John Grahl

The Regulation School, the employment relation and financialization.

This article examines recent developments in the published work of prominent members of the French Regulation School. It is argued that major revisions are taking place in the schools assessment of contemporary capitalist systems. In particular, the primacy attached to employment relationships is under question, as is the emphasis on distinct national trajectories. In spite of these significant changes in interpretation, it is argued that the work of the school, which continues to insist that market economies can function effectively only in a well-defined institutional context, is still of great interest from a methodological point of view.

Global Finance and Social Europe

With global finance reshaping the world economy, this insightful new book provides a full account of the EU’s financial integration strategy, together with a critical assessment arguing the case for social control over global finance. Written by acknowledged experts in European finance, this book discusses key issues from finance to general social developments, encompassing social security systems, employment relations, household saving and borrowing, and the question of economic stability. Thus far, America has been pre-eminent both in global financial markets and international banking – so how should the European Union meet this challenge? Global Finance and Social Europe constructively argues that an active response is required and highlights the importance of an integrated European financial system.

The European Commission's Proposal for a Financial Transactions Tax: A Critical Assessment

A financial activities tax (FAT) and a financial transactions tax (FTT) are the main alternative ways of recouping some of the public money used to bail out the financial sector after the great crisis of 2007–08. In preparing a common proposal for the European Union, the European Commission initially appeared to favour the FAT, but then swung its weight behind the FTT in late 2011. Its rationale was that in addition to generating revenue, this tax could also help to stabilize the financial markets by curbing excessive speculative trading. This article takes a different position. Its central argument is that the FTT would amplify rather than dampen market instability by interfering with the functions of important financial institutions. Its chief conclusion is that the FAT is superior to the FTT.

The Subordination of European Finance

European political leaderships have responded to the emergence of global finance with a sustained drive to integrate Europes own financial systems on the basis of a switch from classical bank credit to tradable securities. In itself, this was a rational response. However, financial integration was pursued at breakneck speed and in disregard of important public goods including economic stability and social justice. Reforms were undertaken in a climate of moral panic, in the false belief that the EU faced a serious problem of external competitiveness. In consequence, Europes banks and institutional investors were badly exposed to the sub-prime crisis, the Eurozone has been radically disorganized and the EU has had little influence on the evolution of global financial structures and practices.

Problems of financial integration in the EU

Abstract A drive for financial integration, especially in the field of securities trading, is a very significant feature of EU policy today. This paper makes a critical assessment of the central component in the financial integration strategy, the Commissions Financial Services Action Plan. It is argued that an exceptional degree of political agreement around the strategy has allowed it to succeed in spite of the formidable technical difficulties to which it gave rise. It is suggested, however, that further reformulations of the strategy will be needed, to cope with the aftermath of the recent stock market crash and to link the strategy more closely to EU strategies in the social sphere.

Crisis in the Eurozone

Analyses the problems for market economies in a monetary union, which centre on the challenge of addressing the divergence in competitiveness or in the general rate of production and employment across the member economies. Grahl argues that EU economic policy does not acknowledge these problems and therefore is doomed to failure. In particular German economic policy continues to make efforts to enhance its dominant position, with the inevitable result that other economics suffer. This has been made worse by the financial crisis, which has hit the weaker economies hardest. Short-term lending will not solve this problem, since the weaker economies may be facing problems of insolvency rather than liquidity. A long-term solution is required, based on a measure of Europeanisation of the debt, by means of establishing a permanent agency with strong guarantees from the EU and member states, to take over enough of the debt to restore clear financial stability. Given that the Eurozone as a whole is immensely rich and powerful, it would be easy for such an agency to borrow on a large scale and at very low interest rates.

Locking in austerity

John Grahl looks at the growing EU practice of imposing laws and regulations that restrict macro-economic policy, with the aim of enforcing austerity and ‘competitiveneness’ – which usually involves lowering wages and removing employment safeguards. This resort to law is a particularly German habit, and Germany’s current EU dominance is driving this approach. It is precisely their faith in the market that makes the German government and its allies believe that it will adapt to the numerical rules it lays down (about the ratio of GDP to debt, etc). But this is not part of a Hayek legacy, as is often argued, since Hayek was in favour of abstract rules of operation rather than legislation. The ordo-liberal tradition is more committed to rules, but traditionally this tradition is also distrustful of big business. This market fundamentalist embrace of rules-based austerity needs to be challenged, but it should not be seen as a reason for Britain to leave the European Union. On the contrary, if Britain were more engaged in Europe, its influence could act as a counter to this trend.

The professors and the banks: US views on the subprime crisis

This review article surveys accounts of the recent global financial crisis by ten leading economists – nine in the US and one, Martin Wolf, in the UK – all of whom are critical of mainstream economic thinking. Since their explanations of the crisis are very similar, the review concentrates on their differing views on three questions: the reform of the financial sector; the state of academic macroeconomics; and the global economic imbalances. Some of the writers have also considered recent austerity policies and their opinions on this topic are also discussed. The article closes by referring to some of the gaps in these accounts.

Global finance after the credit crisis

Although the author regards the current financial crisis as a crisis of finance itself, he sees neither financial globalisation nor the increasing importance of financial markets as being interrupted by the crisis. Instead, the direction of changes to the financial system is determined by new possibilities in the political spectrum due to the recent setback for the neoliberal project. Regarding future developments, he distinguishes two possible but contradictory scenarios. Firstly, because of falling interest rates and profits, the crisis could lead to a period of cheap money. In this case the power structures would change in favor of the working class, which could among other things be evidenced in a higher relative wage share. Secondly, the rescue of the financial sector via public money could lead to radical reforms in the financial sector. This could go hand in hand with a substantial realignment of the social and economic objectives of the financial system.

The Responsibility of the EU

‘If you break it, you own it.’ This Chapter takes a critical political economy approach to the whole strategy adopted by the EU and its constituent authorities (ECB, Commission, EFSF and ESM) as well as the IMF towards Greece once it became clear that the country is insolvent. It argues that the main responsibility for the continuing debacle over a country whose debt is of the order of 2% of EU GDP lies with the EU and its overall approach—which is not to ignore or downplay the serious failures and weaknesses of Greece itself. Particular themes of the critique include the fact that co-responsibility for the country’s excessive indebtedness lies also with the lenders who financed the exorbitant debts in the first place; but who then were fully rescued, at least in the beginning. The country has had very little political clout over the adjustment programmes that have been imposed on it, micro-management of which from outside seriously erodes its sovereignty and democracy. The resulting austerity has been largely self-propagating and self-defeating, plunging the country into a perma-recession for generations to come, with grave social consequences.