No 368 Posted by fw, December 16, 2011
“I think the even bigger problem is this kind of institutional lacuna. There isn’t actually a space in the global economy for action to be taken. And so I think that’s why we have this effort to shift the problem back and forth between the European Union and the IMF and national governments. And not one of those entities actually has the political will or the courage or the imagination to actually deal with the problem – or the courage, for that matter. And so every day we find we’re watching for some decisions to come from some body, whether it’s the European Union or the IMF or to come out of the German and French dialogue. And yet every day we’re greeted with the kind of news that they’re going to consider it, they have a new plan, we don’t know what the plan is, no one knows what the plan is.” —Ilene Grabel
In a Real News video interview conducted by host Paul Jay, University of Denver Economics Professor Ilene Grabel explains why there’s neither the political will nor the courage to take on the austerity and privatization policies pushed by financial markets, maneuvering to augment their power. My abridged transcript, including subheadings, follows the video.
ABRIDGED TRANSCRIPT (with added subheadings)
When the G20 met in early November in Cannes, they had, of course, many very important things on their agenda. What we’ve been seeing at the last few G20 meetings, including the most recent one in November, there’s been a game of hot potato that’s being played between the G20, the IMF, the European Central Bank and the leaders of Germany and France. And every time they meet in the context of the global crisis they have failed to reach any clear decision that would take the Eurozone out of crisis and to deal with many of the important issues that have been on their agenda since the crisis really began in 2008. And in this last meeting in November, the G20 ministers essentially handed the ball back to the European Union and the European Central Bank and the German and the French governments. They [in turn] handed it back to the IMF. The IMF handed it back to the G20. And at this point we have a situation where nothing at all is happening and we’re seeing financial markets react to that uncertainty because it’s not clear who is going to take responsibility for getting Europe out of its national malaise. It’s clear that the IMF is not going to do it. European governments are not doing it. And as we saw late last night, leaders of the European Union are also not prepared to take any steps to get the zone out of the crisis.
The fundamentals are certainly all wrong. I think the even bigger problem is this kind of institutional lacuna. There isn’t actually a space in the global economy for action to be taken. And so I think that’s why we have this effort to shift the problem back and forth between the European Union and the IMF and national governments. And not one of those entities actually has the political will or the courage or the imagination to actually deal with the problem – or the courage, for that matter. And so every day we find we’re watching for some decisions to come from some body, whether it’s the European Union or the IMF or to come out of the German and French dialogue. And yet every day we’re greeted with the kind of news that they’re going to consider it, they have a new plan, we don’t know what the plan is, no one knows what the plan is. And of course last night, we had the announcement that some important European government, like the English government, is not prepared to participate in these dialogues in any sort of meaningful way.
The financial sector is using the opportunity, the crisis, to push forward on the kinds of reforms that financial actors have long sought, which is to say, policies which give the financial sector far more power than it ordinarily has — pushes government into austerity, pushes government into dismantling the welfare state, pushes them into privatizing state-owned enterprises and generally shrinking the public sector and public employment. So it certainly is an opportune time for financial actors to push forward on the kind of agenda that they have long sought in Europe.
I think we’re entering the period where the crisis is actually going to intensify. We may have hoped that all of the bad news was actually out but I think we haven’t seen the worst of this at all. The plan that was announced last night and was being discussed this morning doesn’t at all address the seriousness of the crisis in Europe. And, indeed, this morning the credit-rating agencies downgraded three major French banks. There’s talk of downgrading further banks in Europe. There have also been studies which have shown that European banks have a huge deficit of capital and that they’re seriously undercapitalized. That should make things far worse. And the European Union, this morning, is in much worse shape than it was in even last night because of the failure to reach an agreement. And so it’s hard to imagine that European leaders can engage in some new round of productive dialogue. After all they failed to reach a decision at the most important moment last night. And so I think that they’re very much out of the picture right now.
I think that the suggestion that the US Fed should come to the rescue and buy up some of these European bonds is completely implausible. I understand that that proposal has been discussed. It’s impossible for me to imagine the US Federal Reserve actually taking on that role. US Treasury Secretary Timothy Geithner has been making it clear over the last couple of months that Europe’s problem is Europe’s problem. And given the political heat that he’s faced over the bailout in the US, I think it’s just politically not possible for the US Treasury and for the Obama administration to play any role in Europe other than to say “We feel your pain” at this point. But it’s really impossible to imagine the Federal Reserve taking responsibility for buttressing the capital reserves of European banks or in any way facilitating any further activity by the European Central Bank.
I think it [the European crisis] is very much [President Obama’s] problem because we cannot separate the fate of European economies from the fate of the American economy. That’s certainly true. But I think politically isolationist sentiment in the US right now is such that it really prevents the President and the US Treasury Department from taking any kind of decisive action that commits US economic resources to Europe. I just don’t think it’s politically possible to do so even though failure to do so certainly has very serious negative ramifications for the US economy.
I think it’s clear that we will stumble into deeper global recession. It’s been fascinating over the last couple of weeks to see Europeans go hat in hand to some of the largest and most rapidly growing developing countries. We know that European leaders have been really trying to pound the pavement in China, in Chile, in Brazil, saying — “Okay, we need your sovereign wealth fund money, we need your governments to buy up European bonds.” And I think many of the rapidly growing developing countries’ policy makers have very rightly suggested that they’re not really interested in playing the role of bailing out Europe.
I agree with what some of the Chinese commentators are saying — “Why don’t we wait until it bottoms out then we’ll think about coming in.” It’s clear that Chinese policy makers, and policy makers in many other rapidly developing countries are quite rightly skeptical about the credibility Eurozone’s planning and even the credibility of the entire Eurozone project. So they’re not keen to commit any economic resources to stabilize Europe. We know that Brazil has very recently agreed to provide more funding through the IMF but not directly to the Eurozone itself because of the lack of credibility, the lack of commitment that Eurozone leaders have really shown to take serious action to get out of crisis.
I think people should be worried. At this point it seems clear that we’re headed for a new round of crisis coming this time from Europe. And this is really the time, I suggest, to batten down the hatches. I mean certainly we can try to influence debate in the US to press our government to get more involved in trying to get the US out of recession, to promote employment, to get behind the President’s job promotion plan. But we are in a situation of political gridlock, and this is the silly season in the US right now. It doesn’t seem like the US government is actually able at this point to take steps that make any sense to get us out of the crisis. With the President being hammered on all sides by Republican candidates really puts him in a situation where he’s paralyzed. And as you noted, Eurozone leaders are also paralyzed. And so this is the time I think when we have real reason to be worried about the future of the world economy.
There were certainly missed opportunities to make the case that getting the US out of the financial crisis was in everyone’s interest. That moment seems to have been lost in the US right now. And I think that makes it even more difficult to imagine the US government taking steps to try to stabilize Europe because after all there isn’t even a consensus among the broader populous of the US that further steps need to be taken to get the US out of its crisis.