July 18, 2014

From Financial crisis to a crisis of Legitimacy; Europe on the Brink


“This book is a thoughtful reflection on the way in which policies of monetary constipation have created the worst crisis in Europe since the 1930s, and the way in which that crisis has created crises of democracy and political economy in Europe. The agenda for the renewal of that democracy and political economy starts with this book and its young authors.”
(Professor Jan Toporowski, SOAS, University of London)

London July 17th – Tony Phillips [*]

The European phase of the current global financial crisis began in 2009, just one year after the US “sub-prime” crisis flowed across Europe’s deregulated financial frontiers. Transatlantic financial contagion was facilitated by the adoption by European banks of the use of untested financial ‘products’ such as ‘derivatives’. Derivative trades also enabled excessive levels of debt, much of it bad debt. The derivatives were not just deployed in Europe’s banks but also in Europe’s cities and municipalities, they were even sold to national governments. For example, in both Greece and Italy derivatives were used to mask borrowing so that countries could meet debt-to-GDP ratios required by the Maastrict treaty to enter the Eurozone. The crisis has tested the mettle of the Eurosystem, a ten-year-old financial framework consisting of national central banks and the European Central Bank (ECB). The results can hardly be described as positive. Financial innovation had yet again become subverted for private gain. This time the money was to come from the European taxpayers.

Tally ho! The Troika sallied forth like kings in the 12th century on their grand crusade to “save the Euro”; these three fair knights of multilateralism made a queer alliance. Losses were extensive but the Euro held; though it remained to many quite unclear exactly why this mattered? The Troika’s “rescue” had inflated national levels of sovereign debt feeding these with speculative banking losses from the private sector. Europe’s financial crisis had morphed into a sovereign debt crisis, socialising private losses onto Europe’s taxpaying population. While the private debt became public, much of it remained bad debt, and bad debt usually defaults.

Various non-Euro economies, such as Denmark and the UK, suffered major financial traumas, though these countries still possess their own currencies they also choose to follow the curious ideology that private losses require public rescues. Damage to economies in the European periphery was more severe, since, in these nations, even the rudimentary financial protection offered by control of one’s national currency via an active central bank, did not apply.

The ECB’s recent adoption of negative interest rates, along with the extreme political shifts indicated by the electorate in the recent European parliamentary elections, show that this sovereign debt crisis has morphed yet again; it had now become a crisis of confidence in Europe’s own institutions.

July 17th Zed Books launches “EUROPE ON THE BRINK; Debt Crisis and Dissent in the European Periphery” in London. The book provides an alternate and peripheral perspective for economists and non-economists alike.

EUROPE ON THE BRINK counters popular economic theories and media-friendly mythology with an alternate (heterodox) economic analysis of the financial evidence. It looks at how and why this debt crisis occurred, pointing to the people, the institutions and the policies responsible. It also goes into the reasons why lacklustre policy choices, such as austerity, are incorrect treatments for a misdiagnosed disorder. Rather than correct the imbalances in the private financial systems the crisis is being used as an excuse to pare back Europe’s welfare state in the race-to-the-bottom drive toward ‘competitiveness’.

The book highlights the structural democratic deficits in the European Union’s own institutions; particularly the ECB and the Commission, and the power relationships between the Financial Institutions of the EU and nation states which has allowed financial corruption to overflow its negative consequences into peoples everyday lives.

Joseph Stiglitz joins forces with Robert Lavagna (the former Argentine minister for Economics who negotiated the Argentine default with the IMF). These seasoned voices are supplemented by activist economists from the European periphery itself; Laskaridis from Greece, Mortágua from Portugal and myself, Phillips from Ireland, presenting a cogent and damning analysis of recent European economic policy, as well as prescriptions for making a better and more just European future.[Ends]

[*]“EUROPE ON THE BRINK; Debt Crisis and Dissent in the European Periphery” (Zed Books; London launch July 17th 2014 with a US launch August 2014 in conjunction with Macmillan Publishers / Political Economy)
This short review of was written by the Editor of this Book, Tony Phillips, ProjectAllende.org .

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July 17, 2014

My London Book Launch

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