Monthly Archives: August 2011

Europe: “Time to Get Angry”

It’s not often that I get the chance to present you with a real essay: This one I found at der Spiegel ONLINE last week, and I would like to share it with you. The writer teaches sociology at the London School of Economics and at Harvard University. His name is Ulrich Beck. In his essay, he draw parallels to the historic times in Europe, nearly 40 years ago, when the Berlin wall was teared down by angry young people, and the East-European communist regimes collapsed.

“It is European youth, in particular, who have drawn the short stick.”

Ulrich Beck

Freedom Wall of Berlin

Finally, the heavy wheigthers of European political economy is catching on. Perhaps there is hope that “the crisis of a lifetime” will turn into “the possibility of a lifetime,” and become the most important turning point in history of  our modern society – as described in one of my most read articles ever, published October 2008.  

My conclusion from 2008, however, still stands: There are probably not enough political courage to pull this thing through.

But Mr. Beck – who has been one of the most respected researchers of sociology and political economy for many years – presents the leaders of Europe with the knowledge they need to make the necessary reforms, and a sketch (or a blueprint) on how to do it.

And he points out – as also the manifesto of EconoTwist’s states – it’s time to get involved:

“The European common currency is in trouble, several EU countries are facing mountains of debt and solidarity within the bloc is declining. It is European youth, in particular, who have drawn the short stick. Closer cooperation is the only way forward,” Ulrich Beck writes:

Germany’s European policy is about to undergo a transformation as significant as Ostpolitik –the country’s improvement of relations with the Soviet bloc — was in the early 1970s. While that policy was characterized
by the slogan “change through rapprochement,” Berlin’s new approach might be dubbed “more justice through more Europe.”

In both cases, it is a question of overcoming a divide, between the East and the West in the 1970s and between north
and south today
. Politicians tirelessly insist that Europe is a community of fate. It has been that way since the establishment of the European Union.

The EU is an idea that grew out of the physical and moral devastation following World War II.

Ostpolitik was an idea devoted to defusing the Cold War and perforating the Iron Curtain.

Unlike earlier nations and empires that celebrated their origins in myths and heroic victories, the EU is a transnational governmental institution that emerged from the agony of defeat and consternation over the Holocaust.

But now that war and peace is no longer the overriding issue, what does the European community of fate signify as a new generational experience? It is the existential threat posed by the financial and euro crisis that is making Europeans realize that they do not live in Germany or France, but in Europe.

For the first time, Europe’s young people are experiencing their own “European fate.” Better educated than ever and possessing high expectations, they are confronting a decline in the labor markets triggered by the threat of national bankruptcies and the economic crisis. Today one in five Europeans under 25 is unemployed.

A New Age of Risky Confusion

In those places where they have set up their tent cities and raised their voices, they are demanding social justice. In Spain and Portugal, as well as in Tunisia, Egypt and Israel ( unlike Great Britain ), they are voicing their demands in a way as nonviolent as it is powerful.

Europe and its youth are united in their rage over politicians who are willing to spend unimaginable sums of money to rescue banks, even as they gamble away the futures of their countries’ youth. If the hopes of Europe’s young people fall victim to the euro crisis, what can the future hold for a Europe whose population is getting older and older?

News programs offer new visual material for the dawning of a new age of risky confusion — the “world risk society” — on an almost daily basis.

The headlines have been interchangeable for some time: Insecurity Over the Future of the Global Economy, EU Bailout Fund in Jeopardy, Merkel Attends Crisis Meeting with Sarkozy, Rating Agency Announces Downgrade of US Debt. Does the global financial crisis signal the deterioration of the old center?

Ironically, it is authoritarian China that is playing the moral apostle on the financial front, with its sharp criticism of both democratic America and the EU.

There is one thing the financial crisis has undoubtedly achieved: Everyone (experts and politicians included) has been catapulted into a world that no one understands anymore.

As far as the political reactions are concerned, there are two extreme scenarios that can be juxtaposed.

The first is a Hegelian scenario, in which, given the threats that global risk capitalism engenders, the “ruse of reason” is afforded a historic opportunity.

This is the cosmopolitan imperative: cooperate or fail, succeed together or fail individually.

At the same time, the inability to control financial risks (along with climate change and migration movements) presents a Carl Schmitt scenario, a strategic power game, which opens the door to ethnic and nationalist policy.

Taking Europe for Granted

The community of fate is inescapable in both models, because, no matter what we do, global risk capitalism creates new existential divisions and bonds across national, ethnic, religious and political boundaries. How can Europe even prevail in this environment?

Paradoxically, the success of the EU is also one of its biggest obstacles.

People have come to take many of its achievements for granted, so much so that perhaps they would only notice them if they ceased to exist.

One only need imagine an EU in which passport controls are reintroduced at borders, there are no longer reliable food safety regulations everywhere, freedom of speech and of the press no longer exist under today’s standards (which Hungary is already violating, thereby exposing itself to strict scrutiny), and Europeans traveling to Budapest, Copenhagen or Prague, or even Paris, Madrid and Rome, are forced to exchange money and keep track of exchange rates.

The notion of Europe as our home has become second nature to us. Perhaps this explains why we are prepared to jeopardize its existence so carelessly.

We must recognize and acknowledge the reality that Germany has become a part of the European community of fate — in exactly the way former German Chancellor Willy Brandt described during the first session of parliament following German reunification:

“Let us hope that being German and being European are now one and the same, today and forever.”

Does the Hegelian idea that reason ultimately prevails throughout history, despite many diversions, still apply?

Or is Carl Schmitt’s belief that hostility among nations must invariably prevail more fitting to conditions in the world today?

Unlike the community of fate between two rivals that exists between the United States and China, Europe’s community of fate is based on shared laws, a shared currency and shared borders, but also on a “never again!” principle.

Instead of invoking a noble past, the EU attempts to ensure that the past will never repeat itself.

Instead of becoming a super-state or a mechanism that represents enlightened national interests in the best of cases, the EU has taken on a third form.

Its most important role is to orchestrate. It facilitates the networking of commitments and entities that include sovereign states, as well as transnational organizations, municipal and regional governments and the organizations of civil society.

An Accumulation of Impositions

Within this framework, the bailout funds for southern European countries have engendered a logic of conflict between donor and debtor nations.
 

The donor nations must implement domestic austerity programs and, for this reason, are exerting political pressure on the debtor nations at a level exceeding the pain threshold. In contrast, the debtor nations see themselves subject to an EU dictate that violates their national autonomy and dignity.
 

Both stir up hatred of Europe, because everyone sees Europe as an accumulation of impositions. And then there is the perceived external threat.

Critics of Islam, which claim that Muslims are abusing the West’s values of freedom, managed to connect xenophobia with enlightenment. Suddenly it was possible to be opposed to the encroachment of certain immigrants, all in the name of enlightenment. As a result, three destructive processes are overlapping and being reinforced in Europe: xenophobia, Islamophobia and anti-European sentiments.

Many envision the end of politics when they think about politics. How can anyone be so blind?

In big and small ways, and at the national, European and especially the global level, Hegel, the believer in reason, and Schmitt, who sees enemies everywhere, are at odds.

When it comes to the eternal crisis called Europe, this conflict over the model of the future raises the following questions:

To what extent does the revolution among outraged youth actually transcend national borders and promote solidarity?

To what extent does the feeling of being left behind lead to a European generational experience and new European policy initiatives?

How are workers, the unions and the center of European society behaving? Which of the major parties, in Germany, for example, has the courage to explain to citizens what Europe as a homeland is worth to them?

Merkel adheres to the Hegelian idea by preferring the detours of reason.

To use the metaphor of dance: two steps backward, one step to the side, then a magical, lightning-quick about-face, softened by a tiny step forward — in much the same way as the coalition government in Berlin is hopping, stumbling and tumbling its way forward, dancing to music that neither the Germans nor the other Europeans can hear or comprehend.

While former Chancellor Helmut Kohl warned against a German Europe and sought a European Germany, Merkel advocates a German euro-nationalism, putting her faith in the ability of Berlin’s regulatory and economic policy to heal Europe’s wounds.

Time for More Hegel

But in light of the financial crisis, European policy today should play the same role as the Ostpolitik of the 1970’s did in divided Germany: a unification policy without borders.

Why was the enormously expensive reunification with East Germany self-evident, and why, on the other hand, is
the economic integration of debtor nations like Greece and Portugal frowned upon?

It isn’t just a question of paying the piper. In fact, the real challenge is to rethink and reshape Europe’s future and its position in the world.

The introduction of euro bonds would not be a betrayal of German interests. The road to a union characterized by solidarity, much like the recognition of the Oder-Neisse border between a unified Germany and Poland, is indeed in Germany’s well-considered interest. It is an expression of European and German realpolitik.

Why shouldn’t Europe introduce a financial transaction tax, which would establish a financial scope for a social and environmental Europe, which in turn would promise workers security through Europe, and in doing so address the greatest concerns of young Europeans?

The concept of more justice through more Europe contains an appeal in terms of a transnational community of solidarity.

“Be outraged, Europeans.”

Just as many demonized Brandt’s talk of rapprochement with the communist bloc as treason, today’s call for “more Europe!” is a blow in the face of national self-awareness.

Merkel’s back-and-forth and forward-and-backward approach could also create an opportunity for a future project involving the Social Democrats and the Green Party.

As soon as the SPD and the Greens have explained that a social Europe is more than an introverted tightwad, but rather — using Hegel’s argument — a historic necessity, even the SPD will regain stature and win elections.

This, of course, is predicated upon its having the courage to declare Europe to be its main project, just as Ostpolitik was more than 40 years ago.

By Ulrich Beck    (Translated from the German by Christopher Sultan)

"Never Again"

Ulrich Beck, (67), teaches sociology at the London School of Economics and at Harvard University.

He is also a professor at Munich’s Ludwig Maximilians Universität. He is the author of several books, including “Cosmopolitan Europe,” published by Polity Press.

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Writer Returns From Vacation in Greece – Shocked and Disillusioned

Jean Quatremer is an well-known author and a professional reporter with the French paper Libération. He recently returned from his summer vacation in Greece. Apparently shocked and disillusioned; tax evasion has become a national sport, 30 – 40 percent of the GDP is generated through the black economy and the country is run by a real mafia, he writes in an outburst on his weblog.

“Everywhere, signs of easy money are there: Easy money obtained through European regional aid, and the umbrella of the euro which allowed the state to borrow more than is reasonable, and hire several hundred thousands of civil servants who now owe their position to their political loyalty.”

Jean Quatremer

Personally, I don’t quite understand why Mr. Quatremer is so upset. He says he’s been on regular vacations in Greece  for the last 30 years, and what he’s seeing and describing has been there all the time. (I have been on vacation in Greece, too.). But maybe his anger represent the rude awakening for many Europeans who now realize they are being forced to pay for someone else’s party?

What’s also ironic, is that the things Jean Quatremer now is observing as signs of corruption, greed and mismanagement – the fleet of brand new cars, the roads and buildings under constant construction and the huge piles of cash behind the bars at the waterfront – not long ago was seen as signs of progress.

But that makes Mr. Quatremer’s commentary even more interesting, known for his “behind the scenes” books about the European community.

The scenery of Europe is obviously about to change.

Here are a few samples of Jean Quatremer’s writing:

“After a dinner attended by a dozen guests, we ask for the bill. It arrives on a piece of paper that has nothing official: I am surprised and asks if we can have tax receipt.  Gene my Greek friends. No, the boss does not provide official documents.  Is it possible to pay by credit card? Sorry, we truly regret that the tavern does not have a terminal ad hoc. In other words, here we are in the black economy: no receipt, only the liquid and therefore no tax or a tax symbolic. This tavern is far from an isolated case: none of the restaurants on the island does not issue official receipt, and you can pay in cash.”

Yeah, that’s the Greece we know…

“Prime Minister George Papandreou and Minister of Finance Evangelos Venizelos can not say that fraud is discreet,” Mr Quatremer notes.

Well, I don’t think they ever said that. Anyway, the French writer hammers on:

“The whole island seems to work in black: the work in the houses are without a receipt, as evidenced by a friend crossed the exit port of a bank with an envelope full of notes 100, 200 and 500 euros. “You understand is that or a 23% VAT.  Anyway, if you ask for an invoice, the work will fall behind.” While the bars on the waterfront issue receipts, “but only on the terrace, because it is in public. Inside, however, all is not received,” says a veteran.”

“Tax evasion remains a national sport, the black economy is estimated between 30 and 40% of GDP. If the tax was not corrupt and efficient, it is not (I refer you to Transparency International Chapter of corruption), much of the Greek problems could be resolved.”

“Without a thorough investigation, simply to walk through Greece, as I do during the month of August, to realize that this country is still far from Europe, far away.”

Wow! After 30 years?!

“I made several reports in Greece over the last eighteen months.  But it is a country I know for a long time to spend regular vacations (the first was in 1981, just after his accession to the EEC at the time). I saw the European structural funds flowing into this country, like a bottomless pit. If, since 1988, the Union paid the equivalent of 3 to 4% of Greek GDP per year, which is huge, much has been diverted: for example, the Athens-Thessaloniki highway, which is still not completed more than thirty years after the start of work has been funded two or three times the minimum, thanks to European funds.”

Interesting. That’s exactly what Polish analyst Jaroslaw Suplacz says is happening in Poland, too. (Except nobody cares about Poland at the moment).

See also: 

“The European money was mainly used to support consumption instead of being invested in infrastructure projects, research (Greece is the laggard in the EU public and private investment in this strategic sector ) or education to prepare tomorrow’s growth,” Mr. Quatremer writes.

“Everywhere, signs of easy money are there, an easy money obtained through European regional aid and the umbrella of the euro which allowed the state to borrow more than is reasonable, and hire several hundred thousands of civil servants who now owe their position to their political loyalty.”

“It is no accident that Greece imports three times more than it exports.  It is, for example, became one of the leading European markets for luxury cars: During my vacation, I’ve never seen, except in Germany, all of Porsche, Audi, Mercedes, BMW (1 Series to X5), Lexus and all the rest .., A fleet (there are more cars per capita than in France) unrelated to the real wealth of the country.  In front of a modest house of the historic center of Ioannina, and I saw two German cars in the garage that were worth about 100,000 euros.”

“Europeans may have to pay a long time for the Greek error,” Mr. Quatremer concludes.

Jean Quatremer

Well, thank you very much! Some of us have figured that out, already…

However, the Travel Notes of a tourist in Greece” by Jean Quatremer is well worth a read, and herby recommended.

Original post here.

Google-translation to English here.

Related by the EconoTwist’s:


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Chaos in Financial Markets are “Potentially Dangerous for Humanity”

You don’t say! What I find most surprising, however, is that there actually ISCentre for the Study of Capital Market Dysfunctionality: It was founded in 2007 by British Paul Woolley, after working several years as a stock broker, and as economist and adviser at the International Monetary Fund (IMF). Guess he knows what he’s talking about. In an interview with Spiegel Online, Britain’s new found financial guru, Dr Paul Woolley says the market stress in not only dangerous for those who work there, but also for everyone else. And he has some investment advise.

“Stop paying performance fees to managers who increase the worth of funds because it encourages gambling.” 

Paul Woolley

“The developments in recent weeks have made it quite clear that the markets don’t function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn’t reaching equilibrium — it’s falling into chaos,” Dr. Paul Woolley says.

 

Here are some more highlights from the Spiegel interview:

“The finance sector can – and is – growing until it overwhelms the economy. In good years the US finance industry cashes in on more than 40 percent of all corporate profits.” 

“Most fund managers follow only the newest trends and strengthen them by doing so. In the short term that leads to success, but in the long term it leads to a crash. “

“The finance industry is characterized by many innovations. Because the customers hardly understand their innovative products, banks make amazing returns. “

“The big investors are in a position to force their service providers, the banks, fund managers and bankers into better behavior. “

” Big investors should also insist that trading take place on a public market. “

Paul Woolley’s career has spanned the private sector, academia and policy-orientated institutions.

After several years of practical experience in a firm of stockbrokers, latterly as a partner in his firm, he studied Economics at the University of York (UK) receiving BA (1970) and D Phil (1976).

He held the Esmée Fairbairn Lectureship in Finance at York 1970-76, also serving as Specialist Advisor to the House of Lords Committee on the EEC 1975-6.

He then moved to the International Monetary Fund 1976-83, initially as an Economist and later as Advisor and then head of the Division responsible to the Fund’s borrowing and investment activities.

Returning to the UK, he was for four years a Partner and Director on the main board of merchant bank, Baring Brothers and its various subsidiaries.

In 1987 he co-founded, and was Managing Director of, GMO Woolley, the London affiliate of GMO, the Boston-based fund management firm. He was a Partner and served on the main GMO board (1998 – 2003).

He retired as Chairman of GMO Europe in 2006.

He returned to academic life in 2007, funding the Paul Woolley Centre for the Study of Capital Market Dysfunctionality at the London School of Economics.

He is now also Chairman of the Advisory Board for the Centre and a full-time member of the research team.

Similar centres have been set up at the University of Toulouse and at UTS in Sydney.

Mr. Woolley is an Honorary Professor of the University of York, Senior Fellow at LSE and an Adjunct Professor at UTS.

Read the full interview with Dr. Woolley at Spiegel ONLINE.

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