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Blaming the Victims: Mario Draghi on Mass Unemployment in Europe

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A couple of days ago, President of the European Central Bank Mario Draghi "gave EU leaders a crash course in Macroeconomics." Reuters' report correctly summarized it as a lecture "about labor costs." The "takeaway" was that all would be well in Europe if its largely centrist or center-right leadership were to more fully embrace the "insights" of the impeccably mainstream macroeconomic theories being peddled by the economists on the staff of the European Central Bank.

Those without an appreciation for ritual might be confused by what occurred. After all, it was inconceivable that Draghi -- a long-time central banker, former professor and Goldman Sachs executive, with a PhD in economics from MIT -- would be presenting his distinguished listeners with a novel or fascinating take upon a subject about which his audience was ignorant. On the contrary, it is likely that the "lesson" conveyed was more or less perfectly aligned with what his audience came to hear, wanted to hear, and needed to be seen hearing. And indeed, the notes on the ECB website suggest a litany familiar to anyone who has ever heard a speech by a mainstream macroeconomist, neoliberal politician, or well-healed investment banker: Governments needed to reduce their spending on entitlements and social services. "Confidence," that is to say social and political deference to the leaders of large financial institutions and the central bankers who represent their collective interests, must be "restored." Employees must accept large and lasting reductions in wages and benefits while working harder and longer. Labor markets must be deregulated and unions must be quiescent. Foreign trade and financial flows must be subject to less oversight and fewer restrictions, etc.

Every attendee likely knew the script summarized above. Indeed, most of them have given some variant of it. For that reason it is unlikely that any of the listeners walked away with an understanding of macroeconomics or the European economy that was different from that with which they arrived. Why, then, did this event occur? Why would 17 European heads of state sit up for a tediously familiar lecture on macroeconomics that is reported to have begun at 11 p.m.? Are they that fond of hearing the old-time religion?

My guess is that they aren't that fond of it. They were probably bored to tears. But it must be understood that providing new information to the leadership of the EU was not the point of the exercise. It was about public relations. The president of the ECB and his distinguished listeners were engaged in a time-honored performance, one that has become vital to the conventional practice of central banking. The point of the lecture was to reaffirm prior belief through incantation. These leaders had assembled to affirm -- once again -- that There Is No Alternative (TINA) to the course of action they have selected.

The lecture, then, was not about information, but about incantation. The "great and the good" of Europe are worried, with good reason, that the restructuring of Europe's economies along neoliberal lines may have been imperiled by recent events. These include protests in the streets from Spain to Greece and the results of recent elections in Greece and Italy (stayed tuned on Cyprus!). To that end, the leadership of the EU needs to maintain its dominance over the "respectable" conversation, and they knew that Draghi's performance would likely garner sympathetic headlines in the business press. Such headlines, in turn, provide useful political cover for the maintenance of austerity policies. Perhaps it is obvious, but political redirection is a useful device, and to that end Draghi's report also assigned blame for the seemingly endless European financial and employment crisis. Unsurprisingly, it was attributed to ... are you ready for it? ... the workers themselves. Plus ça change....

Draghi's lecture was equally important for its omissions. When he blames Europe's economic problems on the slow growth of worker productivity, we are diverted from considering other reasons why a financial crisis might become a lingering fiscal crisis. To Draghi and the staff macroeconomists of the ECB, the problem most clearly was not, and could never be, unregulated cross-border financial flows conjoined with the de-regulation and especially the de-supervision of large (primarily German and French) European financial institutions. Bankers -- and I kid you not, they do believe this -- are absolutely certain that they are victims of what has occurred, and for that reason are in no way or manner responsible for the ongoing crisis that is still destroying the economic prospects of tens of millions of people.

Moreover the bankers and the apparatchiks of the EU either do not know, or refuse to understand, that it is the current crisis that has caused government income-support programs to become more burdened, even as it has reduced revenues from taxes as a consequence of falling incomes. The predictable and predicted results are the large fiscal deficits that have emerged in nation after nation. To the ECB, the EU Commission, and the leaders of Germany's Finance Ministry, the fiscal problems now in evidence across much of Europe can be largely, if not solely, attributed to the demands of inordinately coddled citizens whose irresponsible expectations have been accommodated by weak-kneed politicians. They, of course, feel affirmed when they see their views supported by central bankers with PhDs in macroeconomics from MIT (or Chicago, or Minnesota, or take your pick).

The ECB and the European Commission are especially anxious for us to not know or discuss certain ideas. These include the following: (1) That the adoption of a rigidly fixed exchange rate (called the Euro), means the surrender of an independent monetary policy and thereby reduced policy space for member states during a large -- if otherwise fairly ordinary -- economic downturn. (2) That a nation without a sovereign currency cannot address chronic balance-of-payments problems through the politically-simple expedient of currency devaluation. (3) That not being able to issue a sovereign currency means that many European nations can no longer afford -- on their own -- to resolve large insolvent financial institutions, or (4) make good on their long-standing promises to guarantee the savings accounts of small and medium sized depositors.

Coming to know or ask about such things can be awkward because they suggest that the Euro, and especially its leadership with its highly-centralized political structure, is failing to serve the citizens of Europe. Worse, an open-ended discussion of such issues might induce further questions as to just whose interests are being served by the EU. And that is a conversation that the leadership of the ECB and the European Commission do not wish to entertain. Were I one of them, I would have resisted the temptation to snooze after the undoubtedly-sumptuous EU meal, with its undoubtedly high-quality EU wine, and have forced myself to listen to every word of Draghi's speech with rapt attention. That's right, Mr. President, the fault is with the working people of Europe! They did it! Hear! Hear!