Morgan D. Rose
December 17, 2011
Last week, the 27 members of the European Union met to discuss the future of a continent embroiled in economic crisis. The crisis began in 2008, with a banking panic, global in scale, which centered on the inability of a few “too big to fail” money-center banks to remain solvent.
The scapegoat given to the world was a bubble in housing prices had been burst, and the acquisitive middle and working classes, living beyond their means and at the largess of government handouts and low interest credit, were able to sink the world into an economic depression. The mainstream financial presses insisted on obfuscating the quintessential role of derivatives in creating the panic.
The word had become taboo and replaced with euphemisms like ‘toxic assets’ and ‘exotic financial instruments’. At the time, the central bank of central banks, the Bank of International Settlements, listed the volume of on-balance sheet derivates to be an estimated $584 trillion, and off-balance sheet over-the-counter (OTC) derivatives to be a staggering $596 trillion.
To give some perspective to the weight of this mass of fictitious speculative paper, the entire value of global assets in the previous year was said to be $140 trillion.
Derivatives trading had been illegal from 1936 until the beginning of the neoliberal era under Reagan in 1982. Credit Default Swaps (CDS) trading had been illegal under state gambling laws until the passage of the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000.
Low interest rates throughout the period from the bill’s passage until the crisis had allowed banks to leverage their assets into the stratosphere using these newly legal derivatives trades, where it became more profitable for major banks to ‘manage risk’ than provide any kind of service to the productive economy.
OTC derivatives trading also allowed for corporations and governments to use complex accounting tricks to hide debt by securitizing it and listing it as assets on their books.
It was these methods that ultimately brought down energy giant Enron. However, their fraud was par for the course on Wall Street. Wall Street giants like J.P. Morgan Chase and Citigroup advised Enron on how to hide their bad debts and had been giving similar advice to corporations and governments.
Beginning in 2002, Greece began taking advice from the Goldman Sachs’s Derivatives Group on how to manage its debts. Greece like much of Southern Europe was running a large deficit and struggling to maintain its budget under the EU’s rather stringent fiscal standards.
The Maastricht Treaty held that governments within the EU could not exceed a budget deficit of 3% of GDP and imposed an overall debt limit of 60% of GDP. Greece, along with the Goldman Sachs-coined ‘PIIGS’ (Portugal, Ireland, Italy, Greece, Spain) group of nations, began searching for methods to circumvent the treaty.
Goldman’s Derivatives Group was more than happy to oblige. Greece, along with other EU nations, began hiding its debs through OTC Credit Default Swaps, and was advanced a $1 billion line of credit from Goldman, under the table and away from the eyes of EU regulators.
The ‘Eurozone Crisis’ that emerged, however, would be a veritable stab in the back as Anglo-American financial firms would launch speculative attacks on the bonds of the countries they had previously advised. In many ways, the ‘sovereign debt crisis’ of Europe is the result of a beggar-my-neighbor policy of exporting the derivatives depression of the City of London and Wall Street on to the balance sheets of EU financial institutions and governments.
The Banker’s Siege: Technocracy Conquers Europe
Once the head of Goldman’s Derivatives Group that advised Greece on how to hide its debt, Mario Draghi was appointed head of the European Central Bank in November. Draghi’s appointment highlights a broader trend in Europe, that of Banking Technocracy, seizing power away from the democratically elected leaders of sovereign nation-states.
Frank Fisher, writing in Technocracy and the Politics of Expertise, defines Technocracy as, “[A] system of governance in which technically trained experts rule by virtue of their specialized knowledge and position in dominant political and economic institutions.”
This trend is so egregiously obvious that even corporate media outlets like Time Magazine have dubbed the recent developments as a ‘Bankers Coup’. The rise to power of figures like Mario Monti in Italy and Lucas Papedemos in Greece demonstrates this seismic shift in the political organization of Europe (although the path was certainly paved by anti-democratic institutions like the EU Commission).
The pedigrees of Mario Monti and Lucas Papademos highlight a blueprint for technocratic leadership accross. Monti studied economics at Yale before becoming an advisor to Goldman Sachs and Coca-Cola. He is European Chairman of David Rockefeller and Zbigneiw Brzezinski’s Trilateral Commission, and a leading member of the enigmatic Bilderberg Group.
Papademos graduated from MIT, served as a professor at Harvard’s Kennedy School of Government before accepting a position at the Federal Reserve Bank of Boston as Senior Economist. Like Monti, Papademos is a fixture at the reticent meetings of the Trilateral Commission.
These newly appointed leaders of their respective nations also hold in common the opprobrious distinction of never having been elected by their populations, and the goal of these Technocrats is to implement IMF austerity measures to comply with the Neoliberal agenda. Yet, even as these trends develop we see critical breaks within the ruling class circles of Europe. Namely, the results of last weeks European Summit.
Perfide Albion’ and The City of London’s ‘Divine Right of Bankers’
When the 27 Member States of the EU met last week, the continental power block of France and Germany, the so-called ‘Merkozy’ faction, outlined a program for resolving the Eurozone crisis. Many measures would fit neatly with the technocratic agenda, as ‘Merkozy’ would call for a ‘Fiscal Corset’ of stringent austerity measures, which would in-effect cripple many of the debt-ridden economies of Southern Europe to the benefit of the probably insolvent European mega-banks.
However, the major point of contention came not from the key focal points of the crisis, like Greece, but from the locus of international derivatives trading, the City of London. British Prime Minister David Cameron lead the UK to walk out on the Treaty discussion on the ground that a proposed Financial Services Transfer Tax and greater regulation on financial institutions would cripple the City of London’s position as the derivatives trading capitol of the world.
The City of London, which functions much like the Vatican as a sovereign city-state within the UK, has been in the center of nearly every major financial scandal of the past few years, from the Lehman Brothers collapse to AIG, Barry Madov, and more recently MF Global. But for Cameron, the interests of the City of London are synonymous with the interests of the British people, and the sanctity of unfettered derivatives speculation functions as a kind of ‘Estate of the Realm’ of a financial Ancein Régime in Britain. The proposed Financial Services Transfer Tax would levy a fraction of a percent tax on financial turnover, but for Cameron and the City of London, this would be a grave affront to their ‘Divine Right’.
The historical parallel of this UK-EU split harkens back to the formation of the European Economic Community in the post-Bretton Woods era from 1945-1972. As the British Empire transitioned into the Commonwealth of Nations, the US rose out of World War II to seize the levers of global power once exercised by the British Crown through the so-called ‘special relationship’ between the two countries.
The Pound Sterling standard was transmogrified into a Dollar Standard, and the US became the hegemonic leader of global finance and development. Despite the global preeminence of this newly codified Anglo-American Empire, Europe emerged to rival the productive capacity of the United States. By 1960, Western Europe had surpassed the US in the area of world trade both relative and absolute terms, accounting for 26 percent of total world exports.
Europe achieved this great feat through massive internal investment in production and infrastructure which amounted to a nearly 10 percent share of global manufacturing output. Europe’s success can be attributed to its creation of the European Common Market, which allowed member countries to coordinate development and trade.
A geopolitical axis was formed around the ascendancy to the world stage of General Charles de Gaulle and his German counterpart, Chancellor Konrad Adenaeur. De Gaulle, who lived by the 19th century French diplomatic axiom, ‘Perfide Albion’, understood greatly the need for the independence of Europe from Anglo-American balance-of-power games and imperial designs.
De Gaulle pushed for greater bi-lateral cooperation between France, Adenauer’s Germany, and Moro’s Italy. This sitatuion would culminate with De Gaulle’s testing of an atomic bomb in the Sahara despite the protest of the NATO high command representing the interests of the US and Britain. Europe’s independence push under De Gaulle would gradually be dismantled as Adenauer would be replaced with Atlanticist Chancellor Ludwig Erhard,Moro would be kidnapped and assassinated as part of NATO’s Operation Gladio, and De Gaulle would be toppled in a proto-’Color Revolution’ with student riots breaking out across the country. However, the model for cooperation, development, and independence would remain a great hope for Europe moving forward.
Europe’s Choice: The De Gaulle-Adenauer Line or IMF Austerity
In all likelihood, the right-wing, austerity hawk governments of Angela Merkel and Nicolas Sarkozy will not take up the banner of the De Gaulle-Adenauer Line under the current circumstances. Policy makers in Europe remain wedded to the ideology of Neoliberalism and a uncompromising devotion to the Washington Consensus.
Yet, as popular protests surge and the crisis continues to deepen, the potential for a drifting away from these dogmatic principles is on the rise. With the UK breaking sharply from Europe, the speculative attacks on the Eurozone will likely increase and as more aggressive survival measures begin to be enacted, we could see a resurgence of an independent Europe.
As Historian and Economist, Dr. Webster G. Tarpley has advanced in many of his writings, Europe has at its disposal a multitude of weapons to respond to the ongoing speculative offensive from Wall Street and the City of London. Among these, Europe could institute a more aggressive Financial Services Transfer Tax, ban many forms of OTC derivative speculation, issue low-interest, long-term credit for the revitalization of European industry and infrastructure, and expand its economic purview Eastward and Southward fostering economic development and trade with the rising powers of the Shanghai Cooperation Organization.
Europe has already seen the tragic consequences of Neoliberal austerity politics from the so-called ‘Baltic Tigers’. In countries like Lithuania and Latvia, Neoliberal austerity measures have lead to shrinking GDP, massive unemployment, massive emigration, a rise in poverty and decrease in standards of living, along with a collapse of industry and trade. As the EU is set to embark down this perilous path of IMF austerity, there is hope that the people of Europe turn away from technocracy and austerity towards the independence of democracy and development.