Europe’s multi-dimensional crisis

By S P SETH

Europe is in a state of sclerosis. It is not responding to any treatment because the malady is far too advanced. But the hope remains because nobody wants to believe that the patient is beyond recovery as there is so much at stake. Therefore, even a whiff of any possible new treatment is treated with relief. This is what happened when the last summit of European leaders in Brussels unfolded a new plan for rescuing ailing countries that include Italy and Spain, its third and fourth largest economies. It is basically a conjurer’s trick under which Euro zone’s financial stability mechanism will provide bail out funds directly to the stricken banks without cluttering the affected countries’ sovereign balance sheets. And this will happen only after a single supervisory agency is established by the end of the year.

The idea is that that this way the markets will be tricked into lending at relatively lower rates to Spain and Italy where the borrowing costs were approaching close to 7 per cent, considered unsustainable for their economies. When the new plan was announced at Brussels, there was considerable jubilation over this supposed breakthrough to restore confidence, with stock markets staging impressive recovery. But that has been the nature of stock markets recently, looking for any positive news. Such recovery, however, is likely to be short-lived when the true nature of the ‘breakthrough’ is digested.

With economy in deep trouble, Europe is becoming a multi-dimensional crisis area. The  elected governments unable to translate austerity packages into action had to be replaced by technocrats as prime ministers, as in Greece and Italy. The elections in Greece didn’t produce a desired result.  A coalition government couldn’t be cobbled together because of irreconcilable differences on implementing the European austerity package for the country. The voters were then asked to have another go to return a friendly political outcome for the austerity package. Without that there would be no bail out.  This was duly done and the new coalition government is now expected to do the needful with some modification to the package to make it politically palatable. In other words, the Greek voters, and before that the Irish voters, were firmly told that they had to revise their “democratic” outcome because it was at odds with what Brussels wanted.

Which is an odd way of democratic practice in a region (Europe) where democratic ideals of people’s choice have been widely lauded and held up as an example for other countries. In other words, Europe is experiencing a crisis of democratic legitimacy though this might not seem so apparent now. But if this sort of political tinkering continues, it will become a serious problem. Writing in the London Review of Books, Slavoj Zizek, a philosopher and researcher at the University of London, points out: “Here is the paradox that sustains the ‘free vote’ in democratic societies: one is free to choose on condition that one makes the right choice. This is why, when the wrong choice is made (as it was when Ireland rejected the EU constitution), the choice is treated as a mistake, and the establishment immediately demands that the ‘democratic’ process be repeated in order that the mistake be corrected….” Greece is now another example of this distortion of democratic practice.

Another dimension of the European crisis is the exacerbation of the ugly face of racism, as extensively reported in the press after the Greek election. The fascist Golden Dawn party that won seven per cent of the vote went on a rampage beating up immigrants like Afghans, Pakistanis and Algerians. The sad fact is, as Zizek writes, these fascist thugs had the support “of 50 per cent of the Athenian police…” Europe has been experiencing racism for many years focused on immigrant communities, particularly after the 9/11 terrorist bombing in New York. It is likely to get worse with the deteriorating economic situation in these countries with immigrants becoming the scapegoat, of which violence in Greece is a forerunner.

Another dimension is the increasing social unrest in these countries. The employment situation in some of these countries might erupt into serious social disorder. Take the case of Spain and Greece where unemployment rate is 24.6 per cent and 21.9 per cent respectively. And more than half of young people under 25 in both countries are reportedly without a job. For Euro zone of 17 countries, nearly 18 million people are jobless, which works out a little over 11 per cent. With these kind of unemployment figures and the future looking not so good, the prospects of serious social unrest are increasing by the day.

British Prime Minister David Cameron has reportedly told a House of Commons committee that his ministers have drawn up contingency plans for “all sorts of different eventualities.” The worst-case scenario is the likely economic and social breakdown in Greece following its exit from Euro zone. In that situation, the Cameron government will take measures to prevent Greek citizens from entering Britain, notwithstanding its obligations under European Union treaties. Britain is even reconsidering its entire relationship with the European Union. In an article in The Sunday Telegraph, Prime Minister Cameron has suggested a possible referendum on the country’s relationship with the European Union. He wants to “spell out in more details the parts of our European engagement we want and those to end.” Britain is not part of the 17-member Euro zone monetary union, but it is a member of the larger 27-member European Union. These moves on Britain’s part are indicative of the very real possibility of the break up of the European project.

Europe is also experiencing a political and economic divide between its north/central and south. The relatively prosperous countries of north are resisting being drafted into underwriting the basket case economies of south, such as Greece, Spain and Italy. Which has made Germany, the strongest European economy, the favorite target of south for its niggardly and selfish approach. Mindful of the adverse economic impact on the United States of an imploding Europe, the US has been leaning on Germany to help stimulate European growth by less emphasis on austerity and more on growth.

Another much-heralded recent announcement is a marginal reduction in the European Central Bank’s benchmark interest rate from 1 per cent to 0.75 per cent, hoping it will help stimulate the Euro zone economies.  However, it is unlikely to shake up the economy. The entire thrust of these exercises is to convince investors that the tide is turning in Europe and they might as well partake of it. But in a climate where confidence is rock bottom, and for good reasons, these conjuring tricks have outlived their validity.

Basically, it is a crisis of the freewheeling, so called free market, capitalist system. Just look at the recent example of Britain’s Barclays Bank where they have been manipulating the inter-bank rate (called LIBOR for London Interbank Offered Rate) to make the bank look creditworthy. The bank has been fined a record 290 million pounds, though it is chickenfeed compared with their profits over the years through this mechanism.  And now it is coming out that the country’s central bank, Bank of England, and the British government were also involved at some levels.

From the eighties, the Reagan Administration in the US and Thatcher government in Britain went berserk with a deregulated economy where markets were supposed to be self-correcting. And it became the international mantra for all countries to follow these prescriptions, with disastrous results. Thatcher even debunked society as the primary concern of all governance by putting market economy at the top. Therefore, the basic problem is that the “free market” has run its course. What we need is to think outside the box and start experimenting with alternative strategies of reviving local and communal ways of sharing the resources of this planet to save it from sinking along with all of us at some, not too distant future. 

Note: This article was first published in the Daily Times