Euro Rage: Continental Winter 2009
By Dr. Peter Chojnowski
February 9, 2009
Iceland’s Prime Minister Geir Haarde found his car surrounded by a furious mob of egg and can hurdling fellow citizens outside his government office in Reykjavik, the capital city. This days riots, in which crowds spattered the Parliament building with paint and yogurt, yelled and banged pans, hurled fireworks and flares at government windows --- even attempting arson by starting a fire in front of the island nation’s seat of government, was simply one example of many to rock this island republic since the citizens realized exactly how hard the global financial crisis was going to hit them. In the Fall and early Winter of 2008, these demonstrations were weekly, since January 20th, 2009, the protests began to be staged daily. Riots in foreign countries are not normally taken to be of great note in the United States. It must be remembered, however, that these are the very first riots of such scale to take place in Iceland, since the anti-NATO riots in 1949; this "undemocratic" violence in, what is still, Europe’s oldest democracy, the national legislature, the Althing, having met since the tenth century.
What effectively happened to create this kind of popular wrath in this small stolid nation of 320,000 people? Nothing that has not happened in most every other country in the world since October of 2008, when the sub-prime mortgage bubble popped, along with the equity bubble in world markets. The financial system was fatally undermined when it was realized how many billions of dollars Icelandic banks were in debt to foreign financiers. The fundamental insolvency of its banking institutions caused a nationalization of the banking system and a collapse of the currency. The disappearance of easy credit and the collapse in value of Icelandic assets has caused the economy to shrink 10% over the past year (as much as Britain’s economy shrank during the Great Depression); unemployment has, consequently, surged. Not only has the besieged Prime Minister Haarde resigned and been replaced by the first Lesbian Prime Minister, but also, on account of the collapse in financial activity and resources, Iceland has been forced to accept a $10 million IMF rescue package and this, in a country that still acutely remembers the heavy hand of foreign invaders and, as witness the massive protests against the British occupation force of 1940, does not want to be saved by outsiders. Hence the paint and the yogurt.
According to many ancient sagas, Iceland was the entrance into Hell --- a not too surprising idea in view of the frequently spouting volcano Kirkjufell on Vestmannaeyjar; however, with the first collapse of a ruling government due specifically to the credit and financial crisis, Iceland appears to be only the first of many European nations descending into a political inferno. Indeed, the collapsing equity and credit markets, along with the straight-jacket monetary and financial regime imposed upon the member states of the European Union and the European Monetary Union, has caused a great ring of European states, stretching from the Baltics, through Russia and Ukraine, through the lower Balkan States, down across Club Med (i.e., Greece, Italy, Spain) and then up through Portugal and along the Celtic fringe, to be in the midst of or on the verge of a 1930s style depression.
Euro Rage and the Straight-Jacket Economy
The nations that are experiencing the most traumatic transformation from a boom to a bust economy are Latvia, Lithuania, and Ireland. All three of these states are part of the Euro Exchange Rate Mechanism, which can be seen as the Euro’s pre-detention cell. These countries must join Euroland, since it is written directly into their European Union contracts. The entrance of these nations into the monetary regime of the Western European Continental nations has meant that the economies of these nations have undergone massive overheating in the past few years. The obvious credit and monetary bubble created by low-interest rates, the lack of effective control over monetary policy by the national government, and exploding property values, has made for national catastrophes. In Riga, the capital of Latvia, during the boom years, property values surpassed those in the city of Berlin. Now due to the deflation of the national assets, prices of apartments have fallen 56% since mid-2007. The economy over-all has fallen 18% annualized over the last 6 months. Hoping to receive a financial rescue package from the International Monetary Fund (IMF), Latvia planned to devalue their currency, in response to an IMF demand. Brussels blocked this effort at devaluation, however. According to the EU bureaucrats, mortgage debt is, in Latvia, often in Euro’s and Swiss Francs, which would render impossible the lessening in value of the national currency. .
The credit starved Latvians are joined with their Lithuanian and Irish fellow-Europeans when it comes to being awash in debt and undergoing a dramatic drop in wages. Lithuania’s Trade Union Confederation organized the demonstrations that have denounced public sector wage cuts and increased taxes meant to make up for declining State revenue. The national debt has reached 12% of GDP (i.e., Gross Domestic Product), the economy is contracting by 4% annually and the computer company Dell has decided to move to Poland due to the inflated wage rates which became common place in the Ireland of the early 21st century. With the Irish government, on February 11, 2009, voting to approve a capital injection of $4.5 billion, Ireland became the first European Union country to take de facto control of all of its most important banks. In January, the government stepped in to nationalize the teetering Anglo Irish Bank, which was No. 3.
With disappearing bank credit, disappearing social services and reduced supplementary income payments, along with disappearing jobs, the European who has expected these things as that which would allow him to realize the dream of liberal democracy --- a life free of fear and free of any encumbrance to the fulfillment of individual want, has produced first a profound disappointment and, now an easily enkindled rage. What these Europeans are waking up to is the fact that their bankers, financial wizards, and their ever-accommodating politicians have bankrupted their nations. The enkindled rage of so many average Europeans has directed itself, primarily, against the central bankers and politicians who have bet their nation’s financial resources at the global Win/Win Capitalist Roulette wheel. The politicians and bankers bet it all on red. Black was called.
Deepening Slump, Rising Rage: The Streets 2009
What one continually reads about in the various reports from these very recent European riots, is that normally very stolid and, even, timid people, those naturally disinclined to provoke confrontation, are the ones who are demonstrating. On January 16th, we had an identical event to the one that would take place in Iceland the week after. Some 7,000 demonstrators in Vilnius, the capital of Lithuania, attacked the parliament building with stones, smoke bombs, eggs and ice, breaking windows and calling on the government to resign. Police were called in to disperse the crowd with tear-gas and rubber-tipped bullets --- while Prime Minister Andrius Kubilius called an emergency cabinet meeting. A crowd of young people, motivated by dimming career prospects and inspired by the Greek riots of January, broke away from a peaceful demonstration of around 10,000 people to express their frustration with their unresponsive government by overturning a police van and breaking windows in the finance ministry. While President Adamkus suggested that the Vilnius riot was organized by outside elements, Latvian diplomat Inese Allika told the EUobserver that these were simply demonstrations by citizens frustrated at the collapse of their economies. "It was just spontaneous, said Allika, "Latvians are normally very quiet, and people obviously are seeing what is happening in other countries in the rest of Europe, such as Greece, and they thought
‘Why are we so calm?’" "There had been a huge economic boom in recent years, then all of a sudden, everything stops." According to Dorothee Bohle, a political scientist at the Central European University in Budapest, the riots are not isolated events and are very much the product of the deepening economic crisis. "After a few years of relatively high growth and social advancement, it’s all come to an abrupt end and they’ve been slapped with a very harsh austerity package," said Bohle when referring to the IMF conditions necessary for the reception of loans and credits. "This is essentially a return to the ‘IMF’ riots we were used to from Latin America in the 80s and 90s." The global banker’s generosity in this crisis – which other global bankers created --- has a number of strings attached.
Europeans are currently comparing the unrest to events in the 60s and even the 1930s, when the Great Depression fueled political upheaval and clarified and intensified ideological conflicts. So far, however, no ideology has gained a distinct advantage from public anger. Other than wanting the latest government out of office, the protesters have not yet been taken up by any alternative vision of the future --- one which could serve as a substitute for the economic, social, and political Liberalism that has been the European norm since the 1991 self-destruction or transformation of the Soviet Union. Even though Europe is dealing with an ideological void, the people in the streets definitely know what they do not like. "The politicians never think about the country, about the ordinary people," said Nikolai Tikhomirov, 23, an electronics salesman who participated in the January 13th protest in Riga. "They only think about themselves." How unstable is the current political situation in Europe as a result of the economic decline? Dominique Strauss-Kahn, head of the IMF, has said that the financial crisis could cause further turmoil "almost everywhere," listing Latvia, Hungary, Belarus, and Ukraine as among the most vulnerable nations. "It may worsen in the coming months," he told the BBC. "The situation is really, really serious."
Putin Rides the Russian Bear
Since the economic system adopted under Vladimir Putin is no longer working due to the sharp decline in oil and gas prices and, hence, government revenues, the political system the former president and current prime minister put in place is rapidly approaching its end; this according to a leading Siberian political analyst Dmitry Tayevsky. In a lengthy commentary posted on the Internet, Tayevsky states that what will replace the current order is any one’s guess. What Tayevsky realizes, of course, is that Russia has always had a "thirst for the absolute," and has always favored a strong central regime as an "iron belt around the waist of an anarchical people." That the situation is becoming grave is indicated by the fact that within the past two months, there have been an estimated 1 million Russians who have lost their jobs. According to Tayevsky, this situation is likely to produce one or two scenarios in the near future. The second most likely scenario is "impoverishing the people without giving them a chance to express their anger within the system." To this possibility, Tayevsky indicates that since there are no "pretenders" to the role of a Lenin or Stalin on the political scene, such a situation would likely produce a social "explosion" and "a complete national tragedy." The second scenario is the one that Tayevsky sees as most likely. He calls it the "Latin American Option." "There are many people who don’t like the current regime and have the military capacity to change it," notes Tayevsky. "They might set up a military dictatorship, although it is not clear that they could run the country after taking over except by killing people in large numbers not only immediately by for a long time."
The increasing instability of the Russian system, in place since the Putin takeover in 2000, has been
demonstrated in recent weeks by both the violent, ideologically-tinged protests and riots in cities across the
Eurasian nation, but also, by the defiant nyet which has been uttered to Vladimir Putin by his own
appointees and sycophants. With ultra-right Nationalists rioting in Moscow and Communist-led street-demonstrations in Vladivostok, Russian Prime Minister Putin is facing the beginnings of an unexpected power struggle which neither he nor the Russian nation expected. It began in Vladivostok in mid-December of 2008. There thousands of workers rose up in protest due to the Putin government’s 80% tax on imported foreign cars. The decision, meant to protect Russia’s own inferior car industry, has been a source of extreme anxiety for the 100,000 people in the Russian Far East who are employed in the business of importing and revamping second hand cars from Japan and South Korea.
The protests over these potentially job-killing measures were ordered stopped by Putin. His own senior administrators, however, refused to intervene requiring, a week later, the central government to send a special detachment of riot police from Moscow to break up the protests. Furious that he was being disobeyed, Putin ordered Vladislav Surkov, his top ideologue, to sack the newly appointed head of internal affairs in the Vladivostok region. Having received the order from Moscow to resign, the official, General Andrei Nikolayev simply refused to resign and threatened to reveal corruption in the Kremlin if Putin pressed ahead with his plans. Such a gesture of defiance has been unheard of for the past 9 years, especially since it was supposed to be General Nikolayev who kept local officials under control for Moscow. General Nikolayev quickly found a patron in President Dmitry Medvedev, Putin’s handpicked choice for Russian Head of State, who countermanded Putin’s order for Nikolayev’s dismissal. "The fight between Medvedev and Putin started over this issue and has been getting worse ever since," said a source close to the Kremlin.
Think 1931, not 1933….yet.
Ambrose Evans-Pritchard has pointed out that the instability and breakdown in the economic and political system that we are experiencing now, from Pacific California to Riga, Latvia, resembles the post-stock market crash year of 1931, rather than the political revolutionary year of 1933 (think the New Deal and the National Socialist Brown Revolution in Germany). The 44 % drop in the stock markets, the unprecedented drop in French and Spanish real estate prices, the 25% unemployment rate expected for Spain in the next couple of years are surely signs that an extended "crash" has already happened. All the consequences and implications have not, yet, been experienced. It was only in 1933, some 2 days after Franklin Delano Roosevelt was inaugurated as president, that the newspapers were splashed with the following headlines: "FDR closes the banking system – Invokes the Trading with Enemies Act," "Gold Ordered Confiscated," "Hitler Bloc Wins a Reich Majority," "Japanese Push On in Fierce Fighting," "City Scrip to Replace Currency." So far our own financial meltdown has not caused the underlying system to cease functioning. The first phases of depressions are like this. It is the second phase of a depression, what Europe and the United States experienced the last time in 1933, which causes the terror and real suffering. If we can remember how it was the last time in America that we fell into an extended depression: The economic machinery had broken down, the Stock Market was shut down, 32 states had shut their banks, and Texas had restricted bank withdrawals to $10 a day. In the "real economy," many states had stopped paying teachers. Schools were closed for months, armed farmers threatened revolution and laid siege to many a Prairie city, lawyers attempting to enforce foreclosures were shot, a mob had stormed the Minnesota capital before the year of 1933 was out.
Whether we experience the full force of the economic implosion, which in many ways is much worse --- from a financial aspect --- than the one experienced in the 30s, is still a question for the unfolding of the "history" of the next couple of years. It is certain, however, that the peoples of Europe, at least, have realized that the easy life the Nanny State Capitalism promised them, is not going to be their lot. Without this comfortable economic, ideological, and political cocoon any longer enshrouding them, they are coming to feel the chill of the materialistic, nihilistic, and godless lie that they have been living. I assume that not all of them will take this sitting down.