Europe's Economic Drama: Enter Fitch
Saturday, December 17, 2011 by Richard Wolff
Today, Fitch – the major rating company that, with its fellow majors, Moody’s and Standard and Poor, dominate the business of assessing the riskiness of debt instruments – downgraded in various ways and degrees the creditworthiness of the sovereign debts of many European countries. What a spectacle! These rating companies were distinguished by their laughably inaccurate [I am being extremely polite here] assessments of the risks associated with asset-backed securities in the US, leading to the economic crisis we are living through. Now we are all supposed to hang on their every word. Of course, the debts and social tensions around the debts are an obvious problem in Europe as illustrated by the collapse of governments in Greece, Italy and Spain, among other obvious signs. The rating companies are revising upward their estimates of the probability of rain while the world is rushing to close the windows through which rain is already streaming.
Worse still are the media reports and discussions of the Fitch action with their eerie talk of what is necessary to “satisfy the markets.” This strange metaphorical abstraction – “the markets” - is portrayed like some sort of Frankenstein monster threatening to eat Europe’s children unless the parents support government austerity programs that will make those parents suffer. Lets all take a momentary step back from what is an ideological – better described as propagandistic – usage of the term. The markets” hide and disguise those who stand behind those markets and impose their will as if it were some disembodied will of an institution. Lets remember that, like other institutions, markets are human inventions filled with the same mix of positive and negative aspects and operations that characterize every other human institution. The mixed effects of markets have made them objects of deep suspicion and skepticism since Plato and Aristotle wrote their profound critiques of markets as enemies of community thousands of years ago.
In Europe today, the chief creditors of sovereign governments are banks, insurance companies, large corporations, pension funds, some governments (and their sovereign wealth funds – mostly non-European), and wealthy individuals. When politicians and media speak of the need for European governments to “satisfy the markets,” what they mean is to satisfy those creditors. The chief influence among those creditors are the major banks that represent and/or advise all or most of the rest of those creditors.
Those major banks were and are the major recipients of the costly bailouts by those European governments. Indeed, those bailouts sharply increased the indebtedness of those governments (who paid for the bailouts by borrowing). Because the banks had speculated badly in asset-backed securities leading up to late 2008, the collapse then led banks to stop trusting one another to be able to repay any loans. Bank transactions with one another stopped and thereby produced a credit “freeze” or “crunch.” In capitalist economies whose businesses, governments, and consumers had all become credit dependent, such a freeze or crunch threatened wholesale economic collapse. The solution was for the government to intervene massively by lending freely to all the banks who could not borrow from others, by guaranteeing all sorts of loans and debts so banks who had feared to lend would resume lending, and by itself borrowing massively so private lenders would have a safe and profitable outlet for their loanable funds. In these ways, as agent of the people, European governments rebooted a collapsed private credit system at enormous public expense and for the survival and profit of the banks and their major clients who had produced the crisis.
Now, those banks and their clients – freed temporarily and only partially from worrying about one another until another crunch arrives – have begun to worry about their loans to European governments. They fear above all an aroused and angry public that will not permit its leaders to sacrifice their basic needs for public employment and services to take care of the national debts. So the banks are now pressing those leaders to ensure the safety of the national debt by reducing its size and setting aside the funds to guarantee payments of interest and debt reduction. The leaders are to secure those funds by imposing “austerity programs” -cutting government outlays on social services, cutting government payrolls, and selling off government enterprises and national properties. The ironic absurdity is that pressing Europe’s leaders to do this builds and strengthens the oppositional movement against austerity and its supporters.
Fitch sees the surface but not the underlying contradiction here. It reinforces the creditors’ anxieties and their pressures on European governments without grasping or caring to grasp the contradictions for which those governments have no solution. Instead, like animals frozen in the headlights of oncoming disaster, the players in this absurd European drama issue reports like Fitch’s, hold endless and fruitless conferences and summits, and twitch with anxiety as governments teeter and fall.