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Tuesday, June 28, 2022
ROME, Mar 5 2012 (IPS) - Like passengers on a ship in a storm, European banks and governments are holding onto each other in a precarious embrace.
The storm is financial and at this point in the crisis the old roles are inverted: governments are now asking for help from the banks.
The enormous quantity of funds that the European Central Bank (ECB) is giving banks on favourable conditions is unprecedented and has been used to buy up a considerable proportion of the devalued public debt of many European countries and to stabilise the teetering cart of the Eurozone.
In just three years, they will have to pay these loans back. Meanwhile the banks that are in danger will be able to hide their structural problems for this period, though afterwards the governments will have to renew their assistance because they cannot allow the banks to fail.
We are witnessing a very interesting development. Before the crisis the financial sector had taken control of the “real” economy, meaning the production of goods and services. The flood of speculative capital rose to four trillion dollars per day, far above the one billion dollars of the productive sector.
And despite its monstrous size, the financial sector is the only one that is not subject to regulation, unlike trade, labour, tourism, transport, and the other components of the real economy.
This is why when the 2008 crisis exploded there was a general call for profound reform of the financial system: a ban on high-risk financial speculation – one of the causes of the crisis – and reform to eliminate banks that are “too big to fail”, which governments would have to bail out with taxpayer money.
These ideas are no longer even talked about, nor is anyone pushing the “Tobin tax”, which would be imposed on financial transactions.
Not only has there been no reform of the financial sector but the financial sector has seized control of politics.
First, it intervened to save a European Union on the verge of bankruptcy. In no time at all, ex-functionaries from Goldman Sachs bank took the reins of the ECB, the governments of Greece and Italy, and central positions in Spain, France, Hungary, and Lithuania.
The new president of the ECB, Mario Draghi, changed the policy of his predecessor Jean-Claude Trichet and extended unlimited credit for banks on the condition that they agree to assist governments in crisis by buying up their debt; though in Greece’s case, Germany’s obstinacy prevented a rapid solution.
In Italy, however, interest on the debt has fallen to less than half.
Then came the next step: countries at risk were forced into severe structural adjustment programmes, as if their budget deficits were their only problem. Social deficits or deficits in citizens’ confidence were disregarded.
The priority was always to win the confidence of markets by imposing budget cuts. As a result, governments themselves now depend on the opinion of the markets more than of their own citizens and even less of their parties, which are considered to be the cause of the problems and incapable of addressing them.
The result is an endless exchange of congratulations between the ministers and the bankers (including the World Bank and International Monetary Fund) because, according to them, they are weathering the crisis. In just a few days, Italian Prime Minister Mario Monti has made his credibility with Wall Street the basis of his legitimacy.
In effect, politics today are legitimised by the markets, as the “technocrats” in the government are winning the approval of their former financial colleagues – and this is what decides whether a government goes to the guillotine or not.
In the increasingly divided European Union, alliances are continuously formed and dissolved. The Monti-Rajoy-Cameron-Rutte quartet was formed to counter the Merkel-Sarkozy pole, which has not prevented Cameron, Rajoy, and Merkel from expressing preference for Sarkozy over his socialist rival, François Hollande.
Meanwhile unemployment, especially among youth, is rising as workers’ rights are being cut, their pensions trimmed or eliminated, and the retirement age raised. The citizens, and not finance, are paying the price and with the progressive lowering of taxes, the vicious circle grows more severe.
However, this seldom affects technocrats running the government, whose policy consists of simply cutting public spending until a balanced budget is reached.
Thus the delegitimisation of politics grows more dire as we move towards a form of democracy that is restricted to a tiny minority.
Now that the Monti government in Italy has published, in a grand civics lesson, the income of its ministers before they took office, we can ask whether we are regressing to that ancient system of government that limited the right to vote to those above a certain income level.
The minister of justice had a declared income of 7 million euros for 2010, the deputy prime minister 2.5 million, and Monti himself made 1.5 million.
In this sort of “salary striptease”, which would be the “good side” of the transition underway, it has come to light that the salary of the chief of police rose to 621,253 euros. It seems that professional politicians are being replaced by a caste of super-bureaucrats so well paid that their new salaries amount to a major pay cut.
(*) Roberto Savio is founder and president emeritus of the Inter Press Service news agency.
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