Home » Economy
Category Archives: Economy
After “Landmark” IMF Reforms, U.S. Is Still the Group’s Unrivaled Economic Power
By: Andrew Gavin Marshall
12 November 2015
Originally posted at Occupy.com on 5 November 2015
The International Monetary Fund is one of the three pillars of the global economic system, the other two being the World Bank and the World Trade Organization. And the importance of the IMF cannot be overstated, with its membership of 188 nations (a few less than the membership of the United Nations) and its responsibility to “aid” countries in economic crisis needing loans. The IMF applies strict conditions in return for its assistance, and as such, it has been one of the most influential institutions in the management, maintenance and evolution of the world economic order.
Due to its central role in global financial governance, the management and power structure within the Fund itself reflects the power of some of the IMF’s individual member nations in the wider global economy. The United States, as the largest and most powerful economy in the world, was not only the primary architect of the IMF but remains its largest single shareholder – the only nation with veto power over the Fund’s major decisions.
The IMF was founded in 1944 and officially launched in 1946 with a membership of just over two dozen nations. During the following years and decades its membership grew rapidly. The Fund’s governance structure includes a Managing Director and deputies who are supported by an Executive Board and a Board of Governors. The Board of Governors consists of the finance ministers or central bank governors of the IMF’s member nations, who meet twice a year at the Spring and Annual meetings of the Fund and World Bank, providing national political authority to the direction and decisions of the Fund.
The Executive Board, on the other hand, consists of 24 representatives, usually mid-level bureaucrats from their respective national finance ministries or central banks, who serve at the Fund overseeing its day-to-day operations in close cooperation with the Managing Director. While the Board of Governors reflects the entire membership of the IMF, power at the Fund is not the same as at the United Nations, where one nation gets one vote. Instead, the IMF has a constituency system whereby individual nations are part of larger groups that collectively elect a representative from among their ranks to serve on the Executive Board.
For example, one constituency on the IMF’s Executive Board consists of 23 different African nations who collectively hold 3.34% of the IMF’s voting shares. Most of that influence is controlled by just two nations in the constituency, South Africa and Nigeria. Another African constituency on the Executive Board consists of 23 nations with a collective voting power of 1.66%. This means virtually all of sub-Saharan Africa, representing some 46 nations, has approximately 5% of the voting power within the Fund.
On the other hand, there are nations that do not represent a larger constituency, yet their IMF quotas and voting shares are so great that they have a permanently appointed representative on the Executive Board. The top five shareholders today are the U.S. with 16.74%, Japan with 6.23%, Germany with 5.81%, and France and the United Kingdom with 4.29% each. China, Saudi Arabia and Russia have their own permanent seats on the Executive Board; Canada and Italy are also among the top 10 shareholders in the Fund.
In other words, the major shareholders are the Group of Seven (G-7) nations along with three major emerging market and strategically significant countries. But this was not always so.
Division of Power
In the early 1960s, the largest five shareholders with permanent seats on the Executive Board of the IMF were the U.S., United Kingdom, France, West Germany and India. By 1971, Japan had joined the list and moved above India. The so-called Group of Five (G-5) nations dispatched finance ministers and central bankers who held secret meetings several times a year to steer the global economy.
Quota and governance reforms took place over the years that followed, with countries increasing the amount of money they paid into the Fund and the amount of votes they held over IMF decisions. But the top five largely remained the same. By 1983, Saudi Arabia was added as a sixth member of the group with an appointed director. This composition was maintained into the 1990s, though the pecking order changed (by 1999 Japan had risen to second place, with Germany third and France and the U.K. tied at fourth and fifth).
Not until 2010 did the Group of Twenty (G-20) finance ministers and central bank governors agree to reforms in the quotas and voting shares of the IMF, seeking to increase the participation and ownership of major emerging market economies. The aim was to maintain the legitimacy of the IMF in an era when roughly half the world’s GDP growth was coming from emerging and developing nations. Yet the representation and power of those nations in international institutions remained largely locked in the era of the 1970s. The 2010 reforms, while agreed upon, have still not been implemented due to U.S. Congress’s refusal to ratify them. Virtually every other IMF member nation has ratified and agreed to the reforms, and even the U.S. administration has pushed for the reforms, but Congress remains reluctant due to fears of a perceived loss of U.S. influence over the Fund.
The reality is that the changes in governance of the IMF keep the U.S. as the largest shareholder and still the only one with veto power, though it increases the ownership of emerging market economies, in particular those represented in the membership of the G-20. According to the data of quotas and shares, here is a list of the top 35 shareholders of the IMF, both before and after the 2010 reforms:
In the pre-2010 phase, which still exists at present, the top 10 shareholders are all of the G-7 nations plus China (at 6th place), Saudi Arabia (8th) and Russia (10th). After the reforms are implemented, the U.S. stays at number one, Japan stays in 2nd place, but China moves up to 3rd place followed by Germany, the U.K., France and Italy. Then comes India, Russia and Brazil, with Canada kicked off the top 10 list at number 11. Saudi Arabia has also been kicked off the top 10, following Canada at number 12.
When the G-20 reached agreement in 2010 on the IMF reforms, it was hailed as a “landmark” deal to give developing countries more power and say in the operations of the Fund, with then-Managing Director Dominique Strauss-Kahn calling it “a very historic agreement.” British Chancellor of the Exchequer George Osborne said at the time of the initial agreement, “We have pulled off major reform of the IMF so it properly represents the balance of economic power in the world.”
The reality, however, is that while China, India and Brazil made significant gains due to the reforms, the overall distribution of power within the Fund remains relatively unchanged. Prior to the reforms, the G-7 nations (U.S., Germany, Japan, U.K., France, Italy and Canada) collectively held 43% of the IMF’s voting shares. After the reforms, the G-7 nations will hold approximately 41% of the voting shares of the IMF. Overall, the G-20 nations (which include the G-7, plus Australia and 11 major emerging market economies) collectively account for 63% of voting shares prior to the reforms, and nearly 65% after the reforms.
Even with these relatively minor changes, the U.S. Congress has failed to pass the reforms, leading the IMF and G-20 nations to seek other “interim solutions” and ad-hoc arrangements until America ratifies the changes. But the hesitation of the U.S. has already had major repercussions, as China founded its own international economic institution, the Asian Infrastructure Investment Bank (AIIB), threatening U.S. dominance of such international organizations.
Former U.S. Treasury Secretary Lawrence Summers wrote an op-ed in which he said the U.S. failure to ratify the IMF changes cleared the way “for China to establish the Asian Infrastructure Investment Bank.” Summers wrote that “with China’s economic size rivalling America’s and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment.”
As history has shown, international institutions are slow to adapt to changes in the global economy, and even slower to adapt to changes in their governance structures. While the U.S. is concerned about maintaining its place at the center of global economic governance, through its inaction and inability to adapt quickly or with substance, it puts its own position at threat and creates the impetus for other nations to create alternatives.
The U.S. has stood at the center of the world’s financial system for roughly 70 years, but there is no reason to assume it will remain there. In an age-old example of national hubris, America’s drive to maintain its centrality – and uncontested power – in the global economy may lead to its eventual replacement.
When the IMF Meets: Here’s What Happened At the Global Plutocracy’s Pow Wow in Peru
By: Andrew Gavin Marshall
26 October 2015
Originally posted at Occupy.com
On October 6, the finance ministers, central bankers and development ministers from 188 countries convened for the Annual Meeting of the World Bank and International Monetary Fund in Lima, Peru. The yearly gathering is one of the top scheduled events on the calendar of economic diplomats, bringing them together for private discussions, seminars and press conferences with journalists. And of course it’s a big deal for the thousands of private bankers and financiers who are there to cut deals with the chief financial policymakers in those 188 IMF-member nations.
It was ironic that this year’s meeting took place in Peru at a time when emerging market economies are experiencing increased economic problems: the result of a combined slow-down in economic growth in China, a collapse in commodity prices, and threats by the U.S. Federal Reserve to hike interest rates in the near future. Indeed, talk of China, interest rate hikes and emerging market crisis was plentiful in Peru. Central bankers, unsurprisingly, came out generally in favor of raising rates, with top monetary officials from emerging markets saying they more feared the uncertainty about when rates would rise than the rise itself, and urged the Fed to simply get on with it.
Global Pow Wow
The annual meetings bring together the Board of Governors of the IMF, made up of the central bankers or finance ministers from the Fund’s 188 member nations. But the Governors are given their marching orders from the 24-member International Monetary and Financial Committee (IMFC), made up of ministers and central bank governors from the 24 major constituencies represented on the IMF’s Executive Board, and whose membership largely reflects that of the Group of Twenty (G20).
The IMFC held their meeting in Lima on Oct. 9, presided over by the committee’s chairman, Agustin Carstens, the Governor of the Central Bank of Mexico, and the IMF Managing Director Christine Lagarde. In attendance were the finance ministers of Japan (Taro Aso), India (Arun Jaitley), Argentina (Axel Kicillof), Brazil (Joaquim Levy), France (Michel Sapin), Italy (Pier Carlo Padoan), Germany (Wolfgang Schauble), Singapore (Tharman Shanmugaratnam), Great Britain (George Osborne) and the United States (Jack Lew), along with top-level central bankers from Saudi Arabia, Nigeria, Norway, Algeria, Colombia, Belgium and China.
Also participating in the IMFC meeting were Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board (FSB); Jaime Caruana, General Manager of the Bank for International Settlements (BIS); Valdis Dombrovskis, Vice President of the European Commission; Angel Gurria, Secretary-General of the Organization for Economic Cooperation and Development; Mario Draghi, President of the European Central Bank (ECB), and other top representatives from OPEC, the World Bank and the World Trade Organization (WTO).
These various financial diplomats met and made prepared statements, but the real work and decision-making took place in the IMFC’s off-the-record discussions. These discussions also included, as usual, a joint meeting between the IMFC and the G20, after which the G20 held a press conference discussing recent agreements made by the world’s top economic diplomats collectively representing roughly 85% of global GDP.
The meetings followed the consistent hierarchy of operations among the world’s most powerful economies, starting with a private gathering of the finance ministers and central bankers from the Group of Seven (G7) nations, including the U.S., Germany, Japan, UK, France, Italy and Canada. This was followed by a gathering of ministers and monetary chiefs from the G20 nations (consisting of the G7 plus China, Brazil, Russia, India, South Africa, Argentina, Australia, Turkey, Saudi Arabia, Mexico, South Korea, Indonesia and the European Union). The heads of the world’s major international organizations also attended these meetings, functioning effectively as a steering committee for the global economy. The G20 then held a joint session with the IMFC, which functions as the steering committee of the IMF.
The IMFC’s communiqué following its meeting warned that global economic growth was “modest and uneven” with increased “uncertainty and financial market volatility.” Risks to the global economy “have increased,” it noted, in particular for emerging markets.
Apart from the IMFC and G20, a number of other important meetings took place on the sidelines of the annual gathering, many of which prominently featured bankers. One of the most important gatherings of global financiers was the Annual Membership Meeting of the Institute of International Finance (IIF), a consortium of roughly 500 global financial institutions including banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks, credit ratings agencies and development banks.
From Oct. 9-10, the world’s top bankers and financiers then held luncheons and private meetings with the world’s top economic policy-makers, who were also invited to attend or speak at the conference proceedings. The IIF’s opening ceremony was addressed by Peru’s President Ollanta Humala Tasso, and included guest speakers like the finance minister of Indonesia and central bankers from Thailand and Malaysia, as well as the top Swedish central banker, Stefan Ingves, who serves as chairman of the Basel Committee on Banking Supervision (BCBS) which is responsible for shaping and implementing global banking regulations known as Basel III.
On the second day of the IIF’s meeting, guest speakers included top officials from Brazil’s finance ministry, the World Bank, and a keynote address was delivered by the governor of Canada’s central bank, Stephen S. Poloz. The rest of the day included talks by finance ministers and central bankers from Colombia, Chile and Peru; a top official from the central bank of France; and an official from the Financial Stability Board (FSB), which is a group of global central banks, finance ministries and regulators responsible for managing stability of financial markets.
Another important gathering in Lima was the Group of Thirty (G30), presided over by its Chairman Jean-Claude Trichet, the former President of the European Central Bank. The G30 was established in 1978 as a nonprofit group of roughly 30 sitting and former central bankers, finance ministers, economists and private bankers, with the aim “to deepen understanding of international economic and financial issues” and “to examine the choices available to market practitioners and policymakers.”
Among the G30’s current members are former Federal Reserve Chair Paul Volcker; Mark Carney of the Bank of England and Financial Stability Board; Jaime Caruana of the BIS; Mario Draghi of the ECB; William C. Dudley of the Federal Reserve Bank of New York; former U.S. Treasury Secretary Timothy Geithner; former Bank of England Governor Mervyn King; economist Paul Krugman; Bank of Japan Governor Haruhiko Kuroda; Bank of France Governor and BIS Chairman Christian Noyer; Reserve Bank of India Governor Raghuram Rajan; Tharman Shanmugaratnam of Singapore; former U.S. Treasury Secretary Lawrence Summers; Chinese central banker Zhou Xiaochuan; and top bankers from UBS, JPMorgan Chase, BlackRock and Goldman Sachs.
This year, the G30 held its annual International Banking Seminar in Peru, “an invitation-only, off-the-record forum that allows for frank discussion and debate of the thorniest issues confronting the central banking community,” bringing together “over fifty percent of the world’s central bank governors, the Chairmen and CEOs of the financial sector, and a select few academics to debate financial and systemic issues of global import.”
The meeting included a short speech by Federal Reserve Vice Chairman Stanley Fischer, who told the audience that the Fed’s interest rate rise was “an expectation, not a commitment.” Fischer acknowledged that “shifting expectations concerning U.S. interest rates could lead to more volatility in financial markets and the value of the dollar, intensifying spillovers to other economies, including emerging market economies.” He reassured his audience, however, that the Fed will “remain committed to communicating our intentions as clearly as possible… to assist market participants, be they in the private or the public sector, in understanding our intentions as they make their investment decisions.”
Behind Closed Doors
But the true importance of the annual IMF meetings is not what happens in formal proceedings and seminars, but the various secret meetings of finance ministers, central bankers and private financiers that take place on the sidelines of the official conference. In these closed-door events, a select group of government and monetary officials, primarily those from the G7 and G20 nations, were invited to wine and dine with bankers at decadent dinners and lavish parties, and speak to private gatherings of the world’s top investors and money managers. It’s here, in these various meetings, where the world’s chief financial diplomats were able to meet, greet and receive praise or criticism from their true constituents: the global financial elite.
As usual, the annual pow wow of the global plutocracy came and went with little comment outside the financial press. But as always, the annual IMF meetings – and the more secretive, simultaneous gatherings of global economic diplomats and financiers on the sidelines – represented the core of global economic governance, manifest in the various ad-hoc committees that in essence rule the world.
These individuals’ main interactions were not with the populations in their home nations – the people who suffer under austerity, who have to “adjust” to the restructuring of their societies into “market economies” – but rather with those from whom they have the most to gain: bankers, billionaires and financiers. And rest assured, when the officials retire from their central bank and finance ministry positions, they will be stepping out of their membership in the G7, G20 and IMFC, and into the boardrooms of JPMorgan Chase, Goldman Sachs, BlackRock, Barclays and Deutsche Bank. They will be well rewarded, with large salaries and bonuses for a job well done while in public office. And the revolving door of global economic governance will keep turning.
A Year in the World-Traveling Life of U.S. Treasury Secretary Jack Lew
By: Andrew Gavin Marshall
Originally posted at Occupy.com
15 October 2015
Jacob Joseph (“Jack”) Lew is one of the two most powerful financial diplomats in the world, the other being his central banking counterpart, Janet Yellen, the Chair of the Federal Reserve Board. As the U.S. Secretary of the Treasury, Lew has been the most important economic official inside the Obama administration since his confirmation in February 2013 following the president’s re-election.
Prior to serving as Treasury Secretary, Lew was White House Chief of Staff to President Obama from 2012 to 2013, and Director of the Office of Management and Budget from 2010 to 2012, a position he also held in the Clinton administration from 1998 until 2011. Lew was also Deputy Secretary of State under Hillary Clinton from 2009 to 2010. But from 2006 to 2008, he worked at Citigroup, overseeing the bank’s $1.8 billion in wealth management assets, and was then appointed as one of Citi’s senior executives.
Lew’s appointment to Citigroup was made on the recommendation of the bank’s then-Chairman Robert Rubin, the former Treasury Secretary from the Clinton administration (1995-1999), with whom Lew worked closely. When Lew left the bank to join the Obama administration immediately following the 2008 financial crisis and the billions in bailouts his bank received, Lew got a bonus of almost $1 million from Citigroup on top of his more than $2 million in regular earnings from the bank.
Tracking Lew’s Movements
In examining the role played by the Treasury Secretary to shape U.S. and global economy policy, it’s revealing to look at his schedule over the course of a year. After reviewing Secretary Lew’s schedule of phone calls and meetings in 2014, it’s easier to understand what it means to be one of the world’s most powerful financial diplomats. More than any other high-level official, Lew was in consistent contact with Yellen, having held over 30 phone calls or meetings with the Federal Reserve Chairperson over the course of the year, which included regular lunch or breakfast meetings.
As the two top diplomats and managers of the American economy and the U.S. dollar, it makes sense for these two individuals to meet frequently, both to assess the economic outlook and to devise a common U.S. position at international meetings – like the bi-annual meetings of the IMF steering committee known as the International Monetary and Financial Committee (IMFC), as well as the secretive meetings of finance ministers and central bankers of the Group of Seven (G7) and Group of Twenty (G20) nations.
Officially founded in 1976, the G7 sits at the center of global economic governance, meeting at the head of state level once a year, and holding multiple meetings and conference calls among the finance ministers and central bank governors of nations that comprise its membership: the U.S., Germany, Japan, France, UK, Italy and Canada. The G20, on the other hand, was founded as a meeting of finance ministers and central bank governors in 1999, and only started meeting at the head of state level in late 2008 in the midst of the global financial crisis.
Jack Lew was in frequent contact with his G7 peers, including all of the finance ministers and most of the central bankers. In addition to the gatherings of the G7 and G20, Lew spoke or met with German Finance Minister Wolfgang Schauble roughly 20 times throughout 2014. In the same period he met or spoke with the British Chancellor of the Exchequer, George Osborne, roughly 16 times; with European Central Bank (ECB) President Mario Draghi some 15 times; and with Japanese Finance Minister Taro Aso 14 times.
Secretary Lew also had extensive contact with French Finance Minister Michel Sapin and his predecessor Pierre Moscovici, who became European Commissioner for Economic and Monetary Affairs; Italian Finance Minister Pier Carlo Padoan; Canadian Finance Minister Joe Oliver; and Mark Carney, the Governor of the Bank of England and Chairman of the Financial Stability Board (FSB), an institution that brings together central bankers, finance ministers and regulators to oversee the global management of financial markets. Lew spoke or met with Carney some 12 times throughout the year.
But apart from Yellen, the high-level official with whom Lew had the most contact was Christine Lagarde, the Managing Director of the IMF and a former French Finance Minister; Lew met or spoke to Lagarde roughly 23 times in 2014, including at the meetings of the G7 and G20, which the IMF Managing Director typically attends.
The G20 has a much wider membership than the G7, though it includes all of the G7 nations in addition to Australia, the European Union, and major emerging market economies such as China, India, Brazil, Russia, Mexico, Turkey, South Africa, Saudi Arabia, Argentina, Indonesia and South Korea. The heads of major international organizations like the IMF, World Bank, Bank for International Settlements (BIS), World Trade Organization (WTO), and the Organization for Economic Cooperation and Development (OECD) also typically attend the meetings of the G7 and G20.
Following Yellen, Lagarde and Schauble, Secretary Lew was most frequently in contact with Australian Treasurer Joe Hockey, with whom he met or spoke roughly 17 times throughout the year. While Australia is not even a member of the G7, it would typically seem odd to have such extensive communication between its Treasurer and the U.S. Treasury Secretary. But Australia was hosting the G20 meetings in 2014, and thus Hockey closely coordinated with Lew on meetings that involved financial officials convening four times during the year.
Another name that stands out is Tharman Shanmugaratnam, the Singaporean Finance Minister who held nine separate calls and meetings with Lew, and 13 including those of the G20. Shanmugaratnam became Finance Minister of Singapore, a wealthy Asian city-state, in 2007, and has also held the dual role as head of the Monetary Authority of Singapore (MAS), the country’s central bank. In addition, Tharman serves on the board of directors of Singapore’s large sovereign wealth fund, GIC, which manages between $100 and $350 billion in assets, including significant stakes in Citigroup and UBS, Switzerland’s largest bank.
The likely reason why Lew had such frequent contact with Shanmugaratnam – the chief financial diplomat of a country that is neither a member of the G7 nor the G20 – is because in March of 2011, Shanmugaratnam was appointed Chairman of the IMF’s steering group, the International Monetary and Financial Committee (IMFC), made up of finance ministers and central bank governors from the nations represented on the Fund’s Executive Board.
Lew attended the World Economic Forum in Davos, Switzerland, in January of 2014, where he held private bilateral meetings with Mark Carney of the Bank of England (and FSB), Saudi finance minister and central bank governor Ibrahim Al-Assaf, ECB President Mario Draghi, and Mexican Finance Minister Luis Videgaray, who was another emerging market diplomat with whom Lew had frequent contact throughout the year (eight separate phone calls and meetings, or 12 including those at the G20).
In February, Lew traveled to Australia for the first G20 meeting of finance ministers and central bank governors under the chairmanship of Australian Treasurer Joe Hockey. Lew moderated a session of a conference hosted by the Institute of International Finance (IIF) and held private meetings with German Finance Minister Schauble, Turkish Deputy Prime Minister and top financial diplomat Ali Babacan, and Japanese Finance Minister Taro Aso. And just before the official G20 meetings began, the G7 countries got together for a quiet one-hour meeting as well.
As the Spring Meetings of the IMF were starting in April, Jack Lew held private meetings with Russian Finance Minister Anton Siluanov, Videgaray of Mexico, Draghi of the ECB, Saudi Finance Minister Al-Assaf, and Brazilian Finance Minister Guido Mantega. Once again, Lew attended a private one-hour gathering of the G7 ministers before attending a wider G20 meeting of ministers and central bank governors on April 10. The following day, Lew attended the joint G20-IMFC meeting, and continued with G20 meetings for the rest of the day.
In September, Lew once again traveled to Australia for a special meeting of G20 financial diplomats, during which time Germany served as host for a private lunch meeting of the G7 finance ministers and central bank governors. He returned to Australia in November for the main head-of-state summit of the G20, where he privately met with his counterparts from Saudi Arabia, China, France, Japan, and with Mark Carney of the FSB.
As the chief financial diplomat from the most powerful nation and economy in the world, Jacob Lew is the central figure among G7 diplomats with whom he is in frequent contact, while closely coordinating with the chairs of the G20, the IMFC, and the heads of international organizations like the IMF and FSB. Through these and other groupings, Treasury Secretary Lew sits at what can only be understood as the absolute center of global financial diplomacy and governance.
Meet the Secretive Committees that Run the Global Economy
By: Andrew Gavin Marshall
8 October 2015
Originally published at Occupy.com
There exists an overlapping and highly integrated network of institutions, committees and secret meetings of ad-hoc groups that collectively run the global economy. This network consists of finance ministries, central banks, international organizations and the various conferences and confabs that bring them together. This network is responsible for facilitating global financial diplomacy and managing the architecture of global financial governance. In short: it is the most powerful and informal political structure in the world.
With the United States at the center of the system, the Treasury Department and Federal Reserve Bank are the two most important American institutions in global financial governance – and the Treasury Secretary and Federal Reserve Chairperson are the world’s two most powerful financial diplomats. Both institutions are headquartered in Washington, D.C., just down the street from the headquarters of the International Monetary Fund (IMF) and World Bank Group, two global financial bodies created in 1944 to manage the world economy on behalf of the rich Western nations that founded them.
Twice a year, the IMF and the World Bank host large international conferences. The Spring Membership Meeting, typically held in April, and the Annual membership meeting draw a crowd consisting of most of the finance ministers and central bank governors from the IMF’s 188 member nations, representing the Fund’s Governing Board. They descend on D.C. where the meetings are typically held (though occasionally they are hosted in other countries as well), and draw scores of journalists, academics and thousands of bankers and financiers who are eager to meet, greet, wine, dine and make deals with the political decision-makers of the global economy.
The top five shareholders of the IMF (United States, Japan, Germany, France and U.K.) reflect the membership of an ad-hoc group of finance ministers that began meeting in 1973, thereafter known as the Group of Five (G-5). At the time, U.S. Treasury Secretary George Shultz described the group as “a channel for informal and very frank communication on monetary and other issues, both of a long-term and more immediate character.” But the G-5 was hardly the first of such groups.
In 1962, the Group of Ten (G-10) was formed as a meeting of finance ministers and central bank governors from the rich industrial nations, including the U.S., West Germany, Japan, France, U.K., Italy, Canada, Belgium, Sweden, Netherlands (and eventually Switzerland, although the name remained the same). The G-10 would meet alongside the leaders of the IMF, the Organization for Economic Cooperation and Development (OECD) and the Bank for International Settlements (BIS).
Following the U.S. unilateral decision to end the Bretton Woods monetary system in 1971, a series of committees and groups were established to provide forums for major economies of the world to negotiate forming a new monetary system, and to integrate developing economies into the institutional apparatus of global financial governance. The Group of Ten was utilized as one such forum.
In 1972, the G-10 laid the groundwork for the establishment of a special Committee of 20 to be formed within the IMF, whose membership reflected the composition of the IMF Executive Board, but at the ministerial level – giving it a much higher level of political authority than the board, which is composed of mid-level officials from their respective national finance ministries. The committee would include most G-10 members alongside several developing country representatives, and was formally institutionalized in late 1974 as the “Interim Committee” of the IMF.
(Although the Group of Five was formed in 1973, it wasn’t until 1975 that it held the first meeting at the head of state level, with the addition of Italy to the group. The following year, Canada was invited to participate, and thereafter it was known as the Group of Seven (G-7), effectively functioning as the steering committee for the global economy.)
Fast forward to the mid-1990s, when the G-7 nations instructed the Group of Ten to consult with emerging market economies on ways to reform the global financial architecture in cooperation with major international organizations like the IMF, World Bank, OECD, and BIS, which were increasingly opening their membership and ownership positions to large emerging market economies.
The idea was thus: If developed countries give developing countries a stake in the existing system, they won’t use their new-found wealth and power to oppose that system. And all the while, the West was to remain at the center. Through crisis and collapse and “rescue” efforts led by the IMF, BIS and World Bank, developing and emerging market economies were encouraged to accept Western economic “advice” on how to manage their economies. If they wanted bailouts in the form of loans from international institutions, those countries had to follow conditions that demanded a total restructuring of their economies and societies along G-7 lines – designed to transform them into modern “market economies” capable of integrating into the larger global economy.
The groundwork was laid out over the following years, and in the course of 1999, the IMF’s Interim Committee was reformed into the International Monetary and Financial Committee (IMFC). The G-10 organized several seminars involving major emerging market economies and, together with the G-7, formed a new group known as the Financial Stability Forum (FSF), a meeting group of central bankers, finance ministers and regulators who were handed responsibility for maintaining financial stability in the world. Finally, 1999 also saw the organizing efforts of the G-7 result in the formation of yet another forum, the Group of Twenty (G-20).
The G-20 was born in December of 1999 at a meeting of finance ministers and central bank governors from the G-7 nations, along with Russia, China, India, Brazil, Indonesia, Korea, Australia, Mexico, Saudi Arabia, South Africa, Turkey, Argentina and the European Union. The event was attended by top officials from the IMF, World Bank and the European Central Bank. But despite all the international noise, the G20 was largely the initiative of two men: Canadian Finance Minister Paul Martin and U.S. Treasury Secretary Lawrence Summers.
The G-7, or G-8 once Russia was invited in, remained the main forum for global economic leadership. But in the midst of the global financial crisis in 2008, the G-20 was the group convened by U.S. President George W. Bush, who brought together heads of state for the first meeting that took place in Washington on November 15. That meeting produced an agreement among G-20 nations to pump trillions of dollars into their economies in order to bail out their banking systems.
In 2010, then-President of the European Central Bank, Jean-Claude Trichet, explained at a meeting of the Institute of International Finance (IIF) that the G-20 had emerged “as the prime group for global economic governance.”
Speaking to a crowd of hundreds of the world’s most powerful bankers and financiers, Trichet explained, “Global economic governance embraces supranational institutions – such as the IMF – as well as informal groupings – such as the G-7 and the G-20. Both are necessary, and both are complementary.” Trichet praised the evolving system as “moving decisively towards a much more inclusive system of global governance, encompassing key emerging economies as well as the industrialized countries.”
To this day, the hierarchy of global economic governance follows a familiar pattern. Take the IMF’s meetings, where 188 of the world’s finance ministers and central bankers meet. The International Monetary and Financial Committee (IMFC) holds a meeting, functioning as the steering committee to the Fund. And prior to IMFC meetings, the G-20 finance ministers and central bank governors hold a series of meetings, including a joint meeting with the IMFC, as they already have a significant crossover of membership.
But before the G-20 meets, the ministers and governors of the G-7 nations typically meet privately for an hour or so, attempting to form a common position or strategy in dealing with the wider groupings of the G-20 and IMFC, in which all G-7 nations are represented at the ministerial level. The chiefs of the world’s major international organizations (IMF, World Bank, OECD, WTO, BIS) participate in almost all of these meetings, acting as advisers to and receiving high-level political direction from these groups.
The hierarchy of global economic governance emanates out of the United States, in close cooperation with Germany, Japan and the other members of the Group of Seven. From there, it networks through the Group of Twenty and the IMFC, which in turn collectively function as the steering committee for the world’s major international organizations, and act as the board of directors of the global economy.
Who Rules Europe?
By: Andrew Gavin Marshall
22 July 2015
If you like this video, please consider making a donation to support my work.
Blaming the Victim: Greece is a Nation Under Occupation
By: Andrew Gavin Marshall
17 July 2015
In the early hours of Thursday morning, July 16, the Greek Parliament passed a host of austerity measures in order to begin talks on a potential third bailout of 86 billion euros. The austerity measures were pushed onto the Parliament by Greece’s six-month-old leftist government of Syriza, elected in late January with a single mandate to oppose austerity. So what exactly happened over the past six months that the first anti-austerity government elected in Europe has now passed a law implementing further austerity measures?
One cannot properly assess the political gymnastics being exercised within Greece’s ruling Syriza party without placing events in their proper context. It is inaccurate to mistake the actions and decisions of the Greek government with those taken by an independent, sovereign and democratic country. Greece is not a free and sovereign nation. Greece is an occupied nation.
Since its first bailout agreement in May of 2010, Greece has been under the technocratic and economic occupation of its bailout institutions, the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). For the past five years, these three institutions known as ‘the Troika’ (though now referred to as ‘the Institutions’) have managed bailout programs in Greece and other nations of the eurozone. In return for loans, they got to dictate the policies and priorities of governments.
Behind the scenes, Germany rules an economic empire expanding across Europe, enforcing its demands upon debtor nations in need of aid, operating largely through the European Union’s various institutions and forums. Germany has consistently demanded harsh austerity measures, structural reforms, and centralization of authority over euro-member nations at the EU-level.
Greece has served as a brutal example to the rest of Europe for what happens when a country does not follow the orders and rules of Germany and the EU’s unelected institutions. In return for financial loans from the Troika, with Germany providing the largest share, Greece and other debtor nations had to give up their sovereignty to unelected technocrats from foreign institutions based in Brussels (at the European Commission), Frankfurt (at the ECB), Washington, D.C. (at the IMF), and with ultimate authority emanating from foreign political leaders in Berlin (at the German Chancellery and Finance Ministry).
The Troika would send teams of ‘inspectors’ on missions to Athens where they would assess if the sitting government was on track with its promised reforms, thus determining whether they would continue to disburse bailout funds. Troika officials in Athens would function as visiting emissaries from a foreign empire, accompanied by bodyguards and met with protests by the Greek people. The ‘inspectors’ from Brussels, Frankfurt and Washington would enter Greek government ministries, dictating to the Greek government and bureaucracy what their priorities and policies should be, with the ever-present threat to cut off funds if their demands were not followed, holding the fate of successive governments in their hands. Thus, unelected officials from three undemocratic and entirely unaccountable international institutions were dictating government policy to elected governments.
In addition to this immense loss of sovereignty over the past five years, Greece was subjected to further humiliation as the European Commission established a special ‘Task Force for Greece’ consisting of 45 technocrats, with 30 based in Brussels and 15 at an outpost in Athens, headed by Horst Reichenbach, dubbed by the Greek press as the ‘German Premier’. European and German officials had pushed for “a more permanent presence” in Greece than the occasional inspections by Troika officials. Thus, the Task Force was effectively an imperial outpost overseeing an occupied nation.
When a nation’s priorities and policies are determined by foreign officials, it is not a free and sovereign nation, but an occupied country. When unelected technocrats have more authority over a nation than its elected politicians, it is not a democracy, but a technocracy. Germany and Europe’s contempt and disregard for the democratic process within occupied (bailout) countries has been clear for years.
When Greece’s elected Prime Minister George Papandreou called for a referendum on the terms of Greece’s second bailout in late 2011, German Chancellor Angela Merkel, French President Nicolas Sarkozy, and Europe’s unelected rulers were furious. The economic occupation and restructuring of a nation was too important to be left to the population to decide. Europe’s leaders acted quickly and removed the elected government from power in a technocratic coup, replacing Mr. Papandreou with the former Vice President of the European Central Bank, Lucas Papademos. Thus, a former top official of one of the Troika institutions was put in direct control of Greece.
Papademos, who was not elected but appointed by foreign powers, had two major mandates from his German-Troika overlords: impose further austerity and conclude an agreement for a second bailout. Within a week of the coup, the EU and IMF demanded that the leaders of Greece’s two large political parties, New Democracy and PASOK, “give written guarantees that they will back austerity measures” and follow through with the bailout programs.
Troika officials and European finance ministers wanted to ensure that regardless of what political party wins in future elections, the Troika and Germany would remain the rulers of Greece. Troika officials threatened that unless political party leaders sign written commitments they would continue to withhold further bailout funds from being disbursed to Greece. So the leaders signed their commitments. The leaders of Greece’s two main political parties, Antonis Samaras (New Democracy) and Evangelos Venizelos (PASOK), which had governed the country for the previous several decades, “became reluctant partners, propping up a new prime minister.” In February of 2012, the new Greek government agreed to a second major bailout with the Troika and Germany, thus extending the economic occupation of the country for several more years.
Greece was set to hold elections in April of 2012 to find a suitable ‘democratic’ replacement for the ‘technocratic’ government of Lucas Papademos. But German Finance Minister Wolfgang Schauble was growing impatient with Greece, and publicly called for the elections to be postponed and to keep a technocratic government in power for longer. As the Financial Times noted in February of 2012, the European Union “wants to impose its choice of government on Greece – the eurozone’s first colony,” noting that Europe was “at the point where success is no longer compatible with democracy.”
But the elections ultimately took place in May of 2012, though Greece’s fractured political parties failed to form a coalition government, and thus set the country on course for a second round of elections the following month. The May elections were seen as a major rejection of the bailouts and the two parties that had dominated Greece for so long, marking the rise of the neo-Nazi Golden Dawn party on the far-right and Syriza on the left.
But with a second round of elections set for June of 2012, Europe’s leaders repeated their threats to the democratic process in Greece. The Troika threatened to withhold bailout funds until the next government approved the package of reforms demanded by the creditors. Jorg Asmussen, a German member of the Executive Board of the ECB, warned, “Greece must know that there is no alternative to the agreed to restructuring arrangement, if it wants to stay a member of the euro zone.” The German President of the European Parliament, Martin Schulz, said that, “The Greek parties should bear in mind that a stable government that holds to agreements is a basic prerequisite for further support from the euro-zone countries.” As Philip Stephens wrote in the Financial Times, “As often as Greece votes against austerity, it cannot avoid it.”
At a May meeting of the Eurogroup of finance ministers, it became clear that Europe’s rulers were increasing their threats and ultimatums to Greece. “If we now held a secret vote about Greece staying in the euro zone,” noted Eurogroup President Jean-Claude Juncker (who is now president of the European Commission), “there would be an overwhelming majority against it.”
When the second elections were held the following month, the conservative New Democracy party won a narrow victory over Syriza, forming a coalition with two other parties in order to secure a majority to form a new government. Upon the announcement of a new coalition government on June 20, 2012, Chancellor Angela Merkel of Germany warned that Greece “must stick to its commitments.” Antonis Samaras of New Democracy was the third prime minister of Greece since the bailout programs began in 2010, and led the country as a puppet of its foreign creditors until his government collapsed in late 2014 and he called for elections to be held at the end of January of 2015.
Upon the collapse of the government, Alexis Tsipras, the leader of Syriza, declared that, “austerity will soon be over.” German Finance Minister Wolfgang Schauble warned that new elections in Greece “will not change any of the agreements made with the Greek government,” which “must keep to the contractual agreements of its predecessor.”
Jean-Claude Juncker, who was the newly-appointed (unelected) President of the European Commission, warned that Greeks “know very well what a wrong election result would mean for Greece and the eurozone,” adding that he would prefer “known faces” to rule Greece instead of “extreme forces,” in a reference to Syriza. A couple weeks before the elections, the European Central Bank threatened to cut its funding to Greece’s banking system if a new government rejected the bailout conditions.
Syriza won the elections on January 25, 2015, forming a coalition government with the Independent Greeks, a right-wing anti-austerity party. Alexis Tsipras, who would become Greece’s fourth prime minister in as many years, declared “an end to the vicious circle of austerity,” adding, “The troika has no role to play in this country.” Christine Lagarde, the Managing Director of the IMF, warned, “There are rules that must be met in the eurozone,” while a member of the executive board of the ECB added, “Greece has to pay, those are the rules of the European game.”
Nine days after the election, the ECB cut off its main line of funding to Greek banks, forcing them to access funds through a special lending program which comes with higher interest rates. Mark Weisbrot of the Center for Economic and Policy Research suggested that following Syriza’s election victory, the strategy of European officials was “to do enough damage to the Greek economy during the negotiating process to undermine support for the current government, and ultimately replace it.” The ECB, under its President Mario Draghi, quickly took a hardline approach to dealing with Greece, increasing the pressure on Athens to reach a deal with its creditors.
In early March, the ECB added pressure on Greece by indicating that it would only continue lending to Greek banks once the country complied with the terms of the existing bailout. On 9 March, a meeting of the Eurogroup was held where ECB president Mario Draghi warned the Greeks that they must let Troika officials return to Athens to review the country’s finances if they ever wanted any more aid. The same message was delivered by officials of the European Commission and the IMF. The Greeks were forced to comply. As negotiations continued, it became increasingly clear that the unelected institutions of the IMF and ECB had immense power over the terms and conditions of the talks.
Negotiations were dragged out, and the economy continued its collapse. By mid-June, Prime Minister Tsipras accused the creditors of “trying to subvert Greece’s elected government” and encourage “regime change.” James Putzel, a development studies professor at the London School of Economics (LSE) noted that Greece was being forced to choose between more austerity and reforms under Troika demands, or being booted from the eurozone and losing the common currency (something which the Greek people did not want). “Greece’s creditors,” he wrote, “seem bent on forcing the demise of the Syriza government.” Robert H. Wade, a political economy professor at LSE agreed, referring to the strategy as a “coup d’état by stealth.”
In late June, as Greece was faced with an ultimatum to implement more austerity or be pushed out of the eurozone, Alexis Tsipras threw out the wild card option in a final attempt to gain a better negotiating position by calling for a referendum on the terms demanded by the Troika and creditors. Europe’s leaders reacted as they did the previous time a Greek Prime Minister called for a referendum, and moved to put the squeeze on the economy. The ECB froze the level of its emergency aid to Greek banks, forcing bank closures and capital controls to be imposed on the country, essentially cutting off the flow of money to, from, and within Greece.
Chancellor Merkel, French President Francois Hollande and Commission President Jean-Claude Juncker “coordinated how they would respond” to the Greek government’s call for a referendum. As Mr. Tsipras publicly campaigned for a ‘No’ vote (which would reject the terms of the bailout), Europe’s leaders pushed for a ‘Yes’ vote, attempting to redefined the terms of the referendum as not being about the bailout, but about membership in the eurozone, threatening to kick Greece out if they voted ‘No’.
As Paul Krugman noted in the New York Times, the ultimatum agreement that was delivered to the Greeks by the Troika was “indistinguishable from the policies of the past five years,” and was thus meant to be an offer that Tsipras “can’t accept, because it would destroy his political reason for being.” The purpose, wrote Krugman, “must therefore be to drive him from office.” Mark Weisbrot wrote in the Globe & Mail that, “European authorities continue to take steps to undermine the Greek economy and government, hoping to get rid of the government and get a new one that will do what they want.”
Europe’s leaders increased their threats to Greece in the run-up to the referendum, warning the country that voting ‘No’ would mean voting against Europe, against the euro, and result in isolation and further crisis. But Greece voted ‘No’ in a landslide referendum on July 5, 2015, in a massive rejection of austerity and the bailouts.
Mr. Tsipras made a gamble with the referendum, hoping that a further democratic mandate from the Greek people would give him a stronger hand in negotiations with the creditors. But the opposite happened. Europe’s leaders instead decided to completely ignore and dismiss the wishes of the Greek people and continued to put the squeeze on Greece, whose economy was pushed to the brink so far that Mr. Tsipras announced the country’s intentions to enter into negotiations for a third bailout program. On July 10, the Greek government submitted a formal bailout request to its creditors.
Europe, noted the Wall Street Journal, was “demanding full capitulation as the price of any new bailout.” The Greek government was betting that Europe wanted to keep Greece in the euro more than Greece wanted to get away from austerity, but Germany – and in particular, Finance Minister Wolfgang Schauble – were willing to back a ‘Grexit’ scenario in which Greece would be given a five-year “timeout” from the eurozone. As Paul Krugman noted, “surrender isn’t enough for Germany, which wants regime change and total humiliation.”
As Greek leaders negotiated with their European counterparts over the possibility of a new bailout, it became clear that Greece was in for a reckoning. The demands that were being made of Greece, wrote Krugman, went “beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief.” The lesson from the past few weeks, he added, was that “being a member of the eurozone means that the creditors can destroy your economy if you step out of line.”
Financial journalist Wolfgang Münchau wrote in the Financial Times that Greece’s creditors “have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union.” The eurozone was instead “run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.” With Germany threatening to kick Greece out of the euro for failure to capitulate entirely, this amounted to “regime change in the eurozone.” As Münchau wrote: “Any other country that in future might challenge German economic orthodoxy will face similar problems.”
After 22 hours of talks, Greece was forced to agree to the new terms. The Greek government would have to pass into law a set of austerity measures and reforms before Europe’s leaders would even begin talks on a new bailout. “Trust needs to be restored,” said Chancellor Merkel. A new fund would have to be established in Greece, responsible for managing the privatization of 50 billion euros of Greek assets. As the Wall Street Journal noted, the deal “includes external control over Athens’s financial affairs that no eurozone bailout country – even Greece until this point – has had to endure.” The Financial Times called it “the most intrusive economic supervision programme ever mounted in the EU.” Tony Barber wrote that the conditions set for the country were so strict that “they will turn Greece into a sullen protectorate of foreign powers.” One eurozone official who attended the summit at which Greece conceded to the German demands commented, “They crucified Tsipras in there.”
And so after six months of a Syriza-led Greece it is evident that Syriza does not rule Greece, Germany and the Troika do. What Syriza’s “capitulation” tells us is not that the party betrayed its democratic mandate from the Greek people, but that staying in the euro is a guarantee that no matter who is elected, they are little more than local managers of a foreign occupation government.
Blaming Mr. Tsipras and the Greeks for the current predicament is a bit like blaming a rape victim for getting raped. It doesn’t matter how they were ‘dressed’, or if they ‘could’ have fought back, because it’s ultimately the decision of the rapist to commit the crime, and thus, the rapist is responsible.
Syriza could become a party of liberation, of a proud, sovereign and democratic nation. But this is only possible if Greece abandons the euro. Until then, the Greek government has about as much independent power as the Iraqi government under American occupation. Syriza made several gambles in negotiations with the country’s creditors, most of which failed. But Greece was never on an equal footing.
Andrew Gavin Marshall is a freelance researcher and writer based in Montreal, Canada.
Please consider making a donation to help support my research and writing.
Between Berlin and a Hard Place: Greece and the German Strategy to Dominate Europe
By: Andrew Gavin Marshall
7 July 2015
“They just wanted to take a bat to them,” said former U.S. Treasury Secretary Timothy Geithner, referring to the attitude of European leaders towards debt-laden Greece in February of 2010, three months before the country’s first bailout. Mr. Geithner, Treasury Secretary from 2009 until 2013, was attending a meeting of the finance ministers and central bankers of the Group of Seven (G7) nations: the United States, Japan, Germany, France, Britain, Italy and Canada.
It was the first occasion he had to meet Germany’s new Finance Minister, Wolfgang Schauble, presenting an opportunity to pressure the Europeans to end the crisis. The Europeans, specifically Germany and the European Central Bank (ECB), always had the ability to end the crisis. Putting up enough money in a regional bailout fund or allowing the ECB to fund governments (acting as a ‘lender of last resort’) would provide enough reassurance to the markets that no country would go bankrupt and therefore the crisis would end. It was referred to as the ‘big bazooka’ option, but Mr. Geithner had no such luck in convincing the Europeans to act quickly, largely due to German resistance.
The Europeans arrived at the G7 meeting in the remote Arctic Canadian city of Iqaluit wanting “to teach the Greeks a lesson” and “crush them,” explained Mr. Geithner. The Treasury Secretary warned them, “You can put your foot on the neck of those guys if that’s what you want to do,” but they still had to take action to reassure markets that the crisis would not spread to other countries, or threaten the euro itself. “I thought it was just inconceivable to me they would let it get as bad as they ultimately did,” said Mr. Geithner.
As the United States and the rest of the world would learn, the European strategy for the debt crisis that began in Greece and spread across the eurozone would be dictated by Germany, “the undisputed dominant power in Europe.” More than five years later, the Americans are still pressuring the Europeans to resolve their debt crisis problems, but to little effect. The stakes are now even higher as the U.S. fears the possibility of losing Greece to Russia, a conflict in which Germany is increasingly involved.
The Americans would attempt to influence Europe’s crisis through extensive contact between Mr. Geithner and Mr. Schauble at the German Finance Ministry, Mario Draghi at the ECB, and Christine Lagarde at the International Monetary Fund (IMF). The Americans knew that for anything to get done in Europe, you needed the Germans and the central bankers on board. The U.S. spy agency, the NSA, was even wiretapping the phone calls of German Chancellor Angela Merkel, top officials of the Finance Ministry and the ECB, with a particular interest in economic issues and Greece.
Germany’s political strategy was to allow the debt crisis to spread, creating the pressure required to force eurozone nations to accept German demands of restructuring their economies in return for financial aid from the EU. The German magazine Der Spiegel described Frau Merkel’s overall European strategy: “the aim was to solve the debt crisis in a step-by-step fashion.”
“If the euro fails, then Europe fails,” said the Chancellor in May of 2010, shortly after the first Greek bailout program was agreed. “The euro is in danger. If we do not avert this danger, then the consequences for Europe are incalculable and then the consequences beyond Europe are incalculable.” Merkel worked closely with Mr. Schauble at the Finance Ministry and her Minister of Economics, Rainer Brüderle, to write a draft proposal outlining the changes Germany wanted in the European Union.
The German publication Der Spiegel was leaked a copy of the draft, and concluded: “Berlin is serious about taking the lead as the euro zone struggles with a suddenly weak currency.” Germany wanted a Europe where the European Commission had the power to suspend the voting rights of nations for violating the eurozone’s debt and spending laws, including plans for managing the bankruptcy of a member nation. “Europe,” said Angela Merkel, “needs a new culture of stability.” But that culture would be enforced through the destabilizing power of financial market crises.
The German bet was that the EU could outrun financial markets, using the crisis as an opportunity to advance fiscal and political integration and impose their demands upon the rest of Europe, while simultaneously preventing markets from creating a crisis so severe that it threatened the euro or the economies of the more powerful nations. Without the pressure of financial markets, the EU could not force its member nations to restructure their economies and societies. Chancellor Merkel would frequently describe the European debt crisis to her colleagues as a “poker game” between financial markets and politicians. The first to flinch would lose.
In 2011, Bloomberg noted that Merkel was “turning Europe’s sovereign-debt crisis into an opportunity to reshape the euro region in Germany’s image,” concluding that she had “pulled ahead for now in her battle to restore policy makers’ mastery over the market.” A biographer of Merkel explained, “It’s policy by trial and error.”
Merkel’s powerful Finance Minister, Mr. Schauble, was one of the chief architects of the German strategy for Europe’s crisis. In March of 2010, he wrote in the Financial Times that, “from Germany’s perspective, European integration, monetary union and the euro are the only choice.” But aid comes with strings attached and harsh penalties for violations. “It must, on principle, still be possible for a state to go bankrupt,” wrote Mr. Schauble. “Facing an unpleasant reality could be the better option in certain conditions.”
The German minister believed “the financial crisis in the eurozone is not just a threat, but an opportunity,” as markets would “force the most debt-laden members of the 17-nation currency union to curb their budget deficits and increase their competitiveness.” This would pressure governments to accept further integration into a “fiscal union” defined and shaped by Germany. “We need to take big steps to get that done,” Mr. Schauble said in 2011. “That is why crises are also opportunities. We can get things done that we could not do without the crisis.”
Financial markets were happy to oblige the German-EU strategy, as the crisis would force the reforms long demanded by banks as a solution to the irresponsible spending of governments: austerity and structural reform. From 2002 to 2012, Josef Ackermann led Germany’s largest bank, Deutsche Bank. In 2011, the New York Times described Ackermann as “the most powerful banker in Europe” and “possibly the most dangerous one, too,” standing “at the center of more concentric circles of power than any other banker on the Continent.”
When the financial crisis struck in 2008, Angela Merkel and Josef Ackermann established a close working relationship, though not without its ups and downs. “We have a cordial and professional relationship,” said Mr. Ackermann in 2011. The banker would advise Frau Merkel on her strategy through the financial and debt crises, also working closely with Jean-Claude Trichet, then-president of the ECB. From his “seat at the nexus of money and politics,” Ackermann was “helping to shape Europe’s economic and financial future.”
After he left Deutsche Bank in 2012, Ackermann delivered a speech to the U.S.-based think tank, the Atlantic Council, where he outlined Germany’s overall strategy for Europe’s crisis. When asked why Germany simply didn’t say that it would do whatever it took to protect the euro and eurozone nations from bankruptcy (thus ending the financial crisis), Ackermann explained that it was largely due to a “political tactical consideration.” While such an option would surely end the market panic and save the euro, it would be unacceptable to the German public, let alone the German parliament.
But another major problem, noted Mr. Ackermann, was that if Germany made such an announcement, other eurozone nations “would then say, well, why then go on with our austerity programs? Why go on with our reforms? We have what we need.” Thus, he said, “I think to keep the pressure up until the last minute is probably a – not a bad political solution.” However, “if it comes to the worst,” with the potential of a eurozone collapse, the banker had “no doubt” that Germany would come to the rescue.
If the eurozone collapsed, not only would an economic and financial contagion spread with drastic consequences for all its members and the world economy as a whole, but there was also a strong political element. “A fragmented Europe has no way for self-determination,” said Mr. Ackermann. “We will have to accept what the United States, China, India, Brazil and other countries will finally define for us.” But Germany was to define the future of Europe.
“My vision is political union,” said Chancellor Merkel in January of 2012. “Europe has to follow its own path. We need to get closer step by step, in all policy areas.” In the Chancellor’s Europe, Brussels (home of the European Commission) was to be given immense new powers over member nations. “In the course a long process,” she said, “we will transfer more powers to the Commission, which will then work as a European government.” Outlining the EU’s path to a federation of nations functioning like individual states within the U.S., Merkel said, “This could be the future shape of the European political union.” Further integration among eurozone nations was a major objective, she explained, “we need to give institutions more control rights and give them more teeth.”
As Chancellor Merkel and other German leaders would frequently remind the rest of Europe and the world, with 7% of the world population, 25% of global GDP and 50% of world social spending, Europe’s economic system was unsustainable and uncompetitive in a globalized economy. Germany’s vision for Europe was aimed at introducing “rules to force Europe’s economies to become more competitive.” But competitiveness was defined by Germany, and thus, “the rest of Europe needs to become more like Germany.”
Germany wanted Greece and the rest of Europe to impose ‘budgetary discipline’ through austerity measures: cutting public spending in order to reduce the debt. But these are painful and highly destructive policies that depress the economy, impoverish the population, destabilize the political system, undermine democracy and devastate the wider society. If you live in a country where the government funds healthcare, education, social services, welfare, pensions and anything that benefits the general population, under austerity measures, now you don’t! Not surprisingly, austerity is always unpopular with the people who are forced to live through it.
Only in times of crisis can austerity be pushed through. When financial markets threaten to cut a country off from its sources of funding, it must to turn to larger nations and international organizations for financial aid. “The current strategy of the EU,” wrote Wolfgang Münchau in a November 2009 article for the Financial Times, “is to raise the political pressure – perhaps even provoke a political crisis – with the strategic objective that the Greek government might eventually relent.” And the government would have to relent to the diktats of Germany and “the Troika”: the European Commission, European Central Bank (ECB), and the International Monetary Fund (IMF), who collectively managed Europe’s bailout programs.
In early 2010, European banks held more than 141 billion euros of Greek debt, with the largest share being held by French and German banks. The first bailout largely went to bailout these very banks. Karl Otto Pohl, the former President of the German Bundesbank noted back in 2010 that the Greek bailout was about “rescuing the banks and the rich Greeks,” especially German and French banks. As the Troika bailed out the banks, these institutions took on the Greek debt.
The second bailout organized by the Troika largely went to paying interest on Greek debt owed to the Troika. Thomas Mayer, a senior adviser to Deutsche Bank, said, “the troika is paying themselves.” Between May 2010 and May 2012, Greece had received roughly $177 billion in bailouts from the Troika. A total of two-thirds of that amount went to payoff bondholders (banks and rich Greeks), while the remaining third was left to finance government operations.
In 2015, a study by the Jubilee Debt Campaign noted that of the total 252 billion euros in bailouts for Greece over the previous five years, over 90% ultimately went “to bail out European financial institutions,” leaving less than 10% for anything else. At the time of the first bailout in 2010, Greece had a debt-to-GDP ratio of roughly 130%. As a result of the bailouts and austerity, the debt ratio has risen to 177% of GDP at the beginning of 2015. Thus, after more than five years of supposed efforts to reduce its debt, that debt has grown substantially.
But the banks are no longer the largest holders of Greek debt. Today, the Troika owns 78% of the 317 billion euro Greek debt. Greece now owes the IMF, ECB, and eurozone governments a total of 242.8 billion euros, with the largest single holder being Germany with more than 57 billion euros in Greek debt. And now the Troika wants to be paid back. “In short,” wrote Simon Wren-Lewis in the New Statesman, “it needs money from the Troika to repay the Troika.”
The effects on Greece of more than five years of living under the domination of Germany and the Troika have been palpable. Greece is a ruined economic colony of the European Union. Austerity in Greece led to the creation of “a new class of urban poor” with more than 20,000 people being made homeless over the course of 2011, and dozens of soup kitchens and charities opening up to attempt to address the growing social and human crisis.
As austerity continued to collapse the economy, unemployment and poverty soared. By 2013, more than 27% of Greeks were unemployed and 10% of school-age children were going hungry. Between 2008 and 2013, the Greek government cut 40% of its budget, healthcare costs soared, tens of thousands of doctors, nurses and other healthcare workers were fired, drug costs rose, as did drug use with HIV infections doubling and a malaria outbreak was reported for the first time since the 1970s, while suicide rates increased by 60%.
By early 2014, more than a million Greeks were left without access to healthcare, accompanied by rising infant mortality rates. A charity director in Athens noted that, “Alcoholism, drug abuse and psychiatric problems are on the rise and more and more children are being abandoned on the streets.” By 2015, roughly 40% of children in Greece lived under the poverty line while the richest Greeks, responsible for roughly 80% of the tax debt owed to the government, were hiding tens of billions of euros in offshore accounts.
Unemployment has grown to 26% (and over 50% for youth), wages dropped by 33%, pensions were cut by 45%, and 40% of retired Greeks now live below the poverty line. Just prior to the Greek elections that brought his party to power in January of 2015, Alexis Tsipras wrote in the Financial Times that, “This is a humanitarian crisis.” Joseph Stiglitz, the Nobel Prize-winning former chief economist of the World Bank, wrote in late June of 2015 that, “I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences.”
Thus, the German-Troika strategy of prolonging the debt crisis to reshape Europe has resulted in a human, social and political crisis that threatens the future of democracy in Europe itself. Germany has, in effect, established an economic empire over Europe, largely operating through the Troika institutions, all of which are unaccountable technocratic tyrannies.
The first pillar of the Troika is the International Monetary Fund (IMF), based in Washington, D.C., just a few short blocks down the road from the White House and U.S. Treasury Department. The United States is the largest single shareholder in the IMF, and the only one of its 188 member nations with veto power over major Fund decisions. The Financial Times referred to the IMF as “a tool of US global financial power.”
In 1977, U.S. Treasury Secretary Michael Blumenthal described the IMF as “a kind of whipping boy” in a memo to President Carter. In return for a loan to a country in crisis, the Fund would demand harsh austerity measures and other ‘structural reforms’ designed to restructure the economy along the lines desired by Washington. “If we didn’t have the IMF,” wrote Blumenthal, “we would have to invent another institution to perform this function.”
In the early 1990s, the IMF was managing ‘programs’ in over 50 countries around the world, and was “long been demonized as an all-powerful, behind-the-scenes puppeteer for the third world,” noted the New York Times. In 1992, the Financial Times noted that the fall of the Soviet Union “left the IMF and G7 to rule the world and create a new imperial age.” Operating through the Troika, IMF Managing Director Christine Lagarde took a “tough love” approach to Greece, with the Fund being referred to as “the toughest” of the three institutions.
The European Central Bank (ECB) is another pillar of the Troika, run by unelected central bankers responsible for managing the monetary union, with its headquarters in Frankfurt, Germany, home to the German central bank (the Bundesbank) and Germany’s large financial sector. Throughout the crisis, Brussels has pushed to give the ECB more powers, specifically to oversee the formation and management of a single ‘banking union’ for the EU. The ECB has, in turn, advocated for more power to be given to Brussels.
The ECB played a central role in the debt crisis, pushing Greece into a deep crisis in late 2009, making “an example” of the country for the rest of Europe, blackmailing Ireland into accepting a Troika bailout program, then blackmailing Portugal into doing the same, and putting political pressure on Italy and Spain to implement austerity measures.
In late 2014, ECB President Mario Draghi rebooted efforts to advance integration of the economic and monetary union. When the anti-austerity Syriza government came to power in Greece in early 2015, the ECB was placed to be “the ultimate power broker” in negotiations between the country and its creditors. A member of the central bank’s executive board welcomed the democratic victory in Greece by warning, “Greece has to pay, those are the rules of the European game.”
The ECB took a hardline approach to dealing with Greece, increasing the pressure on Athens to reach a deal with its creditors, with The Economist referring to the central bank as “the enforcer.” This unelected and democratically unaccountable institution holds immense, undeniable power in Europe.
The European Commission is the third pillar of the Troika based in Brussels, functioning as the executive branch of the European Union overseeing a vast bureaucracy of unelected officials with responsibility for managing the union. Throughout the crisis, the Commission has been given sweeping new powers over economic and spending policies and priorities of member nations.
Brussels was to be given the centralized power to approve and reject national budgets of eurozone nations, establishing a technocrat-run ‘fiscal union’ to match the ECB’s role in managing the monetary union. EU institutions would have “more powers to serve like a finance ministry” for all the nations of the eurozone, potentially with its own finance minister, “who would have a veto against national budgets and would have to approve levels of new borrowing,” said Mr. Schauble, the German Finance Minister.
In 2007, European Commission President José Manuel Barroso mused aloud during a press conference. “Sometimes I like to compare the E.U. as a creation to the organisation of empires,” he said. “We have the dimension of Empire but there is a great difference. Empires were usually made with force with a centre imposing diktat, a will on the others. Now what we have is the first non-Imperial empire.” Eight years later, it is clear that the EU is officially an imperial empire, using bailouts not bombs, choosing the Troika over tanks, Brussels over bullets, austerity instead of armies, advocating for consolidation instead of colonization.
Philippe Legrain, a British political economist, author, and adviser to President Barroso from 2011 to 2013 wrote that the debt crisis “divided the euro zone into creditor nations and debtor ones,” and the EU’s institutions “have become instruments for creditors to impose their will on debtors, subordinating Europe’s southern ‘periphery’ to the northern ‘core’ in a quasi-colonial relationship. Berlin and Brussels now have a vested interest to entrench this system rather than cede power and admit to mistakes.”
“In general,” wrote Gideon Rachman in the Financial Times in 2007, “the [European] Union has progressed fastest when far-reaching deals have been agreed by technocrats and politicians – and then pushed through without direct reference to the voters. International governance tends to be effective,” he concluded, “only when it is anti-democratic.”
Perhaps the greatest lesson of the past five years of crisis is that in a Europe under the rule of Germany and the Troika, the people and democracy suffer most. For democracy to survive in Europe, the technocratic tyranny of the Troika and debt-based domination of Germany must be challenged. Democracy is too important to be sacrificed at the altar of austerity. It is any wonder why Greeks voted ‘no’ to the status quo?
Andrew Gavin Marshall is a freelance researcher and writer based in Montreal, Canada.
Please consider making a donation to help support my research and writing.