Infinity and beyond is Bank's view of crisis
Who’d be an economics forecaster at a time of chaos and crisis? Only six weeks ago, Bank of England experts thought they had the situation covered. Now they’ve ripped up those forecasts and are starting again.
Admitting they have no idea about what is going on, and even less about what to do, the worsening crisis in the eurozone led Mervyn King, the BoE’s governor, to excuse their astonishing bewilderment when he appeared before the Commons treasury committee:
It is impossible to imagine a situation in which you just do not know what the situation will be in a part of the world that is close to you and is half of your trade ... And that makes it impossible to engage in any sensible forecasting.
So for King and his colleagues, the laws of economics appear to have broken down. And there’s nothing in the history books to provide any insight.
Ever since the crisis erupted in Greece, European leaders, together with the heavy hitters from the IMF have attempted Herculean feats to keep it isolated, with firewalls and barriers of all kinds.
But the crisis has morphed. Strongman Hercules has given way (temporarily) to Sisyphus – the king punished by being compelled to roll an immense boulder up a hill, only to watch it roll back down, and to repeat this action forever.
Forever? Well, it certainly seems this way in the other illuminating comment from King – a weird, contradictory warning to the public against seeing any end to the crisis. King told MPs:
When this crisis began in 2007-2008, most people including ourselves did not believe that we would still be right in the thick of it [he really, really said it], in the middle of it, quite this late ... All the way through, I’ve said to this committee that I don’t think we are yet half-way through – I’ve always said that and I’m still saying it.
So, if we’re to understand this correctly, the longer the crisis has gone on, the end disappears into infinity as “half-way” fades into the distance. He’s not wrong. On the same day, figures for the UK’s state borrowing showed that the deficit is still growing. Tax revenues are falling and unemployment has driven up welfare spending. Chancellor Osborne had to postpone a 3p petrol duty rise for fear of sending the economy over the edge. That’s how precipitate things are.
After taking a quick look at the books, Vassilis Rapanos, 64, the finance minister of the newly elected Greek coalition government, resigned on Monday due to ill health.
Also on Monday, Spain and Cyprus became the fourth and fifth casualties in the 17 country eurozone forced to admit bankruptcy and beg for help. Eurozone finance ministers are meeting today to consider the appeals. Spain is asking for €100 billion. Estimates put the cost of a bailout for Cyprus as high as half of its €17.3 billion economy.
The reaction from credit ratings agency Moody’s was predictable, whatever Mervyn might say. They downgraded the ratings of 28 of 33 rated banks, by one to four notches, following a cut to Spain's sovereign rating to just above junk status earlier this month.
With Germany’s Chancellor Angela Merkel refusing to share the total eurozone debt burden “as along as I live”, the struggle playing out in Europe, as in the rest of the world, is the endgame between national sovereignty and the transnational cabal of giant corporations and the investment funds that largely own them. They also have the World Trade Organisation and International Monetary Fund on their side.
A conspiracy? Yes, indeed, but one that results from the objective logic of the system of debt-fuelled profit-seeking growth known as capitalism. With its markets for commodities and credit super-saturated, its logic now demands contraction by up to 90% of pre-crisis levels and the destruction of public spending.
The interconnectedness that resulted from three decades of global expansion provides the path of transmission for the debt contagion. But in the right social hands, the technology, the infrastructure, the corporations themselves, are the source of the solution.
27 June 2012