February 12, 2010
In the wake of the attacks on Greece, Portugal and Spain’s credit ratings, it is worth knowing how NY speculators – the same who provoked the 2007-2008 global financial crisis – are now using rumour-mongering and the subsequent investor panic to turn a profit. Pitiful, but true.
In an editorial on the current debt crisis (“Cost of insuring debt is growing in Europe”) the International Herald Tribune explains:
“The speculator’s bet is a simple one.
In an era in which government budget deficits have soared in response to the financial crisis, the same bond vigilantes that forced President Bill Clinton to balance the American budget in the 1990’s have turned their attention to the countries on Europe’s southern flank.
In effect, they have challenged those relatively weak governments to raise taxes and impose harsh spending cuts on a restive populace, to bring down their deficits from over 10 percent of the GDP to close to the target of 3 percent called for in the treaty that created the euro.
While such moves are highly unpopular politically, a failure to do so could send government borrowing costs soaring, enriching those who are betting that Greece, Portugal, Spain and perhaps even Italy will not be able to follow through on their commitments.”
A few comments are in order. First, it would be more appropriate for such smart bond vigilantes to force the US government to do something about the country’s huge budget deficit. Second, the countries mentioned do not have weak governments, with the possible exception of Portugal. Third, investors’ money should not be used to attack allied countries’ economies and political systems – a hostile act that could have unforeseen consequences in future. Fourth, speculators cannot – even if the US authorities currently allow them to – substitute themselves for their country’s foreign policy officials, playing their own version of international politics.
It is a no-brainer that during a severe economic crisis, governments are supposed to pick up the slack by engaging in deficit spending. By challenging Europeans and the euro, Anglo-Saxon financial circles are simply demonstrating that they are afraid of being dealt with in appropriate fashion, via the re-regulation of financial markets. After all, even the IMF and the current architecture of the international financial system is the work of Europeans. By themselves, speculators cannot and would not abandon the green table, or sniffing cocaine in excess, for more serious pursuits (like financing the industrial renewal of obsolete plants in the US, or the conversion to alternative energy sources, for example).Florian Pantazi