'Sound Finance' Imperilling Democracy

Finance capital’s imposition of fiscal austerity on both sides of the Atlantic – and this at a time when private consumption and investment are stagnating – is pushing the developed capitalist world into double-dip recession. As it is, the short-lived recovery has been a “jobless” one. The top dogs at the annual gatherings of the World Bank and the International Monetary Fund (IMF) in Washington at the end of September, and a meeting of the central bankers and finance ministers of the G-20 countries on the sidelines of the Fund-Bank conclaves, stared into this abyss, expressed concern, and (the G-20) promised strong action to ensure financial stability and go on with fiscal consolidation. Banks and other financial institutions in Europe that are heavily exposed to Greek, Italian, Portuguese and Spanish government debt are tottering as the interbank credit market is beginning to freeze as it did when Lehman Brothers collapsed three years ago. Predictably, an expansion of the European Financial Stability Facility (EFSF) – the stabilisation fund for the Eurozone’s government bond markets set up in May last year – is in the pipeline. But it will not come without greater fiscal austerity and privatisation imposed by the so-called Troika – the European Commission, the European Central Bank, and the IMF – in Greece, where the crisis is full-blown. But is Greece’s “excessive” fiscal deficit really the problem? Or is it the Eurozone’s institutional design that makes the financial markets the arbiters of the public debt? Where is all this leading to? Debt deflation? Democracy imperilled?

The main “player” here is Germany. The euro had enabled German capital – with its innovative capital goods sector and an entente with the trade unions that allowed productivity to rise much faster than the average wage – to prosper via net exports. Weaker neomercantilist powers like Italy, hitherto dependent upon real currency devaluation, were now sidelined. France, even if it did have neo-mercantilist ambitions, could not contemplate competitive devaluations because of the dominance of financial capital over its industrial counterpart in the French economy, and so it pitched for the euro, hoping that it would thereby gain some control over Germany’s monetary policy. In the wake of the US financial crisis, German net exports to the US and investments in the US financial markets suffered, and post-2008, Germany has had to harden its neo-mercantilist stance and enforce the rules of the game in the Eurozone. Moreover, Berlin is also focusing on its eastern periphery – Estonia, Latvia, and Lithuania, as also Hungary and Slovakia.