The 'Two Views' of Europe

There has been talk in the news recently of two contrasting views of the way Europe could emerge from the crisis: One strategy assumes it must take immediate steps toward debt mutualisation and needs either the European Central Bank (ECB) or an expanded European Stability Mechanism (ESM) to purchase distressed governments' bonds as soon as possible. Over time, this view has it, Europe would build the institutions needed to complement these policies: it would create a single bank supervisory body, build up the European commission's powers, and create a European Treasury, and strengthen the European parliament.

The other view being put forward is that to proceed with these new policies before the new institutions are in place would be reckless; it thinks that mutualising debts before European institutions have a veto over fiscal policies and going forward with capital injections before the single supervisory body is in place would only encourage more risk taking. Additionally, allowing the ECB to supervise the banks before the European parliament acquires the power to hold it accountable would worsen the EU's apparent lack of democracy.

The second view has not, however, placed democracy as its primary reason for the apparent reticence. It has mostly asserted that what is needed first is fiscal control over apparently unruly governments and state authorities, and that it wishes to build these institutions and powers first. Note that reckless government spending is put forward as the reason for this authority needing to be in place, even though it has been widely observed that private financial enterprises and banks have been the main source of needs for bail outs from public accounts. It is also not entirely evident that the European authorities such as they are prefer a political establishment or governments that are fiscally responsible in the terms that they seem to be suggesting. In fact they have supported New Democracy in Greece and the coalition including Pasok, which are the two parties that between them have the most responsibility for the lamentable condition of the state finances in Greece.

So is it a question of tardiness over fiscal authority due to possible risk, or merely unwillingness to move forward unless they have in place their preferred political parties? Or is it something else that is holding up proceedings? It does not appear to be a desire to have democracy in place first. In fact democracy would be a hindrance to the proposed fiscal authority, since it might not be wanted, and what we are seeing is a set of projections for the future put forward, already, by an authority. This authority decides to keep itself in the background, but from the talks on the need for fiscal authority it is clear that this desire must come from somewhere, from some already existing authority. This authority, therefore, is seeking greater powers, not mere existence, and it would be to reduce their powers to put their authority at the mercy of democratic oversight.

So in fact we have an already existing power deciding to delay because of the lack of power it perceives over its own authority. This power can see the reason for swift injections of capital to the European nations' central banks, but does not do so because, for some reason, it sees hurdles that must be overcome, such as to give it more power. So one of these reasons is presumably simply that it wants more power and can use monetary need as leverage, but is there other reasons? Capital injections from the ECB or ESM straight to banks would be a step on the road to mutualisation of Euro debt; the northern economies would be sharing the burden with the southern states that are in financial trouble, which would mean that their economies become more risky according to the markets. Perhaps this also could be a source of delay, a certain amount of protectionism of the northern economies. They are, after all, also capitalist competitors. As competitors, it stands to reason that some reward would be wanted for the sharing of risk, it is a point of strategic leverage, so this also implies more power is being sought, and that there is a lack of trust among competitors.

Is this central power guided by principles of European fraternity or is it guided by the principles of capitalism and neoliberal free market ideology? All factual evidence points to the latter. The logic of fiscal authority has been put forward under the banner of austerity and with the spin that it is profligate governments that are and have been to blame for the crisis, implicating democracy and the peoples' choices and sense of entitlement to welfare as a problem. There has been a particular focus on Greece where this story can be told in the most convincing fashion, because of its history and particular level of state corruption. Yet even in Greece the corruption of the state is due to private graft and the ability of the wealthy to escape from taxes, so that state money ends one way or another in private hands. Despite this, the 'troika' of lenders still wanted the old duopoly of state power to keep control, and threatened dire consequences if this was strayed from. And of course the state power persist with the austerity measures and the neoliberal ideology that it is peoples' entitlements that are the main cause of the crisis.

What does this ideology achieve? Three things: 1) it deflects from the real causes of the crisis; 2) in doing so deflects from the real solution to the crisis; 3) it pulls to the extreme right at a time when the left and socialism is resurgent. The extreme right is seen as political protection, a buffer, against the left, which have grown in stature (such as the rise of Syriza in Greece) simply as a result of the perceived failures of free market capitalism and neoliberal rightist policy. This left is not the standard left of duopoly politics but a new and more genuine kind, and is therefore not trusted by the traditional order.

Gary Tedman

Time to Change the Federal Reserve

by Norman Markowitz

Ben Bernanke, Chair of the Federal Reserve is "warning" Congress that "fiscal stimulus packages" meaning social spending and tax policies to increase purchasing power will not be a long term solution to the "credit crisis." Rather he is suggesting that more extensive bank bailouts may be necessary.

Bernanke isn't opposing the present bailout, but it is or should be obvious that he is still thinking in terms of reviving the financial system that he inherited from Alan Greenspan, since he isn't talking about serious reregulaton or any serious connection between finance capital "bailouts" and the job and income security except "old time trickle down religion" which was good enough for Coolidge and Hoover, Reagan, Clinton, and the two Bush presidents.

It is time for Congress to write a new national banking act that makes the chair of the federal reserve directly accountable to Congress and the President and gives the President with the consent of Congress the right to appoint and remove Federal Reserve chairs. It is also time to have the Federal Reserve work in concert with the Treasury and the Federal Government as a whole as part of a national economic program.

Although the "monetarism" most associated with the late Milton Friedman and carried forward in the U.S. by Alan Greenspan on the Fed has failed completely, a point that President Elect Obama made during the campaign without specifically mentioning monetarism or Friedman, monetary policy in conjunction with fiscal policy remains important in both containing the economic crisis and developing a healthy national economy based on higher real wages, greater overall labor skill, and greater income inequality, not mountains of debt and deepening income
inequality which has characterized the last thirty years of U.S. economic policy.

The Obama administration is hitting the ground running by focusing on the economic crisis and preparing to deal with it in its first days. This compares very favorably with Bill Clinton, who began his administration as if he had a hangover, half-heartedly and unsuccessfully advocated a modest fiscal stimulus package and then went on to one domestic policy disaster after another, seeking to win over the Republican opposition who handed him his lunch while he alienated the progressive mass constituencies of his party.

But Obama has a much taller order than just being a lot better than Bill Clinton or Jimmy Carter. Large numbers of Americans, and not just older Americans, expect him to be another Franklin Roosevelt, an agent of major , progressive change , of a new age of social-economic reform that will make future generations of Americans remember Ronald Reagan and George W. Bush the way Calvin Coolidge and Herbert Hoover were remembered after WWII, as relics of a discredited period of history.

Obama, like Franklin Roosevelt, has talked about "action and action now." He should start next week, both with fiscal policies to confront the economic crisis, policies to protect workers and
homeowners and regulate the way that the banks use the billions that they are getting, and also policies that change the Federal Reserve system, so that the chair of the Federal Reserve will no longer be the second most powerful "public official" in the U.S. with no serious accountability to the elected federal government.