By Steven Hill, Social Europe Journal, October 19, 2010
Like financial speculators, the media likes to speculate in hype and sensationalism, dedicated to advancing their goals. Financial speculators do it to make gobs of money, and the media does it to grab eyeballs for their TV shows and newspapers. During the recent Greek debt crisis, both the financial and media speculators acted to put the eurozone in play, and to destabilise entire national economies.
Unfortunately, too many people have bought into the media’s gloom and doom storyline about Europe. When I was in Berlin recently I met with a member of the German Bundestag, and I was struck by how much he, as well as so many others in Europe, have swallowed the media’s pessimism. Keep in mind that this is the same media that misreported weapons of mass destruction and missed an $8 trillion housing bubble in the US, and now is failing to report the remarkable shift that has occurred in Europe over the past half year.
Contrary to all the grim predictions about PIIGS, sovereign debt collapse and worse, Greece’s crisis has resulted in an important opportunity for Europe. Keep in mind that Europe remains the largest, wealthiest economy in the world, with a continental gross domestic product that is almost as large as that of the United States and China combined. Europe’s form of social capitalism has produced more Fortune 500 companies than the United States and China together. But you would never learn that from the media.
Any objective reading of the facts shows that, while the debt crisis has been messy and noisy, it also has provided a badly needed wake-up call to Europe about a flaw at the heart of its union: namely, while it had a monetary union it lacked a fiscal union. At some point, this flaw had to be dealt with and the Greek situation provided that opportunity. That in turn has resulted in reforms providing sensible financial regulation and transparency. These reforms include:
- Financial backstop. A $1 trillion rescue package has been created that provides the eurozone with a sort of European Monetary Fund that can tackle the default of a member state or pressure a country to cut its deficit before it gets out of hand. For the first time in its history, eurozone members are loaning money to each other, a clear step toward a tighter union.
- More transparency. Greece’s profligacy, as well as that of other eurozone members, was enabled by a lack of transparency that allowed Greece to submit falsified finance reports with the help of Goldman Sachs. Now, more oversight power will be given to Eurostat, the EU’s statistics and data collection agency, to audit budgets of member states.
- Financial re-regulation. Europe is cracking down on hedge funds, derivatives and credit default swaps – those toxic investment vehicles that American investment guru Warren Buffett has called ‘financial weapons of mass destruction’. Europe also will regulate bankers’ bonuses and, as a result of the Basel III negotiations, will transition to a system that requires nearly a quadrupling of bank reserves.
What is perhaps most revealing about the historic step Europe has taken can be gleaned from a comparison with the US reaction during this crisis. For example, while not receiving as many headlines as Greece, California also has been going through its own version of a Greek crisis. California’s unemployment rate is 12.5%, higher than in Greece; many communities have been hit with waves of foreclosures, some as high as 25% of homes foreclosed; state and local governments have slashed tens of thousands of jobs; and programmes have been cut that affect the most vulnerable. While Greek families and workers still have healthcare and access to many safety net supports that European countries provide, a new report has found that 25% of Californians have no health insurance. Many people have been left to fend for themselves. Meanwhile, the 400 richest Americans increased their net worth by 8% in 2010 to $1.37 trillion, an amount greater than the entire gross domestic product of India with its 1.2 billion people.
Keep in mind that California accounts for 14% of the American economy – truly too big to fail – compared with Greece’s 2% in relation to Europe’s. On top of it all, California also has a large deficit, causing Gov. Arnold Schwarzenegger to go hat in hand to the federal government last year and ask for a bailout. Despite the fact that California taxpayers have subsidised other states for years (for every dollar in federal taxes it sends to Washington DC, California only receives back about 70 cents, with the other 30 cents going to mostly conservative ‘red’ states), the Obama administration spurned California’s ‘Brother, can you spare a dime’ appeal. That forced California to issue IOUs to keep from defaulting, becoming a national laughingstock on late night comedy shows.
But in Europe, where there is no history, tradition or even legal structure for mounting a bailout of another nation, Germany, France and others – which have fought wars against each other for centuries – were able to pull together a trillion dollar bailout fund as well as other reforms. They got the job done. Nevertheless, the professional corps of Eurosceptics typically whined that it took Europe too long – a whole four months! – to pull it together. Yet, at the end of the day Europe was able to accomplish what America was unable or unwilling to do – mount a bailout for a member state.
Europe’s unprecedented action – clumsy at first but ultimately bold – was extraordinary, indeed it was historic. And yet the media speculators missed it, choosing to focus as usual on the hype, gloom and sensation. But no surprise there, that is their standard modus operandi.
When I conveyed my view on all this to this German Member of Parliament, his scrunched-up brow and face suddenly lightened. ‘That’s an interesting perspective, I never thought of it that way’, he said. ‘Maybe we need to give ourselves more credit and not focus so much on the bad things, and what we haven’t yet done’.
I couldn’t agree more, I told him. The glass is half-full, not half-empty.
Yet the media speculators consistently report it the other way around. Even before the PIIGS, the European economy was reported routinely as being in a state of continuous crisis, written off by most American analysts as a clumsy, sclerotic basket case – a ‘sick old man’ condemned to long-term decline. Then, during the Greek debt crisis, a new form of domino theory emerged, claiming that Greece would fall, followed by Italy, Spain, Portugal and around the horn to Ireland, and possibly even Great Britain. Then the eurozone would follow and, possibly, the European Union itself. The US was not spared from this ridiculous scenario, as alleged expert economists warned that the US was going to become like Greece.
To see the media in its full speculative glory, recall some of the headlines from last spring and summer that appeared in major US and European publications: ‘The death of the European dream’; ‘The Euro’s Lost Promise’; ‘Europe is top threat to recovery’; ‘Fears Intensify That Euro Crisis Could Snowball’; ‘Volcker Talks of Possible EU Breakup’; ‘The Sick Man Is Europe’; ‘Euro Area to US Contagion?’; ‘Can The European Welfare State Survive?’; ‘How Germany harms Europe’; ‘Goodbye to Europe as a high-ranking power’; ‘The Euro Trap’; ‘Can Europe Save Itself?’; ‘The future of Europe: Staring into the abyss’; ‘Greece and the Euro: Going, Going . . .’; ‘Who Lost Europe?’.
Without naming names, many of these articles were authored by leading economic ‘thinkers’, card-carrying members of that discredited guild of economic experts that, like the media, missed an $8 trillion housing bubble. These ‘experts’ are like a chef that not only burned the meal, but burned down the entire restaurant. Yet how many of them lost their jobs? The same talking heads appear on the same TV shows and op-ed pages, pontificating despite their broken theories. Obviously, humility is not their strongest attribute.
History is being made in Europe today, and those paying attention have ringside seats. But don’t count on the media to report it accurately, since it prefers to serve up sloppy sensationalism to the public.