German Chancellor Angela Merkel (left) on Thursday slammed "treacherous" practices by banks during the Greek crisis and said governments must crack down on speculators hunting profits in the turmoil. Merkel, whose Christian Democrats face a tough re-election battle in Germany's most populous state Sunday, railed against gamblers on the financial markets who she said were exacerbating an already volatile situation. "First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to initiate recovery packages. Because of these packages, we have become indebted and now, they are speculating against these debts – that is really very treacherous," she said. "Governments must regain their supremacy over the markets, which they no longer have, and for that we need much stricter global rules," she added, at a debate on Europe organised by a public broadcaster. Merkel said it was now up to the European Union member states to reassert their authority and shore up the financial rules governing the bloc. "We must clearly demonstrate that in Europe we have the political power, each in his own country, of getting back on the track of the Stability and Growth Pact," she said. "It is a fight of policy against the markets. That is how I see it personally but I am determined – as are my colleagues, I am certain – to win this fight and we will be victorious, I am sure." – AFP
Dominant Social Theme: The markets must be tamed.
Free-Market Analysis: Yesterday, as a kind of aside, we described Merkel as a socialist, and we got some pushback on the topic. We know it's hard to conceive of Merkel as a socialist because the mainstream Anglo-American media describes her as a "conservative." But like all those running the EU, she is indeed a socialist, in our view, someone who believes in the primacy of the state and state power.
Merkel is quoted in this article as saying, "Governments must regain their supremacy over the markets, which they no longer have, and for that we need much stricter global rules." We take it this is a reference to the latest power elite promotion, which seeks to implement global rules for banks so that all financial entities can be regulated similarly. Good luck with that.
Yes, thus far it's not working out that way. And Merkel is apparently giving vent to some frustration on the topic. Things are obviously not going to plan in other areas as well, we would guess. The EU was supposed to use the current financial crisis as a way to pull together politically, but instead it looks to be pulling apart. In America, the crisis was supposed to further vitiate Wall Street's power while providing the Federal Reserve with a good deal more power. But these plans, too, are receiving significant pushback.
Of course, the EU may well survive in some form. And the Fed may end up with more power as a result of what's being planned in Washington DC. But from our point of view all this is something of a sideshow. Yes, laws can be passed and regulations codified – but do they represent the "will of the people" at this time? Just watch what happens to Greece. Nobody consulted with the Greek people. They have their own ideas.
One of the things that turned the Bell collectively against the EU (outside of our native distaste for large bureaucracies) was the contempt with which EU leaders treated individual voters within the eurozone. Over and over, when a country refused to fall in line, Brussels would find some way to mandate a revote or simply ignore the issue and move ahead regardless. Merkel's contempt for the "market" is thus shared by her EU colleagues.
And still, even at this late date, Merkel doesn't get it, and neither likely do any of the other EU leaders. There is such a thing as a market. There is an invisible but nonetheless powerful hand that sooner or later will spank anyone or any group that attempts to circumvent it. Economic laws can no more be suspended than laws of physics. They are clear and irrefutable.
We have been increasingly troubled and puzzled by the overt flouting of the laws of the marketplace that has taken place in the past few decades. We remember the 1980s and the respect that was paid to underlying economic laws. Those in the administrations of both Margaret Thatcher and Ronald Reagan were careful to moderate their rhetoric when it came to free markets. It didn't in many cases make a difference policywise, but one had the idea that there was some level of financial literacy within these regimes. We don't have that feeling about the current crop of leaders.
Economics laws are extremely powerful. There is no free lunch. It is impossible to print bucket loads of fiat money without creating price inflation. It is impossible to pass endless laws and enforce endless regulations without permanently damaging entrepreneurship. It is impossible to tax and spend one's way to prosperity – as a society. The current crop of American and EU leaders don't seem to internalize any of this.
Lacking financial literacy, entrenched in the idea that the state can somehow mandate prosperity, or at least make things "fairer," leaders like Merkel are perpetually surprised when outcomes to their schemes go awry. In fact, states are not in control of their economies (in the long run) and statist solutions are not viable to the degree that they flout the laws of the market. The ongoing unraveling of the EU would seem to illustrate this rather well. Merkel's reaction, unfortunately, is to lash out against "speculators." This mentality – and Merkel is among the brightest of the EU leaders – is one big reason why the EU is in serious trouble and why things may get worse before they get better.