I wrote this short piece for the Spanish newspaper Diagonal on July 10th, five days after the Greek referendum. This is a rough translation – the version in Spanish can be found here.
“One cannot have democracy and gold standard at the same time,” Barry Eichengreen reminded us while analyzing the collapse of the gold standard, the fixed exchange rate regime in place just 100 years ago. The gold standard was nothing else than the sterling standard, safely founded on the constant and great economic surpluses the hegemonic power, Great Britain, obtained through its colonial empire. That monetary system imposed an ironclad fiscal discipline: if a country imported more that what it exported due to the high prices of its produce, it would run into a trade deficit. This would inevitably trigger a debt crisis, which could only be adjusted by lowering the wages of the working class, often below subsistence level. As such, the very stability of the gold standard was based on the structural repression of European workers and colonial subjects, who were not organized to resist such periodical devaluations. When workers and colonial subjects fought for European countries to become mass democracies, the gold standard, Eichengreen concludes, was doomed.
It is a cliché to say so but it is the case: as Marx said, history repeats itself, first as a tragedy, then as a farce. In the current farce, Great Britain’s role is played by Germany, while the gold standard is played by the euro, instituted at the beginning of the nineties under the triumphant ideology of that time, neoliberal capitalism. Under the euro, just like one hundred years ago, deficit-running governments could no longer devalue their currencies but to obey fiscal discipline “carrying out the necessary structural reforms” in Eurocratic jargon, that is, repressing wages and dismantling social benefits. The first workers to suffer Eurocratic austerity were, ironically, the Germans, with the harsh Schröder Hartz IV reforms in the 2000s: tough wage repression, epitomized by the rise of precarious mini-jobs, translated into succulent corporate profits. It is an economic law, Varoufakis reminds us in spite of Schäuble: such surpluses would have its complementary converse in southern European deficits, inevitably unleashing credit bubbles (of the private kind in Spain and Ireland; public in Italy and Greece) like tsunamis due to the peculiar financial architecture of the euro. Who mediated these enormous inflows of European money in the South so irresponsibly, obtaining uncontestable political power in the process? In Greece it was what Varoufakis called “the triangle of sin”, an unholy alliance of oligarchs between bankers, developers and media, in which we should include politicians (and the regional cajas de ahorros, in the Spanish case). It is no coincidence that these interest groups are the most “pro-European”, defending the Yes in the late Greek referendum: they are the ones who can lose the most.
The 2008 Wall Street meltdown involved the unilateral default of many debts to German banks, who had become hugely and irresponsibly exposed to the US housing bubble: for instance, Deutsche Bank owned 10% of the empty houses of Baltimore and other US cities. In this adverse context, the flow of international credit froze and the first to suffer it is, obviously, the weakest link in the financial architecture of the euro: the Greek government, which by the end of 2010 declared itself unable to repay its debts to its creditors, mainly German and French banks (and, by extension, its savers) and institutional funds (like insurance companies and pension funds). A contagion effect is feared regarding other southern European economies, explaining the tremendous fluctuations in the prices of its sovereign bonds.
The European financial system -above all, Franco-German- seems in danger and needs to be rescued: between 2011 and 2012 the European Central Bank would lend a trillion of euros at 1% to European banks (above all, Spanish and Italian banks) in order to let credit flow, yet without success. At the same time, indebted countries would be used as SPV-like financial instruments in order to repay European debt: in these bailouts (Ireland, 85 bn; Portugal, 79 bn; Spain, 100 bn), European taxpayers would lend them in order to pay to private creditors, while indebted countries would contribute the interests. Thus, out of the 284 bn dollars Greece received since 2010, only 8% reached the Greek population. In exchange, these countries would be forced to cut their deficits via wage repression, privatization and dismantlement of the welfare state, depressing internal demand and plunging the south of Europe in a deep economic recession. At a huge human cost (which in Spain involved evicting half a million of families, but leaving the national oligarchies unscathed), the troika calculated that the indebted government would be soon able to reach primary surpluses in order to repay its debts, something that most economists soon acknowledged to be completely unfeasible.
What would happen instead is to turn the skyrocketing Greek debt, now most of it in the hands of European taxpayers, into completely unpayable. A classical case of socialization of losses, but this time as an undercover bank bailout: only in this way and appealing chauvinistically to national stereotypes like lazy and spendthrift southern Europeans, the troika could disguise the harsh reality to their own electorates: facing the umpteenth structural crisis of capitalism, their politicians and bankers had cheated them. However, the peculiar management of the European crisis, led by a ECB without a democratic mandate, has recently translated into constant capital flight, but in the reverse direction than the 2000s, unleashing a debt bubble in the north (in particular, Denmark, Norway, and Netherlands) and depoliticizing their electorates, just as it happened in southern Europe during the boom.
Now that private creditors are no longer exposed to a Greek default, a Grexit is increasingly more feasible. This time, contagion is no longer economic through the yield spread, but political: European elites have demonstrated that they have no problems imposing massive suffering on the population via currency union. Southern Europeans contemplate now a choice between submission and democracy. Thus, in the dilemma between democracy and the euro that Eichengreen evokes, Spain and other southern European countries may ultimately choose democracy. But, lest we repeat Marx’s farce once again, this time it entails carrying out authentic “structural reforms”, that is: to get rid of our national “triangles of sin”.