The Driver of Social Change (2 of 2)

This past year I spent a grim November in Zurich. Grim were the politics; Zurich is a beautiful city and I have dear friends there.

The talk of the town was the national referendum to ban the construction of minarets in Switzerland. The anti-minaret poster which itself became the subject of controversy was everywhere. It showed a woman in burka next to a cluster of minarets that looked like missiles, all juxtaposed over a Swiss flag. The message was that backwards Islam will destroy Switzerland.

On November 29, the measure passed with 57% of votes.

In the past couple of years, we have seen the variations of this theme played across Europe, most recently in France, where wearing burka was banned in school. The President of the Republic himself took a very public stand against this “symbol of oppression”.

But I couldn't help noticing the changing narrative in Switzerland. Whilst previously the talk had been around the Muslim hordes invading the idyllic European landscape, the anti-minaret campaign focused on the “power” of Islam; hence the modern “missiles”. The general secretary of the Swiss People’s Party which had sponsored the anti-minaret measure said that its passage was “a vote against minarets as symbols of Islamic power”.

The claim seems absurd. Any passer-by could readily see that Muslims have no political influence or say in Switzerland – or anywhere in Western Europe. A Tissin butcher’s social and political influence will trump theirs any time. To which Muslim power then was the general secretary of SVP referring?

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The same November, another dispute reached its climax. This one could not have been more removed from the minaret controversy in terms of public awareness, sentiment and reaction. Few people in Switzerland and Europe heard about it. Even if they had, a question about the issue would have drawn a blank stare, because it involved the regulation of derivatives.

The U.S., with the support of the U.K., wanted to move the trading of the over-the-counter derivatives to the exchanges. The claim was that such a move would reduce the counterparty risk and add to the transparency.

The Europeans, headed by France and Germany, opposed the move. They claimed that exchange trading would add to the costs by subjecting the trades to margin calls. The Financial Times reported the split:

Europe’s largest companies have accused the US of being “adamantly unwilling” to relax proposed reforms of the over-the-counter derivatives markets ... The comments made by the European Association of Corporate Treasurers (EACT), raise the possibility that Europe and US may go their own ways in implementing reforms of the OTC derivatives market ... The administration of Barack Obama in the US and the European Commission argue this is needed to reduce so-called counterparty risk in the financial system since clearing houses ensure that transactions are completed even if one party to a trade defaults.

Companies counter that they would be unfairly penalised if such reforms became law because the laws would oblige them to set aside extra cash – margin – to guarantee those trades ... Richard Raeburn, chairman of the EACT, whose members include Volkswagen, Siemens and Rolls Royce, said his body would not hesitate to “look to the European Commission and Parliament to be prepared to take a more considered and pragmatic approach” than that of the US. Mr Raeburn said that if this resulted in “divergence from the US, so be it”.

First, take note of the parties to the dispute. On one side is the “Obama administration”, i.e., the U.S. government; on the other, Volkswagen, Siemens and Rolls Royce, backed by EACT and then, the European Commission and European Parliament. But lest you think this is a U.S. vs Europe issue – no issue ever is strictly Europe vs. U.S. – here is a subsequent paragraph from the same article:

In the US, the issue of company exemptions from OTC derivatives reform is likely to be raised today at a hearing of the Senate’s agriculture committee.

The Coalition for Derivatives End-Users, a recently formed lobby group representing 180 US companies including Apple, Intel, Caterpillar and 3M recently wrote to House speaker Nancy Pelosi urging lawmakers to “preserve the ability of companies to manage their individual risk exposures by ensuring access to reasonably priced and customised over-the-counter derivatives”.

So, in addition to Volkswagen, Siemens and Rolls Royce in Europe, Apple, Intel, Caterpillar and 3M in the U.S. are also against the “reform”; they are against the derivatives being traded in the exchanges.

These are all industrial companies. If you read their letter to members of Congress, you will not find Goldman Sachs, Morgan Stanley, Citigroup or Bank of America among the petitioners. This latter group is represented by the “Obama administration”. What we have here is a quarrel between the industrial and finance capital, each side jockeying to place itself in the most advantageous position within the system. And no one is budging; inconsistent accounting treatment of the derivatives in the U.S. and Europe? “So be it”.

In the U.S., finance capital reigns. The industrial capital can only appeal to Congress. Finance capital owns it. So the “financial reform” legislation will force trading of OTC derivatives in whole or in part into the exchanges.

In Europe, the European Commission is also under the spell of finance capital. The industrial companies know that; hence their threat to take the matter to European Parliament, which they control and has the power to strip the European Commissioners of their authority.

Where could the European industrial companies go if there was no EU? The answer is, nowhere; without the EU mechanism they would have had no place to go to protect their interests.

By following the obscure and technical matter of the regulation of the derivatives, we thus arrive at the reason for the creation of the European Union, its raison d’etre.

EU is created for the explicit purpose of advancing the interests of the “European” capital, as a counterweight to the “Anglo-Saxon” capital in the U.S. and U.K. “Existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union” is the main criterion of membership.

Within the Union, the industrial and finance capital occupy relatively equal positions of power. They have a peaceful coexistence of sorts but tension surfaces every now and then when the interests of one side are too clearly threatened. (Hence the ambivalence of finance capital-dominated U.K. to the Union, despite the geographic proximity and cultural links.)

The remoteness of the derivatives dispute is symptomatic of the “macro”, almost abstract, level in which the various treaties, directives, rules, laws and regulations of the Union are implemented. These measures affect every area of life in the Union, including agriculture, competition, economic and monetary affairs, education, environment, external trade, public health, institutional affairs, research and taxation. Yet, the population remains woefully ignorant about them. What is more, they have had no say or choice in their implementation. The Constitution of the Union which codified these far reaching changes – it is referred to as the “Lisbon Treaty” to make it sound dull and uninteresting – was imposed from the top.

In countries where it could be adopted through the political machinery, the governments quietly obliged. In countries where a direct vote by the population was required, a “Yes” vote was called for. When the vote turned out to be “No”, it was promptly ignored. “We cannot say that the treaty is dead” said the European Commission President after the French “No” vote, although, in theory, the treaty had to be dead because a unanimous approval was a condition for its passage.

The same thing happened in Holland and, later, in Ireland, when the “No” vote was dismissed as the mindless act of uncouth peasants who did not know what was good for them. Capital will simply not take a “No” for an answer when the course of its future development is at stake.

When the French and the Dutch voted against the constitutional treaty in May and June 2005, the document reappeared as a “mini-treaty”, longer than the original, and was ratified by governments without recourse to a referendum. Many countries have reneged on promises they made to their electorates about a referendum.

The Irish had to vote again until they got it right. As Margaret Thatcher put it, “there is no alternative”.

The European citizenry cannot articulate these developments, but they perceive the contempt that they signify. They look for an alternative, a total Other, and some of them find Islam.

Switzerland is not a part of the EU, but fits this description to a tee. So in the most unlikely places in Zurich, you see businessmen in the tight fitting dark European suite with a kaffieh wrapped around his neck and suddenly you understand the reference to the power of Islam and concerns about it. The concerns are neither due to minarets nor the Turkish emigrants manning fast food stands, but the Swiss, repelled by the system that despite protestations to the contrary, have begun to suspect, no longer reflects their concerns.

I will return with the epilogue.