Political Economy of International Crisis
THE INTERNATIONAL MONETARY CRISIS(August 15, 1971- )
This section provides an examination of the overarching
crisis that reflects all the others: that of money. The breakdown
in the Bretton Woods system of organizing international exchange
reflected the underlying collapse of all the institutions and
relationships on which that system was predicated. More specifically,
the functionality of fixed exchange rates required the ability of
individual nation states to so manage their internal economies as to
be able to bring about any adjustment necessary to the equilibrium
of international accounts. The breakdown of Bretton Woods thus
reflected the collapse in the ability of national governments to carry
out such adjustments.
At a more abstract level -but present in every mutation of
the monetary system- not only does money embody the basic power
structure of social relations but any appearance of monetary
disfunctionality can be discovered to be a manifestation of underlying
crises in that structure. The following articles show the evolution
of discussion and institutional change at the level of money itself but
often include indications of the underlying political factors. The
object in this section will be both to understand the evolution of the international monetary arrangements and to dig beneath the surface
appearance of nation-state interactions to discover how the often
conflicting positions of various national governments reflect their own
efforts to cope with local moments of the underlying crisis in social relations.
"The Day the Dollar Die," Mystic Man, Rolling
Stone Records, 1979.
- A striking Third World view of the dollar (and
everything that goes with it) and of the benefits of its crisis and
H. Cleaver and J. Freeze,
"Monetary Chronology." [pdf version].
- Showing the evolution of the value of the dollar in
terms of other currencies in recent years. Is the dollar, as Peter
"Aspects of the IMF: Some Technical Vocabulary,"
- An historical chronology of the evolution of the
international monetary system with emphasis on the crisis period from
1971. Designed to help you keep track of what happened, when.
- Technical jargon definitions with a tiny bit of
A. COLLAPSE AND RECONSTRUCTION
*Harold Van Buren Cleveland,
"How the Dollar Standard Died," Foreign
Policy, #5, Winter 1971-72.
Available through ERes
"The Future of the Dollar," Foreign Policy, #11,
- Like it says. Early reaction and analysis of Nixons's
unhitching of the dollar from gold and fixed exchange rates. (This
article is included with Section I materials.)
Richard N. Cooper, Motoo Kaji, and Claudio Segré,
Renovated World Monetary System, Trilateral Commission, 1973.
- Trilateral Commission's man on the money crisis.
C. Fred Bergsten,
"New Urgency for Monetary Reform," Foreign Policy,
#19, Summer 1975.
- "A renovated international monetary system cannot offer
a panacea for all economic ills. In particular, its contribution to
solving the problem of world inflation, which is fundamentally domestic
in origin, is positive but not decisive. . . A renovated system must
command acceptance by all major participants, and it must contain a
certain degree of resilience against major economic disturbances of all
kinds, including mistakes in economic policy, which are bound to occur
from time to time under the political pressures and counterpressures of democratic regimes and the struggles to achieve or maintain power in nondemocratic ones. A rennovated system must also address the question
of what inernational currency is to prevail in the world, since one or
another is bound to emerge, and what will be the conventions governing
capital movements." (pp. 4-5)
*Tom de Vries, "Jamaica, or the Non-Reform of the International
Monetary system," Foreign Affairs, Vol. 54, No. 3, April
Available through ERes
- Pre Jamaica attack on potential dangers of gold
revaluation and its return to prominence in international reserves.
Bergsten became Undersecretary of Treasury for International Affairs
in the Carter Administration. He is currently the director of the new
Institute for International Economics in Washington, D.C. (see
"Promoting World Recovery" below) Compare with Trilat's view and
deVries on what happened.
"Floating Exchange Rates: The Calm Before An Economic Storm,"
BusinessWeek, October 3, 1977.
Available through ERes (Plus BW editorial)
- Partly a review of breakdown and reaction through 1971
to January 1976 meeting in Jamaica. But mainly an analysis of the
meaning of the Jamaica agreements and their failure to deal with
exchange rate systems changes or the regulation of international
"Money in the World Crisis: The New Basis of
Capitalist Power," Zerowork, #2, Fall 1977.
- An account of the problems of floating exchange rates
after three years. Not only about "dirty floats," the article laments
the "spreading belief that even if governments knew what to do few are
sufficiently in comand to apply necessary remedies."
Ronnie Philips, "The Failure of Keynesianism and the Collapse of
Bretton Woods," Research in Political Economy, Vol. 8, 1985, pp.
- Marxist analysis of the shift to flexible exchange rates
and the new role of the IMF in the capitalist counterattack on the real
- Radical analysis of breakdown in Bretton Woods and more
recent developments. Roughly along line of Marazzi article.
B. THE DOLLAR CRISIS AND THE EUROPEAN MONETARY CRISIS
*Robert Triffin, "The International Role of the Dollar," Foreign
Affairs, Winter 1978/79.
Available through ERes
"The case for a stronger dollar," BusinessWeek, October 2,
Available through ERes
- Analysis of enormous growth in dollar reserves since
1971 (partly due to U.S. government borrowing abroad) and of the
European Monetary System created to help stabilize EEC exchange rates
and to support domestic austerity programs. "Officials and public
opinion in the United States are prone to ascribe most of the blame
for the crisis of the dollar, and of the international monetary system
built upon it, to the quintupling of oil prices at the end of 1973.
In fact, the world inflation began well before then, and the abrupt
rise in oil prices was, in part at least, prompted by it, although,
of course, the oil price increase accentuated it in the following
years. . . the enormous and mounting U.S. deficits abroad, which
flooded the world monetary system, doubling world reserves from the end
of 1969 to the end of 1972, i.e., increasing them by as much in this
short span of three years as in all previous centuries in recorded
history. . . . The end of dollar convertibility solved -after a fashion-
the gold problem of the United States, but it did not arrest the
inflationary proclivity of the dollar-exchange standard for America as
well as the rest of the world. . . . International monetary reserves
doubled from 1969 ($79 billion) to 1972 ($159 billion); they doubled
again in the following five years (to $319 billion at the end of 1977). . . .
This huge overflow of dollars into foreign countries reserves slowed
down inflationary developments at home in the United States by
transmitting them in part to the rest of the world. . . .This fantastic
increase in international liquidity . . . is undoubtedly the biggest
factor in triggering the worst global inflation in history. . . .
[He then describes the EMS and goes on to argue] "Indeed, the main
purpose of the agreement is to promote domestic policies combating
inflation as well as deflation, to achieve a better equilibrium
in each country's balance of payments, and to reduce thereby exchange-
rate instability among the member currencies." [my emphasis] Triffin
also argues for anti-inflation policies in the U.S. and potential
usefulness of EMS in stabilizing US/European relations during
international negotiations of international monetary reform.
"Rescue for the Dollar," BusinessWeek, November 13, 1978,
Available through ERes
- Review of new Carter anti-inflation programs and
implications for the situation of the dollar.
"New Eurocurrency Era: What EMS Really Means," World Business
Weekly, December 4, 1978, p. 7-8.
- Carter's dollar support program to raise interest rates
and mobilize support credits for the dollar.
"More than a supersnake, but less than a Eurocurrency Union," World
Business Weekly, December 11, 1978, pp. 19-20.
"Gold set to glitter again as EMS is due for launch," World Business
Weekly, December 25, 1978, pp. 5-6.
- Articles describing the nature of and difficulties in
forming the new European Monetary System to buttress efforts to impose
austerity in Europe. Compare with Triffin's Foreign Affairs article.
C. REASSESSMENT AT THE BEGINNING OF THE 1980s.
Harold van Buren Cleveland and R. Bhagavatula,
"The Continuing World
Economic Crisis," Foreign Affairs, America and the World 1980,
Vol. 59, No. 3, 1981.
David Calleo, "Inflation and American Power," Foreign Affairs,
Vol. 59, No. 4, Spring 1981.
- An analysis of failure of flexible exchange rates and
gradual monetary restraint to deal with inflation and favor investment.
Attack on IMF lending that forshadows Reagan. Supply side analysis of
growth problems. Call for price stabilization via monetary shock
treatment, strict control of money supply.
"'The Elephant in the Boat?' : The United States and the
World Economy," Foreign Affairs, America and the World 1981,
Vol. 60, No. 3, 1982.
- An article that situates changes in the American role in the
international monetary system within the broader framework of the Atlantic
alliance, detente and the Mideast. Calleo locates sources of international
disequilibrium in American failure to contain domestic demands or to adapt to
the revival of Europe and declining US hegemony. Good overview.
Jeffery E. Garten,
"Gunboat Economics," Foreign Affairs,
America and the World 1984, Vol. 63, No. 3, 1985.
- Review of tight money policies in the U.S. and elsewhere
and their impact on international monetary situation. Solomon evokes
underlying social and political problems and calls for fighting inflation and
wages via an incomes policy rather than simply relying on the Fed.
- Critique of Reagan policy as one which by being totally
focused on domestic economic issues, ignored and harmed the rest of the world
and America's relations with it. Also critiqued for being unilateral,
inconsistent, too protectionist, unable to grasp interdependence, and
"mesmerized by its own rhetoric."
D. THE GOLD BUGS THAT WOULDN'T DIE
*Robert A. Mundell,
"Gold Would Serve into the 21st Century," Wall
Street Journal, September 30, 1981.
"Jack Kemp's 'Summit' is a hot ticket," Business Week, November
11, 1985. Also "Kemp's Monetary Powwow:Not Bad for Starters," Business
Week November 25, 1985. Available through
- This conservative Columbia University professor's
contribution to the rennaissance of discussion about returning to the gold
standard -- a discussion flowing mainly from Reagin's supply-siders who want
to extend monetary discipline to the international level.
Walter S. Mossberg and A. Murray,
"Baker Suggests a Role for Gold In
Setting World Economic Policy," Wall Street Journal, October 1,
- Gold bugs et.al., get together to discuss monetary
"Baker's Gold Gambit: Step to Stability?" Wall Street
Journal, October, 12, 1987.
- Article on Treasury Secretary James Baker's suggestion that
a basket of commodity prices be used as one index of global inflation to
guide the "secret economic planning process the big countries use to
coordinate their economic policies and stabilize exchange rates." N.B.:
box with recent chronology.
Hugo Kaufman, "A Gold Guide Won't Take Us Far," New York Times,
October 12, 1987.
- Discussion of current "managed float" (read "dirty float")
and possible usefulness of Baker's commodity index.
Peter T. Kilborn, "Key Role Seen for Gold In New Economic Order,"
New York Times, October 13, 1987.
- Critique of Baker's proposed commodity index: 1) an index
based on commodities is not a good indicator: "Alas, an increase in the price
of gold or other commodities need not signal a flight into real assets
stemming from inflationary expectations. Price increases can come about
through changes in industrial demand or the domestic or international
political climate. . . . they can just as well follow supply shocks. The
proposed commodity-price indicator is incapable of differentiating
between these causes - but correct monetary policy will have to
distinguish between them." , 2) inclusion of gold is a surrepitious reentry
of gold into the system: "Not more comforting is the contention by Rep. Jack
Kemp that Mr. Baker's gold index proposal is 'a victory for those of us who
have been working to restore a sound dollar'", and 3) focus on monetary
policy is too narrow: "Attention should finally be given to United States
domestic fiscal policy, the magnitude of the public sector's debt and
borrowing requirements and the linksages between them, interest rates and
the external imbalances". Kaufman is professor of economics at Queens
"Secretary Baker's Other Bad Idea," Wall Street Journal,
October 26, 1987.
- Discussion of current, coordinated order, and question of
meaning of return of gold into discussions. As an example of joint
management of the dirty float: "Having agreed last February that the dollar's
value stay put, they [G-7] spent billions of their own currencies to buy dolars
from the market and keep its price up in the face of heavy selling pressure. As
a result the dollar has remained stable in relation to the German mark and
has slipped only about 7 percent against the Japanese yen." However, "
Japan and Germany in recent weeks have been letting interest rates rise,
to the fury of the Reagan adminstration because their increases have
contributed to interest rate increases in the United States. and to turmoil
in the American stock and bond markets". "Mr. Baker added that he
thought that bringing gold back would make the system even better.
During a speech here at the end of September, he proposed that the seven
countries use commodity prices to guage how their economies are
performing especially regarding inflation. One of the commodities would
be gold. The remark brought disbelief from many economists. . . some
proponents of such a system -such as Robert A. Mundell . . . see his
proosal as a an important step in that direction. . . . Gold, Mr. Baker said,
by enabling countries to measure the value of their respective currencies
against something other than other currencies, helps avoid the delusion
that occurs when inflation is rising everywhere while all currencies still
seem stable. . . . John Kenneth Galbraith [on the other hand] said Mr.
Baker's speech last month was a marvelous exercise in fantasy and
- Commodity index is a bad idea 1) is preoccupied with
inflation when real object should be growth and 2) commodity prices are poor
indicater of inflation. What world needs is lower interest rates and
E. THE FALL 1987, U.S./GERMAN CONFLICT
Walter Mossberg, "Seven Nations Reaffirm Plan For Currencies," Wall
Street Journal, September 28, 1987.
*Peter T. Kilborn, "U.S. Cautions Bonn That It May Force The Dollar
Lower," New York Times, October 16, 1987.
Available through ERes
- Declaration of intention to continue Louvre
*Peter T. Kilborn, "U.S. Said to Allow Decline of Dollar Against the Mark,"
New York Times, October 18, 1987.
Available through ERes
- Baker threatens to violate Louvre Accord by pushing dollar
down because of recent German moves to increase interest rates. "Since July,
West Germany has raised an influential interest rate four times, with the
latest increase on Wednesday. . . . The rate increases tend to dampen the
German economy. That prevents stronger demand for American goods
and hurts the United States' trade situation. In addition, the rises create
pressure for higher interest rates in the United States [to avoid capital
outflow, support continued foreign finance of U.S. Federal government
budget deficit]. . . . In the last two days, fears of higher interest rates
have caused a sharp drop in stock and bond prices. [NB: all this is shortly
before the Stock Market Crash on Oct. 29, 1987] . . . One approach would
be to have the Federal Reserve buy and sell dollars in foreign-exchange
markets, as central banks have done largely successfully since they reached
an economic accord at a conference at the Louvre in February. . . .
A weaker dollar would hurt the already soft West German eocnomy by
making it harder for its industries to export goods to the United States. . .
The secretary's singling out of West Germany marks a new round in the
periodic tugs-of-war between that nation and the United States. Seeking
to shrink the huge American trade deficit, Washington has often appealed
to West Germany to speed up its economy to increase demand for
American goods, while Bonn has replied that the trade deficit and many
world problems would fade away if the United States reduced its budget
- Baker carries through with threat. "In an abrupt shift from
its policy of the last eight months, the United States is allowing the dollar
to decline against the West German mark . . [Bakers announcement of the
change in dollar policy came during comments on: "Dow Jones industrial
average that plunged 9.5 percent this week, or 235.48 ponts, and the
largest weekly loss since World War II and whose one-day 108.36 drop on
Friday alone wiped out $145 billion in the value of investors stocks"] . . .
By allowing the dollar to decline further against the mark, the
Administration hopes to counter the impact of the higher [interest] rates
abroad. A cheaper dollar raises the prices of imports sold in the United
States, making it easier for American manufacturers to compete at home.
It also helps them by lowering the prices of the goods they sell abroad. . .
There is the risk, however, that the stock market . . . might erode further
with a falling dollar. Foreign investors have been a major reason for the
market's big move this year. That was due in part ot their confidence that
when they wanted to repatriate their funds, they would not suffer from a
currency exchange. . . . In Bonn, German officials have expressed dismay
with Mr. Bankers' jawboning . . . They maintain that the rate increases [in
Germany] are miniscule -in total they add up to less than a percentage
point - and are driven by forces in the markets, not by the government."
*Peter T. Kilborn, "U.S. Dollar Policy Backed by Analysts," New York
Times, October 19, 1987.
Available through ERes
"Foreigners Called Key To Rates," New York
Times, October 19, 1987.
- Reaction to U.S. move to let dollar drop. Only alternative
to raising interest rates says C. Fred Bergsten. N.B.: dollar chart 1985-87.
"U.S. Gamble On The Dollar," New York Times,
October 30, 1987.
Available through ERes
- Drop in dollar will reduce attractiveness of US securities to
foreigners which will cause problems for financing US trade deficit and
Peter T. Kilborn, "Emphasis Is Shifting On Dollar: Officials Find Stability
Was Flawed Goal," New York Times, November 2, 1987.
- Post crash policy of expanding money and lower interest
rates threatens foreign capital flight, dollar drop accentuates this, but domestic
concerns seem to outweigh worries over foreign financing.
"Surprising Majority Agrees on Need for Weaker Dollar," Wall Street
Journal, November 5, 1987.
- After abandoning Louvre Accords in fact, the desireability
of stable dollar value is now underattack in theory --given current situation
of international imbalance.
Alan Murray and Walter Mossberg,
"James Baker Stresses Hold Down
Rates Even if Dollar Suffers," Wall Street Journal, November 5,
- Classic manoeuvre of devaluation to cure trade deficit
supported by some, called crazy by others.
"Europe Hailing Plan on Deficit; Meeting Sought,"
New York Times, November 22, 1987.
- Top adminstration priority is staving off post-crash
recession. Drop will also attack Bonn.
Kenneth H. Bacon,
"The Falling Dollar Isn't A Magic Cure," Wall
Street Journal, November, 23, 1987.
- European reaction to U.S. deficit reduction plan passed by
Congress and signed by Reagan is positive, but inadequate, calls for
international meeting to renew agreements on coordinated policy.
Robert A. Bennett, "Economists Caution on Risks In Continued Drop of
Dollar," The New York Times, November 28, 1987.
- Dollar drop: hurts consumers, helps business/trade. Most
important policy objective should be to "continue the corporate
restructuring of the last few years by moving beyond cost reduction to
improved production techniques." Quotes businessman that "balance
between technology and worker participation is critical and extremely
difficult to come by."
Thomas F. O'Boyle,
"Bonn Plans Cut In a Loan Rate To Aid Growth,"
Wall Street Journal, November 30, 1987.
- Drop may result in more inflation, increased efficiency of
foreign companies, competitive devaluations and global recession. So much
for the Wall Street Journal's claim that majority of economists
Walter S. Mossberg,
"Reagan Explains U.S. Dollar's Woes: Correction
Follows," Wall Street Journal, December 4, 1987.
- Bonn capitulates to US pressure by cutting interest
Walter S. Mossberg,
"Group of Seven Declares the Dollar Dropped
Enough, May Intervene," Wall Street Journal, December 23,
- Before reading this article test your understanding of
economics by explaining to Mr. Reagan what is wrong with his statement: "a
sudden surge of cutting interest rates in some of our trading allies abroad,
did have the effect again of making the dollar fall. But that was their doing,
not ours." This is the president of the U.S. speaking???
Peter T. Kilborn, "Dollar Bolstered By Central Banks," The New York
Times, January 1, 1988.
- The return to coordination after the US unilateral violation
of Louvre Accords.
*Kenneth N. Gilpin,
"Dollar Rises Again As Central Banks Continue
Support," The New York Times, January 6, 1988.
- Coordinated dollar buying raises dollar value after US
Walter S. Mossberg and C.W. Stevens,
"Central Banks Gamble In
Propping the Dollar Without Policy Steps," Wall Street Journal,
January 7, 1988.
- The dollar floats upward under strict dirty management.
- Intervention in exchange markets may be doomed without
more substantive policy changes --this of course is major problem of managed
F. THE FALL 1992-WINTER 1993, EMS CRISIS
"German Inflation Risks Unabated - Bundesbank", Reuters, (via
Nexis-Lexis), February 20, 1992.
Walter Russell Mead,
"Europe's Crisis is America's Crisis" The Atlanta
Journal and Constitution, (via Nexis-Lexis), September 22, 1992, p.
- Bundesbank board member Otmar Issing calls Germany's
4% inflation "highly unsatisfactory" (double the desired 2% level) and attacks
recent 6.4% wage deal in the steel industry as contributing not only to
inflation but also to unemployment (by reducing profits). He called for
"cuts in social spending" saying that there is a need for "unpopular and
courageous decisions". Thus the need for continued monetary restriction
and high interest rates -which continues to irritate other European
countries by forcing them to do the same which inhibits efforts to fight
stagnation and high unemployment.
Juergen W. Moellemann,
"The Currency Thinking in Bonn,"
Washington Post National Weekly Edition, October 5-11, 1992.
- "Last week's tumultuous chaos in the European money
markets shook every government in Europe and derailed Europe's ambitious
dreams of a united currency by the end of the decade. . . . The Germans,
as usual, have the hardest lessons to learn. Germans have lived with a lie
for some time - that there was no contradiction between Germany's
national interests and the construction of the European Union. But this
isn't true. Germany's massive obligations in the East - $100 billion a year
to keep the old East Germany on economic life support - were the root
cause destabilizing Europe's money markets last week. To save East
Germany, the country had to borrow massively from around the world;
this drove up German interest rates, and thanks to the ERM, its European
partners were forced to follow suit to save their currencies from collapse.
As the British pointed out in a series of acerbic statements last week, the
Germans used the ERM system to tax the rest of Europe to support
national objectives. . . . Europe's turmoil is likely to translate into slower
growth. That means smaller markets for U.S. Exports in the world's
biggest and richest single market. That, in turn, postpones the day when
the United States will emerge from its current economic stagnation."
Paul R. Krugman,
"Pointing to a Fractious Future", U.S. News & World
Report, October 5, 1992, p. 54.
- Economics Minister of Germany defends high interest rates,
partly by pointing out role of Bundesbank in setting a "standard for
politicians throughout the European Community in their attempts to cut
budget deficits and reign in inflations, often against the fierce opposition
of domestic vested-interest groups". (p. 25)
"Europe After Maastricht", Foreign Affairs,
Vol. 71, No. 5, Winter 1992/93, pp. 117-132.
Available through ERes
- "the turmoil on European financial markets has revealed
how poorly prepared the Continent really is for monetary union . . . So why
did Europe's policy elite think it could go all the way to monetary union?
The reason is that fixed exchange rates worked far better than anyone
expected . . These nations needed a strong anchor, both to discipline
themselves [i.e., their workers] and to convince markets that fighting
inflation [i.e., wages] was really their top priority. . . .Germany chose to
borrow most of the money rather than impose huge tax increases. This
deficit financing threatened a revival of inflation. To combat this,
Germany's central bank raised interest rates. But other European
nations, obliged tomatch the German rate rise, found themselves
pushed deeper into recession."
*Gail E. Schares et al.
"Kohl Prods the Giant: To heal the economy, he
asks for sacrifices -and holds his breath," BusinessWeek, January
- This professor of international relations gives a concise
overview of the tensions in Europe in the wake of the Maastricht agreement,
including the failure to deal with the breakup of Yugoslavia, the crisis of
the EMS and the problems of new entrants North, East and South.
"U.K. Reduces Interest Rates to 16-year low," The Wall
Street Journal, January 27, 1993.
- Good overview of internal German social crisis that lies
behind Germany's high interest rates and willingness to risk collapse of EMS.
Note: this article was one of those assigned.
"EC Faces New Round of Currency Turmoil", The Wall Street
Journal, February 2, 1993.
- British policy makers struggles to use monetary policy to
"reignite" their depressed economy after pulling out of the ERM of the EMS
last September. They have cut interest rates some five percentage points
"to their lowest level since 1977".
"France is Preparing to Battle Britain Over Flight of
Jobs Across the Channel," The Wall Street Journal, February 3,
- "Germany's budget deficit and rapid wage increases have
prompted its central bank, the Bundesbank, to keep interest rates high as
a way of holding down inflation, even as those high rates aggravate
Europe's economic slump. [leading England and Italy to opt out of ERM]
in September. . . . French politicians are desperate for lower interest rates,
as March parliamentary elections approach. . . . Denmark . . . is under
"Social Dumping", The Wall Street Journal,
February 4, 1993.
- "The immediate cause of the European uproar is the
decision in the past few days by several big U.S. and other multinational
companies to lay offworkers in high-cost, pro-unon France and move jobs to
lower-cost sites in Britain and elsewhere in Europe . . . EC Commission
President Jacques Delors . . . urged EC ministers in Burssels mOnday to avoid
cross-border job-poaching. . . . With labor costs lower, and unions willing to
concede benefits to get job guarantees, the case for investing in Britain
can seem stronger than in higher-cost locations."
Terence Roth and Bob Hagerty,
"German Bundesbank Lowers Key
Rates," The Wall Street Journal, February 5, 1993.
- Attack on French and EC arguments for "leveling up" the
"economic playing field" instead of bringing it down to "the lowest comon
denominator" [e.g., lowest wages and benefits]. NB: unusually frank
argument in support of world wide use of "competition" to undermine the
standards of living of the strongest workers by those of the weakest, not
only in Europe but everywhere.
Janet Guyon and Philip Revzin,
"Olivetti Chairman De Benedetti
Changes His Stance on European Unification," The Wall Street
Journal, February 5, 1993.
- "Yielding to political and eocnomic pressure, Germany's
central bank grudgingly trimmed key interest rates . . . but . . . nobody expects it to ease the ongoing currency crisis for long. . . . The Bundesbank move caught many economists by surprise. That's because it came in the
absence of conclusive signs of new fiscal controls by the German federal
government or wage moderation. Fears of runaway wage demands, on
top of Bonn's huge unity-related budget deficits, have been the chief
factors behind the Bundesbank's inflation fears."
*"France Widens Fight Against Hoover Plan to Shift Jobs to UK," The
Wall Street Journal, February 9, 1993.
- De Benedetti: "the currency is always the consequence of an
economic event; it's not the cause of an economic event."
Terrence Roth, "German Interest Rate Decline Expected to Continue,
Based on Past Patterns," The Wall Street Journal, Feburary 12,
- "With French unemployment approaching 11%, the
beleaguered Socialist government, which faces elections in six weeks, is
pulling out all the stops in the Hoover case."
*Bill Javetski, et al, "Europe's Economic Agony: The single market is
open -but business is miserable", BusinessWeek, February 15,
- When bundesbank cut rates in 1975 and 1982 after much
resistance, it cut them a lot. Moreover, cuts may be possible because
"German Unions are finally cracking, which is helpful for the cause of
lower interest rates." However, worker resistance remains as IG Metall
"refuses to agree to postpone a contractual reduction in the official
working week to 36 hours per workers from 37 hours in April. [etc]"
*Thomas Kielinger & Max Otte,
"Germany: The Pressured Power"
Foreign Policy, No. 91, Summer 1993, pp. 44-62.
- Zero corporate profits measure depth of crisis, prospects
good for pitting cheap labor in Eastern Europe, S. E. Asia and the XUSSR
against West European labor, Europe "must hammer away at high wages".
Note: this was an assigned article.
- A German view of the pressures tearing at Germany from
within and without, pressures which are affecting its foreign policy, including
its monetary policy and role within the EMS. Of particular interest are the
comments about the high percentage of German aid to Eastern Germany
which is being consumed rather than invested: "a full two-thirds has been
used to support consumption, not to improve the east's economic potential".
G. Winter 1994-1995: The Peso Crisis
In December of 1994 Mexico experienced what appeared to be a classic crisis of the
value of its currency. When the government announced a slight decrease in the value
of the currency, the "market" responded with a rush to dump pesos in exchange for
other currencies. The result was a much more dramatic drop in the value of the peso
than the government had anticipated and a more general crisis of Mexican capital
markets. It was only through an equally dramatic (even illegal) $50 billion bailout,
engineered by U.S. President Bill Clinton with the backing of the International
Monetary Fund, that a complete collapse of Mexican capital markets was avoided.
(December, 1994 Winter-Spring 1995)
What appeared, however, to be a purely monetary crisis turns out, upon closer
examination to have been very much a "political economic" crisis with the ultimate
emphasis needing to be placed on the "political." Behind the crisis of December
lay a year in which not only was the Mexican government's efforts to sustain the
value of the peso becoming more and more untenableas its foreign exchange reserves
dwindled steadilybut the major sources of that trend lay in Mexico's internal
The year 1994 had begun with a shocking indigenous rebellion in the southern
state of Chiapas, a rebellion which touched off a much widespread upsurge in
demands for democratization in the country. The demands for a change in the
one-party(PRI)-state system through which Mexico had been governed for decades
had been growing for years and had, in fact, led to the defeat of the ruling
party's candidate in the 1988 elections. The PRI avoided losing power at that
time by using fraud to steal the election from the opposition candidate (and
by subsequently assassinating over 200 of his militants). But this had only
deepened public dissatisfaction, a dissatisfaction that explode with the
Zapatista rebellion of January 1, 1994.
The story of the "Peso Crisis," therefore, is a story that interweaves an
economic history with a political one. And this is case during the leadup,
during the moment of crisis and during the subsequent attempts to restabilize
both the Mexican financial markets and the country more generally.
I have put together a
collection of readings, mostly taken from the
Internet that was the only place where it was possible to keep track of
what what going on with any consistency during the crisis. You will find
both analysis of events and causes, and descriptions of reactions and
mobilizations, both on the part of governments and at the grassroots.
(This last ties in with the section in the Crisis of Diplomacy on
grassroots challenges to official policy.)