Nothing illustrates better the contradictions between economic globalisation and the relative powerlessness of states than the struggle under way to stave off the collapse of the euro and economic instability.
What is happening in Europe will create problems for the many Caribbean industries and governments that have come to rely on stable and strong earnings in euros for sugar, bananas, tourism and value-added products like rum. But what is also at stake is something more fundamental: how best to manage a national economy in accordance with the wishes of its people when the action of speculators damages, alters or limits government’s ability to act.
As the twentieth century ended, the mantra of trade liberalisation and growth created a near total belief that self-interest and the market would bring benefit to all nations large and small. However, what has become clear since weakly regulated markets began to collapse in 2008 is that the winners have not been the mass of the people in developed or developing nations, but those individuals and companies large enough to be able to operate without regard to borders or social commitment.
At one level the consequence has been the rapid and politically welcome growth of China, Brazil and India, but at another it is a global banking and financial services industry that is now so big and complex that its actions and failures threaten not just the nations in which such institutions are located but can collapse economies far removed.
This is well demonstrated by what is now happening to the Eurozone where a European member state, Greece, with the support of a US bank, JP Morgan Chase, managed to manipulate its figures to convince other European states that all was well economically. Then when it became clear that Greece was in trouble and EU governments led by Germany indicated reluctantly they were prepared to support it and by extension the euro with a huge loan, the same financial institutions began to bet against a Greek default causing other economically weak EU states and the euro to come under renewed pressure.
Put another way, the banks, hedge funds and other financial institutions acting on behalf of clients have been seeking profit or wishing to protect their assets, by betting both ways on the collapse of currencies, weak states and the venality of politicians, irrespective of the subsequent human cost and instability they are creating.
This is war by another name; one in which global assets and power eventually go to fewer and fewer people and whole nations are consigned to defeat and years of relative poverty and instability.
Speaking about this recently, Germany’s Chancellor Angela Merkel, made clear her feelings: “How can we ensure that banks and financial institutions do not become so big that they blackmail the state?”
Sadly the reality of all of this will become apparent all too soon in the Caribbean. As the values of the euro falls, so too will the euro-denominated preferential prices paid for commodities. Reserves held in euro bonds and assets will decline and Caribbean trade with the world will be skewed by changing currency values. Tourism too will suffer as the growing Caribbean market in continental Europe comes to view in relative terms the Caribbean as an expensive destination at just the time that the better established UK market enters a period of economic austerity.
In a logical world the Caribbean would have responded by strengthening an already well-managed and economically integrated single market and economy, but that is to ignore reality. In the absence of any viable integration process the most likely effect as bond markets stagnate is for nations to turn even further inwards, focus on survival within their own borders and eschew any further risk or trade liberalisation.
As for Europe, the present crisis is likely to lead to economically stronger EU states expressing doubts about how long they should provide support for those European nations that may default on their debt. If this happens then funds will flee to stronger EU states, some states may have to retire from the euro, tensions between European nations will rise and Europe will become preoccupied with resolving its internal economic and financial problems for years to come.
As this is being written EU Finance Ministers are meeting to develop a co-ordinated position on issues as varied as the regulation of ‘naked selling’ (the sale and purchase of assets you do not own in order to drive the market down), oversight by the European Commission of national EU budgets, changing the EU Treaty rules on budgetary deficits within the Eurozone, and rewriting the system of regulation.
The stakes are high. EU member states are struggling between choosing solutions that imply breaking up the currency union by creating a stronger core economic group that remains within the Eurozone, and finding compromises that will cede elements of economic sovereignty to one another and the European Commission.
More fundamentally, what all this points to is the need for governments to find ways on a global basis to assert their supremacy over financial institutions. The German Chancellor alluded to this when she recently told journalists that European governments needed to involve participants in the financial markets more closely. To achieve this, she suggested, governments required the financial industry to be open. “If we don’t get honesty, then we might not do the right thing technically; but we will do the right thing politically,” she said, implying that without co-operation Europe would seek on a global basis much greater regulation and taxation of the financial services sector.
In the last century any infringement of sovereignty resulted in a military response. Today the battles are regulatory, and take place in cyberspace, leaving those who have lost the most fighting in the streets often against governments that have little control over what is happening. If this is not to become the recurring theme of the twenty-first century, all governments need to come together very soon to exert control over the most socially damaging aspects the market and economic globalisation.
Previous columns can be found at www.caribbean-council.org
