Are bailouts acts of solidarity?

2012-02-27

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The word “solidarity” has been widely used all these crisis years, ever since oodles of taxpayer money were put to bail out unsustainable entities, like over-leveraged banks and reckless sovereigns. The rise to prominence of this particular word is not at all coincidental since politicians always use euphemisms to present in a positive way, actions or policies that are otherwise hard to accept and digest.

As such “solidarity” serves pretty well the needs of all political sides involved. The EU likes it because it reasserts the important role it has to play, in “fighting the speculators of the markets”; the conservatives love it because they can put sugar to their otherwise poisonous remedy; the socialists adore it as they reconfirm their belief in the existence of an interventionist state/superstate to help the needy and alleviate inequalities. In short every political party confirms its own biases and dogmas, by using the word “solidarity” to refer to the series of bailouts that have been issued in the eurozone these last few years.

Regardless of what politicians might be saying, the persistent question the citizens have is: are bailouts acts of solidarity? The answer is a straightforward “No” for two main reasons:

1. Bailouts are issued to contain contagion. They are administered on the basis of preventing a complete meltdown of the system, by halting the crisis either within a section/sector of the economy or within a given geographic area (locally/nationally). Hence we often hear about the need to build a “firewall” around states like Italy and Spain who could potentially become insolvent should their position deteriorate further. At any rate the rationale of a bailout is to stop the crisis from spreading in other sectors of the economy or over other countries – whether that is sound politically and theoretically and whether it does indeed bring the desired results, is another issue.
2. Bailouts are issued to avoid sovereign defaults. When a state defaults (when it goes bankrupt) it seizes paying back its creditors and instead engages in negotiations with them in order to restructure and reschedule any debt payments – either the creditors like it or not. Though there is a significant cost on society when such a process materializes, the ultimate cost falls on the creditors of the state (usually banks). Preventing a sovereign from defaulting ultimately implies an indirect support to its creditors, not to the people of the state, since they will be called to pay both the original debt and the amount of the bailout (the new debt).

The above two lead to the conclusion that bailouts are a means of conserving the established system – they are not charity, nor is there any altruistic morality behind them. And by “system” we of course refer to the powers that be and the institutional/political entities that support them either directly or indirectly. We mean the collusion between our big states and big corporate interests. We refer to the cozy relationship between politicians and financiers and so on. Therefore the word “solidarity”, as it is used by the European elite can only mean “support to our own vital interests”.

I understand that politicians need to keep a balance in their approach to everything and so they need to use positive language. That’s absolutely fine with me. After all my point here was not to ask from politicians to change their discourse, but to state my objection to hypocrisy and naivety wherever those may exist in the actions that have led to all these ineffective bailouts.

What the free-thinking citizen realizes by working out the mechanics of these issues, is that first things are not as depicted; second, altruism or other idealist virtues are not the driving forces of any policy. Solidarity to the needy is good and welcome. But we have not seen any of this and there is no sign that things will change in the years ahead. Saving those who brought us into this crisis is never going to be a genuine act of solidarity no matter how they are willing to present it.