I have a guilty secret to confess. Despite loathing the tittle-tattle about celebrities that routinely masquerades as journalism, I sometimes pay too much attention to ephemera. On Saturday mornings, my eyes tend to ignore the news headlines in The Financial Times and instead fix themselves on a feature called Lunch with the FT. The only justification I have for this weakness is that it affords me an opportunity to scoff at the powerful diners portrayed.
Among the recent beneficiaries of the FT’s expense account was José Manuel Barroso. The European Commission president chose an old haunt for his free meal – York House in Lisbon – and insisted that the menu of foie gras and John Dory was chosen not by him but by the restaurant’s manager. Yet the fact that he was sating himself on such delicacies at a time when more than 85 million people in the EU – or 17% of its population - live below the poverty line illustrates how aloof he is from the citizens he purports to champion.
Barroso also claimed that one of the guiding principles in his life is to embrace things that are new and different. Although this may be true of his penchant for experimental jazz, it is impossible to detect any signs of fresh thinking in the two most important activities on his schedule this week.
On Wednesday, Barroso will present the Commission’s annual “growth survey”. This will be heralded as the beginning of a cycle of economic governance, under which EU governments coordinate their national budget plans with unelected officials in Brussels. The paper will also contend that the savage cutbacks to public spending being taken across the Union must continue in order to please the goddess TINA (there is no alternative).
The “survey” will be a follow-up to the “Europe 2020” strategy agreed by the Union’s key bodies last year for achieving “smart, sustainable and inclusive growth” this decade. Barroso and his ilk tend to recite those buzzwords as if they amount to an incantation. Experience proves, however, that economic growth as it is currently defined can be neither sustainable nor inclusive. This is because it is measured using a crude and antiquated indicator called gross domestic product (GDP).
Back in 2007, Barroso himself acknowledged that using GDP - developed during the Great Depression era of the 1930s - as an economic compass was “not sufficient” today. Addressing a conference in Brussels, he pointed out that GDP calculates market activity, rather than well-being and intimated that relying on it alone can be catastrophic. He inferred, for example, that policy-makers could refuse to take measures essential for the survival of the human species – such as protecting the rainforest – if they were harmful to growth.
Some work has been undertaken by the Commission – mainly by its environment department – since then on devising measures to “complement” GDP. Similarly, the governments of Britain and France have sought studies on how the impacts of economic policies on the environment and even “happiness” can be gauged. It is telling, however, that the EU as a bloc still attaches more importance to GDP, a three-letter acronym, than to ensuring that each child realises his or her potential.
The notion that the EU will find a magic formula to make growth “inclusive” is particularly fanciful. The neo-liberal orthodoxy to which the Union is wedded has resulted in a situation where the world’s 200 companies account for 28% of global GDP, yet employ less than 0.25% of the global workforce. All of the euro-zone economies now in severe difficulty saw significant GDP growth per head of population between 1990 and 2010 – Ireland by 107%, Greece by 53%, Spain by 38% and Portugal by 32%. Yet none of these countries witnessed any comparable narrowing in the gap between rich and poor. Eurostat, the EU’s in-house number-crunchers, has published data indicating that the levels of income inequality recorded for Spain and Greece were higher in 2009 than in 2000.
Barroso has identified energy as “the next great European integration project” and as a “growth-enhancing sector”. Yet while he is extolling the virtues of renewable energy and of energy efficiency, the other important item on his schedule this week proves that his talk about steering Europe in a more “sustainable” direction cannot be taken seriously. As part of a visit to Azerbaijan and Turkmenistan, he and Günther Oettinger, the EU’s energy commissioner, will discuss the future of the 3,300km Nabucco pipeline project for bringing gas from Central Asia to Europe.
The project underscores just how skewed the priorities of EU energy policy are. The consortium behind the project – which includes Germany’s RWE - is seeking a €2 billion loan from the European Investment Bank. Yet in 2009, that bank allocated a mere €190 million for measures ostensibly promoting energy efficiency in EU’s 12 newest entrants from central and Eastern Europe.
Once completed, the Nabucco project would mean that a large proportion of the EU’s energy comes from Turkmenistan, a country where the ruling regime brooks no opposition and where human rights organisations are forbidden. You can be sure that Barroso is not going there to tell the authorities that the condition of buying Turkmen gas is that they become less repressive. For all of his rhetoric about Europe’s commitment to values like human rights and democracy, it is the value of business contracts that concerns him most.
·First published by New Europe (www.neurope.eu), 9-15 January 2011
Showing posts with label euro. Show all posts
Showing posts with label euro. Show all posts
Monday, January 10, 2011
Monday, December 13, 2010
IMF: master of Europe
Did you weep with joy on New Year’s Day 2002? For Romano Prodi, the experience of watching shiny euro coins spring from cash registers for the first time was akin to a federalist wet dream. “The euro is our money, my money, your money,” Prodi, then president of the European Commission, gushed. “And a little piece of Europe in your hands.”
Prodi was one of several EU leaders to hail the introduction of a single currency as proof that wounds opened by the Second World War had finally been heeled. What hogwash. Far from being a triumph for peace, the euro was the realisation of a plan hatched by a corporate clique. Just five companies – Fiat, Total, Solvay, Philips and Rhône Poulenc – laid the euro’s foundations when they formed the Association for the Monetary Union of Europe in 1987. According to their rationale, the patchwork of different currencies used in Europe at the time hampered it from competing with Japan or the US.
Next week the flaws in that blinkered logic will be exposed when the EU’s presidents and prime ministers meet in Brussels. Apparently in a bid to stop the euro-zone from disintegrating, the summit is expected to endorse a “financial stability mechanism” for economies in difficulty. Doubtlessly, there will be some effort made to depict the scheme as a gesture of solidarity; yet the small-print reveals that many of the levers of economic power will be held by an institution based in Washington.
In order to qualify for loans from the mechanism, a country would have to go through rigorous checks from the International Monetary Fund. The IMF might typically be headed by a European nominee but is nonetheless an agent of US imperialism. Piecemeal reforms to the fund in recent times have not weakened America’s grip over it. Commanding 16.5% of its voting shares, the US retains a veto over all key decisions. Rather than the euro enabling Europe to compete with America, a US proxy is now to be given greater power to meddle in our economies.
For a brief period in 2008, it was fashionable for commentators to predict the end of neo-liberalism – that poisonous ideology under which the market was treated as infallible. The savage cutbacks forced on Greece and Ireland this year by the IMF – with the backing of the EU’s top institutions - illustrate how premature those predictions were.
Naomi Klein’s book The Shock Doctrine offers an indispensable guide to understanding what is really happening. She traces how the IMF underwent a process of “colonisation” by acolytes of Milton Friedman, the right-wing economist who acted as a mentor to such destructive politicians as Donald Rumsfeld and the Chilean tyrant Augusto Pinochet. That process came to fruition in 1989 when the “Washington Consensus” was unveiled, committing the IMF and its sister body the World Bank to privatising every activity under the sun, as well as to scaling back public spending everywhere.
I have just returned from a speaking tour of Ireland, where I was astonished with the deference with which Ajai Chopra, head of an IMF “mission” to the country, was treated by the national broadcaster RTE. Chopra’s surface geniality and his insistence that he is merely a humble civil servant should not be allowed conceal how he is a Friedmanite fundamentalist. During the 1990s he was tasked with “rescuing” the South Korean economy. The “humble” servant treated democracy with disdain by telling all four candidates in a presidential election that Korea would receive no foreign assistance unless they signed up to an austerity programme. The resulting cuts he demanded helped Korea’s unemployment rate to triple between 1996 and 1999.
Chopra has displayed similar contempt towards Irish sovereignty. Although Brian Cowen, the Taoiseach (Irish prime minister), stated that the IMF had no interest in micro-managing economies, that is precisely what it’s doing. After an IMF paper from November advocated that the country’s minimum wage should be slashed, the Dublin government obediently took measures to steal from the poor. You can be sure that Chopra and his team would never agree to work for €7.65 per hour (down from €8.65 per hour) but that is the new minimum wage that has been set for Ireland.
Things are even worse in Romania, where the IMF has told the Bucharest authorities not to increase wage levels that are as paltry as €150 per month. And they are worse again beyond this continent, where the cost of the IMF’s inflexibility can be measured in human lives. As its contribution to a United Nations summit convened to address global poverty in September, the IMF argued that low-income countries in Africa and Asia should not increase government spending unless their revenue also rises. This hawkish approach to deficit management is imperilling the realisation of the UN’s millennium development goals for reducing the most extreme forms of poverty – including infant and maternal mortality – by 2015, a study by Oxfam has found.
Five years ago, the Malian president Amadou Toumani Touré poured brilliant scorn on the IMF for conditioning assistance to the country on privatisation of its cotton industry. “People who have never seen cotton come to give us lessons on cotton,” he thundered. “This is not a partnership. This is a master relating to his student.”
The IMF’s status as master of Africa has long been assured. We know now that it is master of Europe too.
·First published by New Europe (www.neurope.eu), 12-18 December 2010
Prodi was one of several EU leaders to hail the introduction of a single currency as proof that wounds opened by the Second World War had finally been heeled. What hogwash. Far from being a triumph for peace, the euro was the realisation of a plan hatched by a corporate clique. Just five companies – Fiat, Total, Solvay, Philips and Rhône Poulenc – laid the euro’s foundations when they formed the Association for the Monetary Union of Europe in 1987. According to their rationale, the patchwork of different currencies used in Europe at the time hampered it from competing with Japan or the US.
Next week the flaws in that blinkered logic will be exposed when the EU’s presidents and prime ministers meet in Brussels. Apparently in a bid to stop the euro-zone from disintegrating, the summit is expected to endorse a “financial stability mechanism” for economies in difficulty. Doubtlessly, there will be some effort made to depict the scheme as a gesture of solidarity; yet the small-print reveals that many of the levers of economic power will be held by an institution based in Washington.
In order to qualify for loans from the mechanism, a country would have to go through rigorous checks from the International Monetary Fund. The IMF might typically be headed by a European nominee but is nonetheless an agent of US imperialism. Piecemeal reforms to the fund in recent times have not weakened America’s grip over it. Commanding 16.5% of its voting shares, the US retains a veto over all key decisions. Rather than the euro enabling Europe to compete with America, a US proxy is now to be given greater power to meddle in our economies.
For a brief period in 2008, it was fashionable for commentators to predict the end of neo-liberalism – that poisonous ideology under which the market was treated as infallible. The savage cutbacks forced on Greece and Ireland this year by the IMF – with the backing of the EU’s top institutions - illustrate how premature those predictions were.
Naomi Klein’s book The Shock Doctrine offers an indispensable guide to understanding what is really happening. She traces how the IMF underwent a process of “colonisation” by acolytes of Milton Friedman, the right-wing economist who acted as a mentor to such destructive politicians as Donald Rumsfeld and the Chilean tyrant Augusto Pinochet. That process came to fruition in 1989 when the “Washington Consensus” was unveiled, committing the IMF and its sister body the World Bank to privatising every activity under the sun, as well as to scaling back public spending everywhere.
I have just returned from a speaking tour of Ireland, where I was astonished with the deference with which Ajai Chopra, head of an IMF “mission” to the country, was treated by the national broadcaster RTE. Chopra’s surface geniality and his insistence that he is merely a humble civil servant should not be allowed conceal how he is a Friedmanite fundamentalist. During the 1990s he was tasked with “rescuing” the South Korean economy. The “humble” servant treated democracy with disdain by telling all four candidates in a presidential election that Korea would receive no foreign assistance unless they signed up to an austerity programme. The resulting cuts he demanded helped Korea’s unemployment rate to triple between 1996 and 1999.
Chopra has displayed similar contempt towards Irish sovereignty. Although Brian Cowen, the Taoiseach (Irish prime minister), stated that the IMF had no interest in micro-managing economies, that is precisely what it’s doing. After an IMF paper from November advocated that the country’s minimum wage should be slashed, the Dublin government obediently took measures to steal from the poor. You can be sure that Chopra and his team would never agree to work for €7.65 per hour (down from €8.65 per hour) but that is the new minimum wage that has been set for Ireland.
Things are even worse in Romania, where the IMF has told the Bucharest authorities not to increase wage levels that are as paltry as €150 per month. And they are worse again beyond this continent, where the cost of the IMF’s inflexibility can be measured in human lives. As its contribution to a United Nations summit convened to address global poverty in September, the IMF argued that low-income countries in Africa and Asia should not increase government spending unless their revenue also rises. This hawkish approach to deficit management is imperilling the realisation of the UN’s millennium development goals for reducing the most extreme forms of poverty – including infant and maternal mortality – by 2015, a study by Oxfam has found.
Five years ago, the Malian president Amadou Toumani Touré poured brilliant scorn on the IMF for conditioning assistance to the country on privatisation of its cotton industry. “People who have never seen cotton come to give us lessons on cotton,” he thundered. “This is not a partnership. This is a master relating to his student.”
The IMF’s status as master of Africa has long been assured. We know now that it is master of Europe too.
·First published by New Europe (www.neurope.eu), 12-18 December 2010
Monday, September 13, 2010
Casino capitalism unthreatened by new EU rules
Imagine an amoral world, where parents encourage children to steal. On the way to school each morning, the richer kids would pilfer sandwiches or sweets from their poorer classmates. At playtime, the loot would be sold, the proceeds pocketed by the thieves.
Sounds crazy, doesn’t it? Well, it is no crazier than the financial system that Michel Barnier, the EU’s single market commissioner, is in charge of regulating. This Wednesday (September 15) the Frenchman will propose a new law on short-selling, that abstruse practice where a blackberry-hooked whizz-kid borrows shares and sells them based on the prediction that their value will drop, then buys them back once that fall has materialised, making a tidy profit.
The harmful effects of short-selling have long been apparent. Many Asian governments blamed the crisis that beset them in the 1990s on speculators who used the tactic to drive down the rates of local currencies far below their real economic values. A decade later, it was singled out as the major cause of the rapid fall in the prices of shares in Lehman Brothers and other massive banks. And more recently, it has been a contributory factor to Greece’s woes and the wider tremors in the euro-zone. Originally working in cahoots with the Athens government (before last year’s election), Goldman Sachs helped present a misleading picture of public accounts to make Greece attractive to lenders, then bet on the risk of the country defaulting. As Wall Street rogues reaped their winnings, Greece was forced to borrow at higher rates.
Earlier this year, Germany introduced a temporary ban on that even more extreme – and absurd – activity called naked short-selling, where a speculator gambles with shares he or she neither owns nor has borrowed. Barnier intimated that he was upset by the unilateral ban, yet expressed understanding for Berlin’s stance. His new proposal will offer national regulators greater leeway in restricting the practice but there is no prospect that it will be forbidden outright. And so a golden opportunity to heed the lessons of the financial crisis is being wasted.
Open Europe - the right-wing think tank that is a principal source on EU affairs for several British newspapers – regularly issues warnings about Barnier wanting to ruin the City of London. These warnings have now proven fanciful; the truth is that Barnier lacks sufficient guts to introduce stringent rules for the casino of European capitalism.
His cowardice is easily explained. While he may appear to be the antithesis of Charlie McCreevy, his predecessor as single market chief, both are essentially cut from the same ideological cloth. Barnier has not tested positive to the same allergy to regulation as McCreevy, yet is similarly willing to serve the interests of an unaccountable elite.
Gillian Tett, normally one of the most incisive commentators with The Financial Times, was wrong last month to say that the main lobby group for short-sellers, the International Swaps and Derivatives Association (ISDA), had become “distinctly toxic” in Brussels’ political circles. The truth is that it and other bands of speculators dominated the working group assembled by the European Commission to lay the groundwork for Barnier’s new proposals.
Evidently, the speculators held greater sway, too, during a sham “public consultation” that Barnier called on short-selling than the few more radical contributors to that exercise. John Chapman, a British diplomat-turned-journalist, has neatly summarised the flaws in Barnier’s thinking. By refusing to contemplate a ban on short-selling, Chapman’s submission to the exercise noted, the Commission is failing to land “a significant blow on the hedge fund industry, whose activities are the single most pernicious development of the past 30 years”.
Chapman traces the flourishing of hedge funds back to an initiative taken by Ronald Reagan in 1982. By modifying a US law then almost five decades old, Reagan ensured that funds for the use of millionaires did not have to be regulated. The greatest advantage of hedge funds may be their ability to short sell, says Chapman, who argues that the privileges granted to them by American and subsequently by Europe are largely unparalleled. “Millionaires are not allowed to be driven in super-charged limousines along public highways without limits or any constraints on knocking other cars out of the way,” he says.
In a related dossier, Barnier will also this week recommend new rules for the derivatives market. Estimated to be worth €427 trillion globally, the derivatives market is one that thrives on human misery. Derivatives were the main instruments of speculation on basic foodstuffs that caused prices of wheat and maize to jump by up to 90% in developing countries between 2007 and 2008, forcing the poor to eat less.
In January this year, Barnier described speculation on essential food in a world where one billion people suffer from hunger as “a scandal”. Yet his proposals on derivatives will not go far enough. The idea of insisting that as many derivatives as possible are traded through a regulated exchange has, for example, been ruled out. This omission is despite widespread recognition of how over-the-counter derivatives – those traded off-exchange – played “a key role in transforming a financial downturn into a global economic calamity,” according to Nobel laureate Joseph Stiglitz.
Loopholes of this nature are readily exploited by the market fundamentalists determined to maintain a free-for-all approach to global finance. For millions of others, they can mean the difference between sustenance and starvation.
•First published by New Europe, 12-18 September 2010 (www.neurope.eu)
Sounds crazy, doesn’t it? Well, it is no crazier than the financial system that Michel Barnier, the EU’s single market commissioner, is in charge of regulating. This Wednesday (September 15) the Frenchman will propose a new law on short-selling, that abstruse practice where a blackberry-hooked whizz-kid borrows shares and sells them based on the prediction that their value will drop, then buys them back once that fall has materialised, making a tidy profit.
The harmful effects of short-selling have long been apparent. Many Asian governments blamed the crisis that beset them in the 1990s on speculators who used the tactic to drive down the rates of local currencies far below their real economic values. A decade later, it was singled out as the major cause of the rapid fall in the prices of shares in Lehman Brothers and other massive banks. And more recently, it has been a contributory factor to Greece’s woes and the wider tremors in the euro-zone. Originally working in cahoots with the Athens government (before last year’s election), Goldman Sachs helped present a misleading picture of public accounts to make Greece attractive to lenders, then bet on the risk of the country defaulting. As Wall Street rogues reaped their winnings, Greece was forced to borrow at higher rates.
Earlier this year, Germany introduced a temporary ban on that even more extreme – and absurd – activity called naked short-selling, where a speculator gambles with shares he or she neither owns nor has borrowed. Barnier intimated that he was upset by the unilateral ban, yet expressed understanding for Berlin’s stance. His new proposal will offer national regulators greater leeway in restricting the practice but there is no prospect that it will be forbidden outright. And so a golden opportunity to heed the lessons of the financial crisis is being wasted.
Open Europe - the right-wing think tank that is a principal source on EU affairs for several British newspapers – regularly issues warnings about Barnier wanting to ruin the City of London. These warnings have now proven fanciful; the truth is that Barnier lacks sufficient guts to introduce stringent rules for the casino of European capitalism.
His cowardice is easily explained. While he may appear to be the antithesis of Charlie McCreevy, his predecessor as single market chief, both are essentially cut from the same ideological cloth. Barnier has not tested positive to the same allergy to regulation as McCreevy, yet is similarly willing to serve the interests of an unaccountable elite.
Gillian Tett, normally one of the most incisive commentators with The Financial Times, was wrong last month to say that the main lobby group for short-sellers, the International Swaps and Derivatives Association (ISDA), had become “distinctly toxic” in Brussels’ political circles. The truth is that it and other bands of speculators dominated the working group assembled by the European Commission to lay the groundwork for Barnier’s new proposals.
Evidently, the speculators held greater sway, too, during a sham “public consultation” that Barnier called on short-selling than the few more radical contributors to that exercise. John Chapman, a British diplomat-turned-journalist, has neatly summarised the flaws in Barnier’s thinking. By refusing to contemplate a ban on short-selling, Chapman’s submission to the exercise noted, the Commission is failing to land “a significant blow on the hedge fund industry, whose activities are the single most pernicious development of the past 30 years”.
Chapman traces the flourishing of hedge funds back to an initiative taken by Ronald Reagan in 1982. By modifying a US law then almost five decades old, Reagan ensured that funds for the use of millionaires did not have to be regulated. The greatest advantage of hedge funds may be their ability to short sell, says Chapman, who argues that the privileges granted to them by American and subsequently by Europe are largely unparalleled. “Millionaires are not allowed to be driven in super-charged limousines along public highways without limits or any constraints on knocking other cars out of the way,” he says.
In a related dossier, Barnier will also this week recommend new rules for the derivatives market. Estimated to be worth €427 trillion globally, the derivatives market is one that thrives on human misery. Derivatives were the main instruments of speculation on basic foodstuffs that caused prices of wheat and maize to jump by up to 90% in developing countries between 2007 and 2008, forcing the poor to eat less.
In January this year, Barnier described speculation on essential food in a world where one billion people suffer from hunger as “a scandal”. Yet his proposals on derivatives will not go far enough. The idea of insisting that as many derivatives as possible are traded through a regulated exchange has, for example, been ruled out. This omission is despite widespread recognition of how over-the-counter derivatives – those traded off-exchange – played “a key role in transforming a financial downturn into a global economic calamity,” according to Nobel laureate Joseph Stiglitz.
Loopholes of this nature are readily exploited by the market fundamentalists determined to maintain a free-for-all approach to global finance. For millions of others, they can mean the difference between sustenance and starvation.
•First published by New Europe, 12-18 September 2010 (www.neurope.eu)
Saturday, February 20, 2010
Euro not for Europe's poor
For 329 million people shopping with the euro is a part of everyday life. Since its notes and coins were introduced on New Year’s Day 2002, this single currency has made it possible to travel across a 16-country zone stretching from Cyprus to Ireland without having to change the money in one’s pocket or handbag.
Yet while it may sound like a dream for holiday-makers, the economic crisis in Greece has illustrated that there is a flipside to Europe’s experiment in monetary union. In order to guarantee the ‘stability’ of the currency, participating governments have signed up to rules stipulating that their budget deficits should be no more than 3 percent of their gross domestic product. After Greece admitted its deficit stood at 12.7 percent, it has undertaken to slash it to 2.8 percent by 2012; the measures envisaged to achieve this drastic reduction include cutbacks in public sector pay and spending on education and an increase in the retirement age.
The irony of how these measures will hurt Greeks on low-income far more than the politicians and business elite widely blamed for causing the crisis has not been lost on some commentators. Costas Douzinas, a law professor at Birkbeck College in London, said that the euro-zone’s economic affairs are being run “according to a kind of witchdoctor theory.”
“It is not Greece that is suffering but the Greek working people, the people who are always at the bottom of the pile,” he said. “If you want to have a reduction of the deficit, the first thing to do should not be to hit the most vulnerable parts of society, the low-paid civil servants and the working class. You should hit big capital, the people who profited out of the extreme neo-liberal organisation of the markets.”
The idea of building a single currency was originally hatched by just five companies involved in selling cars (Fiat), oil (Total), chemicals (Solvay), electronic goods (Philips) and pharmaceuticals (Rhône-Poulenc). In 1987 they formed the Association for the Monetary Union of Europe (AMUE), which argued that the patchwork of different currencies then in use in Europe prevented it from competing with Japan or America. Upon its inception, the grouping decided to exclude trade unions and other public interest advocates from its membership. Etienne Davignon, the AMUE president, argued that the single currency could “only be effective if it was proposed by the people who were in favour without the necessity to compromise between themselves.”
David Boyle from the New Economics Institute, a Massachusetts-based body that challenges conventional thinking on financial management, said that while there is a need for “big reference currencies”, it is wrong to believe that the euro and its common interest rates can bring equal benefits to all areas where it is used. “Interest rates don’t suit every country in the EU at the same time,” he said. “How can they? In times of hardship, a single currency will benefit those at the heart of Europe – maybe Paris and Frankfurt – but it will damage the outlying areas. Single currencies are blunt instruments and will tend to increase poverty around the edges.”
Unlike the dollar or the yen, the euro has been introduced in a situation where its participating countries apply considerably different policies on other key economic questions. Efforts by France, for example, to introduce common rules on taxation have been resisted by other euro-zone members such as Ireland, which has been fearful that higher corporate taxes would act as a disincentive to foreign investment.
Roland Kulke, a researcher with the Rosa Luxemburg Foundation, a left-wing German think-tank, said the economic crisis in Greece has highlighted the intrinsic design flaws in the euro. “You can’t have a common currency without at least a certain kind of coordination on budgetary and financial policies,” he said.
The euro, coupled with the absence of any increase in real wage levels over a two decade period, has enabled Germany to become a top exporter, Kulke added. More peripheral countries such as Greece, on the other hand, have been unable to devalue their currencies to sell goods abroad at a competitive price.
One of the murkier aspects of the Greek crisis is that opaque transactions by Wall Street firms appear to have contributed significantly to it. Goldman Sachs and other top investment banks are known to have sent high-level delegation to Athens in the recent past, fuelling allegations that they were betting against the euro and helping to falsify the real economic picture in the country by using complex financial instruments to conceal the true nature of the Greek debt.
Susan George, a leading member in the French anti-poverty group ATTAC, called on the European Central Bank (ECB) and other euro-zone institutions to consider a tax on transactions of a high-risk nature. “An international currency tax would help stop speculation against the euro,” she said. “But unfortunately I don’t think the ECB is going to move on this.”
Originally published by Inter Press Service (www.ipsnews.net)
Yet while it may sound like a dream for holiday-makers, the economic crisis in Greece has illustrated that there is a flipside to Europe’s experiment in monetary union. In order to guarantee the ‘stability’ of the currency, participating governments have signed up to rules stipulating that their budget deficits should be no more than 3 percent of their gross domestic product. After Greece admitted its deficit stood at 12.7 percent, it has undertaken to slash it to 2.8 percent by 2012; the measures envisaged to achieve this drastic reduction include cutbacks in public sector pay and spending on education and an increase in the retirement age.
The irony of how these measures will hurt Greeks on low-income far more than the politicians and business elite widely blamed for causing the crisis has not been lost on some commentators. Costas Douzinas, a law professor at Birkbeck College in London, said that the euro-zone’s economic affairs are being run “according to a kind of witchdoctor theory.”
“It is not Greece that is suffering but the Greek working people, the people who are always at the bottom of the pile,” he said. “If you want to have a reduction of the deficit, the first thing to do should not be to hit the most vulnerable parts of society, the low-paid civil servants and the working class. You should hit big capital, the people who profited out of the extreme neo-liberal organisation of the markets.”
The idea of building a single currency was originally hatched by just five companies involved in selling cars (Fiat), oil (Total), chemicals (Solvay), electronic goods (Philips) and pharmaceuticals (Rhône-Poulenc). In 1987 they formed the Association for the Monetary Union of Europe (AMUE), which argued that the patchwork of different currencies then in use in Europe prevented it from competing with Japan or America. Upon its inception, the grouping decided to exclude trade unions and other public interest advocates from its membership. Etienne Davignon, the AMUE president, argued that the single currency could “only be effective if it was proposed by the people who were in favour without the necessity to compromise between themselves.”
David Boyle from the New Economics Institute, a Massachusetts-based body that challenges conventional thinking on financial management, said that while there is a need for “big reference currencies”, it is wrong to believe that the euro and its common interest rates can bring equal benefits to all areas where it is used. “Interest rates don’t suit every country in the EU at the same time,” he said. “How can they? In times of hardship, a single currency will benefit those at the heart of Europe – maybe Paris and Frankfurt – but it will damage the outlying areas. Single currencies are blunt instruments and will tend to increase poverty around the edges.”
Unlike the dollar or the yen, the euro has been introduced in a situation where its participating countries apply considerably different policies on other key economic questions. Efforts by France, for example, to introduce common rules on taxation have been resisted by other euro-zone members such as Ireland, which has been fearful that higher corporate taxes would act as a disincentive to foreign investment.
Roland Kulke, a researcher with the Rosa Luxemburg Foundation, a left-wing German think-tank, said the economic crisis in Greece has highlighted the intrinsic design flaws in the euro. “You can’t have a common currency without at least a certain kind of coordination on budgetary and financial policies,” he said.
The euro, coupled with the absence of any increase in real wage levels over a two decade period, has enabled Germany to become a top exporter, Kulke added. More peripheral countries such as Greece, on the other hand, have been unable to devalue their currencies to sell goods abroad at a competitive price.
One of the murkier aspects of the Greek crisis is that opaque transactions by Wall Street firms appear to have contributed significantly to it. Goldman Sachs and other top investment banks are known to have sent high-level delegation to Athens in the recent past, fuelling allegations that they were betting against the euro and helping to falsify the real economic picture in the country by using complex financial instruments to conceal the true nature of the Greek debt.
Susan George, a leading member in the French anti-poverty group ATTAC, called on the European Central Bank (ECB) and other euro-zone institutions to consider a tax on transactions of a high-risk nature. “An international currency tax would help stop speculation against the euro,” she said. “But unfortunately I don’t think the ECB is going to move on this.”
Originally published by Inter Press Service (www.ipsnews.net)
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