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.
With capitalism in the doldrums and a general election nearly upon us it is the season to reflect on how we might manage to convert the neoliberal, market-driven free-for-all of our current society into something we might actually like to live in. Will Hutton set the ball rolling in the Guardian yesterday with a lengthy promotion of his new book, which lays out a new framework for building “smart societies.” Hutton’s critique of the existing order raises some salient points and only those living on the moon over the last generation or three could have failed to notice that “problems in the British economy and society run deep.” He is also right in asserting that, if “there are no networks of reciprocal obligation, and no acknowledgement that human beings associate in a society they can construct, redesign and reform around those principles, then we are all reduced to atomistic consumers and workers – serfs who are no more than notations in the spreadsheets of companies and public bodies alike.”
The problem with Hutton’s analysis, however, is that he still puts business and wealth creation at the heart of society. “The aim of any manifesto for change” says Hutton “must be to create the smartest economy for Britain – it is the only route to prosperity in the decades ahead.” Refining the mechanisms of wealth generation is all very well but surely this should not take precedence over the social and human fabric of the world we live in. Unfortunately, Hutton is a little sketchy on this issue and even though he is adamant that businesses should not solely tools of stock market speculation, he also declares that “companies are organisations of genius, solving problems, innovating and delivering great goods and services.” ICI, GEC and Rolls Royce are all used to show Britain’s great industrial tradition but he conveniently forgets recent allegations of corruption and bribery in the latter.
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.
It has been a tumultuous couple of weeks in European politics. From a socialist perspective these are encouraging times and the victory of Syriza in Greece, along with the quarter of a million people marching for change with Podemos in Spain, have shown that there is a real possibility of political change on the horizon. But as always in politics things are far from certain and these popular leftwing movements need to defend themselves from attacks from both inside and outside their own countries. It is already clear that the leaders of these parties recognise the importance of solidarity and support for each other, with Pablo Iglesias’ pre-election appearance in Athens being a notable example. But it is not evident yet how pan-European this revival of the radical left is. At some point in the future I plan to write down a few thoughts on why radical (or in some cases revolutionary) spirit can catch on in one country but not another. In other words, what are the forces containing or spreading this political awakening of the people? But in the meantime, I thought I’d take a quick look at Spain’s neighbour on the Iberian Peninsula to consider why the left has failed to capture the public imagination in Portugal in the same way that Podemos has in Spain.
As the new Greek Finance Minister, Yanis Varoufakis, travels through Europe to set the ball rolling on Greek debt negotiations, now seems like a good time to remind ourselves that there are more problems within the Eurozone than southern European debt. One of the things that stands out from reading the popular media and internet discussions is that debt reduction is a polarising issue. On the one hand are those who recognise the madness in continuing austerity policies and acknowledge that flexibility on publicly held debt is a pre-requisite for recovery. On the other are those who claim that it is morally and financially unacceptable that hard-working northern Europeans should have to continually bail out southern Europeans from a mess that was of their own making.
My aim here is not to rehash the many, many reasons why this type of austerity policies has been proven to be politically, economically and morally bankrupt. Instead, with Varoufakis in Europe, I’m going to bring up Germany’s colossal current account surplus and ask why Germany feels able to call for structural change in Greece when it refuses to address the imbalances in its own economy.
Predictably, after last week’s Greek election it has not taken long for the aggressive war of words to begin in the rightwing media’s attempts try to undermine Syriza. Today’s Economist magazine sets its stall out in no uncertain terms with this pearl of wisdom:
“This newspaper’s solution: get Mr Tsipras to junk his crazy socialism and to stick to structural reforms in exchange for debt forgiveness…A very logical dream until you remember that Mr Tsipras probably is a crazy left-winger.”
What, I wonder, is so crazy about Syriza trying to implement the policies that brought them to power? Clearly the Economist thinks that it is ridiculous that the Greek people should be allowed to have a say in their own destiny. And the type of language used adds nothing to the discussion and only serves to belittle anyone who thinks that there may be an alternative vision of European politics. Maybe its time to face the fact that if Greece were to ultimately leave the Eurozone, NOBODY knows for certain what the medium-term political and socioeconomic outcome would be. We can be sure of some of the short(er)-term economic impacts such as:
To round things off after Part 2 yesterday, here is the third and final part of this essay looking at our internal class conflict and its implications for radical left-wing political alternatives in Europe and beyond…
The Inner Class Divide
That we as individuals are subject to various stimuli contributing to development is nothing new. Much has been written on child development and much of this can extend also into adult life in terms of continuous learning and development. Where things have changed in recent years is in the increased intensity and aggression of stimuli relating to late stage capitalism. On the one hand we possess a social brain, allowing us to feel empathy and make emotional connections, and a character forged through a myriad of social connections and interactions. Many of us experience a fundamental need to share our lives with friends, family and community. But on the other hand, we are bombarded with advertising signals and media messages telling us that consumption is the ultimate goal and that this must be driven by aggressive, competitive activity in the market place. Much of what we experience through advertising relates to consumption or the adoption of an idealised version of self to which we should aspire. We are told that that we can have everything as long as we consume. In a ‘post-religious’ world it is salvation through consumption. Our participation in society can be bought instead of fostered through genuine social interaction.
But we are the recipients of contradictory messages. Identity formation through the solitary pursuit of commodities in order to satisfy a conditioned super ego is at odds with our more basic needs as social animals. Capitalism relies on competition whereas our early development engenders the value of cooperation. The (cultural) super ego tells us that to succeed at life we need to compete in the market place, earn money as efficiently as possible, and construct our idealised identities. But our innate characteristics and our basic human needs show us the importance of people over the market. This is class warfare in every sense, with the mind being the battleground. Many individuals therefore experience a subconscious, inner class tension, with a consuming, competitive, aspirational self striving to keep up in the market, and a social self yearning for cooperation and interaction. This ideological battle is internalised and fought daily in a way that has far greater implications than the debate in the political arena.