Author raffaele

Chicken Game: Eurocrisis, Again.

Early May 2012
Beginning in the summer of 2011, the crisis hit the sovereign debts of the European periphery hard, almost putting the euro itself at risk. With the launch of austerity policies issuing from the ruling “commissariats” of Brussels and Frankfurt and the “orderly default” in Greece, the waters were calmed a bit, solely because of the injections of liquidity by the European Central Bank. Spring, however, seems to herald new storms on the horizon, with new pressures on the Spanish sovereign debt and the unknown future of Greece.

Beyond the ever-uncertain forecasts, this article attempts to reconstruct the dynamic of the Eurocrisis in the past year, situating it in the framework of the global crisis, of which it is an important flashpoint.[1] The question is whether it is possible to grasp the outlines, on one hand, of a conflict, one not yet fully out in the open but neither merely muted, between the Wall Street–Fed–Treasury condominium, with its British financial appendage, and a counter-strategy by Berlin, albeit with still confused delineation, on the other. Identifying a specific logic behind events is important both analytically and politically, to grasp the possible tendential outlines of the crisis. In this way we can recognize aspects and moods of the social classes in Europe while looking for a trigger point—one for now only hinted in the scattered movements of the “indignados” and in the struggles in Greece—beyond the critique of a generic “financial speculation” and beyond the risk of being sidelined in localist or nationalist anti-German attitudes.[2]

An Infusion of Oxygen into the Global Impasse?

After several months of fireworks, with the political changes in Greece, Spain and Italy, and the final downgrade of the sovereign debts of half of Europe, at the beginning of 2012 the perspectives for the euro and for the European Union seemed much less dark. If the markets allowed themselves a breather, this was due first of all to the double operation at the end of December and the end of February by which the European Central Bank extended around €1 trillion to the shaky banks over three years at a symbolic interest rate, in exchange for devalued collateral or ad hoc debt, with its issues guaranteed by various states.[3] This was a necessary move, undoubtedly undertaken with the agreement of Berlin, to shelter the banks from the repayments falling due foreseen for this year (€800 billion) during a most serious credit crunch and in view of the need to recapitalize them, which since last fall almost paralyzed private European finance, loaded down as it is with toxic assets and depreciated government paper from the European periphery. The ruinous short-circuiting between the banks and public finance was thus stopped temporarily. But the oxygen infusion is still based on an enormous recycling game, which in the last instance will weigh on government balance sheets, and by which the financial institutions acquire the paper of the European states currently under attack, profiting from a carry trade of 5–6 percent.[4] Be that as it may, the European banks, and especially those on the periphery, have not in fact resumed lending to families and businesses.

This says a lot about how long the situation will remain precarious, suspended between capital flight from the euro and the costs of sovereign financing (€1.7 trillion coming due in 2012), which are currently oscillating at high levels, from which they will have a hard time coming down, in the context of increased global competition for “good” cash (€11.5 trillion in global public debt coming due). In the meantime, if the “voluntary” Greek default has happened, the consequences are still visible, especially in light of the looming sovereign Portuguese crisis, and the stormy waters which Spain and Italy have entered. In those countries, the recession is already a reality, while in a fair number of European countries, including Germany, a clear slowdown is in the cards. Meanwhile, the hoped-for recovery in the United States remains more and more of a question mark, which has forced the Fed to guarantee virtually zero interest rates through 2014 (will there be a third “quantitative easing?”), in the framework of a global slowdown which is also due to the increasing difficulties of the emerging countries, with China in the lead.[5]

These are, then, all the conditions explaining why the epicenter of the crisis is shifting once again to Europe. Spontaneously?

Chicken Game

In the middle of last year, as the effects of the Fed’s injections of liquidity were being exhausted,[6] underscoring the risk of a double dip in the United States, we saw a further surge of speculative funds betting against European sovereign debts, a surge which pushed Italy and Spain into the highly dangerous grey area between liquidity crisis and insolvency, but which also hit France and its banking system. The crises of public debt issue and the devaluation of the assets of European banks, left without liquidity from a simultaneous withdrawal of US monies, were circularly reinforced, while the euro itself entered the risk zone.

The double calculus here[7] is to profit from the deterioration of public balance sheets and to give Europe a serious warning, specifically to the ECB and especially to the German government, because they more substantially and more certainly guarantee the debts of the periphery. Confronted with the risk of straight-up real losses, something which has been avoided by state intervention but is now the order of the day (as shown by the Greek events), the demands are clear. Germany must save the euro…from the financial markets (!), reads the verdict of George Soros, who demands the launch of the eurobond.[8] Or, as the New York Times reaffirmed, commenting on the European summit of last December, European austerity is not going well, and it is time to print more money. The ECB should function as the lender of last resort and save the PIIGS (Portugal-Italy-Ireland-Greece-Spain); the European Union must become a real transfer union of the center to the periphery countries to stimulate “growth”; in short, Germany must do its part.[9]

And this is the convergence which, without having recourse to conspiracy theories, sees Washington and Wall Street as more “European” and “Keynesian” than Berlin, and they are seeking possible rapprochements against Berlin with the European governments having the greatest balance sheet problems.[10] The propping up of the European state debts guaranteed by the EU is to serve as a bit of a substitute bubble to fatten up the profits of finance. Across the Atlantic, if not in a minority of the elite, the goal is not the end of the euro but the relaunching of a “growth” based on a new wave of privatizations of public services and on the acquisition at low cost and/or the selective elimination of banks and pieces of the European productive apparatus by the financial flows which are profiting from the Eurocrisis.[11] This is the game of chicken underway between Washington/Wall Street and Berlin which has not been pushed, up till now—but for how much longer?—to the extreme limit from fear of total collapse.[12] The condominium of big finance and Obama has turned the tables: the epicenter of the crisis will no longer be in the United States but in Europe!

Thus the Eurocrisis is a crucial phase of the global crisis which, in the general deterioration of the situation, is also giving rise to a financial war in the Western camp: between the dollar and the euro, between transnational financialization linked to the guarantee of US imperial power, and financialization of the German and European variety.

Berlin’s Strategy

If Germany accepts this program, it will have to guarantee European debts on its own balance sheet to spare international finance “disorderly defaults” and real losses (on interest payments, derivatives, collateral debt swaps…) but will quickly confront a deteriorated ability of markets to recover and an increased potential for blackmail by the centers of financial power. US treasury bills would continue to represent the “safe harbor” for frightened global investors, allowing the US Fed–Treasury complex to take in financial resources at extremely low interest rates and to issue liquidity to keep the banking system alive, while the euro is seriously weakened as a world currency and potential rival to the dollar. Further, the indirect consequence would be to reduce Europe’s productive base (starting with Germany’s) to functioning as a performing asset for a new wave of speculative finance through the gigantic mortgaging of its public debts.

In opposition to some superficial interpretations, we can affirm that Berlin’s interests are aligned with Europe and the euro, but of course not on the conditions outlined above. Thus the Merkel government is resisting the pressures for an anti-austerity monetary and fiscal policy in every possible way. Not without contradictions[13] and rather pragmatically, a unitary approach is emerging on various questions, one which is imposing itself on Germany’s European partners. The European summits of early December 2011 and late January 2012 adopted a strategy to avoid new indebtedness which would further weaken the euro and which, if taken onto a single European balance sheet, would put the German state balance sheet and the competitiveness of Germany industry at risk. This explains the rigid fiscal compact, even if it means a slowdown in the German and European economies and a break with London.[14]

Only in this way will Berlin allow the ECB to partially and indirectly monetize the European sovereign debts and to launch an effective government bailout fund (the ESM, European Stability Mechanism), eventually moving from there and only in a second phase to the issue of a Eurobond. But Berlin will do so precisely in the way that Merkel has synthesized: “erst sparen, dann retten” (save first, then rescue), and not on the conditions demanded by US-British finance. Save first, then decide if there is something to “rescue.”

Contextually, in the game of the Greek “voluntary default,” while Berlin made a point of taking its time in “sterilizing” part of the toxic paper, and also making the banks pay a little, it also issued a mild warning to speculative finance (especially on the question of credit default swaps, whose payment would be triggered in the event of a “disorderly” default). Merkel, moreover, is putting forward, with a significant domestic consensus, some timid proposals to “regulate” finance[15] (taxation, rating agencies, limitations on short selling, etc.).[16]

This is clearly a compromise, not a strategy for direct confrontation with the United States and with international finance. And this compromise is not certain to save the euro, in which case Berlin is considering, as a last resort, a Plan B for exiting the single currency. Further, it remains to be seen how the populations of the European periphery—first of all Greece but also Eastern Europe (consider developments in Hungary and Rumania)—will react to the consequences of shock therapy practiced on them in vivo,[17] and if the crisis will allow the German strategy time to consolidate and if, instead, in the context of breakdown, there crystallizes an anti-Berlin sentiment on one hand and a corresponding rejection of austerity by the German proletariat on the other.

The Stakes

It is important to point out that what is in play is not a renewal of a great game between Anglo-Saxon speculations and “real” German production. Financialization, which is “productive” in its way as a condition for profit-taking and expropriation, is today the general form of capitalist accumulation. The “blood, sweat and tears” projects of both Obama and Merkel aim to globally capture more consistent value flows. The stakes are the euro as an alternative or even a rival project to the dollar, or, put in another way, as a distinct European financialization under German auspices.

Everyone sees that, in the current crisis, the rescue of US and British (“transnational”) finance has been possible because of the use—one anything but neutral—of the dollar as the world currency, not to mention the role of Washington as the military guarantor of international order. The dollar has made, and continues to make it possible to offload the enormous creation of liquidity onto the government balance sheet, with no external constraints (at least in the short or medium term) which saved the balance sheets of the banks, helping them to “deleverage” and prop up the values of the financial market, and thus, in clear distinction to 2010 on the European stock markets, helping Wall Street and the City to recover, and improving the profit margins of US multinationals as well.[18] Part of the enormous debt accumulated from private parties is thus monetized and taken over from both the “middle class,” hit by the collapse of its stock market and real estate assets, and from international actors: China and Japan as massive holders of dollar reserves and Treasury bills, and now Europe. Deleveraging as a weapon in the crisis!

The euro project, we recall, was conceived precisely to limit dollar seignorage. It was intended not merely to attract capital but to construct a European pole strong enough to appropriate global value for itself, to capture the growing production of emerging countries and at the same time to reduce its ties to the US balance of payments. After national reunification, German economic power began to center the continental economy on itself, not merely in production by setting up corporate affiliates beyond its borders, but also financially, recycling the commercial surpluses inside the EU—thanks to the low interest rate policy of the ECB—toward the banks of the periphery (we are thus dealing with something well beyond a mere neo-mercantilism based on commercial flows). The continental platform has thus been used for an orientation, now quite visible, towards Russia and China. An ECB as a “lender of last resort,” as a real central bank, was to emerge at the end of this process of deeper economic and political integration on a continental scale, and not before.

With the crisis, however, this financialization European style as a work in progress has taken on not only the predatory character of Anglo-Saxon finance, but is also caught in the contradiction between a German industrial apparatus in need of external markets and the explosion of a bubble which is convulsing the construction of Europe. European finance is thus much more eviscerated, and subordinated, in the web of US derivatives, from which all European participants, whether “grasshoppers or ants,” were drawing sustenance in the “happy” phase of globalization. Now the bill is due. This situation has been underwritten up till now by Berlin, thanks to support for its own companies and banks—but which increased the public debt to more than 80 percent of GDP—and by exports benefitting from China’s monetary stimulus at the outbreak of the crisis. But for how long? It is nonetheless obvious that the failure of the European project would deal a harsh blow not merely to a European policy more independent from its transatlantic partner and tilted toward Russia and China, but also to the vain ambition of exiting the crisis with a tendentially multipolar global geo-economic arrangement which would partially offset the unipolar military position of the United States (which explains the great concern of Beijing and Moscow).

Thus to “do what the Fed does,” printing money in these conditions—i.e., without having been able to impose the euro as a world reserve currency or at least as a reserve currency competing with the dollar[19]—would mean that the ECB would be providing Europe with fresh credit owed to international finance, thus constituting an enormous mortgage on current and future production.[20]. This will be something quite different from the deficit spending for investment and consumption which the European center-left likes to chatter on about taking their cues from…Paul Krugman.

A New Phase of the Crisis

Behind this confrontation, we see the outlines of an unavoidable next phase: the devalorization of the enormous mass of fictitious capital (Marx) which has accumulated over the cycle of more than thirty years of growth based on debt. This is a cycle which can boast of undoubtable successes for capital, built on the watershed of the 1970s with three crucial elements: the dollar’s break with gold in August 1971 which opened up the autonomization of currency; the Sino-American rapprochement of 1972 which dismantled the postwar bipolarism and opened China to the world market[21] as well as breaking up the front of peripheral countries; and finally the victorious reaction against the long “68” with the incorporation of its recuperable social demands, made to converge in the multiform process of financialization (and the eclipse of the old left). Seen in this light, finance became the modality of accumulation which allowed the west to centralize the value produced in the new global workshops and to commodify and tendentially subsume as profit all the labor and reproductive activities, enormously increasing the pressures on labor in exchange for a real or anticipated financialized consumption[22]. At the same time, this modality pushed to the extreme the mechanism by which credit money created by the financial markets was able to restart the cycle of the reproduction of capital with continuous anticipation of future value. The “becoming rent” of profit is inextricably intertwined with the “becoming profit” of finance.

Today this process seems at an end, or at a serious blockage. Confronted with the enormous gap separating it from real accumulated value and with multiple forms of social resistance,[23] money has turned into insolvent debt: fictitious capital with an inadequate real basis, the perverse face of an unparalleled productivity in social cooperation, but trapped within the strictures of labor time and profit. From this flows the apparent absurdity of the need to destroy capital, on paper or physically, dead or living, to reconstitute profit margins and to eliminate the debt. This problem remains all the more urgent after the incredible injection of liquidity with which “emergency financial Keynesianism” (Robert Kurz) has avoided the collapse of the financial system but has not set in motion any productive recovery, thereby opening the way for speculation against various states.

The process of devalorization is already underway, and is most advanced in the United State—the monetization of banks and bank closings, devaluation of pension funds, individual bankruptcies, the collapse of housing prices, closings of factories—where the costs can be more easily offloaded domestically—of course within certain limits, at the risk of a social explosion—and, for reasons we have seen, offloaded externally through the mechanism of repaying debt with money.[24] Meanwhile, the process has barely begun in Europe; it will not be painless or equitably shared. The question is who will be forced to burn more of their own capital than others, wiping out uncollectible debts; who will lose parts of their own banking and productive system; who will give up the corresponding liens on flows of value, and who will hand over to others the savings of the population. It is inevitable that a further terrain of confrontation is opening up, and all the more so if there is a straightforward liquidation of public debts with a strategy of default from above.[25] This is compounded, for the west, with the growing difficulty of either offloading the burden onto the rest of the world or else going ahead with a devalorization within a framework pushed by international finance. Contextually, as if to prove that finance is “real,” pressures are becoming tremendous, not merely to sacrifice welfare, services and other areas to mad money, but also to “free” labor from any residual limit to profits, as the new governments of Spain and Italy are in the process of doing with measures to restructure labor markets and the size of subsidies. And here we have the prescription for…growth, after the fiscal consolidation. While Mr. Obama and Frau Merkel disagree on the question of how much liquidity to inject into the system, they agree on the strategy of “growth” based on a straightforward recovery in the productivity of labor. But one must be careful: even on this level, there is already a battle underway centered on the US strategy of insourcing[26] by productive firms which have already outsourced to China and Mexico once the conditions of the work force in the States have deteriorated to the point at which the operation becomes profitable.

Thus: the confrontation over the sharing of losses is also a confrontation between different strategies for exiting the crisis in relations to possible new global and class assets.

Geopolitics of the Crisis

The distribution of the costs of the debt economy is a peculiar war, one which does not cancel out but rather accentuates the specifically diplomatic, military and geopolitical turns. These turns are often a further element removed from the debate. Nevertheless, something is happening; one need merely think of Obama’s hijacking of the Arab spring, or the military intervention in Libya (and in Syria?),[27] or Washington’s assertive reorientation (pivot strategy) in East Asia. All this while China and Japan sign an agreement to abandon the dollar for their commercial transactions and Germany, which opposed the Libyan adventure, is looking east.

It is not possible to deal with this theme here, which has to be seen as an integral part of the dynamics of the global crisis. We should, however, at least recall, regarding the discussion of the presumed decline of the United States, the United States’s ability, hobbled but hardly vanished, to make itself the guardian of order for the entire capitalist system, with no credible substitute in sight. This edge from its systemic position, based on a still unequalled military-cognitive apparatus and its “dialectical” connection with global finance, allows Washington to do what its indebtedness would preclude for any other power. Certainly, the world order has become fluid and the US response is a reactive one, and not an effective Grand Strategy. But this, rather than pointing to the hegemonic succession of another rising power,[28] should perhaps be seen in the possible fragmentation of the international system. This points to a hybrid situation between an imperial configuration, with dynamics subsumed to a hierarchy both polymorphous but in the last instance unitary, and an imperialist dynamic, with competition reemerging powerfully with and against inter-capitalist cooperation.

The successive phases of the crisis might throw light on the problematic: is the world headed toward the construction of a front posing an alternative to the United States? Or is it heading toward a Western reorganization around the perspective traced out by Obama, of creative destruction of the Middle East and a co-engagement with China? Or, instead, will the Sino-American duopoly hold, and for how long? The Iranian and Syrian questions will give some indications of where things are headed.

The overall framework provides at least three major political problema. How does one take an autonomous position against the European policies of social butchery without falling into nationalist, anti-German nostalgia or into rhetoric against “Anglo-Saxon speculation”? How do we put together struggles about rights, work and life with a constitutive struggle on the issue of debt, while avoiding any recourse to solutions “from above” to the risk of default? Finally, and closely related, how do we overcome the false alternative between politics of austerity on one hand and “financial Keynesianism” on the other (between Merkel and Obama, to put it bluntly), taking into account, within the irreversible integration of states into the new finance capital and the profound transformation of class composition, of the eclipse of a possible antagonistic use of state expenditure? And so: what is the program for the real movement?

  1. [1]See my Mr. Obama, “Frau Merkel e la finanza” (now available in Obama nella crisi globale, Trieste 2010) and Eurocrisi eurobond lotta sul debito (Trieste, 2011) as well as in N. Casale, “Alimentare la bolla o sgonfiarla?,” December 2011. Obviously, for a complete analysis of the unfolding of the crisis, it is necessary to add other fundamental elements, starting with developments in China and its double bind with the United States.
  2. [2]For a certain version of this, see especially the Keynesian left. “The decision about how much will happen…has been expropriated by the power of Germany…for the third time in a century.” according to the daily paper of the Italian left Il Manifesto November 27, 2011, which went on to praise the “valid analyses carried out by Standard and Poor’s, the IMF, Gorge Soros and the Financial Times against Berlin’s austerity policies, January 27, 2012.
  3. [3]It is the Italian and Spanish banks which have made the most use of the ECB’s lines of credit.
  4. [4]The “carry trade” refers to borrowing in one currency at very low interest rates (for example, Japanese yen at 1 percent) and investing in something else in a different currency at a higher rate of return (e.g., a Brazilian stock denominated in reals). It amounts to “free money” unless the Japanese yen abruptly rises in value when the loan becomes due.
  5. [5]Cf. in the IMF’s World Economic Outlook for January, the report of P. Boone and S. Johnson, and from the Peterson Institute, also in January, and on the weakness of the US economy, among others, the post “Charting The US (Un)Recovery.” The question of China is more complicated and cannot be dealt with here.
  6. [6]See my “Fine del change? Linee di faglia negli Stati Uniti,” November 2010.
  7. [7]I speak of calculation because of the oligopolistic concentration of “financial markets,” currently treated in the literature: cf. the recent study of Vitali, Glattfelder, Battiston, in “The Network of Global Corporate Control.”
  8. [8]Soros was also not pleased with the Draghi operation in December.
  9. [9]Europe’s Latest Try,” New York Times, September 11, 2011.
  10. [10]Like in the Italy of the Napolitano-Monti duo. This was confirmed by Monti’s trip to Washington and the letter signed by the Italian government, together with the British government, for a “strengthening of the single market.” The G8 meeting planned for late May will further advance this “encirclement” of Merkel, particularly after the electoral defeat of Sarkozy in the French presidential elections.
  11. [11]Cf. “Why Europe stocks are too cheap to ignore.” One example is the Chrysler-Fiat operation: who bought whom?
  12. [12]“The European crisis isn’t over until the First Lady pays, and the First Lady of Europe, Angela Merkel, cannot pay enough. She needs to erect a large enough firewall to ensure that the European Union’s weaker members do not, again, face financial disaster. That will not happen—which means the euro faces at least defections, and perhaps destruction,” “For Europe, it doesn’t get better,” Reuters, April, 4, 2012.
  13. [13]Like the imposition of recapitalization measures by the European Bank Authority (EBA) in a rather critical moment for the continent’s banks.
  14. [14]For an idea of the tone used by the British press, cf. Ambrose Evans-Pritchard, “America and China must crush Germany into submission,” the Telegraph, November 9, 2011.
  15. [15]Cf. Walden Bello, “Germany’s Socialdemocrats and the European Crisis.”
  16. [16]An essential factor in the break with London: see “Europe’s great divorce,” Economist, December 9, 2011.
  17. [17]The struggles in Greece have been the factor which, from below, has contributed to the restructuring of Greek debt but, given their isolation, they have not up till now been able to avoid the tremendous conditionalities which the troika has imposed on them.
  18. [18]$16 trillion between December 2007 and June 2010, according to the most recent official statistics of the US government. According to other sources, $29 trillion.
  19. [19]Chesnais, an exponent of the French theorists of “mundialization” grasps the substantial difference between the euro and the dollar and speaks of the “incompletness of the euro,” but does not manage to go more deeply because of the Keynesian framework he uses. Les dettes illégitimes. Quand les banques font main basse sur les politiques publiques, Raison d’agir, Paris 2011.
  20. [20]The German “hawks” are aware of it but for now the question has not emerged in the German public debate: see the interview with Hans-Werner Sinn in “Wir sitzen in der Falle,” Frankfurter Allgemeine Zeitung, February 18, 2012.
  21. [21]R. Sciortino, Un passaggio oltre il bipolarism: Il rapprochement sino-americano 1969–72, Bologna 2012.
  22. [22]C. Marazzi, E il denaro va: Esodo e rivoluzione dei mercati finanziari, Torino 1998, p. 171, footnote: “With the development of capital on a world scale, the function of money as a means of payment created ex nihilo assumes an increasing importance…and takes on the form of the community.” The thematic of capital as the real (bad) community had already emerged in the 1960s, within left communism, in the reflections of Jacques Camatte.
  23. [23]Cf. Midnight Notes collective, Promissory Notes: From Crisis to Commons.
  24. [24]For more up-to-date data, see McKinsey, “Debt and deleveraging: Uneven progress on the path to growth,” January 2012.
  25. [25]See “The Liquidation of Government Debt,” Peterson Institute, April 2011.
  26. [26]This is linked to US pressures for a revaluation of the yuan/renminbi and for a greater opening of the Chinese internal market, also by means of an increase in wages(!).
  27. [27]See my “Disinnescare la sollevazione,” February 2011, and “Obama dopo Osama,” May 2011, online.
  28. [28]The anomaly was already pointed out by Giovanni Arrighi.