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A Letter to Goldman Sachs’s Lloyd Blankfein
A Letter to Goldman Sachs‘s Lloyd Blankfein
An Open Letter to Goldman Sachs CEO Lloyd Blankfein
To: Lloyd C. Blankfein, Goldman Sachs
Mr. Blankfein,
So, I’ve been writing these letters to bank CEOs where I gently rib them about stuff like “being abysmally terrible at their jobs” and “openly stealing from the general populace” and “having the morality of a supervillain” and stuff like that. You know. The usual. And so I was writing one to you about what a terrible businessman you are, and how you had to get your old boss to give you $64 billion because of how badly you suck at being a CEO. Ha, ha. It was going to be funny.
So I was doing research to find more things to make fun of you about. But I kept reading more and more about what a hive of scum and villainy your company actually is, and the more I read the less I felt like being funny. Because, you know, whatever. Any jackass can illegally accept naked short sales or underwrite bonds and encourage people to short those bonds or help Greece hide the true nature of its debt in order to make some extra cash, causing long-term damage to not just Greece but the whole Eurozone and therefore the world economy–which is at risk of going under (again!) partially because of your nefarious deeds (again! I guess you can fool people twice!). Hell, I could do that.
But really it was in finding out that your company’s creation of the Goldman Sachs Commodity Index helped literally starve millions of people that I stopped feeling jokey and started actually feeling pity for you.* That’s the worst thing to feel for somebody, Lloyd, because it means I consider you less than me. You know what? I do!
I’m asking this honestly: How do you sleep at night? I know that sounds all melodramatic, but when I’ve, you know, inadvertently hurt somebody‘s feelings, I have trouble getting any rest at all. I can’t imagine ever getting a bit of shut-eye again if I found out I helped artificially drive up the price of wheat in the greatest year of plenty the world had ever known, pushing 250,000,000 more people to the breaking point and causing food riots in thirty countries.
You must either have a really comfortable bed or a metric boatload of Ambien. Or no conscience whatsoever, and such broken morality that you don’t realize what damage your little money games are causing the planet
.
No, I’m just playing, I’m sure you’re a great guy. Ha, ha.
Dave
New York, NY 10039
* See Frederick Kaufman, “The Food Bubble: How Wall Street Starved Millions and Got Away with It, Harper’s, July 2010.
Cuts to healthcare spending putting Spaniards’ lives at risk, report finds
Austerity kills is the message of a study published by the ‘British Medical Journal’
Austerity measures could mean the dismantling of a large part of the Spanish health system and significantly damage the health of the population, according to a study published in the British Medical Journal on Thursday.
The authors of the report warn that if the trend does not change, there is a risk that Spain will experience a spiral of health problems that could mean an increase in infectious diseases such as tuberculosis and HIV.
One part of the research consisted of interviewing 34 doctors and nurses in Catalonia. The majority said they felt “shocked, numbed and disillusioned” about the cuts, and some expressed fears that the austerity measures would “kill people,” the researchers said.
The report highlighted that healthcare and social services cuts of almost 14 percent at the national level and of 10 percent at the regional level in 2012 had coincided with an increase in demand for care, especially on the part of senior citizens, the disabled and the mentally ill.
Researchers also identified an increase in cases of depression, alcoholism-related diseases and suicides in Spain since the crisis began.
“If no corrective measures are implemented, this could worsen with the risk of increases in HIV and tuberculosis, as we have seen in Greece, where healthcare services have had severe cuts, as well as the risk of a rise in drug resistance and spread of disease,” said Helena Legido-Quigley, a lecturer in global health at the London School of Hygiene & Tropical Medicine, who worked on the study.
The report also noted that Spain had one of the lowest healthcare budgets in the European Union as a proportion of GDP.
via Cuts to healthcare spending putting Spaniards’ lives at risk, report finds | In English | EL PAÍS.
Neoliberalism has spawned a financial elite who hold governments to ransom
The International Monetary Fund has admitted that some of the decisions it made in the wake of the 2007-2008 financial crisis were wrong, and that the €130bn first bailout of Greece was “bungled”. Well, yes. If it hadn’t been a mistake, then it would have been the only bailout and everyone in Greece would have lived happily ever after.
Actually, the IMF hasn’t quite admitted that it messed things up. It has said instead that it went along with its partners in “the Troika” – the European Commission and the European Central Bank – when it shouldn’t have. The EC and the ECB, says the IMF, put the interests of the eurozone before the interests of Greece. The EC and the ECB, in turn, clutch their pearls and splutter with horror that they could be accused of something so petty as self-preservation.
The IMF also admits that it “underestimated” the effect austerity would have on Greece. Obviously, the rest of the Troika takes no issue with that. Even those who substitute “kick up the arse to all the lazy scroungers” whenever they encounter the word “austerity”, have cottoned on to the fact that the word can only be intoned with facial features locked into a suitably tragic mask.
Yet, mealy-mouthed and hotly contested as this minor mea culpa is, it’s still a sign that financial institutions may slowly be coming round to the idea that they are the problem. They know the crash was a debt-bubble that burst. What they don’t seem to acknowledge is that the merry days of reckless lending are never going to return; even if they do, the same thing will happen again, but more quickly and more savagely. The thing is this: the crash was a write-off, not a repair job. The response from the start should have been a wholesale reevaluation of the way in which wealth is created and distributed around the globe, a “structural adjustment”, as the philosopher John Gray has said all along.
The IMF exists to lend money to governments, so it’s comic that it wags its finger at governments that run up debt. And, of course, its loans famously come with strings attached: adopt a free-market economy, or strengthen the one you have, kissing goodbye to the Big State. Yet, the irony is painful. Neoliberal ideology insists that states are too big and cumbersome, too centralised and faceless, to be efficient and responsive. I agree. The problem is that the ruthless sentimentalists of neoliberalism like to tell themselves – and anyone else who will listen – that removing the dead hand of state control frees the individual citizen to be entrepreneurial and productive. Instead, it places the financially powerful beyond any state, in an international elite that makes its own rules, and holds governments to ransom. That’s what the financial crisis was all about. The ransom was paid, and as a result, governments have been obliged to limit their activities yet further – some setting about the task with greater relish than others. Now the task, supposedly, is to get the free market up and running again.
But the basic problem is this: it costs a lot of money to cultivate a market – a group of consumers – and the more sophisticated the market is, the more expensive it is to cultivate them. A developed market needs to be populated with educated, healthy, cultured, law-abiding and financially secure people – people who expect to be well paid themselves, having been brought up believing in material aspiration, as consumers need to be.
So why, exactly, given the huge amount of investment needed to create such a market, should access to it then be “free”? The neoliberal idea is that the cultivation itself should be conducted privately as well. They see “austerity” as a way of forcing that agenda. But how can the privatisation of societal welfare possibly happen when unemployment is already high, working people are turning to food banks to survive and the debt industry, far from being sorry that it brought the global economy to its knees, is snapping up bargains in the form of busted high-street businesses to establish shops with nothing to sell but high-interest debt? Why, you have to ask yourself, is this vast implausibility, this sheer unsustainability, not blindingly obvious to all?
Markets cannot be free. Markets have to be nurtured. They have to be invested in. Markets have to be grown. Google, Amazon and Apple haven’t taught anyone in this country to read. But even though an illiterate market wouldn’t be so great for them, they avoid their taxes, because they can, because they are more powerful than governments.
And further, those who invest in these companies, and insist that taxes should be low to encourage private profit and shareholder value, then lend governments the money they need to create these populations of sophisticated producers and consumers, berating them for their profligacy as they do so. It’s all utterly, completely, crazy.
The other day a health minister, Anna Soubry, suggested that female GPs who worked part-time so that they could bring up families were putting the NHS under strain. The compartmentalised thinking is quite breathtaking. What on earth does she imagine? That it would be better for the economy if they all left school at 16? On the contrary, the more people who are earning good money while working part-time – thus having the leisure to consume – the better. No doubt these female GPs are sustaining both the pharmaceutical industry and the arts and media, both sectors that Britain does well in.
As for their prioritising of family life over career – that’s just another of the myriad ways in which Conservative neoliberalism is entirely without logic. Its prophets and its disciples will happily – ecstatically – tell you that there’s nothing more important than family, unless you’re a family doctor spending some of your time caring for your own. You couldn’t make these characters up. It is certainly true that women with children find it more easy to find part-time employment in the public sector. But that’s a prima facie example of how unresponsive the private sector is to human and societal need, not – as it is so often presented – evidence that the public sector is congenitally disabled.
Much of the healthy economic growth – as opposed to the smoke and mirrors of many aspects of financial services – that Britain enjoyed during the second half of the 20th century was due to women swelling the educated workforce. Soubry and her ilk, above all else, forget that people have multiple roles, as consumers, as producers, as citizens and as family members. All of those things have to be nurtured and invested in to make a market.
The neoliberalism that the IMF still preaches pays no account to any of this. It insists that the provision of work alone is enough of an invisible hand to sustain a market. Yet even Adam Smith, the economist who came up with that theory, did not agree that economic activity alone was enough to keep humans decent and civilised.
Governments are left with the bill when neoliberals demand access to markets that they refuse to invest in making. Their refusal allows them to rail against the Big State while producing the conditions that make it necessary. And even as the results of their folly become ever more plain to see, they are grudging in their admittance of the slightest blame, bickering with their allies instead of waking up, smelling the coffee and realising that far too much of it is sold through Starbuck
Why Europe can’t just “fix” youth unemployment
Our problems are not due to a lack of innovative ideas; they are due to an excess of financial power concentrated in the hands of an elite of bankers.
For years already, the youth of Europe’s heavily indebted periphery has been facing mass unemployment. In Greece and Spain, a respective 59 and 56 percent of young people are now out of work, while youth unemployment in the EU as a whole currently stands at a troubling 24 percent, up from 22.5 percent last year. The “lucky” ones are those waiting tables with PhD degrees in their back pockets. Those who were forced to leave their families and friends behind to join the generational exodus to Germany or Angola don’t even show up in the statistics.
In recent weeks, European leaders somewhat belatedly seem to have become mightily interested in the issue. Italy’s new Prime Minister Enrico Letta called youth unemployment the most serious problem facing his country and called for an EU plan to “combat” it. German Chancellor Angela Merkel, flag-bearer of the European austerity movement, similarly considers youth unemployment to be “Europe’s biggest challenge.” Meanwhile, a new campaign by Big Think somewhat naively asks “what’s causing youth unemployment and what can fix it?”
Apart from the obvious hypocrisy of these concerns — coming from the lips of the same officials whose unrelenting insistence on austerity, neoliberal reforms and full debt repayment largely caused the unemployment crisis to begin with — this newfound sympathy for our generation’s plight hinges on a dangerous assumption that serves to ideologically re-construct youth unemployment as a “problem” that can somehow be “solved” with a magic fix or a continental master plan — without addressing the underlying causes of austerity, depression, and a fundamentally unsustainable debt load, let alone the internal contradictions of the eurozone and globalized financial capitalism more generally.
It should be clear to any intelligent person by now that youth unemployment is not a problem in the ordinary sense of the word; it is a symptom of a much more deep-seated disease that’s breaking down our society from within. Other symptoms include the rise of neo-Nazism and xenophobic violence in Greece; the wave of suicides across Southern Europe; the 400.000 families that have been evicted from their homes in Spain; the thousands of starving horses that have been abandoned by their owners in Ireland; the UK students who had their tuition fees tripled and now face the prospect of either dropping out, studying abroad, or accruing massive student debts; the eurozone record levels of mortgage debt held by Dutch households, etc., etc. — not to mention the thorough discrediting of democratic institutions and the massive riots that have rocked major European capitals like London, Athens, Madrid, Lisbon and Rome.
But European leaders seem blind to the metastasis of misery that has crept into the social fabric of our continent. Wouldn’t it be great, they now seem to tell us, if we could have crippling austerity, an increasing debt load, a devastating social crisis, starving pensioners, the return of fascism, a wave of suicides and mass deprivation — but without the youth unemployment? I’m not buying this story, and I don’t think any of us should. The attempt to cast the current crisis in generational terms serves to drive a wedge between us and our unemployed, indebted and/or retired (grand)parents. It serves to co-opt the youth in the ongoing wave of neoliberal reforms, making us believe it is in our best interest to crack down on the labor rights, jobs and pensions of our parents so we ourselves can better compete for the increasingly precarious jobs of the future.
The real reason European leaders are suddenly so concerned about youth unemployment — while they remain unmoved by the plight of Greek AIDS patients, for instance, who now can’t get their anti-retroviral drugs — is simply that they are terrified by the prospect of social unrest. As the New York Times reported today, “it is clear that policy makers are seriously worried that millions of frustrated young job seekers pose as much of a threat to the euro zone as excessive government debt or weak banks.” German Finance Minister Wolfgang Schäuble literally admitted that “We will have to speed up in fighting youth unemployment, because otherwise we will lose the support, in a democratic way, in some populations of the European Union.” What they fear, in other words, is a continent-wide youth uprising. At its worst, their plans to “fix” youth unemployment serve to distract us from the obvious class dimension at play, promoting the illusion that the social crisis we face is just a series of economic problems that can be fixed without radical changes to the political status quo.
The inconvenient truth is that unemployment is an integral element of the neoliberal policy response to the crisis pursued by the European Union and the IMF. This, in itself, is nothing new. IMF austerity programs in the developing world have long involved dramatic reductions in wages and rises in unemployment. Careful quantitative analysis of the Latin American debt crisis of the 1980s has shown that “the most consistent and statistically significant impact of Fund programs in Latin America … was the reduction in labor share of income.” Even official IMF studies recognize that its austerity programs “boost unemployment and lower paychecks.” Most importantly, the authors of a 2011 IMF report, Painful Medicine, conclude that austerity causes not just short-term but “particularly long-term unemployment.”
In other words, asking for austerity measures without youth unemployment is like insisting on the medieval practice of blood-letting without the blood-loss. It is not only brutal, but also practically impossible. Austerity and unemployment are like Siamese twins, conjoined at the hip, designed to strengthen and reinforce one another. As long as the EU and IMF keep imposing these highly destructive adjustment measures, unemployment will keep on rising. The only genuine “solution” to unemployment, therefore, would be to break free from the shackles of austerity and to default on the foreign debt. This is the reformist vision pursued by SYRIZA in Greece, and despite the lack of revolutionary imagination of this quasi-Keynesian approach, there is certainly something to be said for it from a humanitarian point of view.
At the same time, I have now written some 50,000 words on this question — why not default? – for my PhD thesis, showing precisely why the option of default is often so elusive. In a word, default would greatly harm the interests of foreign private creditors, who just happen to control virtually all the critical resources in the global economy, giving them a disproportionate ability to block the type of solutions that would favor the unemployed. So to get to the phase where we can even realistically start considering genuine “solutions” to the “problem” of youth unemployment, we first have to confront the financial power structures that obstruct the pursuit of such solutions to begin with. This requires much more than a continental master plan to combat youth unemployment. It requires a radical break with the status quo.
Our problems, in short, are not due to a lack of innovative ideas; they are due to an excess of financial power concentrated within the hands of a tiny elite of bankers. This means we have to dramatically reformulate our question. Rather than asking what innovative ideas can solve the problem of youth employment, we should be asking what type of strategies could upend the structural power of international creditors. This leads us away from economics and back into the realm of revolutionary theory and praxis. How could Europe’s downtrodden youth ever possibly conceive of shaking the global financial order? It is to this impossible question that I will turn in my next post.
via Why Europe can’t just “fix” youth unemployment | ROAR Magazine.
IMF Rethinks Sovereign Defaults, Again
I noted back in January that the IMF had started to do its own “lessons learned” on its European financial crisis response and had begun to admit it had made some fairly terrible mistakes in its assessment of the debt sustainability of a number of nations, including Greece, under its current programs.
Late last week the IMF released another discussion paper (available below) that covers recent developments in sovereign debt restructures and their effect on IMF policy. The paper concludes that:
First, debt restructurings have often been too little and too late, thus failing to re-establish debt sustainability and market access in a durable way. Overcoming these problems likely requires action on several fronts, including
(i) increased rigor and transparency of debt sustainability and market access assessments,
(ii) exploring ways to prevent the use of Fund resources to simply bail out private creditors, and
(iii) measures to alleviate the costs associated with restructurings
Second, while creditor participation has been adequate in recent restructurings, the current contractual, market-based approach to debt restructuring is becoming less potent in overcoming collective action problems, especially in pre-default cases. In response, consideration could be given to making the contractual framework more effective, including through the introduction of more robust aggregation clauses into international sovereign bonds bearing in mind the inter-creditor equity issues that such an approach may raise. The Fund may also consider ways to condition use of its financing more tightly to the resolution of collective action problems;
Third, the growing role and changing composition of official lending call for a clearer framework for official sector involvement, especially with regard to non-Paris Club creditors, for which the modality for securing program financing commitments could be tightened; and
Fourth, although the collaborative, good-faith approach to resolving external private arrears embedded in the lending into arrears (LIA) policy remains the most promising way to regain market access post-default, a review of the effectiveness of the LIA policy is in order in light of recent experience and the increased complexity of the creditor base. Consideration could also be given to extending the LIA policy to official arrears.
In short, the assessments of debt sustainability have been woeful, there aren’t strong enough binding terms (read CACS) in sovereign securities, the official sector, but not the IMF itself, need to play a part in defaults and the IMF should investigate the optimal debt resolution mechanisms available for negotiating between creditors and debtors.
The paper discusses the implication of the ongoing litigation against Argentina as well as the experience of the fund in the recent case of Greece. Of note is the admission by the fund that it was forced to lower its assessment of the country due to contagion worries from the official sector in Europe:
Accordingly, when a member’s sovereign debt is unsustainable and there are concerns regarding the contagion effects of a restructuring, providing large-scale financing without debt relief would only postpone the need to address the debt problem.
Instead, the appropriate response would be to deal with the contagion effects of restructuring head-on by, for example, requiring that currency union authorities establish adequate safeguards promptly and decisively to cushion the effect of spillovers to other countries (via, e.g., proactive recapitalization of creditor banks, establishment of firewalls, and provision of liquidity support). In the context of the first Greece program, financial assistance was delayed until Greece had lost market access. In response to concerns about possible spillovers from debt restructuring, the Fund lowered the bar for exceptional access (second criterion) by creating an exception to the requirement for achieving debt sustainability with a high probability in the presence of systemic inter national spillover effects. In light of these issues, the modification of the exceptional access policy could usefully be reviewed
In other words, Europe, and its banks, weren’t prepared for a Greek default so the IMF was forced to pretend that the country’s position was better than it actually was. That was obviously a mistake and the country, like many before it, was forced to take a second bailout followed by a re-structure that should have occurred up front. As noted by the paper:
A review of the recent experience suggests that unsustainable debt situations often fester before they are resolved and, when restructurings do occur, they do not always restore sustainability and market access in a durable manner, leading to repeated restructurings. While the costs of delaying a restructuring are well recognized, pressures to delay can still arise due to the authorities’ concerns about financial stability and contagion. Delays were also sometimes facilitated by parallel incentives on the part of official creditors, who accordingly may have an interest in accepting, and pressuring the Fund to accept, sanguine assessments of debt sustainability and market reaccess.
And:
In hindsight, the Fund’s assessments of debt sustainability and market access may sometimes have been too sanguine.
The existing DSA framework does not specify the period over which debt sustainability or market access is supposed to be achieved (although it is generally understood that debt would be sustainable within a five-year horizon) or how maximum sustainable debt ranges should be derived, leaving this mostly to Fund staff judgment. Sustainability was generally assessed on the basis of an eventual decline in the debt-to-GDP ratio—Argentina, Seychelles and St. Kitts and Nevis were the only three cases that provided for a quick and sizable reduction in the debt-to-GDP levels post-restructuring. St. Kitts and Nevis also targeted an explicit debt threshold, i.e., the ECCU debt target of 60 percent of GDP by 2020. Most other cases allowed more than five years for the debt level to fall significantly below safe levels.
For example, in Greece the debt-to-GDP ratio in the most recent program projections is not expected to be reduced substantially below 110 percent before 2022, while in the forthcoming Fund-supported program with Jamaica, debt is still projected to remain close to 120 percent of GDP in five years’ time. In Grenada, the debt ratio at the end of the five-year horizon actually turned out much higher than staff projections at the time of the restructuring. Also, in Greece, Jamaica (2010) and Seychelles, staff medium-term debt projections have been revised upward substantially within only a few years compared to projections made at the time of the restructurings.
Also of note is the emphasis on the broader guidelines of the IMF programs , supporting countries sustainable return to private capital markets in a specific time-frame , and what that means in terms of the types of restructures that should be used and how, and when, the IMF can support them:
There may be a case for exploring additional ways to limit the risk that Fund resources will simply be used to bail out private creditors.
For example, a presumption could be established that some form of a creditor bail-in measure would be implemented as a condition for Fund lending in cases where, although no clear-cut determination has been made that the debt is unsustainable, the member has lost market access and prospects for regaining market access are uncertain.
In such cases, the primary objective of creditor bail-in would be designed to ensure that creditors would not exit during the period while the Fund is providing financial assistance. This would also give more time for the Fund to determine whether the problem is one of liquidity or solvency. Accordingly, the measures would typically involve a rescheduling of debt, rather than the type of debt stock reduction that is normally required in circumstances where the debt is judged to be unsustainable.
Providing the member with a more comfortable debt profile would also have the additional benefit of enhancing market confidence in the feasibility of the member’s adjustment efforts, thereby reducing the risk that the debt will, in fact, become unsustainable. While bail-in measures would be voluntary (ranging from rescheduling of loans to bond exchanges that result in long maturities), creditors would understand that the success of such measures would be a condition for continued Fund support for the adjustment measures. Such a strategy—debt rescheduling instead of debt reduction—would not be appropriate when it is clear that the problem is one of solvency in which case reducing debt upfront to address debt overhang and restore sustainability would be the preferred course of action.
In light of the ongoing litigation against Argentina the paper also appears to be pushing for two things, firstly the introduction of a standard across-the-board mechanism to support collective action clauses, and resolution, within the sovereign debt markets:
Recent experience indicates that the contractual, market-based approach has worked reasonably well in securing creditor participation and avoiding protracted negotiations. But these episodes have also foreshadowed potential collective action problems that could hamper future restructurings. These problems are most acute when a default has not yet occurred, large haircuts are needed to reestablish sustainability, and sovereign bond contracts do not include CACs. The ongoing Argentina litigation has exacerbated the collective action problem, by increasing leverage of holdout creditors. Assuming there continues to be lack of sufficient support within the membership for the type of statutory framework envisaged under the SDRM, avenues could be considered to strengthen the existing contractual framework.
—
These aspects of the Greek legislation resemble the aggregation features of the SDRM. The key differences between the framework envisaged under the SDRM and the Greek legislation is that the SDRM would be established through a universal treaty (rather than through domestic law),
apply to all debt instruments (and not just to bonds governed by domestic law), and be subject to the jurisdiction of an international forum (rather than the domestic courts of the member whose debt is being restructured). At this stage, there does not appear to be sufficient support within the membership to amend the Articles of Agreement to establish such a universal treaty.
—-
Complementing efforts to revamp CACs, the Fund may consider conditioning the availability of its financing more tightly to the resolution of collective action problems.
For instance, the use of high minimum participation thresholds could be required in debt exchange operations launched under Fund-supported programs to ensure broad creditor participation. Fund policy encourages members to avoid default to the extent possible, even after restructuring. An expectation of eventually being paid out in full may encourage holdouts. The use of high minimum participation thresholds would help reduce such incentives. The Fund could also routinely issue statements alerting creditors that securing a critical participation mass in the debt exchange would be required for the restoration of external stability—the implication being that failure to meet the
established minimum participation threshold would block future program financing, leaving no other option but default and protracted arrears.
Also, in pre-default restructurings, where collective action problems are most acute, the Fund could consider setting a clearer expectation (already allowed under existing policy) that non-negotiated offers by the debtor—following informal consultations with creditors—rather than negotiated deals, would be the norm, as in these cases speed is of the essence to avoid a default. These ideas could be explored in future staff work.
And the second area, that is also “to be explored in future staff work”, is what to do about the risks caused by asymmetry in the treatment of private and official sector creditors, something that was very apparent in the recent Greek restructure:
… arrears to private and official creditors are currently treated asymmetrically under Fund policy.
Private external arrears are tolerated but arrears to official bilateral lenders are not. This subjects the Fund to the risk that it could not assist a member in need due to one or more holdout official bilateral creditors who seek favorable treatment of their claims. Consideration could be given to extend the LIA policy to official bilateral arrears and in that context clarify the modality through which assurances of debt relief are provided by (non-Paris Club) official lenders. Another possibility would be for the Paris Club to extend its membership to all major lenders, so as to allow the Fund to rely on the Paris Club conventions with respect to financing assurances and arrears.
However, it is uncertain whether the Club could achieve such an expansion.
All up it’s an interesting paper and well worth the read if you are interested in this type of thing. The paper also has some discussion on the European crisis-resolution mechanism ( discussed in more detail here ) , although given recent back-steps from Europe on the banking union this looks to still be something of a distant dream at this point.
It will be interesting to see if this paper has any effect on future programs, but it does appear, if only very slowly, that the IMF is learning from past mistakes and attempting to shift policy in a direction to address that issue. It would appear, at least from this paper, that the IMF will be demanding a more realistic assessment of the debt sustainability of target nations and a greater use of up-front restructuring as a per-requisite for program engagement. We’ll have to watch the next steps in Europe to determine if this is simply a talking point or something the IMF board will action.
via IMF Rethinks Sovereign Defaults, Again « naked capitalism.
No austerity for EU military spending
High levels of military spending played a key role in the unfolding European sovereign debt crisis — and continue to undermine efforts to resolve it.
A new report by the Transnational Institute — ‘Guns, Debt and Corruption: Military Spending and the EU Crisis’ — looks at the ways in which excessive militarization directly fed into the unfolding European debt crisis, and continues to undermine efforts to resolve it. Below the downlink links and infographic you can find the executive summary of the report.
Executive Summary:
Five years into the financial and economic crisis in Europe, and there is still an elephant in Brussels that few are talking about. The elephant is the role of military spending in causing and perpetuating the economic crisis. As social infrastructure is being slashed, spending on weapon systems is hardly being reduced. While pensions and wages have been cut, the arms industry continues to profit from new orders as well as outstanding debts.
The shocking fact at a time of austerity is that EU military expenditure totalled €194 billion in 2010, equivalent to the annual deficits of Greece, Italy and Spain combined.
Perversely, the voices that are protesting the loudest in Brussels are the siren calls of military lobbyists, warning of “disaster” if any further cuts are made to military spending. This paper shows that the real disaster has emerged from years of high European military spending and corrupt arms deals. This dynamic contributed substantially to the debt crisis in countries such as Greece and Portugal and continues to weigh heavily on future budgets in all of the crisis countries.
The power of the military-industrial lobby also makes any effective cuts less likely. This is perhaps most starkly shown in how the German government, while demanding ever higher sacrifices in social cuts, has been lobbying behind the scenes against military cuts because of concerns this would affect its own arms industry.
The paper reveals how:
High levels of military spending in countries now at the epicentre of the euro crisis played a significant role in causing their debt crises. Greece has been Europe’s biggest spender in relative terms for most of the past four decades, spending almost twice as much of its Gross Domestic Product (GDP) on defence as the EU average.Spain’s military expenditure increased 29% between 2000 and 2008, due to massive weapon purchases. It now faces huge problems repaying debts for its unnecessary military programmes.
As a former Spanish secretary of state for defence said: “We should not have acquired systems that we are not going to use, for conflict situations that do not exist and, what is worse, with funds that we did not have then and we do not have now.” Even the most recent casualty of the crisis, Cyprus, owes some of its debt troubles to a 50% increase in military spending over the past decade, the majority of which came after 2007.
The debts caused by arms sales were often a result of corrupt deals between government officials, but are being paid for by ordinary people facing savage cuts in social services. Investigations of an arms deal signed by Portugal in 2004 to buy two submarines for one billion euros, agreed by then-prime minister Manuel Barroso (now President of the EU Commission) have identified more than a dozen suspicious brokerage and consulting agreements that cost Portugal at least €34 million. Up to eight arms deals signed by the Greek government since the late 1990s are being investigated by judicial authorities for possible illegal bribes and kickbacks to state officials and politicians.
Military spending has been reduced as a result of the crisis in those countries most affected by the crisis, but most states still have military spending levels comparable to or higher than ten years ago. European countries rank 4th (UK), 5th (France), 9th (Germany) and 11th (Italy) in the list of major global military spenders. Even Italy, facing debts of €1.8 trillion, still spends a higher proportion of its GDP on military expenditure than the post-Cold War low of 1995.
The military spending cuts, where they have come, have almost entirely fallen on people – reductions in personnel, lower wages and pensions – rather than on arms purchases. The budget for arms purchases actually rose from €38.8 billion in 2006 to €42.9 billion in 2010 – up more than 10% – while personnel costs went down from €110.0 billion in 2006 to €98.7 billion in 2010, a 10% decrease that took largely place between 2008 and 2009.
While countries like Germany have insisted on the harshest cuts of social budgets by crisis countries to pay back debts, they have been much less supportive of cuts in military spending that would threaten arms sales. France and Germany have pressured the Greek government not to reduce defence spending. France is currently arranging a lease deal with Greece for two of Europe’s most expensive frigates; the surprising move is said to be largely “driven by political considerations, rather than an initiative of the armed forces”. In 2010 the Dutch government granted export licences worth €53 million to equip the Greek navy. As an aide to former Greek prime minister Papandreou noted: “No one is saying ‘Buy our warships or we won’t bail you out.’ But the clear implication is that they will be more supportive if we do”.
Continued high military spending has led to a boom in arms companies’ profits and an even more aggressive push of arms sales abroad ignoring human rights concerns. The hundred largest companies in the sector sold arms to the value of some €318 billion in 2011, 51% higher in real terms compared to 2002. Anticipating decreased demand at home, industry gets even more active political support in promoting arms sales abroad.In early 2013 French president François Hollande visited the United Arab Emirates to push them to buy the Rafale fighter aircraft. UK prime minister David Cameron visited the Emirates and Saudi Arabia in November 2012 to promote major arms sales packages. Spain hopes to win a highly controversial contract from Saudi Arabia for 250 Leopard 2 tanks, in which it is competing with Germany – the original builder of the tank.
Research shows that investment in the military is the least effective way to create jobs, regardless of the other costs of military spending. According to a University of Massachusetts study, defence spending per US$ one billion creates the fewest number of jobs, less than half of what it could generate if invested in education and public transport. At a time of desperate need for investment in job creation, supporting a bloated and wasteful military can not be justified given how many more jobs such money would create in areas such as health and public transport.
Despite the clear evidence of the cost of high military spending, military leaders continue to push a distorted and preposterous notion that European Union’s defence cuts threaten the security of Europe’s nations. NATO’s secretary general, Anders Fogh Rasmussen “has used every occasion to cajole alliance members into investing and collaborating more in defense.”
Gen. Patrick de Rousiers, the French chairman of the EU Military Committee, at a hearing in the European Parliament, even suggested Europe’s future was at stake if military spending was not increased. “What place can a Europe of 500 million inhabitants have if it doesn’t have credible capacity to ensure its security?” he asked rhetorically.
We believe, by contrast, that at a time when the European Commission’s agenda of permanent austerity faces ever-growing challenges, there is one area where Europe could do much more to impose austerity. And that is the arena of military spending and the arms industry.
Abolishing nuclear weapons owned by France and the UK could save several billions of euros every year and fulfil a major pledge made by these countries under the nuclear non-proliferation treaty to finally eliminate nuclear weapons. Reductions of all EU nations’ military spending to Ireland’s levels (0.6% of GDP) would save many more billions.
Writing off dirty debts caused by arms deals concluded through bribes, would be a good first step to lay the bill for the crisis with those who helped cause it. Such measures would also prove that at a time of crisis, Europe is prepared to invest in a future desired by its citizens rather than its warmongers.
Download Guns, Debt and Corruption: Full report (pdf, 525KB)
Download Guns, Debt and Corruption: Executive Summary (pdf, 77KB)
via New report: no austerity for EU military spending | ROAR Magazine.
via New report: no austerity for EU military spending | ROAR Magazine.
What happened to the European dream?
Amnesia, recession, the failure of political elites, divided societies… The free and caring Europe that was the dream of oppressed peoples no longer exists, it is just that European leaders lack the courage to admit it, says a Bulgarian political analyst.
The European Union no longer exists, at least not as we know it. And the question is not what will be the form of the new Union, but rather why this Europe, which was the focus of so many of our dreams no longer exists. The answer is simple: today, all of the pillars that served to build and justify the existence of the European Union have collapsed.
Chief among these was the memory of the Second World War. A survey of German secondary school students in the 14-16 age bracket, which was published a little over a year ago, showed that a third of these young people did not know who Hitler was, and 40 per cent were convinced that human rights had been respected to an equal degree by every German government since 1933. This in no way implies that there is a nostalgia for fascism in Germany. No, it simply means that we now have to contend with a generation that has nothing to do with this history. Today the conviction that the EU continues to derive legitimacy from its roots in the war is in an illusion.
The second element that facilitated the geopolitical emergence of to the Union was the Cold War: once again, a phenomenon that no longer exists. Today, the EU does not have – and cannot have — an enemy that can justify its existence in the same manner as the post-1949 USSR. In short, allusions to the Cold War can in no way contribute to the resolution of the EU’s problems of legitimacy.
The third pillar that has crumbled is prosperity. The EU continues to be very rich – even if this observation does not apply to countries like Bulgaria. However, 60 per cent of Europeans believe that their children will not live as well as they do. With this in mind, the problem is not how we live today, but what kind of life can we expect in the future. The positive prospect constituted by faith in a better future, which was a powerful source of legitimacy, has also disappeared.
Convergence myth
Another source of legitimacy was a belief in convergence, which led poor countries joining the EU to expect that they would progressively acquire advantages in tune with membership of a rich man’s club. This still had some basis in fact a few years ago, but today, if the economic forecasts for the next 10 years are to be believed, a country like Greece is likely to remain as poor in comparison to Germany as it was on the day of its accession to the Union.
Everyone says that the EU is an elitist project. It’s true. Today, the problem is not that elites have become anti-European, but that they no longer carry any weight in national debates. The fact that all of them are fundamentally in favour of a united Europe is of no consequence, because no one listens to them anymore; they have lost touch with the people. Take a close look at sociological surveys, and you will see that the legitimacy of the EU has different explanations depending on whether you are in the north or the south of the continent.
In countries like Germany and Sweden, people have confidence in the EU because they also believe in the good faith of their own governments. In Italy, Bulgaria and Greece, people do not trust their own politicians, and that is why they believe in the EU. The logic of this position is that “even if we do not know them, the politicians in Brussels could not be worse than our own.” However, the latest crisis has shown this sentiment is beginning to crumble, and this confidence has been undermined.
Europe is aging
Last but not least, the final pillar is the welfare state. There is no denying that the existence of a strong welfare state is an integral part of the identity of the EU. As it stands, however, the issue is not whether this welfare state should be viewed as good or bad, but whether it can continue to be viable in a context that is not only marked by global competition, but also by major demographic changes in Europe. The problem is that the Europeans are melting away like snow in a hot sun. By 2060, 12 per cent of the EU’s population will be over 80 years old. Europe is aging. So perhaps the fact that the Union often behaves like a senile pensioner in the international arena is not a coincidence. And from whom should we borrow to keep this welfare state which is so vital to the elderly up and running? From future generations? Unfortunately, they are already being tapped to pay for the accumulation of public debt…
Another consequence of the crisis has been the emergence of new divisions on the continent. Within the EU, there is no longer any separation between the West and the East, but other more critical distinctions have taken its place.
EU is not the Eurozone
First and foremost, there is the distinction between Eurozone countries and other states. Very often, when they speak of the EU, the French, the Germans and the Spanish are really thinking about the Eurozone. However, this division will remain irrelevant while strategically important countries like Sweden, Poland and the UK are not included in the euro. The other major division is the one that exists between creditor and debtor countries. When Greece wanted to organise a referendum on the country’s bailout, Berlin made the following objection: “You want to hold a referendum about our money!” There is some sense to this remark … No country should be held hostage by the Eurozone. But that is precisely the problem when you have a currency without a common policy.
How should the crisis be tackled? On close examination, some EU countries are in crisis, while others are not — or are at least not as badly affected. At the same time, in some cases, the crisis has had a positive impact on certain practices. From this standpoint, the main outcome of every policy is that there are winners and losers. This is something that the politicians have been careful not to tell us. However, it is not so much a problem, because it is always the case: there are always winners and losers. The devil is in the detail: how should people be compensated and how should others be convinced that it is in their interest to adopt such a policy in the first place.
We continue to be convinced that win-win policies do in fact exist. Given the current situation in the EU, however, this amounts to wishful thinking, because the natural solidarity that exists in nation states has yet to be established on the level of the Union. Worse still, EU countries do not all share the same history or the same language. It is not unusual to speak of “we” in reference to Europe, but what does this mean exactly? If the EU is to function correctly, the absolute need to define what is meant by “we” in the context Europe will have to be addressed.
Privatizing Europe: using the crisis to entrench neoliberalism
Rather than solving Europe’s crisis, EU institutions are allowing corporate elites to further enrich themselves through a fire sale of state assets.
The text and infographics below are excerpted from a new working paper, Privatising Europe: Using the Crisis to Entrench Neoliberalism, which was just released by the Transnational Institute in Amsterdam:
The European Union is currently undergoing the biggest economic crisis since its foundation 20 years ago. Economic growth is collapsing: the eurozone economy contracted by 0.6% in the fourth quarter last year and this slump is set to continue. The euro crisis was incorrectly blamed on government spending, and the subsequent imposition of cuts and increased borrowing has resulted in growing national debts and rising unemployment. Government debts in crisis countries have predictably soared: the highest ratios of debt to GDP in the third quarter of 2012 were recorded in Greece (153%), Italy (127%), Portugal (120%) and Ireland (117%).
Europe’s member states have responded by implementing severe austerity programmes, making harsh cuts to crucial public services and welfare benefits. The measures mirror the controversial structural adjustment policies forced onto developing countries during the 1980s and 1990s, which discredited the International Monetary Fund (IMF) and World Bank. The results, like their antecedents in the South, have punished the poorest the hardest, while the richest Europeans – including the banking elite that caused the financial crisis – have emerged unscathed or even richer than before.
Behind the immoral and adverse effects of unnecessary cuts though lies a much more systematic attempt by the European Commission and Central Bank (backed by the IMF) to deepen deregulation of Europe’s economy and privatise public assets. The dark irony is that an economic crisis that many proclaimed as the ‘death of neoliberalism’ has instead been used to entrench neoliberalism. This has been particularly evident in the EU’s crisis countries such as Greece and Portugal, but is true of all EU countries and is even embedded in the latest measures adopted by the European Commission and European Central Bank.
This working paper gives a broad and still incomplete overview of what can best be described as a great ‘fire sale’ of public services and national assets across Europe. Coupled with deregulation and austerity measures, it is proving a disaster for citizens. Nevertheless, there have been clear winners from these policies. Private companies have been able to scoop up public assets in a crisis at low prices and banks involved in reckless lending have been paid back at citizens’ expense.
Encouragingly though, there have been victories in the battle to protect and improve Europe’s public services which serve as beacons of hope. There is even a counter-trend of remunicipalisation taking place in Europe as people have become aware of the cost and downsides of privatising public services, particularly water. As public awareness grows that the European Commission far from solving the crisis is using it to entrench the same failed neoliberal policies, these counter-movements and growing popular resistance can work together to halt the corporate takeover of Europe.
via Privatizing Europe: using the crisis to entrench neoliberalism | ROAR Magazine.
via Privatizing Europe: using the crisis to entrench neoliberalism | ROAR Magazine.
Britons reclassified as snails
UK RESIDENTS are to be reclassified as snails, in a bid to avoid the jurisdiction of the European Court of Human Rights.
Easily crushed
The removal of British people from the species Homo sapiens is part of a government plan to extricate the country from certain aspects of the European Union.
Home Secretary Theresa May said: “Species is a pretty subjective thing, and to be honest ‘slow-moving with a slimy sheen’ seems to describe most of the people one sees in the supermarket.
“If UK citizens are ostensibly gastropods, the Court of Human Rights can’t have a say. And if they put together a Court of Snail Rights we’ll just make everyone a sparrow.”
Iain Duncan Smith supports the policy: “There will be immense savings in the welfare system. As everyone knows, snails carry little houses around on their backs, so are ineligible for Housing Benefit.”
He continued: “It’s also very difficult to tell if a snail is disabled, so almost no one will qualify for disability related benefits, much as with the current system.”
Wayne Hayes, a hairdresser from Lowestoft, said: “I worry this means I will no longer be able to enjoy salty snacks, such as peanuts, without shrivelling up and dying.
“However I understand that most snails are hermaphrodites and I do like the idea of being able to copulate with myself.”
Europe’s austerity packages start to bite but still lots more to be extracted from the Irish
The chart below suggests that Ireland is still far to wealthy. Rest assured that the IMF/ECB via their agent “The Government of Ireland” have more tricks and schemes up their sleeves to extract money from you.
Its the ‘big picture’ issues that we need to watch these days, no longer detailed forecasts of individual product growth rates. They are driving chemical product sales in every major region.
The chart above from the Financial Times highlights Europe‘s drive towards austerity. Long gone are the days of the 2009 G20 meeting, when everyone focused on stimulus spending. This year, austerity packages will hit household income in most countries:
• Greeks lose 14% of their income, €5600 ($7600)
• Ireland and Portugal lose 5%
• Spain loses 5%, and Italy 3%
• Even the average German household will lose 1%