Friday 29 June 2012

Merkel's Money

Don’t take the rally in Europe’s financial markets as a sign that the euro crisis is over. The 4.3% jump in Germany’s Dax index today and the rise in the euro’s exchange rate are more a reaction to hopes for further flows of ‘free money’ and relief at a crisis postponed once more. The surprise was genuine enough, after German chancellor Merkel’s former hard line on the need for austerity and ‘reform’ among indebted euro countries Spain and Italy, and in the context of widespread German political opposition to further bailouts.

A report on Merkel’s rationale for dropping the position Germany had before the latest Euro meeting, and making big concessions to Spain and Italy (hence, also to France, given French banks’ massive exposure to these countries!), highlights the following issues.

Merkel seems to think that high interest rate on Spanish and Italian debt are the problem, not the mess those countries are in which is leading to the high interest rates! Plus she thinks (or at least said in her statement to the Bundestag) that the EU Commission monitoring of their economic policies is still 'tough', so they did not need any additional terms applied to extra loans.

The end result is that there is a further extension of a 'euro country' general bail out for Spain and Italy, via the European Stability Mechanism, one of the newly invented funds. Merkel did not mention Germany's dominant share in paying for these, nor being liable for these, nor was she impolite enough to note the limited prospects for 'reform' in either country.

She won the Bundestag vote. But there will be further political trouble for her in Germany, and also many more disputes over terms and conditions of the new loans between Germany and other countries, when eventually they are due to be paid out.

Partly, this episode reflects the intractable debt situation in Europe and a desire to postpone confronting problems that cannot be solved. Partly, it is one of the wonders of the credit markets that you can always appear to have more money than you really have, if you only pay attention to the interest payments and not to the accumulation of debt. This is especially when it seems possible to drive the interest rate on borrowing down through state-credit backed bond purchases!

That neat solution of using someone else's money and credit rating to extend further debt begins to unravel when their credit rating is called into question. This is probably still some way off for Germany, which recently has had very low bond yields (even negative yields for 1-2 year bonds!). However, the first sign that the game is up will be when Germany loses its triple-A rating.

In the meantime, this episode also highlights the nonsense that it is German imperialism that is strangling Europe's economy. Yes, Germany is an imperialist power, but it is desperately trying to keep together a system – at growing cost to itself – that has guaranteed both its economic privileges and those that accrue to other members of the euro group. As a policy, this is like delaying an amputation until the last minute, just in case something else, less drastic, comes up. While these matters fester, just consider: how many tens, or hundreds, of billions in cheap credits have been extended to those outside the rich club?

Tony Norfield, 29 June 2012

Tuesday 26 June 2012

Finance, the Rate of Profit and Imperialism

In recent months, I have been working on a tricky topic for Marxist analysis: how to understand the role of finance in contemporary imperialism. Most coverage of this topic in Marxist and other radical literature gives more or less journalistic details of creditor-debtor rip offs and financial crises. There has been little serious attempt to develop Marx’s law of value in a way that can explain the underlying role of the financial system for the two major financial powers: the US and the UK.

I believe that I have made good progress in explaining this, and I will present some results of my latest analysis at a conference of the AHE/FAPE//IIPPE in Paris on Saturday 7 July - THE TIME HAS NOW BEEN CHANGED TO 11.30 - 1.30pm, Room C1306.

The full conference is scheduled from 5 to 7 July. If you are going too (it is a big conference, so this is not as ridiculous a question as it may seem!), then I look forward to discussing with and meeting some of the readers of this blog.

Tony Norfield, 26 June 2012

Wednesday 13 June 2012

The Geometry of Imperialism

I have a globe on my desk. One of the tell-tale signs on such maps of the world is not the pink colour of colonies of the British Empire. That is so passé, and these maps are no longer published. Instead, the significant feature is the number of lengthy straight lines on the parts of the global map covering Africa and the Middle East. While there are straight lines elsewhere, these are the ones that stand out, the ones relating most clearly to the division of colonies in this region by the main European imperial powers.[1]

The straight lines are the product of colonial power that divided areas of influence, irrespective of the different ethnic and social groups that lived in them. The ruling groups in Arab countries were then determined by their relationship with the influential imperialist powers; Israel was, in a more complex way, established as a tool of imperialism to overlook the potentially less obedient Arabs. This means that political issues in these regions cannot be solved within the ‘countries’ concerned. A stable political deal between the different groups has not been established by agreement between them; rather the ascendancy of a particular group has been supported by imperialist influence. This is the basis for civil war, especially when the interests of imperialism change and the formerly leading group no longer has its previous power and support. Then a fragile peace, or a just-acceptable degree of terror or oppression, is no longer sustainable.

In this context, I recommend that you read the linked article/interview that gives an excellent account of the current situation in Syria. This shows, although implicitly, how solutions to the problems in a particular country cannot be resolved within that country, especially when these affect the balance of forces in the region and the interests of the imperialist powers.

Tony Norfield, 13 June 2012

[1] Just look on Wikipedia for the histories of the formation of African and Middle Eastern states. Britain and France are the main players, with a small role played by Italy, though many decisions on the continent were taken to limit German influence before World War 1. A topic not covered in these otherwise useful details is the way in which Britain’s colonial policy exacerbated ethnic and religious tensions, often with the classic policy of backing the minority faction in a country because they would be more dependent on the external power for support. One would not expect Wikipedia to be able to give a decent account of the role of Israel as a tool of imperialism.