Event-driven Sham Drama
At this time of writing, the latest in an apparently-endless procession of eagerly-awaited events has taken place: the ECB Governing Council has held its regular two-weekly meeting and ECB president Mario Draghi has held his post-meeting news conference. The Governing Council decided to do nothing – i.e. it held the ECB’s interest rates unchanged. Draghi also, at least to judge by the reaction of the financial markets in Europe and the US, also did very little, in any event much less than had been hoped for by said markets.
However, this assessment may change within an hour or a day. Even if it doesn’t, the markets will quickly move past this latest disappointment and refocus on another event scheduled within a few days – this time it will be the next meeting of the FOMC, the committee of the Federal Reserve Bank that decides on interest rates and monetary policy generally. If and when the market’s desperate hope for an announcement of additional ‘monetary loosening’ – meaning extra liquidity — is again dashed, it will merely shift its ever-optimistic gaze toward the next ‘event’.
This syndrome of forever imminent salvation has been going on all year and, in many senses, has been underway for the past three and one-half years. One can regard it as pathetic (as discussed in last week’s column) or as well-intentioned foolishness, or as sensible self-preservation on the part of the financial institutions which dominate the markets – because from their point of view, if the central banks do not consistently pump more and more money into the markets, there is a strong likelihood that the financial system will suffer a systemic collapse, which will destroy most, if not all, of the major financial institutions.
In other words, how you look at things depends on what you have on the line. There is very little scope for objective assessments when what is at stake is existential. Understanding this principle is critical for making sense of the Middle East, especially vis-à-vis Iran. Only if it is appreciated that not only Israel, but also Saudi Arabia, Kuwait and the Gulf states generally view Iran as an existential threat to them, in the fullest sense of the word, do many seemingly weird and inexplicable developments in the region make sense.
But that’s merely life-and-death stuff. Far more important is the potential existential threat to the world’s largest financial institutions, the bonuses of their top executives and the salaries of their rank-and-file employees – not to mention the parallel threat to the European Monetary Union and the well-being of the supra-national institutions in Brussels, Frankfurt and elsewhere who run it, and the numerous clever, multi-lingual bureaucrats who run these institutions.
Any sensible person, who has the well-being of Europe at heart — indeed, anyone who cares deeply about the future of the human race – will agree that no effort must be spared to thwart this threat, to stave off potential disaster and to ensure that the euro survives intact. In truth, who in his right mind could disagree with Mario Draghi’s assessment that the euro cannot be dismantled. The commitment of the ECB to buy the sovereign debt of eurozone member states, in unlimited quantities, is simply the translation of the Draghi’s previously-announced readiness to “do whatever is necessary” into practical terms.
Yet it must be admitted that some people, for no fault of their own, might see things very differently. The 24.4% of the Greek workforce now officially unemployed – an almost-unbelievable increase of nearly a full percent in a single month, according to official data released yesterday – might wonder why they have to suffer year after crushing year of declining living standards and rising hopelessness, just to ensure that the German and French banks stupid enough to lend excessively to Greece in the pre-crisis years of make-believe should not suffer the consequences of their actions. If there is any truth to the report in a British paper earlier this week, that Greece’s creditors are set to demand that the dwindling number of Greeks still in full-time employment switch to a SIX-DAY working week, that too might colour the way the average Greek views the crisis and how he might prefer a somewhat different approach to solving it. His Spanish peer, who already longs for an unemployment rate of less than 25%, would probably agree with him.
At the end of the day, the crisis in Europe is centered on the socio-political rift that has developed between the haves, and their minions who run the EU and its agencies, and the have-nots who run nothing – until they snap and run amok. All the contrived events and phoney solutions that the markets pretend to place center-stage cannot alter that underlying reality.