The Occupied Times picks over the carcass of the Eurozone with Matt Lynn: Columnist for Bloomberg News and Marketwatch, thriller writer and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’.
OCCUPIED TIMES: So Matt, is there any life left in the euro?
MATT LYNN: It’s game over. There might be some parallel, theoretical universe where the euro survives, but not this one. The imbalances in the system are too great, and the political response too incompetent. The Greek economy is imploding, inflicting terrible suffering on ordinary people. There is a limit to how much austerity can be imposed to save what is, after all, just a monetary system.
OT: Should we be lamenting its demise?
ML: We should care if it happens in a disorderly way – because it will plunge the world economy back into recession. Most European countries have been through several currencies in the last century – the UK is fairly rare in having had the same one for such a long time. They come and go, and are quickly forgotten.
OT: But aren’t some pretty powerful people fighting to keep the Eurozone together?
ML: The euro was always mainly a political project. It was about creating a closer European Union. If it comes apart, that is a huge setback for the project. So there is a huge amount of political will to keep it going. But the one thing we can learn for sure from history is that economics always trumps politics – so eventually it will fail.
OT: And what about the EU as a whole?
ML: I’m pro-EU. I don’t think the euro works, but I’m in favour of the free movement of goods and people and money and I agree that implies certain minimum levels of common rules that are set and enforced in Brussels. A small government version of the EU is a good thing.
OT: Which of the PIIGS is going to come out of this best?
ML: I think most of them will do fine once they get out of the euro. The Italians will do well. And the Irish of course – Ireland was one of the most competitive economies in the world until it joined the single currency.
OT: What went wrong in Greece?
ML: They joined the euro! The Greek establishment thought joining the euro would modernise the economy. But they were wrong. It just led to a debt-fuelled boom and a crippling trade deficit.
OT: Lucas Papademos and Mario Monti: what’s with the technocrat takeover?
ML: It is a point of desperation. Democracy is not compatible with policies the euro demands. Personally, if offered the choice between being able
to elect my Prime Minister and staying in the euro I’d take the elections. I suspect most Greeks and Italians will agree in time.
OT: So the technocrats can’t save us?
ML: Remember that these are the technocrats who got us into this mess. They create a botched monetary union, then didn’t bother to enforce the rules.
OT: Can you spot any silver linings in the crisis?
ML: Europe has been on a centralising path for a long time, but it actually works best when power is decentralised. Once the euro implodes, the EU will loosen its grip in other areas, and that will be a good thing.
OT: In the meantime, are austerity measures the answer?
ML: Over the medium term, all the developed countries need to reduce their debt levels. But that is as much about personal and corporate debt as government debt. Austerity alone in the euro-zone won’t work. Countries need to devalue and reform. If they aren’t allowed to devalue there isn’t any hope of them ever coming out of recession.
OT: What do you make of the Occupation protests?
ML: I can understand them. The global economy has become too financialised, by which I mean dominated by the capital markets. Where I have a problem with them is that the protests are concentrating on symptoms rather than causes. Some bankers may be greedy and selfish, but so are many people. The interesting question is why they have become so important to the system.
OT: If you had a slogan on a banner, what would it be?
ML: Avoid slogans. There’s nothing sensible to be said on a banner.
OT: What angers you most about the world’s economic system?
ML: The endless parade of G-20, G-8, IMF, Davos summits, etc. It is just posturing by politicians. None of these bodies have the ability to fix anything.
OT: What’s your message to OccupyLSX?
ML: Develop some answers. It is no good just being angry. You have to put forward some alternatives.
OT: Ok, so you’re Chancellor for a day, what do you do?
ML: I’d cut corporation tax to 10%, making it the lowest rate in Europe. The only way out of this mess is to grow, and we can only do that by encouraging businesses to come here. It would be expensive, but you’d just have to cut public spending to afford it. Unless we can get the economy growing again, the outlook is bleak, and if that involves some sacrifices, so be it.
OT: And what would you do with the banking sector?
ML: We should certainly split up the UK banks. Their retail and investment banking operations should be separated out, and investment banks should be responsible only to their shareholders. Then if they went bust, it would be their problem, but not anyone else’s.
OT: Avoiding more bailouts…
ML: The bail-outs were a necessary evil. There was no point in letting the banks go bust because they would have taken ordinary people down with them.
OT: So what’s in store for the UK over the next few months?
ML: I think its going to be tough. I’m working on a book at the moment called ‘The Long Depression: The Slump of 2008to 2031’ which compares this recession to the long recession of the 19th century, which ran from 1873 to 1896. Most immediately, the euro crisis is a huge threat. It may well implode, and even if it doesn’t it will struggle for years, hitting confidence, and restricting credit. On top of that we have our own debt crisis, and a steady decline of confidence in the dollar, which is gradually being eclipsed as a reserve currency. So all in all, it couldn’t be much worse. That said, even in the long depression of the 19th century, some countries and industries were growing, so it is important not to be defeatist.
OT: Finally, and most importantly, what’s your favourite sandwich?
ML: Steak with mustard and mayonnaise.
More from Matt on his website: www.mattlynn.co.uk.
One of the issues we’re dealing with here is that governments have, effectively, become like the boards of public companies. That is, they are more responsive to the shareholders – the banks and financial institutions that hold their bonds – than they are to other stakeholders, like voters (customers), public servants (employees), taxpayers (suppliers). It even seems as if the prime concern of modern governments is to ensure ‘shareholder value’ – to make their administrations most attractive to investors.
The ‘sovereign debt’ crisis is, at heart, a crisis of the share price of European governments. Britain is managing to avoid the worst of it by following exactly the same policies that public companies do to create shareholder value – cutting costs, ‘restructuring’ employees, selling off assets. And this is what is being imposed upon Greece, Italy, Spain and others by the markets.
However the power the markets have over governments is really incompatible with democracy – government policies are geared towards keeping often overseas investors ‘confident’, at the expense of the very people governments are supposed to represent. Of course, some might say that governments best serve their citizens by keeping the markets happy. But this is the same argument that companies made, when they said that the best interests of their customers and employees were served by maximizing the value they created for their shareholders. They weren’t, of course – employees were kept in decades of wage repression (if they managed to keep their jobs), customers were cheated by uncompetitive practices (which regulators proved toothless to confront) and suppliers were squeezed to penury by tough purchasing and extended credit-taking.
What we need to see in government financing is ‘mutualisation’ – shifting the ownership of government bonds from banks, hedge funds and other amoral and disinterested financiers to citizens. Britain should be like the John Lewis partnership – owned by those who work in it – and not like the banks, closing branches, making redundancies and reducing services to profit foreign owners.