Symbol of a system’s failure

November 10, 2011

Leaders of the world's most powerful governments met at the Group of 20 summit in Cannes, France, at the beginning of the month with the latest reverberations of Europe's debt crisis--and the looming threats to the world economy--at the front of everyone's minds. But Eric Toussaint, author of Your Money or Your Life: The Tyranny of Global Finance, says the economic "solutions" of the G20 heads of state will only make matters worse.

THE G20 is no more legitimate than its progenitor, the G7 (Canada, France, Germany, Italy, Japan, UK and the U.S.). It was launched by the industrialized countries three years ago when they were beginning to feel the effects of the biggest economic crisis since the 1930s. On November 3 and 4, the G20 limped along through the summit in Cannes. That the EU and eurozone are in crisis is unmistakable, and this was at the heart of all the concerns.

The about-face by Greek Prime Minister George Papandreou three days before the start of the summit, when he announced and then withdrew a proposed referendum on the European Union (EU) austerity program, created a cloud of uncertainty over the most recent agreements aimed at avoiding a chain reaction of bankruptcies among the major European banks and collateral effects on their North American counterparts.

The G20 agenda that had been very carefully prepared over several months was turned upside down. Suddenly, all the heads of state and captains of industry were suddenly reduced to waiting to see if German Chancellor Angela Merkel and French President Nicolas Sarkozy could persuade the Greek authorities to abandon the proposed referendum before the end of the summit.

World leaders gathered in France for the G20 summit
World leaders gathered in France for the G20 summit (Alfredo Guerrero)

If the plan for a referendum had been confirmed, and had it involved asking the Greek people to accept the agreements made at the European summit in late October, it would have caused a banking and financial panic. Why? Because all signs indicated that the plan would be rejected. According to polls carried out after the October meeting, only 12 percent of Greeks approved of the plan.

The danger of rejection would have provoked a plunge in the price of Greek bonds, obliging the big French banks, among others, to write down their Greek assets to the tune of 80 to 90 percent. These banks' shareholders would have sold their stock, thus causing a collapse in stock prices.

Italian and Spanish bonds would have been subject to speculative attacks, which the eurozone would have been incapable of withstanding because the European Financial Stability Facility (EFSF) does not have sufficient means to do so. The French and German banks, along with other holders of Italian and Spanish debt, would have foundered.

It is clear that Papandreou--faced with renewed popular unrest and criticism within his own coalition--was doing what he could to gain time and ensure a parliamentary vote of confidence. His U-turn was obviously not motivated by a sudden will to hear the voice of the people, considering that in the last 18 months, he has cast aside the most elementary democratic rules and backed down on his electoral commitments.

Once his November 1 proposal of a referendum became public, it was largely rejected by the Greek population as well as by left-wing political parties and social organizations. However, this was for totally different reasons--that European leaders were unanimously opposed to any public consultation whatsoever concerning the new austerity plan imposed on Greece in the framework of the October 2011 agreement.

THAT THE EU is in crisis was blatantly obvious at the summit, and it was not the leaders of the European institutions who played the main roles. José Manuel Durão Barroso and Herman Van Rompuy, respectively presidents of the European Commission and the European Council, were no more than mere onlookers, while the presidents of the two strongest countries of the eurozone led the important negotiations from beginning to end.

Papandreou has promised to step down, and it looks likely that a government of national unity will undertake the task of implementing the austerity measures that the Greek majority opposes. Yet even if this provides temporary respite for the plan to save Athens (it would be more accurate to say, for the plan to save the euro and the big private banks), Greek discontent is such that nothing is certain.

Italy is already marked as the next weak link in the eurozone chain, with a sovereign debt six times that of Greece.

The G20 has failed the Italian government abysmally. Prime Minister Silvio Berlusconi, who is also headed for the exits, has had to accept that his country be put under the permanent scrutiny of the IMF. Coming out of the meeting, Christine Lagarde, managing director of the IMF, said of the Italian head of government, "We will subject him to a reality test." She went on to say of Italy: "I am going to send them a team of probably five or six experts every three months."

That a founding member country of the G7 should be subjected to such humiliating treatment illustrates the extent of the damage to the eurozone and the EU. What's more, Mario Draghi, the new president of the European Central Bank, was until last month the director of the Italian Central Bank and a minister in Berlusconi's government. The announcement by Draghi, who is also a former managing director of Goldman Sachs International, of a 0.25 percent reduction in the ECB prime rate is another concession to bankers having difficulty finding cheap funding.

Another setback facing the EU and eurozone is the brewing crisis at the EFSF, which has not yet entered into its new legal framework, nor received new contributions to its co-investment funds as agreed to at the European summit in July 2011. The BRIC countries (Brazil, Russia, India and China) have clearly announced their refusal to fund this facility.

Nor is the IMF as healthy as its managing director would have us believe: the $500 billion promised at the G20 summit in London in 2009 remains unconfirmed.

This is the consequence of the refusal by the G7 to accept one of the BRIC's demands. In return for their aid to the IMF, EU and the U.S., the BRIC countries wanted a greater role in IMF and World Bank decision-making and a new distribution of voting rights and other official positions in those institutions.

It's a lose-lose situation: the G7 can't get the emerging countries to loosen their purse strings, and the emerging countries can't achieve a status in international institutions commensurate with their economic and political weight.

EVEN AS they face a worsening economic crisis and gloomy prospects for 2012, the governments of the industrialized countries refuse to implement the elementary measures needed to put the private financial sector in order and to give a boost to the economy, such as separating deposit and commercial banks, prohibiting certain speculative transactions, taxing financial transactions, capping directors' fees with very strict controls on bonuses, imposing reprisals against tax havens, increasing public expenditure to boost employment and protecting the purchasing power of wage earners and claimants, among others.

Of these measures, all of which have been suggested at one time or another by leaders such as G20 summit host Nicolas Sarkozy, none have been put into practice. Yet such measures constitute the absolute minimum for a program like Roosevelt's New Deal, which aimed to stimulate the economy during the Great Depression of the 1930s.

President Barack Obama and European leaders have chosen a different direction: massive structural support for banks and other financial institutions to avoid massive serial bankruptcy, together with reinforcement of neoliberal policies (reduction of public spending, reduction of household and population purchasing power, the destabilization of salaried employment, a new wave of privatizations, increases in indirect taxation, among others).

There is no doubt about the consequences of these choices: the impoverishment of the majority of the population in the countries concerned, the aggravation of the inequality gap, the risk of increasing bankruptcy in the banking sector (as no serious limit has been placed on their speculative activities), slow economic growth with periods of recession for the next 10 to 15 years, the continuation of structural indebtedness on the part of public authorities because of insufficient fiscal revenues and the prolongation of the eurozone crisis.

The yawning gap between realpolitik and the ranting speeches against market abuse is obvious in the following passage from the summit's final declaration: "We will not tolerate a return to the behaviors observed in the financial sector before the crisis, and we will strictly control the application of our commitments regarding banks, the over-the-counter derivatives markets and pay practices."

Particularly lethal in the developing countries, especially in Africa, is the food crisis, principally provoked by speculation on agricultural produce. But though it was on the G20 agenda, no decisions were made, and the declaration merely mentions the issue, calling for "a reduction in the effects of price volatility."

After the G20, the European "indignados" and the Occupy Wall Street movement are reconfirmed in the urgency of their convictions. Those who supposedly pilot the planet are incapable of finding effective solutions and have put their whole weight against the idea that a people may pronounce an opinion on the neoliberal policies they impose. The lesson will not be forgotten.

Clearly, the need for a different, truly democratic, international architecture has become a matter of urgency. Anti-capitalist choices must now be made: the dictatorship of the creditors refused. Banks must be expropriated, without indemnity, by the people; there must be repudiation of illegitimate debt and radical redistribution of wealth.

Translated by Mike Krolikowski and Vicki Briault

Further Reading

From the archives