Thursday, 22 December 2011

ECB Loans, Three-Card Tricks and the Dangers of Relative Non-Autonomy.

Chris Dillow claims one feature of the crisis of the Eurozone is that 'the markets' have given up on politicians' capacity to solve problems which, in principle, he claims are soluble (his own range of possible solutions are presented in shorthand here). I'm not so sure - not because I have any greater respect for the key politicians involved in all this, but because I'm increasingly beginning to doubt the sense of counter-posing 'politicians' to 'markets'.

Alphaville has an exceptionally clear post up explaining the recent c£500bn loans the European Central Bank (ECB) has offered commercial banks in constituent countries. It is, it appears, a backdoor way of encouraging the commercial banks to use this cheap money to buy up Italian and other sovereign bonds to thus avoid the need for a more obviously 'political' bailout by Germany and the 'hard Euro countries' of Northern Europe. Interfluidity explains in somewhat more graphic detail the purpose behind this:

"..if European states become dependent on bank finance, they become dependent on ECB finance. The ECB would have the power to manufacture fiscal crises for a misbehaving state at will, and with marvelous deniability. Laundered through banks and then through capital markets, ECB actions would be attributed to nameless bond vigilantes rather than unelected technocrats. ECB haircuts would very quickly be self-justifying, and disentangling cause from effect would be nearly impossible as officials might privately telegraph changes before anything is put in writing. Control would be hidden as a market outcome, a fact of nature."
 What this is, then, is a manoeuvre - a means of disguising political relationships between states* and classes as a relationship that is somehow 'neutral', technocractic and market driven. The major beneficiaries of this, it seems to me, are precisely those politicians who wish to disguise these relationships from their own electorates. It is another turn towards a declining relative autonomy of the state, to use a very old fashioned term, and a towards a closer melding together of big capital and formal state and quasi-state structures. 

There are dangers here for our leaders, systemic dangers. It's putting an awful lot of eggs in one basket. If the possibility of inflicting losses on 'sovereigns' is ever evaded - that, is if it proves politically impossible to impose the 'necessary' levels of cuts and tax rises on the population - not only countries but also the European wide banking system might go belly up. & setting up a relationship which is explicitly designed to counter-pose 'democracy' to 'the market' might not, in the medium run, prove a very sensible move for those folk currently running the system.

*Yes, I know the ECB isn't a 'state' - but it is surely the kernel of one, a future Europe of 'ever closer union' if you're an optimist, or simply the Greater Franco-German Co-prosperity Sphere if you're not.