The Free Market Fundamentalists Are Now in Europe

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, writes that Europe’s insistence on austerity is wasting a generation by creating “disastrous” levels of unemployment. How many crises do we have to bear, Savio asks, before regulations eliminate risks from the banks and they are confined to the world of speculation?

ROME, Apr 24 2013 (IPS) - For a long time it was a given that while Europe was based on defending a more just society, with social values and solidarity, the United States was based on the glory of individualism and competition, and anything public was considered “socialist”.

One of the main accusations of the last electoral campaign in the U.S. was that Barack Obama had an unspoken design to transform the U.S. into another Europe, beginning with healthcare reform.

Well, it’s time for an update – the defenders of market fundamentalism are now in Europe.

At the last meeting of Ministers of Finance on Apr. 9, the freshly-appointed U.S. Treasury Secretary Jacob J. Lew tried to convince Europeans to lessen their commitment to austerity as the best medicine for economic problems. The U.S. Treasury, together with the U.S. Federal Reserve, has launched a policy of economic stimulus, with concrete success.

Every month, the Federal Reserve alone is putting 80 billion dollars into the bond market. Incidentally, Japan is doing the same, on an even greater scale. Lew was met with a firm rejection: the best way to achieve growth in the long term (contrary to any evidence) is to cut deficits and reassure the markets, even at the cost of higher unemployment and social misery in the short term.

Europe’s most powerful minister, Germany’s Wolfgang Schauble, said: “Nobody in Europe sees this contradiction between fiscal consolidation and growth. We must stop this debate, which says that you have to choose between austerity and growth.”

He was echoed by the president of the European Union, Herman Van Rompuy: “There is no room for complacency. The European economies have a high level of debt, deep structural medium-term challenges, and short-term economic headwinds that we need to confront.”

"Share traders [are] both more reckless and more manipulative than psychopaths"



These short-term economic headwinds are the daily reality of all the countries of Southern Europe. Suffice it to point out that youth unemployment has climbed to 22 percent across Europe (Spain is close to 47 percent) to see that we are wasting a generation, which will have no access to a future pension or a house. Like it or not, a study by the International Labour Organisation (ILO) foresees that the generation now entering the labour market will retire with a pension of only 640 euro per month. Is that a sustainable society?

The reaction of British Prime Minister David Cameron to his country’s loss of Triple A status, was to reaffirm even more his commitment to austerity, including reductions in education and health spending. He conveniently used the funeral celebrations for former British Prime Minister Margaret Thatcher, the forerunner of the dismantling of the welfare state, to place himself as the heir of the Iron Lady: TINA, There Is No Alternative.

Meanwhile, we now have the data for Cyprus. It is widely accepted that it will lose at least two percent of its gross domestic product (GDP) in the coming months and the social impact will be dramatic. Soon, it will be obliged to ask for another bailout.

But under the new formula imposed by Germany, which is to make bank investors and depositors pay for the bailout, they have already lost 60 percent of their money. It will be interesting to see how Germany will find a way for a new bailout.

The Bank of Cyprus has already sold all its gold reserves. What will they now extort, the sale of houses? This is what is widely rumoured will be asked for in Spain and Italy, where citizens would pay a one-off amount and bank depositors would be taxed on their deposits as a condition for any European money.

At the same time, Germany sits comfortably on its trade surplus with Southern Europe, which has reached, according to the OECD, the magical amount of one trillion euro. And the bailouts to Greece, Portugal and Ireland were directed towards reimbursing bad German bank investments.

Yet, the situation of the banks and the volume of toxic titles they still possess are unclear. A number of figures circulate: what it is agreed is that banks still need money to stabilise. The case of Bankia in Spain is emblematic. The government has poured in 72 billion dollars, more than what it cut in health and education. Have the banks become wiser and less speculative now that they know that they will be bailed out anyhow?

The latest news from Wall Street is revealing. The banks that created risky amalgams of mortgages and loans – the so-called derivatives, which created the immense disaster that ignited the present crisis (with the added contribution of European bank speculation over sovereign titles) – are creating exactly the same instruments of risky speculation. Forgotten is the last crisis five years ago. In the last quarter alone, banks have issued 33.5 billion dollars in bonds backed by commercial mortgages and proven disastrous speculation is back, just like collateralised debt obligations.

The reason is simple. Unless banks are put back to the pre-Clinton era when deposit banks were rigidly separated from investment banks, all the money that goes to the banks will go first to speculation, which has a higher return (and if anything goes wrong the state will bail them out again), and then to deposits and loans, which have a much smaller return.

So, the traders specialised in those derivatives are being hired back by the banks.

Two experienced forensic experts working for a Swiss university have devised computer simulation and intelligence tests to measure the egoism of 28 professional financial traders, and to check their willingness to cooperate with others. They discovered that the share traders were both more reckless and more manipulative than psychopaths. Thomas Noll, a psychiatrist and a prison administrator, told Germany’s ‘Der Spiegel’ that the “more egoistic” traders “were more willing to take risks than a group of psychopaths who took the same test”.

What surprised the researchers was the competitive attitude of the financial traders, which had a destructive edge. Instead of being business-like and aiming to reach the highest profit, explained Noll, “it was most important to the traders to get more than their opponents, and they spent a lot of energy trying to damage their opponents”.

How many crises do we have to bear before regulations eliminate risks from the banks and they are confined to the world of speculation? Or, in other words, before regulations isolate normal citizens from traders who are not wired like us?

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