The other evening I was talking to an Argentinian who gave me graphic descriptions of their 2001 crisis – not the default and the financial side which is fairly clear in an abstract sort of way, but the social side. He explained that just about everyone had to go down a rung or two or more on the social ladder. Not a pretty sight and even less pretty to be part of.
But of course it can’t happen now… and can’t happen to us. Can it? Well, something similar is happening in Greece. But the rest of us are safe… there are lots of clever people in charge and some of them know what to do. After all, in this one, we’re all on the same side, aren’t we and they’re grownups, aren’t they?
The present crisis is, or should be, different from other blights which try society from time to time. Natural disasters are just that, natural and we understand the corruption or incompetence which accentuate the damage and suffering caused by an earthquake or tidal wave. Those involved in conflict whether on the battle field or in politics think that they will win and even when we condemn their motives or methods we know why they do it.
Today, no one will profit from a collapse of the euro and a prolonged recession in Europe and North America. Certainly not those who lose jobs, savings or businesses; not the mainstream politicians who just look ineffectual and will lose to some radical populists riding the recession tiger. Even the much reviled speculators, bogies blamed for all our woes, do not want a total collapse. They can make a lot of money on severe short term losses as George Soros did in 1992 when the pound went down with his help but over the medium and long term, growth will give them many more possibilities for profit. So this time, we all have the same interests it would be nice to think that there were some grownups who could save us.
As children, the grownups do actually take charge and most of the time, they stop us falling down holes, electrocuting or poisoning ourselves or doing all the dangerous things that infants love to do without realising the consequences.
Here in Italy, no one expects very much – the Berlusconi-as-Nero caricature is working overtime at least in the foreign press; by now, most Italians do not even grant him the stature of a Nero style villain bunga-bunga-ing while the euro and the Italian economy burn.
Those who should be acting as grownups for Italy do not either because they do not have the power to sanction, like the ECB which can only advise and cajole or because it would be diplomatically unacceptable which is the case with Merkel and Sarkozy who cannot be seen to be giving orders to a fellow head of government of a sovereign state. With an Italian as the new head of the ECB there is a better chance of some of the advice being taken as Mario Draghi is not only a very competent banker, he also cannot be seen to be soft on his own country. The ECB and the French and Germans have been pleading with the Italian government to implement public spending cuts and growth encouragement measures at least since August but Berlusconi happily tells the world that there is no hurry.
We also know that the markets like stability and clarity and here again, the government is squabbling over who to appoint at governor of the Bank of Italy to replace Draghi (who was appointed to the ECB in June) . The Prime Minister’s main worry at the moment is pass a law preventing the publication of telephone taps which are already part of the court’s public evidence (it is already illegal to publish taps which are not part of the public court documentation).
It was only in July that Berlusconi and economy minister Tremonti admitted that there was a crisis here – before that they assured us that everything was fine. Now it is not just Italy which is at risk but the whole euro. If the euro were to collapse, it is unlikely that the other European, political institutions would survive and certainly not in their present form. This is a doomsday scenario which would make Argentina look mild but the fact that it can even be made explicit is cause for serious worry.
The only way to avoid it is for there to be a radical change in the direction taken by European leadership but as George Monbiot argues, “Governments and central bankers now have an unprecedented opportunity to learn from the catastrophic mistakes they’ve made. It is an opportunity they seem determined not to take” .
Soros who knows more than most about financial crises argues that there must be a new agreement among Europeans which gives more power and funds to the Commission “a European treasury with the power to tax and therefore to borrow. This would require a new treaty, transforming the EFSF into a full-fledged treasury” and it should be done quickly “Once the principle of setting up a European Treasury is agreed upon, the European Council could authorize the ECB to step into the breach, indemnifying the ECB in advance against risks to its solvency”. He concludes ominously “That is the only way to forestall a possible financial meltdown and another Great Depression”.
So if we cannot find the grownups, we will be looking to a new version Brother, can you spare a dime. Worse, we might be looking at the end of the EU.
Merkel has already told us not to expect too much from the Sunday summit and Sarkozy is gooey about his daughter… the prospects are not good.