Shock Strategy for Europe

by Gabriela Simon Tuesday, Jan. 10, 2012 at 7:48 AM

The cocktail of social cuts, deregulation and privatization struck societies like a blow. The economy hit the wall; social securities were taken away. The debt problems were used as "timely opportunities" to gain new ground for the free market.


The German chancellor is not “driven” by the financial markets. She follows their calculations in the escalation of the crisis. A policy of de-solidarity is forced on all Europe.

By Gabriela Simon

[This article published in: Freitag 12/18/2011 is translated from the German on the Internet,
Gabriela Simon is an economist who writes often in Freitag on the EU financial system.]

When historians look back on 2011 from a safe distance, they will probably ask how Europe’s rapid descent happened. Only two years after a small peripheral Euro-member revealed its debt problems, the whole Euro zone changed into a financial-political crisis region. The self-assured, economically powerful European continent whose social model was an orientation for many worldwide is dependent on support by the International Monetary Fund and asks for financial assistance from threshold countries. Banks increasingly treat its government bonds as junk securities to be rid of as quickly as possible.

How could this disaster happen? Do the scorned financial markets drive European governments by themselves with the power of their great mobile sums of money? Is Angela Merkel’s often criticized “hesitant” style to blame? Is it a “wrong diagnosis” that underlies a counter-productive therapy as a leftist academic explained in a recently published opinion? Is it the “headless reactions of our political elites” “fused to the wires of the financial industry” in the words of Jurgen Habermas? Or does the problem lie in the monetary stubbornness of Europeans, particularly the Germans, as the US economist Paul Krugman argues?

All these explanations start from an incapacity, a weakness of European crisis managers without the will to overcome the European crisis quickly and permanently. What happens when we drop these naïve assumptions? As a trial, let us assume our political elite consist of intelligent and very capable people relying on their many experts to reach their goals. Let us assume – purely hypothetically – that they attain their goals and their accomplishments say more about the goals than their announced intentions.

The EU crisis policy has done impressive things. The debt overload of the economically insignificant Euro-member Greece flared up to a p3ermanent European crisis. Greek society is traumatized by social cuts and increasingly defenseless. Italy “voluntarily” accepts monitoring by the IMF and – like Greece – chooses an economic-liberal technocrat as its head of government. People all over Europe are shown how it feels “to live above their means” and “be punished” in the example of Greece. They understand it is possible to lose all securities in an EU-country, to see pension claims on which people firmly relied melt away 20 percent and more.


The fear of losing securities bound with the conviction that state debts are to blame for everything grows in Germany with its strong economy and historically low unemployment. When the news about many billions of unexpected tax revenues for the German treasury circulated through the media in the fall, a discussion began whether the money boon would not have been better invested in schools, universities and the unemployed instead of being used for debt reduction.

Could the crisis managers of the EU and the IMF have invested in these essentials? On first view, the thesis seems misleading or malicious. However some otherwise incomprehensible decisions are cleared up in its light. Why wasn’t the austerity program imposed on Greeks examined so its counter-productive effects would come to light? Why did not the Troika first concentrate on tackling the main problem of massive tax evasion? Why did European debtor countries have to carry out an enormous number of different measures (there are now over 200 in Portugal) that often have nothing to do with the debt-load capacity? Can the deregulation of the labor market, the suspension of regulations against unlawful termination and collective wage agreements help revitalize state budgets? Why were the financial markets regularly invited to speculate against European countries with threats of bankruptcy?

A glance back to the 1980s can bring some light into the darkness here. At that time the IMF in Latin America developed the method of the “austerity package” which delights more and more European countries today. These packages were innovations that summarized a vast number of measures in different fields that were declared prerequisites of financial assistance. The cocktail of social cuts, deregulation and privatization struck societies like a blow. The economy hit the wall; social securities were taken away. In her book “The Shock Doctrine,” the Canadian author Naomi Klein wrote about the hidden logic of this austerity policy. “One assumes people can react to gradual changes. But the feeling that everything is vain starts when dozens of changes occur simultaneously from all directions.”


In Bolivia this shock strategy succeeded in ruining the powerful Bolivian union movement in a few years and made Bolivian society helpless against the enforcement of the neoliberal program. Milton Friedman’s supporters in the IMF and the US government were enthusiastic. The austerity policy was then carried out in all Latin American debtor countries.

Even if things are different in many regards in Europe today, several parallels are striking. Instead of concentrating on the concrete problems in the debtor countries, for example tax evasion in Greece and specific economic structural weaknesses in Portugal and Spain, the whole neoliberal arsenal is administered forcibly as a package. Societies are traumatized and their actors condemned to powerless protests. The impacted national economies inevitably fall into a serious recession with increased dependence on financial assistance and administer more and more the same “medicine.” Naomi Klein rightly described as “crisis opportunism” what is passed off as crisis management. Instead of overcoming the debt problems as fast as possible, they are used by the supposed rescuers as “timely opportunities to gain new ground for the free market,” Naomi Klein explained. In Europe very favorable presuppositions are offered for such an escalating crisis policy. The degree of linkage even made it possible to drag countries with no debt problems into the crisis whirlpool. In the meantime France and Austria could be c aught and forced to “save.” Actors passed the ball in this escalation strategy: EU officials with their bankruptcy threats and their refusal to permanently protect Euro countries from speculative attacks, the rating agencies with their downgrading, the IMF with its criticism of EU-governments and the hedge funds with their speculative assaults.


In the debate over the introduction of Eurobonds, the role of the German government in this game was clear. The German government resisted the Eurobond solution because this would immediately end the loan crisis. The “painful pressure,” as Wolfgang Schauble said, should be maintained. The German government has made itself the active ally of the financial markets which caused this “painful pressure” through speculation against the loans of European countries, he declared openly. Eurobonds – Angela Merkel said – “should first be given after the crisis.” Thus the crisis should first accomplish its work, put states under pressure, weaken their economies and wreak societies until they are ready for the enforcement of a policy of deregulation, privatization and social cuts enforced across Europe. The sword of Damocles of state bankruptcy that Europe’s crisis managers brandished so successfully over the member countries of the Eurozone is the central political instrument in the hands of Merkel. Merkel is by no means “hesitant” in threatening other governments.

Seen this way, the German chancellor is not “driven” or a marionette of the financial markets. She is not weak, incapable, headless or panic-stricken. She follow2s their calculations, delays bailout actions to the very last minute and thus – in a pact with speculators – constantly expands the crisis and produces permanent panicking. The calculated escalation of the crisis gives the German government the power to force a policy of de-solidarity and growing social inequality on all Europe. Presumably Angela Merkel will wait until just before the bankruptcy of the Eurozone to give her consent to Eurobonds. Whether the European project survives this strategy and what the world economy will look like afterwards is another question.