Commentary on Political Economy

Thursday 3 November 2011

Comment on Gavyn Davies Latest Blog

The usual excellent summary from Davies. We agree with the conclusion: Draghi quite simply cannot do what the so-called "European political leaders" are unwilling to countenance. There is more at stake than just the "democratic legitimacy" of the ECB's mandate, however. There is also the problem that the suggested ECB intervention as lender of last resort would be "open-ended" or "bottomless" because the incongruence - the "crevices" - in the Eurozone construction between member-state fiscal independence and monetary union leave enough space to Finanzkapital (a more "real-political" name for "financial speculation") to abuse these crevices to make speculative gains - not because they are demons or greedy, but because that is the nature of the capitalist game. As Davies genially puts it, with a delightful reference to Bagehot, this is not "a crisis of liquidity" but one precipitated by trade imbalances between member states.

These "gaps" need to be closed before the ECB can act as a normal central bank. Even then, however, the problem will remain of overcoming those imbalances between the eurozone "core" and the "periphery". German expansion of domestic demand is one thing; the "bargaining" of conditions and productivity benchmarks in the periphery is another.

One last problem deserves attention, one that Martin Wolf does not address in his last Column: and that is the "origin" of these financial imbalances in the decline of profitability for European investments and the ability of Finanzkapital to seek and exploit "fictitious value" (George Soros), or "paper profits". This implosion of "the Jackson Hole Consensus" is a problem that we shall address soon at

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