Euro Crisis Deepens
A spectre is haunting Europe – the spectre of capitalist crisis. Events are moving at lightning speed. This slow-motion train wreck has suddenly speeded up. Each day we come closer to a Greek default and its exit from the euro. Squeezed by foreign bankers, demanding their pound of flesh, ordinary Greek people are being pushed to the limit. They are being reduced to a state of wretchedness and indignity.
The capitalist Troika of the IMF, European Central Bank and EU are demanding greater austerity from the Greek people before any further bailout. Last month, the introduction of new laws on wages (and the cancellation of all collective bargaining) means a further wage cut of between 40% and 80%. This will push large sections of Greece into total penury. A million people have been added to the dole queues as the unemployment rate rises to 22%. Youth unemployment is now at 54%. Soup kitchens have appeared to help those in desperate need.
Helen Sovidias, 56, lost her job four years ago and now she and her 80-year-old mother queue for free handouts of beans and bread. “Anything would be better than this,” she said angrily. “I am a rat, not a human being. I worked hard. I saved my money. Now it’s all gone and my mother and I live on the street, like vermin.”
“They are playing Russian roulette with the future of Greece and the future of Europe,” said Alexis Papahelas, the editor of a Greek daily. But this is no game. They have reached the point of no return.
“We cannot solve the fundamental problems”, admits Luc Coene, the central bank governor of Belgium. “We can only buy time, and there is a limit to how much time you can buy.” But now the capitalist politicians and bankers have run out of time and the working people of Europe are facing a rerun of the 1930s Great Depression.
A default will have unimaginable consequences. The Financial Times, not noted for its scaremongering, reported that with no wages being paid in Greece, the police might not bother to go to work, leaving the masses to rule the streets. “A coup or civil war would be conceivable,” stated the paper. While not an immediate prospect because of the strength of the working class, a coup remains a possibility in the long-term if the workers do not come to power.
Clearly, people have lost confidence in the establishment and the banking system, as over a billion euros were withdrawn from the banks. Conditions are being created for a run on the Greek banks, as well as in Spain. Austerity is dragging everything down, plunging several eurozone countries in to a recession, including Britain.
There is a massive majority against the austerity measures, as was expressed in the last Greek general election. The ruling class did not like the result and has forced a new general election, hoping to reverse the outcome. As Bertold Brecht once said, the government has lost confidence in the people. Now their only hope is to dissolve the people and elect another. But to no avail, whatever they do, there will be an even bigger majority against the austerity cuts, with the likelihood of Syriza ending up in first place.
The deepening crisis in Greece, the weakest link in the chain of European capitalism, is spreading to Spain and Italy, where borrowing costs have risen astronomically. The value of bad loans held by the Spanish banks have increased by over a third in the past year to 148bn euros. Mortgage arrears have skyrocketed since the property collapse.
The Spanish government has had to step in to part nationalise Bankia, provoking a massive fall in share prices. Soon they will be forced to bail out the rest of Spain’s teetering banks as Moody’s, the credit agency, carried out a sweeping downgrade of 19 of the country’s financial institutions. Such a measure will bring the Spanish state to its knees. Already, Spain’s unemployment level is nearly 25% and youth unemployment has reached over 50% and this will get worse.
Portugal and Ireland are already in hock. An economic collapse in these countries will provoke a banking crisis that will bring down banks across the continent, especially in France and Germany. This is the meaning of “contagion”, as cash machines stop working and panic ensues.
However, UK banks are highly exposed to their French rivals, which have a much bigger exposure to Greece. British banks have lent about $100bn to French banks, which have lent $40bn to Greek banks, creating a domino effect. British banks also have big outstanding loans to Ireland. A crisis in Europe will certainly affect Britain, not only with a banking crisis, but because 50% of UK exports go there. It would be a rerun of 2008-9, but on a larger scale.
In 2008, the collapse of a bank, Lehman Brothers, precipitated the biggest slump since the 1930s. The collapse of a European state would have a much greater impact.
According to Charles Dallara, head of the International Institute of Finance, it would be “somewhere between catastrophic and Armageddon.” Sony Kapoor of the Brussels based Re-Define think tank said: “The social, political and economic damage to be EU from a Greek exist is potentially incalculable.” (The Guardian, 17/5/12)
We are experiencing the biggest crisis of capitalism in more than 80 years. All those who believed such events were impossible “as capitalism had changed” now have egg on their faces.
Even Mervyn King, the governor of the Bank of England was forced to admit: “We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution.” (Press conference, 16/5/12)
A few months ago, they were boasting that they had “turned the corner” and everything was fine. Now the immediate talk is of “Grexit” – a Greek exit from the euro - and the eurozone “tearing itself apart”. They talk of a firewall to contain the contagion. But all their financial chickens are coming home to roost.
A collapse would spread immediately. When Greece is forced out, Portugal and Ireland will be next, followed by Spain and Italy. “It’s naïve in the extreme to think you can limit the knock-on effect”, said a senior executive at a UK bank. “As soon as Greece leaves or defaults, contagion will pass like a cannon going off to Spain.” (FT, 15/5/12) The whole eurozone is likely to break up. “The euro system would not survive a disorderly exit”, states George Magnus, senior economic adviser at UBS.
This is the background to events in Britain. Cameron has vowed that there is “no going back” on the austerity cuts, as the economy plunges headlong into recession. However, instead of calling it “austerity” he is calling it his “efficiency” drive. But a rose by any name smells as sweet. Nobody will be fooled as austerity measures simply makes things worse, as we can now see. This in turn will mean there must be bigger cuts to cover a greater deficit, creating a downward spiral.
Even Michael Saunders of Citigroup states that the Coalition might be forced to tear up its debt reduction plans.
Clearly, the Labour Party is benefiting from the Coalition’s distress and unpopularity, as we saw in the local election results. However, the Labour leadership’s “alternative” is not to raise peoples’ hopes, not to promise anything, and offer some kind of “austerity-lite” option. Cuts will still be made but over a longer period. They glibly talk about “growth” but there is no growth nor can there be in the weakest recovery for over a 100 years.
It is not possible to force capitalism to grow when the market is shrinking and there is over-capacity. The capitalists will only produce or invest when they can make a profit. That is why there is no investment despite big business sitting on nearly £800bn of cash reserves. This is a reflection of the impasse of capitalism, which has reached its limits.
That is why there is no way out on a capitalist basis. Even Hollande, the new French President, who talks about the need for growth, is at the same time boasting of eliminating the budget deficit by 2017, involving 60% spending cuts and 40% tax increases. Despite all his fine intentions, his failure to break with capitalism means that he will inevitably follow the dictates of big business.
In Britain, there are those who say, the crisis is just simply “ideological”, resulting just from a Tory hatred of the public sector. But this is false, as can be seen clearly from the crisis in Europe. Capitalism can no longer afford the reforms of the past and it is this that explains the vicious austerity measures now being pushed through.
If the Labour Party was worth its salt, rather than court the discredited Lib Dems as they are doing, it would put forward a real socialist solution to the crisis.
This would mean taking measures to abolish unemployment by guaranteeing everyone a job on decent pay, building a million homes every year, introducing a 35 hour week, bringing in retirement at 55 on decent pensions, increasing spending on schools and hospitals and infrastructure. Such a bold programme would win massive support, as, on a smaller scale, the victory of George Galloway on left policies proves in Bradford, and the advance of left-wing Syriza shows in Greece.
How to pay for these measures? On a capitalist basis, where profit dominates everything, this would not be possible.
This can only be achieved by taking over the commanding heights of the economy: the banks, the finance houses and insurance companies, and the major monopolies, under democratic workers’ control and management. On this basis, we can draw up a socialist plan of production using the resources of society in the interests of the majority and not the profits of millionaires. Rather than austerity, this will produce a massive increase in living standards and a guaranteed future for our young people.
Moreover, it would be a beacon to the workers in crisis-torn Europe. They would follow such an example and provide the stepping stone to a Socialist United States of Europe, leading to a world federation of socialist states.
In the words of Rosa Luxemburg: “The choice facing us is between socialism or barbarism.”