The democracy of the markets
That one was a bit too close to home Mrs Merkel, wasn’t it? The announcement on Monday evening by Standard & Poor’s, one of the three credit ratings agenciess, that Germany’s treasured AAA rating (together with that of the other eurozone countries that enjoy the AAA badge of honour) was on what it calls ‘creditwatch negative’ shot a deafening bang across the sky of Berlin. Considering credit ratings agencies are obliged to give governments 12 hours notice of any changes to their ratings, then one can guess that Mrs Merkel (and Mr Sarkozy) knew of S&P’s impending announcement when they met earlier that same day to discuss their proposals for how to save the eurozone.
This is what I call the ‘democracy of the markets’. Ratings agencies, through their gradings and investors through the costs of borrowing, have made their wishes clear throughout this crisis. The drama that has unfolded over the past two years has had many actors but few as influential as the ‘markets’. EU leaders have struggled to keep the momentum and have consistently found themselves behind the curve, always doing too little or acting too late to satisfy investors, hedge funds, banks and, of course, the dreaded credit ratings agencies who always demand more and faster.
Critics will say that they have managed to force economic policies upon European governments, with their ratings and bond purchasing hanging over the representatives of the people like a Damoclean sword every step of the way. The fact that those policies usually feature measures that aim to reduce the cost of labour or promote liberalisation and privatisation leads some to believe that many of those ratings agencies’ clients stand to profit considerably. Not to mention that their actions panic the markets and destabilise the European economy.
Others will argue that credit ratings agencies and investors have a legitimate interest to protect the investment of their clients and have in fact contributed to the resolution of the crisis by forcing indecisive and weak politicians to act. As far as that argument goes, credit ratings agencies are to be thanked for finally making Europe’s leaders do ‘whatever it takes’ to rescue the ailing single currency.
Whichever way one looks at it though, one thing is clear. Credit ratings agencies, investors, the ‘markets’ are playing an increasingly activist role in the way the European and global economy is run, prescribing their own remedies to problems of economic policy and promoting their own version of capitalism.
Whether EU leaders (mostly of a centre-right persuasion but not exclusively) have used this as an excuse, or whether their hand has been forced to implement policies that shrink the state, reduce social protection, water down labour legislation and promote liberalisation and privatisation, the fact remains that Europe’s model of social market economy is under sustained attack.
We should of course all be open to debate; labour markets are not what they used to be, demographics pose huge challenges to our welfare and pension systems. But that conversation should be had between the electorate and their elected representatives rather than politicians and the markets.
Furthermore, the current crisis has reminded us all, not least heads of state and government in the EU, our own included, of how limited is the power of individual nation states to rule their own destiny in a globalised world, where global investors are becoming a super power in their own right, able to lead governments to resignation when they don’t abide by their wishes. In such a world European cooperation and integration is imperative if we are to strengthen our economies, protect our competitiveness, preserve our social model and promote our collective interests. Whether we like it or not the influence of European states in the world is declining rapidly. For Europe to lead in research and development, new technologies, renewable energy we need to pull our resources together and collectively invest in the things that are too expensive for us to invest in individually.
The stakes are high but the means are at our disposal. We Europeans must make the most of the EU to afford ourselves the opportunity to lead the world to an age of democratic, social markets, clean energy and technological development. There is a lot we can do together. I fear the alternative would be bad for all of us.
Petros Fassoulas is chairman of the European Movement UK
Angela Merkel, credit ratings agencies, democracy, economy, Europe, eurozone, Nicolas Sarkozy