Thursday, May 27, 2010

The EU under seige by the financial markets

Gabriele Michalitsch

Gabriele Michalitsch is an Austrian economist and political scientist at the University of Vienna and a longtime critic of the Washington Consensus/neoliberal economic ideology of deregulation of business, minimization of the social safety-net infrastructure, privitization of public services, and idolization of balanced budgets, and the redistribution of wealth from working families to the very rich.

In an interview with Sandra Ernst-Kaiser ("Entprivatisierung und Entpolitisierung des Privaten" Der Standard 27.05,2010), she argues that the attack on the euro by the financial markets was less significant as a danger to the euro as such than it was a danger to the cohesion of the European Union. And she continues:

In any case, what seems more important to me is the background of this Greek stabilization package: the power of the financial actors that is once again articulated here. The financial investors have demonstrated with the Greek example how far their power extends in relation to individual states [countries]. That seems to me to be the real problem. And that shows itself how?

Michalitsch: That we in Europe on the one hand have cobbled together enormous bank and anti-recession packages, but now decide on savings [deficit reduction] plans that have the contrary effect to the anti-recession programs. At the same time, we now want to sharpen the [EU] stability criteria [that reduce the options for fiscal policy even more], so that, for example, the current national public debt is more strongly restricted. Unemployment, however, is not considered. To me that is very problematic, because it orients economic policy only toward monetary goals and the available alternatives for economic policies is reduced more and more.
At least in Austria, the Grand Coalition government (Social Democrats and Christian Democrats) is looking at increasing tax revenue instead of concentrating overwhelmingly on service cuts, which is the direction being taken at the moment by Germany, Spain, Italy and Britain. Josef Pröll, the Austrian Vice Chancellor and Finance Minister, head of the conservative Christian Democratic Party, is also pursuing a major new program with increased penalties to go after tax scofflaws, which include not only the very wealthy but independent professionals and service workers who often fail to report their income adequately.

But cutting back public outlaws at a time when the economy is just beginning to improve and unemployment is still a major problem is just the wrong policy, as Michalitsch says. And in terms of basic equity and decency, for democratic governments to use massive financial resources to bail out financial giants who really got in trouble largely through their own recklessness but then cut back on public outlays aimed at generating jobs for the unemployed is just outrageous. It's also bad economic policy for the vast majority of the public. But it makes the business of turning money into more money easier for large financial institution who are committed to a policy of tight money.

Of course, the fact that big financial institutions favor a policy as being beneficial to them doesn't mean it might not turn out to be self-destructive for their own institutions, as we saw in the 2008 crash. If we had a Democratic administration in Washington, they could be constantly pointing that out ... uh, no, wait...

One of the themes that Michalitsch emphasizes in her work is that the neoliberal policy has particularly negative effects on women. She calls it the "neoliberale Geschlechterregime", the "neoliberal gender regime." In the interview, she describes it this way:

Michalitsch:Central to that [neoliberalism] is that the relationship between public and private is defined in a new way, and increasingly individual responsibility takes the place of political responsibility. Gender relationships are thereby no longer conceived as structural hierarchies but rather as private arrangements - under the title of free choice and the freedom of the individual. Political-economic circumstances and the historical context are thereby blurred. But they do determine our freedom as well as our gender conceptions. Based on that, can one speak of a depoliticization of the private?

Michalitsch: Yes, the private is de-privatized as well as depoliticized.
The OECD just came out with a new report that will be used to reinforce the neoliberal program: Growth rising faster than expected but risks increasing too, says OECD Economic Outlook (OECD website) 05/26/2010. It predicts healthy world economic growth with little improvement in unemployment while stressing the danger of public debt as a threat to the recovery. The recovery that is doing very little so far to address the economic recovery of most working people in the US and Europe.

The widespread adoption of neoliberal consensus, along with the persistance of the plain old Herbert Hoover who-gives-a-flying-flip-about-working-families philosophy, seems to have have caused a severe retrogression in the most basic algebra skills among the more affluent. If public debt is 25% of GDP, and the GDP grows by 5% in a year with the same level of public debt, that same public debt will go down to 24%. Three years of economic growth will make that debt 22%, and so on.

On the other hand, if the austeriy measures currently being taken in the US and EU, aka, cutting public outlays at a time when sound economic policy would be increasing them, slams growth back into the negative, a different effect occurs. A 5% decrease in growth turns that 25% debt-to-GDP ratio into 26%, three years of 5% decrease into 29%, and so on. And according to the algebra-challenged neoliberal approach, the increasing percentage of debt to GDP would require further austerity measures to reduce public outlays. Which gets us right back to the policies of the Herbert Hoover administration via the detour of neoliberal assumptions. Except that the neoliberal prescription requires an ever-increasing commitment to free trade (not fair trade) as opposed to nationalist protectionism.

This 2004 paper by Michalitsch, Was ist Neoliberalismus? Genese und Anatomie einer Ideologie gives some historical background on the growth of the neoliberal policy now so widely adopted by conservative and left parties alike in Europe and the United States.

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