By Mike Whitney
Greek Prime Minister Georgios Papandreou and Italian Prime Minister Silvio Berlusconi have both been forced from office and replaced by representatives of big finance. Mario Monti, who will replace Berlusconi, was formerly the European Chairman of the Trilateral Commission and a member of the Bilderberg Group. He is also listed on Goldman Sachs board of international advisers.
Lucas Papademos, who will replace Papandreou, was formerly the Vice President of the European Central Bank (ECB), and served as Senior Economist at the Federal Reserve Bank of Boston in 1980. He’s also been a member of the Trilateral Commission since 1998.
It’s also worth noting that the ECB’s new president, Mario Draghi, is a trustee at the Brookings Institution, a Fellow of the Institute of Politics at the John F. Kennedy School of Government at Harvard, a former member of the Board of Directors of the Bank for International Settlements, and a former Managing Director at Goldman Sachs.
Global banking is an incestuous business where pedigree is everything. One’s personal history indicates their commitment to the system and whether they can be trusted to implement the policies that directly benefit finance capital. This new group of so-called “technocrats” will use their power to impose harsh austerity measures aimed at crushing the unions, dismantling the pension system, and privatizing public assets. Their belt-tightening policies will intensify the slump, shrink government revenues, increase unemployment and foment social unrest. As more of the eurozone’s leaders are replaced by bank hirelings, opposition to further eurozone integration will appear in the form of nationalist groups demanding a withdrawal from the 17-member monetary union. Peaceful protests will turn in pitched battles with police and state security forces as working people fight to have their voices heard. These confrontations will grow more commonplace as the economy deteriorates and desperation increases. Here’s an excerpt from an article in the World Socialist Web Site titled “Greece and the Dictatorship of Finance”:
“The situation is reminiscent of Germany in the 1930s. Then, German Chancellor Heinrich Brüning, a centrist politician, sought to impose the impact of the international financial and economic crisis on the population with drastic austerity measures. He ruled through emergency measures, relied on the powers of the president and the parliamentary support of social democracy, and suppressed opposition to his austerity policies with brutal police operations. Brüning paved the way for the rise of the Nazis and their subsequent takeover of power.
The development in Greece is heading in the same direction. This follows inexorably from the logic of the “government of national unity.” Declaring its austerity program to be an expression of supreme national interests, the government will denounce all resistance as treason to be forcibly suppressed.” (“Greece and the Dictatorship of Finance”, World Socialist Web Site)
Papademos and Monti have already pledged that they’ll faithfully execute the terms of their agreements with the Troika (The European Union, the International Monetary Fund and the ECB) even though austerity measures have failed wherever they’ve been implemented. Greece’s deficits have ballooned in the two years since Papandreou agreed to follow the EU’s hairshirt policies putting the country on the fasttrack to default. Unemployment has soared to a record 18.4 percent in August, up 2 percent in a matter of months. Even so, EU leaders remain stubbornly committed to the policies of economic strangulation. In other words: “The beatings will continue until morale improves”.
In Italy, it’s more-of-the-same; contractionary policies that are only deepening the slump and adding to the misery. The austerity regime has no pro-growth component at all; there’s not a whiff of Keynesian stimulus to be found anywhere. Italy is expected to shrink its way back to health, a notion that flies in the face of basic economic theory and boggles the mind. Here’s an excerpt from the New York Times that outlines Italy’s cost-cutting program:
“The legislation includes selling $21 billion of state assets and increasing the retirement age to 67 from 65 by 2026. It also sets the stage for a liberalization of closed professions and labor laws, a gradual reduction in government ownership of local services and tax breaks for companies that hire young workers.” (New York Times)
The near-Depression on the EU periphery has led to a slowdown in the core countries and the prospect of another recession. Last week, the IMF released a report for the G-20 conference in Cannes stating:
“Recovery remains in low gear in major advanced economies with elevated risk of falling back into recession. Policy paralysis and incoherence have contributed to exacerbating uncertainty, a loss of confidence, and heightened financial market stress—all of which are inimical to demand rebalancing and global growth prospects.
Thus, understanding large imbalances within and across countries has taken on renewed importance. Policy makers need to move with a greater sense of urgency on reaching an agreement on policies that will reduce imbalances and lay the foundation for restoring the global economy to health.”
While the IMF is correct in pointing to the bulging account imbalances that are at the root of the present crisis (and not “profligate spending or “lazy Greeks” as many believe), their agents, who have been sent to Rome and Athens to monitor progress, are only adding to the seething resentment directed at the IMF, the ECB and Germany. Also–as a practical matter–slashing public spending in the middle of a downturn is a prescription for disaster as British PM David Cameron recently discovered. This is from Econbrowser:
“UK GDP grew by 0.5%… in Q3, but the position the economy is in is now officially worse than it was in the aftermath of the Great Depression. Add to this the weakening in the composite PMI survey for October (particularly the manufacturing report), also published this week, and escalating risks for a sharper euro area recession, and the stage possibly looks set for a much bleaker picture by the end of this year.” (“Has Austerity Brought a Boom in the UK?”, Econbrowser)
And this is what’s going on in Spain according to the Financial Times blogsite:
“The economic recovery in Spain has ground to a complete halt. According to first estimates by INE, Spanish real GDP was unchanged in the third quarter (0.8% YoY), after growing a modest 0.2% QoQ in the second quarter. The outcome was less bad than had been suggested by lead indicators such as the purchasing managers’ indices, but bang in line with the initial estimate of the Bank of Spain. No expenditure breakdown is available at this stage, but we suspect that a positive contribution from net exports was offset by a further contraction in domestic demand.
Looking ahead, we fear that the Spanish economy might slip into recession soon – perhaps as soon as the current fourth quarter. Our base case scenario envisages no economic growth in 2012. The worsening economic outlook poses significant risks to Spain’s fiscal consolidation efforts.” (“The Pain in Spain”, FT.Alphaville)
In a report released on Monday, the Organization for Economic Co-operation and Development (OECD) confirmed that all the world’s major economies are heading for a slowdown. According to Reuters: “The Paris-based organization’s composite leading indicator (CLI) for its members fell for the seventh straight month to 100.4 in September… hitting the lowest reading since December 2009.”
So austerity has been a bust. Contractionary policies lead to retrenchment and recession, not fiscal expansion and recovery.(as many conservatives claim) In every case, austerity has added to deflationary pressures, increased turmoil in the credit markets, and shrunk GDP. Still, EU leaders refuse to adjust their policies so they jibe with the data. In fact, the ECB now uses its bond purchasing program as a form of blackmail to ensure that their orders are strictly followed. Case in point: The ECB intervened in the bond market on Friday (sending the yield on the Italian 10-year plunging) after suspending bond purchases for two full days during which yields skyrocketed above 7 percent.(“unsustainable” levels) The ECB’s absence from the market created an atmosphere of crisis which ultimately forced Berlusconi to resign and paved the way for the passing of the new austerity bill in the Italian parliament.
Regardless of how one may feel about Berlusconi, this type political meddling is unacceptable. It just shows that the ECB is prepared to use its power to impose its own political vision of Europe on the member states and to force policymakers to comply with its dictates. The incident brings to mind a quote by Meyer Rothschild:
“Give me the right to issue and control a nation’s money and I care not who governs the country.” Leaders across Europe are just now beginning to grasp the ominous meaning of Rothschild’s words. By surrendering control of their currencies (and their ability to act as lender of last resort), they have inadvertently given up their sovereignty.
Mario Draghi, a man who has never been elected to public office, is now arguably the most powerful man in Europe. So far, he appears to be less interested in “price stability” or “transmission of monetary policy” than he is with subverting the democratic process and conducting all-out class warfare.
So, where is Europe headed?
Professors Markus Brückner and Hans Peter Grüner have explored the relationship between economic crises and political extremism, and presented their findings in an article titled “The OECD’s growth prospects and political extremism.” Here’s an excerpt:
“Higher per capita GDP growth is significantly negatively linked to the support for extreme political positions. While estimates vary between specifications, we find that roughly a one percentage point decline in growth translates into a one percentage point higher vote share of right-wing or nationalist parties….
Our results therefore make clear that countries should not expect right-wing parties to get majorities unless growth declines quite as much as in the 1920s. Nevertheless, even with a less significant fall in economic growth rates, a rise in support for extreme parties is likely to change political outcomes – for example through their impact on incumbent parties’ political platforms….
Our results lend support to Benjamin Friedman’s view that economic growth determines the direction in which a democracy develops. This also implies that solving Europe’s growth problem may have important consequences that lie outside the purely economic sphere.” (“The OECD’s growth prospects and political extremism”, VOX EU)
If Professors Brückner and Grüner are right, then we can expect to see a steady rise in right wing groups sprouting up in countries across the south. Their popularity, in large part, will depend on their ability to rekindle nationalism and to pin the ongoing depression on the troika’s policies. If they succeed, then their ranks will swell and their demands –of an immediate withdrawal from the 17-member monetary union and a restoration of national sovereignty–will lead to a splintering or, perhaps, breakup of the eurozone.
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