By Roberto Savio
ROME, Apr 20 2015 (IPS)

This month’s World Economic Outlook released by the International Monetary Fund (IMF) only confirms that consequences of the collapse of the financial system, which started six years ago, are serious. And they are accentuated by the aging of the population, not only in Europe but also in Asia, the slowing of productivity and weak private investment.

Roberto Savio

Average growth before the financial crisis in 2008 was around 2.4 percent. It fell to 1.3 percent between 2008 and 2014 and now the estimates are that it will stabilise at 1.6 percent until 2020, in what economists call the “new normal”. In other words, “normality” is now unemployment, anaemic growth and, obviously, a difficult political climate.

For the emerging countries, the overall picture does not look much better. It is expected that potential growth is expected to decline further, from an average of about 6.5 percent between 2008 and 2014 to 5.2 percent during the period 2015-2020.

The case of China is the best example. Growth is expected to fall from an average 8.3 percent in the last 10 years to somewhere around 6.8 percent. The result is that the Chinese contraction has worsened the balance of exports of raw materials everywhere.

The crisis is especially strong in Latin America, and in Brazil the fall in exports has contributed to worsening the country’s serious crisis and increasing the unpopularity of President Dilma Rousseff, already high because of economic mismanagement and the Petrobras scandal.“Progressive parties were able to build their success during economic expansion but the Left has not developed much economic science on what to do in period of crisis”

This, by the way, opens up a reflection which is fundamental. From Marx to Keynes, redistribution theories were all basically built on stable or expanding economies.

Progressive parties were able to build their success during economic expansion but the Left has not developed much economic science on what to do in period of crisis. What it tends to do is mimic the receipts and proposals from the Right and, when the crisis is over, it has lost its identity and has declined in the eyes of the electorate.

From this perspective, the situation in Europe is exemplary. All those right-wing xenophobic parties which have sprouted up – even in countries long held to be models of democracy such as the Nordic countries – have developed since 2008, the beginning of the financial crisis. In the same period of time, all progressive parties have lost weight and credibility. And now that the IMF sees some improvement in the European economy, it is not the traditional progressive parties that are the beneficiaries.

The term that the IMF gives to the current economic moment is “new mediocrity” – which is a franker way of saying “new normal” – and it observes that in the coming five years, we will face serious problems for public policies like fiscal sustainability and job creation.

In fact, every day, the macroeconomic figures, which have become the best way to hide social realities, are becoming less and less realistic if we go back to microeconomics as we have done during the last 50 years.

The best example is the United Kingdom, which is the champion of liberalism. Each year it has cut public spending and now claims to have growth in employment, with 600,000 new jobs in the last year. The only problem is that if you look into the structure of those jobs, you will find that the large majority are part-time or underpaid, and employment in the public sector is at its lowest since 1999.

A clear indicator is the number of people who visit the food banks created to meet the needs of the indigent. In the world’s sixth largest economy, their numbers have grown from 20,000 before the crisis seven years ago to over one million last year. And the same has happened all over Europe, albeit to a lesser extent in the Nordic countries.

U.K. economists have published studies on how austerity has affected growth. According to the Office for Budgetary Responsibility, established by the U.K. government, austerity blocked economic growth by one percent between 2011 and 2012. But, according to Simon Wren-Lewis of Oxford University, the figure is actually about five percent (or 100 billion pounds).

In other words, fiscal austerity reduces growth, and this creates large deficits which call for more fiscal austerity. It is a trap that Nobel laureate Keynesian economists Joseph Stiglitz and Paul Krugman have described in detail to no avail. We are all following the “liberal order” of Germany, which think its reality should be the norm and that deviations should be punished.

Now, while we can all agree that much of this is obvious to the average citizen in terms of its impact on everyday life, what is important and new is that the IMF, the fiscal guardian which has imposed the Washington Consensus (basically a formula of austerity plus free market at any cost) all over the Third World with tragic results, has woken up to reality.

Don’t get me wrong – I’m not implying that the IMF is becoming a progressive organisation, but there are signs that an important pillar of neoliberal thinking is vacillating.

Of course, those responsible for the global crisis – bankers – have come out with impunity. The world has exacted over three trillion dollars from its citizens to put banks back on their feet. The over 140 billion dollars in fines that banks have paid since the beginning of the crisis is the quantitative measure of illegal and criminal activities.

The United Nations calculates that the financial crisis has created at least 200 million new poor, several hundred millions of unemployed, and many more precarious jobs, especially for young people. And, yet, nobody has paid, while prisons are full of people who are there for minor theft, the social impact of which is infinitesimal by comparison.

In 2014, James Morgan, the boss of Morgan Stanley, cashed in 22.5 million dollars, Lloyd Blanfein, the boss of Goldman Sachs, 24 million, James Dimon, the boss of J.P. Morgan, 20 million. The most exploited of all, Brian Moynihan of the Bank of America, a paltry 13 million. Nobody stops the growth of bankers.

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Kinda Mohamadieh
GENEVA, Apr 6 2015 (IPS)

The world’s attention turned to the practices of vulture funds after the U.S. Supreme Court affirmed a lower court opinion in the NML Capital vs Argentina case, which forbids the country from making payments on its restructured debt.

Argentina had defaulted in 2001 and went through two rounds of negotiations to restructure its debt, both in 2005 and 2010. In June 2014, the court ordered Argentina to pay the ‘vulture funds’ that held out and did not accept the terms of the debt swaps.

Kinda Mohamadieh

The vulture funds had held out with the aim of achieving what amounts to a 1,600 percent return on their original investment. The funds concerned had purchased the Argentinian bonds in 2008 at 48 million dollars and the court ruling ordered Argentina to pay them 832 million dollars.

Nobel laureate Joseph Stiglitz noted that this was “the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so”.

While this case brought the term ‘vulture funds’ into the public sphere, the predatory practices of these entities did not start with Argentina.

According to a former U.N. independent expert on the effects of foreign debt and other related financial obligations of states on the full enjoyment of all human rights, the term ‘vulture funds’ describes “private commercial entities that acquire, either by purchase, assignments or some other form of transaction, defaulted or distressed debts, and sometimes actual court judgments, with the aim of achieving higher returns.”

Basically, vulture funds are hedge funds whose modus operandi focuses on three main steps including: (1) purchasing distressed debt on the secondary market at deep discounts far less than its face value; (2) refusing to participate in restructuring agreements with the indebted state; and (3) pursuing full value of the debt often at face value plus interest, arrears and penalties, including through litigation, seizure of assets or penalties.“The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999”

Many developing countries have been exposed to the predatory practices of vulture funds, especially African and Latin American countries.

The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999. These countries include Sierra Leone, Cote d’Ivoire, Burkina Faso, as well as Angola, Cameroon, Congo, Democratic Republic of the Congo, Ethiopia, Liberia, Madagascar, Mozambique, Niger, Sao Tome and Principe, Tanzania, and Uganda.

Peru was targeted by NML Capital in the year 2000. According to media reports, the fund spent almost four years in the courts to win a ruling that forced Peru to settle for almost 56 million dollars on distressed debt, which the fund had initially bought for 11.8 million dollars.

The African Development Bank has documented that up until the year 2007, 25 judgments in favour of vulture funds had yielded nearly one billion dollars. Out of this amount, 72 percent of the judgments have been against African countries. The reported number of outstanding cases against debtor countries has doubled since 2004.

According to the World Bank and the International Monetary Fund (IMF), 54 court cases were instituted against 12 heavily indebted poor countries between 1998 and 2008. The IMF estimates that in some cases claims by vulture funds constitute as much as 12 to 13 percent of a country’s gross domestic product.  The World Bank estimates that nearly one-third of countries that are eligible for debt relief and other poverty alleviation programmes are the targets of nearly 26 vulture funds.

Concerned about the extent of the threat posed by such predatory practices and their systemic implications, several international authorities and multilateral institutions have voiced their concern about the matter.

The African Development Bank has warned that by precluding debt relief and costing millions in legal expenses, these vulture funds undermine the development of the most vulnerable African countries.

In June 2014, the heads of state and government of the Group of 77 and China, in their declaration issued on the occasion of the ‘For a New World Order for Living Well’ summit held in Santa Cruz de la Sierra, Bolivia, reiterated the importance of “not allowing vulture funds to paralyse the debt restructuring efforts of developing countries” and stressed that “these funds should not supersede the state’s right to protect its people under international law.”

The IMF had cautioned that upholding the decision against Argentina would harm future sovereign debt restructuring attempts. In 2013, the IMF stated that “if upheld, [the Court of Appeals decision] would likely give hold-out creditors greater leverage and make the debt restructuring process more complicated”.

In 2007, G8 finance ministers had expressed concern about actions of some litigating creditors against heavily indebted poor countries, and agreed to work together to identify measures to tackle this problem based on the work of the Paris Club.

In September 2014, a resolution on the activities of vulture funds and the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights, was presented by Argentina and adopted at the 27^th session of the U.N. Human Rights Council which took place in Geneva.

It is also worth noting that the 26^th session of the Human Rights Council in June 2014 had adopted a resolution titled ‘Elaboration of an international legally binding instrument on Transnational Corporations and Other Business Enterprises with Respect to Human Rights’.

This resolution sets in place a process of negotiations towards an international legally binding instrument on transnational corporations and their liability in the area of human rights. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on a longer version published in published in the South Centre’s South Bulletin 83 of 12 February 2015.

Excerpt:

By Guillermo Medina
MADRID, Mar 4 2015 (IPS)

At last, on Tuesday Feb. 24, the Eurogroup (of eurozone finance ministers) approved the Greek government’s commitment to a programme of reforms in return for extending the country’s bailout deal.

The agreement marks the end of tense and protracted negotiations. It consists of a four-month extension for the second bailout programme worth 130 billion euros (over 145 billion dollars), in force since 2012 and which was due to expire on Feb. 28. The first bailout was for 110 billion euros, equivalent to 123 billion dollars.

Guillermo Medina

During this period, the European Central Bank (ECB) will provide Greece with liquidity and the terms of a new bailout will be hammered out.

The eleventh-hour agreement was no doubt motivated partly by fears that a “Grexit” – Greek withdrawal from the eurozone monetary union – would have triggered a financial earthquake with unforeseeable consequences. The result is a very European-style compromise that averts catastrophe and gains time while avoiding facing the underlying problems.

In exchange for an extension of financial support from Greece’s partners and creditors, Prime Minister Alexis Tsipras will have to submit all his government’s measures during this period to Eurogroup inspection.

But the deal promises Greece more than just restrictions. The country will have to pay its debts to the last euro, but if, as seems probable, deadlines for primary surplus targets are extended, the country will have greater ability to pay (France has just secured this for itself).

In the final document, Greece promised to adopt a tax reform that would make the system fairer and more progressive, as well as reinforce the fight against corruption and tax evasion and reduce administrative spending.“Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future”

If the government pursues these goals, together with the fight against contraband, efficiently and with determination (as indeed it should, because they are part of its programme and target its domestic enemies), the income will be helpful for the application of its social and economic programmes.

In view of the successive positions that Greece has had to relinquish in the course of the negotiations, it appears that the country has achieved the little that could be achieved.

The negotiations between Greece and its European partners mark a milestone in the political tussle in the European Union since the reunification of Germany in 1990, between moving towards a Europeanised Germany or a Germanised Europe.

Germany has undeniably secured its basic goal: the enshrining of austerity as the fundamental dogma of the new European economic order, although political prudence and even self-interest have softened the application of the dogma, and may continue to do so in future.

Germany has openly tried to impose its convictions and its hegemony on Europe. Greece was only the immediate battlefield. Brussels and Berlin have been divided from the outset about how to solve the Greek crisis, but Germany prevailed.

However, the masters of Europe do not have any interest in “destroying” Greece, and so cutting off their nose to spite their face. They are satisfied with a demonstration of the asymmetry of power between the two sides, and the public contemplation of assured failure for whoever defies the status quo and supports any policy that deviates from the one true official line.

The problem with a Germanised Europe is not the preponderant role that Germany would play, but that it would impose a “Made in Germany” model of Europe that conforms to its own interests. That is how it would differ from a Europeanised Germany.

The Greek crisis has highlighted the ever-widening contrast between the values and ideals that we consider to be central to the European project, such as solidarity, mutual aid and social justice, and the new values that set aside basic aims like full employment, social welfare and equal opportunities.

It is paradoxical that Europe, which is apparently absent from or baffled by threats from the opposite shore of the Mediterranean, should take a harsh, tough attitude with a small partner overwhelmed by debt. It is also paradoxical that structural reforms are demanded of Greece, without admitting Europe’s own urgent need to redesign the eurozone and reframe the policies that have led to the poor performance of its monetary union.

The Greek crisis and the difficulties in overcoming it have a great deal to do with a design of the euro that benefits financial interests, particularly Germany’s.

The project neglected the harmonisation of tax policies and created a European Central Bank that lacked the powers that permit the U.S. Federal Reserve and the Bank of England to issue money and buy state debt.

As is well known, the ECB has made loans to European banks at very low interest rates, and they in turn have made loans to states, including Greece, at much higher interest. Government debts thus mounted up, and in order to pay they were forced to cut public spending.

Why does Europe persist in following failed policies while refusing to follow those that have lifted the United States out of recession? The only explanation is stubborn attachment to an ideological vision of economic policy that is devoid of pragmatism.

How can insistence on the path of error be explained at such a time? There may well be a quota of incompetence, but the basic reason is, as Nobel prize-winners Joseph Stiglitz and Paul Krugman affirm, that the goal of the policies imposed by the “Troika” (European Commission, ECB and International Monetary Fund) is to protect the interests of financial capital. And this is because the powers of political institutions, the media and academia, are dominated by financial capital, with German financial capital at the core.

Financial interests are essentially capable of shaping the decisions of European governance institutions. In the United States this subservience is less clear-cut, allowing hefty penalties to be imposed on certain banks, as well as the development of other economic strategies.

This is because independent mechanisms of control and oversight exist, the Federal Reserve has well-defined goals (whereas the ECB has spent years fighting the insistent threat of inflation), and there is democratic administration with the political will to resist.

In conclusion: the issue is to clarify what sort of Europe the citizens of Europe want, and what institutional changes are needed to achieve it.

And even more importantly, having seen the consecration of German hegemony over the Old World, what sort of German leadership would be compatible with a united Europe based on solidarity? Is this even possible? (END/IPS COLUMNIST SERVICE)

Translated by Valerie Dee/Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

Excerpt:

By Roberto Savio
ROME, Nov 26 2014 (IPS)

After the Italian sea search-and-rescue operation Mare Nostrum at a cost of nine million euros a month, through which the Italian Navy has rescued nearly 100,000 migrants – although perhaps up to 3,000 have died – from the Mediterranean since October 2013, Europe is now presenting its new face in the Mediterranean.

The European Union is launching Joint Operation Triton with a monthly budget of 2.9 million euros and funds secured until the end of the year. Its function is to enforce border controls – not to save “boat people” – and it will patrol just thirty nautical miles from the coast, which pales in comparison with Italy’s Mare Nostrum operation which saw patrols being sent close to the Libyan coast.

Roberto Savio

Even with this very limited operation, British Prime Minister David Cameron has said that the United Kingdom will not contribute because operations that save migrants make them more willing to try to cross the Mediterranean. Of course, there is a perverted logic in this: the more migrants that die, the greater will be the discouragement for others to try.

Following this logic through, the ideal situation therefore would be to reach a death rate that would stop illegal immigration once and for all!

In this context, it is worth noting that the U.K. government is considering withdrawal from the European Convention of Human Rights (something that even Russian President Vladimir Putin has never considered). The argument is that nobody can be above U.K. courts.

London is also refusing to pay its share of increased of contributions to the European Union and is considering how to put an annual cap on the number of Europeans who are entitled to work legally in the United Kingdom.“Since 1986, the year of signing of the Single European Act, Europeans have never been able to agree on a minimum social basis, which would have given them rights as workers to act collectively as Europeans in the face of a market which is economically unified, but with no common social legislation”

And finally, the U.K. government received with great uproar the sentence of the European Court of Justice, which placed a European cap on banker bonuses, rejecting Britain’s claims that it was illegal. The British argument was that pay levels (also of discredited bankers) were part of social policy and thus under the authority of member states not of the European Union.

Meanwhile, the same Court has issued another sentence under which E.U. member states are not obliged to support European citizens who do not have economic activities in the E.U. countries to which they have migrated. And the German Parliament is now preparing a law to expel European immigrants who do not find a job within six months.

Of course, this will open the doors to all other countries to reduce the free movement of Europeans in Europe, a cornerstone of the original vision of a solidary Europe. Now Europeans will be obliged to take any job, and therefore the law of market will become the primary criterion for their movements in Europe.

Since 1986, the year of signing of the Single European Act, Europeans have never been able to agree on a minimum social basis, which would have given them rights as workers to act collectively as Europeans in the face of a market which is economically unified, but with no common social legislation.

In fact, the point has now been reached where social criteria are the last to be used to judge whether a country is recovering or not, well after economic and financial criteria.

A devastated Greece is now again being considered in financial markets because its economic indicators are on the up. And, at the last G20 meeting in Brisbane, Spain was touted as the example that austerity policies – those indicated by German Chancellor Angela Merkel as the example for laggards like Italy and France – are the correct way out of the crisis.

At the same time, a very different source, Caritas, has reported that only 34.3 percent of Spaniards live a normal life, while 40.6 percent are stuck in precariousness, 24.2 percent are already suffering moderate exclusion and 10.9 percent are living in severe exclusion.

To understand the trend, six years ago, 50.2 percent of Spaniards had a normal life. Now, one citizen in four is suffering exclusion, and of those 11 million excluded citizens, 77.1 percent have no job, 61.7 percent no house and 46 percent no health care support.

According to UNICEF’s recent report on children under recession, 76.5 million children in the rich countries live in poverty, and in Spain, 36.3 percent of the country’s children (2.7 million) are living in a state of precariousness.

What is now new is that some major financial institutions have started to draw attention to social issues.

Janet L. Yellen, chairwoman of the U.S. Federal Reserve, has declared that she is concerned about the growing inequality of wealth and income in the United States, and that chances for people to advance economically appear to be diminishing. And Mario Draghi, governor of the European Central Bank, is now constantly mentioning the issues of “unbearable unemployment “and “growing exclusion”.

In the background there is the proven fact that countries which took emergency measures to reduce public borrowing have mostly had weaker growth, like most European countries (with the exception of Germany, helped by a boom in machinery exports to Russia and China), while those which introduced a policy of stimulus, like the United States, Japan and Britain, have done much better, also in reducing unemployment.

But Merkel continues to ignore calls from the International Monetary Fund (IMF), the World Bank and other monetary institutions – she is only interested in pleasing her constituency, which is increasingly looking to its immediate interests and losing sight of European perspectives.

In all this, the banks continue to be uninterested in any social perspective. A few days ago, European and U.S. regulators imposed new fines worth 4.5 billion dollars on a number of major banks (we are now approaching the 200 billion dollar mark since the crisis started in 2008) for illegal activities.

Jamie Dimon, the CEO of the largest of them, JP Morgan, declared in an interview with Andrew Ross Sorkin of CNBC that it is important that United States creates a “safe harbour” where JPMorgan’s illegal practice of hiring the relatives of political leaders “is not punished”.

In Dimon’s country, between 2009 and 2010, 93 percent of economic growth ended up in the pockets of one percent of the population, according to Nobel economics laureate Joseph Stiglitz, and the 16,000 families with wealth of at least 111 million dollars have seen their share of national wealth double since 2012 to 11.2 percent.

The last U.S. presidential elections cost 3.4 billion dollars, and most of that came from this small minority. Democracy, where all votes are equal, is increasingly becoming a plutocracy where money elects.

Meeting leaders of social movements on Oct. 26, Pope Francis told them: “They call me a communist [for speaking of] land, work and housing … but love for the poor is at the centre of the Gospel.” Certainly, governments are doing otherwise …

(Edited by Phil Harris)

Excerpt:

By Roberto Savio
SAN SALVADOR, Sep 12 2013 (IPS)

A recent report by the Centre for Analysis of Social Exclusion at the London School of Economics called attention to the fact that, at the present rate of inequality, by the year 2025, the United Kingdom will have returned to the unequal society of the end of the 19th century. In other words, we are going back to the times of Queen Victoria!

In 2010, the incomes of the chief executives of the 100 largest companies in the U.K. increased by 49 percent, while the average pay rise was just 2.7 percent. According to a European Banking Authority report, in 2010 and 2011, 2,436 U.K. bankers earned more than one million euro per year, against 162 in France and 36 in the Netherlands.

Nearly 50 percent of the funding of Britain’s Conservative Party comes from the financial sector. No wonder that British Prime Minister David Cameron is obliged to choose the City over Europe.

Roberto Savio. Credit: IPS

The world trend is exactly the same. In China, there are 1.3 million millionaires. In its last report, Forbes the magazine for the rich happily informs its readers that the 2013 Forbes Billionaires list now boasts 1,426 names – including 122 in China – with an aggregate net worth of 5.4 trillion dollars, up from 4.6 trillion dollars. “We found 210 new ten-figure fortunes,” it says.
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What this means is that the combined wealth of the Forbes billionaires is now larger than the U.S. budget, which is 3.8 trillion dollars for this year. Actually, they overtook the U.S budget three years ago. And if we take just the ten billionaires at the top of the Forbes list, together they hold an amount of 451.5 billion dollars.

In other words, we could fill a 300-seat plane with the 300 richest persons in the world, yet their wealth exceeds the combined wealth of three billion people: nearly half of humankind.

Nobel laureates Paul Krugman and Joseph Stiglitz have written extensively on how social injustice hampers development and creates economic crisis, and Krugman has documented the increase in inequality which accompanied the crises of 1929 and 2008. In the 1930s, huge steps were taken to tackle inequality and vested interests.

In today’s world, this should be our main reflection (a reflection not being made by U.S. President Barack Obama). We should not forget that in the era of Charles Dickens, Karl Marx was writing about the exploitation of children in British mines.

In 1848, Europe was shaken by a wave of uprisings triggered by the extreme exploitation of workers by the capitalists born out of the industrial revolution. After the unrest was put down, trade unions were created, and a progressive political movement was born.

Marx gave a scientific framework to an ongoing wave. And, when the (unsuccessful) Russian revolution of 1905 was followed by the successful Soviet revolution of 1917, a threat to capitalism was established.

During the period between the two world wars, efforts were made everywhere to prevent other countries from taking the path of Russia. Trade unions became legal and part of the establishment, the Left entered parliament, and there were a number of initiatives to accommodate the demands of the people. No right-wing party in power ever tried to scale down social conquests; at most it slowed them down.

The Second World War dramatically changed the global scenario, sowing the seeds of the Cold War. After the International Monetary Fund and World Bank were set up in 1944 as guardians of a global monetary system, the United Nations was established in 1945 in the name of world governance.

The values for world governance had a very strong social content, also contained in national constitutions: social justice, equality, participation, workers rights, human rights, advancement of women, education for all – and the list continues. But, let us pause for a second: would it be possible today to adopt the Universal Declaration of Human Rights, or the present charter of the United Nations? And have the U.S. committed to paying 25 percent of the costs?

With the collapse of the Berlin Wall, a new world was created. Capitalism, not the West, was the winner. And globalisation understood as total freedom for capital and investments (not for goods and people) would bring wealth through the trickle-down theory.

Here I have bowed to the principle of modern journalism to say in a few words what should be argued in a much lengthier and better-documented analysis. But so much has been published on fiscal paradises and tax evasion that, hopefully, no statistics are needed here; suffice it to recall that fiscal paradises host 32 trillion dollars.

The American Bankers Association has recognised that it spent 800 million dollars last year lobbying against the Dodd-Frank financial reform law (Dodd-Frank Wall Street Reform & Consumer Protection Act) passed over three years ago.

The law, passed at the height of the banking crisis, triggered a broad consensus on the need to regulate, but that is now gone. The financial system has adopted the Asian proverb: When there is a strong storm, lie down and wait until it goes away. So now, after three years, of the 398 rules under the Dodd-Frank law, 240 (60 percent) have not yet been implemented.

President Obama has called for a speedy conclusion. But, until now, Obama has only met once with the regulators and that was in mid-2011.

So the real question is: in a vastly unjust society, does democracy work? Or does it become just a formal mechanism to accommodate those inside the system, and ignore the excluded? Do those 300 sitting in the plane of extreme wealth have the same view of the world as the three billion poor left on the ground? And if not, does their view of the world counts as much as that of the 300 people on the plane?

Because we know well that in Victorian times people were not equal in that kind of democracy … and we all know how much blood and suffering it took to bring the world to the period of expansion aiming at social harmony that we had until 1989. But have you heard these kinds of questions among the Obamas, the Merkels, the Camerons, the Rajoys or anyone else, on this return to the past?

Without forgetting the case of Silvio Berlusconi, the Italian billionaire who created and funded his own party, served as prime minister for the best part of 20 years, was found guilty of fraud against the state and now holds the government of Italy in the balance. He is part of today’s democracy – but is this real democracy?

(END/COPYRIGHT IPS)

Excerpt:

Greeks protesting against austerity measures. Credit: Apostolis Fotiadis/IPS

By Mario Soares
LISBON, May 27 2013 (IPS)

The economic crisis began in the United States under the administration of then-President George W. Bush, following the collapse of the Lehman Brothers Bank. It came as a result of unregulated globalisation and a neoliberal ideology that places usurious markets, offshore bank accounts, and money for the sake of money, above state power. It is an ideology that ignores citizens, even as they starve.

At the time – between 2007 and 2009 – I wrote some books: “A Changing World”, “In Praise of Politics”, “Fighting for a Better World” and “Inside the Hurricane”, addressing in all of them my concerns about the risk of a neoliberal contagion of the euro and the European Union (EU) itself.

Mário Soares, former president and prime minister of Portugal. Credit: IPS

U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher championed these disastrous neoliberal politics – which were later continued by the pseudo-labourite Tony Blair – whose negative consequences are now evident to all.

In view of the profound links between Europe and the United States, the spread of U.S. neoliberalism to the EU and particularly to the eurozone was inevitable. When the EU crisis began, chancellor Angela Merkel already headed Germany. In spite of being a Lutheran, Merkel was also a former militant of the East German Communist Party. After the fall of the Berlin Wall she stood in opposition to the German reunification to which European states contributed.

As is well known, the first victim of the crisis was Greece, the cradle of our civilization and thus a country that deserved better treatment. It got the opposite.

The German chancellor, a longtime ally of ultra-conservative liberals, heeded market demands. The situation in Greece, where German banks occupied a privileged position, deteriorated until the country was able to pay the exorbitant sum demanded by the Troika, a body comprised of Greece’s major creditors: the European Central Bank (ECB), the International Monetary Fund (IMF) and the European Commission (EC).

In the meantime, in the absence of financial assistance, the so-called peripheral states of the eurozone plunged into crisis. Ireland, Portugal, Spain, Italy (Europe’s third largest economy) and Cyprus were followed by the recent and surprising Dutch collapse. France is the latest addition to the list.

It all boils down to the criminal policy of austerity imposed by Germany, the IMF, the European Commission under the presidency of Jose Manuel Durão Barroso and, with greater discretion, Mario Draghi’s European Central Bank.

It has become more than evident that austerity favours merely usurious markets and those behind them. Austerity obliterates states and their respective populations, not only in the so-called “peripheral”, southern states, as was recklessly claimed. Take a look at the Netherlands, France and Germany. The crisis was bound to hit Germany as many economists, including Nobel Prize-winners Joseph Stiglitz and Paul Krugman, had predicted.

Currently Germany is struggling due to a policy of austerity that has shrunk many of its markets in the European states, which account for 50 percent of its exports. If austerity is maintained, Germany itself will enter a recession.

European public opinion has understood both the necessity and urgency of a break not only with current policy, but also with a political class that has proven incompetent.

The current ruling parties within the EU are mostly ultra-conservative and incapable of grasping the critical situation. Truth be told, the parties that built the EU – the socialists, the social democrats, the Labourites, and the Christian democrats, are no longer in power.

The sole exceptions are France and now Italy, where President Giorgio Napolitano was re-elected in spite of his age, and where we find a new prime minister in the figure of Enrico Letta. Both Letta and French President Francois Hollande have openly declared their opposition to austerity and their intention to restore the role of states in controlling markets, and not the other way around.

Hence, the citizens of all European countries have vociferously expressed their opposition to Troikas, the markets, pseudo-politicians and those governments committed to austerity.

It should be noted that the welfare state (a product of the postwar era), democracy as we conceived it, as well as the rule of law are all being jeopardised, creating the need for a profound and immediate political shift.

We face a straightforward dilemma: either we fight against unemployment, widespread poverty, recession and in defense of the welfare state in its broader sense, or, if we wait too long, the EU will fall into the abyss.

And not only would it be tragic for the U.S. to lose its only faithful ally, but many nations of the world would suffer: China, Russia, Japan, Brazil, India, Mexico and so on.

I am hopeful this won’t be the case. The world surely does not wish the disappearance of the European Union, the most original political project of all times and the one that brought so many benefits to its peoples. Its collapse could open the door to a global conflict. Its demise would represent an unacceptable regression of civilization, one that would set us more than a century back. May common sense and courage prevail.

(END/COPYRIGHT IPS)

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By Johan Galtung
ALFAZ, Spain, Jan 14 2013 (IPS)

The problem of the U.S. economy lies much deeper than the fiscal cliff. Wise people–Robert Borosage, Paul Krugman, Joseph Stiglitz–see neither the fiscal deficit nor the U.S. debt as the key problems, but the lack of growth.

Johan Galtung

They point to the Bill Clinton years and how, through growth, the Debt/Gross Domestic (GDP) ratio went from a half to a third. Important, but then there is a fourth consideration: some Americans are suffering, out there. The bottom “16 percent” of people and families below the poverty line do not know for sure where their next meal will come from and have no medical insurance. Macro-economics is blind to basic human needs, yet there are solutions.

After Clinton, increasing expenditure with enormously costly wars making conflicts even worse, and, in addition, lowering the revenue by reducing taxes on the super-rich. That a fiscal deficit would rear its ugly head, fed by such policies year after year, was a foregone conclusion. U.S. voters, you asked for it, you got it.

Congress voted a compromise on ten fiscal cliff factors. The market reacted “positively”, if that is the right word when the finance economy makes a Dow Jones Index leap upwards while the real economy is stagnant, thus increasing the gap feeding future crashes.

It was a lazy compromise, little new beyond the juggling of old factors. Major problems like Medicare payment–the U.S. health services, at 17 percent of the GDP, produce less health than the typical European services at eight percent of GDP–and unemployment insurance were postponed, not solved. Like the debt ceiling. The new Congress inherits ever more intractable and pressing problems. One reason is obvious: the fiscal cliff discourse is much too narrow.

There is nothing pointing in new directions. How about a Municipal Uplift Authority (MUA) as a major federal programme? Hovering over the U.S. municipal map, identifying the municipalities with the highest levels of misery–people below the poverty line, with hunger threatening and no health coverage–is easy. Lift them up!

Cutting some expenditure and increasing taxes on the rich is indispensable, but limited and limiting. A huge imaginative programme for the 16 percent to lift themselves up by their own bootstraps, with credits for small companies-cooperatives designed to produce food, clothing and housing, health and education all at affordable prices might do miracles.

Carefully monitored, MUA should be self-sustaining, and after the credits have been repaid, generate domestic demand for considerable economic growth. Sixteen percent is a major proportion. A more realistic approach to getting the economic wheels turning than hoping to become the major world hydrocarbon exporter by 2030–by then hydrocarbons may be phased out. Better turn inward, facing the fact: U.S. and Western world trade dominance is gone. Outcompeted.

But there are also other approaches, and they in no way exclude each other, nor do they exclude the fiscal cliff avoidance compromise.

The U.S. debt is increasing. States and corporations buy U.S bonds at low interest–parking dollars for some limited time to avoid the costs of buying other currencies–trusting to be serviced by freshly printed dollars. But that cannot last forever, given the many schemes for regional and world currencies based on a mix, not on any single currency.

With a (flexible) U.S. debt ceiling of 16.3 trillion dollars the major creditor, China, has problems. Could the two agree on something in return for some debt forgiveness? Like the reduction of a major U.S. federal expenditure, the one trillion dollars on military expenses?

A creditor is entitled to look at the debtor’s budgets to identity cuts; the debtor is entitled to say “that one has to do with you (and Russia)”, and the creditor to reply, “if so, let us talk; our economy is still smaller than yours, to match you militarily is more of a burden on us; how about bilateral-balanced-controlled disarmament, and we could throw some debt relief into the bargain?” China might demand no encircling of China militarily, nor any Trans-Pacific Partnership bloc excluding China economically. Who will benefit? Obviously both; relieved of military waste, of a sizeable tip of the debt iceberg, cooperating rather than competing in the global arena.

We sense three possible losers: European Union, Russia and Japan, with Australia, hoping to be favoured by one or the other. But USA-China together matter more; they might even engage in imaginative joint projects for poverty alleviation elsewhere. Lift up the bottom, create customers.

The two policies, lifting up municipalities and tying debt relief to disarmament, are both rational. But in the way of rationality stands the arithmetic of Congressional voting, as adjusted to the arithmetic of the deficit reduction as a hand to a glove; even if the hand becomes paralysed. They fit too well, blocking out other views.

Some other input is needed if the legislative power has no other game to offer. The onus is on the executive power. Could there be a latent New Deal, hiding in Obama’s second term? If not, poor U.S.–four more years of the same, downhill.

In the swamp of problems there are bubbles waiting to burst: finance versus real economy, printed money versus real value, debt service versus people service. There is a way out.

(END/COPYRIGHT IPS)

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