The Euro crisis appears to be developing into something similar to the 1980s Latin American debt crisis when the idea that, to quote Walter Wriston, who ran First National City/ Citibank from the 1960s into the 1980s it was assumed that: “countries don’t go out of business.” The Latin American leadership demonstrated that they, in effect, could, by defaulting. As a number of bloggers on MB have pointed out, government finances are not like household finances, although they are often seen that way. That much is well understood in the financial community, although perhaps not as well in the wider public. What is not acknowledged in the financial community is the assumption implicit in Wriston’s comment: that governments can be seen like a business. It is the conflation of the two that is at the heart of the growing problems in the financial system, and it is driven mainly by political prejudice. The political right, ever since Ronald Reagan, has identified government as the “problem”. A slippery piece of rhetoric because surely it is “bad government that is the problem.” But it became a carefully crafted and heavily funded message that has eventually become ubiquitous — its reductio ad absurdum is the Tea Party movement. Business good, government bad. Ergo, government should become more like business. The centre left, especially fools like Tony Blair, enthusiastically embraced the idea that government should become more like business, ending up with current day absurdities such as seeing students in the education system as “customers” (absurd because these customers, by definition, do not know what value is, unlike normal business transactions).
That is the nonsense we now live in and it is the key to why governments have abrogated their responsibility to govern in the financial system. Financial deregulation was really the ceding of governments’ responsibility to set the rules, handing it over to traders, who set their own rules. “Greedism” as Paul Krugman puts it, took over.
So, to return to the Euro crisis, viewed through a longer lens the current instability is related to this conflation of government and business, the emergence of what Phillip Bobbitt in “The Shield of Achilles” calls the “market state”.
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