February 20, 2012
When the left and the right are at one about something, you know there is something odd happening. Both the left and the right believe that Greece should not be lent any more money and, interestingly, they both see the banks as the only real beneficiaries.
For right-wingers and those who, in economics terms, believe broadly in what is called the Austrian school, lending to Greece is plain stupid. They say that lending to any entity that has a debt-to-income ratio of 160 per cent and an income that has just contracted by 6 per cent is lunacy. Would you lend to someone with that type of profile? The right believes that bankruptcy is not just unavoidable, but essential. For them, bankruptcy is a crucial part of capitalism.
When they see French and German banks – which have been defaulted on already by the first Greek haircut – negotiating to give the Greek government yet more money, they despair. They see the Greek people being put on the hook for the profligacy of the Greek government.
Because they believe in the notion of small government (the smaller, the better), they see little connection between what the government spends and what the people receive. If you believe that the government is an illegitimate oligarchy lining its own pockets, then putting the average citizen on the hook for the oligarchs is a scam.
People who believe in the Austrian school of economics also believe in something called “creative destruction”. This means that, when companies go to the wall, they more or less deserve to. More importantly, you only prolong misery by keeping such companies alive.
They therefore contend that many banks in Europe should be wound down. In fairness, this might yet happen if you think about what is happening with Greek debt and what might be next.
Initially, the banks that lent to Greece said they would not accept any haircuts on their loans. They insisted on being paid in full. Then they said they’d be willing to accept a 30 per cent default. A few months later, they are now saying they would be prepared to accept 60 per cent. If you are a true capitalist, the banks should accept 100 per cent default and, if they have to be put into administration, so be it. Creative destruction will take its course, and other banks – new banks – with new capital will emerge.
So, for the right, keeping Greece in bonded servitude with yet more new loans and no full debt default simply keeps the banks open to keep financing a corrupt oligarchy.
For the left, the conclusion is similar: the banks are being protected at the expense of the citizen. But they come to it from a different angle. The left (broadly) sees the citizen being asked to suffer austerity, yet there’s no austerity for the banks. The left also see the default of the banks as essential, not so much to teach the banks a lesson in capitalism, but because it is not fair to reduce public expenditure on hospitals and social welfare, and pay the banks in full with scarce money.
They also see what is going on, which is that the next bailout of Greece will extend money to the Greek government, but that they will use this money to pay the banks. Now this means that, gradually, the EU is socialising the banks’ debts because, if you’re using public money from Germany and France to bailout out Greece again, what are you actually doing? You are putting the average German taxpayer on the hook for the mistakes of French banks and others that are up their necks in Greek debt.
So both the left wing and the right wing are in agreement – that plodding from one crisis to the next is the wrong thing to do. So why is it happening?
Maybe what we are seeing is an unholy alliance between the interests of the financial markets casino, mainstream politicians and permanent bureaucracy, all of whom are interested in stability – more of the same.
The casino is interested in this because it makes money. The more the game goes on, the more money the casino makes, and the more the crisis is prolonged, the less it affects the short-term needs of politicians to get re-elected. The reason bureaucrats like stability is because they have created the status quo that we describe as political and institutional stability.
Consider the reaction of these three crucial players at the end of the week to the news that, after a bit of haggling, Greece will get another chunk of money to pay the banks next.
The financial market experienced mini-euphoria. The Greek debt mess is to be ‘resolved’ for another couple of months.
Greece will continue to limp on, it seems, with unemployment at 20 per cent and rising, collapsing economic output, widespread social unrest, rising poverty and inflation running at 5.5 per cent on an annualised basis. This is not good for Greece, but it’s good for the markets and the banks.
The politicians avoided a big decision, and the bureaucracy got more of the same. All the while, the rules of capitalism are mangled, yet the people who are supposed to be Ã¼ber-capitalists on trading floors and in investment banks cheered. The people are being asked to put up with more austerity, yet the social democrats in Europe hailed more money for the Greek state as a victory. And all the while, the enormous European machine demands more centralisation, which will create an even bigger bureaucracy to be nourished.
There has been a lot of talk these past few weeks about the “squeezed middle”. Well, what about the “bloated middle” – the comfortable “insiders” in the financial markets, the banks and the political bureaucracy who, in the face of difficulties, never get fazed, never change and never pay? After all, why make a drama out of a crisis?