PAUL JAY: Welcome to The Real News Network.
I'm Paul Jay in Baltimore.
I've been wondering for a while what is in the minds of German bankers, who seem willing
to let Europe go into a deep recession and do not seem to be having any flexibility on
how they collect their debts.
Now joining us to try to unpack all of this is Michael Ash.
Michael is a professor of economics and chair of the economics department at the University
of Massachusetts Amherst.
Thanks very much for joining us, Michael.
MICHAEL ASH: Thanks for having me, Paul.
JAY: So German banks look at this situation.
They see Greece going into deep recession, Spain, Portugal.
Even France is starting to teeter, in a sense.
What is in the minds of these German bankers?
ASH: Well, I think you've asked the question just the right way.
And it's really important that we focus our attention on the German banks.
I mean, a fish rots from the head down.
And really, if you want to look at the [unintel.]
causes of the European problem and have good predictions about what's going to happen next,
it's essential to think about what's going on in the German banking system.
This is really the birthplace of the crisis.
So asking what next from them is a really valuable question.
You've asked: how can they let things slide this far?
Well, to be honest, I'm shocked at how far they have let things go.
I think at this point an ideology has taken hold that, hey, we've been paying the bills
for Southern Europe for so long, we're going to stop.
That ideology's completely backwards.
I can explain why, if you're interested.
JAY: Yeah, sure.
Yeah, go ahead.
Explain.
ASH: So, well, the ideology is, we've been writing--we the Germans have been writing
the checks for these profligate Southern Europeans.
And in fact, it's almost the opposite situation.
In fact, it's Southern Europeans who have been buying the German goods that have kept
the German economy afloat until now.
So I think you've got kind of a collision coming between this growing Northern European
ideology that they've been paying the bills and the fact that much of their reasonably
good times before the crisis were made possible by the earning and spending of Southern Europeans.
I mean, you really have a circular-flow economy in Europe, and it's been very badly disrupted
in the south.
And I think that, you know, there's going to be some unpleasant consequences as they
spread from the south up through France and Germany.
JAY: So German banks are essentially undermining, weakening, destroying their own best markets.
Most of German exports have been going to these quote-unquote "peripheral" countries
of Europe.
So, you know, what is this a strategy about?
I mean, whether it's a strategy or not, what they're going to end up with is much lower
wages in all these countries.
They're going to try to unravel, and probably will, in Greece and Spain, at least, and Portugal,
unravel much of the social safety net.
And Italy, I should say, as well.
So they're going to have this big pool of skilled, cheap labor who can't buy as much
product.
So what is the objective here?
To better compete in the developing world?
In Asia and China and India, Brazil, and such?
ASH: I think strategy is overstating what we're seeing from the German banks.
I think it helps if you think about the German banks as kind of a four-faced statue or four-faced
monster, that there isn't--nobody is at the wheel.
And so it's a mistake to think somebody old and sensible is in charge.
There's really nobody in charge at the German banks.
There are just kind of fragments of several systems.
So, you know, there's this one German banker who's incredibly inflation-o-phobic.
We're told, oh, the memory of the Weimar inflation--90 years ago at this point--haunts this banker
so much, couldn't possibly imagine an expansionary monetary policy.
So that's one of the faces of the German banker.
And this guy is dead-set against any sort of expansionary activity.
It might cause inflation--very, very scary.
And then you've got this other guy who seems nothing like his very conservative anti-inflationary
counterpart.
He's the gambler who went down to the Spanish Riviera looking for some action and just loved
rolling the dice and was willing to take these very large gambles on Southern European real
estate, on, you know, coastal real estate in Spain, float the Greek sovereign debts
because it seemed really profitable.
So this was the kind of let the good times roll German [crosstalk]
JAY: And you could add to that their plays in the American real estate market, and not
just subprime mortgage.
I mean, I think Deutsche Bank now owns one of the biggest casinos in Las Vegas.
ASH: Yeah.
So, right.
So it wasn't just playing their own real estate markets.
I mean, I think they picked up the lesson.
I think you can--you know, there's kind of a lesson here that bad banking drives out
good, that this German banker, the high-roller, looked across the Atlantic, saw the American
cousin, his cowboy cousin, making out like a bandit, so he said, I want to take some
of those big bets too, and then did, on Southern European real estate, Greek sovereign debt,
but also buying CDSs (credit default swaps) and other exotic derivatives straight from
the U.S. market.
So that high-roller was really a newcomer to German banking.
The inflation-o-phobe and the kind of really very careful German banker were one wing of
German banking.
Then we got these high-rollers.
Their combination--the high-rollers brought on the immediate crisis.
And their combination has led to the, you know, stern, nasty bill collector German banker,
who says, ah, the bill must be paid, and is really insisting that the bills be paid even
if that collection effort is going to, you know, ultimately drive the German economy
into the ground.
And it's already done a very--it's done very serious damage to the Portuguese, Spanish,
Greek, and Irish economies.
And really, I think, you know, Italy is kind of teetering on the brink.
You've got these three.
Let me tell you about the last German banker, the one who's been kind of shoved into the
corner, who was actually the first one I learned about, and he's a fairly likeable fellow.
That's the benevolent social planner.
That's the German banker from the '60s and '70s who owned a lot of stock in German companies
and was therefore willing to make long-term plans for the future, wasn't too averse to
talking to labor, would invite labor to the table, would even invite labor to be on the
board of directors.
So that was kind of the good face.
So you've got these four faces.
The good face has kind of been crammed into the corner, and these other three are sort
of staring at each other, not really in full agreement, but kind of paralyze because they
don't know what to do next.
JAY: I mean, is part of this that they kind of all buy into this Austrian school of economics,
that there needs to be a catharsis, there needs to be a cleansing, capitalism needs
to go through these periods where it gets rid of excess capacity and better disciplines
the workforce?
I mean, do they not just believe that capitalism just is resilient, and to go through, quote-unquote,
the pain, and out the other side will come a vibrant Europe?
But I don't know what the evidence for that is.
But is that what they believe?
They've got to believe something here.
ASH: I don't know that there's such a Randian fellow at work in the German banks.
I mean, I think that the stern bill collector simply has a--the bills must be paid; we made
the loans, you must pay back the loans; you know, kind of a very--you know, sort of the
you must pay the rent landlord who comes to the door, you know, the evil drooping mustache.
So I don't think that, you know, the cleansing, a cleansing dose of capitalism, liquidate,
liquidate, liquidate is really what these bankers have in mind.
I think that they've more kind of hit a number of contradictions and that they sort of don't
know which of these bankers is bought.
They know that the high-roller got them into very serious trouble, so they're not willing
to start lending.
The inflation hawk and the stern bill collector are maybe of a piece, that they are unwilling
to try anything too expansionary.
You know, I think it's--nobody is planning enough for this to be a kind of a well-coordinated
strike on the European welfare state.
I think that the European bankers are willing to sweep up a couple of chips along the way
if they fall on the table and they're easy pickings.
But I think it's sort of--too much planning would be involved to say, oh, this was an
engineered crisis that allowed [crosstalk]
JAY: But whether it's an engineered crisis or not, they're certainly taking advantage
of the crisis.
And, I mean, what you're seeing is massive amounts of privatization, you know, in Greece
and some of these other same countries.
You're going to see lower wages.
They're--you're--enormous pressure on the social safety net.
And years--I don't see how it's anything but years of deep recession and high unemployment.
I mean, that much is objective, is it not?
ASH: Yeah.
I think these are good points, and they bring to mind a couple of thoughts.
The first is that capitalists can't live with stagnation either.
So taking advantage of the recession, as I said, to sort of pick up a couple of quick
hits, you know, some chips have fallen on the table, some free $20 bills on the sidewalk.
I can see that well and good.
But I really think that the extent to which the bankers have allowed the European situation
to really at this point spiral out of control is self-destructive, but they can't do anything
about it.
They are really--it is not in their constitution.
It's really going to take, I think, a new political political movement, a kind of a
new political orientation in Europe to do something about this.
I think the bankers have hit the end--you know, sort of hit the end of their bag of
tricks, and they simply cannot envision themselves overseeing a Keynesian-type expansion.
But they also--I don't think it's planned for a fully stagnated economy [crosstalk]
JAY: This has to come back and bite them in the bum.
I mean, how can this not lead eventually to much more serious stagnation in Germany itself?
ASH: Well, it has to.
I mean, as you pointed out, they've cut off the fuel to their main markets.
They are not--they've cut off the fuel to their main markets.
They are not--I do not think they can realistically expect to make up the sales, even with the
burdgeoning elite in China, in number, if not in percent.
So I really think that they have backed themselves into a rough corner.
Now let me make a couple--I want to take a step back and make a couple of other observations.
The first is that it's interesting to think about where the German working class has been
during this period.
The German working class on the one hand has stayed employed.
So they don't have the problems of mass unemployment that the Spanish and Portuguese and Greek
working class.
On the other hand, the German working class has really taken it on the chin in the last
generation.
They've been kind of an unwilling or a semi-willing participant in the Germans' euro-based plan.
So they've accepted increasingly low wages.
And the German wage share has fallen something like 10 percentage points, which is a massive
redistribution from labor to capital in Germany over the last generation.
The German working class has been told that's the price of staying employed.
So you won't be as rich, you know, you won't have as big a share of the pie, but you at
least won't be in the same boat that the Southern Europeans have found themselves in.
So it'd be very interesting to see what happens as this promise becomes increasingly untenable,
the promise of, well, at least you're employed, even if you're not paid as much.
That becomes increasingly untenable.
It'd be very interesting to see if there is mobilization by the German working class and
other working class, other union labor movement in Northern Europe.
JAY: Alright.
Well, thanks for joining us, Michael.
ASH: Well, thanks very much for having me.
JAY: And thank you for joining us on The Real News Network.