Fear and Loathing in the Cannes Debt Festival

Death is better, a milder fate than tyranny.

— Aeschylus, Agamemnon

Words, once pronounced, are like mountains.

— Manchu proverb

Cannes is world-famous for its annual film festival that pulls all stops between glam and trash. That’s qualification enough for this Club Med resort as the perfect setting for a monster financial horror movie — a sort of drowning-by-numbers version of the Odyssey on crack. Some have called it the G-20 meeting. Others have called it The Slow and the Furious.

The apparent leading couple in this otherwise porno flick has been what some Parisian wits dubbed Merkozy — that camera-unfriendly cross-pollination of German Prime Minister Angela “Dear Prudence” Merkel and neo-Napoleonic French President Nicolas Sarkozy.

In the initial scenes, straight out of a crappy episode of Friends, Merkozy are in total panic; the (invisible) God of the Market is angrier than Zeus, threatening by lightning bolt to reduce Fortress Europe to sub-Saharan poverty, without the benefit of a North Atlantic Treaty Organization-imposed no-fly zone.

The photogenic Great Barack Obama — the leader of the free world — is about to descend in Cannes, and Merkozy gotta do their best to show their humble abode — Europe — is in order, the (debt) trash at least swept under the (made in China) carpet.

And worse, the Almighty Chinese President Hu (Jintao) — the leader of the universe — will also show up, and they gotta use all their Brangelina charm to seduce the Chinese Almighty into disbursing some pocket money for charity out of his US$3.2 trillion reserves.

But then the Furies intervene, in the unlikely form of Greek Prime Minister George Papandreou, more besieged than Leonidas at the Thermopylae. He decides to ritually invoke democracy, via a popular referendum – so the Greek populace decides about their debt-ridden future. The whole eurozone, like a chorus of Harpies, shrieks in horror.

Merkozy then concoct a plot to put Aeschylus to shame. They rule that the Greeks are not allowed to decide on a bailout Merkozy — or their Franco-German banks — are imposing; the poor Greeks can only decide on whether Greece will remain in the eurozone. To add insult to injury, the bureaucratic vultures at the European Commission thunder that Greece should be expelled from the European Union if it leavest the euro.

Neo-Napoleonic Sarkozy at last finds a reason to beam, pronouncing the fateful words, “We cannot accept the break up of the euro, that would mean the break up of Europe.”

So in this subplot at least, Merkozy and the European Harpies seem to have blackmailed the Greek masses into submission. Who among the masters cares about the Greek people living under a de facto protectorate and losing over 50% of their standard of living so foreign banks can be repaid? Who cares about Greece still buried under an — unsustainable — debt of 120% of their gross domestic product still by 2021?

Certainly not Mario Draghi, the new president of the European Central Bank (ECB), the successor of Jean-Claude Trichet. Dragon Draghi was a Goldman Sachs partner when the US giants were “helping” the then right-wing Greek government to mask their debts. It’s all in the (too big to fail) family.

So Merkozy wins against democracy — and “Europe” as we know it is no more. What’s left is a giant prison B-movie, where the masters are Merkozy and zombies such as Draghi, European Commission head Joao Manuel Barroso, European council president Herman van Rompuy, and Franco-German banks, and the slaves are virtually the whole population of Club Med countries.

That thing called EFSF

The plot thickens. In disaster movie mode, the (invisible), wrathful God of the Market has to be appeased should a country even flirt with defaulting on their debt. The Hail Mary pass — the solution of last resort — is in theory the International Monetary Fund’s firepower, currently at a paltry $380 billion.

So the movie may have started as a fractious eurozone summit; but suddenly morphs into an even more fractious, protracted, Oliver Stone-style International Monetary Fund (IMF) shareholder’s meeting. IMF-sponsored mini-horror movie spin-offs are already in effect in no less than 53 countries – including three of the “PIGS”, Portugal, Ireland and Greece. The IMF cannot possibly say the word out loud: “We need money”. So they whisper among themselves how much they need a monster “firewall” in Washington should the eurozone bail-out collapse (and it will).

Time to call Alfred Hitchcock. There’s a McGuffin in da house, and it goes by the Orwellian name of European Financial Stability Facility (EFSF). This thing is supposed to be the “firewall” — the life jacket in case Italy, for instance, is about to go the Titanic way. The EFSF thing should be worth an astounding $1.4 trillion. But where the hell is the money?

Audiences are excused for being startled. No Euro-screenwriter could possibly explain the EFSF without dragging the action to the mud. So here’s a very un-cinematic flashback. Time to get a Coke refill.

Germany adamantly refuses to use the ECB to help submerging countries. So “Europe” (as in Merkozy and assorted minions) invented the EFSF. How to run a fund with no cash? Simple, you go the Goldman Sachs (racket) way.

The EFSF is a shell company based in that dull financial haven: Luxembourg. There’s no money there — just “guarantees”. First there was a guarantee of 440 billion euros (US$607.9 billion), most of it Franco-German. You can extend them; Germany’s goes up to 211 billion euros, and France’s to 158 billion euros. That’s a lot of (non-existent) euros, but not enough to threat France’s triple A rating. Remember, there’s no money, this is just blah blah blah.

So with this blah blah blah secured, the Europeans ask the rating agencies for a notation. The EFSF gets an instant Triple A. Then they hit the markets to get loads of money loaned. This means more debt. The new debt is then used to help the super-indebted — such as Greece, or Ireland.

But the real problem will come when there are not enough funds to save Italy (1.8 trillion euros) if Italy goes under (bond yields on Italian debt are skyrocketing). So they need a “firewall” of at least 1 trillion euros. It’s really hard to suck up more loans using the same guarantees; it’s gonna cost more. When the going gets tough, who’re you gonna call?

Almighty Hu, of course. Or, as back up, those paragons of democracy: the Persian Gulf monarchies.

It’s still not real money. It’s debt. And it all depends on convincing China — and in the worst scenario, the petromonarchies — that if they help with their not so virtual cash they will make some kind of profit.

But is the Almight Hu — and China — convinced? Not really.

Yellow peril no more

When it comes to the crunch, the “global” economy is all about national protectionism. A viable Plan B to counter all sorts of crisis would be the Tobin Tax, also known as FTT (as in financial transactions tax), the Robin Hood tax or even Wall Street tax — essentially a sales tax on trades of stocks, bonds, derivatives and other “products”. The key target happens to be the mega banks that caused the current, never-ending economic crisis.

It’s quite enlightening to see who’s against it. The Obama administration. US Secretary of the Treasury Tim Geithner — a Wall Street 1% if there ever was one — who has fiercely lobbied the Europeans to drop it. The Brits (because they would pay a whole lot more due to the enormous volume of trading at the City of London).

It’s also enlightening to see who’s for it. Bill Gates, who in a report to the G-20 said the tax was “clearly technically feasible”. To his credit, Sarkozy (“technically possible”). The governments of Germany, Brazil, and Argentina.

As for the Almighty Hu, he’s been inscrutable on the subject. As a matter of fact, inscrutability is his middle name. Arriving in Cannes, the Almighty Hu inscrutably said he encouraged “the stability of the eurozone and the euro”. And that’s it.

Everyone remembers a previous movie where the BRICS emerging powers (Brazil, Russia, India, China and South Africa) were mulling whether to rescue the eurozone by buying eurobonds. That went nowhere. Now the talk of the town is China entering the EFSF.

The Chinese know well enough that two-bit European governments simply cannot appease the God of the Market. Chinese Premier Wen Jiabao actually told Van Rompuy that Europe needs a structural reform. Two weeks ago, China’s vice finance minister Zhu Guangyao was more lenient, saying that China shelling out cash was “under discussion”, but Beijing wanted to know what the EU was really up to.

But then this Thursday Guangyao said it’s “too soon” for China to discuss the EFSF. And Zhang Tao, the director general of the Bank of China, essentially said that no one still has a clue what’s going on.

With all these no-clue subplots developing, we reach the end of the movie. That’s when the audience finally figures out how much of a monster schizophrenic Merkozy really is. Merkel — who was never accused of being a Cameron Diaz — sports a cheap “cash under the mattress” mentality; that’s why she’s opening the door for the Chinese to enter Europe via the EFSF.

As for Sarkozy — who thinks he’s as hot as Alain Delon — his megalomania defies Napoleon’s. For over two years, he’s been promising non-stop to “re-found capitalism”. After posing as the Great Liberator of Libya, he thought Cannes would be the crowning of a larger than life president — perfect public relations for next year’s election. But hubris intervened — straight out of Greece, of all places.

That leaves us with the real stars of this story — the Almighty Hu and Premier Wen. What they really want is hidden by words that don’t look like mountains. “Mutual advantages.” A “win-win” situation. Translation: China does the EFSF shuffle if it gets a “market economy status” – something that will allow it to eschew strict European Union anti-dumping legislation. The bureaucratic vultures at the European Commission refuse it – because they argue the EU is swamped by made-in-China products. According to the World Trade Organization, China will only get the status in 2016.

China also wants the end of an EU embargo over weapons sales. And most of all China wants way more decision power at the IMF and the World Bank, something shared by fellow BRICS members Brazil and India.

So the ball is in the European court. The bottom line is that if Beijing decides to help the EU — what an earth-shaking historical reversal — it may be more in symbol than in real substance. No one accumulates $3.2 trillion in foreign reserves by acting like an emir’s wife at Harrods.

At the same time, as much as Beijing essentially sponsors consumption in the US, it knows it doesn’t hurt to support Fortress Europe enough so it keeps consuming. It also makes sense to place some reserves in euros; geostrategically, it’s priceless PR.

So the point of the whole The Slow and the Furious movie experience — how to convince the Almighty Hu to shell out some cash — remains open-ended. Time for a sequel. But if only we had Brangelina instead of Merkozy.

  • First published at Asia Times.
  • Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007) and Obama does Globalistan (Nimble Books, 2009). He writes for Asia Times Online where this article first appeared and may be reached at pepeasia@yahoo.com. Read other articles by Pepe.