Eurozone Appoints New Dictators in Greece and Italy l


Armoured cars and tanks and guns did not come to take away their sons, but the peoples of Greece and Italy last week found that their elected governments had been replaced overnight by a new postmodern dictatorship of ECB-appointed "technocrat" Viceroys. Clearly in the new Eurozone, the old liberal dogma that modern capitalism and liberal democracy are joined at the hip, has turned out to be just another fairy story.

In 1938, in a radio broadcast to the USA, Churchill warned the Americans that "the lights are going out" across Europe. Now from an anarchist perspective, the elected governments of capitalist liberal democracy are hardly beacons of light, precluded from righting economic injustices as they are by their respect for the inviolable private property of the 1% and their impotence in front of market forces. But still, their current snuffing out, one by one, across the Eurozone, one would think, is not some small matter barely worthy of comment. Indeed it is almost astonishing how little protest there is at this rise of the new dictatorships in Europe by the nominally liberal media.

To remind ourselves of the facts so far, at the end of October an extended Eurozone (EZ) leaders crisis session ended with the announcement of "definitely the last, final, deal" to solve the Greek debt crisis. The following week, the Greek prime minister Papandreou, sensing he was about to be forced out of power by his rivals in his PASOK party, backed by the opposition, declared that he would not implement the agreed austerity package without putting it to a referendum of the Greek people. The fact that this was a purely self-serving cynical bargaining ploy with no real intention of actually carrying out such a referendum should not detract from the torrent of vitriol that poured forth from all sources on the scandalous idea that the Greek people should be consulted on the economic matters determining their own future. [quotes?].

Papandreou was then forced from office by a vocal campaign both from within Greece and from the agents of the Franco-German core, now organised in the "Groupe de Francfort" (GdF or Frankfurt Group in translation), in favour of a government of "National Unity" led by the unelected Lucas Papademos, previously head of the Greek Central bank (during the period it was working with Goldman Sachs to cook the national accounts), and most recently Vice-President of the ECB and fellow at the Centre for Financial Studies at the University of Frankfurt.

Speaking of Frankfurt again, a little more should be said to introduce our new rulers, the Frankfurt Group. This was formed last month on October 19th at the retirement party in the Frankfurt Opera House for the outgoing head of the European Central Bank, Jean-Claude Trichet. It comprises the new French head of the IMF, Christine Lagarde (formerly a minister in Sarkozy's government), the new head of the European Central Bank, the Italian Mario Draghi, the Eurogroup president Jean-Claude Juncker, the European Comission President José Manuel Barosso, the European Council President Herman Van Rompuy, the EU commissioner for Economic and Monetary Affairs Olli "the hitman" Rehn, and of course Merkel and Sarkozy (or "Merkozy" as they've become known in diplomatic and media circles). Effectively it is the main bureaucratic stakeholders in the Troika structure that is running Greece, Ireland, Portugal and now, effectively, Italy, together with the two political leaders. This new GdF junta is all the more unaccountable for being informal and opaque. No minutes are published, they have no legal foundation and they are answerable to no-one. Yet this is now effectively the dominant governance structure for both the Eurozone and, by extension, the EU as a whole. Having said that, it must also be understood that the Group is far from united on the most important issues - major disagreements and rows persist between Sarko and Merkel and the ECB1. Even such a restricted and autocratic structure is currently unable to overcome the paralysis at the heart of Europe.

Meanwhile all the panic around the Greek situation had a knock-on effect to Italy. Berlusconi had already incurred the wrath of the GdF junta with his incapacity to get a sufficiently brutal package of austerity cuts past his mercurial coalition partners and the ever-chaotic Italian parliament. He had already been summonsed to the pre-summit before the Oct 25-27 crisis summit and told he had better go home and get something to deliver at the second meeting or else. He was then forced to appear before that summit like a naughty schoolboy trying the explain that the dog had eaten his homework. The GdF clearly decided that the cruise-ship crooner and octogenarian romeo was too tied up with dealing with his various sex and corruption scandals to “take hold” of the situation in Italy. During the week of the Greek bogus referendum crisis, yields on Italian 10-year bonds rose alarmingly. By the end of first week in November, the spread between Italian 10-year bond yields and the German 10-year Bund, had risen above the key 450 bps trigger point for increased margin calls by the major clearing houses2.

Once again the usual media sources started to talk of the only solution to the "Berlusconi problem" was his replacement by yet another "technocratic" government. The Italian bond yields stayed high enough to starve all Italian business of credit supply all week, and the local capitalist class joined the outcry for Berlusconi's head. It since turns out that the new Italian head of the ECB, Mario Draghi, had deliberately throttled back the ECB's buying of Italian bonds from the levels of the last months, to keep the yields high enough to force Berlusconi's downfall. Behind "market forces" the intervention of the GdF is clearly visible. And so, on Sunday, Berlusconi finally threw in the towel, much to the delight of the majority of Italians. But the celebratory mobs chasing his car through the street and pelting it with coins, and the orchestra and choir singing the Hallelujah chorus from Handel's Messiah, should not blind us to the facts that Berlusconi was overthrown by the GdF junta, not the Italian working class, and for his failure to properly lead the attack against them, not for his almost universal unpopularity.

Berlusconi's replacement, Mario Monti, is a Eurocrat politician, of the unelected variety, appointed to the European Commission in the mid-90s. During his time on the EU competition body he raised his profile with the anti-Microsoft suit and blocking the Honeywell and General Electric merger. He is also an academic economist who describes himself as “the most German of Italian economists” and is president of Bocconi University a private Milanese business school. In addition to his academic and Euro think-tank posts, Monti is also an international advisor to Goldman Sachs and the Coca-Cola company, as well as being the European chairman of the Trilateral Commission and on the steering committee of the Bilderberg group.

With such a CV, one could be forgiven for thinking that “Super” Mario, along with Papademos and the new ECB chief Mario Draghi, the latter also an ex-associate of Goldman Sachs, is the conspiracy theorist’s vision, of the creeping takeover of the world by a shadowy cabal of “international bankers”, made flesh. In fact the common thread that links all three runs, more prosaically, through Frankfurt (and Brussels) rather than New York. The idea that the government of Angela Merkel and the German capitalist class are puppets dancing to the tune of Goldman Sachs or the Rockefellers flies in the face of history, geopolitical realities and basic common sense.

But meanwhile the transition to the new post-democratic “technical” regimes in Greece and Italy is far from over. After a brief respite immediately after Berlusconi’s ignominious departure, the Italian/Bund spread is back up touching 530 bps. Worse, Spain’s spread has today (Tuesday 15th November) also just crossed the 450 line into the clearing house death zone, ahead of the general election scheduled for this Sunday. Unless the situation changes or the GdF greenlights the ECB to buy up more Spanish bonds, Spain could also be in the hands of Troika-rule before any new government has been formed.

So what is the response of those great defenders of liberal democracy, the Irish Times, RTÉ, the Guardian or the BBC? Er... Well not much as it happens. There’s much talk of the wonders of “technocratic” administrations for getting the job done in difficult circumstances, commentators statements that “elections now would simply create further delay and uncertainty in the markets” are reported without comment. And nowhere, absolutely nowhere, will you hear a peep about how any of this might not quite fit into the vision of liberal democracy they’ve been beating us over the head with for the last half a century or more. Like the Sherlock Holmes story of the dog that didn’t bark, our fearless media hounds have gulped, emptied their bowels on the floor and slunk off to hide in the corner.

So what are we to make of the rise of rule by diktat in Europe? First we have to see something that is perhaps not immediately obvious. Which is that the motive force pushing this move of the Franco-German core and the Eurogroup bureaucratic bodies towards these new autocratic structures and practices is not strength but weakness. It is the very fragility of the Franco-German relationship and lack of agreement on fundamental issues that is in part prompting this retreat into a forced and precarious joint unilateralism.

Secondly, despite appearances, the country likely to be economically most devastated by the collapse of the Euro, or the departure of its “deficit” countries, is in fact Germany. The German economy is built on an export surplus the largest bulk of which is to the Eurozone countries with an import/export deficit. If the Eurozone is reduced to a kind of new “Nordmark” of Germany, Austria, Netherlands, Luxembourg and Finland and, possibly, France (although unlikely, given the latter’s massive exposure to Italian debt), the exchange rate differential between the “Northern” zone and the EU South and periphery will rocket so as to make German exports unsaleable in their principal markets.

That’s not to say that Ireland and other countries in the “periphery” currently subject to direct rule by the Troika would not also suffer major economic collapse from an untidy exit from the Euro, but we are already facing the slow progressive devastation of the “death of a thousand cuts” through the decades of austerity envisioned by the current GdF plan to try and externalise the contradictions of the Core by “making the PIGS pay” for the losses of the European banking system as a whole.

That austerity plan has been forced to go beyond the programme of public sector cuts and forced privatisations, drastic though they are, into a programme of direct taxation on the citizenry of the peripherals. Not only in Ireland but now also in Greece and soon Italy, new household taxes are being imposed to try and make us pay for the crash of the European and global financial bubble. Our refusal to pay, not simply as Irish, Greeks or Italians but as European workers resisting the dictatorship of the Frankfurt Group is the beginning of a collective project to not only resist, but to take advantage of the weaknesses of the GdF cabal under the slogan, “the Frankfurt junta’s difficulty is European workers’ opportunity”. And thus to force a re-opening of the questions of European constitutive processes on the basis of a genuine democracy, economic as well as political, given that their inseparability is being so conclusively demonstrated in the dark developments of these days.


1.  Economist: The euro's Frankfurt Group

2. That last statement needs a short parenthesis to explain. Banks and other institutional investors who hold government debt bonds often use these as a kind of collateral in the repo (from repurchase) markets for short-term cash loans. Effectively they sell the bonds with an agreement to repurchase them at a future date at a higher price. To avoid the risk of the buyer being stuck with (possibly dubious value) bonds if the seller can’t pony up the cash at the agreed time, the vast majority of such deals are made through a clearing house which basically insures the buyer for the cash and charges the seller (borrower) a percentage of the transaction, called the margin. In the case of Europe’s largest clearing house, LCH Clearnet, this is 5%. In October 2010, LCH made a determination (see LCH Clearnet Circular 2692, Management of Sovereign Credit Risk for RepoClear Service) that any 10 year bonds (the most popular) that went over 4.50%, expressed as 450 basis points (bps) above the “benchmark” 10-year bond - in the Eurozone case, the German Bund - would trigger a raise of the margin from 5% up to anything up to 20%. Which means that banks or other investment firms with repo loans on these instruments need to sell assets to get cash to pay the additional costs. If the only assets they have to hand are more bonds of the same origin, a vicious circle can quickly ensue of the type that drove both Ireland and Portugal into receivership in the last 12 months. Italian bonds were subject to this increased margin call (albeit only a 5% hike) last Wednesday.