By William Pfaff
The obituaries written of the European currency, the euro, have demonstrated divergences in national and cultural temperaments, the European funereal and laden with gloom about the future, but unyielding, and the American and British cheerfully and self-satisfiedly shoveling earth onto a casket of euros already six feet into the ground. Defy the markets, will they, these Europeans! Suddenly, the lid of the casket flew open early Monday morning, and the euro burst forth, bigger, better and brighter than before!
Sunday night, German Chancellor Angela Merkel was prudently off in Moscow to watch a V-E Day parade in Red Square, rather than witness electoral humiliation in North Rhine-Westphalia (where her party lost because of voter resentment of pleasure-loving Greeks squandering German wealth amidst permanent sunshine!). Britain was politically decapitated, without a functioning government.
Before Merkel was back, the German government had run up the white flag. The euro crisis was over. If any individual was a winner, it was temperamental and widely derided French President Nicolas Sarkozy, who has insisted since his election in 2007 that Europe (or the euro’s users) requires a politically sophisticated decision-making authority.
Europe now has Sarkozy and the French government, which put this deal together while the Germans gnashed their teeth. He insisted that a self-governing currency was as dangerous as a market left totally free to regulate itself, expected to do so in the interests of all because it infallibly pursued the interest of each—otherwise known as the Reagan-Greenspan-Ayn Rand-School-of-Chicago fantasy. Now the world has Dominique Strauss-Kahn running the IMF, Jean-Claude Trichet running the European Central Bank, and Sarkozy performing a miracle in Brussels.
What was decided in the pre-dawn hours of Monday was that some 750 billion to possibly a trillion euros would be committed to back the worth of the euro. This was not—as was constantly and erroneously reported—“bailing out” anyone. It was EU and IMF money to stand behind the repayment of bank loans to sovereign debtors—meaning governments. This automatically reduced the interest rates demanded by those offering the loans. The agreement staggered world markets.
Among the recent and anxious holders of Greek debt, suffering for their imprudence, have been many German banks, their own financial stability supposedly guaranteed by the loads of U.S. derivative and “securitized” toxic paper that they themselves eagerly bought in recent years, like rubes at a carnival sideshow. (Foreign readers should consult an American slang dictionary.) One must keep in mind that there would have been no Greek crisis if international traders had not deliberately set out to panic markets, drive Greek rates sky-high, and go home laden with ill-gotten gold.
The markets now are calmed, for the present. The Europeans, for their part, have come to believe that the project of European union does advance by way of crises. Whether this will be proved true this time has to be seen. Certainly President Sarkozy has been proved right.
By Tuesday, there already was widespread concern in the press, including the serious press, that the amount of austerity now demanded of all of the euro-zone economies may prove too severe for electorates to accept. For some economists, the agreement is one that will manufacture a long recession, if not a depression.
Austerity will destroy consumption. To apply the pledged measures of austerity will require billions of euros in savings on government expenditures. The rich will have to be taxed more.
Pensions will be cut, and begin later. Corporate business must be forced to pay taxes. In the current situation, corporations—particularly in the U.S.—pass billions in earnings through overseas tax havens, where their corporate “headquarters” are located (consisting of a token office with a brass plate), and then report huge earnings to their stockholders and next to nothing to their national tax authorities.
A Feb. 2 Washington Post analysis of the 2009 U.S. federal budget showed corporate taxation in the U.S. now amounts to only about one-third of the return from personal income taxation. This is in contrast with the situation in Europe. In the French 2009 budget, corporate taxation is higher than the total contribution from personal income taxation. It has been observed—by a European—that all great fortunes originate in crime.
There is a remedy to this, which has no chance of being passed through the American Congress. This would require a company to pay tax to the government of the country where its principal activities and management are located, on the entire income declared to the stockholders of that company.
A feature of modern capitalism, in which the United States seems currently the leader, is that the countries where corporations are effectively headquartered have impoverished schools, rusting infrastructure, and Third World social and health facilities, while billions are paid to corporate and banking executives. This is a moral scandal even though economic elites promoting the dominant economic theory prevailing until now in the leading free-market countries have identified morality as a source of market distortion and economic inefficiencies.
Self-admittedly profligate Greece did not invent the world crisis, nor did Portugal, Spain or Italy. The guilt lies with the United States, source of modern intellectual global leadership and exemplar of democracy. It did not even have a serious reason. Americans did it to make money gambling with other people’s money.
Visit William Pfaff’s website at www.williampfaff.com.
© 2010 Tribune Media Services Inc.