On the weekend of May 7-9, the European Union gazed into the abyss of
historical failure. The fate of the euro was at stake and with it
European unification as a whole. Not since before the signing of the
Treaty of Rome in 1957 had Europe been in such grave political danger.
On the surface, the matter at hand was the financial stabilization of
Greece and of the Europe’s common currency, but the real title of the
play was “Saving the Banks, Part II.”
If Greece had defaulted, not only would Portugal, Spain, and other
weaker eurozone
economies have been threatened, but Europe would have faced a run on
its securities. That, in turn, would have triggered the collapse of
supposedly “too big to fail” banks and insurance companies, not just in
Europe, but worldwide.
When the heads of the EU’s member states met in Brussels to deal with
the Greek crisis, the interbank market, which is decisive for the
liquidity of financial institutions, had started to freeze, just like
after the collapse of Lehmann Brothers in September 2008. The world
financial system again stood at the edge of a precipice. Only after
joining forces in providing a €750 billion bailout package, did the
eurozone’s member states and the IMF prevent
another systemic crash.
But how many bailouts will the people of the Western democracies
tolerate before the crisis of the global financial system turns into a
crisis of Western democracy? The answer is clear: not many more.
The crisis has not yet manifested itself to most citizens of the West in
the appalling, ground-shaking way of 1929. So far, financial crisis
still seems a rather more vague threat: people are afraid of inflation,
stagnation, unemployment, and loss of assets and status. They don’t yet
think that the world as they know it is coming to an end.
Moreover, the mood in the West swings between a realization that this
crisis will not be resolved without fundamental commotions and changes,
and hope that it will be resolved in the normal, cyclical way of other
crises – Mexico, Asia, the Internet bubble, etc. – and that in the
not-so-distant future things will start to pick up. This uncertain
response partly explains Western governments’ lack of will to draw
tangible conclusions from the systemic failure of the financial sector.
It is also why governments give the impression that they don’t know how
to steer their societies through these troubled waters. Leaders talk
about “systemic risks” and the necessity of bailouts, but at the same
time let those responsible for two consecutive systemic failures
maintain the same global casino that twice brought the world near
collapse.
Sixty years ago, a global crisis such as the one we are witnessing today
would have had the potential to unleash another world war. Fortunately,
this is no longer a realistic option. The reality of the atomic bomb
precludes large-scale war between world powers; governments intervene,
upon global agreement, with large-scale bailouts; and today’s Western
societies and emerging powers are much richer than those still
devastated by World War I. In 2007, global assets (including stock,
private and public debt, and bank deposits) amounted to $194 trillion –
343% of annual global GDP.
Moreover, the failure of the global financial system comes at a time
when power is shifting from West to East. Today, the hopes of the world
economy rest with the emerging powers in east and south Asia, led by
China and India.
For all these reasons, the global crisis will not be devastating in the
same way as the Great Depression was. Indeed, our current predicament
has all of the hallmarks of a “post-modern” crisis. But we need to ask
ourselves where and how the energies unleashed by this crisis will be
discharged, because there can be no doubt that they will be discharged
one way or another. After all, the evidence so far suggests that the
crisis is here to stay for a long time, with unforeseen eruptions, such
as the recent adversity in Greece and surrounding the euro, as well as
inflation, stagnation, and populist rebellion.
Indeed, there are good reasons for believing that the Tea Party movement
in the United States, connected as it is with the economic disaster
that followed Lehman’s collapse, is one of the channels of the energy
released by the crisis. Developments in Greece or Hungary make it easy
to imagine failed European states if the EU unravels.
The fact that the current global crisis is a post-modern one does not
make it any less dangerous. Post-modern crises entail post-modern risks,
resulting in disintegration and implosion of power vacuums, not the
danger of classical wars. But, given European governments’ behavior, the
urgent question presents itself: Do these governments have any inkling
of what is at stake at the table where they sit playing roulette with
history?
(Joschka Fischer, Germany’s Foreign Minister and Vice Chancellor from
1998 to 2005, was a leader in the German Green Party for almost 20
years).
(by "New Europe" newspaper, July 11-17, 2010)
Copyright: Project Syndicate/Institute for Human Sciences, 2010.
www.project-syndicate.org