As Another Crisis Looms, a Case for the Euro and Collective Action

Posted on Sep 21, 2011

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In the discussion over how to solve Europe’s financial crisis, opponents of the euro argue “that it is a monetary straitjacket and that the best reform now would be its breakup.” Not so, says Will Hutton, author, columnist and former editor-in-chief of The Observer.

Blaming the euro for the latest in a series of crises demonstrably endemic to free-for-all capitalism is absurd, he continues. By uniting members of the European Union in a common financial cause, the euro has long been a bulwark against disaster. The current predicament, rather, is the result of “the interaction of the euro system with a once-in-a-century crisis of capitalism that its designers and supporters, like its critics, never anticipated.”

Although many would argue that not all of capitalism’s critics failed to foresee the latest in a centuries-old parade of “free market” muck-ups, in the midst of a crisis, the case for quick, collective action on the part of interdependent nations—rather than disbandment—is compelling. —ARK

Will Hutton at The Observer:

Eighty years ago, faced with today’s economic events, nobody would have been in any doubt: we would obviously be living through a crisis in capitalism. Instead, there is a collective unwillingness to call a spade a spade. This is variously a crisis of the European Union, a crisis of the euro, a debt crisis or a crisis of political will. It is all those things, but they are subplots of a much bigger story: the way capitalism has been conceived and practised for the last 30 years has hit the buffers. Unless and until that is recognised, western economies will be locked in stagnation which could even transmute into a major economic disaster.

Simply put, the world has trillions upon trillions of excessive private debt financed by too many different currencies whose risk is allegedly mitigated by even more trillions of financial bets which in aggregate do not minimise the systemic risk one iota. This entire financial edifice, underwritten by tiny amounts of capital, has been created over three decades backed by the theory that markets do not make mistakes. Capitalism is best conceived and practised, runs the theory, by hunter-gatherer bankers and entrepreneurs owing no allegiance to the state or society.

This is nonsense. Business and the state co-generate wealth in a system of complex mutual dependence. Markets are beset by mood swings and uncertainty which, if not offset by government action, lead to violent oscillations. Capitalism without responsibility or proportionality degrades into racketeering and exploitation. The prospect of limitless pay is an open invitation to bad, or even criminal, behaviour. Good capitalism cannot happen without referees to blow the whistle or robust frameworks in which markets can function; neither is reliably created by capitalism itself, hence the role of democratic government. Yet the world is trying to solve the legacy of the last 30 years as if none of this were true and, instead, that the practice and theories that created the mess are still valid.

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