How European Banks Hijacked the Euro Monetary Union

Buy, Buy Europe

Pieter De Vos (2013)

Film Review

This is a five-part miniseries describing how European banks have hijacked the euro monetary union to vastly increase their wealth. The upcoming Brexit vote in Britain makes this a particularly relevant topic.

Part 1 A Bank Crisis a Week

The series begins by describing the history of the European monetary union. Built at the height of neoliberalism it adopted all the rhetoric of Ronald Reagan, Margaret Thatcher and Alan Greenspan promising that globalized capitalism and free markets would end economic crises, increase prosperity and end inequality.

What really happened is that creating the euro massively increased inequality between northern and southern Europe and between workers and the super rich.

In seeking to make European banks as strong and competitive as US and British banks, Eurozone leaders ceased regulating them. Wall Street is often blamed for the EU’s 2008 meltdown. In actuality, deregulated European banks were equally guilty of risky speculation in derivatives and subprime mortgages.

Following the 2008 economic crash, European banks required massive government bailouts to keep European economies from collapsing. Promised banking reforms to prevent a recurrence of 2008 never happened. And according to the IMF, the global banking system is even more unstable today as it was right before the meltdown.

Part 2 Austerity Till the Grave

The bailouts required to keep their banks (and economies) going virtually bankrupted all Eurozone governments. All borrowed deeply (from the global banking system they had just bailed out) to keep their governments going. As a condition of this borrowing, the banks required them to reduce their deficits via deep austerity cuts. To qualify for further loans, they all cut pensions and benefits and laid off public service workers.

This segment focuses on Spain, where workers are organizing to block evictions, and Greece, where unemployed parents are forced to drop their kids off at orphanages because they can’t get welfare benefits to support them.

Part 3 Tax Haven Europe

This segment begins by profiling the Greek shipping magnates who run the largest merchant fleet in the world and pay virtually no tax. Corporations and the super rich pay far less tax than working people in all the EU countries. This massive tax avoidance forces all European governments to acquire major debt to keep from collapsing.

The documentary offers the example of Belgium, where the average tax rate is 12.5% and the most profitable corporations pay only 5% of their earnings in tax.

The filmmakers maintain that workers create wealth, though I doubt most neoliberals would see it that way. In 1981 Europe, 74% of the wealth workers created was returned to them as wages and government benefits. By 2012 only 49% of this wealth was returned to them and the super rich claimed the rest.

Part 4 Bratwurst, Lederhosen and Minijobs.

This was the most eye-open segment for me. It exposes the punitive conditions imposed on German workers from 2000 with the goal of making German export industries more competitive. Under former chancellor Gerhart Schroeder, massive wage reductions were imposed on all German workers – something IMF chief Christine LaGarde likes to call “labor market reform.”

Among other labor “reforms,” were a massive increase in “minijobs” – low wage part-time temporary positions that pay an average of 400 ($US 448) euros a month. Given Germany’s high cost of living, both parents need to work 2-3 “minijobs” (if they can find them) to cover a family’s basic needs.

The result was truckloads of cheap German imports flooding into southern EU countries (Greece, Spain, Portugal and Italy), shutting down local industries that couldn’t compete.

In this way, Germany’s vicious attack on their own workers forced wages down in other EU countries. This, in turn, forced countries like Greece and Spain to borrow lots of money from German banks to keep their governments going.

Ironically Germany currently has the highest number of working poor (7 million) of all EU countries.

Part 5 What Kind of Europe Do We Want?

It’s vital for people to understand that the mantra EU governments repeat ad nauseum – that saving the euro is essential to strengthening the EU and restoring prosperity – is pure propaganda. Seven years of austerity is massively increasing deficits and debt by putting so many people out of work.

The truth is that the Eurozone has been hijacked by banks and multinational corporations who are determined to use trade agreements to lock member countries into austerity and statutory destruction of Europe’s proud tradition of democratic socialism.

The only solution is a public takeover of too-big-to fail banks. Continuing to bail them out, while allowing them to privatize all the profits, is simply legalized theft of public monies. And a yes vote on Brexit.

 

Privatization and the Theft of the Commons

Catastroika

by Aris Chatzistefanou and Katerina Kitidi

Film Review

Catastroika is a Greek documentary on neoliberalism, with a specific focus on the privatization of publicly owned resources. Although it makes no mention of historian Richard Linebaugh, its depiction of the neoliberal privatization movement provides an elegant illustration of the ongoing theft of the Commons (see Stop Thief: the Theft of the Commons).

After a brief overview of the University of Chicago economists (championed by Milton Friedman) who first put neoliberal theory into practice during the Pinochet dictatorship, the documentary tracks the wholesale privatization of Russia’s state owned industries after the 1993 coup by Boris Yeltsin, in which he illegally ordered dissolution of the Russian parliament (see The Rise of Putin and the Fall of the Oligarchs).

The fire sale of state assets to oligarchs and western bankers would virtually destroy the Russian economy, throwing millions of people into extreme poverty and reducing average life expectancy by ten years.

The Privatization of East Germany

With German reunification in 1990, East Germany would be the third major target for massive privatization. According to German economists interviewed in the film, the process amounted to an “acquisition” of East Germany by West German bankers. The West German government set up an agency called Treuhand to buy up state owned East German businesses at the rate of ten to fifteen a day – a total of 8,500 businesses in four years. The process, undertaken with virtually no oversight, predictably resulted in massive chaos and fraud. Many well-performing East Germany companies were dissolved for the simple reason they competed with West German businesses. Three million (out of 4.5 million) East German workers lost their jobs, which East Germany’s GDP shrank by 30%.

Using Debt to Compel Compliance

With the gradual demise of the world’s dictatorships during the 1990s, debt, rather than brute force, became the main mechanism to compel people to give up their publicly funded assets. At present, most of the focus is on Greece.

Current EU Commission Jean-Claude Juncker holds up Treuhand (which incurred a 250 million euro debt German taxpayers are still paying off) as a model for the Greek Asset Development Fund. The latter has been steadily selling off (at bargain basement prices) Greek railroads and municipal power and water systems.

The Dismal Track Record of Privatized Utilities

The filmmakers end the film by highlighting the disastrous outcome of Britain’s decision to privatize its railroads in 1993, the city of Paris decision to privatize its water service in the 1980s (it’s recently been re-municipalized due to massive public unrest – like privatized water systems in Bolivia, Ecuador and Argentina) and California’s experiment with electricity deregulation in the 1990s (leading to the Enron scandal).*


*The Enron scandal involved massive securities fraud and a deliberate conspiracy by power companies to withhold power to drive up electricity prices.

In New Zealand We Call It Rogernomics

roger douglasRoger Douglas, from Wikimedia

(The 7th of 8 posts about my new life in New Zealand)

In brief, the policies introduced by Minister of Finance Sir Roger Douglas in the 1980s included the rapid elimination of import tariffs that protected New Zealand farmers and manufacturers; rapid privatization of state owned industries (most ended up under foreign ownership);  stringent anti-union legislation; and substantial cuts in social welfare benefits. With the abolition of import controls, New Zealand companies struggled to compete against cheap imported goods from Asia. This resulted in multiple plant closures, massive layoffs and more than a decade of unrelenting hardship for communities that relied on these industries.

The 1984 reforms also resulted in seven years of continuous economic stagnation, during which the New Zealand economy shrank by 1% in contrast with an average 20% growth in other OECD countries.

The Mass Exodus of Generations X and Y

The most enduring harm stemming from the 1984 reforms is the staggering loss of human capital that continues to this day. At present approximately one million Kiwis – representing one quarter New Zealand’s current population of four million – live overseas.

As I wrote previously, the massive sell-off of both state-owned and private companies to foreign owners has translated into a chronic accounts deficit (negative balance of trade), as profits and dividends disappear overseas. To compensate for this steady loss of wealth, New Zealand, under pressure to increase exports, entered into “free trade” treaties that forced them to reduce tariffs and quotas even more. This led to the shut down of even more factories, which had no hope of competing with overseas companies that paid sweat shop wages to third world workers.

The Student Loan Debacle

In my view, the most damaging neoliberal reform of the 1980s was the decision to replace government subsidized tertiary education (which until recently was standard in most European countries) with a student loan scheme. While lumbering young people with student loan debt can prove problematic for large, broad-based economies like US and Britain, the policy has proved absolutely disastrous for New Zealand. Repaying a student loan is extremely difficult on the low salaries Kiwi professionals earn. Thus a third or more of new college graduates to emigrate. In my view, this continual hemorrhage of human capital is a major reason New Zealand remains near the bottom of OECD countries for economic growth, productivity and salaries.

At present approximately one-third of medical students leave New Zealand following graduation. Many really have no choice, strapped with giant student loan repayments while simultaneously looking to buy a home and start a family. Their only hope of managing this massive financial stress is to seek work in Australia or the UK, where they can command a 20-30% higher salary than here in New Zealand. And once they buy a home and their kids start school, they very rarely return.

A recent study estimated 37% of new NZ teachers leave New Zealand schools within the first three years. In addition to doctors and teachers, New Zealand also loses a large proportion of the nurses, physiotherapists, social workers, audiologists and other health professionals they train – as well as engineers, urban planners and veterinarians, who are also on New Zealand Immigration’s critical skills shortage list.

New Zealand’s Neoliberal Transportation Policy

Other really destructive neoliberal policies New Zealand enacted in the eighties and nineties relate to public transportation: 1) the privatization of New Zealand railways (leading to the immediate shutdown of all but four routes) and 2) the dismantling of local public transportation systems. Both have resulted in extreme reliance on private automobiles and foreign oil, the second biggest culprit in our accounts deficit.

New Zealand, which still has a predominantly rural population (only 1/3 of Kiwis live in major cities), has also been extremely slow in implementing rational growth management strategies. For all these reasons, it holds the embarrassing honor of the highest rate of car ownership in the world.

 

The Chile of the Pacific

Milton FriedmanMilton Friedman from Wikimedia Commons

(The 6th of 8 posts about my new life in New Zealand.)

An Early Laboratory for Neoliberal Reforms

Overall I have enjoyed numerous lifestyle advantages living in New Zealand. There are a few notable exceptions, of course, beyond the emotional isolation of being separated from my family and American friends. Most relate, either directly or indirectly, to New Zealand’s historic role as “the Chile of the South Pacific.” During the 1980s, New Zealand was used as a laboratory for the neoliberal reforms subsequently implemented by Ronald Reagan and Margaret Thatcher.

In theory, neoliberalism is a “market-driven” approach to economic and social policy that stresses the efficiency of free enterprise and opposes government regulation of corporate recklessness and any government role in public services other than law enforcement. In practice, neoliberal policies have been universally pro-corporate and anti-free market, promoting vast amounts of legislation (tax law, government contracts and direct corporate bail-outs) that favor large corporations at the expense of both small business and ordinary citizens.

The University of Chicago is usually credited as the birthplace (in the 1960s) for neoliberalism and Milton Friedman as its father. A frequently overlooked aspect of the CIA’s 1973 coup in Chile was the direct role University of Chicago economists played in assisting Chilean dictator Augusto Pinochet in setting out the neoliberal economic reforms enforced by his brutal regime. New Zealand played a similar role in the early eighties, by trying out neoliberal policies that were later adopted by Britain and the US.

New Zealand: a Second World Country

At present New Zealand is a relatively poor, second world country. It ranks 20th in GDP for OECD countries. Americans are always struck by the high cost of living here relative to wages and salaries. Although average income is much lower than in other developed countries, the cost of basic necessities is just as high. At times it’s much higher, particularly in the case of gasoline, home energy costs and fresh meat and fish.

Central heating is virtually non-existent – in part because so few people can afford it and in part because the (colder) South Island has no access to piped natural gas. Just so no one has any illusions about our climate, the New Zealand winter is relatively short. However except for the far north, it gets just as cold here as in northern California and the Pacific Northwest.

Here We Call It Rogernomics

In 1975 New Zealand was 10th in the OECD in per capita GDP. Prior to the eighties, the UK was always the primary importer of New Zealand lamb and dairy products. In the early 1980s, these policies changed, and Britain began to favor European Union trading partners over commonwealth countries.

Increasingly, however, many economists blame the draconian reforms Minister of Finance Roger Douglas enacted in 1984 for the decline in Kiwi living standards. So-called “Rogernomics” was responsible for the institutionalization of a large and steady wealth transfer (as profits and dividends) to overseas corporations. This in turn has led to a large, chronic accounts deficit (negative balance of trade), which has led to many other economic problems.

It’s only with the 2008 economic collapse and the non-existent US recovery that American analysts are starting to appreciate the devastating impact that “Reaganomics” – the main culprit in the virtual collapse of American manufacturing – had on the US economy.

In a country 1/60th the size of the US, the damage was much more immediate and obvious.

 

The Common Misfortunes of Capitalism

cow in streamNote cow in stream

(The 5th of 8 posts about my new life in New Zealand)

Obviously there is both an upside and a downside to living in New Zealand. All developed and developing countries are forced to operate under the same corporate-dominated capitalist system.

New Zealand is no exception and has many of the major economic and social problems other developed countries are experiencing. In a few areas, New Zealand has adopted some of the worst aspects of global capitalism, which results in uniquely negative consequences for the New Zealand public. For the most part, Kiwis retain their commitment to a “democratic socialism” as practiced in most of Europe. The result, in my view, is a society and culture that tends to be far more humane than is found in the US.

That being said, New Zealand shares a number of pernicious social problems found in all modern capitalist countries:

  • Worsening income inequality – only 10% of Kiwis have incomes above $72,000 ($58,216) in US dollars), whereas half the population earns less than $24,000 ($US 19,405).
  • Irrational and blind adherence to a continuous economic growth paradigm. In a small country like New Zealand, this has a devastating impact, in terms of water contamination, habitat destruction and environmental toxins in the food chain. Over the past two decades, dairy intensification has made the most of New Zealand’s picturesque waterways unsuitable for swimming (due to cow shit and fertilizer run-off.
  • Slow uptake of renewable energy production (owing nonexistent finance capital or government subsidies)
  • Slow uptake of sprawl prevention strategies essential to the development of cost-effective public transportation.
  • Heavy corporate media emphasis on stereotypical female roles, resulting in massive pressure on New Zealand women to look young, thin and sexually attractive. Fortunately cosmetic surgery is much less common here than in the US – there aren’t enough Kiwis who can afford it.
  • Factory shut-downs and movement of well-paid union and manufacturing jobs to overseas sweat shops.
  • Massive household debt (146% of disposable income largely owing to chronic low wages).
  • Diets which are excessively dependent on foreign food imports, as opposed to more sustainable reliance on locally and regionally produced food.
  • Factory farming of pigs and chickens. Thanks to the high prevalence of battery hen operations (and constant exposure of chickens to feces), New Zealand enjoys the highest per capita incidence of campylobacter infection in the world.

 

photo credit: Mollivan Jon via photopin cc