“Slowly he explained the financial crisis to her in very simple terms, emphasizing the plain patriotic line to which she would respond.”
- Angus Wilson, Anglo-Saxon Attitudes (1956)
We are currently witnessing the collapse of the neoliberal project and yet, in the absence of a serious, purposeful democratic movement, it looks very much as if the combined forces of neoliberal capitalism are consolidating their hold on Western society. The last crisis, in the mid-seventies, was resolved only with Thatcher’s election in 1979 and Ronald Reagan’s a year later, and the launch of the neoliberal project. Prior to this, European society resisted this change of tack. NATO’s decision to deploy missiles in Western Europe and the Cold War response to Soviet support for its client modernisers in Afghanistan met with popular resistance and governmental scepticism, respectively. Moreover financial liberalisation, at the heart of the neoliberal project, was still regarded by most European and American policy-makers as ‘voodoo economics’.
However as Nikos Poulantzas argued in 1973, all capitalist states must necessarily adopt the practices of the most advanced centre in order to compete. In addition, as Craig Murphy and Enrico Augelli note, the steady inflow of people trained in neoclassical economics surreptitiously created a mass base for Neoliberalism—whilst the hedonistic culture that was one part of the May 1968 post-war youth revolt also prepared the ground for a sea-change. One by one the ruling blocs of Fordist mass production industry, in state-monitored class compromise with labour, were dislodged as post-war corporate liberalism unravelled.
Neoliberal financialisation is an Anglo-American project. It gives the state/society complexes of the Lockean heartland an advantage over societies in which the state historically has guided social development. ‘Contender states’ resisting the liberal West, especially those (Germany and Japan, Austria and Italy) that emerged when second-generation heavy industry made its appearance, lacked the capital to compete with the City and Wall Street, the centres of global finance. German investment banks, as well as their Austrian counterparts and the Japanese zaibatsu, typically combined with national industries under state auspices into what Rudolf Hilferding in 1910 famously called ‘finance capital’. So for over a century, people in these societies have looked to the state to ensure general well-being; this was only reinforced in the Fordist era. Seeing banks operate independently in global speculative ventures will still, even today, raise eyebrows.
Yet from the 1980s onwards the trend everywhere was to break up existing bank-industry combinations, liberalise finance, and privatise assets. The Anglo-American neoliberal drive profited from the Lockean antecedents of their state/society-complexes, property-focused political culture, and in the final analysis, their greater readiness to use force. These structural advantages of the Anglophone West in launching footloose finance gave it the upper hand in the transformation to neoliberalism. So did the vehemence with which its strategy of abrogating the class compromise with organised labour was executed—the miners’ strike in Britain, the air traffic controllers’ strike in the United States, and many other instances of provoked class struggle. A full analysis would also include the way in which the attacks of 9/11, unintentionally but not unwelcome, cut down to size what appeared at the time to be developing into a full-fledged anti-globalisation movement.
The contender state economies, including those of continental Europe, underwent a much more painful and intensely contested process of adjustment. In the first decade of the new century, Germany also launched a veritable assault on its working class to allow its strongest capitals to join the drive to world markets of their Anglo-American counterparts. Dutch, German and French banks were prominent players in the dubious sub-prime mortgage business, and like them were packaging titles into securities in the inter-bank market and other speculative operations. But in 2007-8, with the first signs of a slowdown, the transnational circuit of money capital ground to a halt, affecting banks on both sides of the Atlantic.
At the G-20 in London in May 2009 there was general acknowledgement that the crisis was a banking crisis. But the strong rhetoric about banks, bonuses and greed was not matched by serious surveillance measures. Instead the financiers demonstrated that they had a hold on policy-making that would not easily be dislodged. As François Chesnais writes in his book Illegitimate Debts,
‘The massive aid extended to the banks and the investment funds in September-October 2008 expresses the social and political power of the shareholders and owners of the banks and the industrial groups, of fund managers and directors paid in stock options. The success of the rescue operations has allowed them to preserve their domination.’
Taking on a large slice of bank losses and translating them into sovereign debt, the states involved (including the Eurozone) helped transmute the crisis of speculative banking into a debt crisis. In 2009 the public debt of the ten richest countries was expected to rise from 78 per cent of GDP in 2007 to 114 per cent in 2014. Costas Lapavitsas and his co-authors, in their recent book on the Eurozone crisis, show how in the EU alone, sovereign debt in 2009 jumped by almost a trillion euros, whilst the level of debt of monetary financial institutions has declined proportionally.
Thus a crisis of speculative finance was turned into a crisis of sovereign debt, or, in the words of Christos Lynteris, into ‘an officially sanctioned and governmentally organised Economic Crisis, a structural counter-event … that … manages to substitute [the initial crisis] as the true field of decision, as the real crisis’. Well might Wolfgang Münchau comment in the Financial Times (21 June, 2010) that the Eurozone crisis is not about public debt but the result of a bank crisis aggravated by a crisis of policy coordination in the EU. However, as one banker put it, it is much easier and politically advantageous to talk about ‘saving Greece or Spain or Portugal’ than to admit that we must save and help the banks.
The transformation of bank losses into public debt has allowed the speculative circuit of money capital to recover from the initial credit crunch. The money that central banks, led by the U.S. Federal Reserve, have provided to bail out the financial sector has given the beneficiaries free funds with which to buy up interest-paying assets. Thus the vast sums poured into AIG in September 2008 were discovered by Congress, a few months later, to have ended up in the hands of the main investment banks, both American and European. Besides buying up stocks and bonds, free money also encouraged a ‘dollar carry trade’, which consists of borrowing low-yielding currencies to finance the purchase of riskier, higher-yielding assets. Within the Eurozone, this is replicated by a ‘euro carry trade’, in which banks, but also governments of the low-debt, low-interest rate countries, take part in hedging operations.
More fundamentally, redefining a bank crisis caused by reckless speculation as a crisis of state finances and sovereign debt—with the attendant rhetoric of clearing the desk, honouring ‘our’ debts and not passing them on to future generations—has legitimated an attack on the remaining structures of social protection, across multiple countries. In the Eurozone, the main effort is directed at liberalising the southern European countries through economic shock-therapy. In Greece wages have fallen by double-digit percentages and the country is under pressure to create free economic zones for foreign investors, sell off its public sector, and cut back services. Its social cohesion is unravelling, making a mockery of any ‘bail-out’.
Ultimately all southern countries must count on comparable pressures, even France, which so far has not yet borne the full brunt of the European restructuring awaiting it. Yet the myth that the cobbling together of special funds, etc., is about ‘saving Greece, Spain or Portugal’ rather than saving the banks has sunk in deeply. The populist mobilisation of sentiment against ‘lazy’ southern member states, with associated calls for a halt to ‘aid’, has taken hold across the political spectrum.
That the aim is to break down social protections across the EU was brought out unmistakably when Jean-Claude Trichet, the outgoing president of the ECB, gave his farewell speech on 8 September 2011. The banks don’t even figure in his core recommendations, which instead centre on the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements, so that wages and working conditions can be tailored to firms’ specific needs. These measures, he urged, should be accompanied by structural reforms that increase competition in product markets, particularly in services—including the liberalisation of closed professions—and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness.
The introduction of Eurobonds would in one sweep remove the prospect of default for the southern states, which would at least cover one side of the crisis. But those, like Belgian specialist Paul de Grauwe, who have demonstrated that this is a perfectly feasible option, overlook the strategic aim of capitalist interests in breaking the corporate liberal shell protecting the working classes of southern Europe. Also the populist campaign against these countries has already raised the temperature to such an extent that Eurobonds have become a political impossibility (it was reported in Dutch newspapers that tourists from Holland last summer refused to pay restaurant bills in Greece, claiming ‘they already paid’).
The model for a neoliberal populist campaign against corporate liberal holdovers was pioneered in Italy, by the Northern League, and also in Belgium. In Belgium the combination with a linguistic divide prefigures the current trans-European divide along national lines. In Flanders neoliberal practices have been adopted to a much greater extent than in French-speaking Wallonia, because the Walloon workers organised in the FGTB trade union and the French-speaking Socialist Party held out against the neoliberal onslaught of successive right-wing federal governments. The populist neoliberal majority in Flanders is spearheaded by the N-VA party, which attacks the state as a too-costly mechanism for redistribution from the north to the south. As emotions are whipped up over language issues (with an immigrant sub-population as a catalyst for mutual animosity, but no longer openly attacked as the Flemish neo-fascists did), what should be a rational debate about social and economic policy, is turned into heated ‘nationalist’ discourse from which compromise is easily removed.
This has become the model for European neoliberal populism, with the ‘EU’ in the role of the Belgian state, and the racist-labelled ‘PIGS’—Portugal, Italy, Greece and Spain—in the role of unreformed Wallonia. It creates a spiral in which the dynamics of emotional rejection of those to whom the causes of the crisis are mistakenly ascribed, in turn reinforce the ‘model’: witness the victory of the N-VA in the municipal elections of mid-October, a week ago at the time of this writing.
Any democratic movement in these circumstances finds itself in a difficult position, because the political debate has been ‘nationalised’ with solidarity at a low ebb. As the crisis deepens, its restructuring from a bank crisis—with its corollaries of popular indignation against the shadow world of finance and potentially, anti-capitalist sentiment—into a sovereign debt crisis carries grave political implications. For the sovereign debt crisis, met in Europe through bail-outs (nominally of countries but in fact of banks which speculate against them), also shifts the ground of popular sentiment from an anti-bank/anti-capitalist potential to one of nationalist stereotyping and jealousies. This today is resulting in a build-up of aggression along ‘national’ lines, people against people, with anti-immigrant sentiment as a catalyst intensifying the process.
In a climate of proliferating international violence, the political consequences of this should not be underestimated. What is urgently needed are initiatives to expose the capture of states by the financial sector, but also—much more difficult—analysis of how societies in crisis allow stereotypes of the ‘other’ to be popularised, opening the way to violence and ultimately, war.
Kees van der Pijl is a Fellow of the Centre for Global Political Economy and Professor Emeritus at the School of Global Studies at the University of Sussex. A new edition of his ‘The Making of a Transatlantic Ruling Class’ has just been published by Verso.
This article is part of NLP’s series, Left Politics in an International Economy.
Front image: “Janus and Personified Eagle,” etching by Antonio Tempesta (1555-1639). From Istvan Hont, ‘Jealousy of Trade: International Competition and the Nation-State in Historical Perspective’ (Harvard UP: 2005)
 Nikos Poulantzas, “Internationalisation of capitalist relations and the nation-state,” in ed. James Martin, The Poulantzas Reader: Marxism, Law, and the State (London: Verso, 2008), 245
 Craig N. Murphy and Enrico Augelli, “Consciousness, myth and collective action: Gramsci, Sorel and the ethical state,” in eds. Stephen Gill and James H. Mittelman, Innovation and Transformation in International Studies (Cambridge: Cambridge UP, 1997)
 Rudolf Hilferding, Das Finanzkapital (Frankfurt: Europäische Verlagsanstalt, 1973)
 François Chesnais, Les dettes illégitimes. Quand les banques font main basse sur les politiques publiques (Paris: Raisons d’agir, 2011), 66
 Costas Lapavitsas, et al., Crisis in the Eurozone (London: Verso, 2012), 54, fig. 30
 Christos Lynteris, “The Greek Economic Crisis as Evental Substitution,” in eds. Antonis Vradis and Dimitris Dalakoglou, Revolt and Crisis in Greece. Between a Present Yet to Pass and a Future Still to Come (Oakland, CA: AK Press & London: Occupied London, 2011), 210
 Anastasia Nesvetailova, Financial Alchemy in Crisis: The Great Liquidity Illusion (London: Pluto Press, 2010), 35
 Paul De Grauwe, “The Governance of a Fragile Eurozone,” CEPS Working Document (2011), 346