The Euro Crisis and Its Rescuers: "We Do It For Us"
[Translation of an article by Peter Decker in Junge Welt, Nov 4, 2011]
In Germany, rulers and ruled agree: “We” have built a solid economy, lowered wages for over a decade in exemplary fashion, and strengthened the competitiveness of “our” economy. We have solid growth and our debts are under control. Now “we” must rescue the lazy Greeks, Portuguese, Irish, and who knows who else with new loans, because they have been “living beyond their means.” If “we” help, however, we also have the right to enforce new rules in Europe so that this never happens again. Even if the self-righteous German view has recently triumphed in Brussels and gains approval from the rest of Europe – not a single word in it is true.
Greece, like other countries, issues government bonds and sells them on the financial markets in order to make use of more money in its budget than it has taken in. A political power thinks no differently than a private capitalist about this, for debts are the great lever of profit. In pursuing its various goals, which range from economic stimulus to war, a state does not restrict itself to the funds provided by its home-grown capitalism, which it neither can nor wants to reduce in the form of taxes. Debt empowers a state to push ahead the development, growth and competitiveness of its national economy without being restricted to previously generated budgetary funds.
In gratitude for this essential service, states are willing to subordinate the exercise of their power to the standards and requirements of the financial sector. Because this freedom has a price: for disposal over funds that are unlimited in principle, governments pledge the fiscal rewards of a capital growth that they hope to launch with economic-political expenditures that they couldn't achieve without it; after all, they govern a private and not a planned economy. The profit striving of private capitalists must yield the growth they aim at; in the national debt, this becomes an objective constraint. It must be achieved and collected in the form of increased tax revenues, so that the debt continually secures the confidence of creditors, and the growth promoted in this way can always continue. The expenditures which pay for teachers, highways and tanks are not capital investments, but government expenses; money that is consumed. Nevertheless, these expenditures must function in their totality as if they were capital investments. The whole country must function for the state as a profit machine that yields more in taxes every year.
Bankrupt Greece has to strive to organize its territory into a machine as successful as “model” Germany. If the ratio of accumulated national debt to gross domestic product looks different in the two countries – in Germany, somewhat over 80 percent of GDP, in Greece in 2009 116 percent, now 160 (the additional 45 was incurred because the country lost its credit in the financial markets), then this only shows that the expenses for the improvement of economic conditions were less tranformed into new capital growth in Greece than in Germany.
In the European Single Market, the Greek economy is inferior to the German, French, etc. competition. It can, on balance, sell less profitably in the partner states than vice versa. The Greek national debt therefore proves to be less effective at promoting growth for its local capital than for non-Greek EU capital. In the growth of the Greek debt, Germany especially can see where the purchasing power originates that its economy so successfully skims off in the single market: not from univeral growth, but from the growing debts of its partner.
Whether everything tips over into over-indebtedness, whether or not Greece has “lived beyond its means,” is not decided by an objective quantity, but by financial capitalist investors. As long as they buy a country's debt, it is solvent and can pay the interest due. It loses its credit in the capital markets not because it has become definitively overindebted; it is, vice versa, over-indebted and bankrupt as soon as the financial institutions, for reasons of their own, no longer give it credit. These reasons include not only the speculative assessment of the country's prospects for growth, hence its “debt sustainability,” but nothing less than the assessment of their own business situation, the more or less dubious state of their other assets and their resulting “risk appetite.” If it dwindles, banks withdraw credit from nations that they previously granted it to without hestitation, despite their debt situation not having changed. In this way, finance capital empowers and disempowers states according to its business calculations. And the states themselves have granted this power.
Credit power defense
Why help the “broke Greeks”? Chancellor Angela Merkel: “We don't do it for the Greeks, but for us, for the euro”!
One may accept that European solidarity has nothing to do with help and certainly nothing nothing to do with German selflessness. The Greek bankruptcy makes it rather clear to the chancellor and her colleagues that, first of all, the credit of the nations that have formed a common currency can't be properly separated and that, secondly, it is generally not good for the credit in the euro zone: the European major banks would be ruined by the dozen if they had to write off their holdings of Greek government bonds. This suggests that these, like the other national debts of the euro zone, have become not merely national concerns, but “base investments” and means of business of all euro-banks. It also reveals that the remaining business of these financial institutions are neither solid nor profitable enough to swallow losses on Greece.
The euro-zone states recognize that it is not not only Greece, but their own credit that is at stake, in the form of a fear – one that has since occurred – of “contagion” from Portugal, Ireland, Spain, Italy, etc. The image of healthy states being infected by a Greek germ certainly glosses over the situation: If these states are in danger of losing their credit in the financial markets, if the currency union drops even one of its members, then they can apparently no longer justify their debts by the capitalist efficiency of their economies, but – at least so far – only by membership in the EU, by which a lot of indebted powers vouch for each other.
This is also true in its own way for Germany, which is the crucial guarantor of the euro: It first and foremost created it; its national credit embodied in the D-Mark opened itself to a much broader area of application and thereby conquered the rank of second world currency (after the US dollar) in which almost 30 percent of the world's currency reserves are held. Its almost unlimited power to create credit arises, like America's, from this international standing, and this is what the German state could lose and thus has to defend. That's why there is no turning back to the D-mark for German politicians, but only forward to more Europe.
Doubts about credit rating
Finance capital has doubts about the credit of the European states – and not just theirs – not because of an isolated case of mismanagement in little Greece, but because of its own crisis which started in 2008 and is still not overcome, but only shifted to new fields. At that time, the global banks no longer believed in the redeemability of the interest and expansionary promise of their investment vehicles. They retreated and destroyed these financial assets as quickly as they had previously created them by loaning and borrowing them. In this industry, the assets of one consists of nothing but the debts of another, and the inability of the debtor to pay ruins the creditor. The end of the chain reaction of breakdowns would have destroyed the global banking system if the states had not intervened. The many hundreds of billions in bailouts bears witness to how fundamentally important the enrichment of the banks is for them: the speculative business with debt and earnings expectations is not some dodgy addition to and superstructure over an economy which depends on something else; it is not even a private business like any other, which may also sometimes collapse.
The states authorize the “systemic importance” of the business of the banks – and only theirs: It is the elixir of life of its economy and the source of its power. Everything in the society is dependent on its success – and thus also subordinated to it. The much-vaunted real economy functions only with credit and only has the task of providing material for the expansion of finance capital. As soon as the banks no longer trust it or grant it more credit, the production and selling of necessary goods is no longer worthwhile and gets cut back or discontinued. The savings and cash reserves of the citizens are kept in the form of securities, interest-bearing claims, and even the money existing and circulating as credit notes on bank accounts consists in debts the banks have to their customers. If banks collapse, the money is gone, the people expropriated, the payment transactions break apart and producing and selling along with it. No effort is too high for the state to rescue them: it is the rescue of the system itself.
The bailout of the banks enables one to see something that is overlooked in normal times: The creditworthiness of the banks, their legal authority as universal creditors and debtors, is the doing of political power. They can “refinance” their business with debts to the state's central bank, ie exchange the debts they hold for fresh cash, liquid assets. It is not only in the event of a crisis that the central bank guarantees commercial banks the crucial equation of debts and money – and in this way creates their power.
The states borrow the money with which they prop up the bankrupt banks and replace their lost capital in the capitalistically correct form of new state debts on the capital markets. They ultimately incur these debts not to kick off economic growth, but only to stabilize financial values that have been devalued by the markets themselves. They multiply their debts and debt obligations – but not the sources from which these obligations could be met. This is precisely what the banks hold against their rescuers: they are ever more of the belief that the state debtors can no longer service the interest of their growing debt burdens on time. They sell off their bonds, refuse to purchase new ones and drive the relevant states into bankruptcy.
In this way, finance capital touches on the circular foundations of its own power: on the one hand, it guarantees, with its willingness to buy the debts of the states, their creditworthiness and financial power; on the other hand, the states, with their sovereign credit and their power over money, guarantee the solvency and creditworthiness of the banks. In good times, the indispensable symbiosis for both sides constitutes the infamous dynamism of capitalism and the financial power of the state. Now it is seriously damaged: now Europe is facing another banking crisis because of dubious state debts; and only the state debt-maker whose creditworthiness is being questioned is in a position to rescue the situation once again.
“Help” versus sovereignty
The EU represents the systemic crisis of its credits in the typical way. On the one hand, the German, French and other governments recognize that they cannot simply allow the devaluation and collapse of the euro-denominated debts of the partner. The only thing left is the questionable funds that they have already used in the bank bailouts: They must once again issue new state debts in order to impress the financial markets with their determination to make loans to Greece, etc. where the markets have lost confidence. On the other hand, they would not think of sharing their still-trustworthy national credit with the partners, i.e. fusing the national debt and debt service in the euro-zone and connecting the fate of their own national credit to the partner. Everything that points in that direction – Euro-bonds, a banking license for the European Financial Stability Facility, appointing the European Central Bank with the crediting of the insolvent partner – Berlin rejects.
Germany wants to defend the credit of the euro zone, but also the difference between its own good creditworthiness and the dubious south-European creditworthiness. One does not give away one's national advantage – and an unconditional guarantee of the partners also harms one's own credit, possibly ruins it: already the ratings agencies threaten to take away the top rating for Germany's and France's bonds. The rescuers have reason to fear distrust in their own, by no means tiny, debts: they lose their credit if they can't rescue the Euro-zone, and they risk losing it if they commit the resources it takes to rescue it. Hence, convincing guarantees never come about. Instead, a guarantee fund with a limited amount of financing is established from the outset, one which is immediately recognized as insufficient. Then the guaranteed amount is filled with financial-technical tricks – “levers” – so that the risks and obligations do not mount for the guaranteeing partners. In the meantime, it is hoped that a lesser guarantee for a larger mass of risky national debt (only 20 percent of its value is insured) may achieve what the 100 percent guarantee for the unsold securities on the market has not yet achieved: to provide the uncertain financial capitalists with the certainty of their own enrichment, which is what they need to generate a renewed willingness to invest in European state bonds.
The EU consists of rival capitalist states, which also want to remain that way. They do business with one currency, but this Union does not actually want to make common cause, keep a budget, and take on and service the debts necessary for it. Its members join the common currency only for one thing, in order to better earn money together. Abolishing the nation states in the euro-zone, which the financial-political sovereignty of the partner brings up more and more, is out of the question for the German government and others. What the chancellor wants to impose and aims at with the appropriate contract changes, she demonstrates to the needy partners: They are blackmailed by their need into accepting budgetary commissioners from outside – at the moment, the “Troika” of the IMF, the EU and the European Central Bank – who organize their budgets and decide what money is still available for and what not.
In this way, the countries that need European credit help are forced to reduce their state spending until their budgets fit their weak economic performances and their low tax revenues. This adjustment reverses the usual order in capitalism, in which a state does not voluntarily drop its weapon. It goes into debt to promote the growth of capital on its territory; this growth, if it occurs, justifies the debt in retrospect. A state can hardly choose to adapt its debts to an unsatisfactory economic power and resign itself to waiting and seeing what happens. The bankrupt states are required to do without new debts and at the same time collect more taxes. They have only one objection to the impoverishment of their workers, public employees, students, retirees, namely that this remedy is a sure recipe for deepening the recession. Where growth only comes about with state debt, shrinking budgets more or less paralyze the economy.
Impoverishment and resentment
In Greece, the relation of government debt to GDP does not get better through budget cuts, but continues to deteriorate. The German “rescuers” find this regrettable, but unavoidable. They help the euro, not the Greeks. For them it is a matter of impressing the markets with the assertiveness of the German savings regime. It is not important to them if capital grows again in Greece.
Merkel and German Finance Minister Schäuble aim to extend financial supervision over the national budget management of all the members of the Euro-zone: these states must compete nationally in the single market for economic growth, but they may no longer use the decisive means of this competition on their own. They have to put service to the European money above their own national benefit. They should no longer go into debt for growth according to their calculations, but they have to earn through previous growth the right to use European credit. The German government with its boom of recent years hopes that creating such a treaty does not put any shackles on its ability to go into debt, but will irreversibly subordinate the partner to the primacy of the EEC's money.
The politics of the euro rescue, with its guarantees and budget cuts, does not overcome the crisis that originated in the financial crisis, but enforces its consequences. What else? On the side of state debts, the acknowledgement that a rescue is hopeless has been reached. It's no longer about preventing their devaluation, but avoiding the chain reaction that they threaten to trigger. A 50 percent debt should make the rest of the Greek debt credible; that again needs European guarantees and new help for the banks to absorb the losses that an admission of the worthlessness of their papers requires.
The austerity budgets in the service of financial credibility bring the prospect of another recession, which the states answer with the further impoverishment of their citizens. Meanwhile, the severity of the crisis competition between the states is growing just as fast as the mutual nationalist resentment of their peoples. It just goes downhill as long as finance capital does not find any reason to believe in the future of its profits. And as long as the people are willing to wait.