Indian Nobel Laureate and noted economist Amartya Sen in 2004.

Amartya Sen: let's wrest democracy back

The Greek crisis illustrates what happens when political authorities abandon responsibility in favour of non-accountable bodies such as rating agencies, writes the Nobel prizewinning economist.

Published on 24 June 2011 at 13:05
Indian Nobel Laureate and noted economist Amartya Sen in 2004.

Europe has led the world in the practice of democracy. It is therefore worrying that the dangers to democratic governance today, coming through the back door of financial priority, are not receiving the attention they should. There are profound issues to be faced about how Europe's democratic governance could be undermined by the hugely heightened role of financial institutions and rating agencies, which now lord it freely over parts of Europe's political terrain.

Two distinct issues need to be separated. The first concerns the place of democratic priorities, including what Walter Bagehot and John Stuart Mill saw as the need for "governance by discussion". Suppose we accept that the powerful financial bosses have a realistic understanding of what needs to be done. This would strengthen the case for paying attention to their voices in a democratic dialogue. But that is not the same thing as allowing the international financial institutions and rating agencies the unilateral power to command democratically elected governments.

Second, it is quite hard to see that the sacrifices that the financial commanders have been demanding from precarious countries would deliver the ultimate viability of these countries and guarantee the continuation of the euro within an unreformed pattern of financial amalgamation and an unchanged membership of the euro club. The diagnosis of economic problems by rating agencies is not the voice of verity that they pretend. It is worth remembering that the record of rating agencies in certifying financial and business institutions preceding the 2008 economic crisis was so abysmal that the US Congress seriously debated whether they should be prosecuted.

Since much of Europe is now engaged in achieving quick reduction of public deficits through drastic reduction of public expenditure, it is crucial to scrutinise realistically what the likely impact of the chosen policies may be, both on people and the generating of public revenue through economic growth. The high morals of "sacrifice" do, of course, have an intoxicating effect. This is the philosophy of the "right" corset: "If madam is at all comfortable in it, then madam certainly needs a smaller size." However, if the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth.

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Analysis

Helping Greece is a violation of democracy

When a government fails, we can withdraw its mandate. But in response to the EU’s bungling of the Greek crisis, who can we vote against? wonders German magazine Stern. Europeans are missing a fundamental right: the right to vote. No matter how you look at it, EU financial aid to Greece is undemocratic. Either Germany’s Chancellor Angela Merkel and French President Nicolas Sarkozy are governing Greece in violation of its sovereignty, or we are helping the Greeks and at the same time accepting that we no longer have complete control over our finances — another breach of democratic principle. In short, we are faced with a dilemma: if we help the Greeks we will not be good democrats, if we do not we will be bad Europeans. The only solution is a political union, with representatives elected by European citizens.

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