Economics is a branch of politics, the European crisis

Index

1.       Extract

2.       A partial vision of the economy

3.       Effects of the austerity in Europe

4.       The Greek case

5.       Money is only an instrument of payment

6.       Conclusions

1.       Extract

The founders of economics always recognized that economy was a branch of politics. Therefore, Antoine Montchrétien, William Petty, Antonio Genovesi, Adam Smith, Thomas Robert Malthus, Jean Baptiste Say, David Ricardo, John Stuart Mill and Karl Marx created the concept of political economy.

The modern economists separated economy of politics and became economy in a mathematical discipline; they abandoned the macroeconomic vision and concentrated its work in the micro economy, the small parts, forgetting the whole. That is one of the causes of the economic crises which affected the world during the 20^th century and currently, because governments, entrepreneurs and economists put their attention in the benefit of the public treasure, the people and the enterprises, it mean, in the financial benefits as main objective of the economy. This fact became the economy in an activity whose principal purpose is the profit, the accumulation of capital, placing the social benefit in the background. The economic liberalism and now the neo liberalism have been used to justify the concentration of wealth in some nations and in privileged social groups of those nations. This phenomenon may be appreciated in the developing capitalist countries and also in the most advanced capitalist nations like the United States, where exist millions of poor people. The other ideology that has dominated the world, the communism, neither resolved the problems of poverty and concentration of wealth. On the contrary, in the communist nations all the population is poor; the exception is the communist leaders and the communist rulers which appropriate the social wealth for its own personal benefit. So that, until now, neither capitalism nor communism has not attended the poverty and its antithesis: the concentration of wealth in few hands. Therefore, it is necessary the creation of a new economic balanced model, without ideological prejudices to attend the problem of poverty, the wealth distribution and the preservation of nature and the environment.

2. A partial vision of the economy

The global vision of the society is disturbed when the social phenomena’s is analyzed since a partial optic, strictly technical or only for the benefit of groups or nations. A technical idea is, for example, the balance between income and spending. This is logic and a true idea but it is not applicable in all the circumstances. Certainly, a people or an enterprise should maintain a balance between its income and spending but the governments no. The first big difference between a people, an enterprise and a government is that the government has sovereign capacity to issue money while the particular people no. This fact gives to the governments the financial autonomy that the particulars do not have.

The argument on the balance between income and spending has been employed by the European Central Bank, the International Monetary Fund and the governments of Germany and France to impose the austerity policy to Europe in the last years. That policy has provoked an intense crisis; Iceland, Greece, Portugal, Spain and Italy have been the principal victims.

3. Effects of the austerity in Europe

Six European nations decided to create the European Union in the year 1957; the organization grew and currently is integrated by 27 countries. The euro, the common currency, was issued in January 2002 and it circulates in 17 nations. Although in appearance the Union has an economic goal, the truth is that, moreover, the union has an important political objective: to overcome the traditional differences between the European nations, which in the past led to wars and to build a new powerful political-economic bloc. That objective has been reached and today Europe is a united continent. However, some members of the Union has obtained more benefits than others; that is the case of Germany, the strongest country of the region, with a large export capacity, which has been the first beneficiary of the common market creation, because so has found a non restricted market for their exports.

Germany and France have become in the leaders of the Union and exert a big influence on their institutions, especially on the European Central Bank, a key organization that lead the monetary and financial policy in the region. This has an important projection over the global finances, because the euro is the second international currency of payment, after the United States dollar. This means that an important volume of financial and commercial transactions are realized in euro.

Germany, country that traditionally has obtained surpluses in its trade balance and in their public finances has imposed the policy of austerity to the other Europeans countries. The objective of Germany is to guarantee the payment for the German banks and enterprises and to dominate the market.

The European Union has adopted the neoliberal policy designed by the International Monetary Fund, IMF in the 80s years. The main objective of that policy is the promotion of capitalism and, especially, the benefit of the financial capitalism; for achieving those objectives the International Monetary Fund, IMF employ concrete instruments of economic policy like the reduction of the public spending, the privatization and the commercial opening. Those measures of economic policy seek to give commercial advantages to the international corporations and banks which acquire the most profitable enterprises and public services of the countries where is applied the economic program of the IMF like currently occurs in Europe.

4. The Greek case

Greece has been an example of the neoliberal policy. Greece is one of the main buyers of the German exports; it has a big debt with the banks of that country and some public services and enterprises have been bought by Germany. To guarantee the payment to Germany and other European creditors the European Central Bank and the International Monetary Fund imposed the austerity program to Greece. Like Greece cannot accept all the measures of austerity because of the reaction of the population, in some moments has been considered the retirement of this country of the Union and the come back to its national currency. So Greece would recover its sovereign capacity to issue money and attending its internal commitments. Really the European Central Bank, the International Monetary Fund, Germany and France are not interested in the retirement of Greece because they know that it would be the end of the commercial and monetary union.  Therefore they have given more money to Greece and other countries like Portugal and Spain.

If the authorities of the European Central Bank would adopt an inflexible position the situation might be different because some countries like Greece might have no other option than to withdraw from the Union. This would be the euro end. In these circumstances the question is until where the European Central Bank can satisfy the financial needs of the countries. The answer is explained in the following epigraph.

5. Money is only an instrument of payment

Money is an instrument of payment and not a wealth with intrinsic value. The European Central Bank can to issue the amount of money that the economy needs. None international institution can prohibit to the bank to issue more money. The reason is very simple: money is only metal and paper without own value; money is only paper, nothing else. But those papers should represent the monetary value of the goods and services that circulate in the economy. If it does not exists enough money in the economy the consequence is economic crisis, recession and economic paralysis.

The European leaders do a mistake by preventing the emission of more money and the application of severe restrictive monetary and financial measures. The exception is England, which keeps its monetary sovereign because maintain its own currency, the sterling pound.  Recently, the Central Bank of England issued the amount of money necessary to guarantee the development of its economy. Hence the situation in England is different to rest of Europe.

6. Conclusions

-          Economics is a branch of politics because all the economic decisions of general interest are taken by the governments; in consequence, they are political decisions.

-          When the political decisions are influenced by strict technical concepts the results are not always good because the technique not ever coincide with the interest of the society as a whole; the technical concept of balance between income and spending is an example.