February 8, 2010
By now, the scenario employed against Greece, Portugal and Spain by New York-based international financial scoundrels is all too familiar to anyone who recalls the events of the 1997-98 Asian financial crisis. Then, as now, hedge funds targeted a country whose GDP was largely dependent on tourist dollars – Thailand – and had fiscal problems at the time. The crisis afterwards engulfed the “sick south” of the continent – Indonesia, Malaysia, South Korea – and severely affected China, as well. The MO was slightly different, as hedge funds targeted these countries’ currencies, whose devaluation jeopardised their ability to repay the dollar-denominated loans, requiring the IMF’s massive intervention.
Then, as now, it all started with rumours about these countries’ fiscal management or the state of their currencies. Granted, the PIIGS, as they are nicknamed in NY (Portugal, Italy, Ireland, Greece + Spain), are members of the euro club and therefore better protected. Hence, the euro’s viability is called into question.
The size of the Southern European countries’ budget deficits and public debt are now the targets. The bet is that by raising the spectre of country default it would be much harder for them to sell the bonds necessary to finance their deficits. Thus, the concerted and vicious attacks led to a steep increase in the cost of insuring their bond emissions against risk : if for every 10.000.000 euros worth of T-bonds issued Germany pays around 45.000 euros, Greece has to pay 420.000 euros and Spain 250.000 euros ! This, however, is not all. Companies and corporations in the affected countries are seeing borrowing costs balloon. Austerity measures required to adjust budget deficits are already provoking pain and huge union protests, at a time when deficit spending should not be curtailed if the EU is to ride out of the financial crisis any time soon.
So why are these attacks happening ? Should we blame them on the blind “forces of the market”, as American spin doctors do ? Unfortunately for those concerned, we know the names of the investment and hedge funds responsible for unsettling the market and deriving benefits from the panic.
Since the ’70s, the American economy has hollowed out – a phenomenon that has not affected Asia or the European Union. The US has lost its consumer electronics industries to Japan, its car industry is in deep trouble, while the Silicon Valley entrepreneurs cannot, by themselves, compensate for the lack of investment opportunities in the country’s industrial sector. The mountains of cash available for investment have to find outlets (like the dot-com and the real estate bubble). Wall Street bankers are offering to investors high returns from either Ponzi schemes or… from raiding other countries’ economies, like buccaneers, and then scavenging their bankrupt companies, as in South Korea.
This time around, the EU is being “punished” because it adopted a single currency, has kept a strong industrial base and is vocal against the casino capitalism promoted by Wall Street bankers. During the Asian crisis, countries like South Korea were being punished because they were expanding too fast and did not allow American investors to take chunks of their industries. I remember that in 1998 some of the fund managers involved in sparking off the Asian crisis claimed that they possessed a “nuclear-financial” weapon that makes armed intervention obsolete…
By allowing its financial sector to go berserk and harm countries and societies around the world, the US loses influence and credibility in world affairs. To protect themselves, Asian countries are busy planning an Asian economic bloc, whilst Europeans are looking at ways of renouncing the trans-Atlantic military and strategic partnership by adopting their own security architecture.
It comes as no surprise, therefore, that President Obama has decided not to meet with the Union’s political leadership at the May summit. Indeed, what is there left to talk about ?Florian Pantazi