Wednesday, February 24, 2010
In Europe, the people are beginning to fight back against one of the most extreme redistributions of wealth from the bottom to the top in recent memory. As anticipated by the author of the Independent article, Sean O'Grady, the people of Greece are leading the way:
A wave of industrial and social unrest is building across Europe as workers resist attempts by governments and private companies to impose austerity policies, drive down wages and rescue some nations from near-bankruptcy.
Huge protest rallies took place in cities across Spain last night; today a general strike could paralyse Greece while industrial action at French airports and oil plants as well as the narrowly averted stoppage at Germany's Lufthansa promise to be just the start of the greatest demonstration of public unrest seen on the continent since the revolutionary fervour of 1968. Europe's industrial economy is not clear of recession yet either and with unemployment rising and demands for austerity growing, Europe's workers are becoming increasingly restive.
Italy's beleaguered car giant Fiat abruptly suspended production across all its Italian plants this week, laying off a workforce of 30,000 people for two weeks and further closures are forecast for next month.
Germans should know better than to call others swindlers, that's a pejorative term that the Nazis used to describe Jews, and it is understandable that Greeks have responded with hostility.
For trade unions the mass show of force was a warning shot to a government struggling to satisfy its eurozone partners with policies deemed vital for the nation's fiscal health while appeasing angry workers at home.
This is the red line, said Nikos Goulas, head of a union that represents 20,000 workers at Athens international airport. Greece is not Ireland. If the government does not back down there will be huge unrest, he added, holding a banner that proclaimed: As much as you terrorise us, these measures won't pass.
The protests came against a backdrop of mounting Greek hostility towards the EU, with particular venom reserved for Germany, which has pressed for harder measures to be forced on Athens.
Greece's political elite has been outraged and hurt by hard-hitting German media coverage of the debt crisis. The cover of a German magazine, Focus, which showed the Venus de Milo making a less than complimentary finger gesture under the headline Swindlers in the eurozone has triggered widespread fury.
In an extraordinary tirade, the deputy prime minister, Theodore Pangalos, said Germany had no right to judge Greek finances after wreaking havoc on the economy during the four years that the country was under Nazi occupation in the second world war. Worse still, he said, Germany had failed to make adequate compensation.
They took away the Greek gold that was at the Bank of Greece, they took away the Greek money and they never gave it back. This is an issue that has to be faced sometime, he told the BBC.
I don't think they have to give back the money necessarily but they have at least to say thanks. And they shouldn't complain so much about stealing and not being very specific about economic dealings.
Furthermore, the Greeks no doubt recognize that they have been left holding the bag after Wall Street financial firms, like, yes, you guessed it, Goldman Sachs, facilitated the dodgy financial practices of the government:
For more on the role of Goldman, and the investment climate that nurtured it, consider these two posts over at naked capitalism, this one by Edward Harrison, originally posted at Credit Writedowns, and this one by Yves Smith as well as an exoneration of Goldman by Felix Salmon.
Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.
Gary D. Cohn, president of Goldman Sachs, went to Athens to pitch complex products to defer debt. Such deals let Greece continue deficit spending, like a consumer with a second mortgage.
As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.
Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.
The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.
It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
But, as noted by Smith, the problem has expanded far beyond the manipulations of a transnational brokerage house like Goldman. Consider, for example, the invovation of the Doomsday Cycle by Peter Boone, a research associate with the Center for Economic Performance ("CEPR"), London School of Economics, and Simon Johnson, a Professor of Entrepreneurship, Sloan School of Management, MIT and CEPR Research Fellow:
Martin Wolf of the Financial Times isn't much more optimistic:
What will happen when the next shock hits? We believe we may be nearing the stage where the answer will be – just as it was in the Great Depression – a calamitous global collapse. The root problem is that we have let a ‘doomsday cycle’ infiltrate our economic system.
The doomsday cycle has several simple stages. At the start, creditors and depositors provide banks with cheap funding in the expectation that if things go very wrong, our central banks and fiscal authorities will bail them out. Banks such as Lehman Brothers – and many others in this past cycle – use the funds to take large risks, with the aim of providing dividends and bonuses to shareholders and management.
Through direct subsidies (such as deposit insurance) and indirect support (such as central bank bailouts), we encourage our banking system to ignore large, socially harmful ‘tail risks’ – those risks where there is a small chance of calamitous collapse. As far as banks are concerned, they can walk away and let the state clean it up. Some bankers and policymakers even do well during the collapse that they helped to create.
Wolf concludes, as he has done before, that the way out requires an emphasis upon investment instead of credit fueled consumption, but as Smith observes, similar to what I posted here over a year or so ago, that doesn't sound very plausible, especially within the context of a country like the US, where such investment would require a substantial decline in the standard of living for a protracted period.
Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely.
For now, the emphasis is admittedly upon sub-proletarianization, but for the benefit of transnational financial institutions like, Goldman, and not for manufacturers like, say, GM, Intel, Samsung and Siemens. Such an expropriation of wealth will constitute yet another form of subsidization of speculative financial transactions that will make the eventual global collapse even more severe, with the middle and lower classes suffering even more miserably than they do today. The notion that such subsidization may well be endemic to capitalism, necessitating even more radical solutions, doesn't seem to have occurred to these analysts who are otherwise well attuned to the contours of the current crisis.