International

The German daily Die Welt published this weekend an extended interview with former United States Federal Reserve Chairman Alan Greenspan. His answers are full of contradictions: the rules against irresponsible speculation are becoming too strict, but a further financial crisis could occur; in the US the debt ceiling should be scrapped, but in Europe we must maintain the even more restrictive Budgetary Pact; a European political union must come about, but even in Germany two decades have not erased the contradictions between East and West. Does Greenspan want to make everyone happy or does he no longer know himself what should be done? He’s very old, it’s true, but Europe’s heads of government are just as contradictory. This attitude is a ticking time-bomb, because ever fewer people in Europe are still prepared to accept this hypocritical behaviour.

The bank lobby is becoming more aggressive once again. The decision-making regarding the package of EU measures that are supposed to restrict the banks is becoming softer, gentler and sweeter. How many banks have been split up so that they are no longer too big to be allowed to go bankrupt? How many bank executives are being prosecuted for misconduct? How many speculative products have been withdrawn from the market and how transparent has the market become? How many measures have been taken against rapidly moving speculative capital of the kind that creates sudden shocks? The answer to all of these questions is depressing. Against this background it’s a crying shame to see Greenspan talking about a mania for regulation which has gone too far, merely echoing thus the bank lobby. Right after this, however, he says that just as the previous crisis was brought about by irrational behaviour, for which read the greed of the bankers, a fresh crisis could arise in the same way. When the central banks have ensured sufficient peace of mind, ever greater risks will once again be taken and even the capital buffers introduced by Basel III won’t be able to prevent things going once again awry. This fits perfectly with the conclusion drawn by the Dutch financial journalist Joris Luyendijk who wrote recently in the national daily NRC that two years in the City of London had taught him that the culture amongst bankers has not yet changed and that this renewed irresponsible behaviour could lead to a fresh financial crisis.

Greenspan has turned strongly against the US law that lays down a debt ceiling. This is, he argues, hopelessly old-fashioned. Not a fixed law, but the US Congress, must determine the maximum amount of debt the country may have at any time. This seems a sound principle, yet in Europe we are doing precisely the opposite. All countries which have signed up to the Budgetary Pact have in doing so solemnly promised to lay down in their national constitutions that the budget deficit will not exceed 3% nor their sovereign debt 60% of GDP. Strange that Greenspan says nothing about this, but I assume that he must be against that too.

What he does say about Europe is just as contradictory. For Greenspan it’s crystal clear that the euro can survive only in a political union. At the same time he points to the cultural differences between north and south and the economic imbalances in Europe which are, partly because of these cultural differences, structural. He acknowledges that even within Germany there i s a persistent problem of balance which makes necessary a solidarity tax aimed at the development of the east. Evidently we should not only seek a political union, but also a transfer union via which the North will continue, on a permanent basis, to pay for the South. A dangerous notion. Were we to sign up to this, we would be in for a period of ever greater tensions among the member states.

Alan Greenspan is 87. Perhaps his contradictions can be forgiven. I fear, however, that the EU heads of government operate in much the same way. They too refuse to deal with the banks, hold tight to their budget fetishism and want to see a political union. But they know that huge risks are involved and say therefore that they will indeed tackle the banks and that they need more time, as a result of the economic crisis, to bring down their budget deficits. A political union? Still not, for the moment, on the agenda. They are thus therefore just as self-contradictory as Greenspan, without the excuse of being 87.