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Billmon: The Eurosystem’s (Monetary) Control of Europe’s Politics
Note: This post was composed from a Twitteressay by Billmon.
J.W. Mason lists some Lessons from the Greek Crisis:
Before the crisis no one even knew that national central banks still existed — I certainly didn’t. But now it’s clear that the creditors’ unchallenged control of this commanding high ground was decisive to the outcome in Greece. Next time an elected government challenges the EU authorities, their first order of business must be getting control or cooperation of their national central bank.
The quote says "control or cooperation," but I can guarantee the latter is never going to happen.
It is nearly impossible to exaggerate the degree to which the campaign for central bank "independence" has made them the enemies within for any left governments.
The central bankers waged a 50-60 year political war to wrest back the monetary flexibility that the break down of Bretton Woods gave to national governments. Having won that war across most of the developed world in the 70s and 80s, they extended the battlefield to the emerging markets in '90s and '00s.
The autonomy of central banks (meaning the political allegiance to Wall Street/London City/Frankfurt etc.) was maybe the biggest neoliberal victory of all. If rightwing political victories (Reagan, Thatcher et. al.) were the beachheads of the Great Counterattack on social democracy then "independent" central banks became the citadels of the occupation forces: Neoliberalism's "Republican Guard."
Ironically, the ECB was originally conceived – or at least was sold to the European left – as a way for governments to regain monetary flexibility at a higher level. As a way to a) escape US dollar hegemony and to b) outflank the Bundesbank by formalizing the joint political control of European monetary policy. I do not know if the hack establishment Social Democrats who sold that vision ever believed it, but if so, more fool them. Because what the European Monetary Union became, obvious now, was a way to turn the vision on its head: formalize joint MONETARY control of Europe's politics.
The "Eurosystem", the network of national central banks governed by the European Central Bank, gives central bankers unprecedented ability to squeeze and manipulate national governments in a coordinated way. It is as if every government in the Eurozone ALREADY has a colonial entity watching it like the Troika's agents are supposed to watch Syriza in Athens. And, since the ECB Governing Council (like other EU institutions) tries to operate by a non-transparent "consensus" (i.e. the votes are not revealed), the degree to which national central bank heads are representing the ECB in their countries, rather than the other way around, is often not clear.
As long as the cozy comprador system tied peripheral governments to the core (i.e. Berlin), the role of the ECB and the Eurosystem could be obscured. Peripheral governments appointed "made guys" (i.e. banksters and/or their technicians) to national central bank boards and pretended to govern. Core politicians and their local comprador politicians let the Eurosystem technicians in Frankfurt tell them what "structural reforms" they should push to make the EMU "work."
But the moment an outsider government like Syriza came to power, the role of the Eurosystem and the national central banks in it could no longer be hidden. The fact that the Greek National Bank was an instrument of the ECB in Frankfurt, not of the Greek government in Athens, became obvious to everybody. The ECB's role as the muscle behind the Eurogroup's (Berlin's) diktats put the Greek National Bank in the position of helping to choke its own banks and terrorize its own citizens. And under the rules of EMU the Greek government was completely powerless to do anything about it. A defining moment.
The inescapable conclusion is that the allegedly "independent" Eurosystem now operates not as a network of central banks but as a parallel government.
The role of the Eurosystem within the half-hidden political order of the eurozone really is comparable to the Soviet or Chinese Communist Party. Like the Communist Party, the Eurosystem is now the "leading organ" of the neoliberal order, operating at all levels of the EU structure and providing "guidance" to elected political structures which are not formally under its legal control, but in reality are dominated by it. And behind the administrative apparatus of the party (Eurosystem) is the Central Committee (Eurogroup) and the Politburo (the key creditor government officials). And behind THEM is the real locus of the party's centralized power: the General Secretary (Germany/Merkel).
So J.W. Mason is quite right: it is impossible for any left government to attack the dictatorship of finance unless it controls its national central bank. But while control of the national central bank is necessary, it is hardly sufficient. As long as the EMU exit is off the table, verboten, so to speak, control of the national central banks only eliminates the "near enemy."
Ultimately it comes down to political will, which in parliamentary democracies, comes down to public support. As long as the majority (of all voters or of propertied influentials, depending on the system) is more loyal to the Euro than to national sovereignty an effective challenge to the dictatorship of finance is impossible – no matter how many national central banks the left controls.
PPS/23: Review of Current Trends in U.S. Foreign Policy, 1948 CE
Furthermore, we have about 50% of the world’s wealth but only 6.3% of its population. This disparity is particularly great as between ourselves and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism and world-benefaction.
For these reasons, we must observe great restraint in our attitude toward the Far Eastern areas. The peoples of Asia and of the Pacific area are going to go ahead, whatever we do, with the development of their political forms and mutual interrelationships in their own way. This process cannot be a liberal or peaceful one. The greatest of the Asiatic peoples—the Chinese and the Indians—have not yet even made a beginning at the solution of the basic demographic problem involved in the relationship between their food supply and their birth rate. Until they find some solution to this problem, further hunger, distress, and violence are inevitable. All of the Asiatic peoples are faced with the necessity for evolving new forms of life to conform to the impact of modern technology. This process of adaptation will also be long and violent. It is not only possible, but probable, that in the course of this process many peoples will fall, for varying periods, under the influence of Moscow, whose ideology has a greater lure for such peoples, and probably greater reality, than anything we could oppose to it. All this, too, is probably unavoidable; and we could not hope to combat it without the diversion of a far greater portion of our national effort than our people would ever willingly concede to such a purpose.
Between Berlin and a Hard Place: Greece and the German Strategy to Dominate Europe, 2012 CE
As Chancellor Merkel and other German leaders would frequently remind the rest of Europe and the world, with 7% of the world population, 25% of global GDP and 50% of world social spending, Europe’s economic system was unsustainable and uncompetitive in a globalized economy. Germany’s vision for Europe was aimed at introducing “rules to force Europe’s economies to become more competitive.” But competitiveness was defined by Germany, and thus, “the rest of Europe needs to become more like Germany.”
I nearly choked when I read Timothy Geithner quoted at the beginning of dana’s link … but it makes perfect sense. None of this is about ‘economics’ – that chimerical, dismal ‘science’ – all of it is about politics, and power politics, and imperial politics.
The Germans – like everyone else – can see the US has had its run and is headed for its fall. But they also know that Germany by itself is not of a size to pick up where the US leaves off, when the US leaves off. So Germany needs to take over Europe.
I think I’ve heard this before.
Between 2008 and 2013, the Greek government cut 40% of its budget, healthcare costs soared, tens of thousands of doctors, nurses and other healthcare workers were fired, drug costs rose, as did drug use with HIV infections doubling and a malaria outbreak was reported for the first time since the 1970s, while suicide rates increased by 60%. … Unemployment has grown to 26% (and over 50% for youth), wages dropped by 33%, pensions were cut by 45%, and 40% of retired Greeks now live below the poverty line.
Cleanliness is next to Godliness. The Germans are cleaning up Greece, and Europe.
The IMF’s latest move – fake debt reduction for Greece, the kind of stuff that flows out of Geither’s pie-hole in dana’s link above – seems to be overt recognition of this fact, bringing it into play.
So they new dynamic will be the US on one side and Russia on the other, containing Germany’s New Europe?
Makes sense, really. (None of this makes any sense … only to the zero-summers playing games with our world). China surely has its eyes on all that Lebensraum in eastern Russia. The US and Russia can team up to defeat the NAZIs who have ‘stolen’ the Ukrainian revolution (to contain both Europe and China). (And then the US can double-cross Russia when the time is ripe).
Hey, looks like it’s ‘working’ with our new, soon to be ‘best friends’ in Iran.
Arghhhh. Makes me want to stop reading the news, stop watching the movie. Or do something to help change it.
Posted by: jfl | Jul 16 2015 23:50 utc | 33
The role of the Eurosystem within the half-hidden political order of the eurozone really is comparable to the Soviet or Chinese Communist Party.
No, it’s not. Billmon doesn’t understand the structure. He’s not seeing it clearly, and is not getting to the root of the problem.
The individual EU countries that use the Euro cannot create their own currency. They GAVE UP their sovereign currency for a foreign one, the euro, when they agreed to make themselves subservient to the Maastricht Treaty.
The Maastricht Treaty did/does not allow for a ‘federal government of Europe’. It ONLY concerned itself with a monetary union, and it set down strict rules for entry (for instance, a nation’s deficits could be no more than 3%–an insanity). It allowed for the creation of a central bank, the European Central Bank (ECB), whose operating rules were dictated by the Maastricht Treaty (and subsequent revisions).
But crucial to understand is this: a central bank CAN ONLY SET MONETARY POLICY. You need a ‘federal government’ to SET FISCAL POLICY. The EU doesn’t have that. Sure, it has the EU parliament, and it has a bunch of unelected officials running the ECB. But it has no overlord, no elected oversight, that can rule in conditions like Greece is going through to ease sectoral pain, and stop the bleeding of ordinary citizens. That requires fiscal policy. The only way that fiscal policy can be changed in the EU is by a change to the treaties. Or the blessing of Angela Merkel, because Germany has captured the ECB.
Let me try to put this in perspective. The US has a federal government AND a central bank. Despite what all the Federal Reserve haters and the ‘get rid of the IRS’ people claim (inaccurately), the US central bank is a creature of Congress and must answer, by law, to the federal government twice a year. It is the US Treasury’s banker, and must, again by law, return all profits each year to the US Treasury.
The US federal government creates fiscal policy. This is the direction for the country that the central must follow and support trhough monetary polices. Fiscal policy is Congress’ job although they haven’t done it properly for 30 years. For example, if one of the 50 states is in trouble—let’s be hyperbolic: devastating earthquake, massive drought, asteroid hits–Congress can authorize (“appropriate”) funds–creating them ‘out of thin air’—to help the state. With no debt to children or grandchildren.
Why? Because the US federal government issues the currency, the 50 states only use them. The 50 states cannot create their own currency, just like the countries that use the euro. But the 50 states have the protection of the US federal government.
The formerly sovereign countries in the EU that use the Euro are like the 50 US states now. They cannot create their own currency, which would give them the policy space to pay their own citizens and denominate all the debts incurred in their own currency. They are dependent on the ECB, a goddam central bank that has no fiscal authority, to help them. EVEN THOUGH, in Europe, the ECB issues the Euro ‘out of thin air’. The ECB is a collection of central banks. And right now Germany’s central bank is dominant because it has climbed to the top—Germany was deeply in debt before the euro took over—on the backs of the other nations.
You will not begin to understand what is going on until you realize that the euro was designed by the famous French economist, François Perroux, in 1942 in anticipation of Hitler winning WWII, which was expected then. The plan was that they (the Nazi Pétain government wanted to be aligned with the German hegemon) would introduce a pan-Eurpoean currency and force adoption by the southern and eastern European countries to control and impoverish them. Mitterand, aligned with the Nazi/fascist Cagoulard in the late 1930 and 40s, was a Pétain enthusiast; this only came out in 1990. It was Mitterand who pushed through the euro, if you will check history. Perroux’s monetary replacement was the blueprint for the Maastricht Treaty and the subsequent treaties.
Posted by: MRW | Jul 17 2015 6:05 utc | 40
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