December 9, 2011

Eurocrisis Solutions for Whom?

Matias Vernengo: Proposed new rules for the Eurozone based on interests of bankers, large companies and the European elite
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Eurocrisis Solutions for Whom?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. In Paris on December 9, the European leaders will meet to try to save the eurozone. If--we are told if there's not a deal, we could see the unraveling of the euro, perhaps even fractures of the European Union, and perhaps this will trigger a deeper global recession. We're told that these times are momentous. Now joining us to try to unpack all of this is Matias Vernengo. He's an associate professor of economics at the University of Utah, and he joins us now from Salt Lake City. Thanks for joining us, Matias.


JAY: Okay. So, Matias, what's at stake in these meetings?

VERNENGO: This is the nth round of meetings that suggest that, you know, we're really slowly slouching towards an agreement by the Germans to foot the bill, if you want, for sustaining the euro. This has been done, you know, in a way that--it seems to me it's still far short of what is needed. So it's based on, you know, moving in the direction of fiscal union, and, you know, it's based on the notion that fiscal austerity should remain in place and pretty much [incompr.] still remaining with an unwillingness of the ECB to buy bonds of peripheral countries, which is--you know, at the end of the day, that's the simple solution for this problem.

JAY: Well, is the point of this fiscal union that Germany, and to some extent France, but they're saying the European Central Bank, yeah, we'll buy some of the bonds of Italy and Greece and Spain and we'll shore up this bond market, but in exchange the Germans are saying, and I guess the French are saying, they want to impose this fiscal union? Does that just mean they want to be able to essentially bypass national politics that might oppose this austerity policy, and create this kind of unified fiscal policy that it really won't matter what the peoples of each country want?

VERNENGO: Fundamentally, [incompr.] has been happening already. So if you look at what happened in Greece, you know, it's very difficult not to say that that already happened. So when you look at, you know, you know, Papandreou, you know, he fundamentally said, I'm going to do a referendum. And the referendum eventually was, you know, eliminated, and he was sacked and [incompr.] And so from that point of view, we already have [incompr.] in several of the other governments. So in Spain you have [incompr.] you know, the Conservatives have won in Italy [incompr.] you know, not that I'm particularly favorable, you know, to the ex-prime minister, but they also brought, you know, Monti to do, you know, the adjustment, the fiscal adjustment. So the rules of fiscal austerity have been already in place. They perceive this. You know, in all fairness, the growth and stability pact was in place, you know, since Maastricht fundamentally imposed rules of austerity that were valid when it hit the periphery, but not when it was [incompr.] So--you know, and even the participation of the IMF, for people like myself, you know, that--I'm from Latin America--you know, it seems like deja vu. You know, the IMF has been in place over, you know, the decades, exactly, you know, there to guarantee that fiscal austerity, and hence the shrinking of the economy and extraction, if you want, of surplus from the people in order to be able to pay, you know, [incompr.] you know, it takes priority. In the case of Europe, you know, as much as in many Latin American cases in the past, you have to understand that this was not, you know, an over-, you know, expended state that was expended; it was a private boom led fundamentally by financial liberalization that has been bailed out by the state. And so now, you know, the people that did not benefit from that particular boom are being squeezed, you know, in order to repay, you know, financial markets. So this also has, obviously, you know, for people in America, you know, in United States, a incredible resemblance with what happened over here with the housing bubble and the fallout of--.

JAY: So what's the fiscal union do, except maybe make it easier in the future to impose these kinds of policies without having to go through bringing down governments and changing prime ministers? I mean, is that--how does the fiscal union do any more than that? And is that going to reassure--quote-unquote, reassure the bond market?

VERNENGO: What probably this does is that it creates the political conditions in which the Germans can sell this to the German population, saying, look, now there are, you know, general rules within the European Union that guarantee that, you know, people in the periphery will have to pay, you know, with taxes, and you're not going to be overburdened with. So it makes it politically acceptable to, you know, fundamentally guarantee those bonds to the German and, I suppose, to a lesser extent, the French people. So I don't think in other terms it makes, you know, any other significant change. The way that this would be truly different is if the fiscal union implied that there'll be, rather than austerity, significant transfers of funds towards the periphery countries, which is perfectly feasible and should be done. And in the U.S., with all the political difficulties, it's being done. You know. So I always say, you know, if you imagine--you know, if you take a loan in Salt Lake City or if you take a loan in Washington, D.C., to buy a house, the interest rate is fundamentally the same. You know, if you look at munibonds, municipal bonds in the U.S., you know, they're fundamentally the same whether [incompr.] in California, a state with, you know, fiscal problems, or whether you are in in New York. So, you know, French bonds, let alone Italian and Greek bonds, are paying a significant, you know, premium over German bonds. And so this can be done, you know, without the austerity rules. So the important thing here is--you know, I think, to ask is: who benefits from these austerity rules? And then, who loses from these austerity rules? And part of it's not just the banks are going to benefit from these austerity rules, but, you know, corporations in general in Europe benefit. You know, the fact that workers in Greece and in Italy, you know, are doing, you know, incredibly, you know, badly because of unemployment and, you know, the deflation of assets, you know, the fact that they are, you know, in that situation also helps, you know, to keep German, you know, workers in line. And so the benefits are general, not just for the German banks and corporations, but for the elites in--you know, in the peripheral countries. So, you know, in many respects, this, it's less, if you want, a question of countries and more a question of--an old question of capital and labor. You know, it's--capital in Europe is doing pretty well, but labor overall in Europe is doing incredibly, you know, poorly.

JAY: Now, if they do have these new rules, one of which, interesting enough, is that if there is any future restructuring of sovereign debt like recently took place in Greece, that one of the new rules is going to be private bondholders won't be asked to take a haircut. It will only be the governments--in other words, taxpayers--of Europe that take the loss in one country or another. But they're going to protect private bondholders. But, anyway, all that being said, bondholders--all bondholders really seem to care about right now is that they're sure they're going to get repaid, and that they probably like higher and higher interest rates. But they don't really care what happens to the real economy. So even if they make the best-case scenario deal in the eyes of bondholders, what are we likely to see as a result of that?

VERNENGO: Part of the story here is--that people don't understand is that this crisis has been functional. It serves certain interests. So the fact that the real economy does not completely recover has not been necessarily a bad thing for bankers and, you know, for bondholders in Europe. So [incompr.] these sort of, you know, continuous meetings in which we're threatened with the notion that if we don't do what financial markets want, you know, we're going to go, you know, into a spiraling crisis in which everything is going to get worse is being used to, you know, benefit these groups. And, you know, we're kept always with, you know, labor markets that are slack and, you know, high levels of unemployment. You know, look at--it's very much the same that is happening in the U.S. We have [incompr.] the levels of unemployment remain high. But, you know, we always say that, you know, we--if something happens, we need to go and rescue financial markets. So there is a functionality in this crisis. And keeping things on the verge of the crisis is, you know, exactly something that works for them. So I don't expect much from this. And it's starting to look--although, you know, there are obvious differences between Greece and other countries in the periphery, say, for example, Argentina's often used as [incompr.] and Argentina did default, Argentina did devalue. So, you know, it would be the equivalent of getting out of the euro with respect to the dollar in the case of Argentina. And Argentina did grow a lot, but that's not necessarily the case in Greece, because Greece depends way more on exports to Germany than to, you know, say, China. But it's still starting to look like--you know, that there's very little for the, you know, people in the periphery, and even in the central countries [incompr.] to win from this European project. You know. The other thing is that people used to talk about the European project as if this European project is the same European project of the '50s, you know, a project that was trying to create, you know, a political union in which the so-called German problems sort of vanish. This has very little to do with that. This current project is a project that raised throughout the '80s and '90s, and it's a neoliberal project that--it's based on [incompr.] financial interests. So I wouldn't expect much from these talks.

JAY: So the one thing that's probably for sure out of all this, both in Europe and in the United States and in Canada and these other--these countries: that wages aren't going up, wages are probably going to remain either stagnant or even go down, which I think is the trend in the United States, which means demand is not going to grow, which means: where are we after all of this?

VERNENGO: Exactly. And then you go to a point that it's essential. You see, the fulcrum, you know, the beginning of this in the US and in Europe, has to do with the fact that over, you know, a very long period, in the case of the U.S. going back 30 years, in the case of Europe going back to, you know, something less, but, you know, something, you know, not far from that, too, of wage stagnation, so these financial bubbles, what they have allowed is an exchange, if you want, from, you know, higher wages--. They used--you know, it used to be that people spend money on the basis of, you know, better jobs and higher levels of, you know, wages and, you know, access to education, cheap public education, and higher living standards in the future. That has changed. So over the last 30 years what you have is private debt. And so, you know, it's very different even if you look at what's happening in the periphery. So China, you know, it's growing now increasingly on the basis of its domestic market and on expanding wages. That's, you know, certainly not the case in Europe and in the U.S. So what we have had is fundamental wage stagnation. And that would be the long-term solution for this crisis.

JAY: Thanks very much for joining us.

VERNENGO: Thank you for having me.

JAY: Thank you for joining us on The Real News Network.

End of Transcript

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