The financial crisis which started several months ago on the markets of South East Asia is threatening to assume global proportions. Having hit Russia and Latin America, and laid bare the total inertia and impotence of Japan, it is now sowing the seeds of fear in the financial markets of America and Europe. Many observers have become seriously concerned that the crisis could spread from the financial sector to the economy itself, triggering a period of world recession whose severity would be quite impossible to predict.
It is certainly not in this short letter that the immediate causes of the crisis can be examined. However, what must be pointed out here is its structural cause, in other words, the total inability of politics to control the tremendous amounts of short-term capital which, in a totally unregulated manner, are transferred from one side of the planet to the other.
No one can predict how long the current crisis will last. But the unacceptability of a situation in which the wellbeing of millions of people, and the very future of many governments, are in the hands of investment funds and conditioned by international speculation (and, in which unless there is a radical turnabout, crises of this kind will go on happening) must be obvious to all. And a turnabout will occur since a market can exist only where there is a political power able to regulate it; in the absence of the same, it is not the laws of markets which reign but chaos and anarchy.
The real problem is how this turnabout will take place and, in particular, whether it will come about through a return to control of capital on a national level (which would lead to a protectionist upsurge) or whether it would come about on an international level through the emergence of a strong and responsible leadership. The presence of such a leadership would, for a sufficient length of time, allow general conditions of economic equilibrium and political stability to prevail which together would discourage speculation and, in the countries hardest hit by the crisis, favour a gradual evolution of the institutions and policies most likely to produce a strengthening of their economies.
It is a huge task, one which the officials of the International Monetary Fund cannot possibly be expected to undertake and, as has emerged quite clearly from the crisis, one which the United States cannot take on alone. The United States is worn out, politically, economically and morally, from half a century of wielding hegemonic power, a position which became impossible to sustain following the disintegration of the Soviet empire. The United States needs a strong and influential partner, a partner fully aware that it has an urgent duty to channel part of its own resources into the task of making sure that the world does not fall prey to political and economic mayhem.
This partner can be none other than Europe, although not the Europe of today which, on the international stage, is notable by its absence and irresponsibility. And it must also be pointed out that, even though monetary union has so far remained untouched by the worst effects of the crisis, there can be no guarantee that a Europe governed solely by a central bank can remain, for any length of time, a haven from the storms raging throughout the rest of the world.
But the European Union will never be able to formulate a grand design and shoulder world responsibility (or even to secure its own survival) as long as the main concern of each of its member governments is to guarantee its own national interests at the expense of those of other member countries. Europe needs to be given a government which every one of its citizens, whatever their country of origin, recognises as his or her own government. To achieve this, the European Union must be transformed into a democratic federal state which is strong and which has the capacity to act.
Incredibly, Europe’s politicians are proving to be blind to all the evidence pointing to this fact. We can only hope that the build-up of dark clouds threatening first the economy, and then world peace, will be sufficient to prick consciences and provoke a realisation, among those in power, of the desperate and pressing need to achieve this end.
Publius