Wednesday, September 28, 2011

Why France isn't Really in the News

As the United States continues to harp on the danger of a Eurozone collapse, I thought it would be interesting to read one of Europe’s foremost newspapers, France’s Le Monde. (Alas, I do not master German.)

On the day Fareed Zakaria was treating ‘the most powerful man in Europe’, Manuel Barroso, President of the European Commission, as if he were a wayward student, Le Monde published an article on the Eurozone crisis.  Here is an adaptation:

Usually, the world’s grandees focus on the succession of crises in the emerging economies of Latin America, Eastern Europe, Asia and Africa.  This time, and for the second time, the epicenter of the crisis is in the West.

All the talks make the same point: if true international cooperation and coordination fails to come about, we risk a crisis whose breadth and depth are beyond reckoning. This time, even if the debt problems of America, the Middle East or Japan are real, the sick man is rich, opulent Western Europe. To varying degrees, certain European countries have borrowed more than was reasonable. Faced with the Western world’s economic lethargy, they cannot count on growth to ensure payments on their debt.

For several days, declarations from the biggest emerging countries leave little doubt as to how they see the situation.  Rightly, they consider that Europe has the means to solve its problems without international help, and that the remedies the West has already imposed should have been adopted in Greece. They will not come to the rescue.

Nor should Europe expect any significant help from the IMF.  Madame Lagarde continues to issue dramatic warnings, and the prevailing sentiment at the meeting was well expressed by the Financial Times: “There is no more time to solve the Eurozone’s problems and avoid a world recession.” Europe is in crisis and it’s up to the Europeans to act.  No one will step up to the plate, aside from one-off gestures here and there.  But the agreement between the G20, the IMF and the European Union is more like a declaration of intent rather than a real commitment.

All agree on the need for concerted action, starting with the urgent creation of a crisis center. Europe’s institutions, fragmented and complex, deliver a cacophony of incoherent messages that create skepticism abroad about Europe’s ability to manage its crisis.  The Governor of the the Bank of Brazil offered three crucial lessons in crisis remediation:
> The more a country waits, the more it costs.
> it must have a credible plan
> To be credible, its leaders should refer only to firm decisions.

Many governments are surprised at the lack of action with respect to a problem that is, after all, relatively limited: that of Greece.  Several larger countries have experienced similar problems, even to the point of defaulting, for example Argentina which survived ten years of misery.

Wolfgang Schauble, the German Finance Minister, presented an outline for reform of the International Financial Institute which has the advantage of clarity and coherence. It also calls for fiscal coordination, which he rightly believes to be the indispensable complement to monetary union.  Europe has painfully realized the need to deepen the Eurozone via political institutions and structures capable of managing that coordination.

There was unanimous agreement with former president of the Federal Reserve, Paul Volker, who stated that Europe must now give itself an institution that will oversee and if necessary, intervene in the budgets of the Eurozone countries. Jean-Claude Trichet, President of the European Central Bank, agreed.”

Not surprisingly, this Washington-inspired common front drew sharp reactions from Le Monde’s readers.  (It is interesting for me to note that since I left France in 2000, the readership of this daily, considered to be one of the most serious papers in Europe, now includes people who cannot write French correctly. Never mind, education is a worldwide problem.)  Here are some of the comments posted on Le Monde’s site:

“The fuse is lit and Wall Street, the City and Switzerland are in trouble:
Almost 10 billion of the 15 billion ghost assets have evaporated.  The rest (and probably a lot more) will evaporate during the fourth quarter of this year, which will see the ‘implosive fusion’ of world financial assets. The main reactors will be Wall St and the City.  As foreseen by the European Laboratory of Political Anticipation (LEAP), the solutions to the problem of Euroland countries’ debts will lead to the formation of a critical mass, after which control will be impossible.  But most of the fuel that will feed the reaction and turn it into a real planetary shock is in the United States.  Since July 2011 the process has barely begun. The worst is still to come - and soon.

But let’s turn to Greece’s third crisis: Every time Washington and London have serious problems, Greece is brought to center stage. This summer was catastrophic for the United States. Now in recession, having seen its credit rating downgraded (something the experts considered impossible only six months ago), and with the paralysis of its political system exposed for all the world to see, it is incapable of taking even token measures to reduce its deficit.  At the same time, Great Britain slips deeper into a depression: austerity measures that fail to affect the budget deficit, provoke violent riots, plunging the country into the worst social crisis it has ever seen. As ever widening collusion with Rupert Murdoch is exposed, the coalition government no longer knows why it governs. The situation was ripe for a new media focus on the Greek crisis, and its logical consequence, the end of the Euro!”

Here is the text of a petition launched on a French website calling for French banks to be nationalized:

‘We are well aware that our countries’ debts poison Europe. (The U.S. has the same problem, as do the developing countries. Many countries are on the brink of implosion; Greece, Ireland, Portugal, Spain, and now Italy, to mention only the most visible.)  We do not pay enough attention to the social movements this situation provokes, and which also are starting in France, one of the countries that could become bankrupt.

Until 1973, during a period known as the ‘Glorious Thirty’, much of Europe developed at an unprecedented rate.  Countries were able to manage their budgets indepen-dently, by requesting their central banks to print money when necessary. Then President Pompidou decided that European countries should only finance their debt by borrowing from private banks.

His finance minister, Valery Giscard d’Estaing, pushed through the January 3, 1973 law whose Article 15 specified: ‘The public treasury may not present its assets to the Banque de France’, meaning that the national bank could not directly finance the State. This law was confirmed by Article 104 of the Maastricht Treaty - which then became Article 123 of the Lisbon Treaty.

The Eurozone is unique in having this prohibition engraved in the stone of a treaty.  It means that its members are forced to borrow on the financial markets, with interest, for needs not covered by other sources of revenue. Yet countries like the US, Great Britain or Japan do not hesitate to borrow from their central banks when their economic needs require it. In France, banks can borrow at 1% from the European Central Bank and lend to the United States at 3, 5, 7% or more. (Andre-Jacques Holbecq).

This decision threw a spanner in the works.  With higher interest rates added to the debt, countries could no longer repay their loans quickly enough to avoid additional interest - a vicious circle generated by composite interest: more loans must be taken out in order to pay back the original interest, raising the level of debt.

Using France as an example, based on the end of 2009 (the debt has increased since): “The yearly increase in the pubic debt from 1980 to 2009 corresponds approximately to the yearly interest on the debt, which consequently snowballs.  In constant Euros, France’s debt went from 239 billion Euros (21% of GNP at the end of 1999 to 1489 billion Euros (78% of GNP) or an increase of 1250 billion Euros.  During the same period, we paid about 1340 billion Euros in interest to various private lenders - banks and credit firms, pension funds, life insurance companies, etc. (Andre-Jacques Holbecq).

They tried to tell us that this transformation from prosperity to indebtedness was a consequence of the ‘oil’ crisis of 1974, which is actually a legitimate demand since until then we were benefitting from energy resources at ridiculously low prices.   The banks that increased their debt were aided by the states provoked the financial crisis of 2007.

Scapegoats had to be found. Austerity plans succeeded one another, leading to privatizations and the dismantling of public services, as governments try to make their citizens responsible for the deficits they incurred." (Note this language:  What we call the safety net, implying that it is only there for exceptional circumstances, is referred to in a matter of fact way as ‘social services’, which are part of everyone’s life. Also note the repeated use of the words 'just' and 'justice'.)

The recent crisis showed the lack of scruples of the financial sector, which, at the height of the storm, continued to speculate on the misery of the world, in particular on basic foodstuffs, with the poorest countries deprived of the minimum necessary for survival, creating widespread famine.

On behalf of these countries so unjustly treated, we demand reparations by way of debt forgiveness, both vis a vis banks and other governments.
    We must say no to so much injustice, as the citizens of the world are asked to pay the price of errors committed by others.

Private banks must renounce the debts which enabled them to live well all these years. Otherwise our countries will fall like houses of cards, cards rigged from the beginning that leave us no chance of escape.’


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