Wednesday, 22 October 2014

Governing by panic

Readers of this blog may be interested in my new paper, "Governing by Panic: The Politics of the Eurozone Crisis."  Here is the abstract:

The Eurozone’s reaction to the economic crisis beginning in late 2008 involved both efforts to mitigate the arbitrarily destructive effects of markets and vigorous pursuit of policies aimed at austerity and deflation. To explain this paradoxical outcome, this paper builds on Karl Polanyi’s account of how politics reached a similar deadlock in the 1930s. Polanyi argued that democratic impulses pushed for the protective response to malfunctioning markets. However, under the gold standard the prospect of currency panic afforded great political influence to bankers, who used it to push for austerity, deflationary policies, and the political marginalization of labor. Only with the achievement of this last would bankers and their political allies countenance surrendering the gold standard. The paper reconstructs Polanyi’s theory of “governing by panic” and uses it to explain the course of the Eurozone policy over three key episodes in the course of 2010-2012. The prospect of panic on sovereign debt markets served as a political weapon capable of limiting a protective response, wielded in this case by the European Central Bank (ECB). Committed to the neoliberal “Brussels-Frankfurt consensus,” the ECB used the threat of staying idle during panic episodes to push policies and institutional changes promoting austerity and deflation. Germany’s Ordoliberalism, and its weight in European affairs, contributed to the credibility of this threat. While in September 2012 the ECB did accept a lender-of-last-resort role for sovereign debt, it did so only after successfully promoting institutional changes that severely complicated any deviation from its preferred policies. 

Monday, 20 October 2014

When is a social democrat not a social democrat?

When he's Sigmar Gabriel, head of Germany's SPD and Minister for the Economy.  Here's Mr Gabriel in an interview with the Bild newspaper, defending the so-called "black null," the plan for a balanced budget:
Bild: There's a discussion in the SPD about whether or not new [government] debts ought to be incurred.  Is budget discipline social-democratic?   
Gabriel: Yes. Workers [Arbeitnehmer] want their taxes to be spent on social security, schools, or policy and not on interest payments to big banks for government debt. Only big banks earn money from high government debts. Government borrowing is antisocial.
There's a major problem with this argument: as Ambrose Evans-Pritchard noted, last week German government bond interest rates were "touching levels never seen before in any major European country in recorded history." In fact, correcting for inflation, Germany can literally borrow money interest-free:  August's inflation rate was 0.8% per year, and its ten-year bonds as of today yield 0.85%.  

Anyone who cannot find a way for the state productively to invest interest-free loans cannot be characterised as a social democrat (there's certainly plenty of low-hanging fruit).  For that matter, anyone who deliberately misleads workers about the costs of borrowing doesn't deserve the title either.