In a document published at the end of May the American banking and investment giant J.P. Morgan Chase indicates amongst other steps to be taken towards the “adjustment” of the Eurogroup also the change to the consitutions of the so called peripheral countries. The document was written by J.P. Morgan’s Europe Economic Research group and is entitled “The Euro area adjustment: about halfway there”

The whole text is available at this link: https://presencecounts.files.wordpress.com/2013/06/jpm-the-euro-area-adjustment-about-halfway-there.pdf

In this document J.P. Morgan describes very poetically the “adjustment” as a “journey” of each country in the process of dealing with the so called “national legacy problems” to a destination where the bank would like to take them, stating that some of these journey are about “unwinding problems that built in the first decade of EMU (European Monetary Union), while others are about countries reaching completely new destinations”. (Have you ever noticed how bankers and politicians alike use metaphores of travel when they are actually threatening us?)

This journey is then further divided into several separate journeys and the point reached in each of them is described – e.g. Sovereign deleveraging—about halfway there; Bank deleveraging—hard to say due to heterogeneity across countries and banks, but large banks have made a lot of progress; Structural reform—hard to say but progress is being made. In short, what is predicted is a long “recovery” of the Euro.

The destination which J.P. Morgan is planning for us is best exposed in the last part, which refers to political reform. Political reform is obviously necessary for JP&Co. to carry out tranquilly the remaining steps and make us reach the destination they have in mind for themeselves rather than for us. The constitutions are namely an inconvenient element in our journey, some kind of emergency brake that people pull far too often, thus reducing the speed of the journey. Especially disrupting are the constitutions of those countries that have experienced fascism and thus have unnecessary restraints towards it (this is how Morgan’s opinion can be interpreted) and even some kind of defense mechanisms protecting the workers and giving too much free hand for people to express their dissatisfaction with unpopular measures. These measures cannot be understood by ignorant people who have to be forced into understanding them one way or another. This is after all a wonderful journey…

Let us take a look at what J.P. Morgan literally says about political reform:

The journey of national political reform

At the start of the crisis, it was generally assumed that the national legacy problems were economic in nature. But, as the crisis has evolved, it has become apparent that there are deep seated political problems in the periphery, which, in our view, need to change if EMU is going to function properly in the long run.

The political systems in the periphery were established in the aftermath of dictatorship, and were defined by that experience. Constitutions tend to show a strong socialist influence, reflecting the political strength that left wing parties gained after the defeat of fascism. Political systems around the periphery typically display several of the following features: weak executives; weak central states relative to regions; constitutional protection of labor rights; consensus building systems which foster political clientalism; and the right to protest if unwelcome changes are made to the political status quo. The shortcomings of this political legacy have been revealed by the crisis. Countries around the periphery have only been partially successful in producing fiscal and economic reform agendas, with governments constrained by constitutions (Portugal), powerful regions (Spain), and the rise of populist parties (Italy and Greece).

There is a growing recognition of the extent of this problem, both in the core and in the periphery. Change is beginning to take place. Spain took steps to address some of the contradictions of the post-Franco settlement with last year’s legislation enabling closer fiscal oversight of the regions. But, outside Spain little has happened thus far.
The key test in the coming year will be in Italy, where the new government clearly has an opportunity to engage in meaningful political reform. But, in terms of the idea of a journey, the process of political reform has barely begun.

The macro consequences of crisis management

It is not possible to develop a macro story for the Euro area without having a narrative of crisis management. The narrative that we have laid out—national legacy problems have to be dealt with at the national level before further steps of integration involving risk/burden sharing are taken—has had a huge impact on the macro economy, creating weakness overall and significant divergence.

There you have it, people. We have apparently been wrong all along. We have had a negative attitude towards fascism merely due to some bad experience. There can be too much democracy – who would’ve thought! We have given up the referendum – why don’t we give up our remaining workers rights, and why stop at that, let’s give up our human rights, this troublesome “legacy” – and everything will be alright. J.P. Morgan is taking us on a journey we can’t even imagine. It will be fraught with adventure – sleeping under the clear sky, eating only when some charity provides, only some of us will go to school, let alone to the doctor. Never knowing if the following day we will still have a job or if we will even be alive, each day will be an adventure.

Our destination is a “strong Europe” where the ECB plays the leading role and the countries merely follow its instructions (with the aid of European commission and IMF), change their constitutions to “save the Euro” (e.g. cover the debts of the banks with a gambling problem) and “pacify” (e.g. attack) their citizens. Apparently the games played during this journey are roulette as well as monopoly where one can buy companies and real estate but also whole countries. However, it is interesting that the same insitutions that created this crisis also gain most power from it and have been blackmailing the countries to “solve their problems” by assigning the budget that should be spent on education, health, salaries, pensions, social care towards “saving ” the banks and paying off their loans – with money preferring to sunbathe in tax havens instead of pouring into the countries’ treasuries. The banks have grown weary of playing the old game of easy lending and suddenly we are all broke, we are all indebted to each other and a new game has begun – the game of falling dominoes in which the debtors topple creditors, who in turn topple their creditors etc. The only obstacle in this game of completely freeing the market, are the consitutions.

This is nothing new, everything is known. Yet this time J.P.Morgan makes no secret of what bothers him and his explanation is not very subtle. One would first think that they fail to understand the Europeans’ “attachment” to their constitutions and to the idea that the constitutions should be written by the citizens. However, presuming that these institutions consist of intelling people (although it is not certain), the next question is – is this the time when they are feeling strong enough for a frontal attack? Or are these documents standard “recommendations” which usually don’t reach the public in this form? The debate on what right a financial institution has to put itself above a sovereign state and its citizens and even undertakes the task of changing consisutions is of no use. The IMF has been doing this for 30 years and the Troika also has quite some experience. They are all aware that the people will not stand for this much longer (and we are merely “half way there”), so they consider a speedy change in constitutions, structural reforms and a firm grip crucials step for the continuation of the journey.

It is obvious who is setting the rules of the game at the moment, but the question is – are we going to let them or are we going to make them change course?



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