Tuesday, 20 December 2011

Europe's Crisis Measures

It doesn't really matter what you think about the prospects of the euro system surviving long-term, or how much you might focus on the evident flaws in its design and the economic trials of its members today. It is a political project, and state power is now being used to save it. My own view, expressed in the previous article 'Cameron, Merkozy & Europe', is that it will survive for an indefinite period (ie for a year or so, at least). The debt numbers are vast and the austerity to come is horrible, but the alternative is far from attractive, even for Greece.

More importantly, Germany and other key powers are not likely to give up on a system that has worked for them in the past and might still work for them in the future. One sign that this is true is the change in the operations of the European Central Bank. Look at the latest FT story on how expansive their credit will now be. The ECB is offering a huge volume of 3-year loans - perhaps more than €500bn - at low interest rates to banks, funds that they can use, and probably will use, to finance their governments as well as themselves. This far from 'solves' the crisis, but it means that the risk of the euro system tripping into an abyss over the next year because the banking system collapses is far less. The ECB may not be a 'lender of last resort', but it is a lender that understands when its existence is at stake. This measure is a signal of the absurdity of thinking that central banks are 'independent'. Independent of what exactly? They are certainly not indifferent to the viability of imperialist capital. Ask the Fed, the Bank of England or any of the others that have amended their formerly sacrosanct rules in order to try and save the system.

Tony Norfield, 20 December 2011


  1. I'd be fascinated to read what you think will happen given the leadership changes in France and Greece. Super blog!

  2. Thanks, I plan to write something on this soon, but am too busy right now. My initial thoughts are that a euro policy change of some kind is likely in any case, since even Germany is at risk in the renewed recession. Hollande will have some room for manouevre with Merkel in this context, but he does not represent, and will not bring, any significant change. Greece is facing drastic austerity, but I don't see how leaving the euro will make it any better. Germany and France will also try to keep Greece in the euro to try and ward off further pressure on Spain and others, but may change tack if Greece refuses to accept (enough) austerity.

    Tony Norfield