IUF Editorial, September 10, 2012 (http://cms.iuf.org)
Investors are pleased. The European Central Bank, the power at the center of the world’s largest banking cluster, has committed to supporting financially strapped Eurozone governments through unlimited bond purchases. This should, in principle, drive down interest rates and ease borrowing costs. But it comes with a steep price: governments requesting central bank assistance must sign up to further public sector job and spending cuts.
ECB official Jörg Asmussen stressed that bond purchases “Will only take place when the country undertakes tough reform measures. That is a necessary precondition for the ECB to act.” IMF head Christine Lagarde reinforced the message by “welcoming” support in the bond markets linked to “macroeconomic adjustment programs and adhering to the associated structural and fiscal reform efforts.”
It is a familiar pattern by now. Brinksmanship has been the ECB’s weapon of choice in a massive assault on public services, social rights and collective bargaining, organized in concert with the European Commission and the IMF (the ‘Troika’). At every stage in the widening crisis, the ECB has timed its interventions for maximum shock value to reinforce the austerity regime, Speculative attacks have been entirely predictable, given the way the bailouts have been organized. But financial ‘contagion’ is allowed to spread. Only then, when the markets threaten to spin out of control and opinion has been numbed by a media barrage threatening impending catastrophe, does the ECB take action – in exchange for more public spending cuts and more deregulation,
This cynical and dangerous game has already inflicted needless hardship on millions of working people, and we’ve just been promised more. Unions must clearly reject this poisoned bailout pill and demand a radical change of policy.
The ECB has enormous resources at its disposal; at every stage of the widening crisis it has had the money and the mechanisms to beat back the speculators. It also has the resources to anchor the public investment program which is the genuine vehicle for combating the crisis and the alternative to austerity. Policy-makers know that massive spending cuts are accelerating unemployment and placing further strains on public finances. They know as well that successive bailouts have left governments to absorb the devastating costs of private losses. But they have a lesson to teach and a mission to accomplish.
Earlier this year, the ECB handed out a trillion Euros in virtually interest-free loans to the private banking sector – with no strings attached. There has yet to be a public accounting of how that money was used (in fact the ECB has admitted that it hasn’t a clue). Yet public finances in countries which submit to the bailouts are subject to microscopic scrutiny to ensure that the full measure of pain is inflicted and that decrees are casually imposed to abrogate worker rights enshrined in EU and international treaties.
The case of the vanishing trillion is not the only unsolved Eurozone mystery. What, for example, was the real impact on private Greek bondholders in the February 2012 debt restructuring – the famous ‘haircut’? Many of those bonds were bought on the cheap to deliver astronomical rates of interest and then insured against losses through default swaps. Who lost, who gained and where do things stand now? How much wealth has been siphoned out of countries allegedly benefiting from financial ‘assistance’ under the Troika?
These questions have no place in the prevailing narrative, according to which non-political technocrats struggle valiantly to contend with the anonymous forces of “the market’. In fact, the ECB and its allies are pursuing a deeply political agenda, at the heart of which is a project to roll back or eliminate the social advances of the last half century.
That agenda must be challenged and defeated, in the first instance by organizing to reject the latest program for still more impoverishment and by ramping up the anti-austerity protests.
Yes, the financial system needs stronger regulation and stricter enforcement. The deeper question is: regulation for what? The evolution of the crisis over the past 4 years, a crisis which remains as far as ever from genuine resolution, demonstrates the need to bring finance under public oversight and democratic control. Confronting and defeating the austerity regime is the first stage in the fight to run the banks as public utilities.