10 Years Since the Financial Crisis: A Review

, by Martin Samse, Translated by Nora Teuma

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10 Years Since the Financial Crisis: A Review

Ten years ago, the global economy was hit by a severe crisis. The following years of turbulence had a sustaining impact in the economic sector as well as the self-conception of western democracies. An overview.

2008 – The American dream bursts

Lehman Brothers, one of the biggest and most renowned banks in the American financial sector goes bankrupt. Their insolvency unleashes a chain reaction and sparks a crisis in the global financial market.

Thousands of Americans had been chased away from their homes, being unable to pay the increasing interest rates on their mortgages. Those mortgages had already been securitised and bundled as bonds in dubious loan packages. Thus, a ticking bomb was installed in the international finance system. Once real estate prices plunged and debtors could no longer pay their loans, these loan packages suddenly became worthless. American banks and businesses got into financial distress and homes were seized by the dozen.

Owning a homestead is an essential factor of wealth for many Americans. It symbolises the fulfilment of the American Dream. The large-scale house seizures ingrained a deep feeling of insecurity in parts of the American middle class. Their aggregated anger manifested in the “Occupy Wallstreet” movement – temporarily. But revenge for the bursting of their American Dreams was taken only years later.

2010 – The financial crisis becomes the euro crisis

Greece declares its impending state bankruptcy. The country urgently needs comprehensive financial aid from the euro countries and other EU member states to avert illiquidity. The political elite in Europe is determined to save Greece and the euro at all costs. What follows is a tug of war over the future of the European Monetary Union which will last for years.

After the EU states had rescued their bank sectors from the crisis with public money, some states came under pressure themselves. Iceland, Italy, Cyprus, Greece – a devastating chain reaction commenced. In an attempt to stop it, Greece was kept in the eurozone by all means. Rescue packages, a fiscal pact, austerity and stability mechanisms: The politics of the coming years were characterized by verbal monstrosities, complex situations and increasing mutual liabilities between eurozone members.

Negotiated in anonymity and pushed through national parliaments, the level of abstraction of the policies of that time was as evident as the lack of an alternative. The elected representatives appeared flustered and driven by factors that were beyond their control, putting their credibility at stake for these costly politics. It was a crisis response with uncertain results and everyone was sure to lose – whilst the Greek population suffered from the dictated austerity programme, saving deposits in Germany slumped due to historically low interest rates. Donor and recipient countries alike eventually saw the surge of increasingly aggressive populism. 2013 – Populists on the rise

The German “crisis chancellor” Angela Merkel is believed to be indispensable and reaffirmed in her position in the parliamentary elections. Slowly, however, the wind is changing in the largest European donor country.

Angela Merkel set the tone in those crisis times. But the bailout policies were costly, also politically speaking. During the euro crisis, the rise of the Alternative für Deutschland (AfD – Alternative for Germany) which utilised German voters’ fear of social decline began. Their message read: By means of its bank and euro rescue policies, the government intentionally sells out the German taxpayer and jeopardises the future of the country.

This message was grist to the mill of all those who already considered the strength of the German economy (and its people!) bound and suppressed. The quarrels over the financial and euro crisis opened the door for the return of national chauvinism in Germany.

2016 – Victory of the Brexiteers

David Cameron, prime minister of Great Britain, paves the way for a vote whether the UK was to remain in the European Union or not. The result: with a small majority, the British opt for withdrawal. There are manifold reasons for the outcome of the referendum, a common origin in the financial crisis and its consequences can, however, be found.

Great Britain had traditionally had a sceptical stance vis-à-vis European integration. Every now and then, the idea of leaving the Union was toyed with. The United Kingdom Independence Party (UKIP) and its longstanding leader, Nigel Farage, led the movement. In his statements, he loudly uttered displeasure with bank bail-outs, euro-saving politics and the alleged German dominance in European fiscal policy. For UKIP, the financial and euro crises were a welcome starting point to denounce the EU’s supposed incompetency and hostility towards democracy, as well as its constraints on the economic and financial sovereignty of the Member States.

Besides immigration and free movement of people, the use of Member States’ money within the EU budget was dominating the debate in Great Britain. The preceding years of crisis were a frightening example for the British of how transfer payments between states increased year by year and how a sovereign country was subjugated by external obligations. Brexit was thus a decision against the idea of a constantly advancing European integration.

2018 – The West at crossroads

US President Donald Trump intends to build a wall around his country, whines about “mainstream media” and snubs his political allies. Americans search for salvation in protectionist policies; the consequences of the past crises continue to torment Europe.

USA – 10 years after the Lehman bankruptcy, an uncouth reality TV star sits in the White House. His promise: to make America great again and to “drain the swamp” in Washington. He appeals to a time before rampant financial capitalism, when factories were running on full speed and white American called the shots. This promise got many people caught: With the Trump’s election, a majority of Americans voted against the political mainstream, the established institutions and globalised markets. The American electorate now fiercely called for the revival of the American Dream, destroyed by unbridled financial capitalism of the past ten years.

Greece – Eight years after the threat of bankruptcy, the state is slowly advancing back towards the financial markets. The first bonds were received positively but consolidation would last a while: the country is suffering from historically high national debts and ongoing austerity politics.

Great Britain – Two years after the Brexit referendum, Prime Minister Theresa May has found no feasible path out of the EU. New plans are continuously announced and discussed. The option of an ‘exit from Brexit’ is circulating – but likewise a no-deal scenario, an uncoordinated exit. What began as a rebellion against the allegedly undemocratic EU has now evolved into a disgraceful farce.

Germany – Chancellor Angela Merkel’s political end is summoned weekly. Thus far, no crisis has been able to overthrow her. But the battle for her political legacy has now flared up. The euro-sceptical AfD has radicalised further and found a new hot topic: the refugee crisis. Thanks to the party, which firmly sits in parliament since 2017, racist offences, NS nostalgia and (secondary) antisemitism are back on the agenda of German politics.

Forecast: Is after the crisis before the crisis?

For the moment at least, the banking sector has been stabilised and the wildfire plaguing euro states has been extinguished. Markets were flooded with cheap money (thanks to low interest rates set by the European Central Bank) and the debt crisis was hidden underneath piles of new debt. Meanwhile, sincere attempts to regulate the financial markets in Europe were softened, delayed and partially buried; the saved “zombie banks” still paralyze the European economy to this day.

Western industrialised states face horrendous national debts and mostly unregulated, bloated financial sectors. Anxious citizens start to question our democratic institutions as well as political and economic principles. Experts warning about the consequences of the euro-saving measures, which in turn may lead to new crises, become increasingly louder. Compared to what might be about to come, the past ten years could have been merely a gentle shake-up. For the past proves: it only takes the bankruptcy of a single bank to unleash a storm.

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