A French president playing second fiddle to a German chancellor announcing a “fiscal union” to keep eurozone spending under control was patently an uncomfortable moment for Nicolas Sarkozy. His misery was written all over his face.
Perhaps Sarkozy was reflecting on historical precedents from past conflicts between the two countries while he was standing next to Angela Merkel. More likely, Sarkozy realised that the idea of
Whatever was going through his mind, the announcement itself was more wordy than substantial. Within hours, the agency Standard & Poor said that the credit ratings of all 17 eurozone countries – including
As financial commentator Jeremy Warner noted, the agreement between
Warner’s concern that a long-term plan to keep spending under tighter control, reinforced by plans for a new European Union treaty, is hardly what the markets were waiting to hear, is all too real. But the inaction in the eurozone is not simply the result of German intransigence over using the European Central Bank to buy up a country’s bad debt.
Debt mountains express not simply profligate spending by member states but the consequence of the collapse of a credit-fuelled period of rapid economic expansion. While it lasted, debt could be repaid out of higher tax revenues. Bond dealers, banks and non-EU states couldn’t get enough of the interest-bearing debt.
The economic recession was not caused by the financial collapse of 2008, as is usually stated. In
Merkel and Sarkozy can only address the debt issues because the nature of the capitalist economy is a given and not up for debate or change. Even so, creating more debt to “solve” existing debt is hardly a solution. Nor do cuts in state spending help. That only intensifies the recession by reducing consumer demand still further. And printing new money, as central banks are doing, simply adds to inflationary pressures while providing speculators with more resources.
All in all, policy makers and political elites are damned if they do and damned if they don’t. In management speak, it’s a lose-lose situation. Their predicament is made more complicated by a political system based on individual nation states in the midst of an entirely globalised, transnational economic and financial system.
The political class resemble headless chickens right now and is mostly concerned with self-preservation and gaining an edge over competitor nations. Democratic procedures are being jettisoned as too lengthy, too costly and too bothersome.
Turning things round into a “win-win situation” will require bold strategic thinking and action – sooner rather than later – that aims at a political and economic transformation. We have to extend democracy in new ways beyond the all-too-narrow confines of capitalist ownership and control which is the root problem.