The sovereign debt crisis is the beginning of an exchange rate crisis between international currencies (past and future) and the logical follow-on from the subprime crisis which almost swept away the financial system in September 2008. The debt accrued by American households almost dragged down the financial system but the world remembered the lessons learned from back in 1929 (never allow the financial crisis to set in). The near bankruptcy of the smaller states of the European Union (Ireland, Greece, Hungary, Portugal), much less the bankruptcy of the larger States (United Kingdom, Italy, Spain), and obviously that of the United States and the Euro did not and will not play out.
Northern Rock suffered bankruptcy (financial panic and withdrawal of deposits), as did Lehmann Brothers (collapse), but there were no others. The world’s five most crucial central banks (The Federal Reserve, The European Central Bank, The Bank of Japan, The People’s Bank of China and the Bank of England) resorted to colossal security deposits, issued massive amounts of treasury bonds and bought back bonds in $600 billion batches. The European Central Bank at the centre of the turmoil began to massively buy back bonds circulating on the market (the secondary market) although in theory this was forbidden. Formalists proclaimed a coup d’état, undoubtedly preferring a bust-up of the Euro and European integration. And yet, at the institutional level, it was the only good piece of news (along with the emergence of the green parties) in 60 years. Even at the European level, despite the intrinsic indecisiveness of Member States, Chancellor Merkel’s slow reaction, the European Central Bank implemented exactly the same policy as Ben Bernanke in the United States: the lowest key interest rate possible, the backing of decaying assets with a rating below B, the backing of the failing pound sterling. The Federal Reserve has to fend off a bunch of raging republicans who are ready to do just about anything to try to put the American president in a delicate position during an election year. The European Central Bank has to fend off Heads of State that are all the more jealous that their prerogative is being dwindled down and that the crisis is ruining independence and ‘national’ sovereignty when it comes to budgetary policy. It was essential that the German champion of monetarist rigour be excluded as Jean Claude Trichet’s successor in favour of an Italian. The Euro is far from going down the drain. The scepticism of the Euro crisis is the melody to the ugly swan of nations.
The current crisis shows rapid depreciation of the so-called developed countries, in comparison to emerging countries and the rest of the world.
Some economists speak of a phase B of a Kondratiev wave (named after the Russian Menshevik economist exiled to the United States who brought about long 30 to 50 years cycles where periods of rapid growth, inflation are followed by sustainable depression, falling prices, unemployment and often war). The problem with this rapprochement of the depression, which began in 1975, is that phase B only applies to a part of the world and moreover prices are not at all on a downward trend. Provided that we move away from old Europe and Japan (and soon the United States) and look towards the little Asian dragons, in BRIC (Brazil, Russian, India and China) countries and now in Africa, the crisis is more than relative. On the contrary, the crisis shows the rebalancing of the world in favour of the South and of Asia. The capitalist economy has recovered more than one billion consumers (400 million people who have escaped from poverty and the development of the middle classes able to benefit from the domestic consumption of the BRIC countries) and more than 500 million employees (including a considerable percentage of industrial workers who compensate the so-called ‘deindustrialisation’).
It would be silly to deny that the scope of dazzling expansion is shrinking and slowing down, but for China this means going from 10 – 12% growth to 7 – 8%. On the other hand countries of the former centre can expect annual growth of 1 or 2% per year. However, this slow down also holds true for environmental limitations which are rapidly affected in regions with old industrialisation and intensive agriculture. And last but not least: intensive or qualitative growth marked by a growing importance of cognitive capitalism tends to replace the growth of absorption of a rapidly expanding population. Western Europe, like Eastern Europe (with the exception of France and Ireland) and Japan are getting closer to what demographers call a stable population, whose growth is practically nowhere to be found. We aren’t satisfied with including illiteracy, unfair income distribution, income levels, higher life expectancy, the consumption of KWh per inhabitant in the human development indicator; we are also interested in morbidity instead of mortality (that is to say the average age for the onset of serious diseases), energy saving, the human impact on ecosystems, the percentage of an age group that goes to university and leaves with a degree, the rate of innovation.
It is precisely this gap between the possibilities of qualitative progress and the misery of the quantitative macro-economy that is sending us in the wrong direction. For example we insist on thinking that the problem with job insecurity (which is an employee relationship crisis) will be resolved by quantitative growth. However, in 1975 we saw that each time the Left regained power or came into power, it managed to stimulate growth (under Jospin, Clinton and Blair) however this wasn’t consolidated and furthermore problems of continuous degradation resumed with renewed vigour. It is as if the Left had used up all their energy and prevented the worse from happening, like a massive and brutal dismantling of social protection, but without providing new software for the systemic resolution of the crisis, a new reform of work relationships. It is obviously this background of political depression that gives the crisis its apocalyptic tone, the blindness of the vectors of change.
The ‘golden rule’, another ultimate blindness that Spain has just boldly written into its constitution, in the twinkle of an eye at the end of the summer, like a gibe to the powerful movement of the indignant? France announced that it wants to do the same. Should countries that receive aid from the relief fund also pass this golden rule to prohibit States from presenting budgets in deficit? Again, depicting this measure, aimed at trading desks and rating agencies, with catastrophic features, means forgetting the strange effect that such a measure will entail. States will lose the last bit of leeway that they have. They won’t be able to issue currency and fund their deficit. However, these functions cannot disappear. They will find themselves carried forward at the European level. It’s a safe bet that the next Greek or Portuguese or Irish or English or Italian, or even French crisis, will speed up the creation of Euro-bonds issued in Euro by a federal treasury. History runs askew! If Member States refuse to do it, which would be suicidal, or if they accept, also suicidal, either way it would be time for the European Parliament to enter into a constituent phase and to endorse the work started by the ECB.
A New Vision for Social Spending and Funding
The Left is right to highlight that the non-egalitarian decisions taken with regards to the tax on revenue and corporation tax has not straightened out the State’s solvability. However, transferring a part of social spending to households, brought on by liberal reforms, forces the State to come to the banks’ rescue. It remains a long term problem in terms of the way that the economy comprehends the concept of debt. This is not a new aspect to the programmatic gloom which has hit the Left. The financial crisis is being fuelled by the depletion of neoliberal norms which led to further private debt to cover the social needs at the rate of disengagement of the States until it is necessary to rescue the banks that have run out of steam. However, the return to national Keynesianism is not the right answer. A Keynes-type strategy in Brussels is running up against the problem of funding for the European large-scale construction projects (particularly in transport infrastructures that are compatible with sustainable development, but also in immaterial labour infrastructures).
It is here that we see the programmatic shift to the Left that remains to be made. If the Left wishes to sustainably rebuild a State of social protection (which is emerging given the shameful increase of inequality, insecurity and the widening of the gap between older privileged generations or generations of independent means), it will not be able to mobilise and protect the ‘cognitariat’ by investing in its production capacity, by investing in social protection which recognizes multiplicity, dispersion and production capacity. In Brazil, one of the most unequal countries on the planet, the Bolsa Familia plan hands out between 40 and 250 reals to some fifty million people (13 million families), on the condition that their children are schooled; this opens families up to a new kind of future. Women can take part in service cooperatives by investing the savings that they have. In France, the distribution of an unconditional, individual revenue of €700 – €900 a month which may be held concurrently, and its equivalent in purchasing power in other poorer European Union countries, would enable many to invest in the instruments that they need to develop and would take them out of the impoverished economy which perpetuates the lack of employment.
To carry out a reform of this scale, what are needed are receipts that the reform on income tax (which should be more progressive and exclude tax loopholes) is able to ensure. No more than a single ‘reasonable’ debt reduction programme is unable to free up important and necessary environmental investments.
If the Left wants to elaborate a programme that differs greatly from the patched together attempt of the Right, it must quickly look into how to implement a tax on all internal financial transactions (transfers, ATM, cheques, etc.) – whilst at the global level we move towards financing development with a tax on international transactions. One could imagine this as being the first federal European tax. In order to get this very important budget working, banks should collect in real time and transfer the amounts allocated to this gigantic social solidarity and productive transformation fund to Member States and to the Union (green industries, research and education programmes, cultural productions). This would imply that all of their actions would be known.
Market finance intends more than ever to get money working on its own (to make the burnous of the worker-world sweat as much as possible) and shamelessly help itself to the institutional weakness of Europe.
Basic income and tax on all financial transactions are two excellent measures of a mobilising European programme, rooted in finance and federative of the multiple energies that are being tested out on the ground.