Preface to the Finnish edition of the Global Minotaur

MinotaurFinland, like my homeland, Greece, is a small country at a treacherous geopolitical crossroads that traditionally inspired great anxiety amongst its people, but also instilled into their character considerable resilience. Unlike Greece, from the mid-1990s until fairly recently Finland succeeded in turning itself into a net exporting nation, ostensibly capable of powering its way into the ‘core’ of Europe’s monetary union. So, when in 2010 my country sank in a sea of debt, Finland ended up as one of the countries that, reluctantly, guaranteed the gigantic loans afforded to countries like Greece. Soon after, Finland fell into the second ‘dip’ of its post-2008 recession, where it still languishes today.

The euro crisis, which was the inevitable result of the global Crash of 2008, and of the Eurozone’s flimsy architecture, has, thus, caused considerable strain within the European Union, setting one proud nation against another. Brussels, Berlin and Frankfurt insist that the Euro Crisis is now abating. Economic reality, on the other hand, begs to differ. Europe’s real social economy is continuing to fragment, and Europe’s integrity and soul are imperilled by our elites’ gross denial of the systemic nature of the crisis.

We, Europe’s citizens, have a stark choice. We can either turn against one another, pointing moralising fingers and continuing the mutual ‘blame game’. Or we can choose to look more carefully at the deeper causes of a crisis that is pulling us apart and entangling us in a fruitless, pathetic discursive war amongst Europeans. I submit to you that the latter is the only sane route that we can travel upon hopefully, and in unity.

This book was, originally, an offering to readers searching for a dispassionate explanation of what happened in 2008; of why the ‘certainties’ that the majority had been led uncritically to adopt buckled under reality’s relentless pressure. The Global Minotaur pointed no moralising fingers. It did not even blame the bankers for what had happened. Indeed, it blamed no one in particular but sought to explain the ‘events’ (including the rise of insufferable greed amongst the financiers) in terms of a history of world capitalism that began at the ‘beginning’, proceeded to the early part of the 20th Century (when the first networked corporations emerged, demanding mega-banks to fund them), took in the post-1929 Great Depression, explained how the United States forged the Global Plan that was capitalism’s Golden Age (1940s to 1971) and, then, described in detail the construction of the weird, wonderful and toxic second post-war phase which I chose to call The Global Minotaur Phase. The seeds of the Crash of 2008, I argue, are to be found in the guts of this second post-war phase. The rest of the book is then devoted to explaining why the crisis occasioned by 2008 constitutes a never-ending process which was always going to place our societies on a tortuous path to a highly uncertain destination – unless, of course, there is concerted, determined, bold political coordination, at a global scale, to end it.

At the time of its English language publication in early 2011(and then again before the second edition in mid-2013; which is the one you are now holding), many readers, critics and colleagues put it to me that I was taking a great risk in prognosticating that the crisis’ end was not in sight. “What if the global economy begins to recover strongly in 2012 or 2013?”, I was asked by concerned friends and grimacing foes. My answer was: “If the facts disprove my theory, it is too bad for my theory. Nothing will satisfy me more than clear evidence of the crisis’ death.” Alas, the crisis has not died and my theory, sadly, remains un-falsified.

Turning back to Finland, you may have wondered why it is that your social economy is shrinking again, your current account has gone into the red, your debt-to-national-income ratio has risen so fast, your manufacturing is in decline, your aggregate investment is fading. In more brutal words, why is Finland emulating (though at a, thankfully, much lower magnitude), the kind of trends which are, more readily, associated with my own country, Greece? So far, not one cent of Finnish, Dutch or German taxpayers’ monies have been given to Greece, to Ireland, to Portugal etc.[1] It cannot, therefore, be that the second Finnish recession is due to a fiscal transfer to the ‘South’. No, the reasons are deeper and this book tries to unearth them.

Central to the origins of Finland’s, Europe’s, and the global economy’s fundamental conundrum is the notion of surplus recycling. One of the forgotten ‘laws’ of macroeconomic arithmetic is that one nation’s deficits are another’s surpluses. Moreover, when different nations are bound together with politically engineered fixed exchange rates (e.g. the Gold Standard of the 1920s, the Bretton Woods system of the first post-war phase, or the Eurozone today), there is a tendency for capital to migrate violently from the surplus to the deficit countries, building bubbles in the deficit regions that drive pseudo-growth there which, nevertheless, creates demand for the exports of the surplus countries, therefore reinforcing their surpluses while magnifying the deficits of the deficit areas. When the bubbles burst, as they must, un-payable debts pile up in the deficit countries. If the political response to this insolvency is to put all the burden of adjustment, and debt repayment, on the weak, insolvent shoulders of the deficit countries, the result is permanent depression there and a slow-burning recession in the surplus countries, as the deficit ones can no longer afford to import from them.

This fundamental problem led to the Great Depression in the 1930s. In a bid to avoid it, the American designers of the post-war Bretton Woods system committed themselves constantly to recycle American surpluses to Europe and to Japan (while the US had surpluses and Europe-Japan were in deficit). Alas, by the end of the 1960s, America had forfeited its surplus position (having slipped into its infamous twin deficits: trade and federal government budget). The result was that, from the mid-1970s onwards, a new, weird and dynamic global surplus recycling mechanism, which I label The Global Minotaur, was born. Financialisation, globalisation, the inexorable rise of derivative trading, inequality’s triumphant march; greed; these were the Minotaur’s symptoms. Under its aegis, in Europe there rose another monetary system: the Eurozone which would never have come into being had it not been for the global reign of the Minotaur. The euro was, in this sense, the Minotaur’s European counterpart; its simulacrum.

In 2008 the Global Minotaur was mortally wounded, a victim of its own success. This magnificent, volatile and ultimately unsustainable global surplus recycling mechanism (that I dissect variously in the following pages) collapsed overnight. The result was that the global economy fell into a rut without it, and the Eurozone, which was predicated upon the global trade and capital flows made possible by the Minotaur, had suffered a major blow. It was like a tall building with weak foundations hit by a massive earthquake which it had never been designed to withstand. Tragically, our European leaders, instead of rushing in to create stronger foundations, opted for a permanent state of denial. They painted over the cracks, stuck wallpaper on the emerging gaps, and erected wooden scaffolds instead of injecting cement into the foundations. The results can be felt today from Helsinki to Porto and from Dublin to Crete.

If I could be granted one wish, regarding the book’s impact on you, the reader, it would be this: To offer a prism from which the crisis in Finland and in Europe can be seen as the inevitable outcome of an ill-designed economic system which good people have the power to re-design as long as they avoid playing the mutual ‘blame game’ that benefits only the xenophobes, the misanthropes and those who have found smart ways of profiting from other people’s labour and discontent.

[1]The bailout funds have taken the form of guarantees that will only translate into payments after Greece or some other peripheral nation default on their loans. While this is very likely to happen in the near future (especially for Greece), it has not happened as yet.

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5 Comments

  • Hello Yanis,

    wonderful summary of the origins of this greed-induced crisis and not only.

    In my opinion the crisis doesn’t revolve about greed only; it’s the consequence of the fall of the Russian Empire….the USA had to become the world undisputed leader.

    Transatlantic treaties can more easily be forced when negotiating with just one single entity: the European Soviet Union (my copyright?), rather than forcing each and every Country to give in…

    My Lira…

    Thanks!

    Fabio

    • By this point in time Fabio it should be abundantly obvious that the decisions are not made in Brussels but in Berlin. As such the eurozone is a death trap. The only logical conclusion is that the EU could remain as a trade organization but the eurozone must be deconstructed as soon as possible. There is absolutely no reason to torture Europeans for German benefit.

  • Quite frankly “Europa” simply does not exist. If you are a poet and a romantic maybe you could fantasize Europe as a “brotherhood and sisterhood”idea but the reality is that the EU should no go beyond a trade block using different currencies because further integration is an exercise in tyranny and as undemocratic process as they come. Offering solutions (aka Modest Proposal) to a flawed construct that shouldn’t exist to begin with is like going to bed with the devil(teaching Satan the meaning of efficiency). Berlin is not interested in any proposals that might diminish maximum German benefit. So why do we keep failing to recognize the true problem of an intransigent and undemocratic Berlin which follows self-interest and clearly its own agenda?

    Case in point Greece. While Germany insists on austerity it’s feeding Greece with a toxic and constant export dose which remains unaffected(pretty much at the same level year after yaer). Meanwhile the Greek government is ordered to find savings elsewhere from pensioners and employees as well as scores of unemployed. The message is: you can kill your own citizens but German advantage remains untouched.

    Which brings us to the main point which is – while we understand why Greece joined the EU – why did Greece had to join the eurozone? Name one benefit for doing so. So that Greek travelers abroad don’t have to exchange currency and thus be inconvenienced?

    Why did we commit such colossal blunder? And why did other eurozone members make the same mistake as we?

    “With their own national currencies, countries could adjust interest rates to encourage investments and large consumer purchases. The euro makes interest-rate adjustments by individual countries impossible, so this form of recovery is lost. Interest rates for all of Euroland are controlled by the European Central Bank.

    They(countries) could also devalue their currency in an economic downturn by adjusting their exchange rate. This devaluation would encourage foreign purchases of their goods, which would then help bring the economy back to where it needed to be. Since there is no longer an individual national currency, this method of economic recovery is also lost. There is no exchange-rate fluctuation for individual euro countries.

    A third way they could adjust to economic shocks was through adjustments in government spending, such as unemployment and social welfare programs. In times of economic difficulty, when lay-offs increase and more citizens need unemployment benefits and other welfare funding, the government’s spending increases to make these payments. This puts money back into the economy and encourages spending, which helps bring the country out of its recession. Because of the Stability and Growth Pact, governments are restricted to keeping their budget deficits within the requirements of the pact. This limits their freedom in spending during economically difficult times, and limits their effectiveness in pulling the country out of a recession.”

    We have none of these tools. The euro-dictatorship does not allow it. Eurozone = misery upon others for the glory of German exports. What fool wants to play such game?

    Come on guys. Let’s wake up before it’s too late. Only an orderly dissolution of the euro applicable to all eurozone members is the only way out. Let’s start working on this with modesty but most importantly with great speed and resolution. We can then adjust with a trading block called with EU with diminished bureaucracy and unwanted regulations which are only to the advantage of those who design them so that they can effectively block the trade of others while they elevate/maximize their own.

  • Yanis, you are quite correct on this. Most of our (Finnish) politicians, policy makers, technocrats and lobbyists (include Olli Rehn.here, too) have shown woefully inadequate grasp of the devastating consequences of the great crisis of global financial capitalism on the flimsy architecture of the Euro. Having prided themselves as the role models of Euro, they now lack analysis, imagination and political will to meet the demands of reform. Instead, they have chosen “Sustainability Gap” as the agenda to nail to the mast of the Austerity ship. The consequences have been as predictable and banal as they have been socially (selt)destructive. So, to take an example, we allegedly cannot anymore afford the education system that made Finland famous all over the world! Hence we have now joined the sorry road of Greece, Spain, Portugal etc. albeit in more moderate measure. How pathetic, how sordid, how unnecessary!.

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