Stratfor’s latest discussion of the eurocrisis

When Stratfor was hacked last year, insult was quickly added to injury when different people weighed in, judging them for their business model of selling their information and analyses to governments and business people, claiming that they didn’t have the expertise and were basically just polishing up what one could get from the media. I have to admit that I am not in a position to evaluate this but what I do find is that they consistently send information my way that I do not get from the mainstream media. Their coverage of the “Arab Spring” alone was much more realistic and less triumphant than what media and politicians wanted to make us believe and their predictions have largely been borne out by reality by now.

Another topic that Stratfor has spent quite some time on is the eurocrisis and their latest write-up, Financial Markets, Politics, and the new Reality, gets it exactly right.

I was sold when they challenged current narratives with some solid sense:

In order to do this, you must begin with two insights. The first is that politics and the markets always interact. The very foundation of the market — the limited liability corporation — is political. What many take as natural is actually a political contrivance that allows investors to limit their liability. The manner in which liability is limited is a legal issue, not a market issue, and is designed by politicians. The structure of risk in modern society revolves around the corporation, and the corporation is an artifice of politics along with risk. There is nothing natural about a nation’s corporate laws, and it is those corporate laws that define the markets.

There are times when politics leave such laws unchanged and times when politics intrude. The last generation has been a unique time in which the prosperity of the markets allowed the legal structure to remain generally unchanged. After 2008, that stability was no longer possible. But active political involvement in the markets is actually the norm, not the exception. Contemporary investors have taken a dramatic exception — the last generation — and lacking a historical sense have mistaken it for the norm. This explains the inability of contemporary investors to cope with things that prior generations constantly faced.


That could actually serve as a litmus test: every time someone tells you that “the markets” demand something and political actors have to bow to this demand, you know that they either don’t understand how “markets” are created, i.e. by political decisions, or they have a neo-liberal agenda. Governments make the laws within which markets have to operate – it’s that simple and always has been.

On the use that Germany has for a unified Europe:

Postwar Europe evolved with Germany resuming its prewar role as a massive exporting power. For the Germans, the early versions of European unification became the foundation to the solution of the German problem, which was that Germany’s productive capacity outstripped its ability to consume. Germany had to export in order to sustain its economy, and any barriers to free trade threatened German interests. The creation of a free trade zone in Europe was the fundamental imperative, and the more nations that free trade zone encompassed, the more markets were available to Germany. Therefore, Germany was aggressive in expanding the free trade zone.

Germany was also a great supporter of Europewide standards in areas such as employment policy, environmental policy and so on. These policies protect larger German companies, which are able to absorb the costs, from entrepreneurial competition from the rest of Europe. Raising the cost of entry into the marketplace was an important part of Germany’s strategy.

Finally, Germany was a champion of the euro, a single currency controlled by a single bank over which Germany had influence in proportion to its importance. The single currency, with its focus on avoiding inflation, protected German creditors against European countries inflating their way out of debt. The debt was denominated in euros, the European Central Bank controlled the value of the euro, and European countries inside and outside the eurozone were trapped in this monetary policy.

With this in mind, many of the actions of our current government become transparent: the main goal is to artificially improve German businesses competitiveness w.r.t. the rest of Europe:

Merkel’s policy under these circumstances was imposed on her by reality. Germany was utterly dependent on its exports, and its exports in Europe were critical. She had to make certain that the free trade zone remained intact. Secondarily, she had to minimize the cost to Germany of stabilizing the system by shifting it onto other countries. She also had to convince her countrymen that the crisis was due to profligate Southern Europeans and that she would not permit them to take advantage of Germans. The truth was that the crisis was caused by Germany’s using the trading system to flood markets with its goods, its limiting competition through regulations, and that for every euro carelessly borrowed, a euro was carelessly lent. Like a good politician, Merkel created the myth of the crafty Greek fooling the trusting Deutsche Bank examiner.

And Friedman is very much in line with heterodox economists in his appraisal of the “Great Moderation”:

The investors’ problem is that they mistake the period between 1991 and 2008 as the norm and keep waiting for it to return. I saw it as a freakish period that could survive only until the next major financial crisis — and there always is one. While the unusual period was under way, political and trade issues subsided under the balm of prosperity. During that time, the internal cycles and shifts of the European financial system operated with minimal external turbulence, and for those schooled in profiting from these financial eddies, it was a good time to trade.

I don’t know whether the guys at Stratfor have access to sources that the average reporter or government official or researcher does not. I do know that they’re willing to discuss issues in a straight-forward manner that a lot of opinion makers seem either not to understand, or to have a motivation to obfuscate. Which brings us to the usual options: those opinion makers are either incompetent or malignant.

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