Terms of Office in a Representative Democracy: Greek Austerity

In September 2012, the E.U. state of Greece was in the process of working out a 11.5 euro austerity plan that would involve forced retirements in public sector and pension cuts so the E.U. would approve another installment of the bailout to the state. One resident remarked at the time, “Mark my words. In the coming months, there will be a revolution, and this government will fall.”[1] This sounds a bit like “buyer’s remorse” concerning the election the previous June  in which the anti-bailout/austerity party barely lost. What about all the Greeks who voted for Samaras, the pro-bailout/austerity leader? It cannot be assumed that they, too, had buyer's remorse even as the additional cuts went into effect. Even if the electorate shifted in the direction of anti-austerity as the forced retirements and pension cuts occurred, the ingrediants of representative democracy includes terms of office to protect the elected officials by giving time for their policies to work. Representative democracy does not reduce to the momentary passion of the masses. According to Plato, mob rule is the bad form of democracy. 
What if conditions significantly deteriorate and the representatives elected to office refuse to change course? Does this justify truncating the term? The German-led “austerity-only” approach to the Greek debt crisis clearly exacerbated the Greek fiscal condition. Austerity cuts resulting in further contractions of the economy meant more unemployment payouts by the Greek government even as it had to cut spending. Had Samaras' voters anticipated this? Is this question even relevant? The failure to anticipate how a policy once enacted will affect the economy does not nullify the votes cast or justify depriving the office holder of his or her the full term. 

                                                                                   

Terms of office enable elected representatives to do the right thing even when the masses at the moment are exerting tremendous pressure on the representatives to do what is politically expedient but not in the people's best interest. This can be distinguished from stubborn office-holders who rigidly hold to their ideology at the expense of the people's best interest. Because the term-of-office protects both good and bad office holders, rather than rewarding the courageous representatives and penalizing the office-holders who use their term be able to go too far, the term element of representative democracy is not enough.  
In 2012, Samaras needed some time to do what might not match the momentary passions of the mob as retirements and pension cuts were being inflicted. Had the additional cuts triggered a meltdown in the state's economy with Samaras holding firm on the state budget cuts, a snap election could have been necessary not only to stop the meltdown, but also to prevent a revolution. 
Is it a good idea that representative democracies have terms of elected office? The answer can only be vague or indeterminate. In parliamentary systems, a legislative vote of no confidence can of course trigger an election. The term is truncated. Ideally, this is not due to office-holders withstanding political pressures that would put political expedience above the best interests of the state and its people. The problem is that we cannot be sure. 

See related: Skip Worden, Essays on the E.U. Political Economy: Federalism and the Debt Crisis.

1. Liz Alderman, “Greek Government and Public at Odds Over New Cuts,” The New York Times, September 6, 2012. 

Raising Retirement Ages in the E.U.: The Case of Spain

The New York Times reported in 2012, “Spain has a stubbornly high budget deficit, its banks require tens of billions of euros in rescue loans and the government may soon have little choice but to request bailout funds” from the E.U.’s “TARP” program. Nevertheless, the state government’s “budget would actually increase pension payouts 1 percent [in 2013]. The money includes not only pensions for former public employees, but also the social security payments that go to all retired [residents].”[1] Pension expenditures represented nearly 40 percent of the state's budget and 9 percent of the state’s economic output, so one would think that line-item would have been first up on the chopping block. To be sure, cutting sustenance programs such as pensions could actually exacerbate a government's debt because if a resulting decline in demand adds to unemployment. In this case, the politics in the state seems to have gone along with the economics. I submit that Spain could have gone further economically were it not for entitlement politics interlarding the retirement-age issue.
Delaying the increase in the retirement age in Spain from 65 to 67 until 2027 could be seen as a case of politics operating at the expense of what was most needed economically. Given the advances in modern medicine and the universal health-care systems in the E.U., even 67 have been too low and too late. 
Firstly, in the 2010's, the E.U. would struggle with immigration even as more workers were needed. The failure of politics in the state of Spain to jack up the retirement age significantly as early as 2013 may therefore have been a contributing factor in shortchanging the local residents from satisfying the state's need for labor. 

Do the state governments have too much power at the federal level? If so, are Greece and Spain paying the price of the self-interest of more dominant states?  

The E.U. state of Greece demonstrates that going just from 65 to 67 can indeed be accomplished legislatively in a year, even with political protests. “For Greece, the longtime generosity of its pension system — in which large numbers were previously allowed to retire at 50 and younger — came to define the bankrupt condition of the Greek state. In the years before the crisis hit, pension payments in Greece totaled as much as 14 percent” of the state’s economic output.[2] Spain too could have used the decrease in pension costs that a relatively quick raise to 67 would have engendered. Raising the age is distinct from cutting pension amounts, yet the austerity-bred entitlement politics may have spilled onto the age issue. 
Raising the retirement age can be distinguished from the cuts in monthly entitlement programs, such as in the lender-imposed austerity program in Greece. If heath-related exceptions can be made to a higher retirement age based on a generally longer human lifespan, then cutting entitlement programs more than raising the retirement age puts lives at risk. This difference may have been lost in the politics of raising the retirement age in Spain.

1. Landon Thomas, “Pension Dilemma in Europe’s Debt Crisis,” The New York Times, September 30, 2012.
2. Ibid.

Structural Reform and Economic Sustenance in European Austerity

Speaking at the World Economic Forum in Davos, Switzerland on January 25, 2013, Mario Draghi, president of the European Central Bank(ECB), said the bank’s program to buy the bonds of heavily indebted E.U. states had been “very helpful” in reducing the perception that the euro was on the verge of collapse. He also pointed to the structural reforms that heavily indebted states had enacted as “now bearing fruit.”[1] He urged those governments to continue to implement structural reforms so those states could take advantage of the ECB’s low interest rates and easy credit to banks. In short, the strategy of the ECB was to use monetary policy as leverage for long-term-oriented structural reforms at the state level. Political risk analysts listening to the central bank official likely came away with a more optimistic stance on the long term prospects for the E.U. economy.

Even though the progress achieved already on the debt crisis provided “light at the end of the tunnel,” the matter of structural reforms at the state level was subject to politics and was thus more uncertain. Also, economic conditions could worsen, hence making it politically and economically more difficult to make the needed structural changes. Chancellor Angela Merkel of the state of Germany warned the governors of heavily-indebted states such as Greece and Spain against the impulse to reduce the pace of structural reform in the face of economic stagnation. She pointed to the record unemployment numbers announced in Spain on January 24, 2013 as fodder for the anti-austerity political forces there. She further observed that “experience tells us that often pressure is required to enable structural reform.” The obstacles could have come from political officials or bureaucrats at the state level, and even from the people, upset at the economic austerity cut-backs hitting themselves and even the poor who depend on funding for sustenance. Advocates for those people were doubtlessly contesting that survival in the short run should not be sacrificed for long-term structural reform. 
Interestingly, making a qualitative (i.e., difference in kind) distinction between government programs that keep people alive on a daily basis and all the other budget items could actually permit more budget cutting because so much would be found to be subject to cuts without risking lives. In the U.S. at least, the qualitative difference has typically been made between domestic and military spending. This dichotomy has enabled huge increases to military programs even as cuts to food assistance have been proposed. Of course, the unemployment caused by a cancelled defense contract could put people in danger of losing their house or going without food. However, such individuals would be covered by the continuance of the programs providing sustenance as long as they were held apart from the other spending categories. Having an indirect effect on sustenance, such as military contracts can, does not render a particular budget item itself in the category of vital programs for sustenance, such as building more halfway houses for the mentally ill who are homeless.  This reflects the American culture more, wherein much more is deemed conditional than in Europe, where the principle of solidarity has been and is still more salient politically.
In short, long-term fiscal reform need not be at the expense of people eating and having shelter as well as medical care. Based on the firm foundation of human rights, programs primarily geared to sustenance can be isolated and protected such that the structural reform can be implemented more smoothly. Buffering sustenance programs from the massive cuts everywhere else would significantly reduce the vehemence of the protests and soothe the path of structural reform by isolating the entrenched officials and bureaucrats as the only primary obstructionists. 

See also Essays on the E.U. Political Economy, available at Amazon.  

1. “Davos: ECB’s Draghi Says ‘Real’ Economy Still Stagnant,” Deutsche Welle, January 25, 2013.

Greek Austerity: Pressure on the Environment

“While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens. When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil. ‘It was a tough choice, but I decided just to let him go’ with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.”[1] Tens of thousands of trees had disappeared from parks and forests in Greece during the first half of the winter of 2013 alone as unemployed Greeks had to contend with the loss of the home heating-oil subsidy as part of the austerity program demanded by the state’s creditors. As impoverished residents too broke to pay for electricity or fuel turned to fireplaces and wood stoves for heat, smog was just one of the manifestations—the potential loss of forests being another. On Christmas Day, for example, pollution over Maroussi was more than two times the E.U.’s standard. Furthermore, many schools, especially in the north part of Greece, had to face hard choices for lack of money to heat classrooms.

Greek forests were succumbing  in 2012 to the Greeks' need to heat their homes as austerity hit.   source: Getty Images

Essentially, austerity was bringing many people back to pre-modern living, perhaps including a resurgence in vegetable gardens during the preceding summer. At least in respect to the wood, the problem was that the population was too big—and too concentrated in Athens—for the primitive ways to return, given the environment's capacity. 
To be sure, even in the Middle Ages, England had lost forests as the population (and royal plans) grew. In December 1953, many Londoners decided to use their fireplaces to burn wood, resulting in pollution blanketing the city. As a result, thousands died and the city outlawed the use of fireplaces. No one probably thought to ask whether the city had gotten too big—and too dense. No policy was enacted that would result in a shift in population out of the region.
Generally speaking, human population levels made possible by modern technology and medical advances have become too large for a return to pre-modern ways of life. Because of the extraordinarily large sizes of the modern city, including Athens, suddenly removing modern technology, which includes government subsidies, it is especially problematic when many people are forced to fend for themselves to meet basic needs. The efficiency of modern technology, including in regard to utilities and food distribution, is often taken for granted, even by governments, so the impacts on the environment when masses of people “return to nature” can be surprising. Nature has become "used to" seven billion humans on the planet in large part because we have economized via technology so the full brunt of the population-size is not felt. Particularly in industrial countries, societies are reliant on modern technology because without it the bulging population is unsustainable. 
Put another way, we have distanced ourselves from nature, and our growth in numbers in the meantime has made it impossible for us to “get back to nature” in a jolt, especially by many people. It is in this sense that governmental austerity programs that cut back on sustenance are dangerous not only for society, but also the ecosystems in which humans live. Accordingly, by mid-January, 2013, the Greek government was considering proposals to restore heating-oil subsidies. It is incredible that the financial interests of institutional creditors, including other governments, were even allowed to put the subsidies at risk.
In ethical terms, the basic sustenance of a people takes priority ethically over a creditor’s “need” for interest. The sin of usury is sourced back to the origins of lending as an instance of charity rather than money-making either from the plight of the poor or profit-uses.[2] When a person in antiquity was in trouble financially, someone with a bit of cash would lend some with the expectation that only that sum would be returned. The demand for interest on top was viewed by the historical Church as adding insult to injury (i.e., the bastardization of charity into a money-making ruse). Then exceptions were made for commercial lending, wherein a creditor could legitimately demand a share of the profit made from the borrowed money in addition to the return of the principal. As commercial lending came increasingly to characterize lending, the demand for interest became the norm, even on consumption loans when no profit would ensue to pay off the loan with interest. The notion that interest is conditional on a borrower having enough funds was lost, causing much pain to many in the name of fidelity of contract, as if it or the creditor’s financial interest were an absolute. Put another way, the default has swung over from the borrowers to the lenders to such an extent that society may look the other way as people literally have to cut down trees to heat their homes because creditors have demanded and won austerity touching on sustenance programs.
Therefore, especially in Christian Europe, putting people out by pressure being applied to state governments in the E.U. to make payments even in the context of a financial crisis can be considered to be untenable, ethically speaking. I am not suggesting that states should be profligate with borrowed funds. Rather, just as Adam Smith’s Wealth of Nations is bracketed by his Theory of Moral Sentiments, so too an economy (and financial system) functions best within moral constraints. 

1. Nektaria Stamouli and Stelios Bouras, “Greeks Raid Forests in Search of Wood to Heat Homes,” The New York Times, January 11, 2013.
2. Skip Worden, God's Gold, available at Amazon. 

Slovak Resistance to Expanding the E.U. Bailout in 2011

Richard Sulik, Parliament Speaker of the Slovakian legislature, argued that the only real solution to the debt crisis in the E.U. was rigorous enforcement of the E.U. regulations on budget deficits and public debt. He had been particularly angered by his state, the second poorest in the E.U., having to bail-out a richer state that had consistently violated the E.U. regulations. Additional debt, he insisted, was not a way out for the PIGS. Slovakia, after all, had to adhere to strict limits on everything from budget deficits to inflation rates in order to be able to adopt the euro. “Now when I see what is being allowed for Greece and Italy, it really makes me angry,” Sulik admitted. “We have to pay because of this double standard. It’s a real injustice.” Indeed it was. Bailing out Greece so the state would not default effectively rewarded that state government for profligate spending and tax avoidance in violation of the E.U. regulations.  

Solely from the standpoint of debt, adding more was not a viable way out, according to Sulik. “The more we let [states] violate the rules, the worse things will get,” he said. So he opposed expanding the bailout. Undoubtedly putting a chill in the halls of banks in rich states such as France and Germany, he bluntly stated, “Greece has to go into bankruptcy.” This would demonstrate that the E.U. was not an agency of the big banks holding questionable semi-sovereign state debt.

At the very least, having a state government official resist the interests of the big banks and their politicians in the “core” states was in the interest of a fuller debate within the E.U. as a whole on how to deal with “bad” states. In fact, potentially at least, a state like Slovakia could serve as a check on plutocracy gaining a foothold in the E.U. According to Sulik, it simply was not fair to ask poor Slovaks to bailout the big banks and richer states—even apart from the latter’s violation of the E.U. regulations. In short, the E.U. should not have been run in the interest of French and German banks. At the same time, giving each state government a veto would have been a recipe for E.U. impotence at the federal level.

If the bailout had to be expanded to obviate a financial collapse of the E.U., then having one hold-out could have been a very expensive price to pay to avoid giving the E.U. additional competencies in fiscal matters. Were a qualified majority needed to augment E.U. competencies, Sulik's argument could still win the day--but his points would have to be sufficiently persuasive among the poorer states. If the banks' interest must be satisfied in order to avoid financial collapse, enough of the neutral states could turn from Sulik, who might otherwise be able to prevent the E.U. from avoiding catastrophe.

Source:

Gordon Fairclough, “Slovak Official’s Delay of Rescue Fund Vote Poses Problem for Euro Zone,” Wall Street Journal, September 6, 2011. 

A Trader Dreamed of Economic Collapse

Call it over-confident bravado or perhaps a lapse into utter transparency; trader Alessio Rastani’s comments on BBC give the rest of us a glimpse of the power behind the world’s thrones and how prone “the system” is to collapsing without a sufficient force geared to the viability of the system itself. In other words, it is amazing that the financial/governmental systems go on without more attention to them as systems rather than to micro self-interests. One might ask whether powerful self-interests are sufficient to keep the system from hitting the rocks. Apparently the answer is yes, though this is astonishing nonetheless. It is like a car somehow making its way down the street with one person in the car looking at pedal, another at the steering wheel, and still another at the speedometer. It is amazing if the car does not crash, yet somehow it managing to stay on the road.

As for a dash of reality, Rastani said on September 26, 2011 on BBC TV that Goldman Sachs rules the world and the Euro zone is poised to crash. "This is not a time right now for wishful thinking that governments are going to sort things out," Rastani said. "The governments don't rule the world, Goldman Sachs rules the world." Beyond the disciplining of egos within the bank, Goldman’s reach is multiplied by forays made by its alumni into governments and other banks. For example, when Merrill Lynch executives were finally facing the prospect of needing to sell to Bank of America in September 2008, John Thain relied on his fellow Goldman alums who he had lured to Merrill—sidelining Merrill’s own. In the U.S. Government, both Henry Paulson and his assistant at Treasury who ran TARP were Golden. It can therefore be surmised that the Eurozone was poised to crash because Goldman’s execs had determined that they could profit from it. The state-heavy E.U.’s government only appeared to be capable of protecting the viability of the euro financial system.

I suspect that Rastani was overplaying his hand. The financial interest of the rich states of the E.U. (and their respective banks) cannot not be written off in favor of a Golden hegemony unless Goldman Sachs controls the European banks. To be sure, at the time of Rastani's interview, there were players poised to benefit financially from the collapse of the Eurozone. Even so, powerful vested financial interests not limited to Europe surely had a financial interest in the continued viability of the Eurozone. Of more value to us than Rastani's crystal ball is his mentality and values, which were on full display during his interview. We have a rare snapshot of what sort of people rule the world in terms of real power. 

The crash will be good news for traders, Rastani told stunned BBC anchors. "For most traders we don't really care about having a fixed economy, having a fixed situation, our job is to make money from it," he said. "Personally, I've been dreaming of this moment for three years. I go to bed every night and I dream of another recession." Rastani said traders aren't the only ones who can benefit from the crisis. "When the market crashes . . . if you know what to do, if you have the right plan set up, you can make a lot of money from this." Whether or not such opportunities rule the day, Rastani’s mentality itself is startling (or should be). In other words, we should also be stunned.

 Rastani's dreaming of a recession (like Bing dreamt of a white Christmas?) even as he was predicting that the “savings of millions of people are going to vanish” in less than a year might strike us as insensitive, even sadistic—and at the very least, rather selfish. Would he cheer the death of an uninsured man who could not afford medical treatment if money could be saved by a hospital in Rastani’s portfolio?  If so, could we give any credence to his “deathbed conversion” should he fall on bad times? Beyond the obvious moral questions, does the child deserve his amassed power, wealth and position? Moreover, can we continue in good conscience to respect him now? The respect that we give to offices or positions may be exaggerated, and thus due an "adjustment." Just because a Wall street player has power on account of his or her position (and wealth) does not mean that he or she is due respect accordingly.

In fact, if traders such as Rastani have a financial interest in the collapse of an economic system, it could be asked whether they have enough power to make that catastrophe happen. If Wall Street bankers—the real power-brokers—are focused on such financial payoffs, is anyone of sufficient power looking out for the system itself? Again, Rastani may have been overplaying his hand.

In 2008, the U.S. Government enacted TARP to stave off financial collapse. Of course, even Goldman was vulnerable, so it was in its own financial interest that Treasury contain the contagion. The experience demonstrated that the American federal government is capable of safeguarding the financial system, but what if Goldman were to face no downside from a collapse and would in fact benefit from it? Could Goldman alums in strategically-placed government offices sabotage the government’s own efforts to protect the system? As Sen. Dick Durbin said in 2010, the banking lobby owns Congress. The U.S. Government acting against the interests of Wall Street might be akin to that government putting some air between itself and Israel. Elected representatives and their appointees know enough not to screw the sacred cows.

So the trader has a point, though beyond the content of his predictions, the transparency of his mentality and the mentality itself warrant reflection by the rest of us. I suspect that we have a naïve view of the type of people pulling the strings. Were we to get to know those people (even the CEOs), an obvious question might be whether they deserve the power, position and wealth that they have gained. In a plutocracy, there is unfortunately little that we can do about it, as they hold the strings. In a republic, on the other hand, the financial and business sectors are subordinate to the public good, and the representatives of that good can reform the selection and promotion rules in those sectors. In saying that the rest of us will have no other choice but suffer because it is in his financial interest, Rastani was essentially informing us that our so-called democratic republics are actually plutocracies. Our systems depend, in other words, on the particular financial incentives of the Golden traders. This is even worse than the prospect of a recession. 

It means nothing that you or I might conclude that the system itself is broken, as we do not pull the strings; we merely pull the levers on election-day, lulled by the illusion that popular sovereignty lies with us. Even if Rastani’s interview wakes some of us up, little difference can be expected short of a major shift in power—but how can the less powerful overcome the kings of the hill to gain the hill itself? That would be like water flowing upstream as if gravity no longer held. Yet somehow, for people such as Rastani to be so respected and powerful in spite of the kind of persons they are seems to go against gravity itself. Like ignorance that is arrogant, one must wonder how the thing manages to stand at all. Perhaps all that is necessary is a gust of realization by us that the emperors are indeed trading in the nude, and are thus unworthy as de facto rulers. But can we act on the basis of a new awareness?

Source:

“Trader Alessio Rastani To BBC: ‘Governments Don’t Rule the World, Goldman Sachs Rules the World’,” The Huffington Post, September 26, 2011. 

Two Conflicting Views of E.U. Federalism: Accounting for Brexit

"You have lost a good opportunity to shut up," Sarkozy said to Cameron during a bitter two-hour exchange which held up a meeting of all 27 European Union states on 23 October 2011, according to the  Guardian. Translating the relatively polite European English into American slang, Sarkozy’s statement becomes, Shut the fuck up. "We are sick of you criticizing us and telling us what to do," Sarkozy added. "You say you hate the euro, and now you want to interfere in our meetings." Cameron had insisted on participating in the euro zone meetings because he anticipated that, perhaps along the lines of taxation without representation, unfavorable regulations would be imposed on Britain without its consent, according to The Telegraph. Cameron also claimed that the euro zone crisis was having a "chilling effect" on all European states, including Britain. He insisted that all 27 E.U. state governments, rather than just the 17 using the euro, should be able to have the final say over Europe's rescue package, according to The Guardian. I submit that the argument portends in retrospect, at least, the decision taken by the British to secede from the Union. 

Was Cameron trying to have it both ways by having refused to transfer the governmental sovereignty necessary for monetary union yet going on to demand being entitled to a vote on monetary policy regarding the euro? Might it be that the prime minister presumed himself to be in a superior position from having evaded the common-currency trap, and thus he felt entitled to tell the E.U. “euro” states, which had found themselves in a pickle, what to do? Alternatively, if British banks are called on to take sizable losses on their Greek debt holdings and/or to increase capital reserves, the state government would indeed be entitled to participate in the decision-making process at the E.U. level on those proposals.

Cameron would doubtless go further, insisting that just the fact that Britain would be adversely affected economically by a Greek default justifies the British prime minister in having a seat at the table. At the time of the E.U. conference, the Huffington Post observed: “Europe already is entering a continent-wide economic slowdown, as manufacturing output recently reached an 18-month low, according to the Wall Street Journal, and European economic growth fell to its lowest rate in two years,  according to The New York Times.” Any mishandling of the Greek situation could easily rock the European economic boat, which Britain is in. In other words, if the debt crisis had gone well beyond the matter of the euro, then Cameron had a legitimate point that the entire E.U. should decide on a solution. This could mean that all 27 states contribute to the European Financial Stability Facility, for otherwise it would be difficult to bracket the involvement of the non-euro states in the decision-making process. In other words, if the most serious of the financial problems involve European banks and wayward E.U. states rather than centering on the euro itself, then all of the states should be involved in the decision-making at the E.U. level.

Sarkozy and Cameron eventually reached an arrangement on October 23^rd that the 27 E.U. state governments “would initially debate the measures to write down Greek debt, increase the size of the bailout fund, and recapitalize European banks, but ultimately the euro zone would have final say over the rescue package  [on October 26^th] , according to The Guardian.” Presumably British banks would not be called on to write down their Greek debt, and this might cause banks in the “euro zone” states to demur. The same goes for any recapitalization requirements. As for the bailout fund, that would rightly be governed by the states that had contributed to it.

Perhaps the squabble between the two state leaders can be seen by the rest of us as a harbinger of the difficulty involved not just in achieving fiscal integration within the “euro zone” requisite for stable monetary union, but also in there potentially being two levels of fiscal integration in the E.U. itself. The E.U. would have a major structural/procedural/political problem if the “euro zone” states were to cede additional governmental sovereignty regarding their fiscal or budgetary/tax policy and Britain were to insist nonetheless on having a vote on particular “euro zone” fiscal policy proposals that might affect it even though it had not agreed to cede the sovereignty to being subject to “euro zone” decisions, including those on which Britain participates. That is to say, extending the “two tracks” tradition of the European Union to fiscal policy (including state budgeting and taxation) could mean that an “outer” state such as Britain is negatively impacted by a decision made by the players in the “inside track” and yet not be able to have any formal involvement in the decision-making. Rectifying this would mean that the “outer” state government could participate in “inside” policy while not be subject to it. Is the prospect of being negatively impacted by others’ policy sufficient in the E.U. to justify the right to vote on the policy even without being subject to it? It would seem that exasperating its “two track” tradition might put the Europeans in a double-bind. If so, it may be that E.U. state governments may all have to bite the bullet and cede more governmental sovereignty, whether or not they adopt the euro.

Source:

Bonnie Kavoussi, “Nicolas Sarkozy To David Cameron: ‘You Have Lost a Good Opportunity To Shut Up’,” The Huffington Post, October 24, 2011. 

Pressuring E.U. States: The Debt Crisis as Leverage

By mid 2012, the verdict was in on the German-led recipe for restoring states overwhelmed by public- or private-sector debt: Austerity is counter-productive in reducing government deficits. On June 6, 2012, the media reported: “Prolonged austerity is making it harder, not easier, for governments like Greece to become self-reliant again.”[1] Salaries and pensions in the private and the public sectors in the state had been cut by up to 50 percent, leaving Greece 495 million euros short of its revenue targets in the four months ending the previous April, according to the Greek Finance Ministry.[2] With less cash, consumers had to reduce spending, leading thousands of taxpaying businesses to fail. Income expected from a higher, 23 percent value-added tax required by the bailout agreement fell short by around 800 million euros in the first four months of 2012. That is partly because cash-short businesses that were once law-abiding started hiding money to stay afloat, tax officials said.

The complete essay is at Essays on Two Federal Empires.

1. Liz Alderman, “Greece Warns of Going Broke as Tax Proceeds Dry Up,” The New York Times, June 6, 2012.

2. Ibid.

Eurobonds for Stimulus Spending

Meeting on May 23, 2012, the E.U.’s European Council failed to come up with a plan to offset the recessionary aspect of Greece’s budget cuts. The pressure was on; the OECD had just warned that the E.U. go back into recession. Interest rates on state debt-namely that of Spain—had reached an unsustainable level the week before due to concern regarding banks based in the state. Besides the debt and banking vulnerabilities at the state level, the E.U. itself was struggling with its political weakness, which can be attributed to the states’ rights (or euro-skeptic) ideology that was not exactly going away in the context of the debt-contagion that had prompted the establishment of a permanent E.U. bailout fund for states in over their heads on debt. In this context, the European Council was at the intersection of debt, banking and political problems.

The full essay is at Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Unions and States at a G-8 Meeting

At the G-8 summit at Camp David in May 2012, E.U. and U.S. leaders met with the leaders of four E.U. states (Italy, Germany, France and Britain). As this picture illustrates, the qualitative differences between looking after a union of states and a state can show up unintentionally in informal seating arrangements. In the context of the European debt crisis—in particular, whether to give one state (i.e., Greece) stimulus cash or just insist on the austerity programs already agreed to—the governors of the E.U. states have particular agendas (given the financial interests of the respective states) whereas the federal officials are oriented to the good of the whole (i.e., the E.U.). President Obama of the U.S. was by the time of the summit used to taking such a perspective over and above the interests of particular U.S. states. Such a commonality of federal, empire-level interests as distinct from the relatively particularized interests of E.U. (and U.S.) states could be reflected in the seating arrangement in the picture taken by the White House, wherein Obama, Barroso (sitting next to Obama), and Van Rompuy (in the sweater) seem to be facing the four governors. The seating arrangement could just as easily have been a circle. It probably was, originally, and I suspect that the federal v. states distinction operated unconsciously on the participants such that the three federal officials came to be as though a line facing the four governors of E.U. states.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

Tsipras against Austerity: Merkel Bends on Stimulus

Under pressure to join a unity government in Greece with the New Democracy and Socialist parties, Tsipras of a “radical left” Syriza party was holding firm as of May 13, 2012. Even as the resulting prospect of new elections and a possible reneging on the agreement by Greece, there is something to admire in Tsipras’ position.

Greek president Karolos Papoulias meeting with leaders of the three main parties (Tsipras on right) AP

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Anti-Austerity in Greek Government

The Socialists and then the New Democracy Party told Greeks that sacrifices were necessary to avert default on the state’s debt. This position came at a high political cost on May 6, 2012, when both parties lost seats in the state’s legislative election. “The established parties collapsed — they had too much pressure from Berlin and Brussels and the I.M.F.,” said Nikos Xydakis, an newspaper editor and a political commentator, referring to Greece’s foreign lenders.[1] In other words, the leaders of the two mainstream Greek parties sold out their compatriots, having caved in to ultimatums from Merkel operating at the E.U. level. “In a meeting with President Karolos Papoulias, the leader of the leftist party, Alexis Tsipras, ridiculed the leaders of the two main parties whose coalition lost its majority in the parliamentary elections.”[2] Tsipras added that his party would not be forming a government with either party. The New Democracy Party had been unable to form a government in the wake of the election, so it was then Tsipras’ turn to try.

Alexis Tsipras  and Greek President Papoulias   NYT/Kostas Tsironis

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

1.. Rachel Donadio and Niki Kitsantonis, “Greek Leftists Rule Out Coalition with Incumbents,” The New York Times, May 8, 2012.
2. Ibid.

Justice as Fairness: Writing Down Greek Debt

In 2012, 80% of Greece’s private creditors agreed to “voluntarily” convert their Greek debt into debt of a bit less than half the face-value (plus a lower interest rate). With such a proportion having agreed to the swap without triggering credit default swap insurance payouts, Greece could get the E.U. to agree to force the remaining 20% to involuntary write-downs. That would trigger the credit default swaps, at least in theory.

The full essay is at "Justice as Fairness: Greek Debt."

A Rigid Refusal to Renegotiate: Blaming the Greeks

As Greek party leaders struggled to put together a government in May 2012 after a splintering election, a major (and contentious) issue was whether to demand a renegotiation of the bailout agreement. Alexis Tsipras, leader of the Coalition of the Radical Left known as Syriza (which made large gains in the election), was declaring the agreement null and void given the mandate implied by the gains made on the far right and left (both being opposed to the austerity program). Tsipras believed he “had changed the debate to the point that the formerly dominant parties that had signed the loan agreement were . . .  indicating they might agree to demand it be renegotiated.”[1] His statements were enough to prompt a firm Nein! from Angela Merkel in Berlin and a related “tightening of the screws” from the committee of the European Financial Stability Facility.

The full essay is at Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

1. Rachel Donadio and Niki Kitsantonis, “ContinuingLeadership Deadlock in Greece as Its Lenders Watch and Wait,” The New York Times, May 9, 2012.

dit Downgrades in the E.U.: Blaming the Messenger?

On January 13, 2012, “S&P stripped France and Austria of their prized triple-A credit ratings and reduced the ratings of seven other [states in the euro-zone], including Italy, Spain and Portugal. Germany, Finland, the Netherlands and Luxembourg were spared, along with Belgium, Estonia and Ireland.”[1] Italy was downgraded from single-A to triple-B-plus. "We think there are elements missing in their analysis … when it comes to the growth strategy … there is no space for maneuver for fiscal impetus but we believe that a growth strategy will have to rely mainly on structural reforms," Olivier Bailly, an E.U. Government spokesman, told reporters.[2] “Bailly also called the timing of the S&P decisions ‘very odd’ citing fiscal policies adopted to weather the crisis in the downgraded countries as well as the two successful debt auctions in Spain and Italy last week. ‘We think that there is a strange timing in this announcement considering the signals from the markets,’ Mr. Bailly said.”[3] The “very odd” and “strange timing” reference a tacit political motive behind S&P, which the European officials point out is an American company.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Christopher Emsden, Matina Stevis, and Bernd Radowitz, “E.U. Leaders Focuson ‘Progress’,” The Wall Street Journal, January 16, 2012.

2. Ibid.

3. Ibid.

Europe's Political Elite Takes on Popular Sovereignty in Greece

As October 2011 was coming to an end, George Papandreou, prime minister of Greece, “stunned Europe by announcing a referendum” on the latest bailout from the E.U. and set the vote for January 2012. Shocked E.U. leaders were doubtless shaking their heads with a mix of incredulity and frustration, as they had not even been consulted on the prime minister’s proposal. Meanwhile, the yields on Italy’s bonds continued to increase, as did the spread between German and Greek 10-year bonds. The world was left to whether the Greek voters would reject their government’s austerity plans and, relatedly, whether the E.U. would augment its bailout of the state as per the agreement reached only days before the prime minister’s announcement.

 Greek Prime Minister George Papandreou announcing the referendum    AP

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Greco-Roman Achilles’ Heel: Democracy or Leadership?

In assessing the abilities of the E.U. states of Greece and Italy to manage their respective debt-loads as expected by E.U. leaders, the impacts from the governance systems can be distinguished from the impact from compromised or failed leadership. In general terms, a forceful, visionary leader can leverage an existing governance system to “produce.” However, it is also true that a faulty system can make transformational leadership difficult if not nearly impossible.


The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

A Fifty-Percent Write-Down: Discounting Debt Insurance?

In “Europe’s Rescue Plan,” The Economist (October 29, 2011) opines on the “fixes” that had been announced just days before by E.U. leaders on the public debt crisis. I find three points of note that are particularly worth elaboration. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Slovakia Stands Up, Caves to the E.U.

On October 11, 2011, Slovakia’s Parliament failed to approve the expansion of the euro rescue fund, a development, The New York Times reports, that “brought down the government.”[1] Although the vote makes good copy, it was not at all as dire as the headline suggests. The state’s “leading opposition party said after the government fell that it would be willing to discuss support for the fund, pointing to the eventual approval of the deal. European officials in Brussels were counting on a political solution, but also weighing the possibility of some kind of messy workaround if Slovakia failed to pass the measure.”[2] In other words, the vote had to do with state politics as well as resistance to bailing out a richer state. Once the state government fell, pressure from the E.U. and the new politics in the state government quickly coalesced by the next day to produce a deal in support of expanding the bailout fund. According to The Washington Post, "opposition leader Robert Fico, head of the Smer-Social Democracy party, announced he had struck a deal with the remnants of Radicova’s coalition, promising to back the fund in exchange for early elections that analysts say Fico’s party is well positioned to win."[3] Doubtless that pressure from the E.U. was also in the mix, as E.U. officials were already hinting that the bailout fund could be expanded over the tiny state's objection. “We call upon all parties in the Slovak parliament to rise above the positioning of short-term politics and seize the next occasion to ensure a swift adoption of the new agreement,” European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso said in a joint statement.[4] In other words, hey guys, get your act together over there in Slovakia or else.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Nicholas Kulish and Stephen Castle, “Slovakia Rejects Euro Bailout,” The New York Times, October 11, 2011.
2. Ibid.
3. Anthony Fiana, "Slovakia Reaches Agreementon European Bailout Fund," The Washington Post, October 12, 2011.
4. Ibid.

The Debt Crisis: A Conflict of Interest Hampers the E.U.’s Response

“As the European Union enters a financial crisis in slow motion,” a Huffington Post reporter avers, “the fragile American economic recovery hangs in the balance. With Greece almost certain to default on its debt, European political leaders need to take decisive action to prevent a resultant string of bank runs and government defaults, which could precipitate double-dip recessions in Europe and the United States.”[1] If Greece suddenly defaults, Kavoussi reasons, other E.U. states “could leave the European Union to flee higher interest rates and to enable themselves to pay down their debt more easily by devaluing their currencies.”[2] Such an outcome, she claims, “would almost certainly plunge Europe into a recession.”[3] She observes, moreover, that “European politicians may lack the political will necessary to prevent the sovereign debt crisis from mushrooming into a global economic slowdown.”[4]

 

The complete essay is at Essays on Two Federal Empires.

1. Bonnie Kavoussi, “European Sovereign Debt CrisisThreatens American Economy,” The Huffington Post, September 27, 2011.

2. Ibid.

3. Ibid.

4. Ibid.