From the crisis to the Mercosur agreement
There have been many discussions on the next global crisis (including Adam Tooze and Ann Pettifor, and the Marxist economists Michael Roberts and John Smith), and I’ve also written and talked about it at least three times (first in November, then in December 2018, and the third time on my blogpost here). But, what’s also becoming more important, in that regard, is the connection between the crisis and climate change on a systematic level (the outsourcing of production and the outsourcing of pollution, for one; the huge development of monopolies and the production of waste, for example). Yet, I think that there’s a more concrete connection between the next crisis and climate change that received less attention than it should, and that is the not-so-evident connection between the Amazon fires and the EU-Mercosur agreement.
One of the interesting aspects of the response to the last big crisis in the EU (from 2008) was to cut down public spending and focus on austerity measures. It is important to note that, unlike the US which managed to introduce the largest fiscal stimulus in the history of any Western country, or China, which managed to outdo even the US with its own fiscal and credit stimulus, the EU had a policy of contraction which downsized its own internal demand. This was echoed by the 37% fall of global commodity prices in 2015 (which was stopped only thanks to a Chinese credit stimulus, and, at the same time, clashed with Chinese overcapacity and began to “export” deflation outside of China, producing one of the most dangerous harbingers of the next global crisis). This is what made the EU’s reaction to the last crisis different from the rest of the world powers. And, thanks to the ensuing fall of global demand, its austerity then flew right back in the face of its largest player – the export-oriented Germany, on which it had an inverse effect – while the current US-China trade war didn’t help it either.
Since then, the German car industry (Damler [Merzedes], Volkswagen, BMW, Opel, etc.) saw its sales famously drop in the third and fourth quarters last year, prompting speculation over whether Germany itself was on the brink of a recession. And, ironically, this came following following the infamous “Dieselgate” scandal, where major German car sellers were found to have been massively falsified their emissions data:
The car industry was thumped hard by Dieselgate, which first came to light in September 2015. The scandal, which centered on Volkswagen, revealed wholesale falsification of emissions data. Ultimately, it would lead to billions of euros in fines and compensation, criminal trials for senior executives, and massive reputational damage, but act as little more than a hiccup. The story continued to be one of record sales, record margins and record profits, driven above all by robust Chinese demand.
As I’ve just mentioned, this “robust Chinese demand” failed in 2018. The only thing that could realistically save it was, one might imagine, a considerable expansion in exports to other markets. And, to no surprise, it is precisely one of the key industries favored by the hastily-concluded EU-Mercosur agreement (available here).
“The deal between the EU and the four Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – was announced late Friday after two decades of intermittent negotiations, potentially creating the largest free-trade area in the world.”.); and, “Mercosur countries are commiting to withdraw high tariffs on cars (35 percent), machinery (up to 20 percent) and chemicals (up to 18 percent).”
The German car industry
Now, the car industry is of prime importance to the economy of the European Union (EU) and plays a major role in international trade. With the agreement, the potential for growth of this industry is significant, according to the representatives from The European Automobile Manufacturers’ Association, quoted in this report:
Mercosur is a market of approximately 270 million people, where 3.3 million new cars were sold last year. The EU exported 73,000 cars to the region in 2018, representing 2.2% of the total market. By contrast, some 234,000 cars were imported into Mercosur from other countries, accounting for almost 8% of the market.
“Under the right conditions there is a real potential for growth for the EU auto industry, given the dimension of the Mercosur market, both in terms of population and GDP,” stated ACEA Secretary General, Erik Jonnaert.
Also, under the agreement, they will additionally have the ability to apply for governmental contracts in Latin America at the same conditions as domestic companies.
In this respect, what they got is even better than what they would have got under TTIP, which gave them no such option. (It is interesting to note that both TTIP and the Mercosur agreement were overseen by the same person, Cecilia Malmström, the European Commissioner for Trade since 2014, while the benefits of both also went to some of the same groups, including the BMW group, which is part of the European Round Table of Industrialists, a body that also lobbied for TTIP.).
Also, for the record, within the EU itself, every major German car producer has a number of lobbyists:
|Companies/Associations||Amount of millions of € given for lobbying||Number of accredited lobbyists||Number of lobbyists
|Number of meetings with the EU Commission|
|Verband der Automobilindustrie (VDA)||2,5||2||14||27|
Also, the biggest of them – BMW – has been paying basically all the major parliamentary parties in Germany:
|Receiver||Contributions in €|
Source for both tables: The German “Lobbypedia” (Translation: A.M.)
Not to forget, they’ve also infamously passivized the largest German labor union called “IG Metall” before the last “Große Koalition” (“Grand Coalition”) between Agnela Merkel’s party CDU and the SPD in March 2018. So, they held the means to influence both their own government, the EU and the workers’ unions at home. And they had the motives to do it (dropping sales). And, just how important this car industry is, is finally confirmed by the fact that the Mercosur agreement came even at the expanse of Germany’s own farmers, which were infamously protected in Europe, and are now fearing that they might be loosing to Latin American competition (Namely, the German farmers are already the only ones in the EU who can fertilize indefinitely, and thus be more efficient than the rest of the EU. Since this leads to more groundwater pollution, this led both the “Environmental Action Germany” to sue the government, after the EU had already filed a lawsuit against Germany over its failure to clean up nitrate in the country’s groundwater. This advantage, that the German farmers are used to having, could now be lost at the expanse of importing cheaper products from Mercosur countries such as Argentina and Brazil). In addition, since the Russian-Ukranian war over Crimea, the EU has put Russia under sanction, and Russia has retaliated with a total ban on food imports from the EU, which means that the German farmers have lost another export outlet, and will have to face Brazillian competition head-on.
In any case, the agreement arrived not a minute too late: despite the fact that it was two decades in the making, its conclusion at this time offers a much-needed opportunity to save the ailing German car industry by making up for its dropping sales through an increase of its exports – precisely what is being agreed in the Mercosur agreement (Article §1).
On the other side of the agreement, the key industry that Brazil will be liberalizing up for export are precisely farm and agricultural products, and the key players here are also not trivial. Namely, all those who shared “the wrong Amazon is burning” pun might find it interesting that the two largest institutional investors into Amazon.com – Vanguard and BlackRock – rank among the largest investors into soy and cattle farming in the Amazon (thanks to my friend Tomislav Medak for pointing this out; you can follow his work here). In a nutshell, Amazon the company is destroying Amazon the forest.
But, it’s not only Amazon vs the Amazon that’s at stake. According to one report:
“just a handful of global financial companies have been profiting from these exports. The global agribusiness giants Archer Daniels Midland (ADM) and Bunge dominate Brazil’s soy-trading market. Their major shareholders include Vanguard, State Farm, BlackRock, State Street, and T. Rowe Price. Collectively, these financiers own more than $9 billion of investments in these two companies. The privately held U.S.-based Cargill and Netherlands-based Louis Dreyfus are the other two companies that dominate global grain trade. As for the banks providing lines of credit to these agribusiness giants, five provide the lion’s share: BNP Paribas, JPMorgan Chase, Barclays, Bank of America, and Citigroup. Together, these banks “provided more than a billion dollars in credit apiece,” according to Amazon Watch.”
And, what’s the significance of their profits? According to the same report:
“Cattle ranching accounts for 80 percent of rain-forest destruction in Brazil, according to the Yale School of Forestry. As the soy-export market grows, so does demand for land to grow the commodity—another key driver of deforestation.”
Brazil’s role in deforestation of the Amazon (of which 60% lies in its jurisdiction) is a problem dating back to the 1970s, and it was driven precisely by beef and soy production. The speed and amount of deforestation depended on a number of factors (legal enforcment, the state of the aforementioned industries, international pressures, etc.).
Yet, from June – just a month before the EU-Mercosur agreement was signed – until August this year, there have been over 7,625 reported fires in the Amazonas alone. While some of it is “normal”, due to slash-and-burn policies used by farmers, for comparison, in 2013, there were 1,809 reported fires in the same season, and this sort of increase (that is, an out of the usual oscillation) led the international community to react over Amazon deforestation.
And, this international activity is mirrored by the domestic passivity of Bolsonaro: not only did he not respond, and reject the G7 funding to fight the fires, but, according to a report by Reuters, Bolsonaro previously cut funding for forest fire prevention and control:
Since he took office on January 1, Ibama’s budget has shrunk by 25% as part of government-wide belt tightening, according to internal government data collected by the opposition PSOL party and shared with Reuters. Among the cuts: funding for prevention and control of forest fires was reduced 23%.
And, according to another report:
He also gutted FUNAI, the agency responsible for safeguarding the nation’s nearly 1 million indigenous people—many of whom rely on the Amazon for their way of life.
And, finally, he declared that the government couldn’t get the ministry of the interior to send 40 men to fight a fire, and was quoted simply acknowledging: “This chaos has arrived”.
Fire and economy
Yet, in August this year, a set of Powerpoint presentations by the Brazilian government were leaked, where several government officials discussed the
“construction of a bridge over the Amazon River in the city of Óbidos, a hydroelectric plant in Oriximiná, and the expansion of the BR-163 highway to the Suriname border.”; “The presentation, which was leaked to democraciaAbierta, argues that a strong government presence in the Amazon region is important to prevent any conservation projects from taking roots.”
And, in order to justify this “governmental presence” (as opposed to Brazil’s sovereignty allegedly being threatened in the region), Jair Bolsonaro attacked “Western NGO’s” and accused them of setting the fires, without naming even one of them. This specific response was intentional and done on purpose; and, according to the leaked documents, it was planned in advance. And, while that might sound outrageous to a Western observer, this sort of treatment is not foreign to Brazil’s politicians. Namely, grassroots environmental movements were already silently passivized by the previous government, and, under Bolsonaro, that animosity is only put out into the open, and thus may be viewed as an escalation of a previous domestic struggle.
The reason for such an escalation may not be completely obvious at first glance. But even to the complete skeptics, things must quickly become clear when the increased demand for Brazilian beef and soy is taken into account – a key sector of its economy, one into which American companies are also grossly investing (described above), and which is a factor to be viewed in the light of the ever closer relations between Trump and Bolsonaro. And, if a new export agreement is concluded, this might become decisive: the increased demand from this sector just might tip the balance of the Brazilian economy and help it escape the fate of sluggish recovery after its last two-year recession from 2015-2016 (graph above). Thus, for the Brazilian economy, the prospects of an increased demand from the European market are a godsend.
Ultimately, the EU agreement gives Bolsonaro a second reason for his Blitzkrieg against the Amazon: while the agreement actually has an article on fighting against deforestation, and a clause on sticking to the Paris 2015 climate accord, it ironically gives Bolsonaro every reason to hastily “clean” the forest before signing the biggest free trade agreement of his career, without having to face the penalties for breaching it later.
It is, thus, by saving the German car industry from the next recession, and the sluggish Brazilian economy from the last one, that the Mercosur agreement saves two key sectors – German cars and Brazilian farmland – in two of its largest signatories, which are also the two biggest economies on their respective continents. In this respect, the conclusion of this two-decade agreement has its background in an incentive to avoid the next global crisis on each sides of the equation, and finally provides Bolsonaro with a strong incentive of his own – to utilize the land.
This, I think, is one plausible way for situating the EU-Mercosur agreement in the context of the coming global crisis.
Imperialism and climate change
Despite its importance, there is not much media attention being given to actual and global relations of production that permeate the world, sometimes even when “globalization” is discussed itself; the topics that are covered instead, are largely the trade deals or consequences of the crises that appear only after the fact. Yet, the impact of the outsourcing of production on the outsourcing of pollution (which I’ve mentioned in the beginning), or the impact of the ways in which the various and often huge transnational corporations are profiting from it – according to one UNCTAD report, over 80% of global trade in 2013 was linked to international production networks of transnational corporations! – are often not sufficiently accounted for, in spite of the fact that they’re the ones often driving both the investment and the deals, along with their states of origin. This shapes our capacity to act, and often seriously hampers it because the cause of the problem – the political economy behind it – often omitted.
This is also why I think that those who think the EU itself to stop the agreement are wrong; this includes Diem25, which was founded by the Greek ex-Finance Minister Varoufakis and the philosopher Srećko Horvat, and which started a petition calling for the EU to “suspend the free trade deal with Brazil“. But, one can’t just beg the an inter-national union of 28 member states to “stop” – as if the European Union, along with an army of competitive companies, doesn’t have a burning interest (no pun intented) for that very agreement. Take also the latest IMF paper on the topic: you will get a plethora of suggestions, and they don’t question the prevailing system of production outsourcing, but rather intend to go about addressing climate change through green bonds, price-tweaks, and the like (for a critique, see this post by the economist Michael Roberts). I won’t get into much detail here, but if it weren’t for stressing the global relations of production, than the crucial link between climate change and imperialism would remain invisible – and the need to make it visible stems from the fact that it is, proven time and again, the one that drives our climate problems for worst, and continues to do so unabated.
And that makes it all the more urgent to expose this link if we want to correct them.
(P.S. For a further critique of these relations, with a discussion on degrowth, I’ve written a critique of the similarly benign contributions by the former World Bank’s economist, and father of ecological economics, Herman Daly, here.)
 N. B.: The article refers to announcing a “deal”, which may be confusing. Because, technically speaking, it’s not a deal, but an agreement – the official deal is yet to be put into text, and sold to the EU’s parliamentarians and skeptical countries.
 One note of warning, though: the fiscal stimuli in both China and the US are a huge topic, with its own set of problems, one of which is also another harbinger of the next global crisis – Chinese deflation, which followed both China’s industrial overcapacity after its surge in investment following several rounds of fiscal stimulus, and a credit stimulus, as well, following the global drop in raw material prices, after the EU’s contractionary response to the last crisis of 2008…. I’ve written on this on my blogpost on the crisis here. With Mercosur, interestingly, the EU would have access to yet more cheaper raw materials, as well.
 The contractionary policy was later reversed; also, a couple of days ago the ECB announced that it was preparing a new fiscal stimulus (through interest-rate cutting and QE) in order to face the coming crisis, while Angela Merkel, in a potential overturn of a decades-long policy of balanced budgets, announced that she is ready to do the same.