News from the debt crisis in Spain and the rise of a global response
The European Central Bank renews the purchasing of Spanish debt
Por DIAGONAL English

By Isidro López (Madrilonia) / Translated by Sarah Pilar Iacobucci and Juan Martín Rodríguez

The announcement from Mario Draghi, President of the European Central Bank (ECB), about the plans for huge purchases of Spanish (and Italian) bonds has resulted in a rapid fall in the average interest rate that the Spanish Treasury must pay to finance itself. Pending confirmation of the details, the Spanish risk premium declined substantially to just under 400 points. The measure will not however be ‘free of charge’ for Spain.

Contrary to the information being published in the Anglo-Saxon and German media, the reduction of public expenditure has been a key policy in Spain since May of 2010, when the spread between the 10-year Spanish bond and the 10-year German bond exceeded 100 points. On August 3rd of 2012, the Spanish premier Mariano Rajoy confirmed an economic adjustment program of approximately 102 billion euros from 2012 to 2014 based on expenditure cuts and revenue increases. The cuts in the Healthcare and Education sectors, which depend on the regional budgets rather than the central government, are highly controversial given the dramatic consequences of the absence of certain hospital services and the dismissal of schoolteachers.

Meanwhile, the threat of a second bailout remains though the first bailout fund has not been completely paid out. Rajoy said he will decide whether to seek help or not only after the regional election in the Basque Country and Galicia, scheduled for October 21st. The contentious debates he wishes to postpone relate to the potential cuts to pensions and unemployment benefits. After massive protests led by public workers in July, the peoples’ reaction will be tested again on the labour unions’ demonstration on September 15th and the planned mass protest at the Congress of Deputies on September 25th.

The ECB is the key institution in the neoliberalisation project within the European Union (EU). It is worth remembering that this process has always been based around the creation of a transnational authority (the so-called troika: European Commission, European Central Bank and International Monetary Fund) which has imposed a series of economic conditions without any opportunity for democratic debate. Obviously, the social conflict resulting from these tough measures and their democratic illegitimacy takes place in the local arena of every EU nation-state, decreasing the support of the national governments in many cases (Papandreou, Zapatero, Berlusconi, Sarkozy, etc.) but never challenging the economic commands imposed by the troika, with its slogan “there is no alternative”. This dynamic is in fact the result of a fierce political battle that occurred in the early 80’s: the views of the British Thatcherite neoliberal and German ordoliberal alliance were imposed at the very inception of the federalist concept led by Jacques Delors, who was in favour of deepening the Christian Democrats, Social Democrats and corporatist values that shaped the EEC until the 80’s.

The ECB represents the culmination of this process, which itself has developed almost entirely within the construct of the European Monetary System, the euro. The ECB, designed according to the tight monetary dogmas of Milton Friedman’s school of economics, has a mandate for price stability (inflation control) and an emphasis on independence and insulation from political interference, the latter being a euphemism for the European electorate. In other words, it is the perfect institution to manage the European economy since it avoids democratic interference. The main objective before the creation of the ECB was to avoid it becoming a lender of last resort; an authority, linked to the financial crisis, responsible for providing large sums of fresh-printed money to stabilize the falling prices of financial assets.

On the other hand, according to the post-Keynesian economist Hyman Mynsk the central bank has to act as a lender of last resort in order to prevent economic depressions. This view is therefore contradicted by the neoliberal dogma of market self-regulation. In addition, the central bank, ruling as a lender of last resort and consequently absorbing the debt of the financial players by money printing, should be backed by a state (or a productive social entity with a clearly-defined political status) that answers for the debt issued. Specifically, this last point is exactly what Germany is determined to avoid in the construction of the euro-area, which the ECB is reorganizing in the absence of a formally constituted power. The wealthy and not-so-wealthy country members are being shuffled through the back door, leaving the implicit guarantee of intervention in the hands of the German government. The Maastricht treaty and the Euro Stability Plan are the consequences of this approach which, despite being managed by Germany, France and England, has also integrated most of the elites in the continent into a single political project.

However, reality is very stubborn opponent and it seems that after all, old Hyman Mynsky was right. The ECB has acted as a lender of last resort almost exclusively since the beginning of the crisis, though always remarking its temporary nature rather than accepting this status definitely. Specifically, it started purchasing national debt in secondary markets from 2010 until the beginning of 2012. This program, relatively effective in stabilizing the risk premium, might even be successful in keeping the national debt interest rates at the level desired by the ECB, in other words, the rates the people of the EU need. In fact, the dramatic increase of the national-debt interest during the last months coincides with a suspension of debt purchases by the ECB. This being a disciplinary measure to push both Spain and Italy to accept the political requirements of the bailout, which will be arranged over the coming years.

Germany, maintaining its position, is reluctant to accept this policy in order to reinforce its political position. If Germany guarantees the neutralization of the debt by money-printing, the market pressure will cease in Spain, Italy and other targeted countries. Therefore, the political requirements, the privatizations and the budget cuts demanded from the “neutral” European elite would not be necessary. This would be the failure of the neoliberal flagship, which is the creation of the transnational European domain where “economic necessity” rules. The not-so-wealthy member states accept these mandates and contain the resulting social conflicts within their own borders. Besides being the government that supports the neoliberal system in Europe, Germany maintains many economic advantages. For example, it finances itself at a much lower cost than other countries targeted by financial agents, and subsequently avoids the political cost of a social crisis. This is the situation before the renewal of debt purchases by the ECB.

The question then is: what does this have to do with us? The conclusion is that the ECB is the seed of a future European state. This is of course not to say that a European state is a certainty but simply that the ECB is a money issuing entity that, in terms of classical political economy, is the representation of the European productive forces articulated through a social and territorial division of labour that transcends the national borders of every member state. The financial players and their political allies see it as a threat not only for the current model of obtaining profits from the national debt interest but also for the neoliberal regime itself.

Today’s nations, and also the would-be state of the ECB, are just the result of class struggle - those who do not like this term may say social conflicts. If the European leaders (representing the national elites) are risking starting a process that could threaten, or at least call into question, the almost absolute power they have over their territory and population, they do so because they know that social conflict may increase substantially in the near future. The consequences of this increasing struggle, whether the non-payment of debt or a popular open challenge to the political class, might jeopardise their power more profoundly. Thus, the elites’ “desperate” strategy is to sacrifice parts of their constitutional principles at the European level in order to avoid unpredictable effects at the national level. They expect that these measures will remain in the technical sphere, expecting the people not to understand their political significance for a while.

With regards to the financial powers, they try to keep them satisfied by emphasising the provisional nature of the measures and their subordination to the opening up of profitable national assets (privatizations and austerity cuts). At the same time, they raise the spectre of a potential national default when necessary. Naturally, our responsibility is to extend the conflict, pushing to refuse the debt and call into question the political representation. These should be our goals until the ’making-the-best-of-a-bad-job’ EU guarantees the democratic rights that would force Europe to assume its redistributive responsibilities.

[This article was originally published in Spanish on September 7th, 2012]





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