Financial fascism

By Chan Akya

If politics were just war by another name, then economics would be the favored armory of both sides. Europe has gone one step further last week, almost unimaginably bringing back the era of fascism as it contends with the unwieldy agglomeration of financial contradictions that the euro project has now become.

The birthplace of democracy, Greece, has gone back to a managed dictatorship after the collapse of the democratically elected George Papandreou government on Sunday, to be replaced by a national unity government with a technocrat at its helm. Reading between the lines, the idea isn't hard to understand: a pliant government in Athens that is helmed by a

 
eurocrat, unable to ask any questions of Brussels and unwilling to concede over any objections from the population of Greece.

The apparent crime of the Greeks was to ask their prime minister for a referendum on the latest series of proposals from European authorities on a new bailout for their country (see The men without qualities, Asia Times Online, October 29, 2011). This set off panic in stock and bond markets mid-week and prepared the stage for an ugly showdown as well as unprecedented developments.

For the European governments, this level of panic in the markets was simply unacceptable as it showed deep "ingratitude" on the part of the Greeks; that view of course conveniently ignores ground realities of austerity that the Greeks would endure on their own so that bankers in Paris and Frankfurt wouldn't face job or pay cuts.

Greece's prime minister was invited to the Group of 20 (G-20) meeting in Cannes, making the confab G-21 for a while according to wags, although I maintain that the "G" in G-20 stood for Greece all along. After receiving suitably strong tongue-lashings from German leader Angela Merkel and French President Nicholas Sarkozy, a suitably chastened Papandreou dropped plans for a referendum and instead started work on a national unity government that would have the implementation of the eurozone bailout plan as its major (and perhaps only) policy point.

G-20 released an insipid statement that went nowhere in terms of helping the Europeans. All the fond expectations of the Europeans were dashed to the ground - be it the increased role of the European Financial Stability Facility (EFSF) to which various countries would contribute (no contributions were forthcoming in the end), or expanded powers for the International Monetary Fund (IMF) to help manage the crisis (ditto).

Poorer countries objected to the very notion of further contributions to bail out rich European countries, particularly when the Europeans apparently couldn't agree on priorities. While the statement describes lofty ideals of growth globally, it does little to actually suggest ways and means of reversing the problems with countries and zones in recession: in particular, Europe.

To cut the eurozone's structural drag, countries will have to improve competitiveness. This can only be done if structural constraints on growth are removed, the main one of which is the overly generous social programs. Alternatively, Europe can choose to maintain social safeguards but will have to forsake a strong currency. Inflation would then do to the European lifestyles what common sense alone couldn't establish.

This is the meta context under which the European crisis resolution is being fought. Countries with savings - like Germany - do not wish to suffer from inflation but want instead that their southern neighbors simply destroy structural benefits instead. Southern countries would rather keep their benefit systems, but try to depreciate their currencies to a growth path.

Another issue and perhaps the core one is that the elite want one thing, and have decided to pursue that solution - written by bankers - without heeding the legitimate demands of those ostensibly being bailed out.

It gets worse. Not content with one unwieldy object, the G-20 also had to contend with a second one, namely Italy, wherein the government rejected calls for IMF aid while calling for "increased surveillance" and a formalization of the troika (European Union, IMF and European Central Bank) in case Italy needed funds later. Market observers who had to sit through months of uncertainty waiting for the Europeans to get their act together over a 100 billion euro (US$137 billion) bailout package for Greece will now have to do the same for a 1 trillion euro package for Italy.

Italian bonds crossed the magic level of 450 basis points (bps) in spread over Germany last week even as the EFSF failed in its attempted 13 billion euro funding deal. The level of 450 basis points is important because that sets rules with respect to collateral posting against global banks, and essentially puts a sovereign "in play" ie enhances volatility expectations in markets, with unspecified market demands for resolution driving sentiment.

It fell to the French president to tell off the Greeks in the end: plainly, he stated, that the Greeks could have any referendum they wanted, but would have to leave the euro if they went ahead with this particular one. Germany's most popular newspaper, the Bild, called last week for a referendum in Germany on whether Greece could stay in the single currency or not.

So it has come to this, that the French who started the era of modern European democracies with their storming of the Bastille and a cry of "liberty, equality and fraternity" essentially devalued their own history by telling the Greeks not to have inconvenient opinions. I can spy the ghost of Marie Antoinette demanding her head back.

The message from eurocrats couldn't have been more unequivocal if they had spelled it all out: democracy was an unnecessary complication in the grand European project.

Elsewhere, the new resident of the European Central Bank, Mario Draghi, conducted his first full meeting and started with an auspicious (I am being sarcastic) rate cut to get things going. The idea that the new ECB president would be populist and swing the monetary institution somewhat further on loose monetary policy than his predecessor ever managed was immediately (of course) played up in the popular media.

Think about it like this - the ECB has been criticized for inflicting greater pain on the highly indebted countries by raising rates and failing to do more towards monetary easing. The incoming head of the ECB likely has very similar inclinations to his predecessor (he announced, for example, that there was no mechanism for any country to leave the euro) but has decided to have a stronger public relations battle by starting off with a small rate cut that would do absolutely nothing to resolve the core issues because high interest rates are not the issue while wide credit spreads very much are.

It has been clear with every new European approach to the crisis that the primary objective of any grouping is to save the European financial system at all costs. This system includes within it a unwieldy common currency that has simply failed to meet its objectives for the 11 years of its existence. Rather than consigning the project to the dustbin of history, the elite of Europe choose to perpetuate the currency's existence at the expense of the people.

This is what fascism is all about at the end - an overwhelming subjugation of the individual at the altar of nationalism, the authoritarian rule of a financial system that disallows countries from following their own courses.

Between them, it is difficult to read too much into the events; even allowing for a fair bit of doubt to gather in one's mind the unshakable end result is a feeling of deja vu as it appears that the fascist past echoed by the likes of Mussolini, Franco and Hitler has come back to roost.