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Euro crisis has seeds in neoliberal ideology

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A selfish brand of capitalism rooted in the ideology of neoliberalism is causing misery to millions of human beings around the world, writes Ronald Benjamin.

european debt
Euro area government debts, 2011 forecast, via Der Spiegel - Source: acting-man.com

The current financial crisis related to sovereign debts that is engulfing Europe, especially its southern region, clearly reveals the vulnerability of governments to the financial markets and big-time investors who provide money to governments by acquiring government bonds.

The yield of bonds has gone up by 7 per cent for big euro countries like Italy due to high budget deficits and concern about default. Euro governments are competing for foreign investment by providing a low-tax regime rooted in the neoliberal economic system. Under this framework, governments borrow in euros, leveraging on the strength of rich euro countries rather than the strength of their own economies. For example, Greece abandoned its national currency, the drachma, in favour of the euro in 2002. It benefited from the euro although through this was not derived from the strength of the Greek economy. It borrowed at lower interest rates with collateral provided by Greeks assets denominated in euros. The low-tax regime resulted in the the Greek government borrowing heavily to finance its internal projects, which is the cause of of its current crisis..

The euro is linked to the US dollar due to a similar foundational ideology, and any crisis in the United States such as the sub-prime morgage crisis has a reverberating effect on the entire European financial system..It is sad that the average Europeans have to pay a heavy price for a centralised Europe that is connected to a neoliberal system in the United States that favours the absolute rights of corporations and opaque financial Institutions such as hedge funds without an adequately transparent regulatory frame work.

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Every business organisation has the right to make profits. But the nature of the EU crisis reveals that market fundamentalism – combined with close-knit cooperation between political leaders and business and financial corporations to plunder – has made this crisis complex. The crisis becomes difficult to resolve due to self-seeking win-lose solutions imposed that are detrimental to the larger human family. The collaboration between politicians and huge financial corporations is evident; they lobby government for low taxes and low interest rates so that they can maximise wealth while denying social justice to the middle class and the poor. There is inadequate tax revenue to finance allocation for these less well off groups who are thus denied distributive justice.

The ideology of neoliberalism that originates from the United States is the root cause of the current crisis facing southern Europe. This ideology holds that financial markets should be given maximum free reign, without being controlled by governments. At the same time, vested interests demand that governments balance their deficits – not because the governments can then empower average citizens but to provide a risk firewall in case there is financial havoc in the markets due to speculative activities.

From this financial crisis engulfing the European union, we can conclude that a selfish brand of capitalism rooted in the ideology of neoliberalism is causing misery to millions of human beings around the world. This ideology is unsustainable because it gives free rein to hedge funds to leverage financial resources and drain the financial resources of countries. It also supports supporting speculative assumptions in decision-making when borrowing funds rather than using the criteria of affordability.

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This is a rogue financial system that has basically led to a greater global gap between the rich and the poor. Inflationary pressure due to cheap money from low interest rates encourages speculative activity. This in turn has brought about great suffering to people around the world while enriching speculators who make maximum profits while destroying the balance sheets of countries and wreaking havoc in property and money markets.

The world today is facing a crisis today due to economic selfishness. Unless a new system of international governance regulating greed is put in place, massive social upheaval as reflected in the Arab spring could emerge.

The financial system should serve the real needs of the economy, with sound economic practices that encourage hard work, creativity and professionalism instead of promoting speculative casino capitalism. The world is in dire need of an international movement of spiritual solidarity that rejects the present selfish and self-serving system.

Ronald Benjamin, an Aliran member, is a human resources practitioner based in Ipoh.

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