The European Finance Crisis: Germany/GIPSI


Johan Galtung

A crisis so massive–with the health network in Greece collapsing and 50 percent of Spanish youth unemployed–begs for big causes.  Some unknown planet with great gravitation pull, some super-radioactive element not yet identified?  Probably; there may be more causes lining up–efforts to destroy the welfare state and to save the US$ as the world currency-but for the time being we have to do with what we have. Here are Four Big ones:

[1] The West is outcompeted.  For some time we have had the USA, its empire and the West in general declining, and the Rest, China in particular, emerging–BRICS being a formula spanning four continents.  We have also seen states (except the biggest) declining, with local communities and nations emerging from below, and regionalization and globalization, particularly for the finance economy, from above.  What happens in Europe is within that general context.  Less pie expansion, less sharing.  Closing North to industrial and agricultural exports from the South boomerangs; they trade South-South, lifting each other.

[2] Four of five GIPSI –G(Greece)-I(Italy)-P(Portugal)-S(Spain)-I(Ireland)– were funded as poor EC-EU countries (not Italy).  They received considerable grants for infrastructure and did much good.  But cash was flowing and produced waste, corruption, top-heaviness and craving for more.  As so often happens, development assistance created dependency and massive debt bondage; of municipalities on provinces, of provinces on states, and of corporations and “sovereign” states on regions; in this case on EC-EU.  Such habits freeze into structures.

[3] Very cheap huge credits available.  This private funding fitted into that context, and the rapidly increasing small script interest rates were easily disregarded.  The credit could be used for the largest expense in the life of most households: the house itself, to builders and dwellers alike, with well known consequences.

[4] On top: speculation-betting on toxic credit swap “assets”.

We might see [3] as a desperate remedy by the West (EU-USA) for [1]; [4] as a desperate remedy for [3]; and [2] as a structure used as remedy for [3] and [4] extending even more credit.  Debt bondage pits Germany against GIPSI in a deadly embrace as the Nazi-German past is invoked by Greece (less available for IPS with their fascist past).

The prognosis is dim.  Debt bondage is no cure for itself, nor is more dependency; even if some may be needed.  A better cure for debt bondage is debt forgiveness–practiced by World Bank-IMF for the Third World–and now increasingly by Germany in EU–also because there is no money available anyhow.  Conditions will be softened, forgiveness is on the horizon.  And the banks continue like before, recapitalized?  Is the State bought by Capital, unable to regulate [3] and [4] deeply?  Labeling protests as unpatriotic-communist, like during the Cold War?

We are left with Civil Society: kinship, NGOs, local communities. The first two are non-productive; much better is local self-reliance, re-starting the economy from the bottom up, not top-down.  Four Big:

[1] Unemployed youth reviving the countryside with aging, lonely farmers with cooperatives and self-employment–not non-existing jobs–producing healthy food for themselves and direct sales to consumers;

[2] Local municipal banks, for local saving, for local investment, helping cooperatives and the self-employed; but not with credit beyond 50 percent of their capital–adding time banking–exchanging one hour service for one hour, keeping records–possibly adding and local currencies;

[3] Cooperatives and communities cooperating in oceanic circles (Gandhi) crossing GIPSI borders–GIPS are neighbors so do not forget Ireland–specializing, lifting each other up by their own bootstraps.

[4] GIPSI countries cooperating, systematically trading and exchanging with each other, copying South-South trade in Europe.

Much quicker than trickling down from the top would be recreating the EU with a culture of solidarity and sharing, not with bondage and begging.

So much for the general picture.  A US journalist, Michael Lewis, has written a brilliant book Boomerang: Travels in the New Third World (New York-London: Norton, 2011).  His chapters cover USA, Iceland, Greece, Ireland, Germany and the USA again; looking for the deep structure-culture underlying the madness.  His method is interviews with key actors and deep knowledge of the societies.  Get the book, read, learn!  Queen Elizabeth, with robes on, exposed London School of Economics’ economists without simply asking why they had not predicted what happened.  Much time was needed for a bland answer, confessing that they had not understood that the whole system was at stake (like when US pension money was invested in ever more risky assets: in 1980 23% in the stock market, in 2008 fully 60%?).  Precisely, and “whole system” includes means more than narrow economism.  Four Big Lewis points:

The Icelandic penchant for risk-taking in deep ocean fishing, capital and lives at stake, potential profit huge.  Very hard work though; speculation in a nice office being indeed more comfortable and modern in addition meets the deep risk-taking structure-culture bill.

The Germans held on to their own: they lost the beloved German marks, but the leaders promised that they would never bail out others.

The material on Greek extravagances, doctoring information and right out cheating is so abundant that the reader wonders how EU can defend Greek membership, let alone the bailout efforts.  No working national land registry made speculation on land easy, and so on.

And Lewis brings in the gender factor in risk-taking, quoting the Barber-Odean 2001 study “Boys will be Boys: Gender, Overconfidence and Common Stock Investment”, MIT Quarterly Journal of Mathematics, based on the trading activity in over 35,000 households.  Men had a false faith in their own financial judgments, trading less sensibly than women, single men being worst.  More financial power to married women!

Much, not all, is Wall Street.  Much to learn.  Are we ready?


 Johan Galtung, a professor of peace studies, dr hc mult, is rector of the TRANSCEND Peace University-TPU. He is author of over 150 books on peace and related issues, including ‘50 Years-100 Peace and Conflict Perspectives,’ published by the TRANSCEND University Press-TUP.

Editorials and articles originated on TMS may be freely reprinted, disseminated, translated and used as background material, provided an acknowledgment and link to the source, TRANSCEND Media Service-TMS, is included. Thank you.


This article originally appeared on Transcend Media Service (TMS) on 29 Oct 2012.

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5 Responses to “The European Finance Crisis: Germany/GIPSI”

  1. Said Ezz says:

    As long as governments are paying attention to collect savings only from small entrepreneurs , leaving big businessmen and investors away and untouchables (on the way of the famous Hernando de Sosto), we will have increased gaps between different society classes which will result in the collapse of the economies of these countries.
    Also intra-state trade exchange and projects between these countries are very important to reach self-reliance,in other words,looking inside for help, rather than seeking it from outside.

  2. kobe-jin says:

    excellent piece.
    clear diagnosis.
    suggested remedies need organized expression in debtor countries.

  3. […] Press-TUP. Galtung’s editorial was first published by TRANSCEND Media Service. Go to Original.  Click here to download this article as a PDF file or print […]

  4. satoshi says:

    Prof. Galtung’s argument above is concise and clear. And I agree with him. Nonetheless, it is a set of “sad” (but not necessarily pessimistic; at the same time, however, far from optimistic) diagnoses, not because of Prof. Galtung’s view point but because of the current serious economic situation of the EU countries.

    Is the current economic recession of the EU countries just a temporary phenomenon? I do not think so, although it is a matter of interpretation of the issue to a certain extent. The EU countries (and overall, Western countries in general) will revive somehow but they will tread the path of the their gradual decline in the long run. But, needless to say, that view is not my invention.

    History teaches the pattern of the rise, prosperity, decline and fall of civilizations. Almost any civilization in the past had followed that pattern in one way or another. How about the Western civilization?

    It is said that one of the main reasons why Arnold Toynbee decided to write “A Study of History” was that he understood that the Western civilization would also decline as other civilizations did in the past. He noticed it when the the rule of the colonies by the British Empire was in its prime time during the early 1930s. It seems that at last, we, common people, have begun to understand what Toynbee understood some 80 years ago; the “sign of the beginning” of the decline and fall of the Western civilization. But know the difference: What Toynbee saw was the “sign”. What we encounter nowadays is the “beginning”. But it seems that most Westerners do not (want to) recognize it. They want to believe that, even after the full moon, the full moon will continue to be even much fuller. (Peoples in any civilizations in the past also believed so.)

    Meanwhile, the decline and fall of the Western civilization appear in the form of the decline of the economic power of what might be called the “Western Empire”. (Please also note the growth rate between the population of Christianity and that of Islam, of Buddhism and of Hinduism. As already well-known, the population growth rate of Islam, among others, is remarkable. Also note the population growth rate of Islam “in Western countries”. The population growth of a religion and their economic power are some of indispensable conditions for the prosperity of a civilization.)

    The current economic problems of the EU countries provide us with a good opportunity to think not only about the serious economic issues in front of us but also about the rise and fall of a civilization. Perhaps, the current problems imply that it is also necessary for us to review those economic problems from a broader historical perspective. Then, we might be able to learn precious lessons from history. Would Prof. Galtung write a book, entitled something like, “The Fall of the Western Empire”?

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