Eurozone
The Making of the Modern “Debt State”
The Making of the Modern “Debt State”: What We Know (and Don’t Know) About Ownership of the Public Debt
In a previous contribution to SPERI Comment, I presented some of my research on the domestic ownership structure of the US federal debt. The findings showed that since the early 1980s, and especially since the onset of the global financial crisis, federal bonds have become heavily concentrated in the hands of the top one percent of US households and the largest US financial corporations.
Since that piece was originally posted, I have been working on a book out in the middle of this year entitled Public Debt, Inequality and Power: The Making of a Modern Debt State that examines the causes and the consequences of concentration in ownership of the federal debt. My efforts have been guided by the conceptual framework that Wolfgang Streeck develops in his book Buying Time: The Delayed Crisis of Democratic Capitalism.
Let’s begin with the causes of increased concentration in ownership of the federal debt. In Buying Time, Streeck traces a shift in the advanced capitalist countries from a tax state to a debt state. Under the postwar tax state, gradual increases in government expenditures were matched by tax revenues, resulting in low levels of public indebtedness. With the emergence of the debt state since the 1970s onward, government expenditures continued to grow, while tax revenues stagnated, resulting in escalating levels of public indebtedness.
Streeck argues that tax stagnation is the main driver of the debt state. Gradually increasing government expenditures are simply a function of capitalist development. As the commodifying logic of the market expands and deepens, the state must increase its spending on infrastructure, policing and social protection. Tax stagnation is, however, a more overtly political process, stemming from a highly organised tax revolt on the part of elites.
Thus tax stagnation also implies declining tax progressivity because wealthy households and large corporations are paying less tax as a percentage of their total income. Due to changes in the tax system, elites have more money to invest in the growing stock of government bonds, which, thanks to their “risk free” status, become particularly attractive during crises. In essence, governments come to rely on borrowing from elites instead of taxing them. And in choosing to furnish elites with “risk free” assets rather than tax their incomes, the debt state reinforces existing patterns of inequality. The logical sequence of Streeck’s schema is illustrated in Figure 1.
So increasing concentration in ownership of the public debt is driven primarily by changes in the tax system. And as my book shows, the US experience corresponds remarkably well to Streeck’s schema. Since the 1970s the federal debt has been growing due to the trio of gradually increasing federal expenditures, stagnating federal tax revenues and declining federal tax progressivity. With declining tax progressivity, elites in the US are taking a greater share of national income, and investing part of that income in a growing federal debt.
What about the consequences of concentration in ownership of the federal debt? Streeck claims that the debt state is harmful to democracy. Under the tax state, governments were accountable mostly to their citizenry or Staatsvolk, which demanded the rights of citizenship in exchange for loyalty. Under the debt state, however, citizens have to compete with government bondholders, or Marktvolk, which demand that the government service its debts in exchange for market confidence.
To explore these claims in the US context, I conducted a simple content analysis, counting the frequency with which the terms that Streeck identifies with the interests of the Marktvolk (e.g. international, investors, interest rates, confidence) and the Staatsvolk (e.g. national, public opinion, citizens, loyalty) appear in the federal government documents. The analysis does show that, as concentration in ownership of the federal debt increases, references to the interests of the Marktvolk increase relative to those of the Staatsvolk.
This exercise does not prove that concentration gives owners of the federal debt power over government. But what it does suggest is that inequality in ownership of the federal debt and inequality in political representation go hand in hand. My research suggests that the US debt state not only reinforces inequality, but that it also contributes to the erosion of democracy.
Streeck is a comparativist. He sees the debt state as a common feature of advanced capitalism. And a cross-national analysis exploring the similarities and differences of debt states would help us to better assess the explanatory power of Streeck’s framework. Comparative research is particularly needed for the Eurozone, where a debt crisis in its periphery has brought political immediacy to the issue of public indebtedness.
As a monetarily sovereign entity (i.e. one that issues debt in a currency it fully controls), the US federal government does not need to issue debt, and the fact that it kowtows to its creditors is purely ideological. Yet members of the Eurozone ceded their monetary sovereignty to the European Central Bank and this means that they are completely reliant on private markets to finance their deficits
The institutional set-up of the Eurozone imposes a structural constraint on governments, one that empowers owners of the public debt (Streeck’s Marktvolk). As a result, it is particularly important to uncover who the Marktvolk in the Eurozone actually are.
But here’s the rub. As I point out in a new working paper, comprehensive data on ownership of the public debt outside of the US do not appear to exist. For example, in 2014 a citizens’ audit deemed 60 percent of the French public debt “illegitimate” because indebtedness was driven by tax cuts for elites and because rising interest rates had unnecessarily increased government borrowing costs to the benefit of wealthy bondholders. In the end, however, the audit was forced to admit that its findings were largely speculative because reliable records on ownership of the public debt were unavailable. Reflecting on the audit in the English press, one commentator went so far as to declare the “legally organised ignorance” of the identity of owners of the public debt stands as “one of the world’s best kept secrets”.
To bring about progressive change, we need accurate data on the winners and losers of contemporary capitalism. Unfortunately, a lack of transparency in our data only serves to conceal, and therefore reinforce, the power of those that have gained the most from the debt state.
Note: A modified version of this piece is set to appear on SPERI Comment.
Democracy in Europe Movement 2025 (DiEM25)
Motto: The EU will be democratised. Or it will disintegrate
Mission: TO DEMOCRATISE EUROPE!
A manifesto for democratising Europe
For all their concerns with global competitiveness, migration and terrorism, only one prospect truly terrifies the Powers of Europe: Democracy! They speak in democracy’s name but only to deny, exorcise and suppress it in practice. They seek to co-opt, evade, corrupt, mystify, usurp and manipulate democracy in order to break its energy and arrest its possibilities.
For rule by Europe’s peoples, government by the demos, is the shared nightmare of:
- The Brussels bureaucracy (and its more than 10,000 lobbyists)
- Its hit-squad inspectorates and the Troika they formed together with unelected ‘technocrats’ from other international and European institutions
- The powerful Eurogroup that has no standing in law or treaty
- Bailed out bankers, fund managers and resurgent oligarchies perpetually contemptuous of the multitudes and their organised expression
- Political parties appealing to liberalism, democracy, freedom and solidarity to betray their most basic principles when in government
- Governments that fuel cruel inequality by implementing self-defeating austerity
- Media moguls who have turned fear-mongering into an art form, and a magnificent source of power and profit
- Corporations in cahoots with secretive public agencies investing in the same fear to promote secrecy and a culture of surveillance that bend public opinion to their will.
The European Union was an exceptional achievement, bringing together in peace European peoples speaking different languages, submersed in different cultures, proving that it was possible to create a shared framework of human rights across a continent that was, not long ago, home to murderous chauvinism, racism and barbarity. The European Union could have been the proverbial Beacon on the Hill, showing the world how peace and solidarity may be snatched from the jaws of centuries-long conflict and bigotry.
Alas, today, a common bureaucracy and a common currency divide European peoples that were beginning to unite despite our different languages and cultures. A confederacy of myopic politicians, economically naïve officials and financially incompetent ‘experts’ submit slavishly to the edicts of financial and industrial conglomerates, alienating Europeans and stirring up a dangerous anti-European backlash. Proud peoples are being turned against each other. Nationalism, extremism and racism are being re-awakened.
At the heart of our disintegrating EU there lies a guilty deceit: A highly political, top-down, opaque decision-making process is presented as ‘apolitical’, ‘technical’, ‘procedural’ and ‘neutral’. Its purpose is to prevent Europeans from exercising democratic control over their money, finance, working conditions and environment. The price of this deceit is not merely the end of democracy but also poor economic policies:
- The Eurozone economies are being marched off the cliff of competitive austerity, resulting in permanent recession in the weaker countries and low investment in the core countries
- EU member-states outside the Eurozone are alienated, seeking inspiration and partners in suspect quarters where they are most likely to be greeted with opaque, coercive free trade deals that undermine their sovereignty.
- Unprecedented inequality, declining hope and misanthropy flourish throughout Europe
Two dreadful options dominate:
- Retreat into the cocoon of our nation-states
- Or surrender to the Brussels democracy-free zone
There must be another course. And there is!
It is the one official ‘Europe’ resists with every sinew of its authoritarian mind-set: A surge of democracy!
Our movement, DiEM25, seeks to call forth just such a surge. One simple, radical idea is the motivating force behind DiEM25:
Democratise Europe! For the EU will either be democratised or it will disintegrate!
Our goal to democratise Europe is realistic. It is no more utopian than the initial construction of the European Union was. Indeed, it is less utopian than the attempt to keep alive the current, anti-democratic, fragmenting European Union.
Our goal to democratise Europe is terribly urgent, for without a swift start it may be impossible to chisel away at the institutionalised resistance in good time, before Europe goes past the point of no return. We give it a decade, by 2025.
If we fail to democratise Europe within, at most, a decade; if Europe’s autocratic powers succeed in stifling democratisation, then the EU will crumble under its hubris, it will splinter, and its fall will cause untold hardship everywhere – not just in Europe.
WHY IS EUROPE LOSING ITS INTEGRITY AND ITS SOUL?
In the post-war decades during which the EU was initially constructed, national cultures were revitalised in a spirit of internationalism, disappearing borders, shared prosperity and raised standards that brought Europeans together. But, the serpent’s egg was at the heart of the integration process.
From an economic viewpoint, the EU began life as a cartel of heavy industry (later co-opting farm owners) determined to fix prices and to re-distribute oligopoly profits through its Brussels bureaucracy. The emergent cartel, and its Brussels-based administrators, feared the demos and despised the idea of government-by-the-people.
Patiently and methodically, a process of de-politicising decision-making was put in place, the result being a draining but relentless drive toward taking-the-demos-out-of-democracy and cloaking all policy-making in a pervasive pseudo-technocratic fatalism. National politicians were rewarded handsomely for their acquiescence to turning the Commission, the Council, the Ecofin, the Eurogroup and the ECB, into politics-free zones. Anyone opposing this process of de-politicisation was labelled ‘un-European’ and treated as a jarring dissonance.
Thus the deceit at the EU’s heart was born, yielding an institutional commitment to policies that generate depressing economic data and avoidable hardship. Meanwhile, simple principles that a more confident Europe once understood, have now been abandoned:
- Rules should exist to serve Europeans, not the other way round
- Currencies should be instruments, not ends-in-themselves
- A single market is consistent with democracy only if it features common defences of the weaker Europeans, and of the environment, that are democratically chosen and built
- Democracy cannot be a luxury afforded to creditors while refused to debtors
- Democracy is essential for limiting capitalism’s worst, self-destructive drives and opening up a window onto new vistas of social harmony and sustainable development
In response to the inevitable failure of Europe’s cartelised social economy to rebound from the post-2008 Great Recession, the EU’s institutions that caused this failure have been resorting to escalating authoritarianism. The more they asphyxiate democracy, the less legitimate their political authority becomes, the stronger the forces of economic recession, and the greater their need for further authoritarianism. Thus the enemies of democracy gather renewed power while losing legitimacy and confining hope and prosperity to the very few (who may only enjoy it behind the gates and the fences needed to shield them from the rest of society).
This is the unseen process by which Europe’s crisis is turning our peoples inwards, against each other, amplifying pre-existing jingoism, xenophobia. The privatisation of anxiety, the fear of the ‘other’, the nationalisation of ambition, and the re-nationalisation of policy threaten a toxic disintegration of common interests from which Europe can only suffer. Europe’s pitiful reaction to its banking and debt crises, to the refugee crisis, to the need for a coherent foreign, migration and anti-terrorism policy, are all examples of what happens when solidarity loses its meaning:
- The injury to Europe’s integrity caused by the crushing of the Athens Spring, and by the subsequent imposition of an economic ‘reform’ program that was designed to fail
- The customary assumption that, whenever a state budget must be bolstered or a bank bailed out, society’s weakest must pay for the sins of the wealthiest rentiers
- The constant drive to commodify labour and drive democracy out of the workplace
- The scandalous ‘not in our backyard’ attitude of most EU member-states to the refugees landing on Europe’s shores, illustrating how a broken European governance model yields ethical decline and political paralysis, as well as evidence that xenophobia towards non-Europeans follows the demise of intra-European solidarity
- The comical phrase we end up with when we put together the three words ‘European’, ‘foreign’ and ‘policy’
- The ease with which European governments decided after the awful Paris attacks that the solution lies in re-erecting borders, when most of the attackers were EU citizens – yet another sign of the moral panic engulfing a European Union unable to unite Europeans to forge common responses to common problems.
What must be done? Our horizon
Realism demands that we work toward reaching milestones within a realistic timeframe. This is why DiEM25 will aim for four breakthroughs at regular intervals in order to bring about a fully democratic, functional Europe by 2025.
Now, today, Europeans are feeling let down by EU institutions everywhere. From Helsinki to Lisbon, from Dublin to Crete, from Leipzig to Aberdeen. Europeans sense that a stark choice is approaching fast. The choice between authentic democracy and insidious disintegration. We must resolve to unite to ensure that Europe makes the obvious choice: Authentic democracy!
When asked what we want, and when we want it, we reply: IMMEDIATELY: Full transparency in decision-making.
- EU Council, Ecofin, FTT and Eurogroup Meetings to be live-streamed
- Minutes of European Central Bank governing council meetings to be published a few weeks after the meetings have taken place
- All documents pertinent to crucial negotiations (e.g. trade-TTIP, ‘bailout’ loans, Britain’s status) affecting every facet of European citizens’ future to be uploaded on the web
- A compulsory register for lobbyists that includes their clients’ names, their remuneration, and a record of meetings with officials (both elected and unelected)
WITHIN TWELVE MONTHS: Address the on-going economic crisis utilising existing institutions and within existing EU Treaties
Europe’s immediate crisis is unfolding simultaneously in five realms:
- Public debt
- Banking
- Inadequate Investment, and
- Migration
- Rising Poverty
All five realms are currently left in the hands of national governments powerless to act upon them. DiEM25 will present detailed policy proposals to Europeanise all five while limiting Brussels’ discretionary powers and returning power to national Parliaments, to regional councils, to city halls and to communities. The proposed policies will be aimed at re-deploying existing institutions (through a creative re-interpretation of existing treaties and charters) in order to stabilise the crises of public debt, banking, inadequate investment, and rising poverty.
WITHIN TWO YEARS: Constitutional Assembly
The people of Europe have a right to consider the union’s future and a duty to transform Europe (by 2025) into a full-fledged democracy with a sovereign Parliament respecting national self-determination and sharing power with national Parliaments, regional assemblies and municipal councils.
To do this, an Assembly of their representatives must be convened. DiEM25 will promote a Constitutional Assembly consisting of representatives elected on trans-national tickets. Today, when universities apply to Brussels for research funding, they must form alliances across nations. Similarly, election to the Constitutional Assembly should require tickets featuring candidates from a majority of European countries. The resulting Constitutional Assembly will be empowered to decide on a future democratic constitution that will replace all existing European Treaties within a decade.
BY 2025: Enactment of the decisions of the Constitutional Assembly
Who will bring change?
We, the peoples of Europe, have a duty to regain control over our Europe from unaccountable ‘technocrats’, complicit politicians and shadowy institutions.
We come from every part of the continent and are united by different cultures, languages, accents, political party affiliations, ideologies, skin colours, gender identities, faiths and conceptions of the good society.
We are forming DiEM25 intent on moving from a Europe of ‘We the Governments’, and ‘We the Technocrats’, to a Europe of ‘We, the peoples of Europe’.
Our four principles:
- No European people can be free as long as another’s democracy is violated
- No European people can live in dignity as long as another is denied it
- No European people can hope for prosperity if another is pushed into permanent insolvency and depression
- No European people can grow without basic goods for its weakest citizens, human development, ecological balance and a determination to become fossil-fuel free in a world that changes its ways – not the planet’s climate
We join in a magnificent tradition of fellow Europeans who have struggled for centuries against the ‘wisdom’ that democracy is a luxury and that the weak must suffer what they must.
With our hearts, minds and wills dedicated to these commitments, and determined to make a difference, we declare that.
Our pledge
We call on our fellow Europeans to join us forthwith to create the European movement which we call DiEM25.
- To fight together, against a European establishment deeply contemptuous of democracy, to democratise the European Union
- To end the reduction of all political relations into relations of power masquerading as merely technical decisions
- To subject the EU’s bureaucracy to the will of sovereign European peoples
- To dismantle the habitual domination of corporate power over the will of citizens
- To re-politicise the rules that govern our single market and common currency
We consider the model of national parties which form flimsy alliances at the level of the European Parliament to be obsolete. While the fight for democracy-from below (at the local, regional or national levels) is necessary, it is nevertheless insufficient if it is conducted without an internationalist strategy toward a pan-European coalition for democratising Europe. European democrats must come together first, forge a common agenda, and then find ways of connecting it with local communities and at the regional and national level.
Our overarching aim to democratise the European Union is intertwined with an ambition to promote self-government (economic, political and social) at the local, municipal, regional and national levels; to throw open the corridors of power to the public; to embrace social and civic movements; and to emancipate all levels of government from bureaucratic and corporate power.
We are inspired by a Europe of Reason, Liberty, Tolerance and Imagination made possible by comprehensive Transparency, real Solidarity and authentic Democracy.
We aspire to:
- A Democratic Europe in which all political authority stems from Europe’s sovereign peoples
- A Transparent Europe where all decision-making takes place under the citizens’ scrutiny
- A United Europe whose citizens have as much in common across nations as within them
- A Realistic Europe that sets itself the task of radical, yet achievable, democratic reforms
- A Decentralised Europe that uses central power to maximise democracy in workplaces, towns, cities, regions and states
- A Pluralist Europe of regions, ethnicities, faiths, nations, languages and cultures
- An Egalitarian Europe that celebrates difference and ends discrimination based on gender, skin colour, social class or sexual orientation
- A Cultured Europe that harnesses its people’s cultural diversity and promotes not only its invaluable heritage but also the work of Europe’s dissident artists, musicians, writers and poets
- A Social Europe that recognises that liberty necessitates not only freedom from interference but also the basic goods that render one free from need and exploitation
- A Productive Europe that directs investment into a shared, green prosperity
- A Sustainable Europe that lives within the planet’s means, minimising its environmental impact, and leaving as much fossil fuel in the earth
- An Ecological Europe engaged in genuine world-wide green transition
- A Creative Europe that releases the innovative powers of its citizens’ imagination
- A Technological Europe pressing new technologies in the service of solidarity
- A Historically-minded Europe that seeks a bright future without hiding from its past
- An Internationalist Europe that treats non-Europeans as ends-in-themselves
- A Peaceful Europe de-escalating tensions in its East and in the Mediterranean, acting as a bulwark against the sirens of militarism and expansionism
- An Open Europe that is alive to ideas, people and inspiration from all over the world, recognising fences and borders as signs of weakness spreading insecurity in the name of security
- A Liberated Europe where privilege, prejudice, deprivation and the threat of violence wither, allowing Europeans to be born into fewer stereotypical roles, to enjoy even chances to develop their potential, and to be free to choose more of their partners in life, work and society.
Carpe DiEM25
