25th Sep 2023


Hurling democracy into the volcano to appease the market gods

Pacific islanders never actually threw virgins into volcanoes to appease angry gods; it was only ever a TV trope of bad American sketch comedy and Saturday-morning cartoons. But you remember how it worked? However many damsels were chucked in to the fiery pit, the lava would keep flowing, yet the only lesson those silly actors in their semi-racist Tiki-Lounge outfits and drinks in bamboo glasses with paper umbrellas learnt was that not enough ladies had been lobbed in.

Despite the certainly apocryphal nature of such behaviour in the South Pacific, European leaders seem intent on embracing the model. Indeed, I am half convinced that the European Commission has some super-secret-squirrel committee of experts locked in a room somewhere studying Joe vs the Volcano and re-runs of Gilligan’s Island to learn exactly how it’s done.

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  • What's left that can be thrown into the volcano? (Photo: Orvaratli)

But it’s not vestal maidens (or, in the case of Joe vs the Volcano, Tom Hanks) that Berlusconi, Sarkozy and company are pitching into the magma; it’s public services, it’s decent wages; it’s democracy. And if one, two, three rounds of austerity are not enough, well, we need a fourth and a fifth! They just keep pitching more austerity packages into the rumbling crater.

In a crisis cabinet meeting on Friday night, the Italian government agreed to a €45.5 billion package of fresh austerity measures over the next two years in an attempt to soothe the market gods. Like the pre-rationalist conduct of our grass-skirt-wearing stereotypes, Berlusconi pays no heed to results. The package of spending cuts, privatisations, tax hikes and labour market deregulation is the second one in as many months. In July, Rome passed a €48 billion austerity bill.

Similarly, atop multiple austerity packages in France and Spain, last week, French President Nicolas Sarkozy ordered his ministers to come up with yet another round of cuts, giving them a schedule of just one week to cobble something together, while Spanish premier Jose Luis Rodriguez Zapatero is planning a new austerity budget saving an additional €20 billion.

As Europe tips over into a second recession, with anaemic growth of just 0.2 percent in the EU in the second quarter revealed on Tuesday, it is manifest that austerity has not worked, so the response, naturally, is: ‘More austerity!’ (Cue Temple-of-Doom-style pounding drums in the distance)

Speaking of the Temple of Doom, (just to further attenuate an already stretched metaphor), guess who gets to play villainous high priest Mola Ram in this drama, thrusting his fist into the chests of chained-up victims/welfare-states and ripping out live beating hearts? That’ll be the European Central Bank!

Last week, the ECB came to the rescue of Italy and Spain by buying up bonds after the rates investors were demanding hit record levels. But Frankfurt’s quid pro quo was Rome’s aforementioned fresh austerity measures and market liberalisation, including making it easier to fire people and slashing wages. In a secret letter from ECB chief Jean-Claude Trichet and his incoming successor, Mario Draghi, to Berlusconi, the central bank told the Italian government exactly which measures must be instituted, by what schedule and using which legislative mechanisms.

The ECB, unelected and unaccountable to any voters, is now directing Italian fiscal and labour policy. In secret. The only reason we know about any of this is that the letter was leaked to Italian daily Il Corriere della Sera.

The letter also ordered Berlusconi to enact the radical measures through emergency decree, in order to speed the process up. Going through parliament with the necessary checks, scrutiny and amendments is simply too down-tempo, too slow-groove. Italy needs to up the BPM. The prime minister has agreed and the emergency decree is set to be enacted during a special cabinet session on 18 August.

Read that last para again. Yes, that’s right: the Italian prime minister is in this one instance ruling by decree at the command of the European Central Bank.

Berlusconi has at least made something of a show of trying to resist slashing wages, saying “They made us look like an occupied government.”

But unlike in the Temple of Doom, there is no Indiana Jones and Short Round to swing in on a bull-whip, save Italian democracy then escape on a mine cart. Centre-left opposition leader Pier Luigi Bersani may have called for more transparency, demanding: “We want the truth…What are the ECB and the other international institutions exactly asking us for?” and liberal MP Antonio Di Pietro has said: “Italy is under the tutelage of the EU, and a country under tutelage is not a free and democratic one.” But despite voting against the last austerity package, the opposition voted through the government’s desired fast-track schedule for the bill out of a sense of “responsibility”. It is unlikely the Italian opposition will mount much resistance. Some of the strongest criticisms of the ECB’s trampling of Italian democracy, to the Left’s great shame, have come from the far-right Northern League.

The cancer of contempt by European elites for parliamentary accountability, for some two hundred years of the principles of responsible government, is metastisising as the eurozone crisis deepens.

Last Tuesday, Germany’s economy minister, Philipp Roesler, proposed the creation of a new EU 'overseer' that would crack the whip and impose sanctions on countries that do not adhere to rigid budget discipline and pro-business labour policies.

He told reporters that that the bloc should create a new EU institution, a 'stability council', of unelected supervisors that would ensure member states that stick to budget temperance and keep in check debt growth.

The body would also be empowered to carry out ‘competitiveness tests’ to measure how competitive labour markets are, how pro-innovation the business climate is. “If you fail them, there should be consequences," he said.

The proposal, which Roesler said would be presented at the next meeting of EU finance ministers in September, would set up the Stability Council as ‘independent’ from political influence, like the ECB is (for 'independent', read: unelected), so that it could slap sanctions on countries automatically.

According to European Commission sources, there is no active discussion by officials about Roesler’s idea at the moment, which appears to be something of a trial balloon. “But the idea is not completely new,” said one official. “Earlier in the crisis, there was some discussion of the creation of something like this. A number of member states already have some form of fiscal councils.”

A total of 17 in fact, with powers ranging from the advisory to sanction-wielding. One of the first acts of the Cameron-Clegg administration in the UK was a voluntary surrender of executive power to the Office for Budget Responsibility. Ireland has been forced by the EU and IMF to establish a Fiscal Advisory Council composed of outside “fiscal referees”, with “significant overseas representation”. A number of member states were ordered by the European Commission this year as part of the new ‘European Semester’ system to create their own fiscal councils.

The ECB’s Jean-Claude Trichet last week suggested the creation of a European finance ministry. Meanwhile, on Monday, the Dutch cabinet considered a proposal establishing an EU super-agency, a "European IMF", which would have the power to take control of member states’ economic policy, if a majority of leaders in the eurozone felt it necessary. According to sources close to the discussions, reported by AD newspaper, cabinet members are fully aware that this would mean the possibility of a state losing its economic independence. They are fully cognizant of how “very drastic” a measure this would be, but as one unnamed official said: “The market demands it.”

Whatever form such emasculation of democracies of their power of fiscal decision making ultimately takes (and, to be clear, fiscal policy comprises everything a government wants to spend money on, from education to healthcare to bridges to space programmes) - a Stability Council, a European Monetary Fund, a super-agency or an EU finance minister - none of these would be democratically accountable. The very point is to take fiscal policy out of the political arena. It is also clear that EU leaders are now intent on surgically removing fiscal policy from the realm of democracy, even if they haven’t yet quite agreed on how it should happen.

Just as a decade ago, it became the intellectual fashion to remove monetary policy from the democratic realm, because ‘the market demanded it’, today, it is the fashion to argue that voters are too stupid to know what is fiscally best for them. Better to leave such decisions to ‘experts’, ‘technocrats’, who know what the markets demand. But who are these experts? Are they really free from politics and ideology, or are they actually the same pro-free-market supplicants that managed our economies into the worst crisis since the 1930s?

Sony Kapoor, the director of Re-Define, a financial think-tank, said of Roesler’s proposal: “If a government doesn’t control monetary policy anymore, and doesn’t control fiscal policy anymore, what’s left for a government to do? That’s about all they do, other than foreign and judicial policy.”

There aren’t many virgins left to throw into the volcano.

Leigh Phillips is EUobserver's finance reporter.


The views expressed in this opinion piece are the author's, not those of EUobserver.

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