"Escaping The Clutches Of Financial Markets" - An Essay On Europe's Debt-For-Democracy Prepackaged Bankruptcy

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A must read essay from Dirk Kurbjuweit, posted earlier in Der Spiegel

Escaping the Clutches of the Financial Markets

In today's Europe, the people are no longer in
control. Instead, politicians have become slaves to financial
institutions and the markets. We are partly to blame -- and changes are
urgently needed to nurse European democracy back to health.

We are doing well. In fact, we're doing splendidly. The economy is
booming, with 1.5 percent growth in the first quarter. We are as
prosperous as we were before the crisis, which has finally been
overcome. Congratulations are in order for everyone.

The banks, Deutsche Bank above all, deserve particular congratulations.
In the first quarter, it earned €3.5 billion ($5.1 billion) in pretax
profits in its core business, and by the end of the year the bank will
likely report a record €10 billion in pretax profits, its best results
ever. That number is expected to rise to €11 billion or even €12 billion
in two or three years.

Less than three years after the peak of the crisis, it seems as if it
never happened. That is true of the economy, but it also true of us as
economic subjects. But is that all we are?

No, we are also citizens and participants in a democratic society. As
such, we have no reason to be celebrating. Instead, we ought to be sad
and outraged. Democracy, after all, is not doing splendidly, or even
well. It is gradually becoming a casualty of the financial crisis.

Rage Directed at Politicians

Trouble is brewing all over Europe. Young people with little hope for
the future are protesting in Spain. In France, 1.4 million copies were
sold of a manifesto titled "Be Outraged." Young Frenchmen and -women are
devising utopias that extend well beyond civil society because they no
longer expect anything from it. A deep depression has descended upon
Greece, combined with a rage directed at politicians and the rest of
Europe.

In Germany, this is what politicians are hearing from their citizens
today: "You spent billions to rescue the banks, and now I'm supposed to
be footing the bill? Forget it!" Hardly anyone is willing to put up with
their politicians any more. And German leaders have lost support -- and
some of their own legitimacy.

They seem helpless, unable to come to grips with the euro crisis.
They meet in Brussels, and they talk, argue and adopt resolutions, and
yet nothing improves. Greece isn't getting out of its hole, Ireland and
Portugal are teetering on the brink, and Spain and Italy are heavily
indebted to a dangerous degree. And no politician is providing
leadership.

And then there were the lies. Jean-Claude Juncker, the prime minister
of Luxembourg, had his spokesman deny that a meeting of European Union
finance ministers on the Greek crisis was taking place, even though that
meeting was in fact taking place. It wasn't the kind of lie that
frequently crops up in politics: the broken campaign promise. Rather, it
was more crass type of untruth: the denial of a reality. Juncker no
longer had the courage to speak the truth. He was guided by fear of the
financial markets. His lie was a capitulation of politics.

Things Will Have to Change

This is what is so disturbing about the current situation: the fact that
politicians seem so helpless and powerless. They have been given a new
master, and it's not us, the people, who tend to intervene in milder
ways. Rather, it's the ruthless financial markets. The markets drive
politicians even further into anxiety, weakness, incapacity and lies.
Those who govern us are now being governed by the banks. That's the
situation.

We could decide that we don't care because the economic figures are
so good. But that would mean we are happy to play the role of the
economic subject, to invest and spend money, all the while abandoning
the original promise of democracy. Or we can say: We refuse to
relinquish our role and political masters. But if that's our decision,
things will have to change.

How has this happened? What are the consequences? And how do we extricate ourselves from this situation?

 

The Reasons: Greed and a Dissolute Lifestyle

Would it be erroneous to say that those who are now at the top are the
ones who caused the whole disaster in the first place? That would
include Deutsche Bank, whose CEO, Josef Ackermann, has just announced
such magnificent financial figures. When Ackermann was asked how
concrete the bank's willingness is to contribute to solving the crisis, a
November article in the German financial daily Handelsblatt says
he replied by saying the issue is taking a "very unfortunate turn at
the moment." The markets, Ackermann added, have reacted negatively to
this debate. His remarks could be seen as a threat: Those who make
demands will quickly find themselves up against the banks.

At Deutsche Bank's annual meeting last Thursday, Ackermann crowed
that the bank was in the process of "bringing in the harvest." But the
harvest of what? And from what seed? Investment banking alone is
expected to contribute €6 billion to the anticipated €10 billion in
annual profits. Have we already forgotten that excessively greedy
investment banking triggered the financial crisis in the first place?

Deutsche Bank played a key role in that process. The United States
government is suing a subsidiary of Deutsche Bank, accusing it of
pursuing "reckless mortgage lending practices." Yet Ackermann continues
to shape policy worldwide. As one of the major players on the financial
markets, he is partly responsible for determining whether and under what
conditions nations can borrow money.

The rating agencies also continue to participate in world politics,
seemingly unperturbed as they issue credit ratings on which the fate of
entire nations hinge because they determine the interest rates for
government bonds. Belgium is in danger of losing its AA+ rating, and
Fitch Ratings has just revised its outlook on Belgium from "stable" to
"negative." Have we already forgotten that the big rating agencies were
partly responsible for the financial crisis because of their positive
valuations of bundles of assets that contained toxic securities?

Blame and Brazenness

So this is what the new masters look like. They were substantially to
blame for part one of the financial crisis and is being brazen in part
two. They are extremely jumpy, greedy and only interested in numbers.
Those numbers inform the way they control and drive politics.

But why do politicians allow themselves to be controlled and driven?
Why don't they simply shake off the unforgiving dominance of the
financial markets? The answer is that they can't because the political
world is dependent on the banks, and it has only itself to blame. Greece
would not have fallen into the maelstrom of the financial crisis if it
hadn't been deeply in debt. Greece has borrowed more money than it can
handle, and it constantly needs to borrow even more. It has become
addicted to credit because of its own dissolute lifestyle. As a result,
the country has become a pawn of rating agencies, interest rates and the
calculations of men like Ackermann.

In principle, this applies to all countries in the euro zone,
including Germany. Although the German finance minister can easily
service all loans, he too is dependent on ratings, interest rates and
Ackermann's calculations. Through the euro, Germany is entangled with
Greece, Ireland and Portugal, and its own financial situation isn't
spectacular enough to eliminate all concerns. The German government
cannot simply do what it thinks best. It must constantly take pains to
avoid being pulled into the maelstrom itself.

The Clutches of the Markets

Now, policies of immoderation -- the urge to impose as few burdens as
necessary on citizens while giving them as much as possible -- is
coming home to roost. Such policies gave us a high standard of living;
but now, partly as a result of the euro, it has delivered us into the
clutches of the financial markets.

As such, it isn't just the banks that are at fault for the current
disaster. Politicians also deserve their share of the blame. But that
isn't the whole story either. We, the citizens, are also culpable. Don't
we expect high returns from financial institutions, and don't we expect
a smaller tax burden from the government while receiving generous
subsidies and social benefits?

In other words, the financial and euro crisis are a reflection of our
own wishes. We play a role in the behavior of banks and politicians
because they also seek to fulfill our wishes so that they can win us
over as customers or voters.

 

Consequences: Dangers to Democracy

The public is becoming mistrustful of politicians. Citizens feel treated
unfairly when politicians fulfill the banks' wishes with billions in
bailouts while ignoring the wishes of citizens. Why does the German
government buy up 25 percent of ailing Commerzbank, but not 25 percent
of a struggling bakery around the corner or of that other cash-strapped
enterprise, the family with three children? One could say that it's
because Commerzbank is so large and important to the financial system --
too big to fail -- but that doesn't alleviate our discomfort with an
unfair situation.

The power of the executive in Germany, the Chancellery, is increasing
at the expense of the legislative, the Bundestag. Chancellor Angela
Merkel pushed the first bank bailout package through the country's two
houses of parliament, the Bundestag and the Bundesrat, in only five
days. The chancellor is pursuing a policy she says is "without an
alternative," negotiating bailout packages with the other European Union
leaders that the Bundestag is expected to rubber-stamp.

But alternatives are vital to a democracy, as is discussion, correct
policy and a parliament that keeps the government in check. But all of
this is lost in the constant pursuit of new bailout packages.

Worse than Ever

Yet even as governments gain power relative to national parliaments,
they don't have the strength to stabilize the euro. After each meeting
in Brussels, the crisis takes a small break. But then it re-emerges,
worse than ever before.

One could see the whole thing as a duel between politicians and the
financial markets -- but if it is, the politicians aren't looking good.

The economy has all the advantages. Financial companies are not
obligated to serve the general good. They are under no pressure to
legitimize their actions, they operate in a secretive way, and they
pursue a clear goal that they are wildly determined to achieve: high
yields.

Politics, by contrast, particularly on the European level, is
cumbersome. National leaders must legitimize their actions and reconcile
conflicting interests and goals, and they must do so under the watchful
eye of the public. They grapple doggedly over the euro, and sometimes
things get ugly. But they are almost never successful.

Besides, democracy is based on the word. Without free speech and the
open exchange of views and ideas, democracy is impossible. Secrecy is
the domain of authoritarian states. But at the moment, European
politicians cannot speak openly about one of their most important
issues, the euro. All it takes is a few words uttered by a finance
minister for the banks to react with the extreme sensitivity. They
immediately shift billions in assets, often to the detriment of entire
nations. Words have become expensive, and that makes them dangerous.

Seeking Refuge in Lies

As a result, politicians are watching what they say. Pretty much
everyone recognizes that it would be fair to involve the banks in the
rehabilitation of Greece. But hardly any politicians dare to pursue such
a course with any consistency.

The banks and investment firms now play the role once held by the
gods. Hardly anyone dares to criticize them, and fear of their wrath
guides the behavior of politicians. Many are reluctant to speak frankly,
while others seek refuge in lies.

Under such conditions, democracy has lost its dignity. And that is
dangerous. The foundation of any dictatorship is the tacit or open
threat of violence against citizens. Their fear supports the system. The
basis of democracy is respect among citizens. Their approval supports
the system. If this approval disappears, democracy crumbles.

 

Solutions: Humility and Dignity

The task now is that of regaining the primacy of politics -- a job for everyone.

The banks have no reason to be boastful. They were saved, and they
owe their survival to politicians. If politicians had not acted in 2008,
possibly even more banks would have collapsed. Now the financial
industry must do its part to rescue endangered nations. A lender is
partly responsible for a borrower being too heavily in debt. If a debt
haircut becomes necessary, decency demands that the banks relinquish a
portion of their claims without complaint. Their role is that of
participants, not of supervisors and criminal judges. Humility is
required.

Politicians should impose tougher rules on the banks so that the
worst excesses of investment banking are no longer possible. Something
has already been done, but it isn't enough. The best solution would be
an international transaction tax.

Politicians should also liberate themselves from the embrace of the
banks. This is only possible if the practice of taking on massive debt
finally comes to an end. Only a largely debt-free nation is a sovereign
nation. The debt brake is a good instrument, but it would be even better
if it were supplemented by a general awareness that high government
debt is inappropriate -- because it undermines democracy and shifts the
economic burden to future generations.

As far as the euro is concerned, a two-pronged strategy is needed.
European governments should do what it takes to rescue the euro. They
should show solidarity with Greece and the other countries that are now
struggling. This costs money, and it requires a smarter,
better-coordinated and smoother approach than in the past.

How Do We See Ourselves?

At the same time, it's important to make it clear that Europe is more
than the euro. If Greece doesn't manage to stay in the euro zone, it
will not be the end of the European Union. The project is bigger than
money. It's also a political and cultural project, but unfortunately it
had an economic bias from the start. It's time for politicians to fix
that.

Which brings us to the citizens, to ourselves. How do we see
ourselves? Is it the image that the banks have: that our biggest concern
is achieving high returns on our investments? Is it the image of the
Free Democratic Party (FDP): that we want to pay as little tax as
possible? Is it the image of the Christian Democratic Union (CDU), the
Social Democratic Party (SPD), the Greens and the Left Party: that we
are happy with the greatest possible distribution of wealth? All of
these images portray the citizen as Homo oeconomicus, as economic
creatures first and foremost. Can this be true? Is that who we are? If
we were merely driven by money, we could just as well live in an
authoritarian state, as long as we were productive, a state that
guarantees our prosperity, like Singapore, the United Arab Emirates or
China.

Democracy was originally a project of the somewhat affluent who
wanted political influence so that they could shape their own lives.
That's why they made themselves into the sovereign power. This idea is
still seductive today. It removed people from the role of the economic
subject that strives for things and is productive, but has no say in the
way things are run. It was only when humankind took responsibility for
the whole that dignity and sovereignty were obtained. And to remain
sovereign -- or to become sovereign again -- we must consider our
responsibility for the whole when taking action and making demands.