Frankfurt am Main — Beneath the commanding heights of the gleaming skyscrapers that house some of Europe’s most powerful banking institutions, a committed core of protesters have huddled together in a small tent village to vocalize their opposition to what many of them call “the dictatorship of the financial markets.”
Last Saturday, thousands joined the “Occupy Frankfurt” movement and took to the streets of continental Europe’s financial capital to protest the political influence of institutions such as Deutsche Bank and Commerzbank. The demonstration came just a week after 5,000 people marched through Frankfurt on October 15 as part of a worldwide day of protest that stretched from New York to Rome and beyond.
The protesters have chosen to make their statement in front of the European Central Bank (ECB), the institutional nerve center of the 17 European Union member states who share the common euro currency. The ECB plays a central role in the current response to the spiraling debt crisis that threatens to suck Europe into an economic nightmare.
Nearly two years after Greece received its first 110 billion euro ($153 billion) bailout, not only has Europe’s debt crisis not been resolved – it has drastically escalated. Ireland and Portugal have since fallen victim to the red ink and now Italy and Spain – the eurozone’s third and fourth largest economies respectively – are teetering on the brink, a development that could have catastrophic consequences not just for the euro, but for an integrated global economy that stretches from New York to Beijing.
European leaders are now openly acknowledging what was once taboo: Athens cannot honor all of its obligations, and some of its debt – perhaps as much as 50 percent or more – will have to be forgiven. This increasingly likely scenario, however, would mean major losses for major banks. Three years after the collapse of Lehman Brothers, politicians are again discussing what amounts to a bailout of the banking sector. And that has made a lot or ordinary consumers and voters very angry.
‘Profits are not from God’
As policymakers negotiate how to distribute billions euros to bailout bankrupt nations and bolster overexposed banks, there is a growing sense on the streets of Frankfurt that the social and economic well-being of average citizens has become a secondary priority.
“In principle it is about the injustice that is taking place, that the money that exists is very poorly distributed, and that a lot of people can live a lot better when a little more attention is paid,” said Daniel, a 24-year-old freelance IT worker who is participating in the demonstrations. “We want to send a message to the politicians who at the moment are working against the people instead of for them.”
The growing disparity between the rich and poor is not the subjective impression of a few individuals, but instead is a statistically proven reality, according to Dieter Rucht a sociologist at the Social Science Research Center Berlin. Since the re-unification of the two Germanys in 1990, the wages among lower income earners has largely stagnated while the wealth of those with higher incomes has grown, a phenomenon confirmed by the Organization for Economic Cooperation and Development (OECD) and the Bertelsmann Stiftung.
The phenomenon can also be observed in the United States, where the Occupy Wall Street protests helped inspire the protesters in Frankfurt and lent additional momentum to the already existing protest movements in debt plagued Italy and Spain. The wealthiest 20 percent of the population controls 84 percent of the wealth in the US, according to a study by Harvard Business School and Duke University.
“Profits are not from God or from nowhere,” said Zsolt Darvas, an economist with the think tank Bruegel in Brussels. “The value added by the financial industry was hugely exaggerated so basically if they are making huge profits, and they distribute it to themselves in the form of dividends or bonuses, certainly this is a kind of redistribution within society.”
Darvas added that this upward redistribution can negatively impact normal people – in relative terms – a phenomenon that 49-year-old Ana-Maria, a hairdresser and Spanish émigré who lives in Frankfurt, has noticed when she goes to her bank.
“We have increasingly less money,” said Ana-Maria as she waited at the tram stop next to the ECB. “You go to the bank because you need a loan and then you’re gouged. They want too much interest for everything and then we go work and work and everything is taxed.”
Above all, this is the case when financial institutions take on growing margins of risk in order to continue making increasing profits.
“As far as it goes in terms of making speculative profits, it always comes at a loss to someone else,” Rucht said. “That can impact richer people but in principle it affects those with small savings accounts and small investors who experience losses.”
Some Frankfurters wonder whether the financial markets are still even related to the production of concrete goods and services that the broader population enjoys, or if they are increasingly designed to simply make profits by moving money around.
“The question is whether the markets have become so powerful, or whether they are now so weak that they will take everything down with them,” said Uli, a 45-year-old who works in real estate, as he observed the protesters’ encampment. “And the question is how much of the financial markets are still part of the real economy and how much they are a fictitious economy. The majority of the profits are just from gambling – it’s a game of chance.”
The innovation of financial instruments has become so complex that the very people who are developing the products do not fully understand them, let alone regulators and policymakers, a dynamic demonstrated by the meltdown in the US housing market, according to Darvas. And as a consequence, the governing class often simply does not have the knowledge to critically evaluate whether or not new financial instruments benefit society as a whole.
This problem is compounded by the close networking between politicians and representatives of the financial industry when regulatory decisions are made, according to Rucht. Elected officials are often dependent on information provided by private sector representatives and are not in the position to determine whether that information is true or overblown.
“Representatives of the financial industry make corresponding suggestions or articulate threats in the sense that if you do this or that, then the entire economy or considerable portions of the banking sector will suffer damage and the consequences will be dramatic,” Rucht said.
‘Too big to fail’
After the near collapse of the US financial sector in 2008 and the ensuing global recession, many people expressed outrage at the concept of “too big, to fail” – that certain financial institutions were so important to the economic system that the government had to step in and rescue them from collapse. In Europe, the concept has reached a whole new level with entire nations on the hook, and the continent’s own banking sector now in the firing line.
“The truth is certainly that banks are extremely influential, and the reason they are extremely influential is that without banks there is no economy,” Darvas said. “Without a healthy banking system there is no economic growth. Therefore, banks have a very strong bargaining power.”
Although the banking and financial sectors have become the target of popular and political attacks triggered by the concept of “too big to fail,” many people believe that governments have also not been assuming their responsibilities.
“On the one hand, it’s clear that the banks want to bring in profits from the investment sector or something similar, and they are always trying to make more money and they of course take on a lot of risk,” said Bernhardt, a 45-year-old taxi driver, as he took a smoke break in Frankfurt’s Kaiserstrasse . Yet he also sees negligence on the part of elected officials.
“When people aren’t paying taxes or if you simply don’t go to the people who have a lot of money and say ‘hey, people, you have to do something for the community’ then it’s clear that a state will go bankrupt at some point because it’s not making sure that certain things are being taxed.”
And Darvas points out that there are a host of measures that politicians could implement, such as limiting the size of banks and requiring that they separate retail and investment activities. For the younger generation, some of whom are now protesting, politicians’ apparent inability to take action and the markets seemingly perennial state of crisis raises questions about the rationality of the system’s very foundations.
“For me personally, there are only two differences between capitalism and communism,” said 19-year-old Thomas, a Frankfurt native who works in a hospital and is participating in the demonstrations. “In capitalism, the banks are nationalized only after they go bankrupt whereas under communism the banks are nationalized from the beginning and then go bankrupt.”
Money, power and democracy
As governments in Europe contemplate the prospect of further bailouts for those who are too big to fail, many people in Frankfurt and beyond share a growing sentiment that decisions are being made by a moneyed elite. For 54-year-old Ulrike Frenken, those with power often appear more interested in consolidating their own interests through an undue influence on the decision-making process than defending the community’s well being.
“In the past few years it has all been blown up and exploited through globalization by the people who want to have the most power – money and power,” said Frenken, a homemaker from Aachen who was visiting Frankfurt.
Globalization has placed a premium on specialized knowledge about highly complex issues involving money and power. And with national leaders, finance ministers and central bankers shuffling from one summit to the next in search of an elusive solution to the debt crisis, the voice of the average voter is easily lost when it’s not an election year.
“It is unjust and undemocratic that the people don’t have a say,” said Linda, a 32-year-old protester who works in environmental consulting. “When decisions are being made about money, the process is not democratic – it occurs separately.”
Rucht, however, says that creating a system of democratic controls to make the flow of money more transparent is not an easy task, since financial markets are not singular actors that can make moral decisions. Instead, they are an amalgamation of individual decisions by many different players, some who are relatively strong and others who are relatively weak.
In a world where the relatively strong players control a growing proportion of the wealth at a time when entire nations are going bankrupt and social unrest grips the streets, many ordinary people are wondering whether democracy really exists or if – like certain sectors of the financial markets – it has simply become a profitable fiction manipulated by the few for their own benefit.
“The trust in the ability of career politicians and policymakers to solve problems has clearly sunken, which has been strengthened by the current developments because they promised three years ago that this wouldn’t happen again,” Rucht said. “That’s devastating for democracy.”