Tag Archives: Europe

Lenderocracy

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The Greek crisis matters for us in the United States too, not just Europeans.

For all the high-minded rhetoric of the European integration project as an effort to bridge together the peoples of Europe in liberal democratic union, the events of the past week have conclusively ripped off the mask and revealed the underlying reality that it has been little more than a neoliberal economic project the whole time. And a poorly designed one at that. But we now can all see that the preservation of investment banking interests will be placed above all other values and principles whenever they come into conflict. This isn’t just rule by corporations — it’s rule by lenders.

The Greek “crisis” — manufactured by the European Central Bank, the IMF, and the German government — is a financial public execution of an entire developed country to make an example of them for all others.

In my more than 30 years writing about politics and economics, I have never before witnessed such an episode of sustained, self-righteous, ruinous and dissembling incompetence — and I’m not talking about Alexis Tsipras and Syriza. As the damage mounts, the effort to rewrite the history of the European Union’s abject failure over Greece is already underway. Pending a fuller postmortem, a little clarity on the immediate issues is in order.
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There’s no reason, in law or logic, why a Greek default necessitates an exit from the euro. The European Central Bank pulls this trigger by choosing — choosing, please note — to withhold its services as lender of last resort to the Greek banking system. That is what it did this week. That is what shut the banks and, in short order, will force the Greek authorities to start issuing a parallel currency in the form of IOUs.

 
If investors made stupid loans to Greece, these lenders – not the Greek people – should suffer for it. A startling lack of due diligence strikes again.

And just as with the subprime mortgage crisis, the lenders are considered “too big to fail” (but not too big to regulate before the bubble bursts). Instead of bailing out the ordinary people who truly got screwed over by the irresponsible lending and the ensuing crash, the banks are the ones who get bailed out. In this case, Greece keeps receiving “bailouts” that are actually earmarked exclusively for repaying debt obligations to lenders (some of which are by now merely the quasi-governmental institutions holding debt they purchased from irresponsible banks in earlier bank bailout rounds).

We’ve seen this kind of thing happen countless times throughout world history. Lenders pretend to assume risk and then wield tremendous political influence to ensure that they never actually face serious consequences when that risk blows up in their faces. That way, investment recipients (including citizens) always lose, while the investor class is guaranteed a payday, before anyone else finds relief.

Greece’s default, day one

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National democracy at its Athenian birthplace crashes head-long into the distant technocracy of the wider European project.

On Tuesday night, Greece became the first developed economy to default on an IMF loan (though not its other obligations). The IMF loan was itself a bailout to repay other loans, including those the EU failed to stop years ago:

In a sense, like so many American homeowners before the end of 2007, Greece was given subprime loans it couldn’t possibly repay. Regulators and monetary authorities failed to perform due diligence ahead of the accession of Greece to the eurozone and then ignored the escalating danger as long as the rest of the global and European economy was doing fine. They only stepped in after the house of cards collapsed and then demanded round after round of budget cuts and other measures that hurt average Greeks who had nothing to do with the bad debt decisions that the rest of the Eurozone should have stepped in to prevent years earlier.

 
Greece now heads into a referendum (full story➚) on the bailout conditions offered by European leaders.

Here are a couple reactions since the referendum was announced and default became very likely.

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“Joseph Stiglitz: how I would vote in the Greek referendum”:

I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.
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In January, Greece’s citizens voted for a government committed to ending austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

That concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB.

 
Paul Krugman, arguing no to additional austerity; no to the euro:

First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.

Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence. Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

 
On the other side of the debate there has been some sighs of exasperation, tongue-clucking, and then particularly disturbing responses that are clearly the wrong takeaway from the situation… Read more

Greece heads back to the polls on a big question

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In less than one week, the people of Greece are scheduled to vote on a referendum on whether or not to accept the terms from the European Central Bank and European Commission leaders and the IMF to receive more help on meeting its debt obligations.

The terms are not particularly favorable (read: pretty terrible), and the government of Greece is urging a no vote. But Greece is also about to run out of money and go into default and probably be forced out of the eurozone, because the European leaders and IMF aren’t planning to change the terms or provide emergency funds even with a no vote.

So, there are likely to be brutal consequences coming either way the referendum goes. The average people in Greece will continue to suffer the most.

They were the victims of a lot of really irresponsible people — creditors and European leaders as well as Greece’s own past leaders — putting abstract finance and personal enrichment over human lives.

But within all the blame going around, I still remain most frustrated by the present-day handling of the situation from the European Union leaders. The lines below captured a lot of my feelings.

“The moral crusade against Greece must be opposed” by Zoe Williams for The Guardian:

The vision that Syriza swept to power on was that if you spoke truth to the troika plainly and in broad daylight, they would have to acknowledge that austerity was suffocating Greece. They have acknowledged no such thing. Whatever else one could say about the handling of the crisis, and whatever becomes of the euro, Sunday will be the moment that unstoppable democracy meets immovable supra-democracy. The Eurogroup has already won: the Greek people can vote any way they like – but what they want, they cannot have.
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The euro was founded on the idea that the control of currency was apolitical. It has destroyed that myth, and taken democracy down with it.

These talks did not fail by accident. The Greeks have to be humiliated, because the alternative – of treating them as equal parties or “adults”, as Lagarde wished them to be – would lead to a debate about the Eurogroup: what its foundations are, what accountability would look like, and what its democratic levers are – if indeed it has any. Solidarity with Greece means everyone, in and outside the single currency, forcing this conversation: the country is being sacrificed to maintain a set of delusions that enfeebles us all.

 

Border fence politics comes to the EU (in Hungary)

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The anti-liberal far-right reign of Hungary’s Viktor Orbán continues, once again defying all basic principles of the European Union his country joined in 2004 after a referendum with overwhelming voter approval.

“Hungary to erect fence on Serbian border” – Irish Times:

Hungary plans to build a security fence along its entire border with Serbia to halt the flow of illegal migrants, despite domestic and international criticism of its handling of the issue.

Officials say more than 53,000 people – mostly Syrians, Iraqis and Afghans – have lodged asylum requests in Hungary this year, compared with 43,000 last year and 2,157 in 2012. Most file a request before moving west, however, and prime minister Viktor Orban has been accused of taking a harsh line against refugees to counter the rise in popularity of Hungary’s far-right Jobbik party.

Mr Orban’s office said yesterday the government had ordered the interior ministry to “prepare for closure of the Hungarian-Serbian border by next Wednesday; this will be achieved by erecting a four-metre-high fence” along its 175km length.
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Mr Orban’s government has also erected billboards around the country, with slogans such as “If you come to Hungary, you can’t take Hungarians’ jobs”.

 
Clever differentiation of his far-right party from the even further right Jobbik Party. He holds a huge majority while they are a minor presence. They’re essentially a stalking horse to justify his outrageous policies.

Fascist is as fascist does. Orbanism rising. 

Is EU member democracy compatible with fiscal union?

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After four months of mounting tension between pro-austerity European Union officials and Greece’s anti-austerity Prime Minister Alexis Tsipras, a breaking point appears to have arrived. The Prime Minister published an op-ed (see below) questioning whether the increasingly centralized fiscal / currency decision-making authority in the Union is compatible with continued democratic self-determination by each member country’s populations.

Asking that question so publicly (and in a hostile tone) is likely to solidify his growing pariah status within the European Union, but it is not altogether unreasonable. In fact, more than a few political theorists and economists have been raising the point since the start of the currency crisis in 2010. Maybe it’s simply not possible to have a strong monetary / fiscal / currency union without an equally strong political union. Such an arrangement either allows individual member countries’ voters and legislators to veto necessary standardization of union-wide policies, or it forces member countries to accept rules and decisions set by unelected and unrepresentative officials without popular consent.

In Greece’s case, the voters plainly rejected the policies that the Union and the IMF demanded the government deliver. Whether or not the policies are merited, if the people exercise their sovereign self-determination to reject the policies, the ostensibly pro-democracy European Union either needs to rethink its demands or rethink its overall sustainability as an economic union without political unity.

Here are excerpts from the Tsipras op-ed, as reported by the UK’s Express newspaper:

He envisioned a future where a “super” finance minister of the eurozone wielded unlimited power and the ability to reject budgets of sovereign states that are not aligned with its “extreme” ideals.
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Writing in an article for a French newspaper this weekend, Mr Tsipras blasted creditors.

He said: “The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance.

“It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.”

He added: “An initial thought would be that this insistence is due to the desire of some to not admit their mistakes and instead, to reaffirm their choices by ignoring their failures.

“I simply cannot believe that the future of Europe depends on the stubbornness or the insistence of some individuals.

“My conclusion, therefore, is that the issue of Greece does not only concern Greece; rather, it is the very epicentre of conflict between two diametrically opposing strategies concerning the future of European unification.”

Mr Tsipras said that the strategy of EU creditors who insist on austerity means “the complete abolition of democracy in Europe, the end of every pretext of democracy, and the beginning of disintegration and of an unacceptable division of United Europe.”

He added: “This means the beginning of the creation of a technocratic monstrosity that will lead to a Europe entirely alien to its founding principles.

“It appears that this new European power is being constructed, with Greece being the first victim. To some, this represents a golden opportunity to make an example out of Greece for other countries that might be thinking of not following this new line of discipline.”

He finished the article by adding: “If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake.”

 
For more analysis on this tension between the European Union’s supranational democratic deficit and member-national self-determination see my March 2015 essay, “Drawbacks of Technocracy, Part 1: Europe’s Political Crisis”.

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The Economist on technocracy in democracies

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In March of this year, I published a very lengthy two-part essay on the political challenges technocracy increasingly poses to Western democracy.

In “Drawbacks of Technocracy, Part 1: Europe’s Political Crisis”, I defined what I meant by technocracy:

Technocracy is a term that essentially means rule by non-elected technical experts, often academics, who (theoretically) place the country’s interests above the interests of any particular “side.” By extension, technocracy is usually set in contrast with, but not opposition to, elected partisans (i.e. champions of a specific political party or faction). It is not the same as “bureaucracy,” either, because bureaucrats carry out the policy decisions of the executive and legislative branches, whereas the technocrats are replacing the role of the decision-makers themselves. That means the experts are substituted directly for politicians at the top. Also, quite unusually compared with other systems, technocracy often exists alongside democratic systems and completely within a normal constitutional framework. The replacement of the politicians does not occur in a “state of emergency” or other extra-constitutional circumstance, as would occur in a dictatorship, but rather occurs through appointments of experts to the top level of government through regular constitutional procedures.

 
I also explored how it had grown in strength in the European Union:

Technocrats, in this case, had to step in to fill a new vacuum, more than they were needed to replace existing elected officials. The democratically elective component of the EU’s political union was (and is) quite weak to begin with — like the political union itself — because the functions of the “supranational government,” such as it is, are quite limited and removed from the population.

 
And I argued this dependency on technocrats was becoming a problem for the future of the Union:

Worse, the reliance on and deference toward technocrats at all levels of the European project has suffocated all debate. Yes, it is hard to hold a debate across 28 member countries, but the lack of debate has engendered fearsome resistance to the policies and projects. Debating policy is politics. In essence, politics may be unseemly sometimes, but it is still the mechanism necessary to sell the people on policy solutions.

Europe’s drift toward unaccountable technocracy means even the good ideas can’t be sold to the masses, because no one has been selling them at all other than by alluding to the expertise of the people making the decisions. That works right up until that trust erodes, and then no one is there to make the case itself. Ideas are simply dropped on the masses as fait accompli policies, like a ton of bricks from the window of an ivory tower. The populist parties that actually bother to campaign on ideas — even horrible ideas — start to take a big share of the vote.

 
In “Drawbacks of Technocracy, Part 2: Blue-ribbon America”, I examined whether technocratic systems were creeping into the U.S. democracy as well.

The Economist has just published a new mega long-read entitled “What’s gone wrong with democracy” (Subtitle: “Democracy was the most successful political idea of the 20th century. Why has it run into trouble, and what can be done to revive it?”). I don’t necessarily agree with some of their proposed solutions, but their diagnosis seems largely correct (to me). I highly encourage people to read it. There were many, many hundreds of words I wanted to highlight, but I decided I could break up some of the great excerpts across various posts whenever I had my own things to say about specific themes it covered.

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Since, as outlined and quoted above, I already covered the topic of technocracy in depth on my own in March, I figured I would start by quoting the relevant passages about technocracy from The Economist essay on threats and opportunities facing democracy in the 21st century: Read more

Italy’s PM passes brand new election system law

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Italy’s (unelected) Prime Minister Matteo Renzi has very narrowly — with just 53% of MPs supporting — managed to ram through a major electoral reform to stabilize Italy’s increasingly fractured and ineffectual parliamentary lower house. The reform appears to take a page from the Greek parliamentary system (described further below) but adapts it. Here’s a news summary of the new Italian elections law from France24:

The new legislation, which only takes effect in July 2016 [and only if the Senate is reformed first], is based on proportional representation but guarantees a big majority to the winning party and gives party bosses wide powers to handpick preferred candidates.

If the winning party gains at least 40 percent of the vote, it qualifies for a winner’s bonus that automatically gives it 340 seats in the 630-seat Chamber of Deputies.

If no party wins 40 percent, a run-off ballot between the two largest parties is held two weeks after the first election to determine which party gets the winner’s bonus.

 
Now to the comparison. Previously, I wrote an explanation of the Greek election system, which is quite similar but had some serious flaws:

250 members of Greece’s parliament are elected through a system that ensures fair geographic representation along with the proportional will of the national electorate, using a 3% threshold.

However, there is one big innovation to clarify the executive mandate. As of the 2008 revisions to Greek election laws, the top-finishing party is given a victory bonus of 50 extra seats – bringing the total to 300 seats in parliament – to help the winner get closer to a governing majority.

This represents a bonus equal to 20% of the proportionally elected seats. (An earlier law gave the winner 40 seats.)

It’s not a perfect setup, of course. A party earning relatively low percentage of the vote share can gain an extra 20% of the seats even if it falls well short of capturing the confidence of a majority of voters and even if another party were to capture just 1% less of the electorate than the winner.

However, it substantially boosts the chances of quickly forming a government and allowing that government to push through its major agenda items, rather than floundering along with the status quo due to internal gridlock.

Meanwhile, it still allows for diverse, multi-party elections — but constructively counteracts the growth of fringe, single-issue, or personality-centric parties that take up seats or weaken serious parties without actually contributing to the government or the opposition in any substantive way.

 
Renzi’s Italian law is actually probably a substantial improvement on the Greek system. First, it includes a backup runoff component if no party wins at least 40% (which prevents a very small first place finisher from gaining a huge boost or even an outright majority without broad national support). Second, if I understand the news summary correctly, the Italian system will have a sliding-scale/diminishing victory bonus of up to something like 88 additional seats, and as few as about 25, rather than a fixed bonus number whether the winning party got 40%, 50%, or 60% of the vote in the first round. (That way, the extra seats allotment is not unfairly overwhelming if the margin between the first and second finishing parties is very small.

Depending on how it works in practice, Italy’s new law might actually end up being one of the better proportional representation election systems in the world.

Granted, it won’t be without controversy (rightfully so), that an unelected young Prime Minister with a bare majority of parliamentary support has significantly revised the country’s election law (in a way that temporarily favors his large party over the fractured center and right oppositions) and is planning to more or less abolish the Italian Senate in favor of a completely different upper house. But this has been passed constitutionally by a majority of the duly elected people’s representatives, and if it improves Italy’s democratic stability and representation, there won’t be much to complain about.

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