Greek crisis

Legitimacy and the EU Democratic Deficit

Turning to political science again, Kevin O’Rourke has an important article regarding the democratic deficit and types of legitimacy in Critical Quarterly, particularly in light of the events surrounding the Greek crisis.  He cites the late political scientist Peter Mair’s book, Ruling the Void, as providing a solid framework for understanding what is happening in Europe, and to some extent within all democracies as a result of wealth and power concentration among an increasingly transnational economic elite.

The issue that O’Rourke tackles based on Mair’s insights, is one of democratic legitimacy.  For economists and financiers who seem to have (I would argue) taken an illegitimately outsized role in determining what is good for Greece, even if Greece disagrees, the dichotomy here seems to be between what has been called input vs. output legitimacy.  I understand what he is saying here, but in political science “legitimacy” is not the same as “democratic legitimacy” and, in the end I think, this is his point.

O’Rourke, an economist himself, tackles how using this argument, particularly in regard to output legitimacy, has been hijacked so that concerns about distribution have been stripped out of the definition by the application of technocrat-speak.  I have a backlog of items for the Devil’s Phraseology from “Structural Reform” to other euphemisms for, essentially, screwing working people over, especially right now if they are Greek, Italian, Spanish, or Irish.

His article is important in tracing the subtle transformation of legitimacy over time.  For those unfamiliar with this terminology, legitimacy in this sense–if you remember nothing else but your Lincoln or Jefferson–in democratic societies is properly derived by the people.  This concept, which can be measured on the input side, is reinforced by processes and institutions that support it.  So clean elections which seek to maximize participation of the adult population; freedoms that support human rights, particularly those concerning speech, free association, and free movement; institutions that are largely responsive to the democratic will but which possess limitations to prevent the denial of human rights; and an independent judiciary that metes out justice based on due process; the absence of corruption, undue influence, unequal treatment, or graft in these institutions, etc. are all indicators of “legitimacy.”  In the context of the European debate this is known as “input” legitimacy.

Then there is “output” legitimacy.  This is the type of legitimacy on which the EU rests, since it obviously–especially since the last Greek referendum on the terms of the Troika’s terms–doesn’t seem to be based on any kind of “input” legitimacy.  Here legitimacy is based on a utilitarian measure–the ability of the EU to raise the aggregate euro value at any one time.  This is the “rising tide lifts all boats” trope.  Nice imagery, what with the JFK connection and all, but the rules of the game and economic environment have changed since 1963 to the extent that the analogy no longer applies.  A rising tide lifts all boats only if everyone has a stake in the tide rising.  Feel free to add any additional analogies now that we are beginning to understand the effect of rising tides on coastal cities as the earth warms.  An actual rising tide certainly didn’t do anyone in NOLA’s Lower Ninth and Lakeside neighborhoods any favors, but we do know that it impacted people residing in different economic strata differently.

Furthermore, output legitimacy as a utilitarian project sounds a lot like “we made the trains run on time”.  Furthermore, it wasn’t all that long ago that more than half of Europe suffered under authoritarian regimes.  Output legitimacy, I would argue, by definition is the opposite of democratic legitimacy, not one of two types of democratic legitimacy.  As O’Rourke points out, one cannot take politics out of policy, so the way in which decisions are made is important in defining the type and level of legitimacy.

Post-1989 generations have not had to come to an understanding of the fact that even oppressive regimes can possess political legitimacy that is sufficient for them to survive.  From an historical standpoint, all of those German people in the streets chanting “Heil Hitler” weren’t doing so at gun point.  The block captains and those others who denounced family members in the old Eastern Block countries largely acted independently and voluntarily.  Many Russians today pine for the days under the old Soviet Union and have a leader in Putin that channels that nostalgia.  Autocratic and authoritarian regimes simply possess legitimacy through institutions and processes that are more restrictive than those found in democratic societies, but which rests on elites, centers of power, and pluralities that allow them to function.

Thus, whether the EU will admit it publicly or not, one need only do a Google search to see that this is a generally recognized issue that the European countries seem unwilling or unable to address.  The recent charging of Yanis Varoufakis, the former Greek minister, of treason at the instigation of Greek and European elites raises the ante and strips whatever remaining veil there was to hide the anti-democratic roots of the Greek crisis.  Apparently the 60% of the Greek people who voted “No” to the Troika were also traitors.

That this is happening is Greece is also problematic due to its geographical location in the eastern Mediterranean and its fairly recent transition to democratic processes and institutions.  De-legitimization of democracies is an all too familiar event in the history of the European continent and can only lead to radicalization, especially given the pain being inflicted on the Greek people.  What Europe’s technocrats have done is turn an economic recession and market failure–that could have been ameliorated and solved given the proper solutions learned by hard experience from the 1930s and immediately following the Second World War–rejected those methods and, as a result, though obstinance, tyrannical actions, corruption, and greed, have created a political and economic disaster that threatens the legitimacy of the EU.

Time to reform the reformers.

Welcome to the Hotel (Euro) — You Can Vote “Oxi” Anytime you Like but you Can Never Leave

The recent events in Greece and their ramifications for the European project have been the subject of a good many blogs and news articles lately.  From an economic perspective the most noteworthy are those by Paul Krugman, Brad DeLong, Dean Baker, Yanis Varoufakis who was on the ground as Greece’s Finance Minister, and Joseph Stiglitz, among others.

If one were to read the news in the manner of the U.S. press through its sources of record: The New York Times, Wall Street Journal, Washington Post, not to mention the major news networks with CNN thrown in (avoiding avowedly polemical sources like Fox, MSNBC, and the Huffington Post), one would think that the Greek issue is one caused by a profligate country that borrowed a bit too much and allowed Greeks to live over their heads.  Nothing could be further from the truth.

The bottom line is that Greece and the EU decided to bail out the banks and investors who crossed the line in investing in junk paper by using public funds.  Sound familiar?  Think a Eurozone TARP.  But in the case of the EU the banks and bad paper investment houses–the inmates in this scenario–run the asylum.  With the constant drumbeat from our own oligarchs we have become as a people brainwashed to think that investors and creditors have a right to their money.  Our own more draconian bankruptcy laws imposed by the last financial industry-tainted Congress institutionalized many of these attitudes in law.  But this has not always not been the case and is not part of our legal or economic traditions.  It is certainly not anything like what Adam Smith had in mind.

The operational term in this case is “moral hazard.”  The rhetoric of the moneyed interests and their armies of lawyers have deftly tried to invert the meaning of the concept, but as Steve Waldman clearly explains in his excellent interfluidity blog, “moral hazard” is a concept that overwhelmingly falls on investors and creditors.  It means, quite simply, that you as an investor are responsible for where you put your money at risk–and that risk includes it being completely lost.  There are no guarantees.  This was the original rationale of Glass-Steagall: it was accepted that regular working people don’t have the information, time or resources to place their funds, which are meant for savings, under moral hazard.  Same goes for things like the Social Security Trust Fund.  Play with your own “play” money if you have it, but guaranteed deposits and retirement pensions are off-limits since they are backed by the sovereign currency.  Seed corn is not open to being manipulated by cheap paper–that is, until Glass-Steagall was repealed.

The European condition is a bit more complicated only because the EU has never had a consistent separation between its financial elites and civic institutions, given the differences in national traditions and political systems.  But one should be able to clearly see the connection between what is happening in Europe within the EU and in other places around the world: the attack on democratic legitimacy by oligarchs and economic elites.

As Joe Stiglitz points out in the post cited above, Greece–emerging from years of autocratic rule and third world-like conditions–was doing quite well economically until the financial bubble burst across the developed western world.  Many of the banks that invested in hyper-inflated Greek real estate and other development projects were situated in other countries.  The EU under the Euro project is a currency union, and under the Maastricht Treaty that formed this union there were some economic harmonization rules required, mostly pushed by Germany and France, but there is no lender of last resort, no central banking authority equivalent to our Federal Reserve, no centralized budget authority, nor political or cultural ties that would keep old ethnic or nationalist conflicts from flaring up in a crisis.  As Waldman explains, what these other countries did–in particular Germany–was to bail out the banks and investment houses making the debt on these bad investments public obligations.  This sleight of hand politicized what should otherwise should have simply been written off bad investments.  If the Germans wanted to have their own TARP they should have done so.  But it was so much easier to push the consequences onto the Greeks given their weaker position in the EU.

Jared Bernstein in his Washington Post article following the Greek “no” vote quoted an unnamed German economist asserting: “How do you think the people of Manhattan would like bailing out Texas?”  As Krugman rejoined upon reading the article, Manhattan (and other areas of the country) do that all the time as a matter of course.  It was done during the Savings & Loan crisis that was largely a Texas affair back in the late 1980s.  Anyone who looks at the net benefits of federal tax payments and expenditures by state can see that the southeastern states–in particular those that made up the old Confederacy, including Texas, get more in federal benefits than they pay in.  To Americans this is not a big deal–and my use of the term American to identify my countrymen is at the heart of the question.  I don’t know anyone who in reality is a Floridian.  Only buffoons and idiots identify themselves as Texans over their identity as Americans.

Here we tend to put resources where they are needed, hence the United States of America.  More than two hundred years involving waves of immigrants, over one hundred and fifty years of increasing population mobility, and two major world wars and a cold one–two of these existential in nature–during the 20th century, not to mention 9-11, has militated against the old regionalism.  It is not surprising that the assertion that displays such deep ignorance of our own system and society would come from a German economist.  I mean this as no mean insult.

When I was on active duty as a young U.S. Naval officer I met a Scottish couple in Spain who worked at the U.K. embassy there.  They were amazed by my nonchalance in moving my family from California to a home base in Virginia as part of my assignment.  “Do you now identify yourself as a Virginian?” they asked.  When I explained that–no–it was all part of the U.S., they explained that they would always identify themselves as Scots, and that within Scotland that people associated themselves with a particular village or region.  This was almost 30 years ago, and I am told that such attitudes are changing, but it does point to a weakness in the “European” project, especially given that in the most recent U.K. parliamentary elections that the Scottish nationalist party was overwhelming elected to the House of Commons.

Given my own expertise in history and political science, my concern is directed more to the consequences of Greece capitulating to the EU’s economically and politically disastrous demands.  Just ten days ago 60% of the Greek people voted against the conditions imposed by the EU, yet their parliament just approved a package that is punitive by any reasonable and objective measure.  Even the IMF has belatedly–and in a largely dishonest manner which I can only explain as some type of EU face-saving approach–clearly stated that the conditions imposed are unsustainable.

The role of Germany is certainly one of the main issues in this condition.  Given the way they handled the bad paper of their bankers, Merkel and her party have backed themselves into a corner.  So they have done what all desperate politicians do–they have demonized the Greeks.  This is all for mercenary purposes, of course, and without consideration for the long term consequences for both the Greek people and the EU.  What they have done is show the contradictory fault lines in the entire “European” project.  German Finance Minister Schaubel, by attempting to co-opt the Greek threat of a Euro exit by making such terms seem disastrous, has inadvertently made such an exit virtually inevitable.  Greece, not wanting to be left out of “Europe” has just voted against its own best interests, its government never really having a strategy for a “Grexit” because they assumed that their negotiating partners were both rational and well-meaning.  The government very well may fall as a result.

For what the Greek crisis has shown is that the European project under the Euro is neither a completely democratic one nor is it “European.”  The elites in Brussels certainly felt that they had no obligation to consider the Greek referendum on the bailout terms.  To them only the banks, the oligarchs, and the political survival of the political parties in the main assemblies of the nations that support them matter.  The “democratic deficit” of the EU, in the words of the late historian Tony Judt, and the damage that it can cause, is now on full display.  It is not yet clear what will happen, given the contradictory impulses of countries wanting to stay within the single market that “Europe” afford them, the cultural and psychological association to be part of the project, and the punishing loss of national autonomy and democratic legitimacy as the price that must be paid. (Aside from the economic depression and poverty conditions imposed by the EU as the Greeks follow the conditions imposed on them).

One final note:  I can’t help but be impressed by the ideological arguments being used as a matter of course for “helping” the Greek people in the long run.  As John Maynard Keynes noted, in the long run we are all dead.  The tremendous amount of suffering imposed by the EU on the Greek people for their own long-term good sounds much like the fabrications of the old Communists of the former Eastern Block countries who inflicted all sorts of horrors on their own populations for the “long term” good of reaching the perfect socialist state.  Now such arguments are deployed in favor of the perfect capitalist state.  It is “reform” turned on its head, like “moral hazard.”