Transcript The Triumph of Authoritarian Crisis Management: Europe’s

The Triumph of Authoritarian Crisis
Management: Europe’s Tragedy
Unfolds
CSIG Research Seminar
November 13 2013
Jeremy Leaman
The EU Ship of State
• ‘We are rebuilding our common European house with set of rules
that will prevent and, where necessary, correct any emerging
threats to the stability of the monetary union. And we are
developing a culture in which the inhabitants of this European
house learn to respect the rules; otherwise they have to accept
the consequences’. (Olli Rehn 2012)
• ‘The market is always right, and has to be completely respected at
all times’ (Jean-Claude Trichet 2010).
• “Market conditions have gone progressively back to normal,”
(Trichet August 2007, New York Times)
• ‘So we are accompanying the market as it progressively goes back
to normal’. (Trichet, FT Interview September 2010)
Rehn: Growth through Austerity in Greece
Points of Departure 1
• Normative and theoretical convictions:
1. Inequalities are corrosive of civilised existence
2. Unequal distribution is the primary challenge for
humanity in the 21st century (Galbraith, Wilkinson, Pickett)
3. The analysis of (unequal) socio-economic relations has
to include consideration of power & interest (cui bono):
historical materialism
4. Gramscian/ Neo-Gramscian analysis has strong heuristic
value; unequal interdependence of hegemonic systems
5. Complex unequal interdependence requires multidisciplinary dimension; radical international political
economy supplemented by insights from other social
sciences, history and cultural studies.
Points of Departure 2
• Empirical observations:
• National and global asymmetries not reduced but
compounded by ‘market efficiencies’
• Skewed Wage/ profit shares > demand asymmetry
• Trade/ payment balances > chronic surpluses &
deficits >> Exchange market mayhem (Eichengreen)
• Money stock out of control of central banks >>>
• Nation states hobbled by corporate arbitrage
• Global governance a one-eyed paper tiger
Points of departure: Scholarship
• Orthodox economics has been discredited
• IR Theory has been found wanting
• Heterodox political economy has been
encouraged BUT
• It has only affected policy at the margins
• The ‘ruined fortress’ (Cafruyny & Ryner)still stands
• ‘Zombie economics’ (Krugman, Quiggins) as key
condundrum: the ‘surprising non-death of
neoliberalism’ (Colin Crouch)
Points of Departure: The Machine and Us
• Our shared dependence on corporate
financialised capitalism
• Bulk of household transactions processed directly
or indirectly by strategic gatekeepers (banking
oligopolies, water monopolies, power oligopolies,
retail monopsonies)
• We collaborate within system of increasingly
commodified education: rooted in exchange value
• USS investment portfolio: rogues gallery!!
Europe’s 2nd Great Depression: Why?
•
•
•
•
•
•
Misdiagnosis
Institutional Architecture >
Pre-programmed policy preferences
False prescriptions
‘Never squander a good crisis’ >
Crisis as vehicle for renewed cycle of disciplinary
neoliberalism ?>
• rendering institutional/ cultural change
irreversible?
• Fundamentally perilous path
USS Top 24 Investments: High incidence of tax avoidance/ evasion/ insider trading
1
HSBC HOLDINGS
347.2
2
ROYAL DUTCH SHELL
331.9
3
VODAFONE GROUP
284.6
4
GLAXOSMITHKLINE
203
5
NESTLE
185.1
6
BP
156.9
7
TOYOTA MOTOR
153.5
8
SAMSUNG ELECTRONICS
150.4
9
BRITISH AMERICAN TOBACCO
135.1
10
BHP BILLITON
131.2
11
ROCHE HOLDING
127
12
TAIWAN SEMICON MANUFACTURING
125.9
13
RIO TINTO
118.5
14
SANOFI
111.4
15
MITSUBISHI UFJ FINANCIAL GROUP
108.8
16
COMMONWEALTH BANK OF AUSTRALIA
107.9
17
ALLIANZ
105
18
THE SWATCH GROUP
99.9
19
UBS
99
20
PRUDENTIAL
97.9
21
BAYER
95.5
22
IMPERIAL TOBACCO GROUP
93.2
23
SUMITOMO MITSUI FINANCIAL GROUP
92.9
24
NOVARTIS
92.6
http://www.uss.co.uk/UssInvestments/InvestmentsTypes/Equities/Pages/USStop100investments.aspx
Misdiagnosis: Not just sovereign debt
• Multiple crises of European political economies:
1. Sectoral crisis of financial services >
2. Cyclical crisis of production and trade
3. Structural crisis of overdependence on
financialised capitalism
4. Systemic crisis of over-consumption: limits of growth
5. European & global asymmetries: current account,
demand, distribution of income, wealth & resources
6. Crisis of economics and economic governance
Casino/ Ponzi Capitalism
• Exaggerated rates of return generated by:
• a) privatisation of monopoly income streams (natural
monopolies with regulated RoRs)
• b) public-private-partnerships with contractual
monopoly income streams
• c) stagflation/ weak demand/ high liquidity (petrodollars) feeding off:
• d) financial deregulation (exchange controls &
abolition of disincentives to speculate, e.g. CGT)
• e) ‘self-regulation’ of financial services: credit rating
agencies/ banking federations/ auditors
Neoliberal Deformation of Europe
• Efficient market hypothesis:myth of the virtuous circle: supply-side
relief >higher profits > higher investment > higher growth &
employment. Reality: higher profits not invested in real economy >
Source: IMF Figures for Advanced Economies
Where did all the money go??? >>>>
The black hole of financialisation
Financialisation & Monetarist Myths
• Hyperleveraging & Interbank lending rendered
central bank control (of corporations) powerless
• Control of money stock was core objective of ECB
(as for Bundesbank) – abandoned quietly
• ‘Privatisation of money creation’ (Mellor) in global
‘liquidity factories’ (El Erian, Phillips) evolved when
• Monetarist model was cemented immutably into
Europe’s policy architecture!!! >>
• ‘Design Faults of Monetary Union’ (Arestis/ Sawyer)
Deformation of European Economic
Governance
• Asymmetry of supranational monetary and
national fiscal policy
• Asymmetry of EMU convergence criteria
• Neglect of key imbalances between MS:
• Current account asymmetry
• Productivity and Skills disparities
• Sectoral disparities
• Real wage growth (c.f. fall in German real wages)
EU Current Account Asymmetry 2002
50
42.7
40
Current Account Balances in € Billion 2002 EU27
30
19.2
20
12 12.1 12.3 12.5
10
0.1
0
-5.9 -5.6 -4.9 -4.4
-10
-11.6 -10.2
-20
-30
-40
-23.8
-29.2
-0.4
-2.1 -1.6 -1.3 -0.8 -0.8 -0.7
0.3
2.5
4.6
5.9
N.B. Record
German trade
surplus 2013
Wider disparities 2011
200
150
147.7
EU Current Account Balances 2011
100
52.4
50
27.2
1.4
3
3.7
5.9
Ireland
Hungary
Luxembourg
Belgium
Austria
-4.5 -2.2 -1.9 -0.5 -0.2 -0.2
Germany
Netherlands
Sweden
Denmark
Malta
Latvia
Lithuania
Cyprus
Finland
Czech Republic
Romania
Portugal
Poland
Greece
UK
Spain
-50.3
France
-100
1.1
-37.5 -37.5 -33.5
Italy
-50
-16
-6
0.5
Estonia
-21.1
-11
0
Slovenia
0
0
Slovakia
15.5
Trade Balance Averages:
North & South Europe
8
6
NORTH
D
4
2
0
-2
-4
SOUTH
H
-6
-8
1992
1994
1996
1998
2000
2002
2004
2006
External imbalances pre-programme problems of debt-financing
2008
2010
Net External Assets, N & S Europe
40
NORTH
30
20
10
0
-10
-20
SOUTH
-30
-40
-50
-60
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
EU27 Per Capita GDP 2009-2012
140
120
100
80
60
40
20
0
Source: Eurostat; 2009: blue column; 2012: red
Real Unit Labour Costs 1995-2007
106
104
102
Eurozone outside Germany
100
98
South
96
Germany
94
92
90
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Real Wage Growth EU27 2000-2008:
Evidence of ‘Wage Dumping’
350
331.7
300
250
200
150
188.5
132.5
104.4
100
66.7
50
0
-50
51.9 49.1 48.1
40.3 39.6
30.3 26.1
19
19 18.9 17.9 12.8
12.4 9.6
8.1
7.9
7.5
7.2
4.6
3.3
2.9
-0.8
Regional Unemployment Disparities
Core-Periphery Youth Unemployment
CP Long-term Unemployment
Asymmetrical Non-Recovery EU27, 2012
2008 = Basis Year
15
12.95
10
5.11
5
0.32
1.32 1.78
6.16
2.65 2.84
0
-2.91 -2.74 -2.43
-5
-6.33 -6.22 -5.78
-8.34
-10
-10.27
-15
-20
-21.57
-25
-4.02
-4.86 -4.84 -4.47 -4.39
-0.7
-1.66 -1.4 -1.17 -1.06
-1.42
A New Great Depression?
UK Economy 1930-1935
UK Economy 20082012
Hysteresis: Permanent Scar in EU
• “Hysteresis” effect – permanent economic damage
that will not be repaired even if there is a full
recovery. ‘Austerity could well leave an economic and
social scar across the eurozone’
• (Wolfgang Münchau, 24 Feb 2013, Financial Times)
• C.f. Gregg & Tominey 2004: ‘wages scar’ left by youth
unemployment
• The real ‘human capital’ of (younger) educated
citizens had/ has a lower exchange value than
fictitious financial assets
Structural Youth Unemployment EU27
& EA17 2000-2012: Permanent ‘scar’
Why? >>The Logic of Starvation
• If intellectual and institutional starting points are
wrong, chaos is pre-programmed
• a) primary cause of crisis = sovereign debt
• b) sovereign debt distorts credit market
(‘crowding out’) >
• c) consolidation imperative overrides other
preferences (Maastricht; SGP 97/2005; Fiscal Compact)
• d) Relentless structural adjustment programmes
in ‘delinquent’ states > CHAOS, FRAGMENTATION
Chanellor Brüning (1930-32) Reborn
•
•
•
•
‘Recovery is on track’ (Trichet 2010)
‘Gradual recovery has set in’ (Barroso 2011)
‘Eurozone is recovering [slowly]’ (Draghi Feb 2012)
‘Eurozone recovery won’t begin until late 2013’
(Draghi Nov 2012)
• Eurozone ‘slowly emerging from recession’ (Rehn
June 2013)
• ‘Economic recovery is slow and painful’ (Rehn Nov
2013 [Eurozone growth slowed in 2013/III]
• Einstein: Insanity = ‘repeating the same thing and
expecting a different result’
Martin Jänicke: ‘The privilege of not
having to be intelligent’
• ‘A tank driver can be stupid and blind. In contrast
to the cyclist, he does not need to adapt to the
annoying obstacles of the environment. Problems
are ‘externalised’: It is not the tank driver that is
damaged but the environment. In the case of the
cyclist, on the other hand, the problems of an
adaptive method of driving are completely
internalised’ (Jänicke 1986).
• >> Pro-cyclical Multiannual Financial Framework
EU Multiannual Financial Framework
Feb 2013
Appropriations as
Percentage of Gross National
Income
2007
2008
2009
2010
2011
2012
2013
7 Year
Total Commitment Appropriations
1.02
1.08
1.16
1.18
1.16
1.13
1.12
1.12
Total Payment Appropriations
1.00
1.05
1.04
1.12
1.09
1.08
1.05
1.06
Total Commitment Appropriations
2014
1.03
2015
1.02
2016
1.00
2017
1.00
2018
0.99
2019
0.98
2020
0.98
1.00
Total Payment Appropriations
0.98
0.98
0.97
0.92
0.93
0.93
0.91
0.95
Averag
e
Table 1. EU Multiannual Financial Frameworks 2007-13 & 2014-20 Compared
Source: EU; the 2014-20 budget cycle assumes an enlarged EU from 2013 to 28 member states, including Croatia
The Paradox of the European Bicycle
that became a Tank
• European Integration has been a mixed process of
adaptive learning and path-dependent contradictions and
intractabilities
• Process of ‘deformation’ after 1980 (Huffschmid)
• Critical omissions & commissions:
• One-eyed Monetary Union
• Negative fiscal harmonisation (SGP – ‘Six Pack’)
• Abandoned tax harmonisation (too little too late since 2008)
• Unanimity principle to alter skewed policy architecture
• Complacent culture of licence re: casino capitalism >>>
Effect of EU’s Depression Economics
•
•
•
•
•
•
•
•
•
Average real growth rate 2008-13
EU27: -0.13%; Eurozone: -0.22%
Domestic demand growth 2008-13:
Eurozone: -1.0%
Investments 2008-13, EU27: -21.6%; Ie/ Gr > -50%
EU27 Investment Ratio 2008: 21.4; 2013: 18.9
(German IR down to 18.1; Greece: 22.6 to 15.1)
Capacity Utilisation: EZ: 2011: 80.6; 2013/II: 77.3
Export-led recovery? (Intra-EU trade = 60%)
Effect of Troika and Six Pack on
Peripheral States
• Fire-sale of public assets
• Privatisation of natural monopolies
• Weakening of resources and capacities of the
public sector
• Weakening of social infrastructure: education,
health, welfare
• Pro-cyclical depression of demand;
• Receding prospect of recovery
• Febrile electoral politics>> 2014 Euro elections
Eurostat + FT News November 2013
•
•
•
•
•
•
•
•
Industrial production down in Eurozone
Growth slowed to 0.1% in 3rd Quarter of 2013
Retail trade down in Eurozone
Eurozone unemployment up to 12.2%
Eurozone inflation down to 0.7% (> Deflation)
Trade surplus with South Korea!!
Further reduction in MAFF budget for 2014
Widened investigation into FOREX-rigging by
major banks, after LIBOR convictions
Interpreting the Tank-driver Syndrome
•
•
•
•
Disciplinary Neoliberalism Stage Two?
[‘European Social Model … is gone’ (Draghi)]
Re-commodification of Keynesian welfarism?
The result of a ‘predatory German hegemon’ (c.f.
Strange on US ‘predatory hegemony’
• The hegemony of transnational capital, willingly
mediated by powerless systems of governance?
• 2008/9 Rhetoric re: tax avoidance/ evasion/ havens
what progress? A fig-leaf?
• Undeniably, policy fixed on the wrong coordinates >
heading for unknown but unchangeable destination
Recovering the Cyclist’s Adaptability
• Acknowledging failure
• Setting new coordinates: Sustainable, equitable
global evolution
• Addressing the core asymmetries at the heart of
Europea’s political economy
• Strengthening democratic participation
• Mobilising public outrage: tax avoidance
• Cutting financial services down to size
• Resisting the commodification of social relations
An Alternative to this Europe is
possible
Heterodox Views
•
Manifesto of the ‘Outraged
Economists’ (Economistes Atterés)
http://www.atterres.org/manifeste
EuroMemo 2013:
http://www2.euromemorandum.eu/uploads/e
uromemorandum_2013.pdf
http://www.attac.org/
Association of Heterodox Economics
http://www.hetecon.net/division.php?page=about&side=history_of_heterodox_economics
http://wearethe99percent.tumblr.com/
Appendix: Paradigm Shift
Appendix 2: Private Debt Driving
Asset Bubbles
Why debt explosion?
Leveraged
acquisitions
Consumer credit
Mortgages
Hyperleveraging
Ponzi accumulation