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Wednesday, November 30, 2011

Update: The 1%’s European Coup

As a follow up to my earlier post about the 1%’s European Coup, my attention was called to Noah Millman’s “In the Long Run, We’re All German” over at The American Scene.  (h/t Kevin Drum)

Millman approvingly cites Ryan Avent for the proposition that the European Central Bank actually engineered the crisis now unfolding in the Eurozone by raising benchmark interest rates to collapse demand, thereby driving economies on the threshold – like Italy’s – into insolvency.   He then adds:

Some might well argue that responsibility sits with the debtors – more specifically, creditors might argue that.  In other words:  Germany might argue that.  Central banks are generally biased in favor of creditors; the ECB was specifically organized to be biased in favor of Germany.  (That was the price for getting Germany to agree to give up the Deutschemark in the first place.)  One way of looking at the sequence of events is to say that the ECB was willing to permit contagion in order to wring out inflation.  I think a better way of looking at it is to say that the ECB was willing to threaten Italy with insolvency in order to give Germany more formal control over Italy’s finances.

That’s incredibly hard-ball politics, but if you are not accountable to anybody (which the ECB, basically, is not) then you can play really, really hard-ball politics.

(emphasis in the original)

Millman later states in the comments that accompany his post that he views all of this as more of a “north-south European conflict” rather than a “class conflict within Germany,” i.e., not as a matter of the German 1% grabbing power at the expense of the German 99%.  But while I agree with Millman’s analysis, I think that ultimate conclusion is incorrect. 

As Millman says, central banks work for creditors, the ECB works for Germany, and the German banking system is the Eurozone’s largest creditor.  In other words, the ECB is fairly well working for the German banking system.  And the German banking system – like all modern financial systems – basically works for the 1% even if (as Millman seems to want to indicate in his comments) not all German bankers are themselves members of the 1%.

Giving control over Italy’s internal policies to the German banking system only means that the German banking system will have greater power to engineer Italy’s policies for the benefit of the 1% for whom it works.  If Millman is correct that the ECB actually “engineered” the Eurozone crisis to accomplish this, then what we are looking at is a de facto coup of a representative democracy by the global monied elite not by the exercise of physical force, but by the control of financial power.

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