Wednesday, June
13, 12
Disintegration
of the Euro Zone and emergence of sub-capitalism.
"Debt is the slavery of the
free." Publilius Syrus: Sententiae, c. 50 B.C.
The
Eurozone has created its own failure. “Ratio of general-government debt to
gross domestic product can not exceed 60%”(Maastricht Treaty -1993). Only 5
countries have reach this target at the end of the 4th quarter of
2011: Estonia 6%, Luxemburg 18.2%, Slovakia 43.3% and Slovenia 47.6%, Finland 50.5%.
The others 12 counties are above 60%: Netherlands 70.1 %, Spain 80.9%, Cyprus
71.6 %, Malta 72.0%, Austria 74.2, Germany 82.2%, France 90.5%, Belgium 100.5%,
Portugal 113.9%, Ireland 116.5%, Italy 123.5%, Greece 165.0% (Source EU). In
Greece, Spain, Portugal, Italy and Ireland, austerity measures deployed by the
“troika” (European
Commission, European Central Bank and the International Monetary Fund) have not been successful. The
failure of austerity measure is creating a phenomenon of disintegration of the Eurozone.
The geographic division of the monetary union in countries of the south (PIIGS)
and the North is the first sign of disintegration. After 3 years in this crisis
and €2 trillion spend to save the Eurozone, the persistence of the crisis is a
catalyst for the European disintegration and the beginning of formation of “sub-capitalism”.
Political, economic, monetary and cultural unions are gradually weakening, social
malaise is growing in the Union and European leaders can’t find a solution to this
sovereign debt crisis. Greece is in total mutation. According to Fitch, the
country’s debt-to-GDP ratio in 2011 was 165% and could rise to 170% in 2013 and
the goal of the austerity measure is to get it down to 120.5% by 2020. Greece can have much lower debt to
GDP ratio in the next 8 years, if the right public policy is implemented.
Germany
(27% of the Eurozone GDP) is the biggest payer to bailout funds, with 211
billion euros of contribution to the European Financial Stability Facility
(EFSL). German citizens are increasingly unhappy with the financial support
made by his country to Greece and the rest of the Eurozone. The same feeling
is visible among the Greek citizen who think that their national and individual
sovereignty is now subordinated to the Troika and Germany. This European
malaise was expressed in a recent statement of Deutsche Bank co-chief executive
officer: Juergen Fitschen. Speaking at a conference hosted by the American chamber
of commerce in Berlin (May 25,2012), Mr. Juergen Fitschen has mad the following
statements:
“Greece
is a failed state and the population and business community don’t see a path
out of the crisis”. “Greece is the only country, I feel, where we can say ‘it’s
a failed state,’ it is a corrupt state, corrupt as far as its political
leadership is concerned and obviously other people had to be willing to support
this.” “I asked my counterparts, where are the people that you would trust to
lead the country into a new era where you have open confidence that it can be a
valued member of the euro zone? Unfortunately, the number of names was very
limited, you wouldn’t find even a handful of names that are trusted political
leadership candidates today.” “People are just not seeing the light at the end
of the tunnel, they accept that they have to go through painful adjustment
processes, but where’s the carrot that can guide them to accept it and
cheerfully wait for better times to come? The moment that the public would feel
that the momentum has returned, it becomes much easier.” Greece debt swap has
reduced Deutsche Bank net risks related to Greek sovereign bonds from 1.6
billion euros to 94 million euros ($118 million). Mr. Juergen Fitschen opinions
are the expression of a political disunity in the Eurozone. It is not possible
to complete the European project when European leaders show pessimism, lack of vision
and capacity of innovation. With Mr. Juergen Fitschen statement, we can
understand why this crisis is a failure of European leadership. This deep
political fracture between Greece and Germany can be identified between others
nationalities of the union. It is one of many symptoms of disintegration that
are spreading in the monetary union and can lead to the total collapse of the
system. This fracture reduced the visions and possibilities of a United Europe
and reinforces nationalism. The challenge today is about the survival of
individual nations in the monetary union founded on a huge historical omission:
there is no provision for the possible exit of a country from the Eurozone. National
survival in a moment of severe economic crisis is the worst enemy of any form
of regional integration. The dynamic of search for solution to the crisis has awakened
Greek nationalism, French nationalism, Spanish nationalism, and German
nationalism ... ect, consequently limiting the possibilities of realization of
the European Federation. The awakening
of European nationalism is another factor of European disintegration. During
this crisis, the vision of the European Union falls back several decades in
this period of extraordinary development of capitalism and globalization. In
this new period of interconnected world, Europe should be an example and a
driver of economic growth, but it is not. The continent is losing a position of
world leadership, this why it is possible to notice sign of disintegration. With
unemployment at 50% among young people under 25 years, the future of Europe is
darkened. From March 2011 through March 2012, the following data show the
impact of austerity measures on unemployment in the 17 nations of the Eurozone:
Austria: 4.2%-4.0%, Netherlands: 4.2%-5.0%, Luxemburg: 4.7%-5.2%, Germany:
6.2%-5.6%, Malta: 6.3%-6.8%, Belgium: 7.0%-7.3%, Finland: 7.9%-7.5%, Slovenia:
8.1%-8.5%, Italy: 8.1%-9.8%, Cyprus: 6.9%-10.0%, France: 9.6%-10.0%, Estonia:
13.9%-11.7%, Slovakia: 13.3%-13.9%, Ireland: 14.1%-14.5%, Portugal:
12.4%-15.3%, Greece: 14.3%-21.0%, Spain: 25.0%-24.1% (1). Unemployment went down only in
4 (Austria, Germany, Finland and Estonia) of the 17 countries. In the Eurozone
it is 11%. Bailout funds will
recapitalized banks but will not solve the problem coherent economic growth. The
imperative of the crisis is to create a new policy of industrialization capable
of creating jobs, specially for the youths. European leaders must make a
demarcation between the illusions of bailout funds and macro-economic policy of
job creation.
In Greece,
the strong opposition of the population to austerity measures, critical impoverishment
of the country and impossibility to form a government after May 6th
election are key elements of destabilization of the Hellenic State and
disintegration of the Eurozone. The process of maturation of the monetary union
is not possible without total adhesion of the European population. Europe is a
project to unify all people of the Eurozone. The discrepancy between the will
of the people of Europe and political decision made by the European leadership is
an important rift within the Eurozone. It is an indication of the contradiction
between the needs of democracy and the needs of the market. This is the key
challenge of financial capitalism in the 21st century: how to
conciliated the interest of the market and the interest of democracy? It will
be only possible if the system is fueled by strong moral values, less creation
of synthetic financial instrument, industrialization and low public and private.
This discrepancy is also a challenge to democracy. When
non-elected
officials make sovereign decisions it will create a conflict in the management
of democracy. This is the most important weakness of the Union; National
sovereignties are not fully engaged in the process of creation of European
Federation. The crisis is a maturation of the conditions of creation of the
Federation. It all depends on the political courage and ingeniosity of European
leaders to seize this opportunity and create a banking, fiscal and political
union. A severe crisis is mother of big realizations. The innovation of the
European project was a result of World War 2 and the total destruction of European
economy; the final realization of this project could come from the European
sovereign debt crisis.
Like
all European countries, Greece needs structural reform. We are in a moment of
important shifts. The nature of the State and monetary union in the 20th
century is not the same in the 21st century. These reforms must
begin with a reform of Democracy. The elections of May 6th was a defeat for the
two dominant parties: Pasok and New Democracy. The 2 parties are supporters of
austerity measures and their combine share of vote went from 77% to 33%. Crisis
are an opportunity of renewal of human society, it is also a moment of
transition in which the reengineering of the success is possible. The European
project was a born in the 20th century; a 21st century
innovative thinking will be crucial to its maturation.
Since
April 2010 Greece have been under the “administration” of austerity packages: 2
bailouts worth $300b. The austerity package of February 2012 was very though for the people
of Greece. The measure imposes: 22% cut in minimum wage from the current €750 per month, holiday wage bonuses (two extra months of full wage being
paid each year) are permanently cancelled, 150,000 jobs cut from state sector
by 2015, of which 15,000 shall be cut by the end of 2012, pension cuts worth
€300 million in 2012, changes to laws to make it easier to lay off workers, health and defense spending cuts, industry sectors are
given the right to negotiate lower wages depending on economic development, opening
up closed professions to allow for more competition, particularly in the
health, tourism, and real estate sectors, privatizations worth €15 billion by
2015, including Greek gas companies DEPA and DESFA. The strategy is:
“cut-and-dry-privatization”, a dynamic of degradation of capitalism with
obstruction to wealth creation. It is articulated around 3 elements: cut on
public spending, privatization and humiliation of populations. Austerity measures and
bailout funds have failed to solve the crisis of capitalism in the Eurozone. They were engineered to pay debt and
interest payment to private investors and Greece bondholders. Recently, the European Financial Stability Facility’s (EFSF)
board of directors confirmed the release of 5.2 billion euros ($6.7 billion) in
favor of Greece, but 4.2
billion euros will be transferred into a segregated account to be used for debt
service payments. Excessive debt is at the center of the Eurozone crisis. Payment
of debt and interest on the debt are the consequences of a huge accumulation of
private and public debt since the beginning of the monetary union in January 1st
1999. The total debt of Greece is € 356 billion euros ($449 billion), or 4.3%
of the Eurozone total debt (2) by the end of this year and the debt service will cost the
government € 51 billion annually from 2012 though 2014. The possibility to exit
the Eurozone is an option to the failure of austerity measures. Greece return
to Drachma is very high. A disorderly Greek exit from the monetary union will be very painful for its
citizens and the Eurozone. It could cost more than a 1 trillion euro (5% of EU
GDP), and we do not know the size of disaster that will be created by credit derivatives governed by
US, Greek and British law. The risk of contagion to other European nations will
be considerable. PIIGS debt to banks is estimated at $1.19 trillion. An
important indication of Greece’s exit, is the current “Bank Jog” or capital
flight out of Greek banks. Data from the ECB shows that 34 billion euros (17%
of the country’s total) have been withdrawn from Greek banks in the past 12
months. Greek depositors are looking for asset protection in Germany, France,
Switzerland…ECT. From the end of 2010 through the end of March 2012, total
deposits at banks in Greece, Ireland, Italy, Portugal and Spain fell to 80.6
billion euros, or 3.2 %. At the same time, German and French banks saw an
increased of deposits by 217.4 billion euros (6.3%). This trend of capital flight
to northern Europe is increasing daily.
Capital
flight is key element of the European disintegration and raises the problem of protections of Europeans savers
money. In the eventuality of a return to national currency, national
deposit-insurance programs (Guarantee at least 100,000 euros or $125,000 – unlimited state
guaranty in Germany, France, and Ireland) will
not be able to protect European depositors. The funds have been use to bailout
banks in indebted countries of the southern Europe. In Italy, the
deposits-insurance program are not funded, but Italians had 1.1 trillions of
deposits at the end of March 2012. Spain and Portugal are in the same situation
with respectively 931.2
billion and164.7 billion euros of deposits in the same period (*ECB data). Greece bank deposits are down
24% since June 2010. The country deposit is now
estimated at 174 billion euros, and the deposit insurance fund is almost
non-existent. The non-existence of a unified Eurozone deposit-insurance program
is one of the key weaknesses of the monetary union. It is not healthy to have a
monetary union in which the depositor’s funds are not equally protected. The crisis has totally destroyed
European national deposit-insurance programs.
The creation of
Pan-European deposit-guarantee fund should now cover a redenomination risk. Federalism
is not a half way political structure. European leader should have the
political courage to address the question of European federalism at the heart
of the thinking of Schuman and Monnet.
Greece
exit may not be a bad decision in long term. Argentina and Iceland have experience this type of situation
successfully in the past. But, the context is very different. Greece exit will set
a precedent that will weaken the Euro. The common currency is declining versus the
dollar. On the week of May 21st-27th, Euro has lost 2.1%
and was trading at $ 1.2496 (the weakest level since July 2010). Net shorts
($27.7b) increased in the last few weeks, totaling 195,361(period ending May 22nd)
compares to 173,869 for the week before (CFTC-COT Report). This is the largest
net euro short position since 2007. Short are outnumbering long position by a
ratio of 6 to 1, putting the common currency in a dangerous position. The value
of the dollar's net long position rose to $35.3 billion (+ 25%) the highest
level since at least mid-2008. Financial-capitalism is founded on debt and
usury, but these 2 financial instruments lack the ethical and moral values
necessary for the development of a complex human organization and wealth
creation in the digital interconnected world of the 21st century.
Debt and usury are mines planted in human consciousness. They downgrade individual
personality and subordinate the sovereignty of states to the will of creditors.
History has demonstrated that subordination of individual and national
sovereignty by a political or economic system is contrary to freedom and
democracy. As a low debt human organization, the success of industrial
capitalism in Europe and USA was founded on the strengthening of individual and
national sovereignty. This dual-subordination degrades capitalism and opens the
possibility of emergence of sub-capitalism. Rebellion is inherent to all form
of subordination. The opposition to the austerity measures is an expression of
rebellion against this phenomenon of dual-subordination emerging from
financial-capitalism. This is what we are experiencing today in Greece, Spain,
Ireland and Italy. Greek poet Hesiod (750-650 BC) in his poem “ Theogony” (the
birth of gods) said that debt and famine run together. Aristotle (Greek philopher, 384
BC – 322 BC)
was against the charging of interest. His doctrine was: “a piece of money
cannot beget another piece”. In his famous book “Politics” he said: “the most
hated sort (of wealth), and with the greatest reason, is usury, which makes
gain out of money itself, and from the natural objects of it. For money was
intended to be used in exchange, and not increase at interest. Of all modes of
getting wealth, this is most unnatural (Politics, 1258). Debt and usury are by nature
oppressive. Industrial capitalism found
its most important strength in an ethical codification of our economic activities
originated from universal religion like Islam, Christianity and Judaism and our
moral beliefs. All universal religions prohibit charging interest on loan; promote
the virtue of labor, the rule of law, trans-generational transfer of wealth and
rationalization of economic activities. The development of industrial
capitalism is highly correlated to universal religions. Islam has made an
extraordinary contribution to capitalism during the period called by historian
the Islamic Golden Age (750 to 1500 A.D). The current Arab revolution is
shaping a new Islamic capitalism of the 21st. In the west, Catholicism has made
the same contribution. We have created secular states, instrumentalized check
and balance of power in democracy, but our code of ethic is defined by humanism
and religious believe. Financial capitalism can be defined by lack of ethical
codification and correlation with any universal religion or moral value. The
financial crisis is a failure of morals value. Our humanity became weak when
economic activities are not guided by ethics. Moral and religious values are
the fundamental differences between our species and others species of the biosphere.
An economic system that does not reflect our moral and religious values put
human organization in extreme danger. This weakness of financial capitalism is exacerbated
by the process of commoditization of human activities and fragilized the
stability and growth of the “wealth nation” with constants crisis. “Wealth of
nation” is an expression of sovereignty, stability and freedom of people. It cannot
be subordinated to private interests. The fundamental characteristic of
sub-capitalism is the subordination of “wealth of nation” to the need of
private sector. The bailout of banks in this crisis is a phenomenon of subordination
of “wealth of nation”.
The
election of Francois Holland in France has created a new dynamic with the idea
of the creation of the Eurobond. It is a partial solution. Eurobonds has the
merit to lead toward a transfer of sovereignty. But, creating new debt to pay
old debt is not a solution, but an illusion. The only viable solution is wealth
creation and new industrialization of European nations. Without an effective
transfer of national sovereignty to a supranational entity, the integration of
multiple national economies with different level of economic performance and
fiscal policy has created a mystification of the economic reality of the euro
zone. The European monetary union has been fuel by an enormous amount of debt
and maintain by the logic of debt for more than 2 decades. Massive accumulation of debt created
an unhealthy economic system and lead to severe crisis. The mystification of the economic
reality of the Eurozone can be identified in the different capacity of each
nation to borrow money. In this crisis it is one of the most important sign of the disintegration. The divergence
in the sovereign yields in the Eurozone is huge. In May 31st, 2012,
the 10 years sovereign bond yield are: Germany 1.2 %, France 2.36 %, Austria: 2.107%, Finland: 1.492
%, Spain: 6.69%, Greece: 38.5%,
Netherlands: 1.5%, Luxemburg: (no outstanding long term debt securities), Malta:
(?), Belgium: 2.8%, Slovenia: 6.96%, Italy: 5.9%, Cyprus: 14.21%, Estonia: (no
outstanding long term debt securities), Slovakia: 4.37%, Ireland: 8.1%, Portugal:
12.03%. This divergence is also reflected in the credit derivatives. Five year
CDS on Spain is 585.59 bps, Italy: 543,66 bps, Greece: 8529.59 bps, France:
213.223 bps, Germany: 108.39, Portugal: 1145.65bps and Ireland: 679.99 (CMA
Datavision.).
In
this current crisis, European capitalism has to solve two questions: how to pay
back the debt? How to created “coherent-growth”? The answer to the 1st
question can be found in the proposal of the Euro Group dated February 21st, 2012: “The Euro group also
welcomes Greece's intention to put in place a mechanism that allows better
tracing and monitoring of the official borrowing and internally-generated funds
destined to service Greece's debt by, under monitoring of the troika, paying an
amount corresponding to the coming quarter's debt service directly to a
segregated account of Greece's paying agent. Finally, the Euro group in this
context welcomes the intention of the Greek authorities to introduce over the
next two months in the Greek legal framework a provision ensuring that priority
is granted to debt servicing payments. This provision will be introduced in the
Greek constitution as soon as possible”. In this statement, the troika requires
Greece to change its constitution and give debt service top priority and
relegated Greece sovereignty, democracy and people in a secondary position. The logic of debt is at the
center of austerity measure deployed by the troika. It gives priority to debt
payment and no consideration to coherent economic growth or structural reform
of the country economy. The document is a creation of conditions of
subordination of a sovereign nation to creditors. The European bailout money
($130b) is being used to service the interest of the debt. After the May 6th
election, the troika starts to wire Greece bailout payment to an escrow account.
But, a big majority of this money will be sent back to the troika after 48 or
72 hours as interest payment. The prioritization of debt payment by the troika is coherent with
the logic of debt and financial capitalism: debtor has the legal responsibility
to paid back the debt plus interest. But prioritization of debt payment is not
coherent with sovereignty of a nation in deep economic crisis. Prioritization
of debt payment isolates capital from industrial production and handicap
creation of “wealth of nation”. The priority of Greece is coherent economic
growth fuel by creation of goods and services. Debt or interest on capital has
to be paid, but in better condition than extraction of “wealth of nation” and
subordination of a nation to creditors. Economic crisis in capitalism can not
be solve the narrow strategy of cut-and-dry privatization: an effort of
coordination of tax increases, public spending cuts, wage cuts, massive layoffs
in public and private sector and debt service. Cut-and-dry privatization
destroys the fabric of capitalism. With unemployment at more than 22%, Greece represents
only 2.3 % of the Eurozone
trading bloc’s GDP. The country is in total chaos and may leave the euro zone after the June 17th
election. In an interview
at Bloomberg’s New York headquarters (June 4th, 2012), Nobel
laureate Joseph Stiglitz has indicated that an orderly exit of the Hellenic
Republic could have an effect of stabilization of the monetary union and make
the Euro currency stronger. Without Greece, The Eurozone trade deficit of 11 b.
euros in 2011 could be a surplus of 9.8 b. euros. Nomura Holdings Inc. chief
strategist Jens Nordvig expressed the same opinion. Greece’s departure could
reduce the Eurozone debt-to-GDP ratio to 85.5% and the value of the common
currency could raise up to 8%, according to Jens Nordvig (Finalist of 2012
Wolfson Economics Prize, 2nd largest cash award in economics after
the Nobel Price). The optimism of Joseph Stieglitz and Jens Nordvig shows that
qualitative transformation of human organization can be the result of severe disequilibrium;
severe crisis highlight possibilities.
It
will be difficult for European leaders to answer correctly to the second
question and solve the problem of “coherent-growth” because the Eurozone is
frame in the “uncertainty” of financial capitalism. This system develops
“speculative-growth” and synthetic financial instrument with uncontrollable
risk. Coherent-growth will be impossible in a context of deleveraging that
could take a decade. “Coherent-growth” is not the movements in different
exchanges of the world; it cannot be measure by the abrupt swing of the price
of a stock, nor by the Dow Jones. It is a coordinated movement of solidarity of
all elements of human society in the process of creation of “wealth of nation”.
This is how the West has created the best model of industrial capitalism in the
20th century. Centered on short-term profit, financial capitalism is
in an early stage of development. It is a self
regulated computerized system of the market in which millisecond, flash order
are key to the generation of profit. High concentration on short-term profit
does not reflect the interests of democracy. Deregulation has made possible
high concentration on short-term profit. It is a political and legal decision
for the elimination of all morals, religious, ethical and legal inputs in the
development of financial capitalism and consequently open the door to creative
finance. Ethical and moral value are the fundamental characteristic of our
humanity, they put limit to human private and public excess. High concentration
on Short-term profit is not possible with any type of limitation; it is a process
of creation of maximum profit without consideration of human value. Industrial
capitalism is based on combination of short-term and long-term profit aim to
the creation of “wealth of nation”. Profit is not wealth. This is an important difference
between the 2 systems. Wealth is a product of human solidarity and can be
identified by the attribute of trans-generational transfer. Short-term profit
and synthetic wealth creation are isolate in exchanges and develop conflict
with activities of human organization. Real wealth creation in industrial
capitalism is the result of a very long and painful process of maturation of human
solidarity called by historians: industrial revolution. Financial capitalism has
been created by political decision of leaders of the West at the end of the 20th
century: Reagan in USA and Thatcher in Europe. It was a pivotal moment in the
evolution of world democracy and economy and the most important difference
between industrial capitalism and financial capitalism. Politicians and
non-elected officials have transform themselves into a new role of social
engineer and begin of a “marathon” of bad decisions that lead the world to this
massive destruction of “wealth of nation” estimated at $14 trillions. The
social engineering is complex; it cannot to be managed by a small group of
individuals.
Financial capitalism is a
battlefield of opposition of interests of the market and democracy. This is the
root of disequilibrium’s in the Eurozone. The exacerbation of this
disequilibrium with excessive increase of public and private debt is at the
origin of this crisis. It has triggered a degradation of human condition by a
huge increase of unemployment and poverty and develops signs of sub-capitalism,
which is a degradation of capitalism. Securitization of assets is good for the
market, but very dangerous for the health and stability of human society. An
unregulated derivative market is an instrument of destruction of “wealth of
nation”, but an excellent financial instrument for the market. The
instantaneity of short-term profit, speculation, moneytarization of risk and
time in a computerized market are not in total harmony with the nature of human
organization. In recent decades the development of self-regulated computerized
system by financial-capitalism has created a digital value chain different from
modern human value chain of industrial capitalism. The current crisis is the
result of the juxtaposition of these two types of value chain. Our imperative
in the years to come is to make the shift from juxtaposition to harmonization
of the 2 systems. By nature, human organization function with a unified system.
A phenomenon of juxtaposition can create conflict of interest. First, capitalism
is humanism and a human experience. Capitalism is founded on a complex system of moral,
philosophical, ethical and religious value, but these values are absent from
the thinking of financial-capitalism. For centuries, through the successive periods
of merchant capitalism, renaissance, movement of humanism, the industrial
revolution, ethic and religion have been at the center of the success of industrial
capitalism. In his book “The protestant ethic and the spirit of capitalism” Max
Weber demonstrate how the protestant work ethic play an important role in the
development of capitalism. The thinking of Benjamin Franklin whose list of
thirteen virtues is a roadmap of ethical guideline in modern capitalism
inspired Weber’s “spirit of capitalism”. Historians have demonstrated how
Christianity has developed the preliminary foundation of capitalism. The Order
of Cistercians (11th century) is a very good example. The Cistercians have been identified has catalysts for the
development of market economy in Europe. They were defined by their
entrepreneurial spirit, ingeniosity in agriculture, wool production,
architecture and hydraulic engineering. The Benedictines were also excellent
entrepreneurs. They were expert in rational cost accounting and creation of new
ventures. Deregulation in financial capitalism is the anti-thesis of morale
virtue articulated by Benjamin Franklin. Deregulation structure the financial
industry as a “morale free zone” and subject “wealth of nation” to uncontrollable
risk. It is a legal vacuum and created disequilibrium in the functioning of democracy.
Capitalism is a society of law and our morale values are a fundamental source
of law. An industry, which is not subjected to law and ethics, will lead human
society to disaster by a normalization of fraud. The paradox of deregulation of
the financial industry and unregulated derivative market is the fact that this
industry created huge liabilities with creation of synthetic financial
instrument. These liabilities manufacture by creative finance endanger “wealth
of nation”. The world GDP is $78 trillions, but OTC derivatives are estimated
at more than $700 trillions.
Shift
from industrial capitalism to financial capitalism is an organic transformation
of human organization. We are defined by the equilibrium of balance of power
and
Democracy.
The mechanic and functioning of the 3 powers is the base of stability of industrial
capitalism. Organic transformation always leads to a new equilibrium. In the Eurozone,
the substitution of sovereign powers by power of international institutions
(the Troika) and the domination of the financial industry has created a new
balance of power. It triggers a
destabilization of democracy by opposing the interests of the market to the interests
of our population. “Uncertainty” is now a norm in financial capitalism, we can
understand why recent market research indicated that private companies are
sitting on more than $ 1 trillion in cash not ready to be invested in the world
economy. The lost of stability in financial capitalism has made the private
sector very uncomfortable in this new environment of “uncertainty”. The new
balance of power is an opposition between creditors and debtors. The
consequences are: development of dualism and antagonism fuel by the oppressive
nature of debt collection. Development of financial-capitalism has been accompanied by
deindustrialization. Payment of debt diverts capital from production
consequently create the phenomenon of deindustrialization.
The European
project was born in a capitalist system define by industrialization. By nature
capitalism is an economic system in constant mutations. The emergence of new
technologies has contributed to the current mutation and end isolation of
national and regional economies. By ending this isolation, new technologies are
expanding free markets worldwide. The challenge for Europe and universal
conscience is to manage these mutations for the benefit of democracy. The digital
sphere is a new human experience, and well instrumentalized by the capital
market. Financial capitalism has developed a new process of wealth creation in this
new sphere. The process is facilitated by a powerful electronic infrastructure
of exchanges around the world. In this new process, algorithmic trading creates
synthetic wealth by millisecond without input of human value and human labor.
The
shift from industrial wealth creation to synthetic wealth creation has created disequilibrium
with destruction of real wealth. High unemployment, return of poverty,
excessive debt and destabilization of democracy are consequences of succession
of bad decisions that lead to the creation of financial capitalism. Sovereign
debt crisis is a challenge to human conscience: the necessity to innovate a new
form of capitalism that will conciliate industrial and financial capitalism in
the digital period. The current disequilibrium in Europe is an opportunity for
the reorganization of balance of power in European democracy with creation of
political union. Economic systems shape balance of power in all human society. The
dynamic of transformation of the world into a complex system is testing the
capacity of European democracies to lead Europe to new highs of economic
success.
The
crisis is a battlefield for a new structure of power. Political, fiscal and
banking union combined with new industrial policy should define the structure
of power in the Eurozone. Current failure of the current leadership raises the
question of the necessity of emergence of a new type of leader able to manage
the complexity of the world. Political and economic powers are founded on
creation and control of “wealth of nation”. In the 21st century
“wealth of nation” have been increase by innovation of new technologies and knowledge
economy. The dynamic of this complex mutation will give birth to a new breed of
leaders in Europe. The shift to financial capitalism has transfer the control
of “wealth of nation” to a self-regulatory computerized system manage by an
elite not in full harmony with democracy, but structured in a balance of power
that oppose creditors to debtors. This is a reduction of balance of power from
the check and balance of the 3 powers to the dualism: creditor-debtor and put
democracy in danger. The supremacy of the financial industry has created a disfunctionality
in the Eurozone and world Economy. The success of capitalism is founded on
harmonization of activities of all productive industries, but the financial
industry is not one of them. We have an obligation to harmonize the activities
and interests of all industries to create a stable and economy of performance.
The rule
of capitalism allows predictable economic activities. It is founded on the capacity of human society to transform profit into wealth.
When wealth creation is handicapped by urgent necessity of short-term profit,
human society entered in a period of crisis. Human societies are defined by long-term
process of wealth creation and well-balanced circulation of flow of wealth in
social fabric. This is the success of Industrial capitalism. Excessive accumulation of public and
private debt cannot build a viable capitalist society. Debt weakens our social fabric, it lowers the value of
individualism and dismantled our economy. The Eurozone sovereign debt crisis is
a failure of financial-capitalism. Forecast of Eurozone Real GDP growth is estimated at -0.1% in
2012 and 0.9% for 2013. The monetary union is the only region of the world with
negative growth in 2012. After Greece, Ireland and Portugal, Spain is now a recipient of bailout
funds estimated at 100 b. euros. With the highest unemployment rate (24.3%) in
the Union and an estimated 180 b. euros of bad assets, Spain will probably need
more bailout funds. The IMF indicated that Spain economy would shrink 1.8% this
year. This is a sign of an increase disintegration of the Eurozone
and Italy could be next probably with a debt of 2,5 trillions euros.“Europe” is
a project of integration born in the success of European industrial capitalism
of the 20th century. The success of this model of capitalism has
made Europe and the West the world center of economic growth and wealth
creation for many centuries. Industrial capitalism has generated massive wealth
creation and employment, low poverty, stability and strong social fabric in the
West. The world is now a juxtaposition of 2
spheres: biosphere and digital sphere with creation of knowledge economy. Our
challenge is to develop a new capitalism able to produce more success than
industrial capitalism. At this early stage of development, financial capitalism
has proven its incapacity to deliver this result.
Since the
May 6th elections, the Athens Stock Exchange (ASE) index has fallen
25%. The risk of Greece exit from the Eurozone
is growing by day. Fitch ratings agency downgraded Greece into junk territory. But,
the election of June 17th will be an opportunity for the people of
Greece and Europe to enter a new period of economic performance higher than the
performance achieved by industrial capitalism in the 20th century. It
should not be a surprise if Greece stays in the Eurozone.
The Schumann declaration of May
9th 1950: “Europe will not be made all at once, or according to a single
plan. It will be built through concrete achievements which first create a de
facto solidarity.”
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(1) Source: Eurostat
(2) Fitch ratings’ report: Greece:
debt dynamics post private sector involvement (April 3rd, 2012)
Aboubacar Sissoko
