Critique on the ex cathedra pronouncement of Barroso that there is no eurocrisis

2013-05-11

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The present author finds it pertinent to express the feeling of amazement that is always born in him following an exposition to the Olympian pronouncements of the European Commission’s President, Mr. José Manuel Barroso; amazement not in the sense of a positive impression, but rather as a profound bewilderment blended with an uneasiness that stems from the fact that evident truths of the empirical order of things have become the subjects of a meticulous exercise in obfuscation, whose function is to mislead and misinform and whose end is to place the ideocentric foundations for the top-down policies to come. After having abused and distorted the term “federation” and its derivatives, inwardly transforming it from a firm political position against nation states to an intergovernmental, confederalist conception where the nation state lies “at the heart” of the whole venture, Mr. Barroso has now taken it upon himself to deny the systemic aspects of the localized economic crises witnessed across the Euro Area, in propounding the well-known conservative postulate of certain powers of the establishment, that “there is no such thing as a eurocrisis”. The present critique shall be forwarded against the remarks included in Mr. Barroso’s speech at the State of the Union conference in Florence on May 9, 2013. On the issue of the eurocrisis qua trapping of some leftist’s or “populist’s” imaginary, Mr. Barroso spoke thus:

The point is to demonstrate that our policies go in the right direction for the long term, that the European alternative is the best one, the one to be trusted most. Of course, this is not easy because the populist discourse manipulates anxieties and pretends to bring simple solutions to complex problems. But we should not shy away from exposing the complexity of the issues we are dealing with.

Let me take just one example. According to some of these discourses, Europe and the Euro are the cause of the problem. Let’s be intellectually honest and let’s spare no effort to explain again and again that while known as the ‘euro crisis’, this is not a crisis of the euro itself. The euro remains a credible, stable and strong currency.

This is an economic and financial crisis in individual countries that impacts on the rest of the euro area. And the financial crisis was also not euro-specific, for it affected countries in the Eurozone and outside, inside the European Union and outside, as the case of Iceland clearly shows.

Before even beginning to be enumerative on some of the most evident manifestations of the systemic crisis in the Euro Area, we ought to provide a textual exegesis to the conflation of populism with the debate on the eurocrisis. At first, there is no intrinsic connection between the two, for populism has existed even against the euro and against specific member states or peoples, while the proponents of the eurocrisis as being a systemic crisis of the euro bear no such feelings towards the euro as such and certain groups of people. Besides, let us not remain oblivious to the fact that the political actions at the early stages of the crisis were dominated and heavily influenced by the distasteful stereotypes associated with the PIIGS, the obstinate opposition to a coherent and holistic strategy against the crisis, the denial of the inadequacies and shortcomings of the Economic and Monetary Union; all of which formed part of the panoply of falsehoods that “populists” and their technocratic counterparts put forth at every given opportunity.

It is true that populism in all member states is deleterious for the EU as a whole and even for the peoples to which it is addressed, but a judicious analysis and objective understanding of this phenomenon cannot afford to place under a common denominator the sheer fantasies of certain political forces, with the well-documented interpretation of the economic order that tens of prolific intellectuals, market experts, journalists and academics of the highest caliber have presented. To paint with the same brush those who consistently and wittingly cultivate xenophobic ghosts and nationalistic spectralizations, with the personalities whose only sin is to think differently from the Commission and its flunkies, is dishonesty, if not a crass misunderstanding of the situation. Thus, while one may disagree profoundly with all those esteemed professionals who have at times referred to the eurocrisis as being a systemic crisis, it simply is inappropriate to proceed with tacitly branding them as populists and deriding them on those grounds. What one can only do when faced with a logical and/or factual argument is to expose whatever weaknesses, inconsistencies and fallacies therein, which is something that Mr. Barroso avoids doing, in a statement that can never classify as “academic”, “objective” or “well-informed”, but which dangerously verges on being “populist” in its own capacity.

It is “populists” or rather those taking decisions at the highest strata of power, who were willing to ignore the evident fact that the introduction of an ill-designed euro ushered in an era of asymmetric inflationism that fostered the widening macroeconomic imbalances between core and peripheral countries and strengthened the dependency and symbiosis between banks and sovereigns. The artificially low interest rates in the periphery, courtesy of the euro’s inception in conjunction with the enforcement of the ill-thought Basel Accords on capital adequacy (zero risk for assets such as sovereign bonds), provided the foundations for the distortion of the capital structures by engendering and facilitating the misallocation and misdirection of scarce resources into areas with no long term sustainability, conversely depriving or “crowding out” others from the means to efficient expansion. The numerous bubbles that we all know by hard were directly caused, or at least exacerbated, by the enactment and continuous existence of the Economic and Monetary Union; an EMU that was—and in many ways still is—a monetary union whose fiscal, political and even financial facets are compartmentalized along national lines, which further contribute to the institutional antinomies and asymmetries.

The reversal of the erratic capital flows to the periphery, either by capital flight or aversion to new investments, as reflected in the widening imbalances in the Eurosystem’s TARGET2 payment mechanism; the realization of convertibility risks arising from structural interest rate spreads between core and periphery; the impossibility of implementing a one-size-fits-all monetary policy to ameliorate the invidious effects of the crisis in material terms manifested in the shortage of funding to the real economy and the disruption of credit channels and inter-bank lending; the non-existence of Union-wide competences on fiscal, social and financial fronts, which has brought about the necessity of producing ad hoc concoctions to cover the evident institutional gaps, and which is a major source of regime uncertainty, brought about by the unpredictability and unforeseeability of the legal-institutional framework, due to the opaque and arbitrary decisions taken at the inter-governmental platforms of the European Council and the Eurogroup; are all manifestations of the common systemic aspects of the otherwise seemingly disparate national/local crises in the euro area. The fact that some states are in deep crisis while others are not, does not mean that the issues are of a purely national/local nature, for as even the theory of the Optimal Currency Area (OCA) illustrates, the impact of an external shock is not experienced symmetrically across parts of the currency union, even in the case where the prerequisites to such an OCA are met: this is what is well-known as an asymmetric shock, which is by definition, a systemic phenomenon and which distinguished economists, including such “neoliberals” as Milton Friedman, had warned against.

To make reference to a systemic crisis in the euro area, is not tantamount to being simplistic and to blithely ignoring the inherent complexities of the situation, as Mr. Barroso erroneously suggests, but to point to the fact that while there clearly are specificities in each case at the political, institutional, legal, macro- and micro- economic fronts, there exists a wider context in which these particularities are made manifest or existent. No serious analyst or scholar who recognizes the systemic features of the crisis in the Euro Area, has ever actually claimed that the root of the problem is only “Europe” or the “Euro”—this is a pitiful strawman that Mr. Barroso has erected to provide a convenient excuse to the arbitrariness of the measures that have been introduced by the surveillance mechanism of the troika in the programme countries and the desperate decisions of the confederal institutions of the EU to proceed with “integration” that would otherwise be undesirable, by exploiting the extreme duress that economic conditions have bestowed upon elected governments.

Notwithstanding all of the aforementioned, the allusion to the stability of the euro as a currency, as if that were evidence of the non-existence of the systemic features of the crisis in the EMU, is specious. While much can be said to expose the fallacy underpinning this argument, one only needs to examine the “stability” of other currencies such as the US dollar and the British pound sterling. There is no doubt whatsoever that these are, more or less, stable currencies that traders use in their speculative operations; but this mere superficiality cannot and should not allow one to draw the inference that there is no system-wide crisis across the United States or the United Kingdom. The stability of a currency is partly related to the international dimension of the crisis that has affected all global currencies simultaneously and because all major central banks have been engaging in unprecedented unconventional measures to provide a backstop to the economies they manipulate, thus preventing investors from adjusting to less inflated currencies from the world’s dominant economies. In addition, the currency, apart from being related to the size of an economy, is also subject to radical and swift shocks, for whilst there may be tranquility at one point in time, a severe and persistent internal flaw or a political failure of a monumental scale, can throw foreign exchange investors into disarray and cast the currency into oblivion, as history clearly teaches us with the demise of the gold standard and the Breton Woods system, among many others.

Lastly and to conclude my critique of Mr. Barroso misplaced proposition, a closer scrutiny of this utterance in the speech now under examination, is necessary: this is an economic and financial crisis in individual countries that impacts on the rest of the euro area. The inconsistency in this remark exists in the dubious omission of the feedback loop that is in operation, for whilst the crisis in an individual country causes spill over effects to other member states, it is equally true that the institutional framework of the EMU and the decisions of other member states, or the prevailing economic conditions, further contribute to the vicious cycle domestically and systemically. Moreover, the uniformity of the monetary function in juxtaposition to the incoherence of the fiscal mechanisms, provides the system-wide, institutional setting of a reversed distortion of the capital structures, this time featuring the collapse of the credit supply in the periphery that results in the massive failure of ventures and the destruction of employment positions and profit-generating sources, with the accumulation of savings at parts that cannot yield productive and sustainable returns and which provide the basis for the aggrandizement of new bubbles, this time at the core of the EMU (and/or in London which is outside the eurozone). That the European Central Bank is desperately seeking ways to expand the money supply and to furnish credit to the real economy of Europe, that is mostly comprised of small and medium sized enterprises, is yet another clear indication of the system-wide aspects of the crisis, even though the experiences are not—and in a certain way cannot be—the same across all member states.

Mr. Barroso is of course free to deliver any kind of speech he finds appropriate for the attainment of his ends and in that regard one could claim that he is quite efficient. Nevertheless, a person with no appetite for weaving obscurantist apologia to the political elite, cannot passively receive such proclamations as if they were revelations of the robust, value-free objectivity underlying the mere shadows and figments that “populists” who dare to speak of this ostensible phantomality of the eurocrisis, have been using to delude the public. Populism certainly is ill advised and should be avoided at all costs, if we are to preserve the integrity of the Union and to construct a future where we will be in a position to enjoy greater liberty and eudaimonia. That granted, Mr. Barroso ought to be more careful when implicitly attacking all opposition to the Commission’s and the European Council’s machinations as mere populism, even when this comes from people who are studious in their field of expertise and who speak in their capacity as academics, market experts, established journalists or public intellectuals, not as unelected technocratic overlords. If nothing else, the crudity of Mr. Barroso’s arguments or injunctions is unfortunate and condemnable, at least in the humble opinion of the present citizen.