Is Europe On The Way To A Drastic Cold Future In Light Of Climate Change?

With Europe being colder than the North Pole this March, it's clear climate change Is not a future event but rather a current issue that needs to be addressed.

By Judith Stapleton

At the same time temperature extremes are transforming the definition of winter at the North Pole and many parts of the planet, two high-level groups of experts are discussing the present conditions for an unsustainable future, where 1.5 degrees warming will be realized by 2050 or sooner, and world economies are vulnerable to a tectonic shock—even the rich ones.

Economists with the UN South (Hemisphere) Centre Institute met in Geneva recently to discuss the newest books Playing with Fire, by Yilmaz Akyuz, and Revolution Required: the ticking time bombs of the G7 Model, by Peter Dittus, both members of the Institute.

These two books, by economists whose fingers are on the pulse of the planet and whose hair is now metaphorically on fire, have sounded the alarm that there is going to be a bubble-burst, sometime soon. The authors met for a panel discussion at the UN in Geneva.

Playing With Fire argues that the appearance of economic sunshine is the result of loose monetary policies and free-floating financial instruments, in the US, Japan, and the Eurozone, where activity in the financial markets is based on trades at negative rates. Those funds are simply chasing yields, and this is an addict’s game which, like the opioid craze, drives the appetite for risk.

Since the crash of 2008, when central banks avoided a 1929-type Great Depression by persuading governments to bail them out with tax dollars, the physical realities of banking have been magicked by Quantitative Easing (QE), which began as a temporary emergency measure.

But like so many emergency measures, it has been made permanent, or “normalized.”

In economist Michael Hudson’s book J is For Junk Economics, it is evident that, since 2008, “QE has been a $4 trillion Federal Reserve project explicitly aimed at re-inflating real estate prices.”

This policy of creating wealth by financially engineering price gains is different from earning profits on industrial investment. Although lobbyists pretend that capital gains reward innovation and enterprise, most occur passively in real estate. In the corporate sector, financial managers seek short-term gains in their companies’ stock prices by using earnings for stock buybacks and cutting back innovation.”

In 2017, we still have huge programs of QE and negative rates of return. The central banks are trying to figure out what the financial markets are doing, and as soon as standardized rules are posed as policies, Peter Dittus says, “you have a tantrum. You can see it currently in the UK where Marconi tries to raise the rates,  inflation is running at 3 percent, all the financial markets come out saying: It’s not the time. Times are difficult. The economy is not so strong. Brexit. Let’s wait another bit. And it’s always, let’s wait. So the central banks have become, I would say, in some countries, hostage to financial markets.”

Even during the recent period of low interest rates, there has been no consolidation of debt or debt reduction by governments. In the advanced countries, debt is at unprecedented levels for peacetime. In the Eurozone, for example, indebtedness from 2008 has risen from 72 percent of GDP to 109 percent of GDP. Obviously, this is unsustainable.

At the same time, prices have risen, and the horizon of asset (property) prices disappears into the sunset. This skew is reflected in the widening gap between what people earn and what they have to spend. The Price-Earnings Ratio [P/E ratio], is now higher than it was before the Great Depression in 1929. With the exception of 2000-2001, it has never been higher. This asymmetry is unsustainable. For Dittus, “Basically, we have huge debt, high asset prices, low investment in the real activity. And at some point, this is going to blow up.”

Elizabeth Warren has just Tweeted, “The Senate just voted to increase the chances your money will be used to bail out big banks again.”

Former Secretary General of the Bank for International Settlements, Peter Dittus, has said,

“People sense something is wrong with the way political and economic elites in the G7 countries are discharging their responsibilities. The current trajectory of economic policies in the G7 countries, we believe, is leading to a systemic crisis that will call into question many of the beliefs that the capitalist system is built on. No one can know when this tectonic shift will occur, nor what will emerge from it. We believe it will be a major turning point. The trigger for this revolution will be the loss of confidence in the Alice in Wonderland world, when suddenly people will realize that the accumulated debt in G7 countries cannot be serviced, and that asset values were artificially boosted by monetary policies that cannot continue.”

In Revolution Required: the ticking time bombs of the G7 Model, Dittus reflects on the question posed in his colleague’s book Playing With Fire. What could one do when the crisis hits? The book’s reply is to not trust someone else to mitigate your losses— not the IMF or World Bank.

For Akyuz, who is both author and the Chief Economist of the South (Hemisphere) Centre,  it is likely that the next crisis in the South will be a private sector debt crisis. But, he reminds us, after every private sector debt crisis, sovereign (national) debt increases significantly. “We have seen it everywhere. Look at Spain: pre-crisis the public debt ratio was 30 percent, and now its 100 percent. And the crisis was largely through private borrowing.”

Today, the vey concept of reserve accumulation, or “savings” has changed.

When the Asian crisis happened, Korea had $100 billion short-term debt, and $30 billion in reserves, and that was not enough to slow their crash. That was the 1990s. Today everything is short term: bond holdings, equity holdings, deposits and even foreign direct investments. This is what the book tries to make clear.

Akyuz says, “I examined the reserves vis-a-vis a kind of liquidity the liabilities and so on throughout the balance sheet for some countries such as Indonesia, Malaysia etc. On a massive exit from domestic markets, none of them could stand it. Now, of course, governments say that it won’t happen. I hope it won’t happen. But if the situation is not sustainable, it will happen.”

The world is addicted to cheap money and all countries have accumulated massive amounts of debt. In some countries this is public debt, in others corporate debt, and in others household debt.

In the South, explains Akyuz, “there is mostly corporate and household debt. We have had consumption and property bubbles. In the North, there is more fiscal debt, public debt. In the FFD [Financing For Development], if you want to discuss the public sector resources you should start from the North because they have much higher debt, their fiscal policies have much more important consequences for the global economy. And I believe in the event of a sharp downturn in the world economy, much of this debt can become un-payable even without a significant rise in interest rates.”

This was the meeting of high-level experts in the field of Economics, explaining the vulnerabilities of global economies to a tectonic shock whose date and magnitude are as yet unknown, but whose location is inevitable. It will be global.

In the context of our dynamical global system, where nothing is stationary and even minor perturbations, like the fluttering of butterfly wings, can initiate significant unpredictable events, we should not be surprised to see a simultaneous meeting of another group of experts, the UN Intergovernmental Panel on Climate.

The panel’s draft report, now in circulation for review, examines the impacts of 1.5 degrees Celsius of global warming above pre-industrial levels in the context of the catastrophic convergence of global warming, sustainable development, and efforts to eradicate poverty.

One of the lead authors of the report is Professor Petra Tschakert of the University of Western Australia School of Agriculture and Environment, who reiterates the claims made in the last IPCC report—the Fifth Assessment Report, which came out in 2014. “We know that climate change

undermines sustainable development and efforts to eradicate poverty.”

What is significant about this special report on 1.5 degrees of warming is that we are already in a world 1 degree warmer, and now we need to know what another half degree effect will have on trajectories of sustainable development. The painful question is: can we reach the two goals of mitigating emissions from fossil fuel burning at the same time we remain committed to the goals of international agreements to invest in sustainable development and poverty reduction?

A half degree may not seem like much, but Tschakert points to this winter’s weather events, in which the warmer temperatures are not evenly distributed, and some extremes, such an Arctic 8 degrees warmer, are hard to even imagine.

The drying up of Cape Town is an example of the uneven distribution of the experience of climate warming. As the city and townships go dry from lack of rain and unevenly distributed reservoir water, the suffering will exacerbate all the residual legacies of a long apartheid.

The highest population densities are in the informal settlements surrounding the townships, where no one can afford bottled water. Tschakert says, “People run out of water there, certainly you have a spread of disease instantaneously. But also a risk of riots and anarchy, and the mayor of Cape Town is fully aware of it.”

She makes the immediacy of the special report clear. “Climate change is not just going to happen in the future. It’s happening now. If Cape Town is running out of water in three months, maybe four, we see the warming in the Arctic that is happening right now, last week, unprecedented warming levels, in a place that apparently is undergoing winter, right? So high latitude settlements in Greenland, northern tip of Greenland, sun is not even rising. The North is in winter, and nonetheless we have temperatures beyond freezing, higher temperatures than Europe, many parts of Europe experienced last week. So, it’s happening right now.”

One of the strategies designed to limit warming to less than 1.5 degrees, that may well undermine sustainable development, are engineering measures to take CO2 out of the atmosphere. Obviously, this must be done, since we are already on track for 1.5 degrees by 2050 or sooner.

Fossil fuel emissions must be stored somewhere, in natural sinks of vegetation, such as forests. Bioenergy Carbon Capture and Storage (BECCS) is another measure that would store emissions in the ground. This requires land, and often the first land to be considered is the land used by marginal people for sustenance living. “There is a clear competition between some of the mitigation strategies, BECCS as an example, and food production. Food security, livelihoods, there’s a risk that people who live in those areas currently could be replaced, could be relocated, and that certainly would undermine development goals, certainly would undermine hunger, efforts to reduce hunger and undermine the reduction of poverty.”

It is no coincidence that a debate on the state of the global economy and finance should come at the same time the UN Intergovernmental Panel on Climate should issue a special report on the state of life on the planet.

Recent analysis of the “free trade” surrender of sovereignty which nations have made—or been forced to make— in order to join the momentum of globalization and integration of financial policies and institutions, has shown that all countries are vulnerable to external financial shocks. The G7 countries are not immune.

The shock may well come in the form of extreme weather events, one after another, impacting not only present day food supply and the spread of disease, but ruining many of the fledgling measures designed to mitigate climate warming, making future conditions not better, but even worse.

Publisher’s Note: Judith Stapleton is a writer in the fields of science and medicine.