Jürgen Habermas On The Shift of Global Policies Away From Basic Human Rights

“Policies predominant in recent decades in the US, the UK, continental Europe, and indeed throughout the world, pretend to be able to secure an autonomous life for citizens primarily through guarantees of economic liberties.  In fact they tend to destroy the balance between the different categories of basic rights.  Human dignity, one and the same for everyone and everywhere, grounds the indivisibility of all categories of human rights.”

Modified extract from the book The Crisis Of The European Union: A Response


The Great Reckoning: Why the European ideal is under threat

The certainties that sustained notions of European unity and social solidarity are collapsing. The financial structures that formed the foundations of old Europe have warped and are destroying it. So, where next?

By Mark Mazower

A protestor throws a petrol bomb towards riot police

                    A protestor throws a petrol bomb towards riot police outside the Greek parliament in October 2011. Photograph: Petros Giannakouris/AP

What is happening to Europe? When and how was the dream of a continent united by not only peace but human fulfilment reduced to a question of saving a currency? These questions, and the roots of our present predicament, go back a century and more. In 1909, shortly before the New Statesman was founded, the pacifist Norman Angell argued, as John Gray writes on page 30, that economic interdependence had made war between nations irrational and futile; war itself was “the great illusion”. Not the best timing, perhaps – a few years later his argument looked a lot less compelling – but Angell was convinced even after the Great War that events had proved him right; and history is a funny thing, for, after a second round of bloodletting, Europe’s leaders finally came round to his idea that land-grabs and the old obsessions – territory, colonies and borders – were indeed not necessary to the pursuit of prosperity and were best set aside for the sake of peace.

Better late than never. But Angell’s work can perhaps be read in another, less comforting way. His argument rested on the assertion that because finance and the spread of credit demanded peace and stability, military conquest no longer guaranteed access to the forms of wealth produced by a modern economy. Flip this around, and he might also have been pointing to an important feature of the ongoing euro-crisis: transformed by global financialisation, European integration and monetary unification have facilitated a process of wealth transfer against which states and their citizens no longer have any obvious safeguard. Angell’s Europe at peace, made safe for and by money, has become a world in which fin­ance holds sway, social solidarity collapses and fairness suffers.

How did we end up here and did it have to be this way? How did we come to find ourselves living through a crisis in which banks and finance dominate the headlines, as both sinners and saviours? A world in which the International Monetary Fund and the European Central Bank put other global institutions in the shade, a world in which salaries in the City of London stand at record multiples of average earnings? Most fundamentally, a world in which, more than previously, money is used to make money and not things. Money moves around the world faster than before and does so with ever more destabilising results, and Angell’s belief that credit and stability were connected now has a quaint ring to it. In an era when middle-class wealth has become hostage to fluctuations of the stock market, the extreme complexity and opacity of computer-generated transactions based on conjectural projections of events has taken us far away from his vision of a world of capitalist rationality.

No less distant from our own times is his happy confidence in the political role of the citizen and the strength of the democratic system. The financialisation of the global economy has brought with it the most acute crisis of democracy since the Second World War. As huge sums of money slosh across the continent, voters in the creditor north feel ignored when their politicians bail out the debtor south, while voters there feel powerless in the face of IMF and ECB diktats. Both bodies thus weaken the legitimacy of politicians and of politics itself.


It was about 200 years ago that a conception of Europe emerged for the first time which linked stability, civilisation and peace to the triumph of capital. Angell’s argument really originated in this moment, when thinkers such as Benjamin Constant, Jeremy Bentham and Henri de Saint-Simon wrote off the war-making of the ancien régime and revolution as symptoms of an older, more bloodthirsty age, and predicted the coming of a brave new world run by merchants, lawyers and engineers. In the same era, the City of London became the unquestioned world centre of international banking. Karl Marx analysed the new power of capital, dissolving traditions and uniting the world through the cash nexus. But he shared the prevailing optimism that history was travelling in the right direction – after all, he projected the eventual triumph of a working class incarnating the hope of human emancipation.

All of these thinkers were Europeans, and, for all of them – whether liberals, scientific technocrats or communists – Europe was the laboratory for that form of social harmony they thought best suited to the modern age.

By the time of the run-up to the First World War, the growing importance of banks and speculators was attracting wide attention, especially from radicals and peace activists. J A Hobson was the first to make use of the term “imperialism” to account for the way profiteers such as Cecil Rhodes had grabbed control of British foreign policy and led the country into the Boer war. In his classic study Finance Capital, published in the year after the 1909 pamphlet that Angell turned into his book The Great Illusion and still worth reading today, the Austrian-born Marxist economist Rudolf Hilferding described the growing power of the banks. He saw a new cause of war in this, and thus a further catalyst for world revolution.

From today’s perspective, what is striking about such analyses is their confidence: fin­ance and financiers might be setting private profit ahead of the public welfare but there were collective responses to this, both domestic and international, and they could not get away with it for ever. Hobson saw the internationalisation of colonial control as the best guarantee that colonial peoples and their resources would be managed for their own and the general good, rather than for the sake of profiteers. Hilferding, like Marx, saw capital’s international character as likely ultimately to prove self-defeating. He welcomed the monopolistic position of finance because it was going to simplify the workers’ ultimate task and help them bring the entire economy under their control.

The First World War expanded criticism of the banks because in many quarters it was customary to blame them for the tensions that had presaged this war and seemed likely to fuel a new one. If Angell believed that wars broke out when the influence of capitalists was not heeded, others believed the exact opposite: speculators revelled in creating conflicts and profiting from them, reaping the rewards while ordinary people paid the price.

In the interwar thrillers of Eric Ambler, for instance, the ultimate puppet-masters are shadowy entities such as the Eurasian Credit Trust. “It was the power of Business, not the deliberations of statesmen, that shaped the destinies of nations,” one of his characters comments. From this perspective it is worth pondering whether our inability any longer to imagine a reason for a general war in Europe does not serve in its own right to soften public anger at financiers, because it removes one of the main historic causes of suspicion of them. Bankers may have an image problem today, but arguably what needs explaining is why this is not worse than it is, and why it has had so few repercussions for the way they run their businesses compared to the 1930s. One of the reasons, surely, is that the old anxiety about profiteers, which ran through European history for much of the 19th and the first half of the 20th centuries, has vanished. Who even speaks of profiteers today?

It was the 1929 Wall Street crash that discredited finance for a generation and more. The ensuing collapse of the gold standard around the world made globalisation go into reverse. Capital controls became an unremarkable fact of life. In one country after another, the state took over from the private sector in making major investment decisions and in regulating relations between workers and employers. At the same time, the rise of the Soviet Union posed a grave new challenge. European politicians seeking to stabilise capitalism responded on several fronts, parcelling out landed estates in eastern Europe to the peasantry, founding new central banks and formalising international co-operation through bodies such as the Bank for International Settlements. It was the threat of Bolshevism that brought managed capitalism to Europe and, with it, new conceptions of the state as the guarantor of collective welfare.

Thus the “European model” combining liberty and social solidarity, which commentators such as Tony Judt and Jeremy Rifkin hailed a decade or so ago as the civilised alternative to American capitalism, originated in the fear of communism and the looming presence of the USSR on Europe’s margins. Where avoiding communist revolution was the priority, the politicians were willing to give a growing share of national income to labour, curb potentially destabilising capital flows, use the state as a guarantor of social peace, and equalise wealth and opportunities by expanding the tax base and bankrolling welfare. But what would happen when no one feared communism any longer and took the stability of parliamentary democracy for granted?

Today, when globalisation remains a powerful if waning ideology, it is easy to forget that the “European model” was extraordinarily successful. In the 30 years after 1945, high growth rates, unmatched before or since, paid for an expansion of the state as provider of social services and banished memories of mass unemployment. The Americans helped, providing a security guarantee to western Europeans and modest incentives towards regional co-operation.

What emerged domestically was a form of economy that combined a high degree of state direction of investment behind tariff barriers and exchange controls with gradual liberalisation of trade. The very unglamorous early years of the Common Market in fact stand out in retrospect as a spectacular political success, because it was in those years that “Europe” – as the western Europeans liked to term what they were doing – demonstrated its indispensability in helping restore legitimacy to that form of political community most Europeans clearly preferred to live in, the nation state. What the historian Alan Milward called the postwar “rescue of the European nation state” was in its way a European triumph, too: national resurgence and international integration proceeded hand in hand, much as 19th-century nationalists such as Mazzini had said they should.

This highly managed version of capitalism emphasised economic regulation and assigned a secondary role for finance. Yet long before the collapse of communism, the possibility for Europe to go in another direction entirely was being explored. The Second World War raised the question of what Europe was for, and in Britain several émigré intellectuals explored the economic issues in depth. From Oxford, the Polish economist Michał Kalecki underscored the political implications of full employment, anticipating that employers would sooner or later successfully put pressure on politicians to roll back Keynesian-style policies because of their impact on profits. From his own, very different, libertarian starting point, Friedrich Hayek praised the idea of a European free market while attacking the idea that a continental federation with supranational regulatory powers could ever win sufficiently wide political consent across member states.

The great Hungarian polymath Karl Pol­anyi differed profoundly in his views from Hayek but he, too, reminded readers that a return to the dream of the self-regulating market was always a possible alternative to the economic planning he personally preferred; neither was natural and both had their champions. In his prophetic 1945 article “Universal capitalism or regional planning”, Polanyi argued that as Europe emerged from the war it faced a choice between an American model of a liberalised, open, world economy and a Soviet model that was based on planning, protected borders and heavy state involvement. Perhaps even more than the two other men, he was acutely aware that Europe’s choice of capitalism would henceforth be conditioned by larger international considerations.


It took time, but in the 1970s they were all in varying ways proved right. The business counteroffensive that Kalecki had foreseen came to pass, helped by a revival in interest in Hayek’s ideas. Internationally, the critical switch was a change in US thinking from global Keynesianism to a much more finance-based foreign economic policy. The dollar’s abandonment of gold in 1971 could have led to the end of America’s central role in international finance, a rift in the transatlantic alliance and a return to greater domestic policy fragmentation and autonomy. By the end of the decade, however, the US had opted for the anti-inflationary crusade that would restore the dollar’s global prominence and bring western Europeans into line. The 1976 sterling crisis and IMF intervention were a turning point; Maggie Thatcher followed, and eventually so did even François Mitterrand and the French Socialists.

What emerged was simultaneously an assault on the power of organised labour in the developed north – an assault from which it has never recovered – and something else whose consequences were foreseen by virtually no one: an extreme deregulation of banks and financial institutions which unleashed their ability to make profits across the world. As manufacturing languished, brute capital became more profitable and salaries in the financial sector took off.

This process of financialisation originated in the US but it was driven through by international agencies. In fact, it cannot be understood except as a campaign that helped powerful coalitions to emerge between the leading banks, the US Treasury and the IMF and the Organisation for Economic Co-operation and Development. Representing a compact between the free-marketeering ideology of Wall Street and the western Europeans’ desire for rules and codes, they spread the new norms – of capital liberalisation, deregulation of banks and the credit sector, and internal privatisation of state-owned businesses – from one continent to another. A series of debt crises, also symptoms of this new, financialised world, offered the serendipitous means for the IMF to spread the neoliberal gospel.

Under the European Commission president Jacques Delors, a French Socialist, Europe signed up. Opting to promote integration through the monetary system was a natural response to the exchange-rate volatility of the 1970s and 1980s. But there were two problems. One was that the needlessly rigid rules that were introduced along with the euro removed much of what discretionary power was left to EU member governments once the currency was adopted. The other was that the tiny size of the European Union budget made it impossible to achieve the other plank of Delors’s modernising vision – a real mechanism for funding social solidarity across the EU. All that was left was money.

Today the consequences of financialisation, within and outside Europe, are clear enough. Look at average growth rates during the Trente Glorieuses and during the past 30 years: the comparison makes sobering reading. Banks and hedge funds may have increased their profitability, but national and continental economic performance have lagged sharply behind. One reason for this is that globalisation has made the world more crisis-prone, not less so: nostalgia for the dictator António Salazar in Portugal or communism in Russia reflects how the greater self-sufficiency of the years before 1980 brought greater predictability and stability. And it has also made the world much less equal or fair. The trend towards equalisation of wealth and incomes that occurred within European societies between 1945 and 1975 has been stopped, and the curve, without exception in Europe, now points the other way, towards an ever-widening income gap, which is forcing large sections of the population to recalibrate their social expectations for themselves and their children.

In so far as the EU stands for the defence of the single currency, it thus finds itself aligned against those very priorities – ­stability, solidarity, equality – that helped restore the legitimacy of democracy to the western half of the continent after 1945. The recent divide between creditor north and debtor south makes these problems far more acute, but in fact they existed before the crisis hit. Even then, they lay at the heart of the fundamental political challenge that financialisation has produced, the challenge posed by the decoupling of political from economic power. The euro-crisis has made this challenge evident, and more morally troubling.

In these circumstances, what demands explanation is not the emergence of organised protest, but the lack of it. Why, we need to ask, do people find it so hard to imagine alternatives? Taxpayers are bailing out the financial sector. So why haven’t they demanded more regulation, more control of pay, and ultimately a rebalancing of relationships between finance and manufacturing, between global liquidity and nationally rooted communities?

The main reason is the absence of widely believed alternatives. The revolutionary left, whether communist or anarchist, has failed at the ballot box, which may not matter to its adherents but signals its lack of political weight. In the few cases where it has succeeded, as in austerity-riven Greece (with Syriza), its recipes for the crisis are scarcely revolutionary. People may have soured on the globalisation dream but politicians continue to regard the financial markets as indispensable in more or less their present form. Domestically, what is striking is the degree to which recovery programmes today rely simply on expanding liquidity through the banking system rather than by means of the kind of ambitious public works projects that characterised recovery across Europe after 1945. Thus, while the left hand of Whitehall chastens the banks, its right hand begs them to kick-start a new boom.

Internationally, too, the idea that the removal of capital controls which took place in the past 30 years might need to be rolled back – that a sharper distinction might legitimately be drawn (the old distinction, in fact) between productive, long-term investment and short-term, speculative flows – has scarcely begun to be voiced, though there have been faint murmurs of it in recent IMF discussions.

Even if there were persuasive alternatives, would they be heard? Back in the 1820s, public opinion was a “Divinity”, a novel democratising and rationalising impetus that would force the old elite to modernise. In the age of the internet and the blogosphere, who still believes this? Here, as in other senses, Europe is living through the collapse of older certainties. Democracy has been won – but what has that meant? On its own, it guarantees the hegemony of a set of institutions and practices, not any particular policies. After all, the forces that made for social justice emerged not out of democratic institutions per se, but out of deep ideological anxieties and rivalries, rivalries that served to fetter the power of the markets and won wide political support for so doing.

Absent those ideological rivalries, or any new forms of effective collective mobilisation, and nothing checks the European social model from continuing to disintegrate. Europe=euro: in the shadow of this equation, all the other older, nobler and more ambitious versions of what Europe might stand for have faded away. An interesting possibility thus follows – might the dissolution of the euro be necessary in order to save something of the European idea? Or would we merely find ourselves with neither? We may yet find out.

Mark Mazower is the director of the Centre for International History at Columbia University. His most recent book is “Governing the World: the History of an Idea”


Lessons of a Greek Tragedy

ATHENS – A visit to Greece leaves many vivid impressions. There are, of course, the country’s rich history, abundance of archeological sites, azure skies, and crystalline seas. But there is also the intense pressure under which Greek society is now functioning – and the extraordinary courage with which ordinary citizens are coping with economic disaster.

This illustration is by Paul Lachine and comes from <a href="http://www.newsart.com">NewsArt.com</a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.
Illustration by Paul Lachine

Inevitably, a visit also leaves questions. In particular, what should policymakers have done differently in confronting the country’s financial crisis?

The critical policy mistakes were those committed at the outset of the crisis. It was already clear in the first half of 2010, when Greece lost access to financial markets, that the public debt was unsustainable. The country’s sovereign debt should have been restructured without delay.

Had Greece quickly written down its debt burden by two-thirds, it would have been able to shed its crushing debt overhang. It could have used a portion of the interest savings to recapitalize the banks. It could have cut taxes, rather than raising them. It could have jump-started investment and gotten its economy moving again, if not in a matter of months, then, with luck, in no more than a year.

In its official post-mortem on the crisis, the International Monetary Fund now agrees that debt restructuring should have been undertaken earlier. But this was not its view at the time. Under the leadership of Dominique Strauss-Kahn, the Fund was in thrall to the French and German governments, which adamantly opposed debt relief.

The European Commission, for its part, has rejected the IMF’s mea culpa. Preoccupied by the state of the French and German banks, it continues to argue that delaying debt restructuring was the right thing to do. It has no regrets about throwing Greece to the wolves.

Given this opposition, the Greek government would have had to move unilaterally. Hindsight suggests that the authorities should have done just that. Faced with foreign opposition, the government should have announced its decision to restructure as a fait accompli.

Clearly, there would have been risks. The “troika” – the IMF, the European Commission, and the European Central Bank – might have refused to provide an aid package, forcing Greece to compress imports even more sharply. The ECB might have cut off emergency liquidity assistance, forcing the government to impose capital controls and even consider abandoning the euro.

But, by acting preemptively, Greek leaders could have shaped the dialogue. They could have said to their EU colleagues, “Look, we have no choice but to restructure what is clearly an unsustainable debt. But make no mistake: our preference is to remain in the eurozone. We are committed to reforms. Given this, don’t you agree that we are deserving of your support?”

Making a compelling case would have required Greece to get serious about those reforms. The government could have started by bringing together employers and unions to negotiate an equitable burden-sharing agreement, including an across-the-board reduction in wages and pensions, thereby getting a jump on internal devaluation. This could then have been complemented by a simultaneous agreement to restructure private debts. With everyone accepting sacrifices, it might have been possible to reach an accord on liberalizing closed professions and on comprehensive tax reform.

But, instead of working together with its social partners, the government, heeding the troika’s advice, dismantled the country’s collective-bargaining system, leaving workers unrepresented. Greece thus lacked a mechanism to negotiate a social compact to cut wages, pensions, and other obligations in an equitable way. With every vested interest fighting for itself, closed professions proved impossible to pry open. Doubting that there would be shared sacrifice, those same interest groups were unable to negotiate meaningful tax reform.

With the Greek government thus failing to push through structural reforms, it was unable to earn the trust of its creditors; and, skeptical that the government was committed to reform, the troika demanded a pound of flesh, in the form of front-loaded austerity, as the price of assistance. Those front-loaded tax increases and government-spending cuts plunged the economy deeper into recession, making a farce of claims that the public debt was sustainable – and forcing the inevitable debt restructuring after two more agonizing years.

Greece is now seeking to make the best of a difficult situation. It is attempting to breathe life into the campaign for structural reform. It is lobbying the troika for further debt relief. But the damage will not be easily undone. Past mistakes, committed not just by Greece, but also by its international partners, make a difficult short-term future unavoidable.

It is important that other countries draw the right lessons. If they do, Greece’s brave, beleaguered citizens can at least take comfort in knowing that many people elsewhere will be spared the same unnecessary sacrifices.


Greece: A therapist’s worst nightmare

People eat food donated by the Greek church in central Athens on 17 October 2012

A German trauma therapist journeys to Greece. What he sees there surpasses his worst fears. Greek society is crumbling under the pressure of the crisis. Excerpts.

Trauma is Georg Pieper’s business. Whenever a disaster hits Germany, the traumatologist is on the spot. Following the attacks in Oslo and Utøya, Pieper travelled to Norway and supervised his colleagues there. He knows what it means to look closely study and measure the scale of a disaster.

In October Pieper, spent a few days in Athens, where he gave continuing education courses for psychologists, psychiatrists and doctors on trauma therapy. Although he had prepared himself for some shocks, the reality was even worse than he had gloomily expected.

For Germans who watch the news, the crisis is very remote. It encroaches on us first and foremost in hearing terms like “rescue fund” or “billion-euro holes”. Instead of understanding the global context, we see Angela Merkel in Berlin, Brussels or somewhere else, stepping out of dark limousines with a grave expression on her face.

We don’t learn the whole truth, not about Greece, not Germany, not about Europe. Pieper calls what is happening right before our very eyes a “massive displacement effort.” The defence mechanism of politicians in particular functions superbly.

Begging and scavanging

In October 2012 he saw a Greece where heavily pregnant women were rushing around, going from from hospital to hospital begging, but because they had neither health insurance nor enough money, nobody wanted to help them bring their child into the world. In a suburb of Athens, people who were until recently middle class, were gathering fruit and vegetable scraps from the street.

An old man said that he could no longer afford the medication for his heart condition. His pension had been slashed by half. He had worked for more than forty years, and he thought he had done everything right. Now he no longer understands the world.

People who go to a hospital must bring their own bedding, and even their food. Since the cleaning staff was fired, doctors and nurses, who have not been paid for months, have been cleaning the wards. There aren’t enough disposable gloves and catheters, and the EU is warning of the danger of the spread of infectious diseases.

Whole blocks of flats have in the meantime had their oil supplies cut off for lack of money. In spring a 77 year old man shot himself in front of the Parliament in Athens. Shortly before his act, he is said to have cried out: “This is how I leave my children with no debts.” In the past three years the suicide rate in Greece has doubled.

Whirlwind of helplessness

A trauma is an event that shakes the world of the individual to its foundations. The experience is so overwhelming that it pulls the victim into a whirlwind of absolute helplessness. Only a cynic speaking about Greece talks about its “social decline”. What we are living through now is a collective trauma.

“The Greek men have been particularly hard hit by the crisis,” says Pieper. Much more than women do, men derive their identity from their work – in other words, their value to the labour market. But the value to the market of the vast majority of them keeps falling. That’s also an attack on their masculinity. Mental illnesses such as depression are spreading in an epidemic across Greece. No one will be surprised that three quarters of all suicides are men.

One doesn’t have to be either a pessimist or an expert to grasp what that means for the social relationships among people and for the bonds holding Greek society together.

The anger at a corrupt and perverted domestic system and at the international political system that spends the tranches of aid money to bail out the banks, but not to save people, is terrible. And it is growing. The men bring this anger home to their families, and their sons take it out to the street. The number of violent gangs that attack minorities is increasing.

That was why in November the United States issued a travel warning for Greece, advising that people with dark skin were particularly vulnerable. That, says Pieper, shocked him – that such a warning should be issued for a country like Greece, which sees itself as a hospitable land.

Societal collapse

Even the most devastating blow need not bring an individual to his knees, says Pieper, because each of us has a tremendous will to survive. So much for the good news. The bad news is that a social safety net needs a functioning society. What power such a society can have was shown by Utøya. All of Norway stood behind the victims of the massacre, as if someone had rung out a bell of solidarity across the country.

In Greece the functioning society has been undermined for so long that it has finally collapsed: the crisis has wiped out the welfare state. “In such dramatic situations,” says Pieper, “man turns into a kind of predator.” Sheer necessity drives him into casting off his reasonableness, and selfishness displaces solidarity.

A few days ago Transparency International published its Corruption Index. Greece holds bottom ranking in the EU, rubbing elbows with Colombia and Djibouti. News like that is pure poison.

Georg Pieper says, “I wonder how much longer this society can hold out before it explodes.” Greece is on the brink of civil war. That affects us all.


How finance led to debt servitude (or f**k the EU Monster)

A very interesting response by Dimitris Yannopoulos posted on Yannis Varoufakis’ latest blog.


“According to Michael Hudson, stock markets have been a vehicle for banks to create credit for junk bond buyers.

As an academic with a strong grounding in economic history as well as banking and finance, professor Michael Hudson has built his own school of thought – distanced from both Keynesians and neoliberals – with regard to the stark options facing a contemporary Western world drowned in unsustainable debts of governments, with households at the mercy of global bankers and financiers who have no accountability.

Options for the indebted amount to no less than a choice between feudal-like servitude and freedom, because “debts that can’t be paid, won’t be”, Hudson argues in an interview with the Athens News, on the occasion of the publication this year of his book, The Bubble and Beyond: Fictitious Capital, Debt Deflation and Global Crisis.

Distinguished research professor of economics at the University of Missouri, Hudson is also president of the Institute for the Study of Long-Term Economic Trends (ISLET), a former Wall Street financial analyst and a research associate at the Levy Economics Institute of Bard College, New York.

Athens News: How has the financial system evolved into a form of economic servitude which – in your latest book – you call ‘debt peonage’, implying a negation of democracy as well as of free-market capitalism itself?

Michael Hudson: The original hope of banking and finance capitalism in the 19th century was that banks would make productive loans to help finance industry and that they would advance funds to manufacturers and producers as well as to the public sector for infrastructure; this would create an economic surplus out of which to pay the interest and the principal back to the lenders. This was defined as productive lending. But as matters have turned out, instead of aligning itself with industry and manufacturing, banking has allied itself with real estate, mineral extraction, oil, gas and with all sorts of monopolies. So instead of getting a share of the profits, it has taken a share of the rent, which is unearned income.

In fact, in the US, banks don’t make loans for what can be produced in the future. They make loans against collateral. That’s the Anglo-American-Dutch banking system. A banker can look at what can be pledged as collateral on which the bank could foreclose, instead of extending loans for the creation of new factories to employ people, new means of production. This was supposed to be done by the stock market.

When did this process get out of hand?

Since 1980, more than 30 years now, the stock market has been a vehicle for banks to create credit for junk-bond buyers – corporate raiders who would take over companies, load them down with debt and just extract interest by downsizing the labour force, shifting it to non-union labour, breaking up companies, and sell off the parts so that finance becomes destructive instead of productive. And as this sort of banking has gained wealth, it has used this wealth to privatise the government itself. It has bought control of governments to make interest tax-exempt, to favour debt financing instead of equity financing and to deregulate the banking industry so that in America financial fraud by the largest banks has been virtually decriminalised.

Is the so-called financialisation of the economy a product of bank deregulation?

Financialisation is a very good term because it shows that finance is taking over the whole economy. It began by taking over the real estate and insurance sectors, prompting national income economists to lump together what they call the FIRE sectors – finance, insurance and real estate – but it also should include the legal sector, because most of the law these days is corporate law that aids financial fraud. Finance has thus expanded to absorb the entire economic surplus of the economy so that this surplus is not being used either for capital investment to increase output or for increased consumption, because it is being diverted to increase debt service to the banks. Financialisation means the surplus is used for financial speculation purposes and not spent on the real economy, which is driven to a spiral of debt deflation and unemployment.

But this system collapsed in 2008, right?

This is not so. In fact, the collapse of 2008 was the greatest victory of finance capital in centuries. It used a crisis as an opportunity to panic the US Congress into taking all of the losses of the big gambling banks into the public balance sheet, incurring 13 trillion dollars of added debt. Therefore the crisis became an opportunity to turn democracy into a financial oligarchy. The same thing happened in Ireland, when Irish banks were stranded with enormous fraudulent loans or in Greece, when massive public debts were diverted to tax fraud and state corruption backed by EU multinationals. In both cases, the government pledged to pay the fraudsters by shifting the burden to small taxpayers, homeowners, employees and pensioners.

Isn’t the case of Greece peculiar, in the sense that it allowed global creditors to shift their debt burden onto eurozone governments?

Under eurozone rules, Greece cannot have a central bank monetise its public debt and must pay the debts that it has taken on by raising taxes, cutting wages, axing social welfare and privatising the public domain. So the financial sector is using the Greek debt crisis as an opportunity to seize whatever the Greek government and nation owns, its real estate and public buildings, its mineral wealth and its oil rights in the Aegean, all for the benefit of the eurozone banking sector.

What are the options available to the world for resolving the debt crisis and avoiding a global depression?

A shrinking economy can only fall further into arrears in a debt deflation spiral. The question today is whether a new wave of reform will restore and indeed complete the task of classical political economy to distinguish tangible wealth creation from debt overhead and other capital gains. Otherwise, the democratic era of industrial capitalism will be rolled back towards a neofeudal reaction of the financial oligarchy against social reform.

What is at stake is how society will liberate itself from the legacy of debts that can’t be paid. If it lets the financial sector foreclose, governments will be forced to privatise the public domain under blackmail, dismantling public administration and welfare services, ushering in a dark age of poverty/immiseration – most characteristically, one of debt peonage.

The only alternative to this nightmare is for debts to be written down to what can be paid back in a democratic mixed economy, geared to a more equitable distribution of wealth and income.

Returning to the 19th century

Athens News: Why so much emphasis on austerity and internal devaluation?

Michael Hudson: This is because financialisation brings the class war back, in a new way. For the last 100 years the social divide was between employers and employees fighting for workplace rights, higher wages and so on, but once you bring in the financial sector, this adds a new dimension to their struggle. Once creditors take control of governments and unions, they push austerity and unemployment that drives down wages on a macroeconomic “financial” level to a degree that could not occur before. In the US, workers are in debt and afraid to go on strike, afraid even to complain about working conditions, because if they are fired and miss a payment in their electricity or mortgage bills, they are one paycheque away from homelessness. So what’s happening in Greece is happening in America too. We have government-sponsored wage cuts and abolition of labour rights in ways 19th-century industrialists never dreamed of.”