From European austerity to warmongering
The present essay is best understood in light of yesterday’s entry about Welfare versus warfare considerations in Europe. I am adopting a schematic approach to make the relevant concepts easier to understand. As such, I am simplifying a lot of the historical and political complexity to get to the essence of things. The gist is that the willingness of the European Union to become a war machine is rational, albeit perverse, given its historical trajectory, and is consistent with its economic realities.
From the Euro to the Eurocrisis
Imagine a simple world in the 1980s where West Germany and Greece are in an economic union. In the beginning, each country has its own currency. West Germany is an economic powerhouse that is driven by its coal and steel industries, so its government can issue debt at very favourable interest rates. By contrast, Greece does not have strong economic fundamentals and its borrowing costs are higher as a result.
The Cold War ends and the Soviet Union collapses. What once was West Germany can now unify with East Germany. But politicians around Europe, are concerned that German reunification will make Germany far too powerful for others to control. Policy-makers are nervous. They cannot be in an economic union with Germany, given that the imbalance in power will inevitably turn into a hegemonic relationship.
The solution is the creation of a new currency to replace national currencies: the Euro. This new currency is a quid pro quo: “offer us your strong currency and the attendant financial benefits, and we will continue to do trade with you”. The Euro was, in effect, a leash to keep Germany under control and to boost the mutual confidence of everyone involved that the Germans will not attempt to take over Europe once they become too strong. If the trust is not there, the economic union will not work in practice.
The Euro is introduced at the turn of the century. Germany and Greece now have a single monetary policy, entrusted with the European Central Bank in Frankfurt. The markets estimate that German and Greek sovereign debts are basically equally valuable. So Greece starts borrowing at very low rates. Money thus flows from German savings into Greek credit-driven consumption.
The bonanza is great for German industry. Car manufacturers can sell their products to the parvenu Greeks. The latter enjoy the affluent life that cheap credit guarantees, which makes them strongly pro-European and fully committed to the project. Germany is not only larger now, it also has access to another market with temporarily high purchasing power.
The German industrialists and bankers benefit greatly from this expanded market. If the money had stayed in Germany in the form of savings, those plutocrats would have difficulty accessing it and getting a large share out of it. The money would have to go into infrastructure projects and/or to increase worker salaries, which is not immediately profitable for the rich. But because it got converted into credit abroad through the capital flows in the Euro Area periphery, this money could be recycled as a wave of pure profits without changing realities on the ground in Germany.
In the meantime, Greek public and private debt rises while investment spending in Germany remains weak. The average German worker does not benefit from this arrangement: their wages are practically frozen and their infrastructure is not getting any better. It is the ruling elites who are having a good time with the Euro.
The indebtedness of the Greeks has to be understood as the indebtedness of the Germans. The reason is that the Germans are denied of what they could have done with that money and of the infrastructure they could have had. Long-term, the lack of investment means that they are worse-off than past generations.
The influx of cheap money in Greece creates strong inflationary pressures. Everything triples in cost overnight in the conversion from the Drachma to Euro. Investment funds are buying up properties. Mass tourism makes all sorts of areas, products, and services inaccessible to the ordinary person. In other words, the distribution of wealth is uneven and life as a whole becomes an egregious pay-to-win scheme.
The 2008+ financial crisis hits. The Euro Area is a fairweather construction that is not prepared for the coming storm. There is no mechanism for fiscal transfers in Europe and, more importantly, there is no democratic accountability+legitimacy at the EU level that would give the power to an elected government to actually do what is good for the entirety of the system.
The only real solutions to the Eurocrisis are the outright federalisation of the Union or the withdrawal to national borders. Instead, the EU remained a bureaucratic entity that retained all of the original architectural flaws. Its solution was to codify austerity into its core legal framework and, thus, to consign an entire continent to atrophy. The European Central Bank pumped trillions of inflationary money into the system to paper over the cracks. This went into the pockets of those who are at the top of the so-called “transmission mechanism”, i.e. bankers and friends, who then put the money into housing, among other rentier projects, further pricing out of the market the average person. This is where we are now.
“Austerity” in this context effectively means that public spending does not go towards welfare and infrastructure that would benefit the majority of people. Governments keep their spending tight yet still find billions in cash for projects that benefit the rich. More on that below.
Back to the Eurocrisis days, the Greek government is now bankrupt because the cheap credit is over and it has no means of supporting its artificially enlarged economy. Everything was a bubble. The German government is also in an extremely difficult situation. German banks took the German savings and converted them into cheap credit to the Greeks. That money is now gone, so the banks will go bankrupt and the Germans will lose their savings. How do you tell the German people that their plutocrats messed it up?
The German government thus has to give money to the Greek government in order for the latter to pay the German banks. But this is hugely problematic. If the German government was honest, it would have to admit that the money that could have been spent on productive projects within Germany was actually channelled into frivolous spending by greedy bankers, with corrupt politicians in the mix. So the German establishment has to spin a racist narrative of lazy Greeks who cannot control their finances and must be saved from their own vices by the righteous Germans.
The German government is now prepared to bail out the Greek government in order to save the German banks. To do this right, it must force austerity onto the Greek people, otherwise the German citizens will feel they are getting robbed. Well, they did get robbed by their ruling elite, but this way the problem appears to be only about the “lazy Greeks”: there are no systemic forces at play.
The German government was already imposing austerity through the backdoor on the German people—remember that money was leaving the country to be converted into cheap credit elsewhere. It simply intensified those efforts during the financial crisis. Again, this is where we are today.
In turn, the Greek government could tell its own people that “we all had a piece of the pie” and so we were all responsible for our own impoverishment. Austerity was thus the easy way out for both establishments.
This is a politically expedient way to avoid the realities of the situation:
- the Euro is a project that benefits the ruling class;
- austerity is hardcoded in the Economic and Monetary Union;
- the European Central Bank does not have a counterparty treasury;
- the European Union is not a democracy.
All the above continue to be the case.
What I have referred to here as “Germany” can be extended to a core of European countries, such as France and the Benelux nations. “Greece” is a proxy for Southern Europe and beyond.
The important part here is to understand how debt and credit actually work against the peoples on both sides and that austerity applies to both equally. The other important lesson is that racism is socialism for dummies: the ruling elites are telling you how others are the problem so that you punch down instead of looking up. This, too, is what is happening right now with the rise of the far-right in Europe; a far-right that will blithely align itself with the EU establishment, even though it purports to be against the EU.
Austerity leads to atrophy
Back to our simplified version of Euro Area dynamics. This politically expedient solution has disastrous consequences for the economy. If the average Greek and the average German do not have enough money to buy cars, what will the industrialists do with their products? They could export to China, but China has now become so effective at producing its own high-end goods that there is no reason for the Chinese to buy German brands.
In other words, German cars are no longer competitive. The industrialists can boost their competitiveness by bringing down their costs and by finding new markets. To bring down their costs, they have to secure cheaper energy sources. Europe is especially weak on this front. It can import energy from Russia or the Middle East, but is fundamentally not in a strong bargaining position relative to those countries.
Finding new markets without bringing down costs is not going to work for global trade. The reason is that Chinese cars will be more appealing to those same international markets.
Against this backdrop, we can understand the push for (i) the eastward enlargement of the European Union, (ii) the EU becoming the de facto political arm of NATO in all of Europe, and (iii) the centrality of the Ukraine project.
To put it simply, German industry needs the eastward expansion to boost its competitiveness. By controlling the countries to its east, Germany has powerful leverage in its deals with Russia. The same principle is true for relations with the Middle East. Now you know why the establishment supports Israel: it puts pressure on the countries in that part of the world to do business in terms that are favourable to the West. The average Israeli person is a pawn the way Greeks and Germans are. Nothing new here.
Both Ukraine and Israel perform the same function. To be a battering ram in their region and to work as the bridge that connects energy/trade routes to the European centre.
Austerity discourages productive investments. Industrialists and their friends in finance have the two-fold motivation to (i) convert their money into financial assets with which to extract rent instead of building productive capacity and (ii) gear their production towards something that governments would be willing to buy, given citizens cannot afford much. For the former, money goes into funds that, inter alia, buy houses and appartment blocks at scale, hence the ongoing accommodation crisis which is a problem of concentrated wealth. And for the latter, they want war to create the necessity for the production of relevant hardware as well as to further improve their bargaining position with regard to energy/trade routes.
War makes perfect business sense for those vested interests. In the short-term, they get to sell arms. In the long-term, they can benefit from potentially advantageous geopolitical realignments. All the billions that are sent to Ukraine are recycled back into those same business interests. In effect, the European taxpayer is bailing out the European oligarchs.
Who controls Ukraine controls Central Asia
This is between the Europeans and the Russians. Reading this heading will make you think that I do not know geography. That is because you are not paying attention to the maps. Ukraine connects to the Asian heartlands through the Eurasian steppe. This land corridor is vital. It provides direct or relatively easy access to the Black Sea, the Caspian Sea, and the Far East, with further connections to be had from there.
If the EU/NATO controls Ukraine, it can make a stronger case to the Caucasus nations to also join the EU/NATO architecture. From there, the West can reach all the way to Iran via Azerbaijan, also putting pressure on Turkey, to remind the Turks not to stray away from Western interests. The Azeri and the Israeli establishments are best buddies, by the way, so factor that in as well when you broaden your view of how the fate of East Europe is inextricably bound up together with the Middle East.
Now add the Uyghur element as well to understand why the West, which is highly suspicious of Muslim and Chinese people somehow adores the Chinese Muslims. Uyghur lands neighbour the Central Asian nation states. The West having a foothold there can create all sorts of problems for the rest of China and beyond.
Access to the Caspian Sea connects the EU with Kazakhstan, Turkmenistan, and others. The pressure on Russia is thus immense and China will start to feel the heat as well. Should the Russians lose ground in Ukraine they run the risk of withdrawing further north with a long-term possibility of losing large parts of their own country.
Behind the scenes, you can be sure that Western spies will be all over Chechnya and other republics to reignite and/or outright arm secessionist/pro-Western movements. Once you understand the logic of energy and trade routes with regard to competitiveness and business interests, you know that it cannot stop in Ukraine. Only fools think that Ukraine is about “democracy” and other such fancies.
Now you know why Russia did not respond with force to the eastward EU enlargement towards the Baltics but it drew a red line on Ukraine and Crimea. Estonia and friends being part of the EU does not fundamentally change the realities for Russia. But Ukraine is different because of the aforementioned ramifications.
None of this started in the 2020s or even the 2010s. It goes back decades. The unification of Germany, the collapse of the Soviet Union, and the enlargement of EU/NATO eastward have to be understood in the context of these trends.
The “more Europe” direction
While all these are unfolding, there is another set of incentives that grows stronger in the so-called “Brussels bubble”. People who work for the EU institutions, think tanks, and related, all have a personal interest to keep this business going. A stronger EU translates into better career opportunities for them. Money is plentiful, job security is guaranteed, prestige is a given.
These are the elements that easily corrupt a person’s heart. Combine it with the elitist mentality of top-tier education and you get the picture. They can feel like demigods, they operate within their own little world with other such people, and eventually they lose touch with the prevailing conditions of everyday life.
I am not describing politicians here, though the incentives are the same for them too. Think of all the assistants, functionaries, advisers, and lobbyists. I am writing about all the people whose names you do not know yet whose cumulative impact on policy is massive.
Those people are decoupled from the consequences of their actions, which is why they are not trustworthy. If there is war in Ukraine, they are not the ones involved in the fighting. If there is inflation that forces all of us home all day, because we cannot afford anything beyond the basics, they do not experience hardship. Fundamentally, they form an apparatus that has a life of its own. We are not a factor in their thinking beside, of course, virtue signalling about “the people”.
The drive for “more Europe” nowadays means more efforts being put into the war machine and into the institutional connections that will forever ask for more war, exactly how it is in the United States with the military-industrial-financial complex.
This “more Europe” with a militarist spin is the new bonanza for the super-rich. Austerity remains in place and is why warmongering keeps intensifying.