The banks exposed to Greek debt will have to accept a write off 50% of what is owed to them. A sum of 30bn euro will be used as a “sweetener” to get the banks to accept this “voluntarily”, which in effect means an additional 30bn euro of taxpayers’ money being given to the banks. This measure, the so-called “haircut”, is aimed at alleviating the pressure on Greece. As things stood Greek debt was expected to reach over 180% of GDP. At the moment it stands at just over 160%. With the deal reached last night the aim is to get Greek’s debt down to 120% of GDP by 2020.
That means cutting the overall debt by 40 percentage points of GDP in the eight year period 2012-20, around 8% per year. If one takes into account that Greece’s annual interest payments on its debt presently stands at 7.2 percent of GDP, and expected to fall to 5.2 percent by 2020 – if all goes according to plan of course – one can see that even with this “rescue” package Greek governments for the next decade will have to apply severe austerity measures. The plan includes a demand that Greece raises an additional 15bn euro from privatisations on top of the 50bn euro worth of privatisations it has already agreed to, though everyone agrees that this is not feasible.
The second part of the deal involves raising the so-called “firepower” of the European Financial Stability Facility (EFSF). The “bailout fund” is to be raised from the 440bn Euros decided earlier this year to one1trillion Euros. This is not actual real money that the governments are having to pay out immediately.
What the European leaders have done is set up a fund based on ‘special purpose investment vehicles’ (SPVs). What this means is that bonds will be issued with the EFSF as guarantor. The idea is that these bonds will be trusted as they have the EFSF behind them, and thus countries with lots of money like China or oil-rich countries can be attracted to invest in them. The SPVs having accumulated such funds will then in turn buy the bonds of countries like Spain or Italy, which would otherwise find it difficult to get buyers. Basically investors who no longer trust Italian or Spanish bonds can buy European bonds – presumably because Germany is seen to be at the heart of the EFSF – and then their money will be used to buy the junk bonds of Italy and Spain. The EFSF is also taking on the role of insurer, partially guaranteeing anyone who buys these junk bonds directly. A lot of speculators are going to make a nice packet out of all this, as they know they all be protected from the damaging effects of any potential default in Italy or Spain.
Thus, although the European leaders have presented their “deal” as what is required to calm the markets and stop the whole of the eurozone and the EU from being dragged down by the domino effect, with one country after another being hit, in reality they have solved nothing. They have merely bought a little time. Whether that will be a few weeks or days we will see. The time they have bought is for one purpose only: to put in place severe austerity measures in Italy, Spain, Portugal, Greece and other EU countries.
The third part of the deal is bank recapitalisation. By June 2012 the European banks must raise106bn Euros in new capital. This is a precautionary measure to protect them against possible government defaults and also to defend the Italian and Spanish economies from an onslaught by the speculators. The banks are supposed to raise this money from the market, but if they cannot, the governments will have to step in, further increasing government debt.
Once this package was announced stock markets rose around the world and the euro gained on the money markets.
What has actually been achieved
But what has actually been achieved? And is it enough to avoid another serious crisis soon? It is very clear that the European bourgeoisie is not thinking in the long term. The reason for that is that do not have a long term solution. The package they have come up with amounts to simply taking a few short steps back from the precipice and buying a little extra time.
In the short term countries like Spain and Italy will have some respite. However, in the long run – which is not too far in the future – these countries will inevitably end up like Greece and will also be at risk of default. Once that happens, i.e. once Italy and Spain can no longer service their debts, the burden will fall on those who provided the insurance, i.e. countries like Germany and France and a few others. That will mean increasing the debt of these countries.
The fact that the banks have had to accept a 50% “haircut” on Greek debt means that in reality they have been forced to accept a de facto partial default of Greece. Technically it is not a default, it is not Greece unilaterally declaring it can’t or won’t pay, but in practice that is what it is. The banks have had to accept that they won’t see much of their loans to Greece and it is better to try and get back half than nothing at all.
This, together with the recapitalisation they will have to undergo, is going to put immense pressure on European banks, particularly the French and German. Thus a bigger and more severe banking crisis is being prepared for the not too distant future. This will mean a credit squeeze on borrowers, which will further push the economy into recession.
Again, what we have here is a classic case of temporary stop-gap measures that avoid immediate crisis, but simply pile up even bigger contradictions for the future, preparing a much deeper crisis further down the road. This, as Marx explained, is in the very nature of capitalism. It can get round a crisis for a period, sometimes even for decades, only to prepare new and bigger crises.
The measures agreed by the EU leaders do not solve anything, they merely postpone the crisis. As some of the shrewder strategists of capital have admitted, these measures will calm the markets for a few weeks, but once it becomes clear that the fundamental causes of the crisis have not been removed, turmoil in the markets will erupt again.
The deal, for instance, involves Italy cutting its debt to GDP ratio, achieving a balanced budget by 2013 and a surplus by 2014, bringing about a reduction in overall gross government debt to 113% of GDP in 2014. Italian public debt stood at 119% of GDP in 2010, and now totals €1.9 trillion, making it one of the biggest public debts in the world. Interest on this level of debt in 2011 stands at 4.8 percent of GDP, or about 77 billion Euros. Thus on top of cutting 6 percent of GDP from the debt by 2013, the Italian government also has to find close to 5% to cover interest. That means cutting the equivalent of more than 10% of GDP from its overall debt, which means severe austerity measures. In fact the Berlusconi government is being pressurised to speed up the introduction of such measures, including the raising of the age of retirement from 65 to 67.
All governments across Europe are under pressure to implement similar austerity measures. The agreement is explicit about this point: “All Member States of the euro area are fully determined to continue their policy of fiscal consolidation and structural reforms. A particular effort will be required of those Member States who are experiencing tensions in sovereign debt markets” And then it goes into specific detail about what Spain and Italy in particular should do. The conquests and rights the working class has won for decades are now all under threat, including basic trade union rights such as collective bargaining. But all this is doing is cutting even further into the market. Workers are losing their jobs, services are being cut and borrowing is becoming more difficult. It is a never ending downward spiral whereby cuts in public spending lead to cuts in consumption, which lead to falling GDP rates, which means government revenues plummet, magnifying even further the contradictions.
In the agreement reached last night, in reference to Italy we read that the EU leaders, “…welcome Italy's plans for growth enhancing structural reforms.” But none of the measures proposed can lead to economic growth. They all point in the opposite direction.
Crisis of the system
The reasons for this are not to be found in this or that policy, in this or that country that has supposedly “lived beyond its means”, but in the very nature of the capitalist system. Capitalism goes through slumps and booms. For periods, sometimes relatively long periods, such as 1948-73 it can boom on a grand scale. In such periods we are told that capitalism has solved all its contradictions and crashes such as took place in 1929 will never be repeated. But just as it goes through booms, these are inevitably followed by crisis. The post-war boom ended with the 1974 recession.
The present crisis was prepared by the way the capitalists pulled themselves out of the crisis of the 1970s. From the 1980s onwards capitalism as a system was on the offensive against the working class, attacking all the gains made by the workers in the previous period. Trade union rights came under attack, in an attempt to weaken the workers’ ability to resist the attacks. Real wages relative to overall national income fell. In the workplace there was increased pressure, speed ups, a reduction in breaks, longer hours, casualisation of labour and so on. There was wave after wave of privatisations as modern, publicly owned companies were sold off cheaply to allow capitalists easy quick profits. State involvement in the economy as a whole was massively reduced.
All this cut into real purchasing power relative to the amount of goods being produced. This was partially overcome by the later opening up of large parts of the world economy to capitalism, with the collapse of the eastern European bloc and the Soviet Union and the transition of China to capitalism. It provided new markets, but also a source of cheap labour. This allowed also a cheapening of many consumer goods, making life more bearable for the workers.
However, underlying this whole process was an extraction of more surplus value from the workers. This explains the growing level of profits throughout this period. But if you have increased profits, it means the share of real value going to the workers is going down. The system got round this contradiction, i.e. falling real wages and the need to sell more, by an expansion of credit on an unprecedented scale.
As a result, debt ballooned everywhere. So long as that growing credit was providing a stimulus to the economy, everyone seemed happy. Growing consumption, fuelled by credit, had an impact on the market. Growing demand led to growing levels of production and increased profits. But all this had a limit and that limit was eventually reached in 2007-08, when the banks entered into crisis and had to be bailed out by public money. After decades of denouncing any kind of state intervention in the economy, suddenly the state was forced to intervene in a massive way, providing billions to the banks.
What that meant was a transfer of private debt from the banks to the state. And once the state was heavily indebted it handed the bill to the working class in the form of austerity measures. Thus, what we have seen is the very same credit – debt – that had been a key element in providing stimulus to the economy, is now the cause of the present crisis.
What this reveals is that the underlying contradictions of the capitalist system, partially masked by the credit boom, have now come to the service. It is this that is undermining the European Union. On the back of the boom they managed to cobble together an agreement to create the Euro. So long as the economy was booming, this also masked the huge differences in the economies that make up the eurozone.
The most glaring contradiction is between the level of the Greek economy and the German. The productivity of German labour is 30% higher than in Greece. This reflects the more developed and advanced nature of German capitalism. In Germany there has been more investment in industry and this makes it a powerful competitor on European and world markets. The Greek bourgeoisie on the other hand is far more dependent on the state and on EU finance. The Greek economy is far less developed and its industry more backward.
In such a situation, so long as the credit boom was working, and the overall cake was growing, Greece could also benefit. Now, however, that that cake has stopped growing, competition is more severe and the stronger economies, in particular Germany, have been squeezing the weaker, like Greece and Italy. Greece is now in its fourth year of recession and Italy has hardly been growing at all. This makes it even more difficult for these countries to finance their debts and are thus forced to borrow even more. This situation could not continue forever and now there is crisis.
All policies lead to ruin
The dilemma facing the bourgeoisie is that in such a scenario neither of the two classical economic policies, Keynesianism and monetarism can work. Historically, capitalism has swung between the two. During the post-war period Keynesian thinking dominated. This basically meant that the state – through deficit financing – must play a large role in the economy, providing stimulus through public spending. The idea is that when the state invests in major projects such as road building, healthcare, housing, even running parts of production, etc., this provides jobs, which creates demand, which in turn stimulates further growth. This at least was the theory.
Eventually in the 1970s a pronged period of deficit financing led to the accumulation of public debt led and to rising inflation. This produced a 180 degree change in economic policy everywhere. The aim became that of getting inflation down. Thus monetarism came back to the fore. The idea was that because growing deficit financing had led to inflation, the money supply had to be brought under control. This involved raising interest rates and reducing drastically public spending. Large scale privatisation of state owned companies was part of all this.
In the present conditions how can either of these policies produce the desired results? The state is heavily indebted everywhere. With the massive bank bailouts of 2008 public debt shot up everywhere. But that debt was not the result of the state spending money on developing infrastructure, providing jobs, etc. It was simply a huge amount of money thrown down the bottomless pit of bank debt. Thus the debt went up with no classical Keynesian effect in terms of stimulus to the economy.
Monetarism on the other hand would involve reducing the money supply and pushing up interest rates. If they do that in the present circumstances it would massively increase the cost of borrowing, dampening lending and therefore further cutting investment. It would also massively increase the level of the already existing stock of debt.
The fact is that they have exhausted the use of the two classical options, Keynesianism and monetarism and now all that seems left open to them is the printing of money. They disguise this by using such terms as “quantitative easing”, but changing the name doesn’t change the essence of the things. Printing money is a desperate measure, which indicates the bourgeoisie is in a blind alley. They think that if they throw large quantities of paper money into the economy this will stimulate spending. But the only thing printing more money has done in the past is to provoke higher levels of inflation. It eventually leads to the devaluation of the currency and therefore more money is required to buy the same products. In the long run it can lead to hyper-inflation.
And hyper-inflation is what the German bourgeoisie fears above almost anything else. That explains why the German bourgeois, that dominates the EU, is using its economic weight to impose austerity on the rest of Europe. But by forcing austerity on Europe they are merely bringing closer a European-wide recession and making it even deeper when it comes.
Austerity in Greece, Italy, Spain and elsewhere means cutting the market everywhere. Paradoxically that also means cutting the markets into which German industry exports. That explains the very sluggish growth in Germany now. It also means making it more difficult for these countries to grow out of their debts.
Greece has partially defaulted already. Sooner or later it will default completely. What has happened in Greece will be repeated in Portugal, Ireland, then Italy and Spain and several others. As each country approaches such a critical point the vultures will strike and aggravate the situation, pulling down one country after another. When that happens the debts of Italy and Spain that have been insured by the Germany and France will become unpayable and thus the debt accumulated in the South of Europe will be transferred to the North. It will thus become an all-European debt crisis, accompanied by severe all-European austerity.
The measures agreed to on Wednesday at best can only put off a serious crisis for some weeks or months, possibly into next year. What the capitalists are doing is actually completely illogical from an economic point of view. According to the “laws of the market” Greece should be allowed to completely default and then be expelled from the Euro and the EU itself.
Such a scenario would have grave consequences, however, for the rest of Europe. It would set in a motion a chain reaction of one sovereign default after another. It would lead to a collapse of many French and German banks, heavily exposed to Greece, and would plunge the whole of Europe into deep depression.
So as we see what is logical from a strictly economic point of view cannot be applied without taking into account the wider ramifications of such a policy. But apart from this, there are the political and social implications. The Greek workers are being pushed to the limit of what they can tolerate. This is provoking class struggle on a scale not seen for years.
Moving towards revolution
Greece is being pushed towards revolution, and revolution these days is very contagious, because the same conditions are developing everywhere. The movement in Greece is an inspiration to workers in other countries. And the working class has never been as strong as it is today. In spite of all previous propaganda about the working class having been reduced in size, the reality is that the overwhelming majority of the population is now part of the working class in the Marxist sense of the term, i.e. that they depend on wage labour.
In the recent period we have seen massive mobilisations of the workers and youth across large parts of Europe. In Greece we have seen general strike after general strike. In Ireland we saw huge demonstrations as the crisis engulfed the country. We saw the magnificent movement of French workers last year. In Spain the movement of the indignados has revealed the widespread anger that had been building up among the workers and youth. In Italy too we have seen powerful mobilisations.
What we are witnessing is the beginning of an all-European revolution. At present some countries are affected more than others. This reflects how far the crisis has gone in each of these countries. But there is no doubt that all countries are moving in the same direction. They are all on the same road, with some further ahead and other a little behind. In Britain we are seeing the preparation of what will prove to be possibly the biggest trade union mobilisations this autumn since at least the 1970s and possibly even greater.
The willingness of the workers to struggle is clear. Unfortunately, what is also abundantly clear is the lack of fighting leadership of the trade unions and workers' parties. In Greece it is the social democracy, PASOK, a party created by the workers in the 1974 revolutionary overthrow of the hated Colonels' regime, that is now implementing draconian austerity measures. In Spain, the “socialdemocratic” government of Zapatero has introduced the austerity measures, even reaching agreements with the right-wing PP and will now pay for it with a massive electoral defeat in the forthcoming elections. In Portugal, it was the Socialist Party government which carried out the austerity measures agreed to the bailout terms and was subsequently smashed at the elections in June. In Italy the former Communist Party leaders have fused with bourgeois formations and formed the Democratic Party. This party is critical of Berlusconi for not being serious enough, by which they mean he is not determined enough in carrying out austerity. In Britain we have the Labour leadership making it clear that they have no real alternative. The only difference they pose is that they might apply austerity more slowly. They say that while in opposition, but it is clear that once back in government they would continue with the same policies as the present Conservative-Liberal coalition.
All these leaders are products of the past, when capitalism was booming. They can see no other system but the capitalist system. If capitalism cannot grant genuine improvements for workers then these leaders simply accept that. They apply austerity hoping that this policy will work and that one day everything will sort itself out. But it won't sort itself out. This is the most serious crisis since 1929 and may prove to be even worse.
Limits of reformism
In these conditions the reformist Left sees the cause of the crisis not in the fundamental contradictions of the capitalist system but in such things as “lack of government regulation”, not enough “market regulation”. In Britain some of them even go as far as stating that the present government is carrying out austerity out of ideological prejudice, conveniently ignoring the fact that in Spain and Greece it is the social democracy that is carrying the very same austerity.
Other on the left, for example the KKE in Greece, are calling for an exit from the euro and even from the EU itself. This ignores the fact that inside or outside the euro, Greece owes a lot of money. A capitalist Greece outside the European Union would face a massive slump. Two thirds of Greece's exports are to the EU. The truth is that inside or outside the EU Greece would face more or less the same disastrous economic scenario. This crisis is not due to the existence of the European Union. It is a crisis of the capitalist system. Iceland was not part of the EU and yet it was the first to succumb.
That does not mean that we argue in favour of the European Union. On the contrary, we consider the EU simply a bosses' union aimed at bolstering the interests of the powerful European capitalists. The EU is imposing anti-working class policies everywhere. And this body cannot be reformed into some kind of “social Europe”. We are opposed to it, but the answer is not so many little national capitalisms, but the unity of the workers of Europe in the struggle for a United States of Socialist Europe.
What we are facing is a global crisis of capitalism. That is reflected in such movements as the #Occupy Wall Street movement that has spread to many cities around the USA and the whole world.
What is being prepared is revolution. The Arab revolution was part of this process. Europe came very soon after and now the United States are being affected.
The task of the Marxists
In such conditions what are the tasks of the Marxists? In all our material over many years we have been warning that such a crisis would erupt sooner or later. We stood our ground when many others were abandoning the struggle. Many former lefts have become right-wing social democratic politicians. They saw no future for genuine socialist ideas. But the reason why the Marxists stood their ground is because we were armed with the scientific method of Marxism, a method which does not stop at looking at the superficial aspects of any given situation. We look deeper into all the underlying contradictions and see where these will eventually lead.
The problem is that the mass of ordinary working people is not armed with such a method and understanding. So long as the system seems to be working, providing jobs, housing, healthcare, education, decent wages, etc., most people will tolerate the system. Now, however, a huge shift in consciousness is taking place among millions of workers and youth.
When the crisis erupted in 2008 we were told that it was temporary. The banks were bailed out, public debt rose and austerity measures began to be implemented. Now thee years later instead of seeing some improvement, some movement towards better conditions, the crisis is getting worse. The workers after having grudgingly succumbed to the first wave of attacks, are beginning to understand that this is no short term, temporary crisis that can be overcome with a small dose of austerity. The onslaught on living conditions is inexorable and never ending.
This is creating a gaping chasm between the needs of the workers and the policies and thinking of the workers' so called leaders. There is an enormous gulf between the objective situation, which can only be resolved through the abolition of the capitalist free market, and the programmes of the leadership of the political and trade union organisations of the working class. The leaders of the trade unions across Europe are not up to the task posed. When they move, they generally do so under pressure from below, and even then they mobilise with the explicit aim of letting off a bit of steam, putting up a token struggle and then getting the workers back to work. This is the case even in Greece after last week's 48-hour general strike.
There is another side to this, however. As the limits of the leadership are exposed more and more, pressure will build up from below to elect more militant leaders. This process has already begun in some countries. In Italy this process has led to the FIOM, metal workers' union within the CGIL confederation, taking on the role of opposition. This will be repeated in all countries.
From the struggle to transform the unions into real fighting organisations, the workers will eventually move to transform their existing mass organisations. In Greece we see the pressure that is being brought to bear on all the Left parties. The KKE leadership is under pressure to abandon its sectarian approach to the rest of the Left. The PASOK ranks have moved in the trade unions, pushing the PASOK trade union leaders of the PASKE faction to break with the PASOK and there is even talk that this layer may move towards the formation of some new party. It is still early days, but we can see how the pressure from below is building up.
In this situation the Marxists must know how to act. We are still a small force, but in some countries we have established ourselves as a serious opposition force. We must build up our forces patiently, intervening in the mass movements and winning the most advanced layers. This work is preparatory work for the bigger task that lies ahead, that of intervening in the mass left currents that will inevitably rise in the future. If we build up a sufficient base at a certain point we will connect first with the most advanced layers of workers and youth, and then with the wider layers.
The crisis we have entered cannot be solved by playing with the system, by tinkering with this or that aspect of the economy. The system must be removed and replaced with a rational planning of the economy under the control of the working class. There is no other way. Millions are already, in a more or less clear way, drawing the conclusion that it is the system itself which is in crisis. This is reflected in the opinion polls which show there is overwhelming support for the protest movements (indignados, #occupy, etc) which have developed.
The task of the Marxists is to reach these advanced elements of the youth and the working class which started to struggle and explain that the struggle for socialism is the only alternative. The training and educating of Marxist cadres rooted in the working class movement is the necessary precondition for the building of a Marxist leadership.
Therefore we call on all our readers to join us and help us build the Marxist Tendency in all countries. Our time has come.