Ex-ECB Head Proposes Giving Greece the Benton Harbor, Michigan Treatment

By William K. Black

Michigan Governor Rick Snyder secured passage of “Public Act 4, the Local Government and School District Fiscal Accountability Act.  The Act allows the Governor to appoint emergency managers (EMs) for any government in Michigan.  The EM has unlimited dictatorial powers.  He can – and the EMs appointed by Snyder have exercised this power – effectively eliminate the elected government.  Republicans have blocked a challenge to this remarkable law; arguing that the petitions had too small a font.  Snyder has used the EM power to take over primarily cities with African-American majorities.

Chris Savage, writing in The Nation, quoted the Benton Harbor EM’s putsch:

In April the Benton Harbor EM, Joe Harris, decreed: “Absent prior express written authorization and approval by the Emergency Manager”—himself—‘no City Board, Commission or Authority shall take any action for or on behalf of the City whatsoever other than: i) Call a meeting to order, ii) Approve of meeting minutes, iii) Adjourn a meeting.’” The move in effect abolished Benton Harbor’s elected City Commission and replaced it with an unelected bureaucrat, perhaps the first time this has happened in US history.

I grew up in Michigan so I follow Snyder’s assault on democracy and African-Americans fairly closely.  I can now report that European “austerians” are following Snyder’s lead.

Berlin is enraged that the Greeks have voted in favor of candidates opposed to the austerity deal Berlin coerced the disgraced and fallen Greek government to sign.  The austerians have decided that since democracy is the problem, imperialism is the answer.  Jean-Claude Trichet, former head of the European Central Bank (ECB), and a fiercer austerian than Chancellor Merkel, has proposed a plan to cripple Greek democracy.  Naturally, the business press reacted with praise.  Reuters’ headline  gushed:  Ex-ECB head unveils bold plan to save the euro.

Note that the “bold” plan is not designed to “save” Greece or the Greeks – it is supposed to save the “currency.”  When the Titanic sank the general order was “women and children to the lifeboats.”  Trichet gives priority to saving our currency.  Reuters’ doesn’t even see that bizarre priority as worthy of discussion.

But what is “bold” about Trichet’s plan?  Reuters’ answer is:

Europe could strengthen its monetary union by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy, the former head of the European Central Bank said on Thursday in unveiling a bold proposal to salvage the euro.

Frequent readers will know of our family rule that it is impossible to compete with unintentional self-parody.  Trichet (and Reuters) think it would be just great for Berlin to take over Greece.  Why not make Greece the nation where democracy was born and died?  After all, the Germans haven’t occupied Greece for over 65 years and may be getting rusty.  I’m sure the Greeks will welcome them with flowers and parades.  Sort of like Iraq.  Trichet has finally identified a use for the Franco-German brigade – it can provide security to German tax collectors as they tromp through Greece.

The Reuters reporter wrote the following paragraph as if it were a statement of fact that required neither citation nor support.

The monetary union has always defied economic principles, because the euro was launched ahead of European fiscal or political union. This has caused strains for countries running huge budget deficits – namely Greece, Portugal, Ireland, Spain and Italy – that have led to financing difficulties and over-stretched banking systems.

The first sentence is true – and should lead the reporter to ask why anyone should listen to those that designed the monetary union (i.e., people like Trichet) in a manner that “always defied economic principles.”  The second sentence reverses the causality.  It was the banking and financial crisis that caused the Great Recession and caused huge budget deficits and it was Germany’s insistence on the economically insane practice of adopting a pro-cyclical policy of austerity that forced the euro zone back into recession and the periphery into Great Depression levels of unemployment.

Given the reporter’s admission that the euro system was designed in a fatally flawed manner, the answer must be to fix the flaws.  Trichet, however, says that answer is impossible:  “For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.”  Democracy remains the stumbling block, but Trichet has an answer to that problem – crush democracy.  He proposes that the EU:

[T]ake a country into receivership when its political leaders or its parliament cannot implement sound budgetary policies approved by the EU. The action would have democratic accountability if it were approved by the European Council of EU heads of states and the elected European Parliament, he said.

Of course, the “sound budgetary policies” he means are the suicidal, and failed policies of trying to balance the budget during a Great Recession.  He does not understand even now that a nation in a severe recession cannot simply decide to run a budget surplus.  It can try to do so, by cutting spending or raising taxes, but those policies are likely to reduce already sharply inadequate public and private sector demand, which increases unemployment, increases demand for public services, and reduces government revenue – all factors likely to increase the budget deficit.  I am sure that the Greeks will consider the loss of their sovereignty at the hands of hostile foreign powers who openly sneer at the Greek people to represent the epitome of “democratic accountability.”

And what was the reaction of Berlin to Trichet’s policy to force suicidal austerity on the Greeks and bleed their economy while removing their sovereignty and right to democratic rule?  You know the answer.

“The idea earned a warm reception from leading economists and prominent Europeans attending the session [preparing for the G8 meeting].

“It is a very radical proposal, couched as a modest step,” said Richard Cooper, international economist at Harvard.

Caio Koch Weser, former German economics minister, said he found it “very attractive” because it addresses the problem of a strong European Central Bank, a weak European Commission which acts as the EU’s executive branch, and a confused European Council, which provides political leadership.”

Note what entity is supposedly “strong” – the ECB – the only undemocratic entity discussed by Herr Weser.  The ECB (more precisely, the CEOs of the largest German banks who actually determine German and ECB policies) will run Europe – because German leaders like Herr Weser find “strong” leaders “very attractive.”  How could this possibly go wrong?  Remind me what the German word for “leader” is.

The ECB is ready to provide the leadership prinzip. 

“The [ECB] governing council met in Spain, the new center of the European debt crisis.  At more than 24 percent, Spanish unemployment is the highest in the euro zone, while mounting bad loans have put into question the solvency of the Spanish banking sector.

Opening the press conference in a convention center on the outskirts of Barcelona, Miguel Ángel Fernández Ordóñez, the governor of the Bank of Spain, said that ‘it is a meeting that allows the bank to get closer to its citizens.’

Still, Spain avoided giving citizens angered by Europe’s austerity cuts and high joblessness any possibility to disturb the central bankers, temporarily suspending the Schengen Agreement, which allows free cross-border travel, before the E.C.B. meeting because of concerns that violent protesters would travel to Barcelona. Meanwhile, about 8,000 police officers were deployed around the city, with helicopters hovering above, while only a few hundreds of students gathered in central Barcelona to protest spending cuts, particularly in education.

‘Is having helicopters and snipers on the roofs the way the E.C.B. wanted to show its face and meet the Spanish people?’ asked Edward Hugh, an economist in Barcelona.”

At the ECB’s request, Spain’s ultra-conservative government turned out 8,000 police, helicopters, and snipers on the roofs.  Now that is strong leadership from another nation with a tradition of venerating strong leadership.  Did readers notice the ECB official’s claim that the ECB has “citizens” and that it held the meeting in Barcelona to get closer to “its citizens”?  Lest we forget what the ECB has already forgotten – the ECB is a deliberately anti-democratic entity that has no “citizens” and routinely works to make the largest banks wealthy at the expense of the citizens of the EU.  At Germany’s insistence the ECB has no mandate to seek full employment, so those millions of Spanish citizens who are unemployed due to austerity and the ECB’s repressive monetary policies are deliberately and expressly not the concern of the ECB.  That makes the ECB’s leadership’s claims about “its citizens” all the more duplicitous.

Michigan’s ultra-right wing Governor Snyder designed the EM as the ultimate embodiment of the führerprinzip.  He uses the EMs against marginalized minorities.  I’m sure it will end well.

I am not arguing this makes Snyder or Trichet a fascist.  My argument is that they embrace authoritarian “solutions” that glorify the all-dominant leader.  Authoritarian leaders tend to impose disastrous policies, such as austerity, because they do not have to listen to others.  They invariably insist that “there is no alternative” (TINA) to their self-destructive policies.

12 Responses to Ex-ECB Head Proposes Giving Greece the Benton Harbor, Michigan Treatment

  1. Why hasn’t the EC Media looked back at the reasons for England begging off when asked to join the Euro Zone? Brits knew they didn’t want to relinquish their currency sovereignty to the German export powerhouse, with its capacity to save, and overall disciplinarian management of fiscal and monetary policy. Furthermore, the Bank of England possess more assets than not just a few of the Euro Zone countries are worth, and to put those assets at risk would be more than imprudent.

    Clinging to the Euro in hopes that a political framework can be designed to create cohesion and safety nets is not likely to happen when the ECB is now reluctant to use its leverage to bailout failing EZ nations. The relationship between them and the ECB is not unlike the relationship between the Federal Reserve and TBTF banks. A major sovereign debt default in the EZ would trigger massive bond losses there and in America. The ECB is the only institution capable of preventing that. Yet, self imposed constraints are now trumping reality’s call for immediate action.

    How myopic can a central bank be, not to use its emergency authority to overrule self imposed political constraints.

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  3. “…effectively eliminate the elected government. ” That’s treason.

  4. Just a foolish question in hope of a profound answer.
    Why doesn’t the USA step in as “the reserve currency of the world” and LEND the PIIGS
    $2 trillion at a rate of 2% for a term of 36 years? Almost all economist would agree that the Fed has the power to do this.
    PLUS there is the added bonus,(READ: “Great News!! Zero Income Taxes Solves Worldwide Economic Crises” by justaluckyfool) of the US revenue (incone) increasing $4 trillion over that 36 year period.
    P.S.
    Please pass a note to President Obama. (as stated on ” 60 minutes” (12/11/11)”
    President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
    YES, JUST COLLECT INTEREST ON OUR OWN MONEY, INSTEAD OF TAXES !

    • Ray Phenicie

      ” President Obama said,”You can’t raise revenues by lowering taxes unless you get the money from somewhere else.” ?
      YES, JUST COLLECT INTEREST ON OUR OWN MONEY, INSTEAD OF TAXES !”

      Sigh
      Once again, at the very web site that has done so much to promote understanding of MMT there is much education to be done.
      Taxes do not pay for anything.
      They are simply a fiscal tool for curbing spending; necessary when the economy is moving to or arrived at unacceptable levels of inflation.
      When the economy is inside of recessionary territory, as the US economy is now and has been for over a decade, there is absolutely no need to curb spending for anyone or any business entity.

      • Taxes do not pay for anything.” Ray Phenicie
        1.Yet there is a Income Tax. I would add there is no such thing as a ” fair income tax.”
        So ,please , tell me why you are OK with the collection of an income tax,”
        … a fiscal tool for curbing spending; necessary when the economy is moving to or arrived at unacceptable levels of inflation.” is collected EVERY YEAR regardless of the condition of the economy. Also ,please , explain: how could this means of control for inflation be used when there is deflation or stagnation?
        2.Perhaps, you didn’t read “Great News !! Zero Income Taxes…”www.justaluckyfool.wordpress.com
        You really should becuse it just might,perhaps,maybe contain a profound answer as to “Where we went wrong and how we can fix it.”
        What if the Feds were to do for the housing industry , and real estate mortgages what they had done for the US auto industry? Would they end the resession, create 2 million jobs and generate an income (revenue) of $3 trillion a year?
        Read all about it .Then call a fool, a fool; maybe even Justaluckyfool.

        Ray Phenicie

  5. Thomas Bergbusch

    According the FT, the ECB is already well on its way to using the caretaker government to impose even greater austerity, while facilitating a bailout of Greek Banks:

    Everybody chill – Grexit is not really imminent – FT.com
    http://www.ft.com
    There has been an astonishing quantity of nonsense written in the past couple of weeks about the prospect of “Grexit”, or Greece’s exit from the euro. That could be expected from people outside the eurozone, unfamiliar with the theological doctrines

  6. Not to defend Snyder’s specific actions, but one should note a difference between Michigan’s law and these proposals for Europe.

    In Michigan (and most if not all states of the US), the sovereignty federated to the states is not further federated to local governments. Michigan city and township governments are delegated power through home rule, meaning their powers are statutorty, not constitutional, and the state government can abrogate those powers through law.

    Members of the EU, on the other hand, are sovereign states.

  7. Prof. Black, what’s going on in Michigan is just a side issue? The Holy Roman Reich IV is global, Q.E.D. The Global Finance Coup d’Etat of government/governance that Gabriel Naude wrote about in 1639 is overt now, quite brazen, actually, since it is all but a “fait accompli” across all borders. Is all of France Vichy now? Is the USA!USA! becoming one gigantic concentration camp?

  8. Frances Coppola

    Trichet is wrong. Even if a Eurozone sovereign state can’t service its debt obligations and won’t or can’t meet the EU’s fiscal conditions, it is highly unlikely that it is insolvent. It is short of cash because of the idiotic Euro. If Greece, or Spain, or Italy weren’t part of the Euro they could create the money they need. Therefore the solution is for the ECB to provide sovereigns with Euros – not banks, who will simply sit on the money. That stupid treaty condition that says that central banks may not finance sovereigns needs to be abolished before the whole area slides into terminal depression. And the Germans need to forget about Weimar and remember that it was Bruning’s deflationary policies of the early 1930s that led to the rise of Hitler.

    Re the UK “begging off” the Euro – successive governments rejected Euro membership because of insufficient economic convergence. We are now exceedingly glad that they did.

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  10. The grasshoppers don’t like the productive ants telling them what to do, but ah, the hoppers sure want (and need) the goodies of the ants.