Why the Crisis Is Hitting the European Union
Published in Le Monde
(France) on 29 June 2011
by Eric Toussaint (link to original)
(France) on 29 June 2011
by Eric Toussaint (link to original)
Translated from
by Hannah Keet.
Edited by Rica Asuncion-Reed
.
The impact of the crisis on the European Union has been much more violent than on U.S. political and monetary institutions since the crisis started in the U.S. in 2007. In fact, the crisis that is raging in the eurozone is not a surprise; it is an incarnation of the two principles that govern this zone: the single capital market and the single currency.
To a larger extent, it is the consequence of the logic that dominates European economic integration: the supremacy given to the interests of large industrial enterprises and private financial institutions; wide promotion of private interests; competition within Europe between economies and producers whose [economic] forces are quite unequal; the desire to withdraw public services from a growing number of areas; competition between employees in these domains; and the refusal to unify and thus improve social security systems and labor market rules.
All this is to pursue the specific objective of promoting the maximum accumulation of private profit by providing the most malleable and precarious capital of labor possible. In Germany in September 2010, out of the entire employable population, 7.3 million only had a part-time job and were paid 400 euros per month.
Given this explanation, one could retort that this logic also dominates the U.S. economy. Therefore, other factors must be taken into account. While the credit needs of the governments of other developed countries — including the U.S. — can be met by their central banks, especially through money creation, member countries of the eurozone have given up that possibility.
The European Central Bank’s statutes directly prohibit financing states. In addition, under the Lisbon Treaty, financial solidarity between the member states is banned. According to Article 125 of this treaty, countries must meet their own financial commitments; neither the EU nor other countries can take charge of them.
The EU is thus at the beck and call of financial markets, since governments of countries in the eurozone depend on the private sector for their funding. Institutional investors (banks, pension funds, insurance) and hedge funds attacked Greece in 2010, the weakest link in the chain of European debt, before attacking Ireland, Portugal and Spain. By doing so, they reaped substantial profits from the significant revenue generated in these countries from interest rates paid by public authorities to be able to refinance their debts.
Among the institutional investors (the "lunatics"), it is the private banks that have made the most profit because they could be financed directly from the ECB by borrowing capital at a 1 percent interest rate (1.25 percent since the end of April). At the same time, they lent money to Greece at rates of about 4 or 5 percent over a period of three months.
They will only buy Greek, Irish or Portuguese securities lasting 10 years if the interest rate exceeds 10 percent. By launching their attacks against the weakest links, the "lunatics" were also convinced that the ECB and the European Commission should, in one way or another, come to the aid of states that have been victims of speculation by lending them the capital that would enable them to keep up repayments. They were not mistaken.
The European Commission has folded and granted loans to member states of the eurozone in collaboration with the International Monetary Fund. Therefore, it has not fully complied with Article 125 of the Lisbon Treaty.
There are other major differences between the EU and the U.S. The U.S. is not confronted with the problem of a trade gap between individual states, such as the trade gap between Greece and the rest of the EU and, in particular, Germany. What is more, much of the public debt in the U.S. is federal. It is the [American] Union’s debt; member states’ debt makes up a minority of the total public debt and has been bought by the U.S. Federal Reserve.
Washington has not encountered (another) problem of financing its public debt, because, thanks to their alleged security, U.S. Treasury bonds are popular with international markets despite their low yield. Finally, the U.S. federal budget is responsible for, or guarantees, a series of major public expenses, whereas the EU budget is very small.
The crisis that started in the U.S. has spread in a very visible way to the eurozone. Over the last 30 years, the weak links of international debt were in Latin America, Asia or the countries in so-called "transition" from the former Soviet bloc, but the situation has changed. The epicenter of the crisis is now in the European Union.
The European and national authorities have responded by applying neoliberal measures that have demonstrated their unfair nature in social terms and their ineffectiveness in terms of economic recovery. The IMF supports this approach. More than ever, we must radically review the foundations of European integration and the economic choices that are made.
To a larger extent, it is the consequence of the logic that dominates European economic integration: the supremacy given to the interests of large industrial enterprises and private financial institutions; wide promotion of private interests; competition within Europe between economies and producers whose [economic] forces are quite unequal; the desire to withdraw public services from a growing number of areas; competition between employees in these domains; and the refusal to unify and thus improve social security systems and labor market rules.
All this is to pursue the specific objective of promoting the maximum accumulation of private profit by providing the most malleable and precarious capital of labor possible. In Germany in September 2010, out of the entire employable population, 7.3 million only had a part-time job and were paid 400 euros per month.
Given this explanation, one could retort that this logic also dominates the U.S. economy. Therefore, other factors must be taken into account. While the credit needs of the governments of other developed countries — including the U.S. — can be met by their central banks, especially through money creation, member countries of the eurozone have given up that possibility.
The European Central Bank’s statutes directly prohibit financing states. In addition, under the Lisbon Treaty, financial solidarity between the member states is banned. According to Article 125 of this treaty, countries must meet their own financial commitments; neither the EU nor other countries can take charge of them.
The EU is thus at the beck and call of financial markets, since governments of countries in the eurozone depend on the private sector for their funding. Institutional investors (banks, pension funds, insurance) and hedge funds attacked Greece in 2010, the weakest link in the chain of European debt, before attacking Ireland, Portugal and Spain. By doing so, they reaped substantial profits from the significant revenue generated in these countries from interest rates paid by public authorities to be able to refinance their debts.
Among the institutional investors (the "lunatics"), it is the private banks that have made the most profit because they could be financed directly from the ECB by borrowing capital at a 1 percent interest rate (1.25 percent since the end of April). At the same time, they lent money to Greece at rates of about 4 or 5 percent over a period of three months.
They will only buy Greek, Irish or Portuguese securities lasting 10 years if the interest rate exceeds 10 percent. By launching their attacks against the weakest links, the "lunatics" were also convinced that the ECB and the European Commission should, in one way or another, come to the aid of states that have been victims of speculation by lending them the capital that would enable them to keep up repayments. They were not mistaken.
The European Commission has folded and granted loans to member states of the eurozone in collaboration with the International Monetary Fund. Therefore, it has not fully complied with Article 125 of the Lisbon Treaty.
There are other major differences between the EU and the U.S. The U.S. is not confronted with the problem of a trade gap between individual states, such as the trade gap between Greece and the rest of the EU and, in particular, Germany. What is more, much of the public debt in the U.S. is federal. It is the [American] Union’s debt; member states’ debt makes up a minority of the total public debt and has been bought by the U.S. Federal Reserve.
Washington has not encountered (another) problem of financing its public debt, because, thanks to their alleged security, U.S. Treasury bonds are popular with international markets despite their low yield. Finally, the U.S. federal budget is responsible for, or guarantees, a series of major public expenses, whereas the EU budget is very small.
The crisis that started in the U.S. has spread in a very visible way to the eurozone. Over the last 30 years, the weak links of international debt were in Latin America, Asia or the countries in so-called "transition" from the former Soviet bloc, but the situation has changed. The epicenter of the crisis is now in the European Union.
The European and national authorities have responded by applying neoliberal measures that have demonstrated their unfair nature in social terms and their ineffectiveness in terms of economic recovery. The IMF supports this approach. More than ever, we must radically review the foundations of European integration and the economic choices that are made.