In his book Governing by Debt, Maurizio Lazzarato argues that the creditor-debtor centred politics of contemporary capitalism is substantially different from the capital-labour centred politics of post-war capitalism. In fact, to understand what is at stake in contemporary Europe we need to approach debt in its totality – government, corporate, financial and household debt. We have to recognise that the debt relationship is not merely an economic relationship of money owed and collected, but a deeply political relationship of power exercised by one person or institution over another.
Consider the following graph. It shows the total debt by sector in selected EU countries at the end of 2014.
A continent sinking under debt
When debt is seen in its totality a different picture emerges from the one usually portrayed by the media. The total debts of the Netherlands and Ireland are nearly seven times their GDP, Denmark’s is 5.5 times and the UK’s more than four times. How sustainable in the long run are the levels of non-government debt in these countries? Is the exceptionally low exposure of the Greek financial sector to debt an indicator that its liabilities have been disguised as Greek government debt? And how sustainable is household debt?
Years of austerity have resulted in European families sinking under debt while experiencing increasing job insecurity, reductions in pensions and the gradual privatisation of welfare services and education.
These different types of debt are not independent from one other. They are mutually constitutive. Behind them are numerous creditor-debtor relations between actors with often diametrically opposed interests and unequal power: states, corporations, banks, financial institutions, small businesses, voters.
This “system” of European debt interacts with a global financial architecture, dominated by the demands of the financial sector. Far from being prudent, this sector is itself exposed to colossal amounts of debt-related risk, endangering all other sectors.
Consider the following numbers. According to a recent Bank of England report, the global aggregate amount of derivatives – once described by Warren Buffet as “financial weapons of mass destruction” – was estimated to be £500 trillion; at least ten times the planet’s GDP. Deutsche Bank’s exposure to the market alone was an estimated $54 trillion, about 20 times Germany’s GDP. To give a degree of measure: the Greek sovereign debt is a mere 0.5% of this amount..
So far, the dominant narrative has presented the debt problem to the European citizens as primarily a problem of sovereign (government) debt. At the national level, debt is supposed to be cured by continuous doses of austerity. At the EU level, austerity has been constitutionalised as the only economic policy option available to elected governments. Within this context, further financialisation of the European economy and securitisation of sovereign debt – essentially packaging debt for sale – are promoted as solutions. However, as Lazzarato described:
The securitisation of public debt is the instrument for an immense transfer of wealth from wage-earners and the population toward financial investors. Since the start of the crisis, Europe has thus gone from an average public debt of 66.55% of GDP in 2007 to 90.5% in 2012, allowing creditors to get rich off the interest … Public debt has enabled the recovery and expansion of financial markets.
The impact of the politics of debt is well documented: rising levels of unemployment, especially for the young, proliferation of precarious employment, household indebtedness, income inequality, scandalous wealth concentration and stagnating economic growth. More alarmingly, austerity has given rise to social and political polarisation, fuelling the rhetoric of xenophobia and fear. Hardly an inspiring vision for Europe.
How much credibility remains in this politics? Lets take the case of Greece. The Financial Times’ leading commentator Martin Wolf recently argued that “the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors”, that is, primarily, European banks and financial institutions. After exposing the futility of austerity, ex-IMF economic advisor Jeffrey Sachs recently declared: “Europe’s leaders are hiding behind a mountain of pious, nonsensical rhetoric” risking an economic and social disaster “in order to insist on collecting some crumbs from the country’s pensioners”.
Describing the treatment of Greece as “the Iraq War of finance”, Daily Telegraph’s Ambrose Evans-Pritchard wrote: “rarely in modern times have we witnessed such a display of petulance and bad judgement by those supposed to be in charge of global financial stability.”
Hope and glory
“Whoever equates Europe with the euro has already given up on Europe,” proclaimed the late German sociologist Urlich Beck. From Paris to Athens, from Dublin to Brussels, from London to Madrid, the European political classes are challenged to “side with their citizens” in re-orienting their national economy towards another Europe, worthy of its values. We need a new politics of hope that will, ultimately, reaffirm that democratic European states are accountable to European citizens and serve the public good. Not simply the demands of one sector of the economy.
With all their limitations, it was representative democracy and welfare state capitalism that brought peace, stability and prosperity in Europe; not banks, stock exchanges and unregulated markets. Most certainly, it was the commitment that nations should not service punitive amounts of debt that destroy their social cohesion and economic development. That was the great lesson of the 1953 London Treaty that cancelled nearly half of postwar Germany’s debt.
The politics of debt has failed the European people. Time to heal Europe and bring back hope to the continent.