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In the Arms of Dictators: America the Great… Global Arms Dealer
By: Andrew Gavin Marshall
The following is a first draft sample from a chapter currently being written for The People’s Book Project. Read more about The People’s Book Project here, and please consider donating to help the Project continue.
The American imperial system incorporates much more than supporting the occasional coup or undertaking the occasional war. Coups, wars, assassinations and other forms of overt and covert violence and destabilization, while relatively common and consistent for the United States – compared to other major powers – are secondary to the general maintenance of a system of imperial patronage. A “stable” system is what is desired most by strategic planners and policy-makers, but this has a technical definition. Stability means that the populations of subject nations and regions are under “control” – whether crushed by force or made passive by consent, while Western corporate and financial interests have and maintain unhindered access to the “markets” and resources of those nations and regions. Since the 19th century development of America’s overseas empire, this has been referred to as the “Open Door” policy: as in, the door opens for American and other Western economic interests to have access to and undertake exploitation of resources and labour.
As the only global imperial power, and by far the world’s largest military power, America does not merely rely upon the “goodwill” of smaller nations or the threat of force against them in order to maintain its dominance, it has established, over time, a large and complex network of imperial patronage: supplying economic aid, military aid (to allow its favoured regimes to control their own populations or engage in proxy-warfare), military and police training, among many other programs. These programs are largely coordinated by and between the Defense Department, State Department, and the United States Agency for International Development (USAID).
Arms sales are a major method through which the United States – and other powerful nations – are able to exert their hegemony, by arming and strengthening their key allies, directly or indirectly fueling civil wars and conflicts, and funneling money into the world’s major weapons manufacturers. The global economic crisis had “significantly pushed down purchases of weapons” over 2009 to the lowest level since 2005. In 2009, worldwide arms deals amounted to $57.5 billion, dropping 8.5% from the previous year. The United States maintained its esteemed role as the main arms dealer in the world, accounting for $22.6 billion – or 39% of the global market. In 2008, the U.S. contribution to global arms sales was significantly higher, at $38.1 billion, up from $25.7 billion in 2007. In 2009, the second-largest arms dealer in the world was Russia at $10.4 billion, then France at $7.4 billion, followed by Germany, Italy, China and Britain.
There are two official ways in which arms are sold to foreign nations: either through Foreign Military Sales (FMS), in which the Pentagon negotiates an agreement between the U.S. government and a foreign government for the sale and purchase of arms, and through Direct Commercial Sales (DCS), in which arms manufacturers (multinational corporations) negotiate directly with foreign governments for the sale and purchase of arms, having to apply for a license from the State Department.
Between 2005 and 2009, U.S. arms sales totaled roughly $101 billion, with direct commercial sales (DCS) accounting for more than half of the total value, at $59.86 billion, and Foreign Military Sales (FMS) accounting for $40.85 billion. The top seven recipients of U.S. arms sales between 2005 and 2009 were: Japan at $13.14 billion, the United Kingdom at $8.32 billion, Israel at $8 billion, South Korea at $6.53 billion, Australia at $4.17 billion, Egypt at $4.07 billion, and the United Arab Emirates (UAE) at $3.98 billion.
The United States experienced a slight decline in global arms sales over 2009, though it maintained its position as the world’s number one arms dealer, holding 30% of the global market. However, the Obama administration in 2010 decided to change certain “export control regulations” in order to make arms deals easier and increase the U.S. share of the global market. The stated reason for the legal change was “to simplify the sale of weapons to U.S. allies,” though it had the added benefit of “generating business for the U.S. defense industry.” The U.S. National Security Advisor at the time, General James Jones, claimed that without the changes, the existing system of arms sales “poses a potential national security risk based on the fact that its structure is overly complicated.”
In early 2010, the Obama administration began pressuring Saudi Arabia and other Gulf dictatorships (aka: “allies”) to increase their purchases of U.S. arms, upgrade their defense of oil installations and threaten Iran with overwhelming military superiority. In the lead were Saudi Arabia and the UAE in undertaking a regional “military buildup” – or arms race – resulting in more than $25 billion in U.S. arms sales to the region over the previous two years. A senior U.S. official in the Obama administration commented: “We’re developing a truly regional defensive capability, with missile systems, air defense and a hardening up of critical infrastructure… All of these have progressed significantly over the past year.” Another senior official stated, “It’s a tough neighborhood, and we have to make sure we are protected,” adding that Iran was the “number one threat in the region.”
Of course, Iran is actually a nation that exists within the region, and thus has the right to defend itself, whereas the United States cannot “defend” itself in a region in which it does not exist. But then, geographical trivialities have never been a concern to imperialists who believe that the world belongs to them and it was a mere accident of history that all the resources exist outside of the empire’s home country. Therefore, with such a rationalization, the United States – and the West more broadly – have a “right” to “defend” themselves (and their economic and political interests) everywhere in the world, and against everyone in the world. Any other nation which poses a challenge to Western domination of the world and its resources is thus a “threat” to whichever region it belongs, as well as to U.S. “national security.”
Iran is of course not the only competition for the United States and the West in its unhindered access to and control of the world, but China is another and arguably much more significant threat (though not an officially sanctioned U.S. enemy, as of yet). Around the same time the U.S. was pushing for increased arms sales to the Persian Gulf dictatorships (no doubt, to advance the causes of “democracy” and “peace”), the Obama administration secured an arms deal with Taiwan worth over $6 billion, incurring the frustration of China. The deal included the sale of 114 Patriot missiles, 60 Black Hawk helicopters, and communications equipment for Taiwan’s fleet of F-16s, with the possibility of future sales of F-16 fighter jets.
The Chinese vice foreign minister expressed “indignation” to the U.S. State Department in response to the arms deal, adding: “We believe this move endangers China’s national security and harms China’s peaceful reunification efforts [with Taiwan]… It will harm China-U.S. relations and bring about a serious and active impact on bilateral communication and cooperation.” In response, the U.S. National Security Advisor General James Jones stated that the announcement shouldn’t “come as a surprise to our Chinese friends.”
In September of 2010, the Obama administration announced the intention to undertake the largest arms deal in U.S. history, the sale of advanced aircraft to Saudi Arabia worth up to $60 billion for fighter jets and helicopters (84 F-15s, 70 Apaches, 72 Black Hawks, and 36 Little Birds), as well as engaging “in talks with the [Saudi] kingdom about potential naval and missile-defense upgrades that could be worth tens of billions of dollars more,” according to the Wall Street Journal, with “a potential $30 billion package to upgrade Saudi Arabia’s naval forces.” The stated objective was to counter the role of Iran in the region, though no agreement had been initially reached. The U.S. was selling the idea to Congress as a means of creating “jobs,” a political euphemism for corporate profits. One official involved in the talks noted, “It’s a big economic sale for the U.S. and the argument is that it is better to create jobs here than in Europe.”
The arms deal would purchase equipment and technology from Lockheed Martin, Raytheon, Boeing, and United Technologies. In recent years, Saudi Arabia had been purchasing more European and Russian-made arms from companies like BAE Systems. U.S. officials were also attempting to ease the fears of Israel while massively building up the arsenal of a close neighbor, ensuring that the planes sold to the Kingdom wouldn’t have long-range weapons systems and further, that the Israelis would purchase the more advanced F-35 jet fighters. The Israeli ambassador to the United States, Michael Oren, commented, “We appreciate the administration’s efforts to maintain Israel’s qualitative military edge.” The potential $60 billion arms deal with the Saudis would be stretched out over several years, though there was talk that the Saudis might only guarantee a purchase of at least $30 billion, at least, initially.
The Financial Times reported that the Arab dictatorships in the Gulf “have embarked on one of the largest re-armament exercises in peacetime history, ordering US weapons worth some $123 billion as they seek to counter Iran’s military power.” Saudi Arabia’s $60 billion was the largest, with the United Arab Emirates (UAE) signing arms deals worth between $35 and $40 billion in purchases of a “high altitude missile defence system” known as THAAD, developed by Lockheed Martin, as well as purchasing upgrades of its Patriot missile defense systems, produced by Raytheon. Oman was expected to purchase $12 billion and Kuwait $7 billion in arms and military technology. The CEO of Blenheim Capital Partners, a consultancy firm which helps arrange arms deals, noted that Middle Eastern and Southeast Asian countries were replacing Western European nations as the largest arms purchasers, adding: “They are the big buyers.”
Anthony Cordesman from the Center for Strategic and International Studies (CSIS) said that the United States was seeking to create a “new post-Iraq war security structure that can secure the flow of energy exports to the global economy.” These massive arms sales would then “reinforce the level of regional deterrence” – or in other words, expand American hegemony over the region through local proxy powers and dictatorships – and thus, “help reduce the size of forces the US must deploy in the region.” As a Saudi defense analyst noted, “[t]he Saudi aim is to send a message especially to the Iranians – that we have complete aerial superiority over them.”
According to three of four members of an ‘Expert Roundup’ published by the Council on Foreign Relations, the $123 billion arms deals with the Arab dictatorships are “a good idea for the United States and the Middle East.” One of the “experts” is Anthony Cordesman, the Arleigh A. Burke Chair in Strategy at CSIS, former director of intelligence assessment in the Office of the Secretary of Defense, as well as having served in several other State Department and NATO staffs, and has been a regular consultant to the Afghan and Iraqi occupation commands, U.S. embassies, and was a member of the Strategic Assessment Group which advised General Stanley McChrystal in developing a new strategy in Afghanistan for 2009. He also regularly consults with the U.S. State and Defense Departments and the intelligence community. Cordesman wrote that the US “shares critical strategic interests with Saudi Arabia,” notably the control of oil for “the health” of the global economy.
Cordesman also emphasized the role of pliant dictatorships in carrying out U.S imperial objectives in the region, writing that the U.S. “needs allies that have interoperable forces that can both fight effectively alongside the United States and ease the U.S. burden by defending themselves,” meaning, to defend America’s interests, which then become the interests of America’s proxies – or “allies.” The arms sales would be a helpful counter to Iran in the region, and secure a strong relationship between “the current Saudi government as well as Saudi governments for the next fifteen to twenty years,” the suggested timeline for delivery of all purchases, providing Saudi Arabia with a “strong incentive to work with the United States” over the long-term.
Loren B. Thompson, the Chief Operating Officer of the Lexington Institute, also participated in the Council on Foreign Relations ‘Roundup’ report, writing that the arms deal “appears to be a careful reconciliation of Saudi requirements with Israeli fears, while also offering a strategic balance against Iran.” Whatever the differences between Saudi Arabia and the United States, he wrote, casting aside the fact that the Kingdom is one of the most brutal and dictatorial regimes in the world, “the Saudis have been reliable allies of America for decades and have exercised a moderating influence on the behavior of other oil-producing states.” Helping the Saudis, Thompson wrote, “means helping ourselves.”
F. Gregory Gause III, Professor and Chair of the Political Science Department at the University of Vermont wrote that the arms deal “will not buy much security in the long run in the Persian Gulf,” but, he added, “there are no good reasons not to sell the Saudis those weapons, and there are some potentially positive results (besides the economic benefits to the US),” such as opposing the “Iranian regional challenge,” with which he included Hezbollah in Lebanon, Hamas in the Occupied Territories of Palestine, “various Iraqi parties,” Syria, and “Shia activists in the Gulf monarchies.” One could not object to the arms sale on the basis of supporting a regime with a horrible record on democracy, women’s rights, Islam, and human rights, Gause wrote, adding: “Moral purity would be purchased at the price of reduced American regional influence.” In other words, it’s a terrible regime, but it’s America’s terrible regime, and thus, challenging or changing the nature of the regime could undermine and erode America’s influence through the dictatorship and over the region.
William Hartung, the director of the Arms and Security Initiative at the New America Foundation, was another “expert” in the Council on Foreign Relations ‘Roundup’ report, providing the one “cautionary note” on the arms deal on the basis that it could amount to fueling an arms race in the region, building up the forces of Saudi Arabia, the Gulf monarchs, and Israel, thus providing pressure on Iran “to ratchet up its own military capabilities.” The Saudi deal “consists primary of offensive weapons,” though it is stated to be for defensive purposes, and if Saudi Arabia were to undertake aggressive military actions in the region, such as in Yemen (as it has), it would more likely “inflame passions” against Saudi Arabia instead of solving security problems.
The United States has for years dominated the arms market of the Persian Gulf, supplying military equipment to Saudi Arabia, UAE, Kuwait, Oman, Qatar and Bahrain, all members of the Gulf Cooperation Council (GCC), a regional governance association. A Middle East “defense analyst” with Forecast International, stated: “The U.S. arms sales to these countries are meant to improve the defense capabilities of the recipient nations, reinforce the sense of U.S. solidarity with its GCC partners and, finally, create a semblance of interoperability with American forces.” After the United States, the largest arms dealers to the region are France, Russia, Britain and China. Russian and Chinese arms mostly went to Iran, while Israel received $2.78 billion in U.S. military aid in 2010.
In October of 2010, the United States assistant secretary of state for political-military affairs, Andrew Shapiro, formally announced the intended Saudi arms deal for the U.S. Congress to approve for a program to last from 15 to 20 years. Shapiro stated that, “This is not solely about Iran… It’s about helping the Saudis with their legitimate security needs… they live in a dangerous neighbourhood and we are helping them preserve and protect their security.”
For an average of $13 billion per year in arms sales between 1995 and 2005, the Department of Defense announced in 2010 that it intended to sell up to $103 billion, though presumably achieving a lower number, such as $50 billion, over the course of the year. A defense industry consultant, Loren Thompson, stated that, “Obama is much more favorably disposed to arms exports than any of the previous Democratic administrations.” Jeff Abramson of the Arms Control Association stated that there was “an Obama arms bazaar going on.” While the discussion about the massive arms sales in most of the press and political discourse was focused upon supporting 200,000 workers in the ‘defense’ industry, industry consultant Thompson was less ambiguous: “It’s about U.S. allies, it’s about maintaining jobs, and it’s about America’s broader role in the world – and what you have to do to maintain that role;” the role being – of course – that of the global imperial hegemon.
Military contractors spread their factories and workforce out across several U.S. states in order to use their leverage as “major employers” with the U.S. Congress and other political powers. Boeing has facilities in over 20 U.S. states, and the corporation’s head of business development for military aircraft, Lt. Gen. Jeffrey Kohler, was previously responsible for overseeing arms exports for the Pentagon. The entire industry of military contractors is entirely dependent upon massive state subsidies to survive, doing 80-90% of their business with the Pentagon. And, as CNN Money reported, “business recently has been good,” with the U.S. more than doubling its military spending since 2001 to roughly $700 billion, nearly as much as the rest of the entire world spends combined.
Congress agreed in December of 2010 to spend $725 billion on ‘defense’ for 2011. Military contractors were largely seeking “growth” – a euphemism for exploitation and profit – by turning to foreign arms sales. The military contractor EADS sought to establish a headquarters in Asia, Honeywell created a new “international sales” division, and Lockheed Martin was planning to increase its revenue share acquired outside the United States from 14 to 20% by 2012, Boeing aimed to increase international sales from 17-25%, and Raytheon had the largest percentage of revenue from overseas at 23%. But sadly, for the arms dealers, it’s not so easy to sell weapons to foreign governments, since each deal requires a license from the U.S. State Department, a pesky barrier to “growth.” The countries with the “biggest appetite for U.S weapons” are “oil-rich nations in the Middle East,” with roughly 50% of foreign military sales by U.S. contractors between 2006 and 2009 being sold to countries in the region, with Boeing reaping the most overall profits. Mark Kronenberg, the head of Boeing’s international business development, noted: “The last time we had a period like this in the Middle East was the early ‘90s,” during the lead up to and aftermath of the first Gulf War, adding, “Here we are, 20 years later, and they’re recapitalizing.”
A report prepared by the U.S. Congressional Research Service and published in December of 2011 detailed Foreign Military Sales (FMS) agreements between the United States and other nations for the period of 2003 to 2010. Between 2003 and 2006, the top ten largest recipients of U.S. arms through FMS (and excluding Direct Commercial Sales and Foreign Military Aid programs) were: Egypt ($4.5 billion), Saudi Arabia ($4.2 billion), Poland ($4.1 billion), followed by Australia, Japan, Greece, South Korea, Kuwait, Turkey, and Israel. For the years 2007 to 2010, the top ten recipients were: Saudi Arabia ($13.8 billion), UAE ($10.4 billion), Egypt ($7.8 billion), followed by Taiwan, Australia, Iraq, Pakistan, UK, Turkey, and South Korea. In 2010, the top ten purchases of U.S. arms were: Taiwan ($2.7 billion), Egypt ($1.8 billion), Saudi Arabia ($1.5 billion), followed by Australia, UK, Israel, Iraq, Jordan, South Korea, and Singapore.
In April of 2011, Leslie H. Gelb, the President Emeritus of the Council on Foreign Relations, wrote that in light of “the possible consequences of the new popular awakenings” across the Middle East, and the fact that as dictatorships increasingly “crack down even harder against the protesters… enabled by Western arms,” Americans “don’t like thinking of themselves or having others think of them as merchants of death.” The “nightmares” of Western policy-makers “comes from their hopes for Arab democracy” – that is, the emergence of “stable democracies over time” – and “their fears that fledgling Arab democracies will go awry.” So naturally, arms deals are a good means to secure U.S. interests in the region.
In May of 2011, Andrew Shapiro, the Assistant Secretary of State for Political-Military Affairs, spoke to the U.S. Department of State’s Defense Trade Advisory Group, at which he said the “demand” for U.S. arms and military technology “will remain strong because the U.S. has longstanding defense commitments to allies around the world,” and “we will remain very busy no matter the fluctuations of the global market.” The “dynamic nature of the geopolitical landscape” would require the U.S. “to adapt to changing situations.” Shapiro stated that, “we are witnessing another geopolitical shift, which may have broad implications for U.S. foreign policy,” referencing the popular uprisings across the Middle East as “perhaps the most significant geopolitical development since the end of the Cold War.” In his speech, Shapiro praised his audience at the Defense Trade Advisory Group (DTAG) as “valuable” in “giving us a formal channel to the private sector,” enabling the State Department “to better evaluate U.S. laws and regulations, especially during times of immense change.”
The members of the DTAG included top executives and officials from such companies as BAE Systems, ITT Defense, Boeing, Booz Allen Hamilton, EADS North America, Intel, General Electric, General Dynamics, United Technologies, Tyco, Northrop Grumman, Honeywell International, Raytheon, and Lockheed Martin, among a total of 45 individuals. According to its website, the DTAG advises the State Department Bureau of Political-Military Affairs “on its support for and regulation of defense trade to help ensure that impediments to legitimate exports are reduced while the foreign policy and national security interests of the U.S. continue to be protected and advanced.”
Shapiro told these corporate representatives that, “It is important to emphasize that arms transfers are a tool to advance U.S. foreign policy. And therefore when U.S. foreign policy interests, goals, and objectives shift, evolve, and transform over time, so will our arms transfer policy.” As always, stated Shapiro, “we urge you to provide your thoughts and ideas over how we should move forward.” Foreign military sales – especially to the Middle East – will continue as “a critical foreign policy instrument” allowing the U.S. to “gain influence and leverage, which can be used to help advance our foreign policy goals and objectives.”
As an example, the United States approved $200 million in military sales from U.S. corporations to the government of Bahrain in 2010, just months before pro-democracy protests erupted in the country, resulting in “a harsh crackdown on protesters,” killing at least 30 and injuring hundreds of more people in a matter of months.
In December of 2011, Andrew Shapiro announced the formal signing with Saudi Arabia to sell the dictatorship $30 billion in F-15 fighter jets to be delivered by 2015, as well as other plans to sell $11 billion in arms to Iraq. The Saudi deal was the result of extensive lobbying efforts by top government officials, including Obama making several phone calls to Saudi King Abdullah, and the U.S. National Security Advisor, Thomas E. Donilon, twice traveling to Riyadh while Vice President Joe Biden led a “high-level delegation” to a funeral for a Saudi Prince in October of 2011.
Embracing the World with Open “Arms”
In 2009, worldwide arms sales stood at $65.2 billion, dropping by 38% to $40.4 billion in 2010, the lowest number since 2003, with the United States contributing $21.4 billion – or 52.7% – of the global arms deals, Russia in second place at $7.8 billion over 2010, followed by France, Britain, China, Germany and Italy, according to a report by the Congressional Research Service. Over 75% of global arms sales in 2010 were for ‘developing’ countries, with India in top place at $5.8 billion in arms deals, followed by Taiwan at $2.7 billion, Saudi Arabia at $2.2 billion, Egypt, Israel, Algeria, Syria, South Korea, Singapore and Jordan.
This relative decline in global arms sales over 2010 was not to be repeated for 2011, with the number skyrocketing to $85.3 billion, with the U.S. contribution tripling to $66.3 billion, accounting for more than three-quarters of global arms deals. Russia stood in a distant second place with $4.8 billion in arms sales. While the United States controls roughly 75% of the global arms trade, it would be wrong to ignore the role of the other major players, though they are far from even competing with the U.S.
The Stockholm International Peace Research Institute (SIPRI) reported that the rise in arms sales had increased by 60% in real terms since 2002, with the total sales of the top 100 arms companies reaching $411.1 billion in 2010. The arms industry is “increasingly concentrated” to the point where the top ten firms account for 56% of all sales, with Lockheed Martin at the top with sales of $35.7 billion in 2010, followed by Britain’s BAE Systems at $32.8 billion, Boeing at $31.3 billion, and Northrop Grumman at $28.5 billion. Other major companies on the top 100 list of arms manufacturers include: General Dynamics, Raytheon, EADS, L-3 Communications, United Technologies, Thales, SAIC, Honeywell, Rolls-Royce, General Electric, KBR, Hewlett-Packard, and DynCorp.
Following the beginning of the Arab Spring and the toppling of the Western-backed dictators in Tunisia and Egypt, British Prime Minister David Cameron continued with a pre-planned tour of the Middle East in February of 2011, leading what the British Green Party leader called a “delegation of arms traders,” with almost 75% of the businessmen accompanying the Prime Minister on his trip to the region representing the defense and aerospace industries. As the first Western leader to visit Egypt following the fall of Mubarak, Cameron praised the pro-democracy movement: “Meeting the young people and the representatives of the groups in Tahrir Square [in Cairo] was genuinely inspiring,” adding: “These are people who have risked a huge amount for what they believe in.” Immediately after praising Egypt’s revolution and expressing his own ‘beliefs’ in democracy, Cameron flew to Kuwait with his arms dealer delegation to sell weapons to other Arab dictatorships. When criticized for the excessive hypocrisy of his democracy-praising and dictatorship arms-dealing tour of the Middle East, Cameron simply asserted that Britain had “nothing to be ashamed of,” as there was nothing wrong with such transactions.
As dictators across the region were becoming increasingly belligerent toward protesters, seeking to violently crush resistance after the successful examples of Tunisians and Egyptians toppling their long-standing dictators, increasing arms shipments to the region’s despots seemed to be only natural for Western imperial powers seeking stability and control. Kevan Jones, the British Shadow Defence Minister noted: “The defence industry is crucially important to Britain but many people will be surprised that the prime minister in this week of all weeks may be considering bolstering arms sales to the Middle East.” Accompanying David Cameron on his trip were 36 corporate representatives, including Ian King, the CEO of BAE Systems, as well as Victor Chavez of Thales UK, Alastair Bisset of Qinetiq, and Rob Watson of Rolls Royce. When questioned about his ‘arms dealer delegation,’ Cameron stated: “I have got a range of business people on the aeroplane, people involved in infrastructure and people involved in the arts and cultural exchanges. Yes, we have defence manufacturers as well. Britain does have a range of defence relationships with countries in the region. I seem to remember that we spent a lot of effort and indeed life in helping to defend Kuwait. So it is quite right to have defence relationships with some of these countries.”
As Cameron was hopping around the region selling weapons, the largest arms fair in the Middle East – the Index 2011 – was taking place in Abu Dhabi, bringing thousands of arms dealers to an exhibition hall with fighter jets flying overhead, tanks in the sand, with Predator drones and assault rifles on display, models fully dressed in the latest riot police outfits, and all choreographed to a hip-hop soundtrack. Meanwhile, not very far from the booming arms fair, protesters in Bahrain were being violently repressed by a dictatorship armed and supported by the West. The British delegation to the arms fair was led by the Defence Minister, Gerald Howarth, helping represent British companies which were displaying and selling their latest tools for ‘crowd control,’ showcasing teargas grenades, stun grenades, and rubber bullets.
A British officer from the government’s Trade and Industry stand at the arms fair was explaining the benefits of a particular fragmentation bomb to a top military official from the Algerian dictatorship. Howarth explained, “I am here as the minister for national security strategy, supporting this important exhibition.” While in 2011 the British had to revoke export licenses to Bahrain and Libya following the violence erupting in both countries, over the previous year the British issued 20 licenses for exports of “riot control weapons,” such as teargas, smoke and stun grenades, to Bahrain, Qatar, the United Arab Emirates, and Oman, as well as nearly 200 million pounds in “crowd control ammunition” to the government of Libya.
Weapons manufacturers stated that they felt the increased criticism inflicted upon their industry following the start of the Arab Spring had left them “battered and bruised.” One arms trader, commenting less than two weeks after Mubarak was toppled, stated that, “[t]he Middle East was a growing market until a few weeks ago,” while a representative from BAE agreed that the market for arms was insecure: “It is too early to say where it will end up… Given what is going on at the moment, nobody is likely to be talking about how to spend their defence procurement budget.” When a representative for the British arms exporter Chemring was questioned about selling CS gas shotgun cartridges and stun grenades, he explained, “we have an ethnical policy in place and look closely at the countries we are considering exporting to and see if they fit that.” A representative for Primetake, a British firm selling rubber ball shot, teargas, and rubber baton rounds, defended his firm: “We are a very respectable organization and we take very careful advice from the Ministry of Defense and the business department.”
Between October of 2009 and October of 2010, the British exported arms and military equipment to multiple countries in the Middle East and North Africa, including over 270 million pounds in materials to Algeria, including combat helicopters, roughly 6.4 million pounds in arms deals with Bahrain, nearly 17 million pounds with Egypt, 477 million pounds with Iraq, 27 million pounds with Israel, 21 million pounds with Jordan, 14.5 million pounds with Kuwait, 6.2 million pounds with Lebanon, 215 million pounds with Libya, 2.2 million pounds with Morocco, 14 million pounds with Oman, 13 million pounds with Qatar, 140 million pounds with Saudi Arabia, 2.6 million pounds with Syria, 4.5 million pounds to Tunisia, and 210 million pounds to the UAE. These sales included assault rifles, tear gas, ammunition, bombs, missiles, body armour, gun parts, gas mask filters, signaling and radar equipment, armoured vehicles, anti-riot shields, patrol boats, military software, shotguns, “crowd-control equipment,” tank parts, military cargo vehicles, air surveillance equipment, armoured personnel carriers, small arms ammunition, heavy machine guns, and a plethora of other products, almost exclusively delivered to dictatorships (with the exception of Israel).
Germany, which stood as the world’s third-largest arms exporter in previous years (after the US and Russia), had doubled its share of the global arms trade over the previous decade to 11%, totaling roughly 6 billion euros in arms deals for 2008 alone, with companies like EADS, Rheinmetall and Heckler & Koch leading the way. Even Russia was becoming a big customer for German military equipment, purchasing armoured plating and tanks.
In 2009, the European Union had established new export rules for arms and military technology, much-praised as preventing the export of arms that “might be used for undesirable purposes such as internal repression or international aggression or contribut[ing] to regional instability.” With the EU rules in place, member countries were free to completely disregard them. A European Commission study leaked to Der Spiegel in 2012 revealed that combined exports from EU nations made the European Union “the world’s largest exporter of weapons” to Saudi Arabia, delivering at least $4.34 billion in equipment in 2010 alone. Sweden helped the Saudi dictatorship build a missile factory, Finland delivered grenade launchers, Germany sold tanks and Britain provided fighter jets. The arms exporters were unfazed by the fact that equipment such as the tanks were used by Saudi Arabia in its “invitation” to invade Bahrain and help the Bahraini dictatorship crush the pro-democracy movement in early 2011. An official with the Swedish Peace and Arbitration Society noted that the Swedish support for building a missile factory in Saudi Arabia has meant that, “we are legitimizing one of the most brutal regimes in the world.” Pakistan had meanwhile become China’s biggest customer for arms exports, while India purchased 10% of the world’s arms exports in 2010 “to defend itself against neighbor and arch enemy Pakistan.”
When German Chancellor Angela Merkel spoke at the Munich Security Conference in 2011, she mentioned the “obligation to pursue value-based foreign policy,” and has often argued that “no compromises” can be made on issues of human rights. As part of Merkel’s respect for “human rights” and “value-based foreign policy,” weapons sales have increased as a significant factor in Germany’s foreign policy strategy, quietly changing the rules for arms exports to increase weapons sales to “crisis regions” as “a major pillar of the country’s security policy.” The objective would be to strengthen countries within “crisis regions” and therefore reduce the possibility that the German military would itself have to participate in “international missions.”
The German publication Der Spiegel referred to this as the “Merkel doctrine” of “tanks instead of soldiers.” Among the key countries to support, identified by Merkel and eight other ministers who met behind closed doors under the aegis of the Federal Security Council, were Saudi Arabia, Indonesia, Qatar, India, and Angola. Merkel explained her doctrine in a speech at an event in Berlin in September of 2011 where she stated that if the West lacks the will and ability to undertake direct military intervention, “then it’s generally not enough to send other countries and organizations words of encouragement. We must also provide the necessary means to those nations that are prepared to get involved. I’ll say it clearly: This includes arms exports.” This, of course, Merkel added, would nicely manifest as a foreign policy “that is aligned with respect for human rights.”
As part of the “Merkel doctrine” of engaging in a “value-based foreign policy” with “respect for human rights,” Germany increased its arms sales to the Algerian dictatorship from 20 million euros in 2010 to nearly 400 million euros in 2012, with German military manufacturer Rheinmetall planning to produce 1,200 armored personnel carriers for Algeria over the next ten years. According to published European Union documents, over 2011, the top five arms exporting countries in the EU were France, the U.K., Germany, Italy, and Spain, collectively exporting over 80% of 37.5 billion euros in arms from EU countries. The European Union, winner of the 2012 Nobel Peace Prize, increased its arms exports by 18.3% since the previous year, with an increase in export licenses to Asia, the Middle East, and sub-Saharan Africa. There were arms licenses issued to Libya, Tunisia, Algeria, Morocco, and over 300-million euros-worth of arms for Egypt. The EU increased its arms exports to “areas of tension,” including India, Pakistan, and a record 465 million euros in arms to Afghanistan, “a country still under partial arms embargo.” However, ‘partial’ is apparently debatable.
With the United States reaching a record-breaking $60 billion in arms deals over 2011, Andrew Shapiro at the State Department stated that 2012 was set to be an equally – if not larger – bonanza for arms dealers. Revealing the role of diplomats and top government officials as glorified lobbyists and corporate representatives, Shapiro told a group of defense writers in the Summer of 2012: “We’ve really upped our game in terms of advocating on behalf of U.S. companies,” adding, “I’ve got the frequent-flyer miles to prove it.” Shapiro had traveled to more than 11 countries over 2012 promoting arms deals, noting that sales were at a record level for the third quarter of 2012, already passing $50 billion. Secretary of State Hillary Clinton had made “advocacy” for arms dealers “a key priority” for U.S. diplomats and State Department officials who “were now expected to undertake such efforts on all trips abroad.” Shapiro and others had been lobbying for American military contractors in deals ranging from Japan’s $10 billion purchase of aircraft from Lockheed Martin to India’s increased arms purchases, where Shapiro saw “tremendous potential” for U.S. arms sales, and to Brazil, where Boeing was competing with France’s Dassault company for a multibillion-dollar defense contract, of which Shapiro stated, “We’re eager to make the best possible case for the Boeing aircraft, and we’re hopeful that it will be selected.”
By March of 2013, the world’s five largest arms exporters were the U.S., Russia, Germany, France, and China overtook the UK for the first time in fifth place, having increased its arms exports by 162% between 2008 and 2012, increasing its share of the global arms trade from 2 to 5%, over 50% of which are delivered to Pakistan, with other large recipients being Myanmar, Bangladesh, Algeria, Venezuela and Morocco. Li Hong, the secretary-general of the China Arms Control and Disarmament Association noted: “Military exports are one way for China to increase its international status,” explaining that, “China needs to increase its influence in regional affairs and from that perspective it needs to increase weapons exports further.” As China increased its own military budget in recent years, it had turned to developing its own weapons industries, thus moving from being the world’s number one arms importer (of conventional weapons) between 2003-2007 to taking second place behind India in the 2008-2012 period, acquiring roughly 69% of its arms imports from Russia.
British Prime Minister David Cameron again traveled to the Middle East, accompanied by his Defense Secretary Philip Hammond and another delegation of arms dealers in 2012, seeking to sell up to 100 Eurofighter Typhoon jets to Saudi Arabia and the UAE, built by EADS and marketed by BAE, competing with France’s cheaper Rafale strike jet made by Dassault Aviation. The increased – and increasingly profitable – arms race in the Middle East was largely facilitated by America’s policies toward Iran. William Cohen is a former U.S. Secretary of Defense in the Clinton administration, current Counselor and Trustee to the Center for Strategic and International Studies (CSIS), former member of the board of directors of the Council on Foreign Relations from 1989 to 1997, current Vice Chairman of the U.S.-China Business Council, on the board of directors of CBS Corporation, and is Chairman and CEO of The Cohen Group, an international business consulting firm. Commenting on the growing arms race in the Middle East, Cohen repeated the usual American propaganda, stating that there was “A very legitimate concern about Iran being a revolutionary country,” though also adding that terrorism, cyberattack threats, and “the implications of the Arab Spring” spurred each country in the region “to make sure it’s protected against that.” Cohen added that military contractors, information technology firms and other corporations “have an enormous opportunity” in the region.
When British Defense Secretary Philip Hammond traveled to Indonesia to promote arms deals for British military contractors like BAE Systems and Rolls-Royce, he explained that increasing military ties with notoriously corrupt Indonesia, posed “manageable” risks. He commented: “From the companies I have talked to, they recognize that there is a challenge but they think that it is manageable, and they can operate here successfully while observing the UK and US legal requirements to address anti-corruption issues.” This statement came amid accusations of Rolls-Royce engaging in bribery to acquire business in China, Indonesia, and elsewhere. Hammond noted that in light of the U.S. “pivot” to Asia, Britain was “looking east in a way we have not done before.” Indonesia had recently purchased F-16 fighter jets and Apache helicopters from the U.S., Sukhoi fighters from Russia, missile systems from China, anti-aircraft missiles, Hawk jets and small arms from British companies. Prime Minister David Cameron defended arms sales to oppressive regimes such as Saudi Arabia, declaring it to be “completely legitimate and right.”
The International Institute for Strategic Studies (IISS), a major think tank, projected that defense spending in Asia would overtake that of Europe for the first time in 2012, noting that Asia was in the midst of an arms race between China and other states in the region. The expenditure of European members of NATO on defense spending over 2011 was just under $270 billion, whereas in Asia it had reached $262 billion (excluding Australia and New Zealand). As China announced increased defense spending, the United States announced a “shift in military strategy” which treats the Asia-Pacific region “as one of the Pentagon’s priorities at a time when forces in Europe are being sharply cut.” Secretary of State Hillary Clinton stated that large and rising powers like China “have a special obligation to demonstrate in concrete ways that they are going to pursue a constructive path.” Leon Panetta, the U.S. Defense Secretary, noted that America’s “military posture in Asia will be increased.”
Indeed, in 2012, Asian defense spending surpassed that of Europe for the first time, reaching a record level of $287.4 billion, though the United States continued to account for 45.3% of total global military spending, meaning that the United States spends almost as much on military expenditures than the rest of the entire world combined. The United States, as part of its Pacific ‘pivot’ in military strategy, increased its arms sales to countries neighbouring China and North Korea. Fred Downey, vice president of the U.S. trade group, Aerospace Industries Association, which includes top U.S. military contractors, noted that the Pacific pivot “will result in growing opportunities for our industry to help equip our friends.” U.S. arms sales to the region increased to $13.7 billion in 2012, up more than 5% from the previous year. There were 65 individual notifications to the U.S. Congress over the previous year regarding total foreign military sales brokered by the Pentagon with a collective value exceeding $63 billion. The State Department, responsible for issuing licenses for direct commercial sales between military contractors and foreign governments, noted that 2012 saw a new record increase with more than 85,000 license requests.
As Obama set a new record for arms sales to the Middle East in 2012, Assistant Secretary of State Andrew Shapiro noted, “If countries view the United States unfavorably, they will be less willing to cooperate on security matters,” and for this reason, “the current administration has sought to revitalize U.S. diplomatic engagement, especially relating to security assistance and defense trade.” The growth in arms sales, noted Shapiro, speaking to the Defense Trade Advisory Group in November of 2012, “has been truly remarkable,” that in spite of the global economic crisis, “demand for U.S. defense sales abroad remains robust” with “significant growth both in direct commercial sales and in foreign military sales.”
As part of America’s Pacific ‘pivot,’ the United States announced a $5.9 billion arms deal with Taiwan in 2011, upgrading the country’s fleet of 145 F-16 fighter jets. Zhang Zhijun, a Chinese Vice-Foreign Minister, commented: “The wrongdoing by the US side will inevitably undermine bilateral relations as well as exchanges and co-operation in military and security areas.” Upon the announcement of the arms deal, Zhijun summoned the U.S. ambassador to China, Gary Locke, and informed him that, “China strongly urges the US to be fully aware of the high sensitivity and serious harm of the issue, [to] seriously treat the solemn stance of China, honour its commitment and immediately cancel the wrong decision.” A top Obama administration official replied, “We believe that our contribution to the legitimate defense needs of Taiwan will contribute to stability across the Taiwan Strait.” The Chinese Ministry of Defense warned that the arms deal “will create a serious obstacle to developing normal exchanges between the two militaries” and that the “U.S. has ignored China’s firm opposition and insisted on selling arms to Taiwan.” Obviously, there are different definitions of “stability” at play.
In April of 2012, the Pentagon announced an arms deal with Japan of four F-35 Joint Strike Fighter aircraft with an option to purchase an additional 38 F-35 jets from Lockheed Martin at an estimated cost of $10 billion. In late 2011, Japan announced its intention to relax a ban on weapons exports which dated back to 1967, which, the Financial Times reported, could open “the way for Japanese companies to participate in the international development and manufacture of advanced weapon systems.” Japan’s largest business lobby, the Keidanren, praised the move as “epoch-making.” Following the “relaxing” of controls, Japan and Britain announced that they would jointly develop weaponry, the first time that Japan would work with another country (apart from the United States) on constructing military equipment.
In October of 2012, the United States announced an arms deal in which South Korea would get longer-range missiles capable of striking anywhere in North Korea, “altering” (or violating) a 2001 accord which barred the U.S. “from developing and deploying ballistic missiles with a range of more than 300km (186 miles),” in order to avert a regional arms race. Obviously, a decision was made to create a regional arms race, so the accord was “altered” and the US agreed to sell South Korea missiles with a range of 800km. South Korea’s defense ministry praised the new deal, stating that they would then be able to “strike all of North Korea, even from southern areas.” The 2001 accord also ensured that the U.S. would not deploy or develop missiles for the South with a payload of more than 500 kg (1,100lbs), since the “heavier a payload is, the more destructive power it can have.” So obviously, that pesky restriction also had to be “altered,” and while long-range missiles maintain the 1,100lb payload, missiles with shorter ranges will be permitted to hold much more. South Korea will also be able to operate U.S.-supplied drones, permitted to hold payloads up to 5,510lb with a range of more than 300km, and no payload restrictions on drones with a flying distance less than 300km. South Korea can also acquire cruise missiles with unlimited range, and some media reports suggested that South Korea had already deployed cruise missiles with a range of more than 1,000km, though officials “refused to confirm” if that were true. The South Korean Defense Ministry reported that North Korea had missiles that could reach South Korea, Japan, and Guam, a Pacific territory of the United States. Thus, the United States intends to counter the “threat” of North Korea by instigating a massive arms race in the region.
Arms Trade Diplomacy: “Chief Commercial Officer” or Ambassador?
As the massive release of diplomatic cables from Wikileaks revealed, U.S. and other diplomats are often little more than glorified lobbyists and salesmen for the Western arms industry. Lockheed Martin got help from the U.S. State Department in selling C-130 military transport planes to the government in Chad starting in 2007. The U.S. Embassy in Chad noted that the government likely could not afford the aircraft, not to mention that it would probably use the aircraft “to defend the regime against a backlash provoked by its refusal so far to open its political system and provide for a peaceful democratic transition.” In other words, the government of Chad wanted to use the military equipment to crush a pro-democracy movement. Nevertheless, noted the U.S. Embassy, we “would concur in allowing the sale to go forward.”
With Chad’s air force chief, its ambassador to the U.S. and a representative from Lockheed Martin promoting the deal with the State Department, the Embassy noted that the sale “would provide a healthy boost to U.S. exports to Chad” and “strengthen U.S. military cooperation.” While Chad told the State Department that it wanted the aircraft “to go after terrorists or help refugees,” the U.S. Embassy noted that in reality, “it needs them to support combat operations against the armed rebellion in eastern Chad,” and commented: “A decision to approve the sale would be met with dismay by many Chadian supporters of peaceful democratic change.” Our conclusion, noted a U.S. Embassy cable, “is that, like it or not, our interests line up in favor of allowing the sale in some form to go forward.” However, the U.S. would have to promote the sale with full knowledge of how Chadians will perceive it, and will have to undertake “a strategy to counter these perceptions.”
Ben Berkowitz wrote for Reuters that Wikileaks cables painted “a picture of foreign service officers and political appointees willing to go to great lengths to sell American products and services,” where, “in some cases, the efforts were so strenuous they raise the question of where if anywhere the line is being drawn between diplomacy and salesmanship.” A State Department spokesperson said in response that the U.S. government “has broad, though not unlimited, discretion to promote and assist U.S. commercial interests abroad.” Such practice became official policy shortly after the end of the Cold War when U.S. Secretary of State Lawrence Eagleburger introduced a bill which gave corporations a direct role in foreign policy. One former U.S. diplomat in Asia noted, “Until (then), U.S. diplomats were not particularly encouraged to help U.S. business. They were busy fighting the Cold War.” Suddenly, he noted, “we were given new direction: if a single U.S. company is looking for business, we should advocate for them by name; if more than one U.S. company was in the mix, stress buying the American product.” The former diplomat added: “It was great to see how influential the right word from the U.S. ambassador was.”
Former Spanish Prime Minister Jose Luis Zapatero had informed the U.S. Embassy, “to let him know if there was something important to the (U.S. government) and he would take care of it,” according to a 2009 diplomatic cable. The embassy took up the offer when General Electric was bidding against Rolls-Royce to sell helicopters to the Spanish Ministry of Defense (MOD), with GE informing the U.S. Embassy that if it did not get the contract, it would close part of its business in Spain. The U.S. Embassy passed the information along to Zapatero’s economic adviser, and, although there was “considerable” evidence that the government was going to award the contract to Rolls Royce, the Zapatero’s office “overturned the decision and it was announced that GE had won the bid,” and the U.S. Ambassador was “convinced that Zapatero personally intervened in the case in favor of GE.”
The U.S. Embassy in the United Arab Emirates promoted the interests of Halliburton to participate in a joint venture with the Abu Dhabi National Oil Co. in 2003, a time at which Halliburton’s former CEO, Dick Cheney, was Vice President of the United States. The contract was eventually awarded to Halliburton. The U.S. Ambassador to the UAE at the time, Marcelle Wahba, noted, “I can’t think of a time when a month went by when a commercial issues wasn’t on my plate… Some administrations put more of an emphasis on it than others, but now I think, regardless of who’s in power you really find it’s become an integral part of the State Department mandate.”
Tom Niles, a former U.S. ambassador to Canada, the European Union and Greece, as well as former president of the “pro-trade group” the U.S. Council for International Business, stated: “By the time I was retired from the Foreign Service, which was 1998, things had changed fundamentally and being an active participant in the commercial program and promoting trade using the prestige of the ambassador and receptions held at the ambassador’s residence was an important part of what I did.” Niles suggested that a U.S. ambassador was as much a “chief commercial officer” for corporations as a diplomat. “We might have been a little bit late to the game. The Europeans understood the crucial role of foreign trade in the growth and development of their economies before we did.” A former ambassador to the UAE noted: “Oftentimes European ambassadors, that’s all they’re there for.” Of course, that’s only logical, considering that European ambassadors do not have to be concerned with managing the world in the same way the United States does. Therefore, their interests are specific: economic.
In the Arms of America
With all the flowery rhetoric of “democracy” and “freedom,” American – and the Western world’s – hypocrisy can easily be revealed with a brief look at the global arms trade: supporting ruthless and repressive dictatorships, as well as creating and supporting regional arms races which increase instability and the threat of war. The objective is simple, and from the imperial perspective, very practical: support regional proxy states to do our dirty work for us. If this happens to increase regional instability and even lead to war, well, such things are inevitable within and as a result of an imperial system. So long as the final result is that the United States and the West maintain their “access” to and control over regions, resources, and populations, the means are incidental.
To put it another way: if our nations were actually interested in concepts and ideas of “democracy” and “freedom” for all people, around the world, why do we sell billions of dollars in weapons and military technology to the countries which most enthusiastically crush democracy and prevent freedom?
The answer to that question reveals the true nature of our society.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, with a focus on studying the ideas, institutions, and individuals of power and resistance across a wide spectrum of social, political, economic, and historical spheres. He has been published in AlterNet, CounterPunch, Occupy.com, Truth-Out, RoarMag, and a number of other alternative media groups, and regularly does radio, Internet, and television interviews with both alternative and mainstream news outlets. He is Project Manager of The People’s Book Project, Research Director of Occupy.com’s Global Power Project, and has a weekly podcast show with BoilingFrogsPost.
 Thom Shanker, “Bad Economy Drives Down American Arms Sales,” The New York Times, 12 September 2010:
 Matt Sugrue, “GAO Report on U.S. Arms Sales, 2005-2009,” Arms Control Now, 29 September 2010:
 Maggie Bridgeman, “Obama seeks to expand arms exports by trimming approval process,” McClatchy, 29 July 2010:
 Joby Warrick, “U.S. steps up weapon sales to Mideast allies,” The Washington Post, 31 January 2010:
 Helene Cooper, “U.S. Approval of Taiwan Arms Sales Angers China,” The New York Times, 29 January 2010:
 Adam Entous, “Saudi Arms Deal Advances,” The Wall Street Journal, 12 September 2010:
 Roula Khalaf and James Drummond, “Gulf states in $123bn US arms spree,” The Financial Times, 20 September 2010:
 Anthony H. Cordesman, et. al, “Is Big Saudi Arms Sale a Good Idea?” Expert Roundup, the Council on Foreign Relations, 27 September 2010:
[12 – 15] Ibid.
 “U.S. dominates Middle East arms market,” UPI, 28 December 2010:
 “US confirms $60bn Saudi arms deal,” Al-Jazeera, 20 October 2010:
 Mina Kimes, “America’s hottest export: Weapons – Full version,” CNN money, 24 February 2011:
 Richard F. Grimmett, “U.S. Arms Sales: Agreements with and Deliveries to Major Clients, 2003-2010,” U.S. Congressional Research Service, 16 December 2011, page 3.
 Leslie H. Gelb, “Mideast Arms Sales Not So Bad,” The Daily Beat, 12 April 2011:
 Andrew J. Shapiro, “Remarks: Defense Trade Advisory Group Plenary,” Dean Acheson Auditorium, U.S. Department of State, 3 May 2011:
 DTAG Activity 2010, “2010-2012 Membership,” The Defense Trade Advisory Group (DTAG), U.S. Department of State:
 Andrew J. Shapiro, “Remarks: Defense Trade Advisory Group Plenary,” Dean Acheson Auditorium, U.S. Department of State, 3 May 2011:
 Agencies, “US arms sales to Bahrain surged in 2010,” Al-Jazeera, 11 June 2011:
 Mark Landler and Steven Myers, “With $30 Billion Arms Deal, U.S. Bolsters Saudi Ties,” The New York Times, 29 December 2011:
 Thom Shanker, “Global Arms Sales Dropped Sharply in 2010, Study Finds,” The New York Times, 23 September 2011:
 Harry Bradford, “U.S. Arms Sales Tripled In 2011 To $66.3 Billion: Report,” The Huffington Post, 27 August 2012:
 Thom Shanker, “U.S. Arms Sales Make Up Most of Global Market,” The New York Times, 26 August 2012:
 Richard Northon-Taylor, “Arms sales rise during downturn to more than $400bn, report reveals,” The Guardian, 29 February 2012:
 Ami Sedghi, “Arms sales: who are the world’s 100 top arms producers?,” The Guardian Data Blog, 2 March 2012:
 “Cameron Middle East visit ‘morally obscene’ says Lucas,” BBC News, 23 February 2011:
 Benjamin Bidder and Clemens Hoges, “Democracy or Dollars?: Weapons Sales to the Arab World under Scrutiny,” Der Spiegel, 1 April 2011:
 Nicholas Watt and Robert Booth, “David Cameron’s Cairo visit overshadowed by defence tour,” The Guardian, 21 February 2011:
 Robert Booth, “Abu Dhabi arms fair: Tanks, guns, teargas and trade at Index 2011,” The Guardian, 21 February 2011:
 Simon Rogers, “UK arms sales to the Middle East and North Africa: who do we sell to, how much is military and how much just ‘controlled’?” The Guardian, 22 February 2011:
 Benjamin Bidder and Clemens Hoges, “Democracy or Dollars?: Weapons Sales to the Arab World under Scrutiny,” Der Spiegel, 1 April 2011:
 “Weapons Exports: EU Nations Sell the Most Arms to Saudi Arabia,” Der Spiegel, 19 March 2012:
 Ulrike Demmer, Ralf Neukirch and Holger Stark, “Arming the World for Peace: Merkel’s Risky Weapons Exports,” Der Spiegel, 30 July 2012:
 “Tanks in the Desert: Germany Plans Extensive Arms Deal with Algeria,” Der Spiegel, 12 November 2012:
 Press Release, “Large increase in EU arms exports revealed,” Campaign Against Arms Trade, 10 January 2013:
 Andrea Shalal-Esa, “U.S. government advocacy said boosting foreign arms sales,” Reuters, 27 July 2012:
 Michael Martina, “World’s Top 5 Arms Exporters: China Replaces UK In Weapons Trade,” Reuters, 18 March 2013:
 Jamil Anderlini and Victor Mallet, “China joins top five arms exporters,” The Financial Times, 18 March 2013:
 “Defense contest over major gulf arms buys,” UPI, 20 November 2012:
 Ben Bland, “UK defence minister bullish on arms sales,” The Financial Times, 16 January 2013:
 “David Cameron defends arms deals with Gulf states,” The Telegraph, 5 November 2012:
 FT Reporters, “Asia defence spending to overtake Europe,” The Financial Times, 7 March 2012:
 Myra MacDonald, “Asia’s defense spending overtakes Europe’s: IISS,” Reuters, 14 March 2013:
 “US Arms Sales to Asia Set to Boom on Pacific ‘Pivot’,” Reuters, 2 January 2013:
 “Obama set record in 2012 for Mideast defense exports,” World Tribune, 4 December 2012:
 Richard McGregor, “US agrees $5.9bn arms deal with Taiwan,” The Financial Times, 21 September 2011:
 Kathrin Hille, “China hits at US over Taiwan arms deal,” The Financial Times, 22 September 2011:
 “U.S. Government Says Japan’s Cost to Buy 42 F-35s Around $10 Billion,” Ottawa Citizen, 2 May 2012:
 Mure Dickie, “Japan relaxes weapons export ban,” The Financial Times, 27 December 2011:
 Reuters, “Japan and Britain ‘set to agree arms deal’,” The Telegraph, 4 April 2012:
 AP, “South Korea to get longer-range missiles under new deal with US,” The Guardian, 7 October 2012:
 07NDJAMENA43, “C-130’s for Chad?”, 12 January 2007, Wikileaks Diplomatic Cables:
 Ben Berkowitz, “Wikileaks reveals extent of State Department’s involvement in arms sales, oil deals,” Reuters, 4 March 2011:
Austerity, Adjustment, and Social Genocide: Political Language and the European Debt Crisis
By: Andrew Gavin Marshall
The following is a sample analysis from my upcoming book on the global economic crisis and global resistance movements. Please consider donating to The People’s Book Project to help support the effort to finish this book.
Political language… is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.
- George Orwell, “Politics and the English Language,” 1946
Political language functions through euphemism, by employing soft-sounding or simply meaningless words to describe otherwise monstrous and vicious policies and objectives. In the European debt crisis, political language employed by politicians, economists, technocrats and bankers is designed to make policies which create poverty and exploitation appear to be logical and reasonable. The language employed includes the words and phrases: fiscal austerity/consolidation, structural adjustment/reform, labour flexibility, competitiveness, and growth. To understand political language, one must translate it. This requires four steps: first, you look at the rhetoric itself as inherently meaningless; second, you examine the policies that are taken; third, you look at the effects of the policies. Finally, if the effects do not match the rhetoric, yet the same policies are pursued time and time again, one must translate the effects as the true meaning of the rhetoric. Thus, the rhetoric has meaning, but not at face value.
The debt crisis followed the 2007-2009 financial crisis, erupting first with Greece, then Ireland, Portugal, Italy and Spain, and threatens even to spread elsewhere. Of those mentioned, only Italy has not received a bailout. Though whether “bailed out” or not, Europe’s people are being forced to undergo “austerity measures,” a political-economic euphemism for cutting social spending, welfare, social services, public sector jobs, and increased taxes. The aim, they are told, is to get their “fiscal house in order.” The people protest, and go out into the streets. The state responds by meeting the people with riot police, batons, tear gas, pepper spray, and rubber bullets. This is called “restoring order.”
The effects of austerity are to increase poverty, unemployment, and misery. People are fired from the public sector, welfare and social benefits are reduced or lost, retirement ages are increased to keep people in the work force and off the pension system, which is also cut. Cuts to health care and education take a social and physical toll; as poverty increases the need for better health care, that very system is dismantled when it is needed most. Taxes are increased, and wages are decreased. People are deeper in debt, and destined for destitution. The objective, we are told, is to reduce public spending so that the government can reduce its deficit (the yearly debt).
In Europe, austerity has been the siren call of all the agencies, organizations, and individuals who represent the interests of elite financial control. In March 2010, the OECD (Organisation for Economic Co-operation and Development) suggested Europe undertake a program of austerity lasting for no less than six years from 2011 to 2017, which the Financial Times referred to as “highly sensible.” In April of 2010, the Bank for International Settlements (BIS) – the central bank to the world’s central banks – called for European nations to begin implementing austerity measures. In June of 2010, the G20 finance ministers agreed: it was time to enter the age of austerity! German Chancellor Angela Merkel, the European midwife of austerity, set an example for the EU by imposing austerity measures at home in Germany. The G20 leaders met and agreed that the time for stimulus had come to an end, and the time for austerity poverty was at hand. This was of course endorsed by the unelected technocratic president of the European Commission, José Manuel Barroso. The unelected president of the European Council, Herman Van Rompuy, also agreed, explaining in his unrelenting economic wisdom that austerity “has no real effect on economic growth.” Jean-Claude Trichet, president of the European Central Bank (ECB), also hopped on the austerity train, writing in the Financial Times that, “now is the time to restore fiscal sustainability.” Jaime Caruana, General Manager of the Bank for International Settlements (BIS) stated in June of 2011 that the need for austerity was “more urgent” than ever, while BIS chairman, Christian Noyer, also the governor of the Bank of France (and board member of the ECB), stated that apart from austerity, “there’s no solution possible” for Greece.
In April of 2011, the two president of the EU – Barroso and Van Rompuy – felt it was necessary to clarify (just in case people were getting the wrong idea), that: “Some people fear this work is about dismantling the welfare states and social protection… Not at all … It is to save these fundamental aspects of the European model… We want to make sure that our economies are competitive enough to create jobs and to sustain the welfare of all our citizens and that’s what our work is about.” However, the following year, the new European Central Bank president, Mario Draghi (former governor of the Bank of Italy), stated in an interview with the Wall Street Journal that, “there was no alternative to fiscal consolidation,” meaning austerity, and that Europe’s social contract was “obsolete” and the social model was “already gone.” However, Draghi explained, it was now necessary to promote “growth,” adding, “and that’s why structural reforms are so important.”
Thus, “austerity packages” will then prepare the state and economy for the next phase, which, we are told, would make the country “competitive” and create “growth.” This is how the country would pay off its total debt, which deficits merely add to. This process is called “structural adjustment” (or “structural reform”) and it requires “competitiveness” to facilitate “growth.”
As we can loosely translate “austerity” into poverty, we may translate “structural adjustment” into exploitation. After all, nothing goes better with poverty than exploitation! How does “structural adjustment” become exploitation? Well through competitiveness and growth, of course! Structural adjustment means that the state liberalizes the economy, so everything is deregulated, all state-owned assets are privatized, like roads, hospitals, airports, rivers, water systems, minerals, resources, state-owned companies, services, etc. This, as the story goes, will encourage “investment” in the country when it “needs it most.” This idea suggests that foreign banks and corporations will enter the “market” and purchase all these wonderful things, explaining that they work better when they are “competitive” in the “free market,” and then with their new investments, they will create new industries, employ local people, revive the economy, and with the “trickle down” from the most productive and profitable, all of society will rise in living standards and opportunity.
But first, other “structural adjustment” measures must be simultaneously employed. One of the most important ones is called “labour flexibility.” This means that if you have protected wages, hours, benefits, pensions… well, now you don’t! If you are a member of a union, or engage in collective bargaining (which has at its disposal the threat of a strike), soon you won’t. This is done because, as the story goes, wages must be decreased to increase the competitiveness of the labour force. Simply put, if less money goes into labour during the process of production, what is ultimately being produced will be cheaper on “the market,” and thus, will become more attractive to potential buyers. Thus, with lower wages comes greater profits. ECB president Mario Draghi himself emphasized that the “structural reforms” which Europe needs are, “the product and services market reform,” and then “the labour market reform which takes different shapes in different countries.” He added that the point was “to make labour markets more flexible and also fairer than they are today.” Isn’t that nice? He wants to make labour markets “fairer.” What this means is that, since some countries have protections for various workers, this is unfair to the workers who have no protections, because, as Draghi explained, “in these countries there is a dual labour market: highly flexible for the young part of the population… [and] highly inflexible for the protected part of the population.” Thus, “labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population.” So to make the labour markets “fair,” everyone should be equally exploitable, and thus, equally flexible.
Labour flexibility will then help “specialize” your country in producing one or a few select goods, which you can produce better, cheaper, and more of than anywhere else. Then your economy will have success and the lives of all will prosper and grow… just not their wages. That is left to the “trickle down” from those whose wages are increased, the corporate, banking, and government executives and managers. That is because they take all the risk (remember, you are not risking anything when you passively accept your wages and standards of living to be rapidly decreased), and thus, they should get all of the reward. And because their rewards are so huge, large scraps will fall off of their table and onto the floor, which the wage-slaves below can fight over. By the laws of what I can only assume is “magic,” this will eventually lift the downtrodden from a life of poverty and labour and all will enjoy the fruits of being in a modern, technological, democratic-Capitalist paradise! Or so the fable goes.
The actual, predictable, and proven results of “structural adjustment” aimed at achieving “growth” through “competitiveness” is exploitation. The privatization of the economy allows foreign banks and corporations to come in and buy the entire economy, resources, commodities, infrastructure and wealth. Because the country is always in crisis when it does this, everything is sold very cheaply, pennies on the dollar kind of cheap. That is because the corporations and banks are doing the government and people a favour by investing in a country which is a large risk. The money the state gets from these sales is recorded as “revenue,” and helps reduce the yearly debt (deficit). The result for the people, however, is that mass layoffs take place, commodity prices increase, service costs increase, and thus, poverty increases. But privatization has benefits, remember; it encourages “competitiveness.” If everything was privatized, everyone would compete with each other to produce the best goods for the lowest costs, and everyone can subsequently prosper together in a society of abundance.
What actually takes place is that multinational corporations and banks, which already own most of the world’s resources, now own yours, too. This is not competitive, because they are ultimately all cartels, and collude together in exploiting vast resources and goods from around the world. They do compete in the sense of seeing which one can exploit, produce, and control more than the other. But at the bottom of this system, everyone else gets poorer. This is called “competitiveness,” but what it actually means is control. So if the economy needs to become more competitive, what is really being said is that it needs to come under more control, and of course, in private corporate and financial hands.
State owned industries are simply closed down, employees fired, and the product or resource which that industry was responsible for producing is then imported from another country/corporation. A corporation takes over that domestic good/resource and then extracts/produces it for itself. But this requires labour. It’s a good thing that the labour force has had its back broken through austerity and adjustment, because now there are no protected jobs, wages, hours, unions, or workers’ rights in general. Thus, the population is free to be exploited for long hours and minimal wages. This makes what they are producing to be cheaper, and thus, more “competitive.” This can become extremely profitable for corporations and banks which took all the risk in this entire process (remember: you don’t count; you had very little to begin with, so you lost very little. They have a lot, and thus, a lot more to lose. That’s what risk means). If workers attempt to form unions or organize and demand higher wages, the corporation can simply threaten to close down the plant, and move the jobs to somewhere else with a more “flexible” labour force. Or, the corporation could simply hire local immigrant populations (or ship in others) and pay them less for more hours, and leave you without any jobs. This is called “labour flexibility.” Labour flexibility translates as cheap labour: to bring everyone down to an equally low level of worker standards, and thus, to encourage “utilization,” which means exploitation.
In the ‘Third World,’ this has been best achieved through what are called “Export Processing Zones (EPZs),” a term used to describe a designated area outside of state control in which corporations may establish factories to freely exploit labour as they choose. Commodities are shipped in, goods are produced in the EPZs, from where they are then exported abroad, free of pesky national taxation and regulation. Ultimately, EPZs are mini corporate colonies. In late May of 2012, it was reported that Germany was looking for “alternatives” to its exclusive focus on austerity, and subsequently came up with a six-point plan for “growth.” One of the most notable points from Berlin was to establish “special economic zones to be created in crisis-plagued countries at the periphery of the euro zone,” as “foreign investors could be attracted to those zones through tax incentives and looser regulations.” Essentially, they are EPZs for the eurozone. The plan also calls for establishing trusts which would organize the sell-off of state assets in massive privatization schemes. Further, what is needed, according to Berlin, was to establish a “dual education system, which combines a standardized practical education at a vocational school with an apprenticeship in the same field at a company in order to combat high youth unemployment.” In other words, no more academic or intellectual education for youth, but rather “vocational” or labour-oriented education, to not allow the expectations of the youth to rise too far, and to simply prepare them for a life of ‘work’ by attaining the necessary vocational skills. And of course, the plan for “growth” from Germany also includes more efforts at establishing “labour flexibility,” which would include “a loosening of provisions that make it difficult to fire permanent employees and to create employment relationships with lower tax burdens and social security contributions.” In other words: make it easy to fire workers, have lower wages, and eliminate benefits.
Economists and politicians often talk about the need to “utilize labour flexibility to increase competitiveness and achieve growth.” What they are really saying is that they need to exploit cheap labour to increase control and achieve profits and power. Lucas Papademos was installed (unelected) as the “Technocratic” prime minister of Greece in November of 2011, in order to “help” Greece undertake the mandatory “reforms.” Papademos was the perfect candidate for the job: he was an economist educated in the U.S., served on the board of the Federal Reserve Bank of Boston, was chief economist at the Bank of Greece, he became Governor of the bank in 1994, where he oversaw the conversion of Greece into the euro, and in 2002, he joined the European Central Bank board, where he became a Vice President under Jean-Claude Trichet.
In a 2005 interview with the Financial Times while he was Vice President at the European Central Bank (ECB), Lucas Papademos said that European “growth” potential was looking good, but added: “There is a risk that, unless there are changes in policies – more reforms in labour and product markets – as well as in the behaviour of private economic agents, this [growth] range may have to be revised downwards.” He explained: “the main way that potential growth could increase is through policies that boost productivity growth and raise labour utilization by increasing the average hours worked and the participation rate in the labour market and by making this market more flexible and adaptable.” In May of 2010, Bank of England governor Mervyn King stated that the eurozone needed “structural reforms, changes in wages and prices in the countries that need to regain competitiveness.” Former ECB president Jean-Claude Trichet had also emphasized that what was needed was a program of fiscal austerity, “accompanied by structural reforms to promote long-term growth.” In other words, what was needed was impoverishment, accompanied by exploitation to promote long-term profits.
The European Financial Stability Facility (EFSF), the Euro-area bailout fund, was headed by a man named Klaus Regling. In an article he wrote for The Banker, Regling emphasized that funds from the EFSF would come with conditions, including of course, austerity measures, but also, “structural reforms, such as modernizing public administrations, improving labour market performance and enhancing the tax systems, with the aim of increasing a country’s competitiveness and growth potential.” In other words, the conditions imposed on countries receiving a bailout would amount to an impoverishment program (“austerity”), combined with increased exploitation (“structural reforms”), through privatization of state industries and assets (“modernizing public administration”), creating a cheap labour force (“improving labour market performance”), extracting all remaining domestic wealth (“enhancing the tax systems”), designed to increase control (“competitiveness”) and profits (“growth”).
Mario Draghi, as president of the ECB, called for a “growth pact” (or a “profit pact”) for Europe, to go alongside the “fiscal pact” (or “poverty pact”). This received quick endorsements from France’s new president Francois Hollande, Angela Merkel, and José Manuel Barroso. Merkel was sure to emphasize, however, that growth would be “in the form of structural reforms.”
The combination of “fiscal austerity” and “structural adjustment” are generally referred to as a “comprehensive structural adjustment program” or a “restructuring of the economy.” This language is important to understand because “restructuring” as a word is used to describe two processes: one, is that it is what is needed to prevent a country from defaulting on its debt and to return the country to a period of growth; and, on the other hand, “restructuring” is used to describe what takes place after a country defaults. The words in both situations are the same, and so are the policies, though in a default they are inflicted more severely. The very process we are told we must undergo to prevent a default, is the very same process that we undergo after a default. Thus, the combination of fiscal austerity and structural adjustment is, in actuality, a slow and painful default.
This combination of austerity and adjustment amounts to a program and effect of social devastation. Thus, the words “structural adjustment program,” “restructuring,” and “default” in actuality translate into social genocide. These three terms provide further insight into their use: the class system is what is being restructured, as middle classes are wiped out and pushed into poverty, the poor are made destitute, and the elite become concentrated and in total control; the political and economic system is being adjusted to fit this restructuring; and the promise that people everywhere were told, that their leaders and society exists to serve their interests, is what is being defaulted on. The state does not default; it is the ‘social contract’ that is defaulted. Just as Mario Draghi told the Wall Street Journal, “the European social model has already gone… Fiscal consolidation is unavoidable in the present set up, and it buys time needed for the structural reforms.” Thus, social genocide.
As George Orwell wrote in his 1946 essay, “political language has to consist largely of euphemism,
question-begging and sheer cloudy vagueness.” But there remains intent and meaning behind the words that are used. When we translate the political language of the European debt crisis, it reveals a monstrous agenda of impoverishment and exploitation. Thus, we also see the necessity of political language for those who use it: one cannot argue openly for programs of impoverishment and exploitation for obvious reasons, so words like “fiscal consolidation” and “structural reform” are used, because they are vague and obscure.
Ultimately, one can get away with saying, “we need a comprehensive austerity package augmented by structural reforms, such as labour flexibility, designed to increase competitiveness and facilitate growth,” as opposed to: “We need to rapidly impoverish our populations, whom we will then exploit to the fullest, such as by creating a cheap labour force, which would increase elite control and generate private profits.” Such honesty and bluntness would lead to revolt, so, political language is used instead. In Europe, political language is part of a ‘power dialectic’ which supports policies and agendas that aim to take more for those who already have the most, and to take from all the rest; to impoverish, exploit and oppress; to plunder, profit and punish.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
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Italy in Crisis: The Decline of the Roman Democracy and Rise of the ‘Super Mario’ Technocracy
Part 1 of “Italy in Crisis”, a series of excerpts from a chapter in an upcoming book.
By: Andrew Gavin Marshall
The European debt crisis continues into its third year, with four government bailouts – of Greece, Italy, Portugal, and Spain – and having imposed harsh austerity measures upon the people of Europe, forcing them to pay – through reduced standards of living and increased poverty – for the excesses of their political and financial rulers. Italy, as Europe’s third largest economy, with one of the largest debt-to-GDP ratios, plays a central role in the unfolding debt crisis across Europe. Part 1 of this excerpt from a chapter on the economic crisis in my upcoming book covers the “suspension” of democracy in Italy and the imposition of a ‘Technocracy’ – an unelected government led by academics and bankers – with a mandate to punish the people, facilitate the financial elite, and serve the interests of the supranational, unelected, technocratic European Union. Power centralized, power globalizes, power plunders and profits on the punishment and impoverishment of people everywhere. This is the story of Italy’s debt crisis.
This is an unedited, rough draft excerpt from my upcoming book – the Preface to the People’s Book Project – which is due to be finished by the end of the summer, and covers the following subjects: the origins, evolution, and consequences of the global economic crisis; the expansion and effects of global imperialism and war; the elite-driven social engineering project of establishing an institutional structure of ‘global governance’; and the rising resistance of people around the world to this system, as well as the attempts of the imperial powers to co-opt, control, or destroy these socio-political movements – the embodiment of the ‘Global Political Awakening’ – from the Arab Spring, to the anti-austerity movements across Europe, the Indignados in Spain, the Occupy Movement, the Chilean Winter and the Maple Spring in Quebec, among others. This project needs your support: I am attempting to raise $2,500 in donations to support the efforts to finish this book by the end of the summer, with $530 raised so far, and $1,970 left to go. Please donate today!
Bilderberg, Berlusconi, and Italian Austerity
The Italian Finance Minister, Giulio Tremonti had attended the Bilderberg meeting in early June of 2011, alongside other notable Italian participants, including Franco Bernabe, CEO of Telecom Italia (and Vice Chairman of Rothschild Europe); John Elkann, the Chairman of Fiat; Mario Monti, the president of Bocconi university and a former EU Commissioner; and Paolo Scaroni, the CEO of Eni, an oil and gas company and Italy’s largest industrial corporation. The Bilderberg meeting for 2011 took place from June 9-12 in Switzerland, and of course was attended by a host of other major European elites, including: Josef Ackermann, Chairman and CEO of Deutsche Bank; Marcus Agius, Chairman of Barclays Bank; the Swedish Ministers for Foreign Affairs and Trade; Luc Coene, the Governor of the National Bank of Belgium; Frans van Daele, Chief of Staff to the President of the European Council; Werner Faymann, the Federal Chancellor of Austria; Douglas J. Flint, Group Chairman of HSBC Holdings; Neelie Kroes, Vice President of the European Commission; Bernardino Leon Gross, Secretary General of the Spanish Presidency; George Papaconstantinou, the Greek Minister of Finance; Herman Van Rompuy, President of the European Council; and Jean-Claude Trichet, President of the European Central Bank, among many others.
In July of 2011, Silvio Berlusconi’s government announced a package of austerity measures hoping to calm markets, seeking to reduce the deficit by 40 billion euros. The package, largely designed by finance minister Giulio Tremonti, only attempted to address Italy’s debt, but markets were also concerned about the country’s “ultra-low-growth,” which has been consistent since Berlusconi returned to office in 2001. Once the austerity measures would be signed into law, several opposition politicians were suggesting the formation of a cross-party “technical government” without Berlusconi in office. The Finance Minister Tremonti announced a wave of privatizations. Apparently, the privatizations and various liberalizations were urged into the austerity package by the main opposition party, the Democratic Party (PD), not Berlusconi’s Freedom People Party. The central bank governor of Italy, Mario Draghi, who was poised to become the next President of the European Central Bank (ECB) following the end of the term of Jean-Claude Trichet, warned the Italian government that “it would have to raise taxes or make further spending cuts” if it wanted to calm markets. By July 14, the Italian Senate approved an increased austerity package worth 70 billion euros (or $99 billion), “aimed at convincing investors that the eurozone’s third-largest economy won’t be swept into the debt crisis.” Italy’s bonds (government debt) saw its borrowing rates (interest) hit record highs as investors were not calmed by the proposed austerity measures.
Even as the austerity measures were being passed, market confidence was still lacking, which was largely credited to the fact that a rift emerged between Berlusconi and his Finance Minister Tremonti, who as a Bilderberg attendee, no doubt has the confidence of markets. Berlusconi reportedly viewed Tremonti as a “rival” and has “repeatedly attacked [Tremonti] as a traitor in newspapers owned by the Berlusconi family.” After Tremonti, who was facing his own corruption charges, was caught on camera calling a colleague a “cretin,” Berlusconi told an Italian newspaper, “You know, he thinks he’s a genius and that everyone else is stupid… I put up with him because I’ve known him for a long time and one has to accept the way he is. But he’s the only one who is not a team player.” It was opined, then, that markets reacted to this rift between the Prime Minister and the Finance Minister, as articulated by an official at F&C Investments, who stated that markets view Tremonti as the “steady counterweight to the unpredictable and capricious” Berlusconi.
In July of 2011, Nichi Vendola, a popular leftist opposition political figure in Italy, wrote an article for the Guardian, in which he critiqued the austerity measures imposed by the Berlusconi government. Vendola wrote that, “Italy will not survive this crisis by listening to the very people who got us into it, especially not when they demand that the middle class and poor foot the bill for their failures.” Vendola also put blame on the European managing of the crisis, as “governments now have an obsessive fixation on employing tighter control of budget deficits to satisfy the European stability pact.” Vendola referred to Tremonti’s austerity package as a “social catastrophe,” and that instead, he suggested, what Italy must do “is turn this policy on its head,” noting that, “Italy’s problem is as much about growth as it is debt.” To do this, Vendola wrote, it “will require a new government,” and that, “Italy needs elections, because only a completely new governing class can achieve the political consensus to design and implement a plan to tackle the crisis.” He suggested that the European stability pact would need to be re-negotiated, and concluded: “It does us little good to please the out-of-touch elite of our capitals while the people have to tighten their belts and our youth are robbed of their future.”
Mario Monti, President of Bocconi University and a former European Commissioner, also agreed that Italy needed a new government, though for different reasons (and a different type of government). He wrote an article in a major Italian paper in August of 2011 in which he advocated – as a solution to Italy’s problems – the formation of a “supranational technical government” which would make all the major decisions in order to “remove the structural constraints to growth,” and opined that “an Italy respected and authoritative… would be of great help to Europe.” Vendola wanted a new government to help the people, and Monti wanted a new government to help “Europe” (read: banks and elites). Guess who became the next leader of Italy!?
Berlusconi Bows Down to the Bankers and Punishes the People
In August, Silvio Berlusconi had to approve a new austerity package, the second in less than a month. In a letter which was leaked to the Italian press, it was revealed that Jean-Claude Trichet, the President of the European Central Bank, and Mario Draghi, the President of the Italian Central bank (from 2006 to 2011, who was set to secede Trichet at the ECB in October of 2011), put pressure on Berlusconi to “implement significant austerity measures.” The letter, written by the two central bankers, demanded “pressing action… to restore the confidence of investors.” Dated August 5, 2011, it was issued just days before the ECB announced its new programme to buy Italian bonds (debt), designed to reduce the country’s borrowing costs (interest on future debt). One of the measures mentioned in the letter instructed Berlusconi to take “immediate and bold measures to ensuring the sustainability of public finances,” to achieve a balanced budget in 2013. This was adopted in the subsequent austerity package put forward by Berlusconi in August. The letter also stated that, “it is possible to intervene further in the pension system, making more stringent the eligibility criteria for seniority pensions and rapidly aligning the retirement age of women in the private sector to that established for public employees.” Further, the “borrowing, including commercial debt and expenditures of regional and local governments should be placed under tight control, in line with the principles of the ongoing reform of intergovernmental fiscal relations.”
In economic-speak, the letter asked for privatizations of public services: “Key challenges are to increase competition, particularly in services to improve the quality of public services and to design regulatory and fiscal systems better suited to support firms’ competitiveness and efficiency of the labour market.” This would require three key actions, the first of which was that, “a comprehensive, far-reaching and credible reform strategy, including the full liberalization of local public services and of professional services is needed,” and that, “this should apply particularly to the provision of local services through large-scale privatizations.” The second major step was “a need to further reform the collective wage bargaining system [meaning: undermine unions] allowing firm-level agreements to tailor wages and working conditions to firms’ specific needs and increasing their relevance with respect to other layers of negotiations.” In other words, destroy the unions so that companies can exploit labour to whatever degree they choose. And thirdly, according to Trichet and Draghi, what was needed was a “thorough review of the rules regulating the hiring and dismissal of employees [which] should be adopted in conjunction with the establishment of an unemployment insurance system and a set of active labour market policies capable of easing the reallocation of resources towards the more competitive firms and sectors.”
In other words, labour rights and laws and the rights of workers need to be dismantled so that companies can do as they please. It’s not simply the unions that need to be destroyed, but the laws for worker security in general. Of course, no advice from central bankers would be complete if it didn’t advocate that the government “immediately take measures to ensure a major overhaul of the public administration in order to improve administrative efficiency and business friendliness.” Trichet and Draghi wrote that it was “crucial” that the government take these actions “as soon as possible with decree-laws, followed by parliamentary ratification,” or, in other words: skip the democratic process because it takes too long, rule by decree, something Italy has a “proud” history of. All of this was demanded to be done before the end of September 2011. In an interview with an Italian paper, Trichet admitted that this was not the first time the ECB had sent such letters to governments (such as Greece), saying, “We have sent messages and we do that on a permanent basis, through various means, addressed to individual governments. We do not make them public.”
Indeed, the European Central Bank had demanded austerity measures be implemented by the governments of Greece, Ireland, Portugal, and Italy, and when Berlusconi submitted to the mandate from the central bankers, he complained that it made his administration look like “an occupied government.” A leading liberal MP in Italy, Antonio Di Pietro, said that, “Italy is under the tutelage of the EU, and a country under tutelage is not a free and democratic one.” An Irish MEP (Member of the European Parliament), Paul Murphy, stated that there had been a “massive shift away from democratic accountability since the start of the crisis,” and that: “There needs to be a check on the enormous power of the ECB, which is unelected, and has basically held a government to ransom.” Europe’s largest trade union federation, the European Public Sector Union, “accused the ECB of directing Italian fiscal and labour policy in secret,” which is, of course, true. The Deputy General Secretary of the federation, Jan Willem Goudriaan, said, “Europe cannot be governed through secret letters of bankers, officials or an unaccountable body.” EU officials, from Angela Merkel, Nicolas Sarkozy, to Herman Van Rompuy and Jean-Claude Trichet, have been increasing their calls for an “economic government” of Europe, tightening and deepening fiscal integration and proposing the creation of new council’s and organizations to impose sanctions on countries and “police the austerity measures of governments,” and even the creation of a European finance ministry. Paul Murphy stated that, “All these proposals, discussions about economic government, are about undermining democracy in order to impose a European shock doctrine… EU elites need to remove points of pressure that can be mounted on governments. If the mass of people are opposed to austerity, they can mount pressure on governments to hold that in check. So the only way it can then be imposed s undemocratically.” The head of a Belgian pro-transparency group stated that, “European powers [are] distancing themselves from voters while at the same time [there is] a growing tendency towards building closer relationships with corporate and specifically financial lobbies… These two trends are explosive and can only lead to a loss of legitimacy for the EU institutions.”
Shortly after, on August 12, the Berlusconi government was meeting to approve the new austerity package to meet the ultimatum from the ECB, amounting to a package of “fiscal adjustments” (i.e., spending cuts) of 20 billion euros in 2012 and 25 billion euros in 2013, with the spending cuts and tax increases to be “enacted immediately by decree, but subject to approval by parliament later,” just as Draghi and Trichet instructed. The rapid tax increases did much to damage even long-time supporters of Berlusconi who had promised that he would “never put their hands in the pockets of the Italian people.” Fiscal federalism was the policy of giving the various regions in Italy more control over their finances. With the new austerity package, the governor of Lombardy, Roberto Formigoni, stated, “It seems clear [fiscal] federalism has vanished.”
In mid-September, Berlusconi won final parliamentary approval for the 54 billion euro ($74 billion) austerity package, while police outside the parliament in Rome had to disperse protesters with tear gas. The German Economy Minister Phillip Roesler told a news briefing in Rome that, “The approval of the austerity package sends a signal of stability… I have respect for what Italy has done with its budget adjustment as this will benefit the whole euro area.” The legislation simply made legal the measures that Berlusconi’s government enacted through un-democratic decree the month before, and were formalized in exchange for the European Central Bank bond purchases which helped to reduce Italy’s borrowing costs. Silvio Peruzzo, an economist at the Royal Bank of Scotland, stated that the plan’s passage is a “very welcome step,” but that the slowing global economy still cast doubts on whether Italy could “meet its fiscal targets and will also render additional corrective measures [austerity packages] very likely.” Even with the endorsement and backing of the ECB, said Peruzzo, Italy’s debt remained “under pressure, which is indicative of a well-rooted lack of confidence in Italy and in the European policies to tackle the crisis.” One the plan was approved, said Italian Finance Minister Tremonti on September 10, “If there are things to change in our growth measures we will, and if there are things to add, we will.”
The Economist reported on the new austerity package, noting that while Berlusconi had approved the austerity package in Italy, designed to cut roughly 45.5 billion euros from the deficit by the end of 2013, he almost immediately back-peddled on 7 billion euros worth of spending cuts and tax increases, “notably a tax on high earners that would have hurt his natural supporters,” meaning, rich people. Thus, even as the package went to the Senate in early September, Berlusconi was fine-tuning the details. Thus, noted the Economist, “the markets [were] again registering alarm,” and at the same time, Italy’s largest and most militant trade union federation, the CGIL, called for a one-day strike in opposition to the austerity package, “protesting over a clause making it easier to dismiss workers and, more generally, over a budget that the CGIL’s leader, Susanna Camusso,” referred to as “unjust because it attacks the weakest.” This further worried “the market” and “investors.” The Economist wrote that: “Mr. Berlusconi had consistently failed to react unless bullied. His first emergency budget in July followed a telephone call from the German chancellor, Angela Merkel,” while the second was of course at the prompting of the ECB.
By October of 2011, the austerity measures in Italy had been wreaking havoc, as non-profit organizations lose their funding and had major bureaucratic obstacles put in their way for community projects, such as the Associazione Obiettivo Napoli, which ran two programs working with children in difficulty in Naples since 1998, helping them clean up local communities and provide counseling. As central government funding to town halls had been cut, organizations like Obiettivo Napoli, “which sit uneasily somewhere between education, welfare and rehabilitation budgets, have been the first to suffer.” Pietro Varriale, who works with the organization, commented on further obstacles put in their way: “They’re saying we need a second degree in education science to be able to do this work… It’s crazy. I have 15 years experience in this field, most of the team likewise, and we all have first degrees. A second degree is going to cost people a fortune, really a lot of money, and there’s no help or grant for that kind of thing. We’ve been given till 2013 to conform.” To add to that, the city of Naples simply stopped paying the bills for the organization, which had to then borrow money from a bank, forcing the employees such as Pietro to have to take on jobs working at bars, waiting tables, picking tomatoes and other piecemeal projects while they continue to work with the association being unpaid: “You keep going because of the kids, the relationships you build up.”
Giancarlo Di Maio, a 23-year old university graduate in Naples working at a secondhand bookshop told the Guardian that, “University here is like a car park. You stay there as long as you can, because there’ll be nothing to do when you come out,” referring to the lack of jobs for youth. As he was employed, he explained: “Every morning, I wake up with a smile… How fortunate am I? Because otherwise, the only other work around here is black. The black economy is a huge, monumental issue for Italy.” His friends might make 30 euros for 10 hours working in a bar, or 20 euros for a night waiting tables in a restaurant. Di Maio, who works at a bookshop owned by his father, said that, “I know plenty of people in their 30s, even some in their 40s, still living with their parents… That’s not normal. For me, that’s one of the biggest problem [sic] in Italy – opportunities, any kind of prospects for young people.” When asked about Italian politics, he replied, “We have the worst political class in Europe, no question… Twenty years of Berlusconi, and not a single reform, nothing for the unemployed, nothing to address the economic crisis. Instead we talk about his sex life… we have a political class who do nothing. They don’t have solutions, and even if they did they wouldn’t try to do anything. They just speak air, it’s all they can do. Posturing.” Expressing some hope at the Occupy movement, though lamenting how it turned to violence in Italy, he explained that people were “finally starting to get angry. They are beginning to see that really, we can’t carry on like this. Italy really is sick. We can’t pretend to be the doctor any more; we need curing ourselves.”
The Technocratic Coup
By early October 2011, it was clear that the “markets” were not satisfied with Berlusconi’s efforts at implementing a program of social genocide (fiscal austerity) which was to their liking. Thus, on October 5, the international ratings agency Moody’s cut Italy’s credit rating for the first time in two decades, adding to the downgrading from Standard & Poor’s two weeks prior. The Italian government responded that the actions of the ratings agencies were “politically motivated.” Even Moody’s acknowledged that the political situation within Italy played a part in its decision, including Berlusconi’s sex scandals, and the growing protests against the austerity measures.
The effect of the downgrades is to make Italian bonds (government debt) less attractive to buy (as it is a riskier investment), and thus, Italy would have to pay higher interest rates. As a result of that, as we have seen with Greece, this makes the country’s overall debt larger (as it amounts to borrowing money to pay back borrowed money), except with the higher yields (interest rates), the future payments will be even more costly, likely to create potential for a bailout (again, just taking more debt to pay interest on older debts). All the while, the overall debt to GDP ratio increases, and austerity measures become the “conditions” for receiving bailouts, and the country is essentially taken over by the IMF, the ECB, and the EC (named the “Troika”), as occurred in Greece. This creates a permanent spiral of expanded debt, economic crisis, and social genocide. This is what is often called “market discipline.”
In mid-October, opposition to Berlusconi’s harsh austerity measures from within Italy was increasing, just as “market pressure” and EU-opposition from outside Italy was building against Berlusconi for his austerity measures being perceived as ‘too little, too late.’ Nine members of Berlusconi’s own coalition said the austerity package “unfairly targets the middle class and fails to tackle Italy’s massive tax evasion problem.” Susanna Camusso, the head of Italy’s largest and most militant labour federation, CGIL, said that a strike is the only way to “change the inequity of this package.” During a global “day of rage” partly inspired by the Occupy Wall Street movement in the United States and the Indignados movement in Spain, October 15 saw various Occupy and other protests erupt around the world, in 950 cities in 80 different countries. In Italy, Rome saw roughly 200,000 protesters come out into the streets, protesting against the austerity measures, the government, the EU, the ECB and the IMF. The protests erupted into violence as hundreds of those assembled began fighting with riot police, who were using tear gas and water cannons against the protesters, and several hundred erupted in urban rebellion (what is often called “riots”) in which banks were destroyed, they set cars and garbage bins on fire, hurled rocks, bottles, and fireworks at the police who continually charged the crowd. Roughly two dozen demonstrators were injured, with one reported to be put in critical condition, and at least 30 riot police were injured.
As Berlusconi’s own government began to fracture in the face of the austerity package, disagreeing on what and how and if to cut, one of Berlusconi’s main coalition partners, the center-right Northern League, hinted that new elections were a possibility. Considering the popularity of the anti-austerity leftist leader Nichi Vendola, this was perhaps too much to bear. European leaders Angela Merkel and Nicolas Sarkozy lost their patience, and in late October, demanded that Berlusconi move forward with the austerity package. In a series of EU summits in late October on handling the economic crisis, discussing specifically the plan to boost the funds of the European Financial Stability Facility (EFSF), there was concern, reported Der Spiegel, “that the current size of the (recently expanded) fund isn’t sufficient should additional countries, particularly Spain and Italy, be infected with debt contagion.”
Following these meetings, it was made “abundantly clear” to the Italians that their “leadership is no longer taken seriously.” Italian papers and TV shows were overwhelmed with covering the “condescending smile” of Angela Merkel to Berlusconi, and comments made by Sarkozy. Merkel and Sarkozy and other EU leaders told Berlusconi in the talks that he had to present a plan within three days “for reducing Italian debt more quickly than current plans call for.” European Council President Herman Van Rompuy said that Berlusconi had “promised to do so.” The following evening, Berlusconi stated, “No one is in a position to be giving lessons to their partners.” European leaders were frustrated that even the austerity package passed earlier in the summer had not been fully implemented, and the government’s stability was continually threatened over debating each new measure. The European Commissioner for Economic and Monetary Affairs, Olli Rhen, said that all the details of the new plan were “unclear.” With the EU summits proposing increasing the EFSF bailout fund from 440 billion euros to 1 trillion, a central feature to the demands of the EU leaders was that countries like Italy impose more stringent austerity measures. As Der Spiegel reported, “A clear Italian commitment to austerity is a key component of that plan.” There was then a good deal of conjecture over the possible departure of Berlusconi. The Italian paper Corriere della Serra reported that Angela Merkel called the Italian President Giorgio Napolitano the previous week “to discuss concerns about Italy’s political leadership.”
In fact, Angela Merkel did make such a phone call to Italy’s president Napolitano in October, violating “an unwritten rule” for Europe’s leaders “not to intervene in one another’s domestic politics.” But this is a new, changing EU, one in which democracy – even the withering façade Western governments maintain – simply no longer matters. Merkel was “gently prodding Italy to change its prime minister, if the incumbent – Silvio Berlusconi – couldn’t change Italy.” The Wall Street Journal reported on the events that led to this incident, explaining that at the annual meeting of the IMF in September, China, Brazil, and the U.S. “berated” Europe for its small bailout fund, and told Europe to borrow “hundreds of billions of euros from the ECB,” something Merkel had long been against, and which was refused by Jens Weidmann of the German central bank, explaining that the bailout fund “was an arm of the governments… and lending to governments was against the ECB’s charter.” On October 19, Sarkozy left his wife who was in labor at a clinic in Paris to fly to Frankfurt to confront Jean-Claude Trichet at a party being held for the President of the ECB to honour him as he prepared to leave the ECB at the end of the month (to be replaced by the president of the Central Bank of Italy, Mario Draghi). Sarkozy argued that the ECB needed to intervene in the bond markets (buying government debt), stating that, “Everything else is too small.” Trichet said that it wasn’t “the ECB’s job to finance governments.”
The ECB had engaged already in certain bond purchases, which “had caused a political backlash in Germany,” and as Trichet said, “I did a bit, and I was massively criticized in Germany.” Merkel, who was present during the shouting match between Trichet and Sarkozy, was frustrated at Sarkozy’s pressure on Trichet, as she had always opposed the ECB printing money to handle the crisis, telling Trichet, “You’re a friend of Germany.” It was the following day, on October 20, that Merkel made her “confidential” phone call to the Italian President in Rome, “the man with authority to name a new prime minister if the incumbent were to lose parliament’s support.” President Napolitano informed Merkel that it was “not reassuring” that Berlusconi had only “recently survived a parliamentary vote of confidence by just one vote.” Merkel then thanked Napolitano for doing what was “within your powers” in promoting reform. Within days, Napolitano began “sounding out Italy’s political parties to test the support for a new government if Mr. Berlusconi couldn’t satisfy Europe and the markets.” It no doubt did not help Berlusconi when he wrote in an Italian paper in late October that the word austerity “isn’t in my vocabulary.”
In early November, at a G20 meeting in Cannes, President Obama and other leaders were “effectively ordering Silvio Berlusconi to accept surveillance of Italy’s austerity measures by the International Monetary Fund,” reported the Guardian. Berlusconi was advised by Merkel, Sarkozy, Herman Van Rompuy and other EU leaders the previous week to come to the G20 with “a specific austerity package,” but due to divisions within his cabinet, Berlusconi “arrived empty-handed.” It was reported that Berlusconi would likely not survive a vote of confidence in the Italian parliament set for the following week. The ECB had been purchasing Italian bonds since August in order to push the yields lower, which dropped to below 5%, but by early November they had been driven up to 6.5%, “levels that make it difficult to pay back debt.” Italian President Napolitano had been holding meetings with party leaders to discuss the possibility of “constructing an interim government if Berlusconi’s collapses.” The G20, which was discussing the possibility of adding $300 billion to the IMF’s bailout fund of $950 billion, and G20 leaders pressured Italy “to sign up to a more specific austerity package or else the US and other countries would not put extra funds into the IMF.”
Just prior to heading to the G20 meeting, Berlusconi had attempted to issue a decree which would pass various austerity measures, “thus bypassing the parliament,” but, reported the EUobserver, he “was held back by [President] Giorgio Napolitano,” as well as the Finance Minister Giulio Tremonti. Instead, Berlusconi was pressured to attempt an amendment to a “law for stability” to be approved the following week, at which time he would likely face a vote of confidence. Enrico Letta, the deputy general secretary of the center-left Democratic Party (PD), the main opposition party, said that, “We think that next week will be a week in parliament where we try to force the situation if Berlusconi does not resign before.”
As Jean-Claude Trichet retired from the ECB at the end of October, and Mario Draghi left the Bank of Italy to take up his new job as President of the ECB, the newly-appointed governor of the Bank of Italy, Ignazio Vasco, said that Italy “needed to take urgent action to boost confidence in the economy and initiate structural reforms,” insisting that the commitments already given to the EU in a “letter of intent” in late October (following Berlusconi being castigated by Merkel and Sarkozy), “must be honoured quickly and consistently.” At the G20 conference, Berlusconi agreed under pressure to have the IMF oversee Italy’s implementation of austerity measures, following late-night talks with G20 leaders. Jose Manuel Barroso, President of the European Commission (EC), said that, “Italy had decided on its own initiative to ask the IMF to monitor. I see this as evidence of how important Italy’s commitment to reform is.” The EC would also monitor Italy’s progress, and was set to visit Italy the following week to undertake a more detailed study. One EU source told the Telegraph that, “We need to make sure there is credibility with Italy’s targets – that it is going to meet them. We decided to have the IMF involved on the monitoring, using their own methodology, and the Italians say they can live with that.” The chief financial officer of Commerzbank, Eric Strutz, said that, “The whole stability of Europe depends on whether Italy gets its act together.”
On November 8, Berlusconi suffered a party revolt in parliament which failed to deliver him a majority, and would likely lead to a vote of non-confidence a few days later. Upon this defeat, Berlusconi announced that he would resign as Prime Minister “as soon as parliament passed urgent budget reforms demanded by European leaders.” President Napolitano announced that he would begin consultations on the formation of a new government, and stated that he would prefer a “technocrat or national unity government.” At the same time, the “markets” had pushed Italy’s bond yields (debt interest) to nearly 7%, figures that saw Greece, Ireland, and Portugal getting bailouts. The leader of the main opposition Democratic Party (PD), Pier Luigi Bersani, said, “I ask you, Mr. Prime Minister, with all my strength, to finally take account of the situation… and resign.” Berlusconi and some of his close allies, however, warned that appointing a technocratic government, the option which was said to be favoured by “markets,” would amount to an “undemocratic coup.” Naturally, that’s just what happened.
Writing for the Guardian, John Hooper suggested that one of four scenarios would take place upon the event of Berlusconi’s resignation: one envisions Berlusconi leaving but the right gaining a broader majority, specifically under Umberto Bossi’s Northern League, who was in Berlusconi’s coalition but had advised him to resign, and was pushing for him to be replaced with the next in command in Berlusconi’s party, Angelino Alfano; another scenario envisioned a “grand coalition,” or a “government of national emergency or salvation,” bringing together all the parties; a third scenario had Italy calling an election, urged by both Berlusconi and Bossi; or the fourth option, “a cabinet of technocrats,” which Hooper wrote was “favoured by the markets and the Italian centre left,” which would consist of “a government filled with specialists who could pass the unpalatable legislation needed to revive Italy’s flagging economy without having to worry about re-election.” This happened before in Italy, when Berlusconi’s government fell in 1994, at which time he was replaced by Lamberto Dini, a central banker, who headed a government of “professors, generals and judges.” In this scenario, suggested Hooper, the likely prime minister would be Mario Monti.
Upon Berlusconi’s failure to achieve a minority during the budget vote on November 8, many officials from the financial community began making their observations, such as Jan Randolph, the head of sovereign risk analysis at HIS Global Insight, who said that, “Berlusconi has effectively lost political capital to carry the country through a period of austerity and structural reform,” and that, “Berlusconi will have to resign.” He went on to suggest that it was possible “that a broad National Unity government headed by a respected technocrat like ex-EU commissioner Mario Monti could be formed.”
As Berlusconi officially resigned on the night of November 12, 2011, he left the president’s palace through a side door as a crowd of over 1,000 people outside yelled, “buffoon,” “Mafioso,” and for him to “face trial.” A poll from early November reported that 71% of Italians favoured his resignation, and upon hearing of his official resignation, the crowd erupted in roars of “Halleluja.”
On November 16 of 2011, Mario Monti was appointed as Prime Minister of Italy. Monti accepted the mandate to form a new government, and was expected to appoint technical experts as opposed to politicians to his cabinet. President Napolitano told Italian politicians that, “it is a responsibility we perceive from the entire international community to protect the stability of the single currency as well as the European frame work.” Berlusconi’s political party, the People of Liberty, said it would accept a Monti government for a short while before elections would have to be scheduled, and Berlusconi referred to his resignation as “an act of generosity.”
Mario Monti is an economist and academic who served as European Commissioner for the Internal Market, Services, Customs and Taxation from 1995 to 1999, and European Commissioner for Competition from 1999 to 2004. Monti is founder and Honorary President of Bruegel, a European think tank he launched in 2005, based in Belgium, and which represents the interests of key European elites. Monti has also been a member of the advisory board of the Coca-Cola Company, and was an international advisor to Goldman Sachs, was a former member of the Steering Committee of the Bilderberg Group, having previously attended the meeting in Switzerland in June of 2011, and was European Chairman of the Trilateral Commission until he resigned when he became Prime Minister of Italy.
Monti’s think tank, Bruegel, represents key elite European interests. The Chairman of the Board of Bruegel is Jean-Claude Trichet, the former President of the European Central Bank (ECB) from 2003 to 2011, who is also a member of the board of directors of the Bank for International Settlements (BIS), and has joined the boards of a number of major corporations, including EADS. Other board members of Bruegel include: Jose Manuel Campa Fernandez, who was the Spanish Secretary of State for Economic Affairs at the Ministry of Economy and Finance from 2009 to 2011, and has been a consultant for the European Commission, the Bank of Spain, the Bank for International Settlements (BIS), the Federal Reserve Bank of New York, the Inter-American Development Bank, the International Monetary Fund and the World Bank; Anna Ekström, the president of the Swedish Confederation of Professional Associations, Saco, and formerly the Swedish State Secretary for the Ministry of Industry, Employment and Communication; Jan Fisher, Vice President of the European Bank for Reconstruction and Development (EBRD), former Prime Minister of the Czech Republic; Vittorio Grilli, the Deputy Minister of the Ministry of Economy and Finance of Italy (whom Monti appointed to his technocratic government in November of 2011), and a former Managing Director at Credit Suisse First Boston; Wolfgang Kopf, Vice President at Deutsche Telekom AG; Rainer Münz, head of Research and Development at Erste Group and Senior Fellow at the Hamburg Institute of International Economics (HWWI), former consultant to the European Commission, the OECD, and the World Bank; Jim O’Neill, Chairman of Goldman Sachs Asset Management; Lars-Hendrik Röller, the Director General of the Economic and Financial Policy Division of the German Federal Chancellery, and is President of the German Economic Association; Dariusz Rosati, former consultant economist at Citibank, former Minister of Foreign Affairs for Poland, former adviser to the President of the European Commission, and was a member of the European Parliament from 2004 to 2009; and Helen Wallace, a British academic expert on European integration.
In October of 2009, Mario Monti was asked by the President of the European Commission Manuel Barroso to draw up a report on how the EU should re-launch its single market. Barroso advised that the report, “should address the growing tide of economic nationalism and outline measures to complete the EU’s currently patchy single market.” Mario Monti was President of the Bocconi University at the time he was asked to write the report. In May of 2010, Monti produced the report and officially handed it in to European Commission President Barroso. The report recommended ways to fight the potential of economic nationalism and to preserve and protect the regional bloc and to advance the process of integration, with Monti arguing that, “There is now a window of opportunity to bring back the political focus of the single market.” The report eventually became the EU’s Single Market Act of 2011.
After becoming the technocratic and unelected Prime Minister of Italy, Monti quickly appointed his new cabinet, of which more than a third of the 17-member cabinet consisted of professors and other technocrats. The cabinet position of Minister of Economic Development, Infrastructure and Transport was given to Corrado Passera, the chief executive of Italy’s largest bank, Intesa Sanpaolo. Passera told the Financial Times upon his appointment as “superminister” that, “If you want to build the wide consensus that is needed, we have to share sacrifices and benefits among all the segments of society with a balanced set of actions and with the right mix of austerity and development programmes.” British hedge fund manager Davide Serra stated, “Monti and Passera are the right guys for the job. They are the dream team.” Upon appointing his new technocratic government, Monti declared: “We feel sure of what we have done and we have received many signals of encouragement from our European partners and the international world. All this will, I trust, translate into a calming of that part of the market difficulty which concerns our country.” On the lack of party representatives in his cabinet, Monti commented, “The absence of political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement.”
A former ambassador who worked with Monti when he was an EU Commissioner recalled Mario’s style of governance, stating, “He didn’t have a very Italian way of going about things… His nickname in those days was ‘The Italian Prussian’.” An article in Reuters described Monti as “a convinced free marketeer with close connections to the European and global policy making elite, Monti has always backed a more closely integrated euro zone,” and went on to mention his leadership positions within the Bilderberg Group of “business leaders” and “leading citizens” and the Trilateral Commission, which “brings together the power elites of the United States, Europe and Japan.” Monti’s government would be given roughly 18 months to push through “reforms” and austerity measures, as another election would not be due until 2013. However, as one outgoing minister commented in November of 2011, “The decisions which Monti will take must pass in parliament and I think that with such a heterogeneous majority he will have many problems. I believe this solution will lead to many problems.”
Monti of course received abundant praise from Europe’s leaders on becoming the new unelected technocratic Prime Minister of Italy. An article by Tony Barber in the Financial Times explained that Italian party politics was simply too problematic, as: “Even a centre-left government with a mandate from the voters would find it hard to maintain the unity and resolution required to implement the unpopular austerity measures and structural economic reforms demanded by Germany, France, the European Commission, the European Central Bank and the International Monetary Fund.” And with the prospect of labour resistance from workers and pensioners, “it is easy to see why Europe’s leaders were eager for Mr Monti to inherit the premiership.” Thus, wrote Barber, “technocracy has an irresistible appeal.” Mario Monti himself had acknowledged that “irresistible appeal” in August of 2011, when he wrote an article in a major Italian paper advocating the formation of a “supranational technical government” which would make all the major decisions in order to “remove the structural constraints to growth,” and opined that “an Italy respected and authoritative… would be of great help to Europe.” And as it turned out, a great help to Monti.
In early December of 2011, after forming his cabinet and being approved by Italy’s lower chamber of Parliament with a rare majority, Mario Monti received the endorsement of Angela Merkel and Nicolas Sarkozy, declaring their “absolute trust” in Monti and in “his structural changes” to his governing of Italy. Monti, upon assuming power, warned Italians in a speech that, “It is not going to be easy, sacrifice will be required.” As Monti’s “technocratic government” is full of appointments from the ruling class, including bankers and other executives, many in Italy were raising concerns that this suggested an inherent conflict of interest in his government, as those who helped create the crisis are brought in to solve it, a highly political government, despite all the claims of an apolitical ‘technocracy’ (technocracies are always political entities, but instead of pushing party ideologies, they push ultra-elite ideologies in the management and maintenance of society). Monti replied that, “There is no conflict of interests… The fact that many of us have played a role in the institutions before doesn’t mean that we will not be totally transparent.” And with that note, Monti appointed Carlo Malinconic as undersecretary for publishing affairs, after having previously served as president of the Italian Federation of Publishing and Newspapers.
Writing in the journal of the Council on Foreign Relations, Foreign Affairs, Jonathan Hopkin, a professor of comparative politics at the London School of Economics, commented that the replacement of Berlusconi with Monti “marks a new stage in the European financial crisis,” in which “the crisis now seems to be wiping out democratically elected governments.” Largely under pressure from bond markets, “Italian politicians have opted to hand power to technocrats, expecting that they will somehow enjoy greater legitimacy as they impose painful measures on an angry population.” Hopkin stated: “This will not work.”
In early November, as democratically-elected governments in Greece and Italy were replaced with unelected and unaccountable technocratic governments, essentially run by and for the European Union and global banks, Tony Barber, writing in the Financial Times, suggested that this is but one of several responses to the economic crisis. Specifically, this response “involves the surgical removal of elected leaders in Greece and Italy and their replacement with technocratic experts, trusted within the EU to pass economic reforms deemed appropriate by policymakers in Berlin, the bloc’s top paymaster, and at EU headquarters in Brussels.” Barber referred to the “sidelining of elected politicians in the continent that exported democracy to the world” as a “momentous development.” In short, “eurozone policymakers have decided to suspend politics as normal in two countries because they judge it to be a mortal threat to Europe’s monetary union.” Thus, these policymakers “have ruled that European unity, a project more than 50 years in the making, is of such overriding importance that politicians accountable to the people must give way to unelected experts who can keep the show on the road.” In Greece, the government was put under the technocratic leadership of Lucas Papademos, a former vice president of the European Central Bank, and upon accepting his appointment, stated: “I am confident that the country’s participation in the eurozone is a guarantee of monetary stability.” In Italy, Mario Monti came to power, a technocrat who “is revered in Brussels as one of the most effective commissioners for competition and the internal market that the EU has known.” One prominent Italian banker commented: “We need a strong national unity government for one to one and a half years to do what the politicians haven’t had the courage to do.”
Running the ECB can be such a ‘Draghi’
In late October of 2011, at a gala event to mark the end of Jean-Claude Trichet’s eight years as president of the European Central Bank, Mario Draghi, the governor of the Bank of Italy, who was selected to take over for Trichet at the start of November, was “working the room” of high-powered European elites, including Angeal Merkel, and IMF Managing Director Christine Lagarde. Between 1984 and 1990, Draghi was the Italian Executive Director at the World Bank, and in 1991, he became the director general of the Italian Treasury until 2001. Between 2002 and 2005, Draghi was the Vice Chairman and Managing Director of Goldman Sachs International, thereafter becoming the governor of the Bank of Italy from 2006 until 2011, also putting him on the Governing Board of the European Central Bank and the Bank for International Settlements (BIS). Draghi is not simply one of the individuals who has been most responsible for handling and managing the economic crisis, but he also played an important role in causing it. As Vice Chairman of Goldman Sachs, and in Italy at the Treasury and the central bank, “Draghi was a proponent of nations and other institutions like pension funds using derivatives to more efficiently manage their liabilities.” This means that Draghi advised that governments should essentially hide their debts in the derivatives market, where they would not be viewed as liabilities, but rather, transactions. These “transactions” were very popular in Greece and Italy, and had a great deal to do with accumulating and hiding the massive debts of these countries.
When Draghi led the Italian Treasury in the 1990s, he “oversaw one of the largest European privatization efforts ever and paved the way for Italy’s entry into the euro,” earning him the nickname, “Super Mario.” Italy liberalized its financial markets, allowing for massive speculation, derivatives, and other banking excesses, and he privatized roughly 15% of Italy’s economy. While Italian governments came and went during this period, Draghi always remained. While both Draghi and Goldman Sachs said that “Super Mario” did not have anything to do with the especially controversial Greece-Goldman Sachs transactions, one Goldman Sachs executive in Europe, “who was not authorized to speak publicly,” told the New York Times that, “Mr. Draghi had discussed similar initiatives with other European governments.” When asked about his involvement at Goldman Sachs, Draghi once replied, “I was not in charge of selling stuff to the governments… In fact, I worked in the private sector even though Goldman Sachs expected me to work in the public sector when I was hired.” However, in a paper which Draghi wrote in 2002 just a couple months after being hired by Goldman Sachs, at which his job description was “to win investment banking business from European governments,” Draghi argued in favour of governments using derivatives “to stabilize tax revenue and avoid the sudden accumulation of debt,” which the New York Times politely described as “faithful to the spirit” of the Goldman-Greece deal.
In an interview with the Financial Times in December of 2011, European Central Bank president Mario Draghi reflected upon the financial crisis and the actions taken to manage it. He explained that the ECB’s long-term refinancing operation (a half-trillion euro bank bailout) was not designed to give banks an incentive to buy government bonds from the “periphery” nations, but rather, that, “the objective is to ease the funding pressures that banks are experiencing,” and that the banks “will then decide what the best use of these funds is.” Draghi stated that, “we don’t know exactly” what banks were doing with the money, but that, “the important thing was to relax the funding pressures.” Draghi reiterated that the banks “will decide in total independence what they want to do.”
It’s interesting to note that when governments get bailouts, they are told what and how to spend the money, and are forced to impose austerity measures that destroy the social fabric and punish the populations of their countries, and then, of course, have to pay back the money at exorbitant interest rates; but when banks get a half-trillion euro bailout, the banks will “decide what the best use” of the money is, and where it goes is not important, it’s only important to “relax” the pressure on the banks, who will repay the debt over a long-term period (3 years) with extremely low interest (averaging 1%). So people get pressure, and banks get pressure “relaxed.”
Draghi told the Financial Times that what is needed most is to “restore confidence,” and for this, there are four answers. The first one “lies with national economic policies, because this crisis and this loss of confidence started from budgets that had got completely out of control.” The second answer, explained Draghi, “is that we have to restore fiscal discipline to the euro area,” which means to impose austerity, “and this is in a sense what last week’s EU summit started [in mid-December 2011], with the redesign of the fiscal compact.” The third answer “is to have a firewall in place which is fully equipped and operational,” meaning a massive bailout fund, which “was meant to be provided by the EFSF.” The fourth answer, according to Draghi, is for countries “to undergo significant structural reforms that would revamp growth,” implying things like liberalization, privatization, and further deregulaiton. When Draghi was asked about the critics of the fiscal compact who suggest that it amounts to a “stagnation and austerity union,” Draghi replied that, “they are right and wrong at the same time.” Draghi repeated the mantra of pro-austerity voices, who always suggest with no historical evidence to support, that there is “no trade-off between fiscal austerity, and growth and competitiveness.” However, Draghi contended, “I would not dispute that fiscal consolidation [austerity] leads to a contraction in the short run.” The correspondent with the Financial Times asked: “But these austerity programmes are very harsh. Don’t [you] think that some countries are really in effect in a debtor’s prison?” Draghi replied: “Do you see any alternative?”
In an interview with the Wall Street Journal in February, Mario Draghi warned European countries “that there is no escape from tough austerity measures and that the continent’s traditional social contract is obsolete.” Draghi said that Europe’s social model was “already gone,” and that the only way to return to “long-term prosperity” was “continuing economic shocks [that] would force countries into structural changes in labor markets and other aspects of the economy.” As European people were suffering through the increased austerity measures, Draghi warned that, “Backtracking on fiscal targets would elicit an immediate reaction by the market.” This of course implies that the market has the ‘right’ to determine the fate of Europe’s people. For Draghi, “austerity, coupled with structural change, is the only option for economic renewal.” The European Commission, headed by Jose Manuel Barroso, agreed with Draghi, stating that despite forecasting a deepened recession brought on by austerity measures, governments “should be ready to meet budgetary targets.” Simon Johnson, the former chief economist of the IMF, said that Draghi was “just sugarcoating the message.” Johnson explained: “A lot of this structural reform talk is illusory at best in the short run… but it’s a better story than saying you’re going to have a terrible 10 years.”
In the interview, Draghi commented on the “positive changes” which had been taking place in the previous few months: “There is greater stability in financial markets. Many government shave taken decisions on both fiscal consolidation and structural reforms. We have a fiscal compact where the European governments are starting to release national sovereignty for the common intent of being together.” When Draghi was asked what his view was “of these austerity policies in the larger strategy right now, forcing austerity at all costs,” Draghi replied: “There was no alternative to fiscal consolidation, and we should not deny that this is contractionary in the short term.” Then, he added, it was necessary to promote growth, “and that’s why structural reforms are so important.” The interviewer asked Draghi what the “most important structural reforms” were for Europe at that time. Draghi replied:
In Europe first is the product and services market reform. And the second is the labour market reform which takes different shapes in different countries. In some of them one has to make labour markets more flexible and also fairer than they are today [in other words: more easily exploited]. In these countries there is a dual labour market: highly flexible for the young part of the population where labour contracts are three-month, six-month contracts that may be renewed for years. The same market is highly inflexible for the protected part of the popuation where salaries follows seniority rather than productivity. In a sense labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population.
When central bankers and politicians and others talk about “labour flexibility,” what they really mean is “worker insecurity.” This was bluntly stated by Alan Greenspan back when he was Governor of the Board of the Federal Reserve System, when in testimony before the US Senate in 1997, he discussed how America’s “favorable” economy was constructed. Greenspan discussed how wage increases for workers did not keep pace with inflation, which was, he explained, “mainly the consequence of greater worker insecurity.” He elaborated: “the willingness of workers in recent years to trade off smaller increases in wages for greater job security seems to be reasonably well documented.” Greenspan credited the creation of “worker insecurity” with technological changes, corporate restructuring and downsizing, as well as “domestic deregulation.” The New York Times reported on this, stating that Greenspan described “job insecurity” as “a powerful recent force in the American economy,” and that Greenspan, “clearly elevated this insecurity to major status in central bank policy.” How does worker insecurity influence central bank policy? The article explained: “Workers have been too worried about keeping their jobs to push for higher wages… and this has been sufficient to hold down inflation without the added restraint of higher interest rates.” However, Greenspan warned that even though job insecurity continues to rise, once “workers become accustomed to their new level of uncertainty, their confidence may revive and the upward pressure on wages resume.”
In his interview with the Wall Street Journal, Mario Draghi was asked if “Europe will become less of the social model that has defined it,” to which Draghi replied: “The European social model has already gone.” Draghi, repeating the mantra of so many in power, stated that, “there is no feasible trade-off between” austerity and growth: “Fiscal consolidation is unavoidable in the present set up, and it buys time needed for the structural reforms. Backtracking on fiscal targets would elicit an immediate reaction by the market.” In terms of “progress” – as Draghi defines it – throughout the crisis, he praised the fiscal compact treaty as “a major political achievement because it’s the first step towards a fiscal union. It’s a treaty whereby countries release national sovereignty in order to accept common fiscal rules that are especially binding, and accept monitoring and accept to have these rules in their primary legislation so they are not easy to change. So that’s a beginning.”
In further testimony in 2000, Alan Greenspan again addressed the issue of “worker insecurity,” which he stipulated was the “consequence of rapid economic and technological change,” which in turn created a “fear of potential job skill obsolescence.” Greenspan stated that, “more workers currently report they are fearful of losing their jobs than similar surveys found in 1991 at the bottom of the last recession,” and that, “greater workers insecurities are creating political pressures to reduce fierce global competition that has emerged in the wake of our 1990s technology boom.” While Greenspan admitted that “protectionist policies” would “temporarily reduce some worker anxieties,” he felt this was a bad idea, as “over the longer run such actions would slow innovation and impede the rise in living standards.” Greenspan elaborated:
Protectionism might enable a worker in a declining industry to hold onto his job longer. But would it not be better for that worker to seek a new career in a more viable industry at age 35 than hang on until age 50, when job opportunities would be far scarcer and when the lifetime benefits of additional education and training would be necessarily smaller?.. These years of extraordinary innovation are enhancing the standard of living for a large majority of Americans. We should be thankful for that and persevere in policies that enlarge the scope for competition and innovation and thereby foster greater opportunities for everyone.
This is called “labour market flexibility.” Of course, as Greenspan was full of praise for the fact that “job insecurity” is a necessary factor in “enhancing the standard of living for a large majority of Americans,” which “fosters greater opportunities for everyone,” what he really meant was that it benefits a tiny minority and creates better opportunities for exploitation. Ironically, this wonderful “boom” in the economy turned out to be a bubble, and it popped within a year of his giving this speech, and then of course, he resorted to building up the housing bubble thereafter… and we know how that went: more worker insecurity, more labour market flexibility, and thus, more benefits to a tiny minority and more opportunities for exploitation and profits. Isn’t the “free market” wonderful?
In April of 2012, Mario Draghi advised the eurozone to adopt a “growth compact” in order to boost economic prospects as he “scaled back his hopes for an early economic rebound,” stating that the eurozone bloc was “probably in the most difficult phases” in which the austerity measures were “starting to reverberate its contractionary effects,” he told the European Parliament. Austerity had, according to Draghi, “taken a larger than expected toll.” A “growth pact” was promoted by the front-runner in the French presidential elections, Francois Hollande, who would go on to win the May 6 elections against Sarkozy. Hollande had called for a “new Europe” stressing “solidarity, progress and protection,” warning against a North-South split in the EU countries. Angela Merkel also approved of Draghi’s call for a “growth pact,” agreeing that austerity was not “the whole answer” to the crisis, but insisted that growth would be “in the form of structural reforms,” which implies liberalization and privatization. She added: “We need growth in the form of sustainable initiatives, not simply economic stimulus programmes that just increase government debt.” While acknowledging the “economic weakness” created by the austerity packages across Europe, Draghi continued to say that, “Europe’s leaders should stay the course on fiscal consolidation.”
European leaders were quick to endorse the calls from Draghi for a “growth pact” for Europe, including Angela Merkel in Germany, and France’s new Socialist president, Fancois Hollande, as well as EC President José Manuel Barroso. Following Draghi’s suggestion, Barroso stated that, “Growth is the key, growth is the answer.” Francois Hollande commented in references to Draghi’s proposal, “He doesn’t necessarily have the same measures in mind as me to foster growth,” as Draghi’s position was closer to that of Angela Merkel, who viewed the pact as consisting of “structural reforms,” not a stimulus which would “again increase national debt.” An analyst at the Cutch bank ING said: “For the ECB, a growth compact does not mean more fiscal stimulus,” which is, of course, only reserved for banks, not people. Instead, stated the analyst, Carsten Brzeski, it entails “structural reforms with a vision.”
In May, this vision was publicly endorsed by Jorg Asmussen, the governor of the Bundesbank (the German central bank), and a member of the Executive Board of the European Central Bank, and was just previously the deputy finance minister of Germany. In a speech on May 21, Asmussen stated that, “we need both” austerity and growth, but that: “Talking about more growth does not mean moving away from the fiscal policy strategy pursued so far. It is not a matter of boosting growth over the next one to two quarters with credit-financed spending programmes, but of increasing potential growth. No one is against growth. The crucial and rather difficult question to answer is how, in ageing societies, to increase potential growth.” As to the question of ‘how’, Asmussen suggested three main components: product market reforms, labour market reforms, and financing of reforms. Product market reforms could include, according to Asmussen, “the completion of the internal market for services… [as] 70% of the EU’s GDP comes from services, but only 20% of services are provided on a cross-border basis.” As for labour market reforms, Asmussen suggested they should be “inspired by the Agenda 2010 programme in Germany,” and that, ultimately: “labour mobility needs to be increased in the euro area (the theory says, we remember, that an optimal currency area requires full mobility of labour). Mobility could be increased through broader recognition of qualifications within Europe, greater portability of pension rights, language courses and a European network of job centres.” The Agenda 2010 programme was, explained Der Spiegel, “a series of labor market and social welfare reforms introduced by former Chancellor Gerhard Schröder that completely restructured Germany’s welfare state,” which included, “easing job dismissal protections, lowering bureaucratic hurdles for starting businesses, setting a higher retirement age and lowering non-wage labor costs,” all of which are “typical examples of structural reforms.”
The Crisis Continues…
And so the European debt crisis continues, and so the austerity measures continue to punish the populations of Europe, and so Italy remains at the forefront of a growing global power grab: a ‘Technocratic Revolution’ in which even the trappings of formal democracy are pushed aside in favour of a government subservient to unelected councils of supranational institutions and global financial interests. In Par 2 of this excerpt on the Italian debt crisis, we examine the austerity programs and structural adjustments undertaken by the technocratic government of Mario Monti.
Andrew Gavin Marshall is an independent researcher and writer based in Montreal, Canada, writing on a number of social, political, economic, and historical issues. He is also Project Manager of The People’s Book Project. He also hosts a weekly podcast show, “Empire, Power, and People,” on BoilingFrogsPost.com.
Please donate to The People’s Book Project to help this book be finished by the end of summer:
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