The Triumph of Authoritarian Crisis Management: Europe’s Tragedy Unfolds

1. The Triumph of Authoritarian Crisis Management: Europe’s Tragedy Unfolds CSIG Research Seminar November 13 2013 Jeremy Leaman

2. 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). • “Marketconditions 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)

3. Rehn: Growth through Austerity in Greece

4. Points of Departure 1 • Normative and theoretical convictions: • Inequalities are corrosive of civilised existence • Unequal distribution is the primary challenge for humanity in the 21st century (Galbraith, Wilkinson, Pickett) • The analysis of (unequal) socio-economic relations has to include consideration of power & interest (cui bono): historical materialism • Gramscian/ Neo-Gramscian analysis has strong heuristic value; unequal interdependence of hegemonic systems • Complex unequal interdependence requires multi-disciplinary dimension; radical international political economy supplemented by insights from other social sciences, history and cultural studies.

5. 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

6. 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)

7. 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!!

8. 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

9. USS Top 24 Investments: High incidence of tax avoidance/ evasion/ insider trading http://www.uss.co.uk/UssInvestments/InvestmentsTypes/Equities/Pages/USStop100investments.aspx

10. Misdiagnosis: Not just sovereign debt • Multiple crises of European political economies: • Sectoralcrisis of financial services > • Cyclical crisis of production and trade • Structural crisis of overdependence on financialisedcapitalism • Systemic crisis of over-consumption: limits of growth • European & global asymmetries: current account, demand, distribution of income, wealth & resources • Crisis of economics and economic governance

11. 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 (petro-dollars) 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

12. Neoliberal Deformation of Europe • Efficient market hypothesis:mythof 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??? >>>>

13. The black hole of financialisation

14. 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)

15. 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)

16. EU Current Account Asymmetry 2002

17. N.B. Record German trade surplus 2013 Wider disparities 2011

18. Trade Balance Averages: North & South Europe External imbalances pre-programme problems of debt-financing

19. Net External Assets, N & S Europe

20. EU27 Per Capita GDP 2009-2012 Source: Eurostat; 2009: blue column; 2012: red

21. Real Unit Labour Costs 1995-2007

22. Real Wage Growth EU27 2000-2008: Evidence of ‘Wage Dumping’

23. Regional Unemployment Disparities

24. Core-Periphery Youth Unemployment

25. CP Long-term Unemployment

26. Asymmetrical Non-Recovery EU27, 2012 2008 = Basis Year

27. A New Great Depression? UK Economy 1930-1935 UK Economy 2008-2012

28. 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

29. Structural Youth Unemployment EU27 & EA17 2000-2012: Permanent ‘scar’

30. 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

31. ChanellorBrüning (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’

32. 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’ (Jänicke1986). • >> Pro-cyclical Multiannual Financial Framework

33. EU Multiannual Financial Framework Feb 2013 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

34. 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 >>>

35. 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%)

36. 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

37. 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

38. 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

39. 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

40. An Alternative to this Europe is possible

41. Heterodox Views • Manifesto of the ‘Outraged Economists’ (EconomistesAtterés) http://www.atterres.org/manifeste EuroMemo 2013: http://www2.euromemorandum.eu/uploads/euromemorandum_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/

42. Appendix: Paradigm Shift

43. Appendix 2: Private Debt Driving Asset Bubbles Why debt explosion? Leveraged acquisitions Consumer credit Mortgages Hyperleveraging Ponzi accumulation