Below the thunder of the upper deep;
Far far beneath in the abysmal sea…
The Kraken Sleepeth
In Nordic mythology, the Kraken was a huge beast that lay in wait for ships that braved the restless North Atlantic, rising from the “abysmal” depths to wrap its great arms around the unwary or the over bold, pulling them down to its lair. As economies from the Baltic to Spain and from Ireland to Austria self-destruct, the Kraken metaphor may be an apt one for a crisis whose first victim was Iceland.
The saga of Iceland’s fall, from what Reuters called “One of the richest countries in the world per capita” to flat broke, is a tale that begins in the 1980s when Ronald Reagan and Margaret Thatcher dismantled governmental and financial checks and balances, privatized everything that wasn’t nailed down, and turned the world’s economy into an enormous Ponzi scheme with promises of wealth that would make Las Vegas blush.
Tapping into the sea of high-risk credit scams that floated the housing bubble, tiny Iceland—whose major export was cod—turned itself into a financial giant whose banks were worth 900 times more than the island nation’s gross domestic product. Icelanders bought townhouses in New York, imported expensive cars and lured back ex-patriots to cash in at the casino.
Such hubris stirred the Kraken.
Last month Icelanders were defaulting on car loans, unemployment was surging, and the country was in hock to the International Monetary Fund (IMF), whose standard formula for accepting its loans is the systematic savaging of education, health care, and social welfare programs. Iceland’s richest man, Asgeir Johannesson—who made out like a bandit over the past five years—runs a supermarket chain whose symbol is a cross-eyed pig, which suggests that while the northern gods may be vengeful, they have a sense of humor.
Iceland was just the first victim, an hors d’oeuvre for the beast. There are lots of others. The first to fall were smaller countries on the periphery—Latvia, Estonia, and Ireland—but the leviathans too soon felt the Kraken’s tentacles. Germany’s export industry, the heart of its powerful economy, is off by 21 percent. France’s growth rate is projected to be minus 2 percent. Spain’s unemployment rate is 14 percent, and 22 percent in the country’s hard-hit south. Sweden’s industrial output in down 22.9 percent. Ukraine, an industrial giant with 46 million people, will see its economy shrink 6 percent. A $16.5 billion loan from the IMF is temporarily keeping the country solvent, but its foreign debts alone are $105 billion.
England—whose Thatcher and Tony Blair share the blame for waking the Kraken in the first place—is a basket case. Its economy is projected to shrink 3 percent, and over two million are out of work. And because the Tories and Labor alike cut social welfare programs over the past 25 years, the jobless only get about $85 a week. As a result, every seven minutes a person in Britain loses his or her home.
Virtually no country in Europe remains unscathed, although the worst hit are those like Hungry, Latvia, and Austria that bought into the myth that the economy was a never-ending cornucopia.
Austrian banks shoveled loans into Eastern Europe, up to 60 percent of them in foreign currency. When the crisis came, countries like Hungary and Latvia found themselves trying to pay back loans in expensive Euros, Swiss Francs, and dollars, while their own currencies were tanking. Austria now finds itself holding $371 billion in debts, almost equal to the country’s annual GDP. Unemployment has jumped 23.7 percent.
The newer members of the European Union (EU), including most of the countries that were formerly part of the Soviet bloc, soon found that, when the going got tough, it was every man for himself. When Hungary recently asked its fellow EU members for a bailout, it got heaved overboard. Indeed, the EU’s 27-member crew seems less concerned with fighting off the Kraken than with each saving itself, ready to turn on one another at the drop of a currency.
Madrid has launched a “buy Spanish” campaign, London is touting “British jobs for British workers,” and the French president is urging French carmakers to invest at home, not elsewhere in the EU. When the water reaches the quarterdeck, free markets go a glimmering.
The Obama administration is pushing the Europeans to ante up a lot more cash for a bailout, but EU members are balking. “We don’t think we need to draw up new stimulus packages, and I’m supported on that by German industry,” German Chancellor Angela Merkel told the Financial Times.
The Europeans, on the other hand, are demanding that the Americans accept global regulation of finance, because many in the EU blame the lack of such regulation for the current crisis. So far, however, Washington is resisting.
“The global economic crisis is relentlessly laying bare the EU’s flaws and limitations,” says former German Foreign Minister Joschka Fischer. “Without common economic and financial policies…the cohesion of [the] European monetary union and the EU—indeed, their very existence—will be in unprecedented danger.”
The combination of internal European squabbling—some of it fed by old fashioned panic—and differences with the Americans over regulation, means that besides pumping some money into the IMF, little is likely to come out of the upcoming Group of 20 meetings set for April 2 in London. The G20 is composed of developed and emerging countries.
As bad as things are in Europe, at least the region has some safety nets for its people, including mostly free medical care, low-cost education, and social services that will blunt the worst aspects of the crisis. The same cannot be said for the United States.
The worst hit, of course, will be the world’s poor, the hundreds of millions of people in places like Africa and South Asia who currently eke out a marginal existence on a dollar or two a day, and who bear none of the blame for bringing on the world-wide economic crisis. The Kraken will make short work of them.
According to UNESCO’s Kevin Watkins, “With the slowdown in growth in 2009, we estimate that the average income of the 391 million Africans living on less than $1.25 a day will take a 20 percent hit. When you convert economic growth effect into human cost, the picture looks even grimmer. Best estimates point to an increasing infant mortality of somewhere between 200,000 and 400,000 yearly.”
Not that the poor or the recently-made-poor are going quietly. A demonstration in Iceland drew 7,000 people, the equivalent of seven million in the United States. A march and rally in Ireland drew 120,000—a little over three percent of the population—and Waterford Crystal workers took over their plant. Similar demonstrations have taken place in Russia, Latvia, Ukraine, France, and Greece. As the crisis deepens, so has the anger of those who will bear most its weight.
In John Wyndham’s 1950’s science fiction novel, The Kraken Wakes, aliens, using the sea as their refuge, paralyze the world. But governments, caught up in the Cold War, are more interested in fighting one another than resisting the invasion. The “Kraken” is finally destroyed when the poor residents of a fishing village overcome their terror and assault the creatures with crowbars and axes. Their example spreads and the invasion is finally defeated.
Demonstrators alone will not overcome the current crisis, but they can demand that governments act in the interests of their people, not those of Goldman Sachs and AIG. Yes, the banks have to be saved, but the most effective way to do that is to nationalize them, and in a way that the people with the crowbars and axes have a say over how their money is spent.
According to the Asian Development Bank, the recession has cost the global economy $50 trillion. That is a figure straight out of the darkest nightmare one can imagine.
The G20—particularly the Germans and the Chinese—should bite the bullet and beef up the bailouts. They must also reinstate the checks and balances on credit, capital and banking that have been systematically dismantled over the years. And they must ensure that the most vulnerable be protected.
If greed, selfishness and timidity triumph, the Kraken waits.