This report from the Guardian is consistent with Thomas Klau’s argument that current eurozone governance arrangements are pushing “democratic debate and voters’ choices to the margins”. It also suggests that in the long run the present way of doing things will prove politically unsustainable, in a union of democratic states. Whether Klau’s preferred solution is likely to come about is another question entirely.
51 replies on “Democracy, the euro, and the nation state”
Didn’t know there was someone out there ( Klau) that has articulated this obvious “crisis of governance” truism quite so well and in a European context.
The threats to global populations of consumer-voter-citizens from essentially non-democratic global forces ( why should these forces be sui generis democratic?) like the financial system, climate disruption and nuclear proliferation have for a long time rendered existing, nation-state based governance systems anachronistic.
Even today we live in a de facto G2 world ( Chinese/US symbiotic, creditor/debtor, autocratic/”free”) system, the logical up-shot of blocs based on dysfunctional nation states that pretend to have delegated “power” to dysfunctional regional institutions.
“Europe” has demonstrated its unfitness to even sit at this G2 table by its very capacity to threaten the viability of the global economy sitting atop these two global pillars.
“In the long run the present way of doing things will prove politically unsustainable”….. and not just “in a union of democratic states”.
It must be clear by now that the entire existing gamut of global and regional institutions is/are are well past their “sell by” dates.
That aside, we could start by listening carefully to this guy Klau so we MIGHT get Europe, one day soon, a seat at the G2 table! Getting a bit urgent!
Klau makes a lot of sense. One of the benefits of a post-national constellation is that Europe will not be at the decision-making mercy of a Nicky Sarkozy – methinks the people of North Africa might also sleep a little more peacefully.
I think an EU economic policy agency should be setup. Not one that mandates policy, rather one that frames the debate by producing quality, empirically viable options.
That would then leave civil society to discuss the wider political and moral implications. The current situation, with various crackpot schemes being concocted by various actors, with differing interests….leads to confusion which erodes chance of democratic debate.
Also, frankly, the flood of options from various op-ed pages and academic channels, is hardly helping.
Open policy publications, fully detailed, with underlying econometric models available, would aid informed debate.
Klau does well to describe much all the serious issues & flaws of the eurozone.
But he leaves out the over arching problem from which all the rest flow or are utterly hampered in resolution – the undemocratic power of the banks to trump democratic accountability at every turn.
All of the problems can be laid at the door of the banking system, directly or indirectly. They had a major role in introducing & designing a system completely inadequate to cope with a financial shock/recession. They were complicit in causing this shock thru’ a combination of greed, fraud, gambling & totally inadequate regulation in the creation of a massive debt bubble. They are responsible for doing this in a way that the most appropriate method of deleveraging – thru’ debt write offs – threatens collapse of the entire system. Thus forcing massive debt transfer onto ordinary citizens of Europe thru’ their governments. All money, of course, created as debt in favour of the banks. They also dictating, thru’ their vehicle the ECB, the detailed terms of pro cyclical & devastating ‘austerity measures.
This is nothing short of economic warfare on ordinary citizens by banking & wealthy elites.
James Galbraith regards the present banking, financial & monetary system as ‘irreversibly corrupt’ system. He refers particularly to the US system & they are the most culpable but Europe has operated in much the same vein.
Whilst the people of europe do not understand the details, amply facilitated by intellectual ‘capture’ of macro & monetary economics thinking, in practitioners & media, they can see the results of its abject failure – 4 years on, still in crisis & ongoing.
It’s long overdue for economists to take a long hard look at the fundamental system with some fresh intellectual honesty & curiosity.
Some, the MMT advocates in particular, did this some years ago & gave warnings about the crash based on robust methodology.
Paul Krugman is nearly ‘there’.
Banking reform for UK on MMT principles:
Modelling on a similarly based system by Prof Yamaguchi:
Now, if mainstream economists could offer a thoroughly worked out proposal for the Eurozone along these lines, there’s a possibility the politics could be resolved. Yes, it’s a far more fiscally integrated EMU than envisaged, but could work, & indeed improve democracy. There would be bound to be transfers between the more productive states to those less so. But the key to this is optimal/maximum use of resources & achieving a rapid recovery to near full employment.
There is no solution, eurobonds or otherwise, with the present system. It’s perpetual debt poverty, social injustice, civil unrest etc or exit of the EMU for peripheral states.
A regular theme in the bail-me-out-now-crowd is that unless they are bailed out the euro is dead. I’m curious, how would that come about?
Are there any steps on the way or will the euro die the very instant a hypotetical country were to default?
“It should be recognized that a disorderly default or exit from the eurozone, even by a small country like Greece, would precipitate a banking crisis comparable to the one that caused the Great Depression. It is no longer a question whether it is worthwhile to have a common currency. The euro exists, and its collapse would cause incalculable losses to the banking system.”
George Soros argues that Germany holds the key in an article in Reuters
That is difficult to dismiss.
It is looking like they better do something soon with the figures out of Greece yesterday showing a decline in q2 of 6.8% following an 8.1% decline in q1. This looks like disaster territory. Interestingly, I also see that the Greek minister in charge of privatization is saying they should postpone the programme because the stock market prices have fallen. Looks like the July agreement is already defunct. Another crisis in a few weeks?
Since the collapse of the Soviet Union, western liberal democracies have become inextricably linked with unfettered free market capitalism. While times were economically good, liberal democracy was seen as “the end of history”, the only stable and successful form of government. And now, as the once almighty market begins to crumble and collapse under the weight of its own self contradictions, democracy itself is seen as facing a crisis as great as any in the 1930s.
By hitching themselves to the markets, by allowing themselves to be governed by the creeds and credits of banks and traders, politicians have abandoned the stable foundations of representative democracy in favour of a rickety express elevator to easy riches. This crisis will continue so long as the political classes adhere to philosophy and rule of the market and its acolyte, and it will end only when governments return to proper governance based on reason, the rule of law, and social justice.
Free markets are not reasonable or rational, and they are certainly not the “single best method we have of making decisions”. They are chaotic, capricious, and hysterical arbiters of value, price, and policy and are totally unsuited to form the foundations of a stable democracy, the EU, the Euro, or anything else.
If European democracies continue to shackle themselves to the rule of these mad traders, their stock with the general public will plummet a lot sooner than they think, and the whole continent may face a restructuring of governments and societies in the near future.
The pan-European Common Agricultural Policy is an example of unfettered free market capitalism?
In Ireland, where would professional groups be without public sector business?
What is common among the struggling economies is not the slant of the ism but bad governance and the lack of accountability.
As to democracy, people generally want to have their cake and eat it.
Like it or not, the ECB for example is the product of a democratic process.
All member countries accepted the EMU rules of entry and they should be facilitated to leave if they cannot get majority support for their current position.
It’s puzzling when people criticise Angela Merkel because she may at times pay too much attention to public opinion and then complain when public opinion is apparently ignored.
“This is nothing short of economic warfare on ordinary citizens by banking and wealthy elites.”
I can’t avoid the conclusion you seem to have come to and this is what I meant by my own comment on banking crises, climate disruption and nuclear proliferation NOT being ( sui generis) democratic phenomena.
So, help me out here/teach me, as we appear to be in the realm of political philosophy. ( maybe the answer to my question is in one of your links and I should go back and read them more carefully?)
Are you saying that “economics” can solve these problems? ( Forgive my naîveté!).
Or is what OMF seems to be saying, that European democries, having ( consciously?) “shackled themselves” to this system ( “these mad traders”)? have the power or the option of unshackling themselves?
This would seem to imply that Democracy ( capital D), properly practiced, somehow has, intrinsically, the solution to all of this? ( In which case, the Chinese, becoming past masters at capitalistic autocracy, are on a hiding to nothing?)
But then I read OMF’s definition of democracy ( properly practiced): good governance, reason, rule of law and social justice and I wondered where, if anywhere, that ever existed?
And how it would differ from unfettered free market capitalism that was just a bit “fettered”?
Help me out here guys!
“Another crisis in a few weeks?”
Speaking to some of my financial services clients over the past week or two, I’d say that’s exactly what they are preparing for.
Ultimately, all the problems being discussed here are caused by people and the actions of those people. There’s a very good article by Gillian Tett (sorry I don’t have a link) in the FT Weekend Magazine today about the ‘reptilian brain’ – I would take her hypothesis further and apply it to politicians as well as bankers.
We sure as hell are living in ‘interesting times.’
Robert Zoellick is again hinting at a dramatic change in the worlds monetory system ahead.
This freegold belief system will result in the final destruction of the nation states – both the ideas driven US nation state and the more tribal nation states of Europe.
Their fate was really sealed during the Club of Rome years 40 years ago.
They gave up their industrial / technological development during those years and made real long term growth a nonsense concept.
This trap was set many moons ago.
With the German Finance Minister ruling out Euro Bonds it is increasingly likely that further convulsions lie ahead. Though he did hold out the prospect of further help…with strict conditions….
“It still stands: there will be no collectivisation of debt and there will be no unlimited support,” Mr Schaeuble was quoted as telling Der Spiegel magazine in an interview to be published on Sunday. “There are certain support mechanisms that we are developing further – with strict conditions.
“The member states that need our solidarity must reduce their deficits and reform their economies — with at times very tough measures,” he said.
Der Spiegel said Mr Schaeuble also ruled out the issuance of eurobonds unless certain hurdles are removed.
“I rule out Eurobonds for as long as member states conduct their own financial policies and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,” he said.
“Without that kind of solidity, there is no foundation for a joint currency,” he added.
So it is hand over the keys to the Department of Finance in return for Eurobonds… not likely to happen.
Because of private bank capture withen our executives we were / are unable to enact the simplest mechanism to reduce our fiscal defecits.
A ballsy , independent and self aware goverment could have destroyed shadow bank debt & maybe even domestic term deposits so as to conform with our Maastricht obligations.
If people in academia could simply explain to people the fiscal debt is merely a accounting entry in the minus because of malinvested bank credit the political landscape would be somewhat different me thinks.
But it is perhaps too late for sound paper money now – the freegolders will win this fight without much effort because this spectacle has been fixed from the beginning.
The peoples austerity -( the difference between malinvested private debt & public debt production ) is launching the gold price into orbit.
Keep it up lads = I am making a killing from this stupidity.
@ RF: “Help me out here guys!”
I wish I could. Big, big, like really big pic. You (me and other folk ditto) ‘see’ portions of this big pic in three modes: crystal clear, foggy and dumb-black.
Imp Note: Brain can create virtual images of things that it ‘thinks’ about.
So, all we are able to describe and natter on about are the bits we see clearly, and especially the foggy bits. Veiled objects tend to be a tad more ‘interesting’. This ‘frames’ our beliefs, opinions, views, ideas, etc. Hence the various and varied points-of-view, and the disputes; like “what is capitalism?” OK, its as long as a piece of string. Deeply frustrating.
I’ll have to stop here. But I recommend Giovanni Arrighi and Daniel Boorstin. Long reads, but they do expose many of the dumb-black bits. This leaves us with the foggy bits – and we can conjure up these! 🙂
“So it is hand over the keys to the Department of Finance in return for Eurobonds… not likely to happen.”
I don’t think so. I think the differential interest rates harks back to an idea that was current when eurobonds were first mentioned. An external price for the eurobond backed by the credit of the eurozone, with an internal price for each country dependent on their adherence to fiscal rules. It would still be up to each country to decide how it spent its own income, but borrowing capacity would be limited based on the soundness of the income raise/spending decisions.
How could it be any other way?
Perhaps I am being pedantic but I am taking Herr Schaeuble literally….
““I rule out Eurobonds for as long as member states conduct their own financial policies ……
Anyone for “Feral” Capitalism? Now that we are a little short on Feral Fianna Failers, Feral Pee_Dees – and with all the Feral Bankers on Protection Orders … present irish lot appear, not so much feral, as a touch Feeble …
Methinks we will see some Feral_European Citizens in due course …. once they stop taking the Soma of course ….
EuroBonds within 12 months – who gives me odds on a tenner?
how would you price the rollover of debt using that proposed model?
How would would it be ensured that the holders of the responsibility of deciding interest-rates would be better than the card-carrying communist central-planners that their function is modelled after?
How could the financial department be kept apolitical seeing as the ECB, which is supposed to be neutral, has entered into the area of politics?
By any measure, the contribution by Thoma Klau is a major one. It nevertheless contains a number of lacunae and its conclusions are not necessarily valid.
He omits to mention that the inadequate solution to the crisis now envisaged is that demanded by Germany and too readily agreed to by France.
The article also suffers from the usual confusion with regard to what is meant by an increase in “federalism” and a “fiscal” or “transfer union”. The EU is not a federal state in the classic sense and, if the example of the US is any guide, turning it into one would not necessarily resolve the problems confronting the euro. What distinguishes the EU from other systems and which makes it unique is that its is an apparently contradictory construction, a “federation of nation states” to take the felicitous description of Jacques Delors. There is no watertight distinction between the powers of the “federation” and the “states”, simply a transfer of competences from the latter to the former with the latter still remaining responsible for the implementation of most of the actions under these competences.
There are a number of exceptions, most notably the Common Agricultural Policy which requires a major element of common EU administration. And there are several examples where independent powers have been delegated to to institutions or agencies, such as the Commission in respect of competition and the ECB in respect of the management of the euro. The whole structure is subject to the judicial control of the ECJ (although this is clearly being questioned by the German constitutional court and a strong euro sceptic element in German political circles).
Similar arrangements would be found in any democratic state.
The existing treaties provide more than enough powers for increased political, economic and social integration which is a general process and not solely an institutional concept. The problem is simply the lack of political will to use them or, as in the case of Germany, a denial that they exist in relation to guarantees to allow the member states to get a better bargain from the markets. This does not mean acceptance by Germany of the responsibility of all the debts of everybody else in the EU as populist myth would have it.
As far as Schaeuble and Merkel are concerned, it is a case of the immovable object of political pusillanimity and the irresistible force of economic reality as reflected by the markets. My money is on the irresistible force.
It would also be helpful if Daniel Gros could grasp the fact that there is a difference between the responsibilities of the ECB (liquidity) and the EZ governments (solvency) but that, as far as the markets are concerned, there is little or no operational difference between the two. There are many instances of perfectly sound banks being caught up in liquidity crises when they remain completely solvent and the same is proving to be the case with regard to the member countries of the EZ.
cf. the current media view from Germany cortesy Der Spiegel. (According to a recently published opinion poll, a majority of Germans remain “calm” with regard to the euro and its future).
I omitted to mention the European Parliament as an essential element in the democratic structure of the EU, especially now that it decides most matters in co-decision with the Council. In other words, the two must agree for any decision to pass. The sytem mimics the division of responsibilities between the Bundestag and the Bundesrat in Germany. Such balance of power arrangements are also part of the democratic process worldwide.
In short, Klau is re-inventing the wheel which the members states of the EU spent at least ten years debating.
Oldie but might still have relevance:
Quote from the linked to article above:
“While all right-thinking people might know we need the bailout, just about all right-thinking people don’t have a clue as to what they are talking about.
The Great Depression story is of course the most extreme case. No one has yet sketched out the sequence of events that will give us ten years of double-digit unemployment. But hey, if the scare story helps get the bailout passed — and gets those uneducated skeptics in the hinterlands to buy it — why not talk about the Great Depression?”
Dunno. It’d have to be a relatively rigid formula for pricing, I reckon. Which might lead to gaming, but then again, it would also lead to clarity for participants.
Yes, that’s what he said, but what will he accept?
The CAP pre-dates the end of the Cold War. I’m talking about trends that have emerged since then.
And where did this lack of accountability come from? For years we have been told that the only arbiter of value, results, and even morality was the almighty hand of the free market. Anything could and was justified so long as it was justified by stock prices and self interest.
The first place to look would be at European societies in the post war period from about 1950-1970.
This comment reveals how much the idea of a free society and a free market have become conflated in the public mind. They are not the same thing. For example, you’re free to eat in whichever restaurant you like, but the restaurant is not free to feed you boiled cardboard and fecal tainted meat. And yes, they would do so if they could get away with it. Anyone will do so when greed is only arbiter of ethics.
Democracies have been governed by a perverse and dogmatic market ideology for the last 30 years. Now as the churches of that religion begin to crumble, democracies are also in danger of collapse unless they divorce themselves from this philosophy of government and return to the ideals of the post war democracy: That the state exists for the benefit of the of whole the people, and not simply for the facilitation of private profits.
To be fair OMF, this is nonsense.
‘To be fair OMF, this is nonsense’.
Actually, to be fair, it’s not nonsense. But stating, as OMF does, that ‘western liberal democracies have become inextricably linked with unfettered free market capitalism’ ( look at the participle “linked”) doesn’t get us very far. Of course they’re bloody well “linked” to the “system” that beat, saw down, outlasted, call it what you like, other ideologies, survived the Cold War and led to Fukuyama decreeing the “end of history”.
As I said earlier, we’re in the realm of political philosophy here. What Brian Woods Snr. called (above) ‘big, big, like really big pic. – and then, understandably threw up his hands!
We’re all ( including Chinese free market capitalist/socialists “with Chinese characteristics”) “linked” to this “system/narrative/construct”. It’s only a mechanism/methodology that enables us to discuss forces that impact us and give us no option but to engage with.
Surely the point is that we now know it’s NOT the end of history and the “system” we’re forced to engage with has bitten us all badly on the bum.
It’s not unreasonable to contend after all that’s happened recently, and is happening now, that “free market capitalism” contains the seeds of its own destruction.
The catchall title of this thread involves democracy, the Euro and the nation state and all I’m trying to do to narrow down the debate is get agreement that Democracy ( capital D again) does NOT, in and of itself, insulate global citizens from the depradations of the force/forces we choose to call “free market”.
Choosing to call “it” something else won’t protect us from its depradations!
Indeed, the American Federal REPUBLIC ( it’s not called a Federal Democracy!) is based on a recognition of the potential depradations of the human animal, the “unfettered” market AND “unfettered” democracy.
All of our economic and political constructs ( and “systems”) are attempts to “fetter”, “unfettered” phenomena and are therefore works in progress, flawed and “human”.
It appears to me that the only choice we DON’T have in our anticipation of and responses to these phenomena is to be “unlinked”.
So, in that sense, I suppose what OMF is saying is both true AND nonsense at the same time!
If that’s agreed, then what we should do ( particularly about the Euro) is……….?
This is an interesting debate (especially the contribution by Mike Hall) but I would suggest that it is drifting away from the topic under discussion which I would summarise in terms of the final paragraph of the article by Klau.
“But the charge of naivety must be levelled even more forcefully against all those who ignore a decade of evidence and believe that a fractious club of national leaders can give Europe and the euro zone the policies and stability it needs. The euro zone needs the powerful, politically game-changing instrument of euro bonds – and euro bonds will ultimately need federal, democratically controlled institutions to give them sufficient legitimacy”.
Both the fractious club (European Council and informal EZ European Council) and the ” federal [in the European way), democratically controlled institutions” exist already. The problem is that the former is usurping the powers of the latter – a drift to inter governmentalism – although there is no treaty basis for it so doing, as the European Council shall only “provide the Union with the necessary impetus for its development and shall define the general political directions and priorities thereof. It shall not exercise legislative functions” (Article 15.1 TEU). Merkel made clear in a speech in Bruges last year that she sees this development as normal. France under Sarkozy has hitherto enthusiastically joined in and, in the process, has been making an error fatal to the French position. His country is incapable of playing on equal terms with Germany in this league. The policy is particularly damaging against the background of the French legal system sorting out in recent years any remaining difficulties it might have had with the primacy of EU law and of the role of the ECJ unlike the situation in Germany.
If the Sunday Times is to be believed, Sarkozy and the coterie of advisers around him may be losing ground to the French establishment and the subject of euro bonds is now recognised as the defining issue.
Der Siegel has some truly startling coverage in its weekend internet edition covering CDU/CSU/FDP criticism of the initial step by the ECB in buying bonds of peripheral governments, including the claim that Weber had noted his opposition in a formal e-mail and had intimated that he would go public if the decision went ahead (!) But other papers, notably Stern, report that opposition to the development is is weakening (as well it might as it has been as plain as a pike-staff from the outset that it is the only permanent solution).
On the issue of “sovereignty”, which is bound to raise its head, a catchy title for an article on the subject might be “Sovereignty and septic tanks”. The Irish public have accepted without blinking the argument of the government that it must correct its failure to implement the necessary EU legislation (and who could argue against that?) and that it will have to pay heavy fines to Europe if it continues to fail to act. The same reaction is evident in matters relating to the powers of the Commission with regard to competition (including dawn raids on suspected cartel members). Conclusion! The European public have accepted federalism as it is exercised in the European manner. Indeed, I seem to recall public opinion polls revealing that they have more trust in European institutions than their own.It is time the politicians and the commentariat caught up with these facts. The facts are, in any case, catching up with them.
‘That the state exists for the benefit of the of whole of the people, and not simply for the facilitation of private profits’
Hard to argue with that, but governments today tend to be measures first and foremost on their ability to generate economic growth. As Richard Fedigan rightly says:
‘All of our economic and political constructs ( and “systems”) are attempts to “fetter”, “unfettered” phenomena and are therefore works in progress, flawed and “human”’.
I don’t think we can hope to build the institutions we need without taking on board all we know of society and human nature, which is vastly more than the US Founding fathers knew. As we can see once more in Afghansistan, the possession of unlimited high technology is no substitute for a decent social and political analysis.
It seems to me that the financial services ‘industry’ is like military at this stage. It exists mainly to perpetuate itself. I am reminded of the old Greek debates about the nature of the good and the true, and the frescos in Siena on the nature of good government. Karl Polanyis’s 1947 Great Transformation has not lost its relevance over the years.
The late Pierre Bourdieu was a wonderful analyst of power in all its complex and confusing forms. Like all the greats, he has made sure to stand on the shoulders of giants. His work is not easy to grasp, but well worth the effort IMHO. And I am not a trained sociologist.
‘All that is said here applies first and foremost to the State, which, like all the historical gains linked to the relatively autonomous history of the scholastic fields, is marked by a profound ambiguity. It can be described and treated simultaneously as a relay, no doubt a relatively autonomous one, of economic and political powers which have little interest in universal interests, and as a neutral body, because it conserves within its very structure, the trace of previous struggles, the gains of which it records and guarantees, it is capable of acting as kind of umpire, no doubt always somewhat biased, but ultimately less unfavourable to the interests of the dominated, and to what can be called justice, than what is exalted, under the false colours of liberty and liberalism, by the advocates of ‘laissez faire’, in other words, the brutal and tyrannical exercise of economic force.’
Pierre Bourdieu: Pascalian Meditations: Polity Press 2000.
There is no perfect system and you appear to suggest that the failures in the financial sector means that a reversion to state monopolies in for example aviation, communications and energy, would be positive.
Ideologues are blind to the fact that the same self interest that they observe in the private sector exists in public controlled organisations but the effects can be a lot worse because of the absence of competition.
You may well be a trade union official seeking to protect the insider privileges of for example ESB workers.
In the post-war period, the only route out of poverty for small poor countries in particular, including Ireland, was though trade and that was facilitated through huge tariff cuts.
Most tariffs today are paid by developing countries to other developing countries.
Wonder why the computer device you are using is so inexpensive compared with past times?
Welt am Sonntag headline article.
Daniel Gros gets a mention, venturing an estimate of a drop of 20% to 30% in German GDP were the euro to break up. IFO, the organisation headed by Sinn, comes up – ever reliably – with a figure of an additional 47 billion in loan costs for Germany annually in the event of the introduction of E-bonds (which may hopefully become the adopted description to avoid confusion with existing corporate and other bonds that happen to be issued in euros).
‘interesting debate but drifting away from the topic’
Well, to be fair, (yet again!) “Democracy, the Euro and the Nation State” was hardly likely to provoke a debate with a sniper’s rifle focus!
You say that ‘ the European public has accepted federalism as it is exercised in the European manner’ and that there is more trust in this federalism than in their own (national) institutions ( based on opinion polls you seem to recall!).
Well I “feel/intuit” this too, and it fits with my own analysis/belief that the (European) nation state is a busted flush, but I can’t “prove” it.
I can fully agree with you that “the facts are catching up with them” – the national politicians and institutions, that is. And not just in Europe! ( US faith in their politicians/Washington!).
Are you sure that we have reached the stage (in Europe) where citizens have sufficient ( democratic!) confidence in the “Euro” institutions to drop one for the other?
Must admit I don’t see much evidence for this. Indeed, the ( national) political classes seem so strategically aware of this ( existential) threat that they’re prepared to use almost any tactics, including xenophobia, to wreck the prospects of this happening.
At the risk of annoying Brian Woods Snr. with too big pic.s again, a Chinese strategist ( and I’ve met some of them) would be quite justified in gleefully biding his time observing the ‘American quasi-imperium and more generally the dominion of the West ending, not rapidly but steadily.’ as Roger Cohen put it in yesterday’s New York Times.
He, Cohen, (like DOCM!) believes that ‘surveys suggest that 50%of Germany now has little or no faith in the European Union. Germany has turned parochial at the very moment its leadership is needed.’
So, in summary so far, it seems like it’s the nation-state that presents the biggest challenge to democracy AND the Euro as we face this full frontal assault from “unfettered capitalism”.
Except China, of course. Which seems to be thriving!
@ Richard Ferdigan
Re your question about democracy & other issues, climate change etc.
I think the democratic process & institutions are failing miserably to address these issues in a timely fashion, just as they failed in avoiding the financial crisis & any sustainable resolution as yet.
But in the case of the economic situation at least, democracy does not have the appropriate tools to work with. I believe the right tools would help enormously in improving the function of democracy, and, frankly, are key to implementing policies to address impending ecological & resource issues.
As all have now recognised, the fundamental structure of the EMU, as it stands, is incapable of reconciling imbalances in fiscal policy & economic performance of the member states. Most particularly in a recession situation. We can no longer muddle along.
I agree with DOCM (if I read that correctly) that the EU as a whole has done remarkably well in progressing the wellbeing of EU citizens since its inception. But the vested interests of the financial sector & the damage inflicted by a flawed system have completely overwhelmed the system of EMU democracy to act in similar vein.
Some form of E-bonds seems a logical, almost inevitable direction (in the present economic paradigm). But, in the accompanying rules, it seems the ‘establishment’ is set on ignoring or even enhancing the upward wealth conveyor from productive real economy to the unproductive section of bloated & still growing of the financial sector. Such rules will surely secure the impoverishment, in unemployment & low wages, of significant parts of the peripheral states for a very long time, if not permanently. A clear contradiction of the EU ethos of the ‘strong helping the weak’ & other goals of social justice recognised in disbursement of structural funding etc. The EU project was born in a spirit of co-operation & a desire to avoid conflicts & the extremes of competition that make the majority poorer. Recognising that working together, accepting some compromise, raises the wellbeing of all & is far better than facillitating the super wealth of a few at the expense of social injustice & civil unrest (like UK riots).
The EMU, in my view, has highlighted how severely at odds with that our economics arrangements are. I don’t find that surprising, and nor should anyone else, when the primary goals of economic management completely ignore the level of unemployment & accompanying poverty. The underlying, original premise in neo liberal ideology (I can’t dignify it with the term ‘economics’) was that inflation targetting would automatically create low levels of unemployment. Well, we have the proof now that it didn’t work in times of ‘boom’ (bubble growth), rather creating massive inequality. And it is an unmitigated disaster in the inevitable ‘bust’.
We need a fundamental rethink on the primary goals of our economies & with that the purpose, appropriate size & role of the financial sector.
@ Richard Fedigan
“Democracy, the euro, and the nation state” is the title given to this thread by its author but the key document referred to is the article by Klau which carries the title:
“Fractious club of national leaders cannot lend the stability Europe needs”.
This is sentiment with which I happen to agree but Klau draws from his analysis a mistaken conclusion because he, like many others, seems not to know how the institutions of the EU actually function. This ignorance is the real source of the so-called democratic deficit and its seems to be a disease from which “federated” states in general suffer, if the example of the US (Tea Party), Germany (CSU/FDP) and Spain (take your pick of the regions!) are any guide. The same could probably be said of Italy although – like Spain – it is not formally a federated state.
The really worrying feature is the fact that Klau has to appeal to the common sense of the smaller member states to stand up for themselves. They could best do by ceasing to bash the institutions on which we all depend (and Klau might bone up on how they work).
Hoever, the attraction from a publicity point of view of “Gallic spats”, and the self-importance with which the leaders can strut their stuff in front of their own, repeat their own, journalists – the independence of whom one doubts given their ability to sing from whatever national line is fed to them – is apparently irresistible.
I read that Trichet circulated a chart showing how the markets reacted – negatively – every time the European Council, especially in its EZ formation, met. The less often this fractious club meets, the better the prospects for Europe to emerge from this crisis.
Germany might also want to figure the effect on its banks into calculations of leaving the euro. Imagine the situation where the new DM appreciates by 10% and the rump euro depreciates by 10% (slight enough moves given what is likely to happen).
The German banks have monstrous assets in euros and few liabilities (their liabilities being mainly domestic).
How would a banking system that is thinly capitalised cope with a 20% unhedgable adverse FX movement?
I dismissed Klau as a quack once I read
The president of the European Central Bank, Jean-Claude Trichet, has emerged as an indispensable statesman
Trichet is a statesman in the same way that Henry Kissinger was. Spare us from those taking the side of the powerful against the weak and calling it realism.
It is odd that in article bemoaning the lack of European citizenry’s democratic control Klau’s most important figure would be a person totally outside it, working in a institution whose only concern is maintaining the value of a currency.
@Michael Hennigan rushes to the defence of free market capitalism.
Wonder why the computer device you are using is so inexpensive compared with past times?
In the midst of the still ongoing latest and greatest crisis of capitalism arguing that access to cheap, now mainly foreign manufactured, consumer electronics is a good swap for meaningful democratic control of state fiscal policy or international economic stability shows a lot of chutzpah.
The only indisputable lesson of the current crisis is that the current international capital markets are a very, very bad way of allocating resources. Yet the only common thread in various government and international responses has been that investors in these failed markets have to be protected, reimbursed and satisfied.
Navigating a path out of the current “free market/slave governments” trap that Richard Feddigan (and of course Adam Curtis) alludes to needs to be found, but this is made difficult by many of our international institutions (the ECB and the European commission, the entire US government) having been infected by market neo-liberalism to such an extent that it is hard to see the crisis being confronted while the institutions still have power.
If we want to preserve the legitimacy of popular EU initiatives (the environment, human rights, free movement of people) we need to deal with the parts of the EU that have lost that legitimacy. I am not sure it is possible within the constraints of the Euro or whatever the next pact for multinational corporations and investors is called.
I’ve argued elsewhere that ultimately EP and Commission will need to take over the role of the executive if this ero debt crisis is going to be resolved. Under Lisbon Treaty, Sarkosy & Merkel have reduced EU into an inter-gov ernmental decision-making apparatus. And, as we’ve noticed since 2010, Greece crisis was repeatedly prolonged by procrastination by these two mavericks. Yes they’re responsible ultimately for the fate of EZ. But my assumption is that although they have little or no faith in EP and its deliberations, the latter will emerge as the representatives of the euro sovereign and decide on Euro Bonds.
On Tues Merkel goes to Paris to meet and talk with Sarkosy. What are they going to talk about? Euro Bonds? Or something else?
Politics has been far behind the curve while markets are determining the fate of EZ. Merkel is no genius. Sarkosy has a fight of his life to get re-elected.
If rest of EZ block don’t get mad and angry at them – ie. procrastination! – it may be a bit too late to forge a new paradigm shift to safeguard EZ. EP has the final legislative authority to take on the fight with Council.
While all right-thinking people might know we need the bailout, just about all right-thinking people don’t have a clue as to what they are talking about.
The Death of the Euro story is of course the most extreme case. No one has yet sketched out the sequence of events that will give us ten years of double-digit unemployment. But hey, if the scare story helps get the bailout passed — and gets those uneducated skeptics in the hinterlands to buy it — why not talk about the Death of the Euro?
Thanks for your response and I agree that ‘we need a fundamental re- think of the primary goals of our economies and with that the purpose, appropriate size and role of the financial sector’
Regardless of whether Klau is exactly right or a “quack” ( Shay Begorrah) you’ve put your finger on what “we” need.
However, I’d suggest that “we” are fundamentally discussing how “we” organise ourselves in the face of forces that are like “military” ( to quote Paul Quigley) certainly undemocratic ( I include climate disruption and nuclear/security challenges) and menace “us” in ways that seem to have gone beyond the ( democratic) structures “we” have relied on up to now.
I’ll attempt to bring Shay Begorrah along with me here ( his comment about what ‘is possible within the constraints of the Euro or whatever the next pact for multinational corporations and investors is called) by venturing that, ultimately, whatever “we” are doing, “we” are doing it to ourselves.
I can fully comprehend DOCM’s revulsion at “Gallic spats” and leaders strutting not only in front of their own trough-swilling journalists but also in front of their own ill-informed and xenophobic VOTERS, many of whom, here on the “sophisticated” continent, are considerably less well-informed than their Irish counterparts. And look where that got us!
Many of “us” ( particularly in the US and increasingly in Asia) are also investors in the system that seems to be bringing “us” down.
Multinationals, whatever their shortcomings, are an integral part of our system from generating the new technologies that both exploit and employ us, liberate and enslave us, enrich and impoverish us. ( I’m reading lately that the corporate bonds of certain “blue chip” multinationals may shortly be safer havens than many sovereigns and even US treasuries so they might be needed!
So, as Mike says, ‘ the democratic process and institutions are failing miserably to address these issues’, not only the financial crisis but also unemployment and poverty – incidentally nothing new for the “Third World”!
And we need new democratic “tools”. Fair enough! But it looks like we going to have to invent them “on the run” ‘cos those based on the nation state and current models seem to be out on their feet!
But the house I live in is far more expensive. How can we account for this?
Nowhere have I stated, implied, or suggested anything of the sort. You seem to have confused me with a socialist/marxist of 30 years ago. I am not. I was not alive 30 years ago.
Indeed, it seem to me that the economic discourse of today is rooted in the long dead conflicts of the Cold War; between world views which have now ceased to be relevant. The most prominent example of this is actually the mantra of privatisation, supposedly the saviour of all under-performing systems, from the stock market, to the electricity grid, to the health services. Yet despite the great failures of privatisation over the last 10 years in particular, these beliefs are adhered to. It reminds me of the old adage about scientific theories: New theories never win the debate, their opponents just die out.
I don’t know why some people over the last 20 years were so motivated to support unregulated and unsupervised free markets and banking systems, even as these systems became increasingly and even obviously unstable. I don’t know whey people and politicians believed so fervently in letting private interests do whatever they liked without consequence, and were so adamant that even modest intervention and management by governments was somehow “wrong”. And why, even as the system collapsed, these same people were so adamant that public money be pumped in to keep the whole mad house going.
Perhaps those who grew up with the shadow of the Soviet Union looming over them were affected in some deep way? I have no intuitive understanding of what it was like to live in those days, but I am told that mass public fear and anxiety were commonplace. Perhaps their response to this crisis is some kind of collective post traumatic stress reaction to a fear of that old nemesis returning?
Maybe it’s so important for us to keep the banks private and the markets happy, whatever the cost to the rest of society, because if we do not, the Reds will come out from under the bed? I really don’t know; I still struggle to understand the response of the establishment to this global financial crisis.
A valid point. OMF’s claim depends on the force with which he/she used “linked.” I assumed, and continue to assume, it was not as subtle as you suggest.
European income tax rates are typically of the order of 40%. Equally, government expenditure comprises about 40% of GDP. In terms the trajectory of post-Soviet Europe, the Maastricht Treaty established a European Monetary Union, with a single interest rate set in Frankfurt by government appointees. This not within my definition of an unfettered free market. I am open to correction here, but I think our Competition Authority was only founded in 1991. Contrary to popular perception competition policy, one of the major pillars of which is the case for intervening against excessive market power, is rather antithetic to the notion of free market capitalism. The European Financial Stability Facility, a fund of tax receipts to hand over to banks, doesn’t have much of a free market ring to it. Nor does banning the cutting of turf in Roscommon.
Every regulation from how high sockets have to be from the floor to the requirement that every product for sale must have a label with its retail price and per unit weight attached, is a step away from the free market. The European Commission and the European Parliament has developed thousands of these over the past two decades.
OMF’s comparison of privatisation to unfettered free markets is the analog of Michele Bachmann calling Obama a socialist.
(Of course, none of this is to say that the EU regulated banking correctly or that privatisation is always and everywhere a good thing; merely that asserting Europe (among others) has been on a trajectory to an “unfettered free market” is pretty vacuous.)
@ Shay Begorrah
Ignoring the open prison of North Korea and the dictatorship in Belarus, there are now no serious examples of pure systems of free market capitalism nor communism.
In 1776, Adam Smith wrote of conspiracies by employers to keep wages low and he noted that “In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.”
That perceptive comment about humans preceded the more commonly known comment: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-love, and never talk to them of our own necessities but of their advantages.”
I don’t believe in secular nor other forms of religion but I understand why they exist.
Last year, I wrote on the corrupt nexus between capitalism and politics.
However, in a complex world there are also very positive aspects of capitalism in the US.
“A dwelling-house, as such, contributes nothing to the revenue of its inhabitant,” Smith said in The Wealth of Nations. “If it is lett [sic] to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue.” Therefore Smith concluded that, although a house can make money for its owner if it is rented, “the revenue of the whole body of the people can never be in the smallest degree increased by it.”
It should be recognised that even the best systems go haywire; people get lazy and fat (metaphorically and in reality) during good times; politicians promise free lunches to eager citizenry and a deaf ear is turned to advocates of taking away the punch bowl.
That happened Sweden which had a model of social democracy and private enterprise, which produced some world beating engineering companies.
It overcame its banking crisis in the early 1990s because unlike Ireland, it had a sound system of governance and accountability. Today, it’s back as one of Europe’s few star economies.
It seems to me Ireland wants to continue down the American road which is spending much of your income on life support via unsustainable supply chains , long commutes to work etc etc.
These metrics are registered on the GDP but do not add to real end use consumption.
But we do not use the reserve currency ? – we are clearly in a psychological bind.
Our investments for the most part has reduced the efficacy of the state.
We are therefore highly dependent on the heavy muscle of FDI to overcome these domestic malinvestments.
This running to stand still industrial stratergy that has been with us since the dollar bubble of the 60s and is no longer fit for purpose.
@Michael Hennigan 16:40
That is one thoroughly depressing article on increasing income equality in the US Mr Hennigan, though I did not doubt that you were fully aware of the figures.
For me the key sentence is from Professor Emmanuel Saez of the University of California, Berkeley.
Saez says, in the economic expansion of 2002-2007, the top 1% captured two thirds of income growth
It seems like a pretty clear warning that the effect of a more free market approach in a globalized economy is more national income inequality accompanied by its hand maiden influence inequality. For the median income worker the growth might as well not have happened, it has actually reduced the control they have over their own lives.
Perhaps we should be trying a different approach in Europe then trying to compete with monsters?
@ Richard Fedigan
If you’d like to read a good analysis of the financial crisis & the predicaments facing us, Prof Randall Wray of University of Missouri Kansas City offers a very accessible (minimal ‘jargon’) one here: (from an interview in Switzerland in May)
Part two focuses more on the Euro situation (plus some interesting commentary on China), here:
Part one (that I couldn’t find on his ‘home’ blog for some reason) is here:
Wray’s singling out of links between politicians & developers as being particularly prone to corruption (in a US context) is particularly prescient for these shores I think.
If you are interested in some my ideas for democracy & media reform, I outlined my thoughts here over a number of posts:
@ Shay Begorrah
‘Perhaps we should be trying a different approach in Europe than trying to compete with monsters’.
Indeed. But unlike the “Here be monsters” on the Mappa Mundi, the monsters are real, we know their names and their nature and they are, really, dragging us under water.
As I warned earlier, the potential breadth and depth of this debate already has us, not illegitimately and thanks to Michael Hennigan examining the fundamentals ( not just the “free market” soundbites) of Adam Smith e.g ‘man has almost constant occasion for the help of his brethern and it is in vain for him to expect from their benevolence only – is this a swipe at David Cameron?).
Next we’ll be into Montaigne, Montesquieu, de Tocqueville, John Stuart Mill, Jeremy Bentham, Edmund Burke, Marx and…..
My thesis, in the context of this debate and given that we now have a pretty good idea of the nature of these “monsters”, is ( somewhat like Klau!) that we in Europe have a diminishing voice in geo-economic affairs, limits to our capacity to mitigate the effects of these “monsters” particularly through flawed ( national and European) “democratic” institutions, and that we must radically transform these institutions while remaining engaged with the “monsters”.
If we don’t, the “monsters” will continue to consume us. I am also saying that China, unconstrained by the ( albeit flawed) democratic institutions we derived from our “Enlightened” thinkers seems to be riding these “monsters” more successfully than we are.
Although the US political set-up has produced dead-lock recently and in the past, its “free market”, “democratic” ( more “Republican” really!) system seems to be more dynamic and resilient over time than what we’ve stuck orselves with in Europe.
Indeed, the US political system, for all its “monster” attributes, seems to be a “more evolved” “animal” than our ( European) fractious nation state model at least inasmuch as it has assured the US an ongoing seat at the de facto G2 table. A place Europe looks further than ever away from!
I am deriving my “moral imperative” for Europe to become less nation state-driven and more “federal” not from ” morality” or political philosophers but from a pragmatic analysis of where the world is inexorably going and an argument that the only way to minimise damage from the “monsters” we must engage with is to organise ourselves so that we avoid becoming irrelevant at worst or just a problem at best.
I would contend that the only European economy/nation capable of surviving ( relatively) “alone” in the monster-terrorised world we live in is Germany.
And Germany seems to be on a knife-edge in terms of its commitment to “Europe”. Now that’s a real elephant in the room…. or “monster” if you prefer!
@ Shay Begorrah
What is under threat is the current model of globalization: good tidings for developing countries and the rich in the developed world; stagnant earnings for the rest.
Most of the more than 400,000 new jobs created in the UK since Cameron became PM went to migrants.
Warren Buffett, the billionaire, in the NYT today:
We mega-rich should not continue to get extraordinary tax breaks while most Americans struggle to make ends meet; last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
Stop Coddling the Super-Rich
‘…good tidings for developing countries and the rich in the developed world; stagnant earnings for the rest’.
I’m afraid your analysis of the results of the “current model of globalisation” is correct. And let’s not forget that the nation-state basis of this model ( albeit not democratic in China) is what produced it.
Certainly in the UK (and to a lesser extent in the rest of Europe!) a sort of bargain was struck back in the 80s with the remnants of the unskilled working classes that they would be supported either by state-facilitated industries or subsidy payments if they would just stay quiet and stay hidden. They are not doing that anymore ( UK riots, US Tea Party and right wing populist, anti-immigrant parties in ‘continental” Europe.)
The younger generation of forgotten people ( including unemployable graduates) feel that they have no future in societies divided into privileged and secure elites, economically-stressed middle classes and a growing “underclass”.
This would be a fairly incendiary combination in societies in any event, but doubly so in “democratic” societies in financial and governance crises at what seems to be the end of Western dominance of geo-economics and politics.
Maybe the Euro will survive in some form but European nation states will have to yield sovereignty, and maybe some of our legacy notions of democracy, if we’re going to survive in the face of competition from behemoths like China who played by our rules ( without democracy) and seem to be winning!
On the Left
Left-leaning Tageszeitung writes:
“The message that the conservative-liberal coalition politicians have been espousing since the beginning of the crisis is immensely damaging. Their position triggers alienation, and not only in neighboring countries which traditionally keep a close eye on Germany, both because of its economic clout and its history. When the largest nation treats the rest like a school master, it harms confidence.”
“It is wrong that the politicians stick to the nationalistic rhetoric of fear instead of stressing the value of the European community. Right now it is urgently necessary that someone speaks of the positive aspects of Europe…. They should also remember which country has most profited from the union: Germany.”
On the Financial Right
Financial daily Handelsblatt writes:
“It would be desirable to avoid euro bonds — but realistically one has to assume that we will get them in the end, whether we want them or not. So it doesn’t help to criticize the principle of these instruments, as, for example, economics minister Philipp Rösler has been doing. It would make more sense to start a debate about the conditions that should accompany the launch of euro bonds and the concrete design of such conditions.”
“Three points are essential: 1. All euro-zone countries must include an effective debt-brake mechanism in their constitutions. Those should only be able to be overturned if a two-thirds majority votes against them. 2. Sanctions attached to the stability pact should be beefed up and imposed automatically. 3. A lack of budgetary discipline should be punished, for example, the nominal interest rate should be lifted in keeping with key indicators”.
Momentum = Mass X Velocity ….
New York Times
President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are scheduled to meet in Paris on Tuesday but have vowed to avoid the issue of euro bonds altogether. Nonetheless, a number of analysts say that eventually they may have no choice if they want to keep Europe’s currency union from falling apart.
It takes more than a tango to make up a quorum in a post-national European constellation. How many more, of course, remains an open question.
“Unless and until a fundamental change of regime occurs involving an extensive surrender of national fiscal sovereignty, it is imperative that the no bail-out rule that is still enshrined in the treaties and the associated disciplining function of the capital markets be strengthened, and not fatally weakened.”