What do we mean by “markets”? A grouping of investment banks, insurance companies, pension funds, and hedge funds that essentially buy and sell four types of assets: currency, stock, sovereign bonds, and derivatives.

To grasp their colossal power it is enough to cite two figures: each year the real economy (the production of goods and services) generates worldwide an estimated 45 trillion euros -the gross domestic world product. At the same time, in the financial sphere, the “markets” move 3,450 trillion dollars in capital -seventy-six times the total production of the real economy.

The result is that no national economy, however powerful (Italy, it should be remembered, is the eighth largest economy in the world) can resist an assault by the markets once they have decided to launch a coordinated attack, as they have been doing for over a year now against the countries insultingly referred to as PIGS (Portugal, Italy, Greece, and Spain).

Even worse, contrary to what might be expected, these “markets” are not exotic forces that swooped down from distant heights to assault our local economies. Rather, the majority of them are our own European banks (the same that EU countries agreed to bail out with our money in 2008). To put it another way, the problem is not a massive attack on the euro zone by US, Chinese, Japanese, or Arab finance.

What is happening is essentially a war from within led by Europe’s own banks, insurance companies, speculative funds, pension funds, and financial establishments. These are the entities  that manage Europeans’ money and hold the bulk of European sovereign debt [i]. And they are the ones that, in order to defend -in theory- the interests of their clients, are speculating and driving up the interest rates governments pay to borrow to the point that some -Ireland, Portugal, and Greece- have been driven to the verge of bankruptcy. As a result of this behaviour, citizens of these countries have been forced to bear austerity measures and brutal adjustments imposed by European governments to soothe the vultures of the “markets” -meaning, their own banks.

The latter, moreover, were able to easily obtain funds from the European Central Bank at 1.00 percent interest rates, which they lent in turn to countries like Spain and Italy for 6.5 percent. Then there is the vast and scandalous power of the ratings agencies (Fitch, Moody’s, and Standard & Poor’s) whose measure of a country’s creditworthiness determines the rate at which it can borrow at on the market [ii]. The lower the rating, the higher the cost.

Not only are these agencies often wrong, most dramatically in their assessment of the subprime mortgage fiasco that led to the current crisis; they also play a perverse and repulsive role in situations like the present. It is clear that every austerity plan and programme of cuts and adjustment in the euro zone will lead to a drop in growth as a result of which the agencies will downgrade the countries’ ratings, driving their debt service costs higher and higher, which forces even deeper budget cuts, further dampening economic activity and causing yet another ratings downgrade, and on and on.

It is plain to see in this vicious circle of what is essentially an economic war why the situation of Greece grew more and more desperate precisely as its government imposed more and more budget cuts and extreme austerity measures. The sacrifices made by its citizens came to nothing. Greek debt has now been downgraded to “junk”.

And in this way the markets got what they wanted: its representatives now have direct access to state power without having to bother with elections. Both Lukas Papademos, the new Greek prime minister, and Mario Monti, prime minister of Italy, are bankers. In one way or another, both have worked with the US bank Goldman Sachs, which specialises in placing its people in positions of power [iii]. Both are members of the Trilateral Commission.

In a framework of “limited democracy”, these technocrats must impose, without regard for the social costs, whatever measures the markets require -more privatisation, more cuts, and more sacrifice- which certain political leaders didn’t dare impose because popular opposition was so intense.

The European Union is the last place in the world where savage capitalism is mediated by systems of social protections, known as the welfare state. The markets don’t like it and want its destruction. This is the strategic mission of the technocrats who have come to power through this new avenue -the financial coup d’etat- one presented, moreover, as compatible with democracy.

It is unlikely that these “post political” technocrats will manage to resolve the crisis. If a technical fix were enough, it would already be over. What will happen if the citizens of Europe recognise that their sacrifices have been for nothing and that the recession is continuing? How violent will the protests grow? How will economic order be maintained in the streets and in people’s minds? Will European democracies become “authoritarian democracies”? (END/COPYRIGHT IPS)

(*) Ignacio Ramonet is editor of “Le Monde diplomatique en espanol”.

[i] For example, 45 percent of Spain’s sovereign debt is held by Spanish banks and two thirds of the remaining 55 percent is held by financial establishments in the rest of the EU. Thus 77 percent of Spanish debt was acquired by Europeans and only 23 percent is in the hands of non-EU entities.

[ii] The highest rating is AAA, which as of the end of November 2011 only a few countries retained: Germans, Australia, Austria, Canada, Denmark, Finland, Franc, Luxembourg, The Netherlands, the UK, Sweden, and Switzerland. The US was downgraded last August to AA+ while Spain is currently AA-, like China and Japan.

[iii] Goldman Sachs succeeded in placing Robert Rubin as US Treasury Secretary under President Clinton and Henry Paulson in the same position under George W. Bush. Mario Draghi, new president of the European Central Bank, was Goldman Sachs vice-president for Europe from 2002-2005.