The European finance crisis: Germany/GIPSI

By Johan Galtung

A crisis so massive–with the health network in Greece collapsing and 50 percent of Spanish youth unemployed–begs for big causes. Some unknown planet with great gravitation pull, some super-radioactive element not yet identified? Probably; there may be more causes lining up–efforts to destroy the welfare state and to save the US$ as the world currency-but for the time being we have to do with what we have. Here are Four Big ones:

[1] The West is outcompeted. For some time we have had the USA, its empire and the West in general declining, and the Rest, China in particular, emerging–BRICS being a formula spanning four continents. We have also seen states (except the biggest) declining, with local communities and nations emerging from below, and regionalization and globalization, particularly for the finance economy, from above. What happens in Europe is within that general context. Less pie expansion, less sharing. Closing North to industrial and agricultural exports from the South boomerangs; they trade South-South, lifting each other.

[2] Four of five GIPSI –G(Greece)-I(Italy)-P(Portugal)-S(Spain)-I(Ireland)– were funded as poor EC-EU countries (not Italy). They received considerable grants for infrastructure and did much good. But cash was flowing and produced waste, corruption, top-heaviness and craving for more. As so often happens, development assistance created dependency and massive debt bondage; of municipalities on provinces, of provinces on states, and of corporations and “sovereign” states on regions; in this case on EC-EU. Such habits freeze into structures.

[3] Very cheap huge credits available. This private funding fitted into that context, and the rapidly increasing small script interest rates were easily disregarded. The credit could be used for the largest expense in the life of most households: the house itself, to builders and dwellers alike, with well known consequences.

[4] On top: speculation-betting on toxic credit swap “assets”.

We might see [3] as a desperate remedy by the West (EU-USA) for [1]; [4] as a desperate remedy for [3]; and [2] as a structure used as remedy for [3] and [4] extending even more credit. Debt bondage pits Germany against GIPSI in a deadly embrace as the Nazi-German past is invoked by Greece (less available for IPS with their fascist past).

The prognosis is dim. Debt bondage is no cure for itself, nor is more dependency; even if some may be needed. A better cure for debt bondage is debt forgiveness–practiced by World Bank-IMF for the Third World–and now increasingly by Germany in EU–also because there is no money available anyhow. Conditions will be softened, forgiveness is on the horizon. And the banks continue like before, recapitalized? Is the State bought by Capital, unable to regulate [3] and [4] deeply? Labeling protests as unpatriotic-communist, like during the Cold War?

We are left with Civil Society: kinship, NGOs, local communities. The first two are non-productive; much better is local self-reliance, re-starting the economy from the bottom up, not top-down. Four Big:

[1] Unemployed youth reviving the countryside with aging, lonely farmers with cooperatives and self-employment–not non-existing jobs–producing healthy food for themselves and direct sales to consumers;

[2] Local municipal banks, for local saving, for local investment, helping cooperatives and the self-employed; but not with credit beyond 50 percent of their capital–adding time banking–exchanging one hour service for one hour, keeping records–possibly adding and local currencies;

[3] Cooperatives and communities cooperating in oceanic circles (Gandhi) crossing GIPSI borders–GIPS are neighbors so do not forget Ireland–specializing, lifting each other up by their own bootstraps.

[4] GIPSI countries cooperating, systematically trading and exchanging with each other, copying South-South trade in Europe.

Much quicker than trickling down from the top would be recreating the EU with a culture of solidarity and sharing, not with bondage and begging.

So much for the general picture. A US journalist, Michael Lewis, has written a brilliant book Boomerang: Travels in the New Third World (New York-London: Norton, 2011). His chapters cover USA, Iceland, Greece, Ireland, Germany and the USA again; looking for the deep structure-culture underlying the madness. His method is interviews with key actors and deep knowledge of the societies. Get the book, read, learn! Queen Elizabeth, with robes on, exposed London School of Economics’ economists without simply asking why they had not predicted what happened. Much time was needed for a bland answer, confessing that they had not understood that the whole system was at stake (like when US pension money was invested in ever more risky assets: in 1980 23% in the stock market, in 2008 fully 60%?). Precisely, and “whole system” includes means more than narrow economism. Four Big Lewis points:

The Icelandic penchant for risk-taking in deep ocean fishing, capital and lives at stake, potential profit huge. Very hard work though; speculation in a nice office being indeed more comfortable and modern in addition meets the deep risk-taking structure-culture bill.

The Germans held on to their own: they lost the beloved German marks, but the leaders promised that they would never bail out others.

The material on Greek extravagances, doctoring information and right out cheating is so abundant that the reader wonders how EU can defend Greek membership, let alone the bailout efforts. No working national land registry made speculation on land easy, and so on.

And Lewis brings in the gender factor in risk-taking, quoting the Barber-Odean 2001 study “Boys will be Boys: Gender, Overconfidence and Common Stock Investment”, MIT Quarterly Journal of Mathematics, based on the trading activity in over 35,000 households. Men had a false faith in their own financial judgments, trading less sensibly than women, single men being worst. More financial power to married women!

Much, not all, is Wall Street. Much to learn. Are we ready?

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