The BRICS following in Keynes’ footsteps

By the editorial team of the Makroskop journal

[This article posted on December 5, 2024 is translated from the German on the Internet, https://makroskop.eu/42-2024/die-brics-auf-den-spuren-von-keynes/.]

Dear readers

In the social sciences, it is almost considered good form to criticize the Global North for exploiting the Global South. But even without moralizing, the unequal power relations between North and South present debtor countries with major challenges:

As Indermit Gill, Chief Economist and Senior Vice President for Development Economics at the World Bank, writes in MAKROSKOP, since 2022, private foreign creditors have collected nearly $141 billion more in debt service payments from public sector borrowers in developing countries than they have disbursed in new financing.

This is a problem because the US dollar is a foreign currency for the debtor countries of the Global South, which their central banks cannot produce themselves. In order to pay off their debts, they have to export goods and services denominated in US dollars. Gill warns that debt servicing is leading to a devastating “redistribution of resources from areas that are critical for long-term growth and development, such as health and education” in many developing countries.

These global disparities are generally perceived as unjust – even in the West. But appealing to the goodwill of private lenders and calling for “debt relief” like Gill does is not very promising, given the self-interest of creditors. What is needed instead is a powerful international organization that articulates the interests of the Global South. But what form should this take? The United Nations would be the most obvious candidate – were it not for the Security Council, which allows Western states to veto such initiatives before they even get off the ground. And even if debt relief were to be approved, which authority would enforce it?

It is therefore not surprising that organizations outside the Western hegemony are forming that want to pursue alternative monetary policies beyond the US dollar. The most prominent organization is probably the BRICS countries—an alliance of Brazil, Russia, India, China, South Africa, and, since 2024, Iran, Egypt, Ethiopia, and the United Arab Emirates—which are toying with the idea of a BRICS currency.

India’s clear rejection at the recent summit in Kazan has put the project for a common currency on hold for the time being. However, the emerging economies are still challenging the dollar: a long list of proposals in the Kazan Declaration resembles a “kit” for circumventing the dollar, according to our author Ulrike Simon: “A grain exchange; BRICS Bridge, a procedure for settling trade transactions via digital central bank currencies; BRICS Pay, a payment card; or a BRICS insurance company.”

Particularly controversial is the fact that BRICS Pay also includes a mechanism reminiscent of John Maynard Keynes’ Clearing Union and his Bancor. The Bancor is a unit of account into which, according to Keynes, national currencies should be converted at a fixed exchange rate. In order to force member states to maintain a balanced trade balance, not only a country’s debts but also its assets at the clearing house would be subject to penalty interest.

The BRICS are thus following in the footsteps of the great English economist. Will they succeed in breaking the dollar’s hegemony?

+++++++++++++++++++++++++++++++++++

The old white man strikes back

By Sebastian Müller

[This article posted on November 5, 2024 is translated from the German on the Internet, https://makroskop.eu/38-2024/der-alte-weisse-mann-schlagt-zuruck/.]

Donald Trump has achieved a historic triumph with iconic images and catchy slogans. Kamala Harris’ disastrous defeat, on the other hand, is symbolic of a left-wing liberalism that has run itself into the ground.

“Will she save the world?” asked German-language media on the eve of the US elections. No, Kamala Harris wasn’t even elected.

What’s more, it was a disaster for the candidate “without substance” and a landslide victory for Donald Trump, who is the first president in history to be re-elected after being voted out of office. What a historic comeback, which was further enhanced by the Democrats losing their majority in the House of Representatives. In other words, Trump can now govern unchallenged.

The German media – especially the public broadcasters – clung stubbornly to the prediction that the strangely glorified Harris (ZDF: “Competent. Quick-witted. Not white.”) would become the first female US president, indeed must become the first female US president, right up until the bitter end. True to the motto: What cannot be, must not be. They, too, lost their election campaign, which had as much to do with neutral reporting as German public television. This makes the awakening all the more painful, even for the 72 percent of Germans who still firmly believed in a victory for the Democratic candidate in mid-October.

In any case, a victory for Harris – let’s be honest – would have been tantamount to a global political anachronism. The zeitgeist was and is long against her, against what she represents in the eyes of many: wokeness, identity politics, gender and skin color as arguments and qualification criteria, moral arrogance and conceit. People have grown weary of self-righteous hatred of old white men. Almost everywhere in the Western world, a right-wing or populist backlash can be felt, with parties that are the antithesis of the no longer hegemonic left-liberalism triumphing. The world has moved on, becoming more uncertain and multipolar. The superpower USA has overextended itself. Progressive neoliberalism, which was able to rest on the narrative of the end of history and the “blessings” of globalization for a long time, has in fact put pressure on real wages in the middle class and destroyed the promise of upward mobility in the US. Then there is the appeasement of Wall Street by the Democratic establishment since the Clinton years, which Trump’s vice president JD Vance wants to put an end to.

The Trump effect

By the editorial team of the Makroskop journal

[This article posted on January 25, 2025 is translated from the German on the Internet, https://makroskop.eu/03-2025/der-trump-effekt/.]

Dear readers

No sooner had he entered the Oval Office than Donald Trump issued a flurry of decrees designed to grab the headlines, some of which confirmed his critics’ worst fears. Some of these were particularly significant, including the withdrawal from the Paris Climate Agreement. Others remain pure grandstanding. Either way, Trump’s presidency marks a turning point on many different levels. The next four years under his leadership will significantly influence and change global climate, trade, geopolitical, and economic policy. In this issue, our authors explore how this could happen.

For Joseph Kuhn, Trump’s comeback in the White House is nothing less than a “second turning point.” With the 47th US president, American exceptionalism, which ignores international law, has broken out of its previous confines. It no longer legitimizes itself with a civilizing mission, but only with a mere will to power.

This will to power has become “alliance-cannibalistic,” according to Kuhn: the hegemonic power no longer shows any consideration for its own allies. The EU is also feeling the effects of this in trade policy. Donald Trump has declared a trade war on Europe, writes Eric Bonse in his column “Letter from Brussels.”

But the EU is reacting defensively and is counting on Trump to take on Mexico and Canada first. According to Brussels, the deadline for Europe is April 1. That is when the tariffs on steel and aluminum that Trump introduced during his first term in office will come back into force.

In view of this US protectionism and the trade war with China, some EU states, including Germany, are therefore pinning their hopes on the EU-Mercosur agreement, which is intended to open up new markets for European companies in dire straits. However, Sergio Paez believes that the Mercosur deal presents not only opportunities but also risks.

The same applies to climate policy. With the US withdrawal from the Paris Climate Agreement and US tariffs on Chinese solar and electrical technologies, the global energy transition appears to be dead in the water at first glance. However, China’s cleantech sector is not particularly vulnerable to the Trump administration’s tariffs, write Lauri Myllyvirta and Hubert Thieriot. From 2021 to 2024, 70 percent of the growth in Chinese exports of solar, wind, and electric vehicles will be attributable to emerging and developing countries. In this way, they could even accelerate the global energy transition.

Let’s turn to AI and the inner workings of the United States. The burgeoning relationship between Big Tech and the US government is reshaping the country’s future – and is likely to receive a massive boost under Donald Trump, believes Thomas Fazi. The growing power of this “technological-military complex” will not only influence the actions of the Trump administration, but also American society – and solidify the interdependence between state power and corporate interests.

+++++++++++++++++++++++++++++++++++

The (Anti)Democrats

By the editorial team of the Makroskop journal

[This article posted on January 17, 2025 is translated from the German on the Internet, https://makroskop.eu/02-2025/die-anti-demokraten/.]

Dear readers

A blasphemous question: how democratic are the self-proclaimed “democrats”? I am referring to those politicians, media professionals, culture warriors, and fact checkers who champion the defense of democracy and self-righteously divide parties into ‘democratic’ and “anti-democratic.” They morally aloof decide what can be said and voted for and what is subject to censorship. What is “illiberal,” “right-wing,” “populist,” or “fascist”—and somehow all mean the same thing.

And what is the constant talk of “tolerance” and ‘diversity’ worth when the messengers of these worn-out words – when push comes to shove – are exactly what they accuse their opponents of being: authoritarian?

When people talk about “diversity,” they can hardly mean diversity of opinion.

The same applies to the diversity of the “acceptable” political spectrum. Anyone who positions themselves outside an increasingly narrow definition of “liberal democracy” (there is no longer any talk of social or Christian democracy anyway) becomes a political pariah. What is absolutely unacceptable: sovereignty and “nationalism,” traditional values, criticism of elites, opposition to the EU and NATO.

There are only two snags: first, no constitution prohibits such a position. Second, the populist pariahs are becoming increasingly attractive to a growing number of voters.

For the “democrats,” this is an untenable situation that requires a convenient and simple explanation: the successes of right-wing parties are mainly the result of misinformation and disinformation. So democracy must be saved from itself. If necessary, by having elections annulled by the supreme court, as was recently the case in Romania, or by putting unpopular politicians out of action in court, as is currently happening in France. This “lawfare” has almost become the political norm in the EU, as Martin Höpner already noted in last year’s final issue.

This is remarkable: representatives of “illiberal democracy” such as Victor Orban are rightly accused of undermining the rule of law and constitutional government, but in so-called liberal democracy, these very same institutions are increasingly being restricted in order to keep illiberal parties – or those considered to be such – out of government.

The price is high, write Günther Laurenz and Frank Furedi. This approach further undermines the already shaken trust in democratic processes. Ironically, it is precisely this development—growing mistrust in democratic institutions and processes—that could pose a greater threat to democracy than fake news or evil populists themselves.

But you could also put it the way political scientist Philip Manow does in his book Unter Beobachtung. The supposed crisis of democracy, says Manow, is actually a crisis of a specific type: “liberal” democracy, which is being “monitored” and curbed by non-majoritarian institutions in such a way that the political process is no longer truly open. Up to 150 EU officials are said to have “monitored” the talk between Alice Weidel and Elon Musk on X alone. Any questions?

+++++++++++++++++++++++++++++++++++++++++++++++

The mysticism of financial capitalism

By the editorial team of the Makroskop journal

[This article posted on September 26, 2024 is translated from the German on the Internet, https://makroskop.eu/32-2024/die-mystik-des-finanzkapitalismus/.]

Dear readers

On the very day of the ECB’s second interest rate cut – September 18 – the Fed also announced its interest rate reversal. This was preceded by a prolonged episode of interest rate hikes by virtually all central banks worldwide. But on what grounds? Is interest rate policy really the right recipe for combating inflation?

Although, according to Jörg Bibow, the US Federal Reserve understood very well that “monetary policy is not an appropriate means of remedying supply disruptions,” it nevertheless pursued this monetary policy path. In order to curb inflation expectations among commercial banks, companies, governments, and consumers, the ECB and the Fed wanted to counter the price shocks caused by coronavirus-related disruptions in international trade and the energy crisis triggered by the war in Ukraine.

At first glance, this appeared to be successful: inflation fell worldwide and, at least in the US, the economy continued to grow uninterrupted despite interest rate hikes. However, there is a significant catch to this story: how is it possible that price increases in the US peaked in June 2022, after the Fed had raised interest rates by 0.75 percent just three months earlier? US economist James K. Galbraith sarcastically states on MAKROSKOP that Fed Chairman James Powell “waved his magic wand in 2022 and allowed his shamans to hand him the laurels for developments that were already well underway.”

Perhaps the financial world is like astrology: developments are attributed a “supposedly deeper meaning,” Dirk Bezemer states, echoing philosopher Slavoj Žižek: “Even if observations or symptoms are clear in themselves, they (so it is believed) conceal a dark and deep content that the analyst – the psychoanalyst, the soccer expert, the astrologer, and even the financial commentator – must discover.”

Apparently, the obvious explanation that these are one-off supply-side price shocks that have subsided again is not profound or mystical enough for the shamans and astrologers of the financial world.

+++++++++++++++++++++++++++++++++++++++++++

Should the welfare state only provide for those in need?

Social policy

By Hartmut Reiners

[This article posted on September 25, 2024 is translated from the German on the Internet, https://makroskop.eu/32-2024/soll-der-sozialstaat-nur-fur-die-bedurftigen-sorgen/.]

Former Caritas boss Georg Cremer is calling for social policy to return to its core tasks: supporting those in need and helping them to help themselves. His proposal fails to address the structural problems of the welfare state – and would make social security more expensive.

The former secretary general of the German Caritas Association, Georg Cremer, made a plea in the Frankfurter Allgemeine Zeitung (FAZ) on September 16, 2024, for a “social policy in times of change”—with a shift away from the welfare state and toward a “policy of empowerment.” The principle of need must be replaced by the principle of ability to pay, and the focus of social policy must be placed on helping people to help themselves. In view of climate change, infrastructure problems, and the war in Ukraine, social policy can no longer be based on the principle of spreading resources thinly: “More heated debates about priorities in legislation and the federal budget have been inevitable for more than two years.”

Now, fiscal prioritization has become necessary in light of the trivial fact that resources are finite, not just because of climate change and the war in Ukraine. The latter is also a burden on public finances, not only because of arms deliveries, but also because of basic social security for 1.6 million Ukrainian refugees registered in Germany (as of March 2024). Georg Cremer is on thin ice when he justifies cutting social benefits with the costs of supporting Ukraine.

This war is probably just an excuse to once again tell the story of the bloated welfare state and the general benefits of personal responsibility for one’s own security. Georg Cremer’s proposals do not, as he claims, amount to a more targeted distribution of resources in the welfare state, but rather to a more expensive system of social risk protection and a widening of social disparities.

Overprovision in the welfare state?

Georg Cremers criticizes the understanding of social progress as full provision for all citizens. This would allow groups of people who are not or only to a limited extent dependent on social benefits to enjoy them. This applies above all to childcare, long-term care insurance, and social pensions.

Daycare

Since 2018, the federal government has provided the states with ten billion euros to improve daycare provision. Cremer criticizes the fact that several states have used these funds to make daycare generally free of charge. This also benefits parents who can afford to pay their own contributions.

If you demand this for daycare, you should also want to introduce it in schools. Daycare centers are not social welfare benefits, but general educational institutions that must not have any barriers to access. Co-payments lead to social segregation and would undermine the education system’s mandate of social integration.

Long-term care insurance

Georg Cremer opposes the comprehensive long-term care insurance demanded by welfare organizations and care scientists. He argues that it would also benefit higher earners and act “like an inheritance protection program.” This argument has always been used to polemicize against social long-term care insurance.

However, as numerous studies show, the partial coverage principle applied in this system, with benefits that only provide limited coverage for care costs, creates strong incentives to shift care services to private households, which is primarily at the expense of women. They often leave the workforce or switch to part-time work in order to care for relatives. This reduces their pension entitlements and increases the risk of becoming dependent on basic old-age security later in life.

Another problem is the economically unjustifiable dual system of statutory and private health and long-term care insurance with a contribution assessment ceiling of €5,175 per month (2024). This means that the real contribution rate for insured persons above this limit decreases as their income rises. For example, voluntarily insured persons who earn more than €10,000 per month pay only half the contribution rate of insured persons with a salary of €3,000 or €4,000. Georg Cremer does not address this socially and economically unjustifiable reduction in the burden on higher earners.

Pension insurance

Georg Cremer rejects the increase in the pension level from 48 to 53 percent of the average income subject to insurance contributions demanded by social welfare organizations because it would also benefit “well-off pensioners.” Instead, he proposes raising the points used to calculate pension amounts for people who do not receive a sufficient pension despite long working hours.

This proposal would either lead to higher benefit expenditures while sparing higher earners thanks to the contribution assessment ceiling. Or the federal government increases its subsidies to the pension insurance system, which hits lower and middle income groups harder because half of tax revenue comes from sales and consumption taxes, thereby increasing the cost of living. This choice between two bad solutions can only be avoided with minimum wages subject to social insurance contributions, which would enable a dignified life and also ensure higher pensions for lower wage groups.

Georg Cremer does not address this link between earned income and pension financing, nor does he address the privileges enjoyed by civil servants and high earners, who either pay nothing or less than average earners into social security relative to their income. This special treatment cannot be justified on the basis of Christian social teaching.

It certainly has no economic justification. According to current calculations, health insurance contributions, for example, could be reduced by an average of more than three percentage points if all employed persons paid into the system and the contribution assessment ceiling were raised from the current €5,175 per month to the limit applicable to pension insurance, which is €7,550.

Weaknesses of the welfare state

Despite all its shortcomings, Georg Cremer considers our welfare state to be a “success story.” However, due to the challenges posed by climate change, dilapidated infrastructure, and the war in Ukraine, it is important to “renew this historical, social, and cultural heritage at the same time.”

There are three objectives: the targeted distribution of resources, the reduction of the complexity of the welfare state, and the empowerment of people to help themselves. These policy areas are themselves capable of consensus among social policymakers. The question is how they should be tackled and with what measures, bearing in mind that the first two objectives are interrelated.

Cremer refers to existing estimates according to which half of the citizens who are entitled to supplementary basic income support in old age are not reached by assistance systems. The reasons for this lie primarily in a lack of knowledge about entitlements and the shame of admitting to being in need.

This is a central deficit of our social security system. There is an urgent need for advice centers to help people navigate the jungle of social benefits and their providers, which is opaque to most of those affected. However, this would require funding that is not available in most municipalities, which are already operating at full capacity. One option would be to set up local social counseling services financed jointly by all social benefit providers, but this would also cost additional money.

The problem of ignorance about entitlement to social benefits is linked to the second deficit in our welfare state identified by Cremer: organized non-responsibility and the lack of an overall social policy plan (Cremer). Our welfare state is structured according to the principle of causality. This means that service providers are not organized according to the objective of the task (final principle), but according to the reason for the entitlement to benefits. Although the twelve social security codes contain numerous provisions on target- and needs-oriented cooperation between institutions, these are hardly effective in everyday care provision.

As long as the organizations responsible for social security have these cooperation deficits, it is pointless to demand that social policy strengthen self-help. Under the current social security structures, this paradigm leads nowhere. It is much more important not to leave citizens alone with their problems in exercising their rights and claims acquired through taxes and contributions, and to provide active social counseling that is geared toward citizens.

Subsidiarity principle or universal social insurance?

Georg Cremer sees the current problems in public finances as an opportunity “to force us to support people in taking control of their lives. That would be a perspective that can give hope even in difficult times.” He wants to limit social policy largely to helping people help themselves and supporting those who are disadvantaged and in need through no fault of their own.

Expensive privatization of social risks

The subsidiary social policy postulated by Georg Cremer amounts to a dual system of basic public security for low-income individuals and, possibly tax-privileged, private insurance against life risks for all other citizens. According to its proponents, this would have the side effect of reducing wage costs and increasing the disposable income of the insured.

This is a mistake, because shifting risk coverage from social insurance to private insurance funds does not make it cheaper, but more expensive, as I show in more detail elsewhere:

Unemployment insurance is not offered by the insurance industry at all. Labor market risks depend on conditions that cannot be calculated by actuaries in insurance premiums.
The pay-as-you-go system of the statutory pension insurance is less susceptible to crises than the capital cover system, which is dependent on the uncertainties of the international financial markets and the interests of capital investors. The latter also has high overhead costs in the form of commissions for agencies and capital funds. It also leads to undesirable external effects, for example in the form of rising prices and speculative bubbles in the real estate market, which is a preferred investment area for pension funds.
The statutory health insurance system (GKV) spends a third less than private health insurance (PKV) for the same care services. The claim that a uniform health insurance system leads to poorer care and less medical innovation is completely unfounded. As the German Council of Economic Experts once stated, the dual system of GKV and PKV has no economic justification.
In long-term care insurance, too, the private branch administered by PKV offers the same statutory benefits as social long-term care insurance. However, the cost reimbursement principle applies, which is associated with increased bureaucratic effort for insured persons and their relatives.

Shifting risk coverage from the public social budget to private insurance does not make it more cost-effective and does not reduce labor costs. Rather, it increases the cost of living, which is used as an argument in collective bargaining. The mantra propagated by business journalists and employers’ associations that privatization would reduce social security contributions, thereby lowering wage costs and strengthening the competitiveness of German companies, is akin to a child’s belief that if they cover their eyes, they will no longer be seen.

+++++++++++++++++++++++++++++++++

A two-state solution

By Gerd Grözinger

[This article posted on April 16, 2024 is translated from the German on the Internet, https://makroskop.eu/12-2024/ein-zwei-staaten-losungs-mittel/.]

Western countries have long been calling for an independent Palestinian state. So far, this has failed due to Israel’s blockade. The bloody conflict in Gaza has created a new sense of urgency. For this to succeed, the EU would have to use its economic strength.

Rarely has there been more hypocrisy surrounding a major international political issue. Western governments have been calling for a two-state solution to the Israel-Palestine conflict for what feels like an eternity. But when Israel simply refused to play ball, the response was nothing more than a friendly shrug of the shoulders. This is because almost unconditional support for the country is regarded in Germany as solemnly proclaimed “reasons of state” – a concept that is historically pre-democratic, non-justiciable and therefore completely undefined in its consequences. A similar situation can be observed with the world power USA, which sees the country as its outpost in the Middle East that must be secured under all circumstances.

The schizophrenia inherent in this is illustrated by nothing better than the events of spring 2024. Below, Israel’s army fires on the population in Gaza with American equipment, while above, US planes drop a few food parcels by parachute. For months, the Biden administration has found itself politically unable to persuade the Israeli government, which is completely dependent on it militarily and financially, to show a minimum of humanity despite clear obligations under international law to provide sufficient water, food, and medicine for the civilian population. This is also increasingly perceived as disturbing by the American public.

The German government is also failing to use its powers to intervene. Back in November 2023, it was reported that it had increased its arms exports to Israel tenfold. No conditions attached to this or to subsequent deliveries have been reported. This is despite the fact that Germany is Israel’s second most important arms supplier after the US. Instead, Germany is now participating in air and sea bridges, while Israel’s government is largely blocking the much more suitable land route for supplying the Gaza Strip. How can a future two-state solution be promoted when it is not even possible or desirable to prevent Israel’s current violations of international law?

Hoping for insight there is not very promising. This is not only due to Netanyahu’s very right-wing government, as people like to assume to reassure themselves: according to a survey, 68 percent of all Jewish Israelis believe it is right to deny the civilian population in Gaza any humanitarian aid.

Elsewhere in North America and Europe, there is greater agreement on general principles than here. The Canadian Parliament voted by an overwhelming majority to stop arms exports, and the government responsible has promised to implement this. At the request of renowned NGOs such as Oxfam, a Dutch appeals court ruled that spare parts for fighter jets may no longer be supplied to Israel because of the high probability that they would be used to support violations of humanitarian law. Ireland has joined the proceedings initiated by South Africa before the ICJ to determine and prevent Israeli violations of international law.

The EU High Representative Josep Borrell bitterly states that before the war, Gaza was the largest open-air prison, but now it is the largest open-air cemetery. Borrell also considers Israel to be politically incapable of implementing a two-state solution in the future. He therefore wants to “impose it from outside” if necessary, against Israel’s will. The prime ministers of Ireland and Spain also have an idea for implementing this. They are calling on the EU to review trade relations. This raises an interesting lever, which will be discussed below, where a possible form it could take will also be presented.

Economic relations between the EU and Israel

The first question to be asked is whether trade between the EU and Israel is large enough to exert influence through changed conditions. The answer is yes. The EU currently accounts for 24.8 percent of Israeli exports. This makes it the number one trading partner, just ahead of the US with 24.6 percent. If the European Union were to use this leverage, it would be reasonable to expect that many other countries would follow suit, although probably not the US, at least not initially. China’s share, for example, is 6.1 percent, India’s 4.4 percent, the United Kingdom’s 4.1 percent, Turkey’s 3.1 percent, Brazil’s 2.6 percent, etc. Maintaining this level of exports is of great economic importance for Israel, which already has a significant foreign trade deficit.

The second question is: on what basis are trade relations between Israel and the EU currently based? The legal basis is the Association Agreement of 2000. It provides for the abolition of all customs duties and measures having equivalent effect, with the usual special provisions when parts or intermediate products from third countries are included. Strangely, there is no mention in the entire document of the occupied territories, the rights of the Palestinians, or the two-state solution. Only slowly has the EU developed a position that products from settlers in the occupied territories must be specially labeled. The legitimacy of this approach has been conclusively confirmed by the European Court of Justice.

Thirdly, in addition to economic regulations, the agreement also establishes “political dialogue.” That is why it contains Article 2:

“Relations between the Parties, as well as all provisions of this Agreement, shall be based on respect for human rights and democratic principles, which guide the domestic and international policy of the Parties and constitute an essential element of this Agreement.”

With reference to this, the Association Agreement could therefore be suspended by the EU without any problems. The human rights of the Palestinian population in the occupied territories and their right to political participation are being flagrantly violated, so far without any consequences for those responsible.

Any legal action by Israel before the European Court of Justice against the suspension of the agreement can be viewed with great composure. There is already an interesting precedent. The European Union wanted to conclude agreements with Morocco that would include Western Sahara, which is occupied by Morocco in violation of international law. The liberation movement Frente Polisario filed a lawsuit against this and was upheld by the ECJ on the grounds that “the consent of the inhabitants of Western Sahara had been wrongly not obtained.”

Concrete implementation

Trade restrictions aimed at exerting political pressure are not uncommon, especially in recent times. The most significant example at present is that of the West against Russia over the war in Ukraine. Sanctions are particularly effective when the following conditions are met:

The country to be sanctioned is not too large.
Many relevant states participate in the sanctions.
The sanctions regime is as comprehensive as possible.

Israel is a relatively small country in terms of population, and broad global participation is likely if the EU has the courage to take the lead. In order to fulfill the third condition, it makes sense to assume that all export products are covered without exception, from agriculture and industry, including sought-after defense equipment, to services.

There are two main options for broad sanctions on imports: import bans or tariffs. The latter are preferable here for several reasons.

Firstly, given the current anti-BDS stance in several Western countries, import bans run the risk of being subsumed under this in public opinion. This can be avoided. What certainly cannot be avoided is fierce Israeli criticism of any form of political or economic pressure. Even the EU’s decision, which is highly modest in its quantitative impact, to label products from settlements in the occupied territories that are considered illegal under international law was described by Israel’s government as “extreme and discriminatory.” And a former foreign minister stated, almost predictably, that “the regulation reminds him of the yellow star that Jews were forced to wear during National Socialism.”

Secondly, import bans are inherently a predominantly binary strategy, whereas tariffs are a more gradual measure (for the record: it is of course possible to restrict imports rather than ban them altogether and set prohibitive tariffs). Import duties thus give the country being sanctioned time to reconsider its previous political position in light of the costs involved.

Thirdly, and related to this, trade restrictions always remain a double-edged sword, as the importing side also has to reorient itself, for example by looking for alternative suppliers.

Fourthly, customs duties can be varied very easily, and if any increases are announced in advance, not only will the difficulties for the sanctioned economy become immediately apparent, but the increased costs in the near future will also be transparent.

Specifically, the following procedure with these five details is therefore proposed:

At the earliest possible date, such as January 1, 2025, the EU will impose a noticeable but not prohibitive tariff on all Israeli products and services of (for example) 10 percent. The tariff regime has a single goal, namely to enforce a two-state solution in the broad sense for Israel-Palestine.
At the same time as this regime comes into force, it will be announced that the tariff will increase significantly each year that the objective is not achieved, for example by a further 10 percent. This will increase the pressure on Israel not to delay negotiations indefinitely, as it has done in the past.
In order to prevent the other side, the representatives of Palestine – whoever they may be – from exploiting the situation to delay negotiations and prevent them from reaching a positive conclusion, a maximum rate is defined. This could be around 50 percent and would come into effect in 2029, at the beginning of 2025.
Such negotiations can drag on for a long time, so that even positive developments would still be accompanied by tariff increases. In order to promote and reward their seriousness, the European Parliament should therefore have the opportunity to suspend the next tariff increase for one year at a time by majority vote if visible progress is made.
If the negotiations are concluded to the satisfaction of both sides and the outcome is implemented, the customs regime will end. The old association agreement with Israel will come back into force and a similar agreement will be concluded with the new Palestinian state, if it comes into existence as an independent state.

Openness to outcomes while maintaining a firm position

Such a customs regime involving the EU and presumably many other countries is process-oriented and not fixed on a specific outcome. Ultimately, it must be left to the two parties to the conflict to decide what outcome they want to achieve and what the details should be. Whether this will be a classic two-state solution with fixed borders or a confederation within a joint state, as has already been discussed at length, can remain open. The same applies to whether neutral mediators are needed for the negotiations and who these might be. Ultimately, there is of course no guarantee of success. However, there is hope that other major conflicts that seemed almost impossible to resolve, such as the Thirty Years’ War and the Vietnam War, were ultimately brought to an end after several years of negotiations.

The only thing that is fixed is the geographical starting point for the negotiations: the internationally recognized borders under international law. This is also recognized and reaffirmed in the coalition agreement of the traffic light coalition: “We will continue to work for a negotiated two-state solution based on the 1967 borders.” Israel must therefore return the Gaza Strip, the West Bank, East Jerusalem, and the Golan Heights. The borders drawn in the past can be changed in the negotiation process, but only by consensus.

The fact that hundreds of thousands of Israeli settlers now live in the occupied territories, mostly through unacceptable means such as forced expropriation, expulsions, and similar measures, is legally irrelevant because it has been in violation of international law from the outset. This has been expressed in numerous UN resolutions, both by the General Assembly and, more importantly, by the Security Council. The coalition agreement is also clear on this issue: “We call for an end to settlement construction in violation of international law.”

Similar positions can be found in EU statements. All that is missing now is the courage of Europe to follow its lip service with action. And those who disagree with the proposals are called upon to develop a better plan with a chance of implementation. However, a further divergence between words and deeds is no longer an option. Unless the European Union is willing to risk losing what remains of its already tattered reputation in the Global South as a representative of international law principles due to its one-sided support for Israel.

+++++++++++++++++++++++++++++++++++++++++++

Why not make the banks pay?

By Oliver Picek

[This article posted on December 20, 2023 is translated from the German on the Internet, https://makroskop.eu/43-2023/warum-nicht-banken-zur-kasse-bitten/.]

Banks are the last big winners of the war in Ukraine. They should make a greater contribution to compensating the many losers of inflation.

It all started with a war. Russia invaded Ukraine. Every war has its winners. Alongside the energy companies, the banks are also among them, albeit with a slight delay.

The war also brought back inflation. In response, the European Central Bank raised its key interest rates. Private banks are cleverly exploiting this. They are juggling interest rates so that their own coffers are constantly ringing. They already enjoyed record profits last year. But profits are only really exploding this year. You have to close your eyes tight if you don’t want to see the excess profits.

The state and borrowers as cash cows

Where does this profit bonanza come from? The industry is gilding its work with an expansion of the interest margin, in Austria by as much as two-thirds. Many savers continue to receive meager low interest rates. At the other end of the scale, bankers are sharply raising interest rates for borrowers with variable-rate loans. Home builders and people with consumer loans are being hit hard. Some have to pay hundreds of euros more each month. More and more of them are up to their necks in debt.

Meanwhile, bankers are also using the state as a cash cow for profits. Every euro that the banks do not need, they can deposit in an account at the European Central Bank (ECB) and earn decent interest on it. Currently four percent. That is interest rates like in the old days – a dream savings account. Exactly what the banks are denying their savers today. Because for every euro of interest rate increase by the ECB since last year, the banks have pocketed 71 cents. The small remainder, 29 cents, went to savers. A lucrative business for Austrian banks. In just over a year, they have “earned” two billion euros. Just a few clicks of the mouse to invest the money virtually. No risk. There is no end in sight to this practice.

But it is not only savers who are suffering. The state is also bleeding. Because the eurozone countries co-own the ECB, every subsidy to the banks means a loss for the country. Now, little Austria cannot influence the ECB’s monetary policy. But the finance minister can very well recoup the privatized profits at the expense of the general public – with a windfall tax.

Windfall taxes for banks are nothing new

Should we fear such a tax? No. Bank representatives and liberal economists paint a picture of doom and gloom whenever taxes are raised. They claim that it will jeopardize the economy and discourage investment. When the government introduced a bank levy to compensate for the billions lost in the banking crisis 15 years ago, the opposite happened. The industry boosted investment.

But do banks need profits as a buffer against the next crisis? Record profits are filling the banks’ coffers, but only because the banks can hardly keep up with emptying them. BAWAG [one of Austria’s largest banks – editor’s note] nevertheless distributed 95 percent of its profits to its shareholders. Erste Bank [also one of Austria’s largest banks – editor’s note] paid the highest dividend in its history. On top of that, it bought back its own shares. Both of these measures reduce equity capital, which acts as a buffer against crises.

We owe it to the banking supervisors that there are any reserves left in the coffers at all. They force the banks to do this, regardless of whether they are making profits or not. That was a lesson learned from the last banking crisis a good 15 years ago. Ultimately, the special tax is also a question of fairness. After that banking crisis, the general public was left footing the bill.

The bailout of the banks cost a fortune. The bank levy, which was introduced as compensation, covered only a fraction of the costs incurred. Ten billion is still outstanding. If you help the banks in bad times, you can expect contributions in good times. Not least because all the big banks have a government guarantee anyway – they are considered “too big to fail,” too important for the economy to function.

Anyone who dismisses a windfall tax on banks as populism or arbitrariness is ignorant of history. Special taxes as a consequence of wars are so commonplace that it is almost boring. Even after the last financial crisis, they were widespread around the world, including in Austria. Most recently, Spain, Lithuania, the Czech Republic, Hungary, and soon Italy have introduced them to skim off windfall profits from inflation.

Today’s governments are in good historical company. British Prime Minister Margaret Thatcher, who is otherwise often cited as a prime example of the neoliberal counterrevolution, decided in the 1980s to introduce a special tax on banks. She knew: There is no alternative.

High inflation stems from price increases by companies. Then as now, it is the biggest redistribution of wealth of their generation. If the federal government helps the many losers of inflation, it must also demand a contribution from the winners.

Slightly modified versions of this article appeared in the Austrian daily newspaper DerStandard and as an article on the website of the Momentum Institute.

+++++++++++++++++++++++++++++++++++++

The debacle of the neocons

By Jeffrey D. Sachs

[This article posted on October 10, 2023 is translated from the German on the Internet, https://makroskop.eu/33-2023/das-neokonservative-debakel/.]

The neoconservative foreign policy of the US has brought Ukraine to the brink of economic, demographic, and military collapse. What should the US government do now in the face of this looming catastrophe?

Ukraine marks the final stage of the 30-year foreign and geopolitical debacle of the US neocons. The plan to encircle Russia in the Black Sea region through NATO has failed. The decisions that the US and Russia must now make will be of enormous importance not only for the region but for the entire world.

Four events have dashed the neoconservatives’ hopes for NATO’s eastward expansion to include Ukraine, Georgia, and beyond. First, Ukraine has been devastated on the battlefield, with tragic and horrific losses. Russia appears to be winning the war of attrition, an outcome that was predictable from the outset but continues to be denied by the neoconservatives and much of the media.

Second, support in Europe is waning. Poland is no longer talking to Ukraine. Hungary has long opposed the neoconservatives. Slovakia recently elected an anti-neocon government. EU leaders from Macron to Meloni, Sanchez to Scholz to Sunak are facing much higher disapproval ratings than approval ratings in their countries.

The third point is the reduction in US financial aid to Ukraine. The Republican Party base, several Republican presidential candidates, and a growing number of Republican congressmen oppose further spending on Ukraine. In the stopgap bill to keep the government running, Republicans cut new financial aid to Ukraine. Although the White House has called for new aid legislation, this will be a tough domestic battle.

Fourth, and most urgent from Ukraine’s perspective, is the imminent threat of a Russian offensive. Ukraine has suffered hundreds of thousands of casualties, and its artillery, air defenses, tanks, and other heavy weapons have been depleted. Russia will likely respond with a large-scale offensive.

This sets the stage for the next episode in a cascade of disasters that the neocons have already wrought in Afghanistan, Iraq, Syria, and Libya. The US political system has so far failed to hold the neocons accountable, as foreign policy is largely unchecked by the public or Congress. Most of the major media outlets parrot neoconservative propaganda.

But Ukraine is clearly on the brink of economic, demographic, and military collapse. This raises the urgent question: What should the US government do in the face of this potential catastrophe?

The Biden administration must urgently change course and listen to cooler heads. Joe Biden should offer Vladimir Putin that the US will refrain from NATO expansion to the east if the US and Russia reach new security agreements similar to Putin’s proposals of December 17, 2021. At that time, Biden refused to negotiate with Putin. But it is time to return to the negotiating table. By doing so, and by halting NATO’s eastward expansion, the US could save Ukraine from even greater calamity.

Makroskop articles – 2023-2025

The BRICS following in Keynes’ footsteps

The old white man strikes back

Donald Trump has achieved a historic triumph with iconic images and catchy slogans. Kamala Harris’ disastrous defeat, on the other hand, is symbolic of a left-wing liberalism that has run itself into the ground.

The Trump effect

The (Anti)Democrats

The mysticism of financial capitalism

Should the welfare state only provide for those in need?

Former Caritas boss Georg Cremer is calling for social policy to return to its core tasks: supporting those in need and helping them to help themselves. His proposal fails to address the structural problems of the welfare state – and would make social security more expensive.

Overprovision in the welfare state?

Weaknesses of the welfare state

Subsidiarity principle or universal social insurance?

Expensive privatization of social risks

A two-state solution

Western countries have long been calling for an independent Palestinian state. So far, this has failed due to Israel’s blockade. The bloody conflict in Gaza has created a new sense of urgency. For this to succeed, the EU would have to use its economic strength.

Economic relations between the EU and Israel

Concrete implementation

Openness to outcomes while maintaining a firm position

Why not make the banks pay?

Banks are the last big winners of the war in Ukraine. They should make a greater contribution to compensating the many losers of inflation.

The state and borrowers as cash cows

Windfall taxes for banks are nothing new

The debacle of the neocons

The neoconservative foreign policy of the US has brought Ukraine to the brink of economic, demographic, and military collapse. What should the US government do now in the face of this looming catastrophe?

Leave a Comment Cancel reply