Financial Crisis: The Global Blame Game – OpEd


By Jamal Harwood

It is often said, “why let a good crisis go to waste?” So we shouldn’t be surprised that the doyen of the US Federal Reserve, Ben Bernanke, has weighed in with a warning that the crisis in Europe will have serious repercussions for the US economy.

Speaking in Texas on the 10th of November Bernanke warned: “that strains from Europe could trigger global economic shocks” adding: “I don’t think we (the US) would be able to escape the consequences of a blow-up in Europe”

British PM David Cameron said words to similar effect Friday (11th) speaking on BBC Radio 2: “Britain was going to face a difficult time because of what is happening in the Eurozone” and added he “wanted to ensure it comes ‘safely through the storm’.”

With key leaders of the west bracing their populations for a new recession, and likely unpalatable medicine to go along with it, perhaps it is a good time to question who or what, really is to blame for this ongoing saga. As Bernanke and Cameron get their (Euro) excuses in first for their own slowing economies, we must ask can it really be solely down to the behaviour of Greece or Italy that this crisis has come about?

Who is to blame?


Spendthrift, politically unstable, unwilling to get to grips with its large budget deficit and dishonest (we are told) in massaging its budget figures to get into the European union in the first instance. And if we believe the tabloids, corruption is rife, a ridiculous benefits culture, pensions too generous and no one pays taxes. Yet, Greece is rather small compared to the rest of Europe. Its bond obligations at risk are €364 billion, while large, is hardly a blimp in the world economy of €70 trillion.


Home to an eye watering €1.9 trillion in debt and unelected leader of the PIIGS (Portugal, Ireland, Italy, Greece and Spain). Italy’s debt is the 4th largest in the world and larger than all of the other PIIGS taken together and the bond markets are now marking up new bond issues at interest rates close to 7% (the level at which Ireland and Greece cried out for bailouts). Berlusconi, the head of the largest media empire in Italy, has taken domestic corruption to new levels and generous spending policies have become the norm. The Eurozone has provided cheap and plentiful loans, but has the music really stopped with Berlusconi only now reluctantly stepping down?


French Banks are reportedly most at risk from Italian bond debt default. But with Italy too big to fail and likely to bring down the whole of the Euro project if they do, will France collapse with it? Sarkozy has hardly shown the strength of leadership necessary to keep the Eurozone together, making the right noises about maintaining unity across Europe, but showing more desire to bring the recalcitrant economies back on track (via severe austerity) which coincidentally will save embarrassment for France’s banking system and its AAA rating. Can France and Germany keep the Eurozone together? Do they want to? Protection of one’s home economy is hardly a surprise.


How can the strongest economy in Europe be a villain in this scenario? Germany has benefited greatly from the low interest rates and consistently low exchange rate of the Euro, which has enabled strong growth from the highly efficient German industrial machine. Yet Merkel is definitely dragging German feet in putting up more of their surplus cash to back up their Euro partners, and also stubbornly refuses to allow the European Central Bank (ECB) to simply inflate their way out of the problem by buying up Italian and other Eurozone member bonds on mass or via money printing. Now news reaches us of secret talks involving Germany and France to radically allow Euro members to leave the union, which smacks of being fair-weather Euro enthusiasts who when faced with crisis are happy to drop their treaty responsibilities to support other members in extremis.

But France and Germany must be careful with this potential for disbanding the Eurozone. It may seem straightforward to allow a new and devalued Greek Drachma or Italian Lira to encourage growth to return in Greece and Italy, but is likely to presage widespread debt defaults, after all how does one pay back these enormous Euro debts, with heavily devalued currencies.

The Banking Community?

It’s not difficult to bring a case against the Bankers. Abusing low interest rates with high rates charged, unbridled credit creation in the past decade, unregulated derivatives gambling, loosening leverage limits, mixing high risk investment banking with public money (retail banking), a high risk bonus culture (the higher the risk/return the higher the bonus), credit/derivative/housing bubbles fueled by cheap credit, publicly funded bank bailouts, a sovereign debt bubble, and self regulation! It’s no wonder an enormous “occupy” protest movement has sprung up in thousands of locations globally. Yet if one is going to allow the fox to supervise the chicken coop perhaps we should not be surprised with the results. When the fox is also a key financial backer of the political class in most countries and demands absolute protection in return for that backing then we begin to understand the privileged position the fox holds. But we should ask who is the criminal – the fox, or the one that gives the fox free reign?

The Answer?

The above elements seem unlikely to be addressed soon, which means the politicians will “muddle along” without really tackling the problem – ‘kicking the tin can down the road’ as the much-repeated metaphor says.

But there are two core contradictions at the heart of this debate.

With Politicians facing regular election cycles there is enormous pressure on leaders to maintain expensive social and economic programmes regardless of the real cost. When credit is cheap and abundant (as it has been) there is little to stop them building large structural budget deficits that future generations will pay for. Mortgage up now to the hilt, and pay back when I’m well gone. Its highly irresponsible, and whilst many are aware and deplore it, the election cycle dictates that Politicians look good – this has led to large structural deficits with little hope of short term rectification. Even after severe austerity measures the current Greek bailout plan, if implemented rigidly, would still leave Greece with a debt to GDP ratio of 120%. And still the politicians cling, like grim death, to all semblances of power – Papandreou and Berlusconi had to be prised from their posts like the extraction of septic teeth.

The other core issue is over money. As long as interest (usury) is permitted in the mistaken notion that money begets money, then growth will be elusive. As argued well in this linked article the arguments against an interest based system are compelling. For millennia men have argued to and fro, for and against, yet despite the evidence to the contrary the bankers and moneymen have merrily worked with impunity. Excessive leverage, compounding interest-enslaving nations great and small, and now regime change to bring in favourable “banking” friendly technocrats (Monti – Italy, Papademos – Greece) who will implement programmes designed to maximise banker returns. Ever increasing loan portfolios of fiat money, ever increasing leverage, ever growing paper money supply, ever increasing risk levels topped off by a willingness of the politicians to protect these practices at all costs only encourages this to grow further. We can expect the Eurozone crisis to be replicated elsewhere (US, UK). The moneymen have consumed the nations. Interest has become an obscene tax, with the politicians only too willing to endorse it.

This problem is systemic. But to admit that is an impossibility. It requires new political thinking and a new radical (non interest approach) to our economies. In particular those watching from the rapidly changing Middle East, or other areas of the Muslim world, would do well to look at the lessons of Europe, when they think about which way forward for the future. For decades, people have looked west for examples of how to become prosperous stable and secure. But this model is proving to be a failure. At its peak it may have soared higher and more elegantly than anything ever before, but when it crashes from that immeasurable height the crater it will leave will be of Jurassic proportions.

Jamal Harwood is a regular contributor to New Civilisation.  He is a lecturer in Finance, and a member of the UK Executive Committee of Hizb ut-Tahrir Britain.

New Civilisation

New Civilisation is an online political journal which provides a unique source of insight and critical analysis regarding the pressing political, economic and ideological issues of the time. Its motivation is to provide an authentic alternative to the standard analysis often found in mainstream outlets – opening a channel for advocates of alternative Islamic political models to present their critiques of other understandings and put forward their own opinions while allowing them to be discussed and challenged within an environment of informed and respectful discourse.

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