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Money Managers for Mankind? China in the Age of Global Governance, Part III
By: Andrew Gavin Marshall
3 March 2016
Originally posted at Occupy.com on 9 February 2016
In pursuing the strategy toward China of “integrate, but hedge,” the United States and its G-7 allies attempted to manage China’s global financial role, giving the world’s second largest economy a greater stake in the existing system while attempting to prevent alternative or antagonistic emerging market economies from gaining power.
However, due to the slow pace of reforms and their often disappointing results – case in point: the five-year delay of International Monetary Fund (IMF) reforms that would give China and other emerging economies greater influence in the Fund and World Bank – China has turned to creating its own development bank, the Asian Infrastructure Investment Bank (AIIB). And while China was developing the AIIB over the course of 2015, China was not only hedging its own bets – it was also advancing a strategy of “integration” on the monetary front. In the world of currencies, central banks and the global monetary order, China had an important year.
The main issue has been the inclusion of the Chinese currency – the yuan, or renminbi – in the elite basket of currencies managed by the IMF known as Special Drawing Rights (SDRs). Consisting of four of the world’s most traded currencies (the U.S. dollar, the euro, Japanese yen and British pound), the SDR is a currency unit whose value is weighted among those four currencies and used in IMF transactions between nations and central banks. But the real importance of the SDR basket is that it is a symbolic grouping of the few select currencies (and countries) that dominate the global monetary system. They are the most traded, saved and important currencies in the world, giving the countries and institutions that control them inordinate power in the global monetary and economic system.
China has lobbied for years to be included in the SDR basket, as both a sign of its global economic status and as a recognition of its new geopolitical power. But for China to be included, it needed to meet a number of criteria related to how easily tradable the currency is, how many central banks use the currency as a reserve asset, and whether or not interest rates are determined by market forces. Eswar Prasad, an economics professor at Cornell University who was previously the China country director at the IMF, commented that “this is ultimately going to be decided on political rather than economic merits.”
In laying the groundwork for inclusion, the IMF announced late last May that the renminbi was no longer considered to be “undervalued” – a long-held complaint of the IMF, United States and other G-7 nations that felt for such a large economy to maintain such a cheap currency gave it an overwhelming trade advantage, keeping its products cheaper and thus more competitive in international markets. Thus, the IMF’s declaration paved the way for consideration of the Chinese currency to be included in the SDR.
When the G-7 finance ministers and central bank governors met in Berlin in late May, they discussed the potential inclusion of the renminbi in the SDR basket. German Finance Minister Wolfgang Schauble said that “it is desirable in principle” but “the technical conditions must be examined.” The G-7 countries continued to push China to reform its capital markets in order to increase its potential for inclusion. This pressured China to implement further market reforms to “liberalize” its financial markets, allowing for private financial institutions to play a larger role in managing the country’s economy (as opposed to being more state-directed and managed).
Earlier that same month, the People’s Bank of China (PBoC), China’s central bank, approved roughly 30 foreign financial institutions to invest its domestic bond market, giving banks like HSBC, BNP Paribas, Société Générale, ING and Morgan Stanley greater access to the world’s third largest bond market (following the U.S. and Japan). China made moves over subsequent months to increase the access of foreign central banks and sovereign wealth funds to its bond market, as the country continued reforms that liberalized its economy. However, China still remained hesitant to adapt market forces too quickly or too fully that might have the effect of destabilizing the economy.
In August, the IMF recommended that while the renminbi should be added to the SDR basket, with a final decision to be made in November, the currency’s actual addition to the basket should not take place until September of 2016. This was in order to allow the country to implement further financial reforms and give banks, central banks and asset managers enough time to adjust their currency holdings to a slightly reformed monetary order. Some G-7 countries, such as Germany, France, Britain and Italy, favored a quick inclusion of the renminbi to the SDR, but Japan and the U.S. favored a more cautious approach.
Then, partway into August, China shocked global financial markets with a rapid currency devaluation – done partly to provide a boost to its own slowing economy – raising criticism from several countries that China was engaging in a currency war to lower the value of the renminbi in order to boost exports at the expense of other nations. However, because China’s currency is so closely tied to the U.S. dollar, as the dollar has risen in value over the past year or so, China’s currency has risen with it. This has put further strain on China’s economy and decreased its competitiveness relative to other global currencies whose value has declined relative to the rise of the dollar. That’s why, when China devalued in August, it explained the move as an attempt to move more towards a market oriented value for its exchange rate.
China was accused of currency manipulation due to its sudden devaluation, though it was in fact more accurately a response to the pressures from the manipulated changes in the value of the big currencies (U.S. dollar, Japanese yen and euro), which fluctuated in response to the winding down or ramping up of their respective Quantitative Easing (QE) programs. China managed to mute some harsher criticisms of its move by quickly announcing further market-oriented reforms to its financial and interest rate markets.
At a meeting of G-20 finance ministers and central bank governors in early September, U.S. Treasury Secretary Jacob Lew pressured his Chinese counterparts to continue the process of implementing market reforms, and specifically allowing markets a larger say in determining the value of the Chinese currency.
In mid-November, the IMF officially recommended that China be included in the SDR basket, which would “turn its currency into one of the pillars of international finance,” noted the New York Times. However, the final decision was to be made by the IMF’s Executive Board at the end of the month, where the G-7 countries have the power to pass or block any final moves. Following the IMF staff recommendation, China’s central bank announced that it would be implementing further reforms to allow markets more of a say in setting interest rates. And in late November, the IMF Executive Board voted in agreement to let the renminbi be included in the SDR basket, effective October 1, 2016.
Then, partway into December, China announced that it would begin to measure the value of its currency against a basket of 13 currencies instead of just the U.S. dollar. This would give the currency more room to fall in value relative to the U.S. dollar’s rise, and would give the country more “monetary independence” from the decisions and actions of the U.S. Federal Reserve. The announcement came just as the Fed was set to raise interest rates for the first time in nearly a decade, a move that would drive the U.S. currency even higher and put even more pressure on China as its economy continues to slow. In response, the Chinese currency hit a new four-year low against the U.S. dollar, increasing the country’s trade competitiveness.
The rise of China is one of the most important economic stories of the late 20th and early 21st centuries, and will continue to remain so. While the United States and the G-7 seek to “integrate, but hedge” their bets in bringing China into the structures of global economic governance, such as through inclusion into the SDR basket, China continues to pressure for greater political power commensurate with its economic weight, “hiding its brightness, biding its time.” But the time is increasingly present, visible with China’s founding of the Asian Infrastructure Investment Bank (AIIB), as a potential rival to the World Bank.
The integration of China into the structures and systems of global economic governance will have lasting ramifications. Not simply because it represents a shift from the dominance that the G-7 nations held over the global economy for the past four decades, but because the Chinese model of state-run totalitarian capitalism itself presents an alternative approach to constructing a market economy. As China increasingly becomes a part of the governing structure of the world economy, its model will gain increased influence. Indeed, if war and hostilities between the other great powers are to be avoided, the future of global capitalism may well rely on a combination of Western markets and institutions backed up by totalitarian institutions like the regime in Beijing.
Given that the capitalist system is experiencing a crisis in its legitimacy – with warnings from the head of the Bank of England, the IMF, and influential financial dynasties that the system is increasingly under threat due to its excesses – democracy may no longer be compatiblewith capitalism. And totalitarian state structures may be the only way to save capitalism from itself.
“Hide Your Brightness, Bide Your Time”: China in the Age of Global Governance, Part II
By: Andrew Gavin Marshall
3 March 2016
Originally posted at Occupy.com on 2 February 2016
This is the second article in a three-part series focusing on China’s transformed role on the world financial stage. Read the first part here.
One of the most important developments in the global economy over the past thirty years has been the integration of China into the global economic system and its governing institutions. The United States and the G-7, which collectively dominate these institutions, have managed the process in a slow, incremental fashion, allowing China a larger voice, greater representation and more authority in return for its implementation of reforms to further advance the market economy and allow Western banks and corporations greater access to the Chinese market.
But China, and other emerging market economies, have become increasingly frustrated with the slow efforts on the part of the G-7 nations and the institutions they control. With emerging economies, and notably China, accounting for such a large share of global economic growth and wealth, those countries feel increasingly underrepresented in international economic institutions and decision-making. Their international political power does not accurately reflect their international economic influence.
Integration and greater representation within the global economic architecture is designed to give emerging economies a greater stake in the international economic and political system, providing them with ownership and authority. However, if the process is too slow or the results too weak, emerging economies could potentially create their own parallel institutions and perhaps even (in the long term) construct a parallel or opposing economic system altogether.
China is the most important emerging market economy and the one at the forefront of this process of integration. The United States has for decades pursued a strategy toward China described as “integrate, but hedge.” In a nutshell, the concept is that it is imperative to bring China within the international system, but it must be done slowly and in a way that curbs China’s potential capacity to disrupt the system or existing power structures. However, such a strategy can backfire, for hedging bets can easily transform into antagonism, pushing China to adopt more aggressive responses and ultimately creating the circumstance such a strategy was supposed to avoid.
This process is evident in the development of the Asian Infrastructure Investment Bank (AIIB), which came in response to the slow efforts by the U.S. to give China and other emerging economies greater representation and ownership in the International Monetary Fund (IMF) and World Bank. In 2010, the IMF agreed to implement reforms to its governance structure and that of its sister institution, the World Bank – which is dominated by the U.S. and the G-7 – allowing several emerging market countries to gain increased shares and power within the 188-member-nation institutions.
But since the reforms were agreed in 2010 and ratified by virtually every nation in the world, only the U.S. has refrained, held back by a Congress that proclaims its wariness to give up any influence within the Fund. However, America would maintain its status as the top shareholder in the IMF and World Bank, while remaining the only one with veto power, and Japan would keep its position as the second largest shareholder. But the reforms would elevate China from the Fund’s sixth largest shareholder to third largest, putting it ahead of Germany, the United Kingdom and France.
Following years of delays in ratifying the IMF’s quota and shareholder reforms, Chinese President Xi Jinping announced in October of 2013 plans for the formation of “a new multinational, multibillion-dollar bank to finance roads, rails and power grids across Asia.” The so-called Asia Infrastructure Investment Bank would present a challenge to the role of the World Bank and the Asian Development Bank (ADB), in which Japan and the U.S. are the two largest shareholders.
The U.S. was quick to pursue a strategy of containment and opposition to the proposed bank. As China was engaging in behind-the-scenes diplomacy with several Asian, European and other large nations around the world to gain support for the AIIB, the United States was lobbying its allies to oppose the bank and refuse to join its membership. China was meanwhile attempting to secure a roster of rich nations to join the AIIB as founding members and thus provide the development bank with much-needed capital. The U.S., however, was pressuring South Korea and Australia, among others, to reject the proposal and ensure that “membership in the bank would be limited to smaller countries, depriving it of the prestige and respectability the Chinese seek.”
At first, the U.S. lobbying and pressure seemed to work. When the AIIB was officially founded in late October of 2014, it had a membership of roughly 20 smaller countries along with China. The only other large nation to join was India. But in March of 2015, the UK defied pressure from the U.S. and announced that it would be joining the AIIB. U.S. officials weren’t pleased; one told the Financial Times that Washington was frustrated with Britain’s “trend toward constant accommodation of China.” This approach, said the official, “is not the best way to engage a rising power.”
Once Britain, a G-7 member, joined the AIIB, it led the way for other powerful and rich nations to do so. Within days, three other G-7 nations – Germany, France and Italy – all announced they were joining the bank. At the same time, Japan, China’s major competitor for economic, political and military influence in the region, said it was sticking by its major patron, the United States, and refused to join the AIIB. “The United States now knows Japan is trustworthy,” said Japanese Prime Minister Shinzo Abe.
But the American strategy of opposition to the AIIB was not without its critics. Lawrence Summers, the former U.S. Treasury Secretary, former chief economist at the World Bank, and a top economic adviser to President Obama in his first term, wrote in the Financial Times that the U.S. decision to oppose the AIIB could represent “the moment the United States lost its role as the underwriter of the global economic system.” Summers wrote that “the global economic architecture needs substantial adjustment,” with the U.S. and G-7 nations needing to adapt to a world in which China was virtually the same economic size as the United States, and in which emerging market economies accounted for roughly half of global wealth.
The President of the World Bank, U.S.-appointed Jim Yong Kim, pledged to find ways to cooperate with the new Chinese-led development bank, as did the Japanese head of the Asian Development Bank (ADB). Former World Bank President Robert Zoellick also wrote that U.S. opposition to the AIIB was “a strategic mistake.” Even President Obama in April suggested that the AIIB could potentially be a “good thing,” but stressed that it would have to adopt the standards set by U.S. and Western-controlled institutions like the World Bank.
In June of last year, former Federal Reserve Chairman Ben Bernanke chimed in, saying, “The U.S. Congress is largely at fault for all that’s happening,” referring to the role of the legislature in blocking the ratification of the IMF’s reforms. Because of this, he explained, China and other countries have been increasingly looking to create their own regional institutions. “It would have been better to have a globally unified system,” said Bernanke.
By September, following a state visit between Chinese President Xi Jinping and President Obama at the White House, the U.S. formally announced “what amounts to a truce” over their opposition to the AIIB, with the U.S. saying it would stop lobbying against the institution in return for China agreeing to increase its financial contributions to institutions like the World Bank. However, both the United States and Japan continued to refuse to join the AIIB as members. At a joint press conference, President Xi said that “China is the current international system’s builder, contributor and developer and participant, and also beneficiary.” China was willing, he added, “to work with all other countries to firmly defend the fruits of victory of the second world war, and the existing international system.”
According to plan, the AIIB is to start with a capital base of $100 billion, and its ownership structure is designed to give countries in the Asia Pacific region roughly 75% of the voting shares, “giving smaller Asian countries a greater say than they have in other global organizations.” China provides the AIIB with nearly $30 billion of its $100 billion, giving its chief backer between 25% and 30% of voting shares and the only veto, since major decisions require a 75% majority.
The second largest contributor and shareholder is India, providing $8.4 billion, followed by Russia at $6.5 billion. Next is Germany with a $4.5 billion contribution, South Korea and Australia each providing $3.7 billion, with France and Indonesia each contributing $3.4 billion. Among the other large shareholders are Brazil, the UK, Turkey, Italy, Saudi Arabia, Spain, Iran, Thailand and the Netherlands.
The result: while the U.S. and Japan sit on the sidelines hedging their bets, the AIIB starts its place in the world of global economic governance with a membership of 57 nations from around the world. As former Chinese leader Deng Xiaoping said several decades ago, “Hide your brightness; bide your time.” With the founding of the AIIB, China may very well be staking a claim on its time for greater power in the global economy.
“Integrate, But Hedge”: China In the Age of Global Governance, Part I
By: Andrew Gavin Marshall
3 March 2016
Originally posted at Occupy.com on 26 January 2016
This is the first article in a three-part series focusing on China’s transformed financial role on the world stage.
“Hide your brightness; bide your time,” cautioned Deng Xiaoping, the chief architect of modern China who was the country’s supreme ruler from 1978 until the 1990s. Deng oversaw the “opening” of China into a modern state-capitalist society. He articulated a strategy for China’s integration into the global economic system – a strategy that progressed over the past four decades such that the world’s most populous nation is now its second largest economy, increasingly able to flex its new geopolitical and economic power and ambitions.
But China’s integration into the existing structures of global economic governance is not without risks and challenges. The country has grown economically as a result of slow, state-managed reforms to its economic system and the degree to which it has worked with the Western-created and -dominated economic system – in particular, those members of the Group of Seven (G-7) nations, the United States, Germany, Japan, the United Kingdom, France, Italy and Canada.
The G-7 was established a few years prior to China’s economic opening, and in the subsequent four decades has been the prime driving force in shaping the architecture of the global economic system. As emerging market economies implemented economic reforms encouraged by the G-7 nations and the institutions they dominate, they demanded more representation and power within the institutions and structures of global economic governance. China is chief among the emerging market economies, and has been at the forefront of pushing for representation and influence in the global economy and its governing institutions.
The G-7 nations, and in particular the United States, have accepted that emerging markets and China need to be integrated into the existing structure, but the challenge has been to manage the process in a slow, incremental way that allows the G-7 to continue pressuring emerging markets into implementing further reforms while maintaining G-7 nations’ own position at the center of the system. For this reason, the Group of 20 (G-20) was created in the late 1990s as a meeting of finance ministers and central bank governors from the G-7 countries and several important emerging markets, including China.
Over the years and decades that China has implemented market reforms (albeit, managed by a totalitarian one-party state), the country has joined such institutions as the World Trade Organization (WTO) and gained elevated status within the International Monetary Fund (IMF) and World Bank. However, its political, diplomatic and military power has also grown alongside its economic weight. East Asia, once the unquestioned domain of American and Japanese power, now has a new regional hegemon. This makes the imperative for China to integrate into the global economic architecture all the more imperative, as it would give the country a greater stake in the system as it exists, instead of potentially creating an alternative or rival system and institutions.
However, while integration is essential in the eyes of the West (and, indeed, in the eyes of many of China’s rulers, as well), it also carries immense risks. Unlike Japan, China is not dependent upon the U.S. for military protection and support, nor does it operate through a similar state democratic structure with which the industrialized world is familiar. Indeed, China and Japan are often antagonistic toward one another, a long product of Japan’s historical imperial war mongering and colonialism in the region. China has no desire to bow down to any outside power such as the U.S., nor submit to regional competitors such as Japan, and least of all does it intend to play second fiddle to any other power in its own backyard.
So, while there is a mutually beneficial economic relationship between China and the West, prompting the need for further integration into the structures of global economic governance, there is also a great deal of mistrust and uncertainty between China and the West, particularly on military and foreign policy matters. Historically, the rise of any new great power has always taken place in an environment of geopolitical tension and war. America, as the existing global hegemon, has designed its political and economic strategy toward China with these concerns in mind.
The American approach toward China was articulated, and in part designed, by the political scientist and former top U.S. government official and adviser Joseph Nye, as a strategy of “integrate, but hedge.” Nye, who formerly served in senior positions in both the State Department and Defense Department, is considered one of the most influential foreign policy intellectuals in the U.S. His influence extendsthrough multiple think tanks and advisory boards of which he is a member, including the Trilateral Commission, the Council on Foreign Relations (CFR), the Center for Strategic and International Studies (CSIS), the Aspen Strategy Group, and on advisory boards to the Defense Department and State Department.
Nye explained in The New York Times that in his role at the Defense Department in the 1990s, he helped develop the Pentagon’s East Asian Strategy Report, which identified three major powers in the region: the United States, Japan and China. It was at this time that the U.S. strategy of “integrate, but hedge” was designed, and it continued through the Clinton, Bush and Obama administrations. Maintaining the U.S. alliance with Japan was central to the strategy, as it “would shape the environment into which China was emerging.” The objective was “to integrate China into the international system,” which included joining the World Trade Organization (WTO), but Nye added: “We needed to hedge against the danger that a future and stronger China might turn aggressive.”
In the Fall of 2011, high ranking members of the Obama administration began making clear that U.S. grand strategy envisioned an increased focus and presence in the Pacific Asian region. Writing in Foreign Policy in October of 2011, then-Secretary of State Hillary Clinton explained that the U.S. was implementing “a strategic turn to the region” to maintain “peace and security” and “open markets.” Such a strategy would “secure and sustain America’s global leadership.” Clinton wrote that the U.S. relationship with China was “one of the most challenging and consequential bilateral relationships the United States has ever had to manage” which “calls for careful, steady, dynamic stewardship.”
In November of 2011, President Obama declared the “pivot” to Asia was a “top priority” for the United States. “The United States is a Pacific power and we are here to stay,” said the President, though he claimed that it was not a strategy designed to “contain” China. “We’ll seek more opportunities for co-operation with Beijing,” he said. “All our nations [of the Pacific region] have a profound interest in the rise of a peaceful and prosperous China.”
Thomas Donilon, President Obama’s National Security Advisor from 2010 to 2013, described the same strategy toward China while speaking to an audience at the Center for Strategic and International Studies (CSIS) in November of 2012. One of the central elements of the pivot to Asia, explained Donilon, was “pursuing a stable and constructive relationship with China.” America’s relationship with China “has elements of both cooperation and competition,” and U.S. policy was designed “to seek to balance these two elements in a way that increases both the quantity and quality of our cooperation with China as well as our ability to compete.” The U.S. had made clear, he said, “that as China takes a seat at a growing number of international tables, it needs to assume responsibilities commensurate with its growing global impact and its national capabilities.”
Another component of the pivot to Asia was to advance the region’s “economic architecture,” which meant a stronger engagement with regional forums and multilateral institutions, and notably advancing the Trans Pacific Partnership (TPP), a regional ‘trade’ deal driven by the United States to “deepen regional economic integration.” The Trans Pacific Partnership (TPP) agreement was finalized in 2015 as a “21st century trade agreement” between the United States, Canada, Mexico, Chile, Peru, Australia, New Zealand, Japan, Singapore, Malaysia, Vietnam and Brunei. The agreement was largely viewed by America’s allies as “a counterweight” to China’s regional and global economic and political ambitions.
The Financial Times described the TPP as the “economic backbone” of the U.S. pivot to Asia, writing that, “the goal for the U.S. and Japan is to get ahead of China… and to create an economic zone in the Pacific Rim that might balance Beijing’s economic heft in the region.” As President Obama said: “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules.”
So while the United States continues to “write the rules” of global economic governance as it pursues its decades-long strategy of “integrate, but hedge,” China appears to still be following the original advice of Deng Xiaoping: “Hide your brightness, bide your time.” Time will tell.
Meet the “Emerging Market” Superstars of Global Economic Governance, Part II
By: Andrew Gavin Marshall
2 February 2016
This is the second of a two-part article that was co-produced and co-published with the Transnational Institute, timed to coincide with the World Economic Forum starting this week in Davos, Switzerland. The first installment of the article appeared on 18 January.
Monetary Orthodoxy and its Political Repercussions
Central bankers are notoriously conservative and orthodox in their ideological positions. In the world of economics, this puts them in the position of being the political guardians of the global neoliberal order. In terms of policies, this translates into being strong promoters of low inflation, often requiring them to raise interest rates; supporters of liberalization (or deregulation) of markets, particularly financial and debt markets; implementing austerity measures (cutting social spending), and undertaking various structural reforms (such as the deregulation of labour markets and privatization of state assets) designed to further transform their respective societies into modern market economies.
While central bankers themselves are confined to the strict mandates of their institutions, often focused around what’s called maintaining “price stability” (keeping inflation at a low and stable level, generally between 2-5% depending on the country), they are still able to greatly influence the broader set of economic policies and priorities, and through their control over monetary policy they have the capacity to inflate or shrink an economy, giving them immense leverage over other policy-makers.
One of the most important characteristics of modern central banks is their so-called “independence,” referring to the degree to which the central bank and its governor are accountable to political authorities. If a central bank is “independent,” this means it has the power to act independently of elected (or otherwise established) political authorities so long as it is operating within its mandate and using the various policy options and instruments available to it (such as raising or lowering interest rates). Some of the most powerful central banks in the world, such as the U.S. Federal Reserve, the European Central Bank (ECB) and the Bank of England, are examples of independent central banks led by unelected technocrats who are unaccountable to elected officials and the democratic process.
Thus, in the world of central banking, the prevailing orthodoxy revolves around the twin concepts of operational independence and a mandate focusing on price stability. The combination of these factors gives central bankers immense political power, for their economic decisions have profound social and political consequences, capable of causing recessions or depressions, creating mass unemployment, collapsing governments, bailing out banks and financial institutions (and handing the bill to the public), and transforming the very structure of society itself.
This political power is most frequently used to the benefit of the national and international private financial community (banks, insurance companies, asset managers, etc.) as opposed to the wider public community or nation. A mandate of “price stability” (low inflation), for example, is beneficial to creditors because it increases the amounts they are owed and protects the value of their savings. Higher inflation, on the other hand, can reduce the value of their savings and make it easier for debtors to pay off debts. There are of course exceptions and nuances to this general scenario. For example, hyperinflation is bad for everyone, and low to moderate inflation may be good for debtors so long as their wages are adjusted to inflation (which allows them to be paid more in dollar amounts for the same amount of work, and thus, helps to pay off debts faster).
Raghuram Rajan acknowledged the political nature of central banking during a speech at the annual congregation of global central bankers in Jackson Hole, Wyoming, in late August of 2015. While the work and focus of central bankers is largely “technical,” explained Rajan, both history and “the current political environment” have an immense influence on monetary policy and its technical components. Rajan noted that central bankers think of and promote themselves as “apolitical,” but the “background influence of political economy” is always present, “sometimes without recognizing it.”
The problem for central bankers, he suggested, was their communication of political issues, because once central bankers do so, they become engaged in “the political dialogue,” which they are supposed to avoid, “because you’re a technocrat whose supposed view is apolitical.” An unelected technocrat at a central bank is capable of “making decisions that infringe on the prerogative of elected officials,” he said, but such “decisions may mean political trade-offs,” or deals to be made with politicians. When it comes to making policy, he said, “nothing can really be clean.”
This is something that Governor Rajan knows very well. In January of 2015, he made a private deal with the elected government of Prime Minister Narendra Modi in which he agreed to cut interest rates, giving a boost to economic growth in return for the government agreeing to implement a host of austerity measures and “structural reforms” designed to further develop India’s “power, land, minerals and infrastructure.” But by early February, Rajan indicated that “the war on inflation” was far from won in India, and refused to cut rates further.
This was viewed as “a message” by the central banker to the government to include austerity measures and other reforms if the government expected any further monetary support. The government acquiesced to the Governor’s demands, and the budget submitted by the Finance Minister included a “panopoly” of austerity measures and other reforms. Private bankers and investors expressed their delight at the new budget.
A couple days after the budget was announced, another important announcement was made for Rajan, as he was granted special new powers with the central bank being given an “inflation target” (putting “price stability” into the mandate). This effectively gave Rajan and the Reserve Bank of India (RBI) greater independence from political authorities. The day after he was granted these new powers, Rajan cut interest rates in line with his previous deal with the government in return for the budget items he demanded, and possibly in a quid-pro-quo for granting him new independent powers. During 2015, there continued to be tussles between the RBI and the government about the independence of the Bank, but it seems likely that Rajan will emerge victorious.
Governor Carstens of Mexico also had his own struggles throughout the year, dealing with the repercussions of potential higher interest rates in the United States. However despite the Mexican economy slowing down, but Governor Carstens refused to cut interest rates any further, not wanting to “let inflation and the peso go adrift.” The main guideline of the central bank, he said, “should be inflation expectations,” adding that he would even consider raising rates if need be, possibly even before the U.S. Federal Reserve raised its own rates. “We will act,” he said in an interview with the Wall Street Journal. Carstens endorsed the austerity package introduced by the Mexican Finance Minister Luid Videgaray, but warned that, “What’s important here is that the Finance Ministry sticks to its promises.”
In late July, Governor Carstens enjoyed a notable victory in the world of central bankers: inflation in Mexico hit its lowest level since 1970, and at 2.76%, it was below the 3% target set by the central bank. As the Wall Street Journal opined, this achievement “polishes Mexico’s credentials as the most economically orthodox country in Latin America, and one where inflation-control policies are sacrosanct.” Carstens referred to it as “an important milestone for Mexico.”
In September, Mexican Finance Minister Luis Videgaray announced that President Pena Nieto would nominate Carstens for a second six-year term at the head of the country’s central bank, which was “likely to give confidence to financial markets.” And despite the inevitable negative consequences of higher U.S. interest rates on emerging market economies, both Governors even came out in support of the Federal Reserve raising rates. Carstens said such a move would be reflective of a stronger U.S. economy which would be “very good news.” Rajan, on the other hand, said, “It’s preferable to have a move early on and an advertised, slow move up rather than the Fed be forced to tighten more significantly down the line.”
Emerging Markets – An Expanding Global Elite
Rajan and Carstens are also a reflection of one of the most important economic stories in the past several decades, which has been the rise of what we call the “emerging market” economies, countries like China, India, Brazil, Russia, South Africa, Mexico, Turkey and Indonesia, among others. In the 25 years prior to the global financial crisis, the Group of Seven (G-7) countries (United States, Germany, Japan, United Kingdom, France, Italy and Canada) accounted for roughly half of global GDP, but their share has declined relative to the growth of emerging markets. In 1990, emerging economies accounted for less than a third of global growth, but by 2013, they accounted for roughly half, in what The Economist called “the biggest economic transformation in modern history.”
Emerging markets have not risen in economic size and strength in opposition to the economic system defined and governed by the G-7 nations, but rather through their integration into that economic order and acceptance of the economic orthodoxy propagated by the developed economies. With their rise, they are demanding greater international political power to match their increased international economic weight.
Despite unity on economic policy, this shift has not been a smooth process or without resistance, given the reluctance of the United States and G-7 nations to give space for emerging nations to articulate alternatives particularly on issues of foreign policy where there is more divergence of views. In managing this process, the G-7 nations have granted special status to a small group of emerging economies and to the top financial diplomats that represent them in international circles. In particular, China, India, Brazil and Mexico are the most favoured emerging economies, the most integrated into the structures of global economic governance, and whose top diplomats (in particular, central bankers) are the most respected and represented in global financial circles.
The Emerging Consensus
These two governors of the global economy, perhaps the two most respected central bankers from emerging market economies, represent the changing faces of global economic governance, but also represent the fact that for emerging markets to get real power, they must first give up any alternative economic ideology or vision. Both Carstens and Rajan attended prestigious American universities, worked in high level positions at the IMF and in their respective finance ministries before ascending to the throne of monetary managers for Latin America’s second largest – and Asia’s third largest – economy.
Integration into the existing power structures of global economic governance requires first and foremost, ideological capitulation: to accept the market system as the ideal form of the global economic order. They may push for reforms and alterations, but the substance remains largely the same: the market remains supreme and sovereign. Carstens and Rajan may be global economic governors of a different variety than the world is accustomed to, but they are firmly entrenched within the existing apparatus and ideology of global economic governance. Keep your eyes on these two, they’re going places, and taking their respective countries – and the global economy – with them.
Highlights from Carsten and Rajan’s calendar in 2015
The following is a list of some of the most important meetings and gatherings of international financial diplomats and technocrats attended by one or both of governors Carstens and Rajan over the course of 2015.
Jan. 11-12: Bi-Monthly meeting of the Bank for International Settlements (BIS), Basel, Switzerland
Jan. 21-24: World Economic Forum (WEF) Annual Meeting, Davos, Switzerland
Feb. 8-10: Institute of International Finance (IIF) G20 Conference, Istanbul, Turkey
March 9: Bi-Monthly Meeting of the BIS, Basel, Switzerland
March 26: Financial Stability Board (FSB) Plenary Meeting, Frankfurt, Germany
April 16-19: World Bank and International Monetary Fund (IMF) Spring Meeting, Washington, D.C.
May 10-11: Bi-Monthly Meeting of Bank for International Settlements (BIS), Basel, Switzerland
June 11-13: 73rd Plenary Session, Group of Thirty (G-30), Hosted by the Central Bank of Brazil
July 7: Bi-Monthly Meeting of Bank for International Settlements (BIS), Basel, Switzerland
Aug. 27-29: Federal Reserve Bank of Kansas City Economic Policy Symposium, Jackson Hole, Wyoming, United States
Sept. 4-5: G20 Finance Ministers and Central Bank Governors Meeting, Ankara, Turkey
Sept. 25: Financial Stability Board (FSB) Meeting, London, U.K.
Oct. 8-11: World Bank and International Monetary Fund (IMF) Annual Meeting, Lima, Peru
Nov. 9: Bi-Monthly Meeting of Bank for International Settlements (BIS), Basel, Switzerland
Andrew Gavin Marshall is a freelance writer and researcher based in Toronto, Canada.
Why Paris Reveals the Horror – and the Hypocrisies – of Global Terrorism
By: Andrew Gavin Marshall
23 November 2015
Originally posted at Occupy.com on 17 November 2015
The world was shocked and horrified at the terror inflicted upon Paris on the night of Friday the 13th, 2015, when ISIS-affiliated militants killed well over 100 civilians in one of the world’s most iconic cities. An outpouring of grief, solidarity, support and condolences came in from across the world. The tragedy, and tyranny, of such terror cannot be underestimated, but it should also be placed in its global context: namely, that the chief cause of terrorism is, in fact, terrorism, and that the chief victims are the innocent, wherever they may be.
While ISIS claimed responsibility for the attacks, following attacks the group undertook in previous days in both Beirut and Baghdad, it is worth remembering and reflecting on what led to the development of ISIS itself. The so-called Islamic State had its origins in the Iraq War, launched by the United States and closely supported by the United Kingdom in March of 2003. After overthrowing Saddam Hussein, a dictator once favored by the U.S., the occupying powers struggled to deal with a growing Sunni insurgency against their military occupation. In response, the U.S. helped create death squads in Iraq that further fueled a sectarian conflict between Shi’a and Sunni communities, which likewise fueled a growing regional rivalry between Shi’a Iran and Sunni Saudi Arabia.
The resulting civil war in Iraq killed hundreds of thousands, and the U.S. aligned itself even more tightly with Saudi Arabia, a country the West considers to be “moderate” in comparison to both Iran and Syria, yet it was the primary financier of al-Qaeda. The broader aim, in Iraq and across the Middle East, was to support the regional hegemony of the West’s allies – Saudi Arabia and other Gulf Arab dictatorships – against their chief rivals, Iran and Syria. If it meant supporting the countries that supported al-Qaeda and other terrorist groups, so be it.
After all, it has never been much of a secret that the Saudis and their Gulf neighbors were the major financial backers of global terrorists; even then-Secretary of State Hillary Clinton admitted as much in a memo leaked by Wikileaks. Nor was it a secret that Saudi Arabia was responsible for more destabilization and terrorism inside Iraq than Iran, which nonetheless received most of the blame.
The Saudis and the Gulf dictatorships are U.S. and Western allies, with immense oil riches that have made them some of the largest investors and shareholders in Western banks and corporations. Iran and Syria, on the other hand, are not.
Al-Qaeda did not exist inside Iraq until after the U.S. invasion and occupation. Over the years, since the war and occupation began, the group has undergone a number of name changes and transitions. One such evolution of the group is the al-Nusra front. And another is now known as the Islamic State, or ISIS.
Origins of the Current Terror
When the Arab uprisings began against Western-supported dictators back in late 2010 and early 2011, the U.S. and its key Middle East allies faced an unprecedented crisis. The longtime French and U.S.-supported dictator of Tunisia, Ben Ali, fled his country in January of 2011. The following month, it was Egypt’s dictator, Hosni Mubarak, a “family friend” of Hillary Clinton’s, who had to leave.
The Saudis and other Arab dictators were furious that the U.S. could toss one of its major regional clients aside, fearful that if Mubarak could be removed, any of them could be next. Thus, Saudi Arabia and other Arab dictators led a counter-revolution against the Arab Spring, pouring in money to support dictators they considered friendly (such as in Jordan), sending in troops to violently crush uprisings (such as in Bahrain), and arming rebel groups and terrorists against long-time foes in an effort to take advantage of the uprisings and undermine their rivals (such as in Libya).
In Libya, NATO led a war against long-time dictator Colonel Gaddafi in cooperation with many extremist rebel groups, including al-Qaeda. France and Britain were the main proponents of the war against Libya, which is hardly surprising given that both countries have hundreds of years of experience invading, occupying, colonizing and waging war against peoples of the Middle East and Africa. The war in Libya was of course a monumental disaster. While it removed a dictator long despised by both the Western powers and the Gulf Arab dictators, its ultimate effect was to plunge the country into civil war and chaos, terrorism and collapse.
Meanwhile, the weapons looted in Libya during the war began making their way into neighboring Mali and the more-distant Syria. As the arms crossed borders, so too did terror and warfare, and the French weren’t far behind. In early 2013, France launched airstrikes in Mali, leading to a ground invasion that ended in 2014. Around the same time, France also military intervened in the Central Africa Republic.
In 2013, Western powers including France, the UK and U.S. began increasing their participation in the Syrian civil war, which was already a full-blown regional proxy war pitting Syria’s government, led by Bashar al-Assad allied with Iraq and Iran, against Saudi Arabia, Qatar, the United Arab Emirates, Jordan and Turkey. The Gulf dictatorships armed and funded religious extremist sects to fight against the Syrian government, and were aided in this process by Western countries.
The U.S., France and Britain provided training and support to so-called “moderate” rebels inside Jordan to fight against the Syrian government. The CIA has been involved in arming and training Syrian rebels at least since 2012, in close cooperation with Turkey, Saudi Arabia and Qatar. The official line stressed that the CIA’s efforts aimed to prevent weapons from getting into the hands of extremist groups like al-Qaeda – yet virtually all of the rebel groups it was aiding inside Syria were hardline religious extremists.
Even as reports emerged that secular and moderate rebel groups had all but collapsed, the CIA continued to funnel more sophisticated weapons (in cooperation with Saudi allies) to these mythical “trustworthy” rebel groups. France was not far behind in delivering arms to Syrian rebel groups.
Around the same time, an internal CIA study noted that in its decades of experience arming insurgencies against regimes that the U.S. opposed, the agency’s efforts had largely failed. The main “exception” to the litany of failures, ironically, was when the CIA armed and trained the Mujahideen in Afghanistan against the Soviet Union. That “success,” as we now know, led directly to the creation of al-Qaeda and the Taliban.
A Plan Backfires
With all the support given to Syrian rebel groups in the form of training and arms, those same groups quickly became enemies of the West that had armed and trained them. This includes ISIS, whose rise was fueled by U.S. involvement in both Syria and Iraq, and who is funded and supported by key U.S. allies in the region such as Saudi Arabia, Qatar and Turkey.
In fact, a report prepared by the Defense Intelligence Agency in 2012 predicted the rise of ISIS, noting that such al-Qaeda-affiliated groups were the “major forces driving the insurgency in Syria,” and added that they were being supported in their efforts to take over large parts of Syria and Iraq by “western countries, the Gulf states and Turkey.” Further, the document noted, this was “exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.” A former Pentagon official who ran the DIA even suggested that the U.S. not only didn’t “turn a blind eye” to its support of such groups, but that “it was a willful decision.”
Here is the takeaway: the Syrian civil war, combined with the effects of the Iraq war, Libyan war and other conflicts in the region that were fueled by Western powers and their regional allies, has resulted in the massive refugee crisis Europe faces today, as millions of civilians flee the conflicts plaguing their nations while Western powers continue to pour weapons and money into them. Conflict and terror has bred further conflict and terror.
Yet when terrorism hits inside Western nations, like it did Friday in Paris, the reaction by Western governments is fairly, and tragically, typical. The Paris attacks occurred less than two months after France began launching air strikes against ISIS inside Syria, and have already prompted calls for a more aggressive strategy against ISIS in the future. So what can we expect as a result? Simply, more terror.
In short, if the objective is to oppose or prevent terrorism, the most logical strategy is not to dismantle civil liberties at home and send militaries and weapons abroad, but to stop participating in terrorism itself. This does not take away from the tragedy of the lives lost in Paris on Nov. 13, but the hypocrisy in how we acknowledge and address terrorism only enhances the tragedy. French President Francois Hollande called the attacks that killed 129 people an “act of war,” which it was. But in turn, he declared that “France will be merciless” in its response, and this is something we have yet to see.
If 200,000 dead Syrians, millions of refugees, and regional warfare spreading from state to state is considered “merciful” participation by Western nations in Middle East conflicts, the terror that might now be unleashed abroad – and the new terror that will, inevitably, once again wash ashore as a result – is indeed something to fear. To end terror, perhaps Western states should consider stopping its own participation in terror. In the very least, it would be a first step in the right direction.
Who Rules Europe?
By: Andrew Gavin Marshall
22 July 2015
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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.
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