On speculation that the European Central Bank (ECB) would raise its interest rate, the Euro began rising to a 15-month high against the dollar. The Yen weakened too, as the Bank of Japan poured millions into various agencies to stimulate the country’s economic recovery after the devastating earthquake and the nuclear leakage. Similarly, the British sterling began to fall against the Euro on speculation that the ECB would raise its basic rate in February 2011. Yet, when the ECB, under the guidance of Germany, raised its key rate by 0,25% to 1.25%, the Euro, instead of shooting up – as one would expect, since more investors would run to buy Euro-denominated assets – actually fell, as the news that Portugal will seek a bailout of up to 80 billion Euros undermined investors’ confidence. ECB President Jean-Claude Trichet justified the rise as an attempt to bring about “price stability”, that is, to bring down inflation. It is also very likely that the Bank of England, too, will raise interest rates in the near future, most probably in June. The excuse will be the same: “price stability”. Well, this is a code for austerity and a mask for the deep crisis of Atlantic economies since the 1970s, when an acute crisis of over-accumulation prevented masses of excess capital to be invested at the average rate of profit, thus pushing the bourgeoisie to seek profits from the realm of production/real economy to the realm of finance. “Speculators”, Keynes wrote in his General Theory, “may do no harm as bubbles on a steady stream of enterprise”. And he continued: “But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”. What is happening today, and the deadlock which the Atlantic economies are facing today, are pretty much the result of the ill-advised policy-making of the 1970s to deal with the crisis of profitability by way of liberalising finance. This was a conscientious decision taken by “Dollar-Sterling” diplomats, as Richard Gardner called them in his classic Dollar-Sterling Diplomacy (1956). The European continental branch of this alliance, led by Germany, is simply copying the policies of “Dollar-Sterling” diplomacy in a competition that it is rather unequal and extremely problematic, as the Euro enjoys no back-up from any central fiscal, political or other authority. The two Atlantic monetary regimes are on the same boat in that they perform as class agents for the value enhancement of assets and properties of their respective bourgeoisies and, as such, are the fiercest enemies of the working classes. But they are on a different boat as regards the defence of the social and political orders which they are committed to protect and expand as they respond to the present serious crisis of financialisation.
Rising inflation, we are told, is the reason why interest rates have to go up. This, in turn, will protect the consumer and the working classes inasmuch as price spikes will be surrendered by a staged increase in interest rates. This means that the average supermarket consumer is responsible for the price inflation, as he/she prefers to spend instead of saving, since the latter no longer yields enough. Well, this, at best, is naïve. At worst, it is a lie. Inflation is not the result of consumer habits, especially at a time when wages are extremely low. Inflation, instead, is the market strategy put forth by the bourgeoisie and the bankers in order to offset their falling rate of profits in production and finance – more in finance nowadays, especially in Anglo-American political economies. An inflation of 5 to 6 per cent is not necessarily bad in an economic environment in which house prices are so inflated and wages are extremely low. In fact, a moderate rise in inflation will lower house prices and make housing affordable to the working classes, the pensioner and first-time buyers. Households in Britain and across the EU are highly indebted and it is not true, as The Economist argued (April 9th-15th 2011), that “households in aggregate have large cash deposits”, so an interest rate rise would increase the income that is earned on them. The truth is that households are totally dried out of cash and deposits as money has become the most expensive item on earth in the wake of the financial crisis – it used to be quite cheap during the years of upward spiral finance – and as fewer and fewer people are able to reach out to high street lenders to get a mortgage, due to the high deposits asked. Thus, any rise in interest rates is but an instrument in the hands of the dominant faction of the bourgeoisie to reduce wages further, and thus the purchasing power of the working classes. This applies as much to the USA and Britain, as it does to Germany and the Euro-zone at large.
Yet one should not underestimate the fact the ECB represents a different model of capitalism and monetary relations. The ECB is modelled after the money management needs of the unequal European architecture of national capitalisms, aiming at projecting the federal socio-economic and political system of Germany across the continent. This design contradicts Anglo-American economic and political strategies, which are based on austere Open Door policies: deepening of the neo-liberal reforms, opening of capital accounts and markets, wholesale privatisations and strategic subjugation of the Euro to the “Dollar-Sterling” axis. This is a tall order, especially today in an era in which the USA and Britain depend more and more on Asian and Middle Eastern producers to finance their debts. But continental EU powers are not doing well either. The EU integration process was from the very start unequal: it was based on a core of economically and technologically advanced countries, such as Germany, France and the Netherlands, and on a relatively laggard periphery, such as Greece, Portugal and Spain. No surprise, therefore, that the impact of the global financial crisis hit those weak economies most, although each of these weak economies came to reflect problems that pertain to their specific national economic development (in Ireland, for example, the crisis was bank-centred, whereas in Greece, it has to do directly with the sovereign debt of the country).
All in all, bourgeois “strategising” does not seem to be working. The crisis of profitability that hit the western industrial countries in the 1970s led the bourgeoisie to “escape” to the realm of finance in the hope of making up the profit shortfall. But the efforts were in vain, as it did not work, bar a short period during the 1990s and early 2000s. But with financialisation in tatters today, no recovery is in sight: measures such as raising interest rates in order to curb inflation are old opportunistic recipes that bring about anything but steady recovery, development and prosperity. In fact, the Atlantic bourgeoisie today, both continental and Anglo-American, lacks a solid developmental strategy on the basis of which it could expand across the globe. Transatlantic Open Door neo-imperialism is undermined by the end of developmental prospects experienced within the accumulation regimes of that imperialism proper. Thus, a global opportunity is opening up to South-east Asia and China, whose model of economic development differs from that of Europe and the USA. The East is not the mirror image of the declining West, not least because the socio-economic model of entrepreneurship is different. Yet it is subject to the same trends innate in any form of capitalist accumulation, and this can be seen in China, which is already experiencing signs of an over-accumulation crisis and a resort to financialisation via a pronounced housing bubble. But nobody knows how the West, in the first place, is going to get out of this crisis of financialisation. The creators of the crisis, that is bankers (the case of Britain, Ireland and the USA) and incompetent state elites (the case of Greece and Italy), are those whom the policies of central banks aim at protecting. Thus, the recovery and the welfare of the globe seem to be very much up to the social struggles of those who are asked to pay for the crisis, whether in New York or in Shanghai.
* Professor of International Relations at Richmond University and Editor of the Journal of Balkan and Near Eastern Studies (Routledge, quarterly).
Published in Global Faultlines