Minnesotans might believe the recent bailout of Cyprus to prevent a run on European Union banks has little to do with them, the United States or the greater world. But international relations Professor Heikki Patomäki of the University of Helsinki demonstrated in his presentation to 25 University of Minnesota social science faculty and students Friday afternoon that the imbalances of the EU banking system appear to have “far-reaching implications” for the global economy. These systemic flaws appear so deep that the time has come “to rethink global covenants [and adapt] a non-Eurocentric perspective.”
The financial reality he delineated was a sobering one. Unlike American banks, members of the Economic and Monetary Union (EMU) have no central bank that acts as a lender of last resort. With the euro essentially a “foreign currency,” these countries are more susceptible to the fluctuation of interest rates in global markets. Consequently, a rate shift of a few percentage points creates debt obligations that gobble up the entire federal budgets of small economies like Greece, Ireland, and Latvia.
Countries with strong economies such as Germany’s and Finland’s demanded that debtor countries apply austere financial controls, but also kept wages down so their exports were as competitive as possible. If every EU country had followed such nationalistic economic policies, Patomäki argued, the resulting economic increase would have been far less.
According to economist Paul Krugman, the high unemployment, deflation, and the reappearance of the Nazi party in Greece were to be expected from the orthodox policies and “cockroach ideas” of a group who “have been wrong about everything else.” Patomäki noted that Yale economist James Tobin previously predicted that such economic orthodoxy “could create vulnerability to protectionist policies.”
Patomäki’s solution: Take a holistic perspective that builds upon John Maynard Keynes’ neoliberal global approach with “a new mechanism of global governance.” His proposals, outlined in the final chapter of his new book, “The Great Eurozone Disaster: From Crisis to Global New Deal,” entail the following:
- Maintain efficient demand at the global level
- Establish a world parliament operating under existing world law
- Create a debt-arbitration mechanism that puts “financing on a sustainable basis”
- Implement a system of global taxes to pay for these institutions
- Support workers’ rights to increase aggregate demand
- Provide a basic education level for all as a human right
This “new global imaginary of ethics and politics” may not occur in this lifetime, but the International Court of Justice, for example, took over 120 years to implement after it was first proposed in 1870. To become reality a global Keynesian New Deal “first must be imagined.” For Patomäki the only question remaining is “How deep a crisis to we need?”