith down through John Stuart Mill and America’s Progressive Era reformers. The aim was to free markets from the landed aristocracy’s hereditary rents stemming from the medieval Viking conquest. This would free economies from feudalism, bringing prices in line with socially necessary costs of production.

Every government has the right to levy taxes, as long as they do it uniformly to domestic property owners as well as to foreign owners. Short of re-nationalizing the land and infrastructure, fully taxing its economic rent (access payments for sites whose value is created by nature or by public improvements) would take back for the Greek authorities what creditors are trying to grab.

This classical threat of 19th century reformers is the response that the Greeks can make to the European Central Bank. They can remind the rest of the world that it was, after all, the ideal of free markets as expressed from Adam Smith through John Stuart Mill in England, and underlay U.S. public spending, regulatory agencies and tax policy during its period of take-off.

How strange (and sad) it is that Greece’s own ruling Socialist Party, whose leader heads the Second International, has rejected this centuries-old reform program. It is not Communism. It is not even inherently revolutionary, or at least was not at the time it was formulated. It is socialism of the reformist type that two centuries of classical political economy culminated in.

But it is the kind of free markets against which the ECB is fighting – backed by Treasury Secretary Geithner’s shrill exhortations from the United States. Obama says nothing, leaving it all to Wall Street bureaucrats to set national economic policy. Is this evil? Or is it just passive and indifferent? Does it make much of a difference as far as the end result is concerned?

To sum up, the aims of foreign financial aggression are the same as military conquest: land and the public domain. But nations have the right to tax their rental yield over and above a return to capital investment. Contrary to EU demands for “internal devaluation” (wage cuts) as a means of lowering the price of Greek labor to make it more competitive, reducing living standards is not the way to go. That reduces labor productivity while eroding the internal market, leading to a deteriorating spiral of economic shrinkage.

The need for a popular referendum

Every government has the right and indeed the political obligation to protect its prosperity and livelihood so as to keep its population at home rather than drive them abroad or drive them into a position of financial dependency on rentiers. At the heart of economic democracy is the principle that no sovereign nation is committed to relinquish its public domain or its taxing, and hence its economic prosperity and future livelihood, to foreigners or for that matter to a domestic financial class. This is why Iceland voted “No” in the debt referendum. Its economy is recovering.

Ireland voted “Yes” and now faces a new Great Emigration to rival that which followed the poverty and starvation driven emigrations of the mid-19th century. If Greece does not draw a line here, it will be a victory for financial and fiscal aggression imposing debt peonage.

Finance has become the 21st century’s preferred mode of warfare. Its aim is to appropriate the land and public infrastructure for its own power elites. Achieving this end financially, by imposing debt peonage on subject populations, avoids the sacrifice of life by the aggressor power – but only as long as subject debtor countries accept their burden voluntarily. If there is no referendum, the national economy cannot be held liable to pay the debts owed even to “senior” creditors: the IMF and ECB. Assets that are privatized at foreign bank insistence can be renationalized.  And just as nations under military attack can sue, so Greece can sue for the devastation caused by austerity – the lost employment, lost output, lost population, capital flight.

The Greek economy will not end up with the proceeds of any ECB “bailout.” The banks will get the money. They would like to turn around and lend it out afresh to the buyers of the land, monopolies and other properties that Greece is being told to privatize. The user fees they collect (no doubt raising charges in the process, to cover the interest and pay themselves the usual salary jumps on privatized property) will be paid out as interest. Is this not like military tribute?

Margaret Thatcher used to say “There is no alternative.”  But of course there is. Greece can simply opt out of this giveaway of assets and economic privilege to creditors.

What do Papandreou’s Socialist International colleagues have to say about current events in Greece? I suppose it is clear that the old Socialist International is dead, given the fact that  Papandreou is its head, after all. What passes for socialism today is the diametric opposite of the reforms promoted under its name a century ago, in the era prior to World War I. Europe’s Social Democratic and Labour parties today have led the way in privatization, financializing their economies under conditions that have blocked the growth in living standards. The result promises to be an international political realignment.

Economic austerity cannot secure creditor claims in the end

On Thursday afternoon the Dow, having been down 230 points, leapt up at the close to lose “only” 60 points, on rumors that Greece had agreed to the IMF’s austerity plan. But what is “Greece”? Is it the cabinet alone? Certainly not yet the entire Parliament. Will there be a Parliamentary vote in opposition to the public interest, accepting austerity and privatization?

Only a referendum can commit the Greek government to repay new debts imposed under austerity. Only a referendum can prevent property that is privatized from being re-nationalized. Such a transfer is not legitimate under commonly accepted ideas of political and economic democracy. And in any event, a rent-tax can recapture for the Greek economy what the financial aggressors are trying to seize.

History is rife with instructive examples. Local oligarchies in the region invited Rome to attack Sparta, and it overthrew the kings and their successor Nabis (who may himself have been royal). The sequel is that Rome headed an oligarchic empire, using violence at home to murder democratic reformers such as the Gracchi brothers after 133 BC, plunging the republic into a century of civil war. The creditor interests ended up fully in control, and their own banal self-seeking plunged the Western half of the Roman Empire into an economic and social Dark Age.

Let’s hope the outcome is better this time around. There will indeed be fighting, but more in the financial and fiscal sphere than the overtly military one. The fight ultimately can be won only by understanding the corrosive dynamics of the “magic of compound interest” and the social need to subordinate creditor interests to those of the overall “real” economy. But to achieve this, economic theory itself needs to be brought out of its current post-classical “neoliberal” banality.

~

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com

June 24, 2011 Posted by aletho | Economics | Leave a comment

Europe’s New Road to Serfdom

Trichet Threatens Greece with Iron Heel

By MICHAEL HUDSON | CounterPunch | June 3, 2011

Soon after the Socialist Party won Greece’s national elections in autumn 2009, it became apparent that the government’s finances were in a shambles. In May 2010, French President Nicolas Sarkozy took the lead in rounding up €120bn ($180 billion) from European governments to subsidize Greece’s unprogressive tax system that had led its government into debt – which Wall Street banks had helped conceal with Enron-style accounting.

The tax system operated as a siphon collecting revenue to pay the German and French banks that were buying government bonds (at rising interest-risk premiums). The bankers are now moving to make this role formal, an official condition for rolling over Greek bonds as they come due, and extend maturities on the short-term financial string that Greece is now operating under. Existing bondholders are to reap a windfall if this plan succeeds. Moody’s lowered Greece’s credit rating to junk status on June 1 (to Caa1, down from B1, which was already pretty low), estimating a 50/50 likelihood of default. The downgrade serves to tighten the screws yet further on the Greek government. Regardless of what European officials do, Moody’s noted, “The increased likelihood that Greece’s supporters (the IMF, ECB and the EU Commission, together known as the “Troika”) will, at some point in the future, require the participation of private creditors in a debt restructuring as a precondition for funding support.”

The conditionality for the new “reformed” loan package is that Greece must initiate a class war by raising its taxes, lowering its social spending – and even private-sector pensions – and sell off public land, tourist sites, islands, ports, water and sewer facilities. This will raise the cost of living and doing business, eroding the nation’s already limited export competitiveness. The bankers sanctimoniously depict this as a “rescue” of Greek finances.

What really were rescued a year ago, in May 2010, were the French banks that held €31 billion of Greek bonds, German banks with €23 billion, and other foreign investors. The problem was how to get the Greeks to go along. Newly elected Prime Minister George Papandreou’s Socialists seemed able to deliver their constituency along similar lines to what neoliberal Social Democrat and Labor parties throughout Europe had followed –privatizing basic infrastructure and pledging future revenue to pay the bankers.

The opportunity never had been better for pulling the financial strings to grab property and tighten the fiscal screws. Bankers for their part were eager to make loans to finance buyouts of public gambling, telephones, ports and transport or similar monopoly opportunities. And for Greece’s own wealthier classes, the EU loan package would enable the country to remain within the Eurozone long enough to permit them to move their money out of the country before the point arrived at which Greece would be forced to replace the euro with the drachma and devalue it. Until such a switch to a sinking currency occurred, Greece was to follow Baltic and Irish policy of “internal devaluation,” that is, wage deflation and government spending cutbacks (except for payments to the financial sector) to lower employment and hence wage levels.

What actually is devalued in austerity programs or currency depreciation is the price of labor. That is the main domestic cost, inasmuch as there is a common world price for fuels and minerals, consumer goods, food and even credit. If wages cannot be reduced by “internal devaluation” (unemployment starting with the public sector, leading to falling wages), currency depreciation will do the trick in the end. This is how Europe’s war of creditors against debtor countries turns into a class war. But to impose such neoliberal reform, foreign pressure is necessary to bypass domestic, democratically elected Parliaments. Not every country’s voters can be expected to be as passive in acting against their own interests as those of Latvia and Ireland.

Most of the Greek population recognizes just what has been happening as this scenario has unfolded over the past year. “Papandreou himself has admitted we had no say in the economic measures thrust upon us,” said Manolis Glezos on the left. “They were decided by the EU and IMF. We are now under foreign supervision and that raises questions about our economic, military and political independence.” On the right wing of the political spectrum, conservative leader Antonis Samaras said on May 27 as negotiations with the European troika escalated: “We don’t agree with a policy that kills the economy and destroys society. … There is only one way out for Greece, the renegotiation of the [EU/IMF] bailout deal.”

But the EU creditors upped the ante: To refuse the deal, they threatened, would result in a withdrawal of funds causing a bank collapse and economic anarchy.

The Greeks refused to surrender quietly. Strikes spread from the public-sector unions to become a nationwide “I won’t pay” movement as Greeks refused to pay road tolls or other public access charges. Police and other collectors did not try to enforce collections. The emerging populist consensus prompted Luxembourg’s Prime Minister Jean-Claude Juncker to make a similar threat to that which Britain’s Gordon Brown had made to Iceland: If Greece would not knuckle under to European finance ministers, they would block IMF release of its scheduled June tranche of its loan package. This would block the government from paying foreign bankers and the vulture funds that have been buying up Greek debt at a deepening discount.

To many Greeks, this is a threat by finance ministers to shoot themselves in the foot. If there is no money to pay, foreign bondholders will suffer – as long as Greece puts its own economy first. But that is a big “if.” Socialist Prime Minister Papandreou emulated Iceland’s Social Democratic Sigurdardottir in urging a “consensus” to obey EU finance ministers. “Opposition parties reject his latest austerity package on the grounds that the belt-tightening agreed in return for a €110bn ($155bn) bail-out is choking the life out of the economy.”

At issue is whether Greece, Ireland, Spain, Portugal and the rest of Europe will roll back democratic reform and move toward financial oligarchy. The financial objective is to bypass parliament by demanding a “consensus” to put foreign creditors first, above the economy at large. Parliaments are being asked to relinquish their policy-making power. The very definition of a “free market” has now become centralized planning – in the hands of central bankers. This is the new road to serfdom that financialized “free markets” are leading to: markets free for privatizers to charge monopoly prices for basic services “free” of price regulation and anti-trust regulation, “free” of limits on credit to protect debtors, and above all free of interference from elected parliaments. Prising natural monopolies in transportation, communications, lotteries and the land itself away from the public domain is called the alternative to serfdom, not the road to debt peonage and a financialized neo-feudalism that looms as the new future reality. Such is the upside-down economic philosophy of our age.

Concentration of financial power in non-democratic hands is inherent in the way that Europe’s centralized planning in financial hands was achieved in the first place. The European Central Bank has no elected government behind it that can levy taxes. The EU constitution prevents the ECB from bailing out governments. Indeed, the IMF Articles of Agreement also block it from giving domestic fiscal support for budget deficits. “A member state may obtain IMF credits only on the condition that it has ‘a need to make the purchase because of its balance of payments or its reserve position or developments in its reserves.’ Greece, Ireland, and Portugal are certainly not short of foreign exchange reserves … The IMF is lending because of budgetary problems, and that is not what it is supposed to do. The Deutsche Bundesbank made this point very clear in its monthly report of March 2010: ‘Any financial contribution by the IMF to solve problems that do not imply a need for foreign currency – such as the direct financing of budget deficits – would be incompatible with its monetary mandate.’ IMF head Dominique Strauss-Kahn and chief economist Olivier Blanchard are leading the IMF into forbidden territory, and there is no court which can stop them.” (Roland Vaubel, “Europe’s Bailout Politics,” The International Economy, Spring 2011, p. 40.)

The moral is that when it comes to bailing out bankers, rules are ignored – in order to serve the “higher justice” of saving banks and their high-finance counterparties from taking a loss. This is quite a contrast compared to IMF policy toward labor and “taxpayers.” The class war is back in business – with a vengeance, and bankers are the winners this time around.

The European Economic Community that preceded the European Union was created by a generation of leaders whose prime objective was to end the internecine warfare that tore Europe apart for a thousand years. The aim by many was to end the phenomenon of nation states themselves – on the premise that it is nations that go to war. The general expectation was that economic democracy would oppose the royalist and aristocratic mind-sets that sought glory in conquest. Domestically, economic reform was to purify European economies from the legacy of past feudal conquests of the land, of the public commons in general. The aim was to benefit the population at large. That was the reform program of classical political economy.

European integration started with trade as the path of least resistance – the Coal and Steel Community promoted by Robert Schuman in 1952, followed by the European Economic Community (EEC, the Common Market) in 1957. Customs union integration and the Common Agricultural Policy (CAP) were topped by financial integration. But without a real continental Parliament to write laws, set tax rates, protect labor’s working conditions and consumers, and control offshore banking centers, centralized planning passes by default into the hands of bankers and financial institutions. This is the effect of replacing nation states with planning by bankers. It is how democratic politics gets replaced with financial oligarchy.

Finance is a form of warfare. Like military conquest, its aim is to gain control of land, public infrastructure, and to impose tribute. This involves dictating laws to its subjects, and concentrating social as well as economic planning in centralized hands. This is what now is being done by financial means, without the cost to the aggressor of fielding an army. But the economies under attack may be devastated as deeply by financial stringency as by military attack when it comes to demographic shrinkage, shortened life spans, emigration and capital flight.

This attack is being mounted not by nation states as such, but by a cosmopolitan financial class. Finance always has been cosmopolitan more than nationalistic – and always has sought to impose its priorities and lawmaking power over those of parliamentary democracies.

Like any monopoly or vested interest, the financial strategy seeks to block government power to regulate or tax it. From the financial vantage point, the ideal function of government is to enhance and protect finance capital and “the miracle of compound interest” that keeps fortunes multiplying exponentially, faster than the economy can grow, until they eat into the economic substance and do to the economy what predatory creditors and rentiers did to the Roman Empire.

This financial dynamic is what threatens to break up Europe today. But the financial class has gained sufficient power to turn the ideological tables and insist that what threatens European unity is national populations acting to resist the cosmopolitan claims of finance capital to impose austerity on labor. Debts that already have become unpayable are to be taken onto the public balance sheet – without a military struggle, needless to say. At least such bloodshed is now in the past. From the vantage point of the Irish and Greek populations (perhaps soon to be joined by those of Portugal and Spain), national parliamentary governments are to be mobilized to impose the terms of national surrender to financial planners. One almost can say that the ideal is to reduce parliaments to local puppet regimes serving the cosmopolitan financial class by using debt leverage to carve up what is left of the public domain that used to be called “the commons.” As such, we now are entering a post-medieval world of enclosures – an Enclosure Movement driven by financial law that overrides public and common law, against the common good.

Within Europe, financial power is concentrated in Germany, France and the Netherlands. It is their banks that held most of the bonds of the Greek government now being called on to impose austerity, and of the Irish banks that already have been bailed out by Irish taxpayers.

On Thursday, June 2, 2011, ECB President Jean-Claude Trichet spelled out the blueprint for how to establish financial oligarchy over all Europe. Appropriately, he announced his plan upon receiving the Charlemagne prize at Aachen, Germany – symbolically expressing how Europe was to be unified not on the grounds of economic peace as dreamed of by the architects of the Common Market in the 1950s, but on diametrically opposite oligarchic grounds.

At the outset of his speech on “Building Europe, building institutions,”  Trichet appropriately credited the European Council led by Mr. Van Rompuy for giving direction and momentum from the highest level, and the Eurogroup of finance ministers led by Mr. Juncker. Together, they formed what the popular press calls Europe’s creditor “troika.” Mr. Trichet’s speech refers to “the ‘trialogue’ between the Parliament, the Commission and the Council.”

Europe’s task, he explained, was to follow Erasmus in bringing Europe beyond its traditional “strict concept of nationhood.” The debt problem called for new “monetary policy measures – we call them ‘non standard’ decisions, strictly separated from the ‘standard’ decisions, and aimed at restoring a better transmission of our monetary policy in these abnormal market conditions.” The problem at hand is to make these conditions a new normalcy – that of paying debts, and re-defining solvency to reflect a nation’s ability to pay by selling off its public domain.

“Countries that have not lived up to the letter or the spirit of the rules have experienced difficulties,” Trichet noted. “Via contagion, these difficulties have affected other countries in EMU. Strengthening the rules to prevent unsound policies is therefore an urgent priority.” His use of the term “contagion” depicted democratic government and protection of debtors as a disease. Reminiscent of the Greek colonels’ speech that opened the famous 1969 film “Z”: to combat leftism as if it were an agricultural pest to be exterminated by proper ideological pesticide. Mr. Trichet adopted the colonels’ rhetoric. The task of the Greek Socialists evidently is to do what the colonels and their conservative successors could not do: deliver labor to irreversible economic reforms.

“Arrangements are currently in place, involving financial assistance under strict conditions, fully in line with the IMF policy. I am aware that some observers have concerns about where this leads. The line between regional solidarity and individual responsibility could become blurred if the conditionality is not rigorously complied with.

“In my view, it could be appropriate to foresee for the medium term two stages for countries in difficulty. This would naturally demand a change of the Treaty.

“As a first stage, it is justified to provide financial assistance in the context of a strong adjustment program. It is appropriate to give countries an opportunity to put the situation right themselves and to restore stability.

“At the same time, such assistance is in the interests of the euro area as a whole, as it prevents crises spreading in a way that could cause harm to other countries.

It is of paramount importance that adjustment occurs; that countries – governments and opposition – unite behind the effort; and that contributing countries survey with great care the implementation of the programme.

But if a country is still not delivering, I think all would agree that the second stage has to be different. Would it go too far if we envisaged, at this second stage, giving euro area authorities a much deeper and authoritative say in the formation of the country’s economic policies if these go harmfully astray? A direct influence, well over and above the reinforced surveillance that is presently envisaged? … (my emphasis)

The ECB President then gave the key political premise of his reform program (if it is not a travesty to use the term “reform” for today’s counter-Enlightenment):

“We can see before our eyes that membership of the EU, and even more so of EMU, introduces a new understanding in the way sovereignty is exerted. Interdependence means that countries de facto do not have complete internal authority. They can experience crises caused entirely by the unsound economic policies of others.

“With a new concept of a second stage, we would change drastically the present governance based upon the dialectics of surveillance, recommendations and sanctions. In the present concept, all the decisions remain in the hands of the country concerned, even if the recommendations are not applied, and even if this attitude triggers major difficulties for other member countries. In the new concept, it would be not only possible, but in some cases compulsory, in a second stage for the European authorities – namely the Council on the basis of a proposal by the Commission, in liaison with the ECB – to take themselves decisions applicable in the economy concerned.

“One way this could be imagined is for European authorities to have the right to veto some national economic policy decisions. The remit could include in particular major fiscal spending items and elements essential for the country’s competitiveness. …

By “unsound economic policies,” Mr. Trichet means not paying debts – by writing them down to the ability to pay without forfeiting land and monopolies in the public domain, and refusing to replace political and economic democracy with control by bankers. Twisting the knife into the long history of European idealism, he deceptively depicted his proposed financial coup d’état as if it were in the spirit of Jean Monnet, Robert Schuman and other liberals who promoted European integration in hope of creating a more peaceful world – one that would be more prosperous and productive, not one based on financial asset stripping.

“Jean Monnet in his memoirs 35 years ago wrote: ‘Nobody can say today what will be the institutional framework of Europe tomorrow because the future changes, which will be fostered by today’s changes, are unpredictable.’

“In this Union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union? Not necessarily a ministry of finance that administers a large federal budget. But a ministry of finance that would exert direct responsibilities in at least three domains: first, the surveillance of both fiscal policies and competitiveness policies, as well as the direct responsibilities mentioned earlier as regards countries in a ‘second stage’ inside the euro area; second, all the typical responsibilities of the executive branches as regards the union’s integrated financial sector, so as to accompany the full integration of financial services; and third, the representation of the union confederation in international financial institutions.

“Husserl concluded his lecture in a visionary way: ‘Europe’s existential crisis can end in only one of two ways: in its demise (…) lapsing into a hatred of the spirit and into barbarism ; or in its rebirth from the spirit of philosophy, through a heroism of reason (…).’”

As my friend Marshall Auerback remarked in response to this speech, its message is familiar enough as a description of what is happening in the United States: “This is the Republican answer in Michigan. Take over the cities in crisis run by disfavored minorities, remove their democratically elected governments from power, and use extraordinary powers to mandate austerity.” In other words, no room for any agency like that advocated by Elizabeth Warren is to exist in the EU. That is not the kind of idealistic integration toward which Trichet and the ECB aim. He is leading toward what the closing credits of the film “Z” put on the screen: The things banned by the junta include: “peace movements, strikes, labor unions, long hair on men, The Beatles, other modern and popular music (‘la musique populaire’), Sophocles, Leo Tolstoy, Aeschylus, writing that Socrates was homosexual, Eugène Ionesco, Jean-Paul Sartre, Anton Chekhov, Harold Pinter, Edward Albee, Mark Twain, Samuel Beckett, the bar association, sociology, international encyclopedias, free press, and new math. Also banned is the letter Z, which was used as a symbolic reminder that Grigoris Lambrakis and by extension the spirit of resistance lives (zi = ‘he (Lambrakis) lives’).”

As the Wall Street Journal accurately summarized the political thrust of Mr. Trichet’s speech, “if a bailed-out country isn’t delivering on its fiscal-adjustment program, then a ‘second stage’ could be required, which could possibly involve ‘giving euro-area authorities a much deeper and authoritative say in the formation of the county’s economic policies …’” Eurozone authorities – specifically, their financial institutions, not democratic institutions aimed at protecting labor and consumers, raising living standards and so forth – “could have ‘the right to veto some national economic-policy decisions’ under such a regime. In particular, a veto could apply for ‘major fiscal spending items and elements essential for the country’s competitiveness.’”

Paraphrasing Mr. Trichet’s lugubrious query, “In this union of tomorrow … would it be too bold in the economic field … to envisage a ministry of finance for the union?” the article noted that “Such a ministry wouldn’t necessarily have a large federal budget but would be involved in surveillance and issuing vetoes, and would represent the currency bloc at international financial institutions.”

My own memory is that socialist idealism after World War II was world-weary in seeing nation states as the instruments for military warfare. This pacifist ideology came to overshadow the original socialist ideology of the late 19th century, which sought to reform governments to take law-making power, taxing power and property itself out of the hands of the classes who had possessed it ever since the Viking invasions of Europe had established feudal privilege, absentee landownership and financial control of trading monopolies and, increasingly, the banking privilege of money creation.

But somehow, as my UMKC colleague, Prof. Bill Black commented recently in the UMKC economics blog: “One of the great paradoxes is that the periphery’s generally left-wing governments adopted so enthusiastically the ECB’s ultra-right wing economic nostrums – austerity is an appropriate response to a great recession. … Why left-wing parties embrace the advice of the ultra-right wing economists whose anti-regulatory dogmas helped cause the crisis is one of the great mysteries of life. Their policies are self-destructive to the economy and suicidal politically.”

Greece and Ireland have become the litmus test for whether economies will be sacrificed in attempts to pay debts that cannot be paid. An interregnum is threatened during which the road to default and permanent austerity will carve out more and more land and public enterprises from the public domain, divert more and more consumer income to pay debt service and taxes for governments to pay bondholders, and more business income to pay the bankers.

If this is not war, what is?

~

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com

June 3, 2011 Posted by aletho | Economics | Leave a comment