I woke up this morning thinking about the type of people who are thrown up by our political systems and put before us for election. I have spent the last few days mulling over the surge of support for Jeremy Corbyn’s leadership bid and that alone would have given me reason enough to put this rant down on paper. But the actual spark came from a member of that monument to democracy, the Bush dynasty.
The mantle of political entitlement has now passed to Jeb and he picks up where his celebrated brother left off by completely misunderstanding the world around him. This week he made a few headlines with his outrage at Obama’s plan to extend overtime coverage to managers earning below $50,440 per year (essentially reducing the possibility of lower salaried workers being forced to work additional hours for no extra pay). Jeb was stunned by this frivolity and, on top of claiming that Americans need to work more hours, not less, he showed his finely tuned economic skills by telling us that this new rule would result in less overtime pay and less wages earned. Sensible members of the human race (and a few economists) were quick to point out the many flaws in this reasoning. First of all, by curbing the exploitation of some managers, employers would be forced to use more workers and/or additional overtime to pay to cover the same workload. The argument that companies would cut salaries to compensate for this new rule is just not credible.
The post-2008 political landscape in Europe has been littered with public discontent and protest. In Spain and Greece this has manifested itself in revolt against the European establishment and a refusal to be bound by the financial practices of the past. In England, immigration has raced to the forefront of the political agenda, while in Scotland and Catalunya nationalism has come to the fore in a way that would have been unimaginable only a few years ago. In France the National Front has eroded support for the rightwing UMP while simultaneously appealing to much of the working class. Even Germany has not been immune to an element of political unrest.
Although the principles underlying these movements may differ greatly, it would be foolish not to wonder if there is a common denominator running through European protest. If history has taught us anything it is that the lines separating socialist uprisings from fascist popularity are not as clear as we may like to think. Political movements often thrive on the charisma of their leaders and their ability to build a narrative that chimes with the misery or discontent of the public. In Germany’s broken socioeconomic structure of the 1920’s it could easily have been the communists who came to power on a wave of popular support instead of the National Socialists. But the Nazis were more adept at political maneuvering and public manipulation. One of the many lessons available from this episode however is that most individuals are not remotely concerned with political ideology. Instead they back parties that offer the best guarantee of personal and collective security. This security can and does take many shapes, but it is the desire to protect one’s self and one’s security that is at the core of electoral and public decision-making. But electoral decisions are also often made with rejection in mind – rejection of the incumbent political force and policies. Under these circumstances, a clear and workable alternative vision matters less, since the public desire to oust those who have led them into darker times will often be sufficient to create political change. This is the predominant theme in modern politics and since voters are often hard pressed to identify the core differences between candidates, a vote for one is largely just a rejection of the other.
But the current wave of demonstrations across Europe is about something greater than electoral choice, it represents a rejection of modern politics. The SNP, UKIP and the Catalan nationalists may promote very different ideals but all try to tap into the disenchantment of voters in the face of globalised, neoliberal politics administered from a distant centre of power. All seek to recapture a real or imaginary notion of local identity from the clutches of external bureaucratic institutions. All offer a vision of the future which appeals to those who want a greater say in shaping their local culture and society. As citizens feel increasingly distant from the centre of power they strive to have a greater say in organising their communities in a way which is consistent with their own beliefs and identity rather than those of policymakers in London, Madrid or Brussels.
‘”We cannot negotiate with those who say ‘What’s mine is mine and what’s yours is negotiable’”.
John F. Kennedy
So after all the negotiation, tension and gamesmanship of the past few weeks Greece is essentially back to where it started. Have no doubt about it, the announcement that Syriza has agreed to a four month extension of the existing bailout programme is a defeat for the new Greek government. As predicted on this blog over the last couple of weeks, it was always likely that a short-term deal would be found which could keep Greece in the game and offer some breathing space for all sides to work out a long-term deal. This is not the bridging loan envisaged by Varoufakis in his opening Eurogroup discussion but it does at least offer the much needed finance and some element of budgetary freedom. But it does so at the expense of maintaining the crushing austerity measures which were at the heart of Syriza’s electoral campaign. It is hard to see how Syriza can dress this up as anything but a defeat and as Varoufakis’ erstwhile nemesis, Wolfgang Schäuble (maybe he should be renamed Wolgang Schadenfreude) has delighted in pointing out, this deal will be hard to sell to the Greek people.
But if the popular press is to be believed, the Greeks have not reacted badly to this austerity extension. Perhaps political pragmatism has come to the fore with recognition that this was the best deal on offer. However, Syriza has until tomorrow to present its creditors with a list of reforms that will accompany the finance extension. The devil, as always, will be in the detail and Tspiras and Varoufakis will be hard pressed to word this in a way which maintains their commitment to shaking off the shackles of austerity.
It seems incredible that Syriza has only been in power for a few weeks. But more incredible is the extent to which they have bent to the will of the troika and the Eurogroup in the face of inflexibility from their negotiating partners. Talk of 50% debt haircuts was watered down into growth-linked bonds before finally morphing into what looks like a continuation of the current programme. This is not only a defeat for the democratic will of the Greek people, who had firmly rejected the current austerity measures, but it is a reinforcement of the financial straight-jacket which has been at the root of Greece’s humanitarian crisis. Syriza may have secured additional short-term funds but much of this will be returned to its creditors in the form of debt and interest repayment. Very little (if any) will find its way to the Greek people, who must continue to suffer so that financial principles can be upheld.
“Here’s my strategy on the Cold War: We win; they lose.”
As the 20th century drew to a close there was hope that the tension of the cold war was well and truly over, with both the USA and Russia ready to stand together as self-styled leaders in the international community. NATO’s bombing of Serbia in 1999 may have put a strain on the new relationship but with the election of George W. Bush the following year it seemed that the new personal relationship between Presidents could cement ties. Indeed, in the immediate aftermath of the 9/11 terrorist attacks the first call of solidarity to President Bush came from Vladimir Putin. The two superpowers looked ready to fight the war on terror together.
But public vows of friendship merely masked underlying tensions which had been building since the mid-90’s. As the Cold War drew to a close, the first President Bush had made a deal with Mikhail Gorbachev that NATO would not expand eastwards into the Soviet Union’s sphere of influence. In return Gorbachev agreed to withdraw Soviet troops from the occupied eastern European states, beginning a de-escalation of the military aspects of the conflict. But by the Madrid NATO summit of 1994 it became clear that the rules of the game had changed, and that that new members would be welcomed into the NATO alliance. The Bush-Gorbachev agreement was finally wiped off the diplomatic map in 2008 when Georgia and Ukraine were lined up to join NATO.
As I watched Dutch Finance Minister, Jeroen Dijsselbloem, brief the press core on the collapse of yesterday’s Eurogroup meeting, Trotsky’s acerbic put-down of Tsar Nicholas II came to mind: “It seemed as though between his consciousness and his epoch there stood some transparent but absolutely impenetrable medium.”
The stance of the European Finance Ministers in recent days has been close to financial fanaticism. Tied together by a currency union designed to play by German rules of fiscal austerity, the Eurozone countries have all toed the official-line since the election of Syriza in January: The terms of financial bailout enforced by the Troika are non-negotiable. Yes, the Dutch Finance Minister claimed that there is some flexibility in the current programme, but only if it continues to be implemented on the Greek side. As is now being openly discussed in the corridors of Brussels, Greece has long since lost its financial autonomy.
But can this really be the end of the road? This week looks likely to offer a definitive answer to this question and it is hard to see what could unblock negotiations. As I have said over recent weeks, Syriza cannot concede much more from its side of the table. Its extraordinary election success was built on a backlash against austerity and Troika policy. To go back on their electoral promises and swallow whole the medicine being forced upon them by the creditors would be a crushing defeat for national democracy and one which would surely blow Greek politics (and society) apart.
Big countries have a history of making small countries pay their debts. Historically it does not matter whether loans were taken out voluntarily or whether they were imposed via some imperial gunboat diplomacy, but there should be no doubt that economic giants like to uphold a contract. When the once powerful Ottoman Empire defaulted on its obligations to French and British bondholders in the 19th century, the two great European powers promptly set up an Ottoman tax collection agency and effectively launched a financial coup d’etat on the Sultan and his flagging empire. The new Ottoman Public Debt Administration (OPDA) was launched in 1881 to ensure that foreign creditors would receive their dues, and grew into a vast bureaucracy of almost 10,000 employees. In addition to debt collection the OPDA also branched out into wider financial affairs and became an important intermediary for European companies looking to invest in the Empire. Due to its vast reach in the Ottoman public service, the OPDA guaranteed both financial security and favourable commercial opportunities for its partners. What began as a debt default morphed into an imperial occupation in all but name, with contractual obligation and trade opportunity being the core principles. It mattered little that much of the Ottoman Empire’s public debt had been acquired through its role in the Crimean War, a conflict in which it fought side by side with both the British and the French. A deal was a deal, and when the Ottoman Empire ultimately defaulted on its debt, its ‘allies’ swooped in to enforce repayment.
I was reminded of this financial colonisation last week with Wolfgang Schäuble’s offer to send 500 German tax collectors to Greece. The circumstances are obviously different but perhaps there are still parallels we can draw. Greece entered the Eurozone in collaboration with its European partners in celebration of the collective vision of European integration. Countries across the continent came together to become firm economic allies, united by a shared currency. It has subsequently become clear to all however that Greece did not meet the original economic requirements for euro membership. Allegations arose that the Greeks had cooked the books and worked with Goldman Sachs on a deal which involved cross-currency swaps at fictional exchange rates. This enabled them to circumvent the Maastricht rules and ‘meet’ the Eurozone requirements. Military and healthcare expenditures were often left off the balance sheets over the years as accounting fraud helped to maintain the illusion of financial stability. None of this is anything new of course and Angela Merkel has expressed her belief on multiple occasions that Greek euro membership should never have been approved.
It is well and truly crunch time and this week will be pivotal in defining the future of Greece and the Eurozone. It was interesting to read criticism this morning of Syriza’s approach to negotiations over the last couple of weeks, with at least one commentator pointing out that Varoufakis’ negotiating actions have not matched his academic knowledge of game theory. Let’s not forget though that at least he is showing willingness to resolve the situation in a way that will keep Greece solvent and avoid disaster. This is more than can be said for his Eurogroup partners.
Later today Syriza faces a vote of confidence in the Greek Parliament. Although it is likely to gain enough votes, this is just a precursor to tomorrow’s meeting in Brussels of EU finance ministers which could be one of the last opportunities to take steps towards a compromise before things start to unravel. After the ECB stopped accepting Greek bonds as collateral on loans last week, the National Bank of Greece has been forced to increase its operations through the Emergency Liquidity Assistance (ELA) in order to prop up the Greek banks. This is essentially a form of credit sanctioned by the ECB but with the proviso that it can be cut off at any moment if the ECB feels it is excessive. The end of Greek ELA would be the point of no return, leading to a run on Greek banks, bankruptcy and a certain exit from euro. Even now, Greek bank deposits continue to plummet at an alarming rate, adding to the likelihood of a run on the banks. Unless things change dramatically Greece will surely have to institute capital controls very soon to hang on to what’s left in their financial system. According to the ECB, Greek banks have lost around 21 billion euros since December, amounting to unsustainable losses. Although capital controls would break the European Union Treaty, this is not without precedent, and Cyprus was allowed to introduce this measure, with some success, in 2013. However, this will be an unpopular measure within Greece and is likely to be a severe test for Tsipras and his government.
“There is no moral justification for extreme poverty side by side with great wealth.”
Inequality was the hot topic in economics and political economy in 2014. Thomas Piketty’s magnum opus, ‘Capital’, hit the best-sellers list and brought an overdue and welcome look at the historical evolution of wealth distribution in the developed world. Politicians, business leaders and celebrities all weighed in with their analysis of Piketty’s research and brought inequality discussion firmly into the mainstream. I finally got round to reading it towards the end of 2014 and found myself in agreement with much of what was written, particularly with the compelling case Piketty makes for the historical evolution of inequality. The crux of the matter, says Piketty, is that over the long-run returns to capital (r) are larger than economic growth (g) and so there is a tendency for wealth to outgrow income, leading to increased levels of inequality. This central point of his analysis has made some waves in the economics community and there has been a predictable backlash from some quarters. Nonetheless, it makes for compelling reading up to, that is, the point where Piketty proposes measures to reduce inequality (more about this later).
Although ‘Capital’ is already old news, it is been in my mind over the last couple of weeks due to a few interesting developments. Firstly, it was a shock to see President Obama move towards tackling inequality in his State of the Union address in January with a few Piketty-influenced measures. Raising capital gains tax to 28% for those with incomes over $500,000, closing a popular tax loophole for the rich, and imposing a new levy on firms with assets over $50 billion, were all interesting measures, and not ones we would normally expect from a US President. Although the sentiment is right, it is still hard to justify the wealthy paying less in capital gains than regular mortals pay in income tax.
I had originally intended to write today about something a little bit more abstract and theoretical as a tonic to the political commotions of the last few days. However, after Yanis Varoufakis’ whistlestop tour of Europe in support of Syriza’s electoral promise of Greek debt reduction, now seems like a good time to reflect on developments.
There were encouraging noises from unexpected quarters early in the week with George Osborne and Barak Obama both joining the calls for a review of the crushing austerity policies currently proscribed by the troika. “You cannot keep on squeezing countries that are in the midst of depression”, said Obama. Very true indeed. As the Greek delegation arrived in Germany, however, things predictably took a turn for the worse. The ECB’s announcement that it would no longer accept Greek bonds as collateral for additional funds was inevitable but still something of a surprise. Although Greek banks will still have access to the Emergency Liquidity Assistance, this was a setback, and one the markets did not take kindly to. After a meeting with ECB chief Mario Draghi, Varoufakis met his German counterpart, Wolfgang Schaeuble, in a much anticipated showdown. The fact that they couldn’t even agree that they had agreed to disagree speaks volumes on the lack of progress made.
Over the last few days I’ve been watching the strange debate over vaccinations unfold in the USA. Senator Rand Paul, libertarian and potential Republican Presidential nominee, fired the opening shots by claiming that vaccinations should be voluntary and to make them otherwise is an infringement of the parents’ freedom of choice. This stance is in fact nothing new for Senator Paul who has previously stated his belief – widely discredited by the medical profession – that vaccinations can cause mental disability. Perhaps he is talking from personal experience.
Not to be outdone however is his rival for the Republican nomination, Governor Chris Christie, who was confronted during his bizarre PR trip to London over his comments that there should be “some measure of choice” in whether children are vaccinated against measles and other contagious diseases.
For many of us in Europe it seems incredible that individuals holding such discredited and, some would say, uninformed views would get anywhere near the top of the political tree. (Not that European politicians are necessarily any more sensible, they just hide it better!) It only reinforces the belief that political power is bought rather than earned. However, there are two interesting factors at play in a situation like this. First is the seemingly unbreakable bond between America’s citizens and its Constitution. The Constitution has a mystical, almost religious quality in American life which allows it to maintain a dominant position over any ruling government. The belief and respect for this document cannot be understated and it was interesting to hear that Edward Snowden chose to become the world’s most high-profile whistleblower out of a desire to defend the Constitution. It is revered for its guarantees of individual liberty and the limits it puts on government power and is thus frequently cited by libertarians to support a freedom of choice and action. It is a document that has influenced not only national democracy but has also shaped what it means to be American. Any political reference to individual freedom is thus an appeal to both the Constitution and the heart of American identity.