The vote yesterday to extend the bank guarantee for another year, combined with the reassuring statement from Michael Noonan that its impossible to forecast when the bank guarantee scheme will end, confirms Jim Stewart’s prognosis that the main problem in the EU at the moment is:

“…the prevailing consensus (held for example by the President of the ECB, the new Prime Minister of Italy, the Governor of the Irish Central Bank etc) that the solution to current economic problems is austerity plus maintaining the solvency of the banking sector at any cost. For short hand this can be termed the Goldman Sachs consensus.”

The decision of Tommy Broughan to vote against the government, leading him to be kicked out out of Labour’s parliamentary party, seems like a principled stand - one where ideas and independent thinking about how a nation’s government (or even his own party) should behave are used to challenge the fact that this government (and the Parliamentary Labour Party) is acting, not as one would imagine a democractic government should, in the interests of its citizens, but according to the dictates of the banks who are one of the main beneficiaries of the decisions being taken at EU level.

Another indication of this consensus, as Stewart highlights, is the extraordinary lengths that the EU is willing to go to prevent any sort of default. This is to avoid anything that may be construed as a ‘credit event’ which would require a payout on a Credit Default Swap Contract. Credit Default Swaps “appear to be one of the greatest financial frauds perpetrated in recent history” Stewart says, because the insurance premium is paid by those who buy government bonds to protect themselves against any possible default. The EU however, has put enormous pressure on governments (and through the ELA obligations increased their debt levels massively) to make sure that this insurance claim is never made. This is free money for the issuers of the CDSs. We have seen how this political pressure has been applied with the account of the days leading up to Ireland accepting the ECB/EU/IMF bailout where the EU (and the US through the interventions of Timothy Geithner) were mainly concerned about the danger that the collapse of Anglo Irish Bank would pose for the financial system and demanded that Ireland accept the bailout. The situation was exactly the same in Portugal. (More evidence of the US policy of transferring public money to private banks here and here.)

In a very revealing article in the EU Observer, Leigh Philips outlines the events that lead to their bailout.

“In March, Portuguese banks announced they would stop buying government bonds if Lisbon did not seek a bail-out. Without the support of domestic banks, Socrates had no choice but to request an external lifeline.

Although the then ECB chief, Jean-Claude Trichet, later denied it, the head of the country’s banking association, Antonio de Sousa, said that he had “clear instructions” from the ECB and the Bank of Portugal to turn off the tap. Socrates at this point was a dead man walking. A package of additional austerity measures proposed by the then minority government was defeated when the conservative opposition that would subsequently push through still deeper austerity voted against it. The government immediately fell, the predictable outcome of what Frankfurt had ordered.”

We are all familiar with the cathartic benefits of hating politicians and its easy to say that the hollow drama of elections is used as a release mechanism for the social tensions that arise from the sense of powerlessness that citizens have over how society is run. From a Marxist perspective the force that controls government policy comes from the economic dynamic within the superstructure and not from the ‘vision’ or ideas, or even the pragmatism of individual politicians involved in an oh so difficult balancing act between the interests of the capitalist economy and those of ordinary citizens. But while we know this, power still is usually able to hide how it works. The benefit of crisis therefore is that it reveals how real power is exercised.

So it seems that it is only politicians, like Broughan, without any vestige of even nominal political power who can act in a way that appears to be propelled by ideas or principles. Such is the way that the ‘Money Democracy’, as David Harvey put it recently, works. So it is financial capital supported unconditionally by the political power in the EU that is determining the course of events.

If this surprises us we are forgetting the principles upon which the European Union was created. It’s something, however, that Manuel Barrosso is not shy about reminding us. According to Leigh Philips again:

“Last Tuesday, upon Mario Monti’s first visit to Brussels after being installed as premier, Barroso argued that the need to take economic decisions out of the hands of politicians is in fact the EU’s raison d’etre: “After the Second World War, the countries that founded the European Community created supranational institutions, and now we have the European Commission, the European Court of Justice and the ECB. Why? Precisely to have independent assessment and monitoring and also if possible independent enforcement mechanisms that are not subject to political manoeuvring.”

The European Union is based on the creation of a common market, and within that as ‘a regulative body writ large‘ for the economies that choose to be part of that market, not a redistributive body created in the interests of the majority of citizens.

Knowing this however, helps us to understand what will happen next. The recent speeches by Merkozy indicate that a new Treaty is foreseen and that this would require, we are told, strong fiscal discipline. The details are outlined in this interesting document from the German Fiscal Advisory Council (see pages 4 to 8). What this also discusses however, is the benefit that the single currency has had for the German economy. Although there is the danger of a double dip being raised everywhere, the German economy is doing very well. As the report notes:

“In this daunting setting the German economy has remained remarkably robust in 2011. Gross domestic product (GDP) will probably grow by 3.0 per cent this year but then slow perceptibly to 0.9 per cent in 2012. The labour market has performed especially strongly. The annual average number of officially unemployed persons in 2011 stands at 3.0 million, which is the lowest level in a decade. It is likely to fall further to 2.9 million in 2012.”

A November 30^th report from the Financial Times outlines it further:

“Wednesday’s figures from the Federal Labour Office showed seasonally-adjusted unemployment down another 20,000 - compared with a drop of just 5,000 expected by economic analysts - leaving the jobless rate at 6.9 per cent.

As for German exports, the real motor of Europe’s largest economy, they grew by a remarkable 12 per cent this year. Anton Börner, president of the foreign trade association, says he is “cautiously optimistic” they will be up by at least 6 per cent in 2012, in spite of the weakening global outlook.”

Nat O’Connor on Progressive Economy also points out the benefits that the German economy gains from being in the Euro:

“It is calculated by German development bank, Kreditanstalt für Wiederaufbau (cited by the influential Hans Böckler Stiftung, bottom of page 5, in German), that Germany benefitted from having the euro, as a relatively weaker currency than the Deutschmark would have been. They argue Germany benefited by €50-60 billion in the last two years by not having their own currency (which would have been stronger and therefore raised the cost and lowered the competitiveness of their exports).”

This is one reason why we are not likely to see the Euro breaking up anytime soon. But perhaps it is too mercenary to suggest that whatever the outcome, as long as we remain within the Euro, that our economic, political and social fate will be determined by the economic interests of France, Germany and the Netherlands, those countries for whom the system was designed in the first place.