Austerity Fantasy Team

At the heart of Europe’s institutional and legal architecture lies an insistence on fiscal discipline — the neoliberal dogma that state spending can’t exceed tax revenues. When the global banking system collapsed in 2008 and triggered Europe’s sovereign debt crisis, the European political establishment rushed to save the banks. In the perverse logic of the deficit hawks, the huge mobilization of public funds that this required necessitated cuts elsewhere.

Austerity became a tool to invoice the poor for the failures of the rich.

In the case of Europe’s peripheral economies, who were particularly hit by the crisis, the troika — a coalition of the IMF, the ECB, and the Commission — began to dole out bailout packages.

The bailouts resembled the World Bank and IMF’s structural adjustment programs: schemes for the large-scale upwards transfer of wealth that masquerade as financial support packages. This is how they work: At the peak of a country’s economic crisis, the IMF or World Bank swoops in and offers a loan — either to fund the government directly or to support the servicing of its private debts.

These loans are usually conditional on the implementation of neoliberal market reforms — a legacy of attempts to slow the expansion of socialism during the Cold War. When the debtor country fails to repay its loans, the IMF or World Bank forces it into making further reforms: privatizations, pensions cuts, decreases in public wages, and deep cuts in social services.

This not only cripples national economies — a fact that the IMF itself recognized in 2016, when its researchers admitted that austerity magnifies inequality and threatens a country’s future economic prospects. (The anthropologist Jason Hickel put it more bluntly, calling the structural adjustment programs the “greatest single cause of poverty since colonialism.”)

It also undermines democracy. The IMF, in times of crisis, effectively becomes a surrogate finance ministry, forcing governments to impose crippling economic sanctions on their own citizens. The economic crisis then becomes a crisis of democratic legitimation.

So it was in Greece. The debt-ridden country was never helped out of its predicament. Instead, the troika coerced it into financing the bailouts of French and German banks by impoverishing its citizens. The agreement it signed with the Eurogroup was a Thatcherite wet dream: it required Greece to raise taxes on workers, reduce pensions, bust the unions, and — under the supervision of EU institutions — privatize state assets. It was given a few weeks to bring about the reforms.

Lagarde glibly suggested that it was “payback time” for the profligate, tax-dodging Greeks.

Mario Draghi, then the governor of the Bank of Italy, brought this model to his homeland. In 2011, at the height of the sovereign debt crisis, he and then-ECB president Jean-Claude Trichet sent a secret letter to Italian prime minister Silvio Berlusconi demanding deep political reforms — “liberalized” labor conditions, mass privatization of state services, wage cuts for public service employees, and higher taxes and pension reforms — in exchange for a bailout. It has been suggested that this was part of a ploy to force Berlusconi out of office.

Jeroen Dijsselbloem, as temporary chair of the Eurogroup, became the main enforcer of Europe’s fiscal hawkery. He was instrumental in forcing Greece, Portugal, and Cyprus to adopt cuts in exchange for bailout packages, all while working to turn the Netherlands into a tax haven in his role as Dutch finance minister. In 2017, he said that the crisis-hit countries had been wasting money on “drinks and women.”

More remarkably, austerity was also implemented voluntarily — with no clandestine prodding from Europe’s economic elites. George Osborne, increasing cuts already made under New Labour, is widely credited as the architect of austerity in the United Kingdom — a policy that even his Tory successor Philip Hammond admitted was driven by politics rather than economic necessity. In the United Kingdom, the deep cuts to state services ushered in Dickensian levels of deprivation across the country.

All across the continent, the aggregate effects of these policies are hard to exaggerate. Homelessness is on the rise; the share of workers living in poverty is increasing; social services — a key buffer against inequality — are in decline; one in ten Europeans can’t afford to heat their home and 118 million are at risk of poverty or social exclusion.

And in the systemic convulsions of this zombie economy — sustained through unprecedented public interventions that have favored the rich — a reactionary right is feeding on the anxiety.

The Logic of Extraction

In a 2007 paper, Neoliberalism as Creative Destruction, the theorist David Harvey described the logic of globalized capitalism as a one-sided class struggle: of the rich against the poor. “If the main achievements of neoliberalism have been redistributive rather than generative,” he wrote, “then ways had to be found to transfer assets and redistribute wealth and income from the mass of the population towards the upper classes or from vulnerable to richer countries.”

Harvey, of course, was right. His four building blocks of the global neoliberal class war — privatization, financialization, the management and manipulation of crises, and an upward redistribution of public assets — are unfolding before our eyes. The IMF, ECB, and World Bank are the global logistic chains of neoliberal dispossession. And Lagarde, Dijsselbloem, Osborne, and Draghi are among the system’s chief enforcers.

The power structure of financialized capitalism, then, is maintained through the reproduction of their roles — and the exclusion of others from them through constructed notions of “professionalism” and “expertise.”

Our political economy operates under the implicit assumption that the economic sphere is too technical — too boring — to be subject to any degree of democratic accountability. So economic decisions fall into the hands of technocrats: people with decades of experience — whether at Goldman Sachs or government ministries — who collude to develop increasingly byzantine rules for difficult things like pricing market risk, boosting “competitiveness,” and sustaining economic growth.

As systemic complexity grows — and, with it, the technocrats’ power — the space for democratic accountability shrinks. Only those with the most impressive resumes, or deepest connections across politics and business, can seek out top jobs and influence economic policy outcomes.

But technocratic expertise also signals something more than competency. Decades of tinkering at the margins of the economic system are a marker of ideological fidelity. You’re unlikely to want to upend the system if you’ve spent fifteen tedious years structuring derivatives — earning yourself access to the moneyed in the process.

At a certain level, Lagarde is a terrible choice for the ECB. She’s not an economist, but a lawyer-turned-politician. She served in the center-right cabinets of both Jacques Chirac and Nicolas Sarkozy. And she’s a felon: In 2016, she was convicted of negligence in a fraud case involving a €403 million payment to a friend of Sarkozy’s — a guilty verdict that came with no penalty.

But, like Dijsselbloem, Osborne, and Draghi, Lagarde is a career neoliberal: a tried-and-tested agent for the systems of capitalist extraction. In that sense, she is an obvious choice for a political center whose power is waning and whose economic system — still undergoing fits and convulsions a decade after it was discredited — is under threat. Fraud comes with the territory.

To pull us out of our global crises of inequality and climate breakdown, institutions like the IMF, World Bank, and ECB must abandon their commitments to austerity politics, challenge the extractive tendencies of international finance, and breathe fresh life into public institutions.

But the decision to shift to a new politics demands radicalism. And radicalism, in turn, demands a democratic challenge to the hegemony of technocrats.

Maybe that’s why technocrats can’t stand radicals. Just recall the paroxysms of Dijsselbloem who — forced to negotiate the Greek bailout with Syriza and finance minister Yanis Varoufakis — was confronted with a politics that was everything he could not be: fresh, forward-looking, socialist, radical. What they offered was possibility — but exactly the kind of possibility our rulers will not allow.

A radical approach would challenge the sanctity of a system on which entire lives — and careers — are predicated. The lawyers, investment bankers, management consultants, and their political fellow travelers whose careers are symbiotically tied to a failing status quo. The revolving door through which they walk is a hard barrier against change: for the technocrats, democracy itself comes second to the fear that they will become obsolete.