Interview
There have been several names for the crisis that hit Europe in 2008 – for instance, the financial crisis, the sovereign-debt crisis, the euro crisis. Are these independent strands of the same problem, and how are they related?
These all relate to basis problems, including the build-up of large-scale payment imbalances in the world economy that led to some countries having large surpluses chasing investment in different regions, some of which turned out to be offering illusory returns. This was an issue of inflation in the capital markets sphere – too much money chasing too few investments that were really worthwhile. For example, sub-prime mortgages based on the illusion that low-income mortgage owners could really afford to pay back their debts, complex derivatives partly based on the above, Greek or Spanish bonds and real estate. The preponderance of different names leads to some confusion, but in reality all these crises lead back to the same root cause, and the lack of adequate arrangements, either at the macroeconomic level (national governments, international organisations like the IMF or OECD) or at the banking supervisory level (central banks, regulatory bodies, etc) to spot what was going on and take action at an early-enough time to nip the problem in the bud.
What role have civil-society movements such as the Indignados and Occupy played in response to the financial crisis and what role should such movements play moving forward?
The banks were partly to blame since, as intermediaries between these different sets of imbalances, they were taking risks and making rewards in passing the imbalances through the system. Few people at the banks took sufficient heed of the risks that were building up, partly because they felt that the system would eventually take care of these risks by bailing them out. And indeed this is, on the whole, what happened. Civil movements such as the Indignados and Occupy played a role in crystallising public anger at the unfairly generous treatment meted out to the banks. Unfortunately, the banks and other openers-movers-sponsors of capital do have the upper hand. Should they go on strike by refusing to lend or invest, which is eventually what happened, the whole of society suffers. Ultimately the civil-society movements had only a marginal effect because the power of government and society to constrain the power of the capitalist banking-investment organisations at the heart of the economic system is really quite constrained.
It seems at times that bankers and the public speak a completely different language regarding the causes and potential solutions to the financial crisis. What is the most important misconception you see from civil-society actors, and what do you think they should understand in discussing the crisis?
Probably it is the point I made before. If banks, et cetera, and the attitudes of those within them are to be changed, then the effort has to start a lot earlier, and also it has to be carried out much deeper within the organisation. It is no use appointing a few activists to various obscured coordination and consultation bodies. People with convictions need to be at the heart of the organisation, and they need to command enough credibility and standing to wield power and influence – not easy to do.
How does the financial sector regard its role in the crisis?
A lot of people in the financial sector believe they have been unfairly singled out for blame. In a sense they are right. On the other hand, few decision-makers at the top have really suffered, and still fewer – in any country – have gone to jail for the sins of commission and omission that they have committed.
Should civil society have a greater voice and impact in debates on the euro, the financial crisis or European policies? If yes, what more can civil society in Europe do? How, for example, should civil society advocate for change in private banking institutions and unelected central banks?
There would be utility in such groups linking up with established think tanks, organising conferences and seminars with universities and other research institutes and writing commentary articles in respected newspapers and other communication organisations to get their message across. Unfortunately there is so much news and opinion circulating now that you need to combine forces with others and pool content to have any hope of getting your message across.
Has the sovereign- debt crisis been exacerbated by a lack of political union in Europe? If Europeans felt more of a common identity – a “United States of Europe”, as some say – would transfers to debtor countries be more politically palatable? Does this call for a stronger political union or does the current political reality require a scaling back of the euro zone?
Chancellor Kohl and other leading Germans said more than 20 years ago that unless there was a political union in Europe, monetary union would not succeed. They did not conceive of quite the unholy mess that we have now, though. Unless there is more political communality and genuine giving up of national-sovereign power – for instance in raising and distributing money from taxation for shorting up problem countries – the euro will continue to founder. It is very difficult to produce something like this, even under the threat of even more dire crisis, at a time when Europe has become so divided. There is a commitment to more European integration, but these are longer-term visions and exhortations rather than short-term realities. Political union did not prove possible when the euro area was set up in the late 1990s, under much more benign and less threatening circumstances, because people in different countries did not wish to share national power. At a time when it is arguably more needed than ever before, because of the scale of the financing that needs to be done, people in richer countries understandably become more reticent to give up power and the streams of money that go with it. Crisis on the whole breeds egotism, not solidarity. The euro will continue to exist, but I believe only those countries which are politically and economically committed to Germany will adhere to it. Over time the euro zone will become smaller, but this may take years to come about.
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