The year 2013 began with a bang. Lenin once wrote an article: Inflammable material in world politics (Proletary, No. 33, July 23, August 5, 1908.) Today there is no shortage of combustible material worldwide. The imperialists are behaving like an elephant in a china shop. French imperialism has now been drawn into yet another adventure in Mali. US imperialism, after making a mess in Iraq, declared "mission accomplished." But this was only an indication of the fact that they were drunk with illusions of their own power. We, on the other hand, pointed out that they would eventually have to leave Iraq with their tail between their legs.

What did they achieve in Iraq? A colossal mess! All they have achieved is the destabilisation of the entire region. Syria is a clear example, which is having an effect in Turkey. The Kurds of Syria now control the north on the Turkish border. A similar situation exists in Iraq, where the Kurds have a defacto autonomy. This is bringing back to the fore the Kurdish question in Turkey.

In Libya the imperialists thought they were being very clever when they got rid of Gadhafi. But in reality he was a point of stability, policing the area for them. With the collapse of his regime, the instability has now spilled over into neighbouring Mali. Nigeria also risks being sucked into the crisis, being the major military power in West Africa. Thus we see how we have a truly global crisis before us.

If the truth be told, the French were a bit slow to intervene in Mali; they hesitated as they weighed up the situation. But eventually they were forced to intervene; otherwise they would have seen the country over-run by the Islamic fundamentalist militias, thereby posing a threat to France’s supply lines to Niger, where most of the uranium to fuel French power plants comes from.

The irony of the situation is that France has invaded under the leadership of a "socialist" president. Very quickly, however, the French imperialists began looking for help from their European and American allies. They approached London, who very kindly provided some limited logistic support in terms of transport planes and a few military advisers on the ground, but provided very little in terms of actual fighting force. The other imperialists are saying to the French: after you, Monsieur!

Lenin and Trotsky explained that where terrorism is endemic, it is a symptom of a profound social crisis, a crisis of the whole regime. What we are facing today is not a normal crisis. It is not a cyclical crisis where the economy goes down, and then recovers fairly quickly. This is a fundamental crisis of the whole system.

One indication of this is to be found in the organic mass unemployment that affects all countries to one degree or another. Marx referred to the “reserve army” of unemployed, which has been a normal feature of capitalism for the last 200 years. This reserve has always played a useful function for the capitalists, for when the economy takes off; they have a reserve they can draw upon.

However, what we see now as an international phenomenon is not the reserve army, but organic, permanent unemployment. This indicates the system is incapable of playing any progressive role whatsoever; it cannot absorb this excess population back into production and condemns millions to a state of permanent poverty. The system cannot use the productive forces as it did in the past.

Youth unemployment is particularly bad. This was a big factor in the revolutions in Egypt and Tunisia, and throughout the Arab world. This problem cannot be solved by capitalism. Unemployment is not rising with each recession and then falling during the recoveries. While some workers find their way back to a job, usually low wage and casual jobs, there remains a high level of unemployment everywhere. All this has social, economic, political and diplomatic, implications. In a nutshell: it has profound revolutionary implications.

Capitalism has become like Procrustes the character in Greek mythology that would either stretch his guests or cut off their legs, if they didn't fit exactly in the frame of the bed. Capitalism now cuts everything to fit within the narrow limits of the system.

The more intelligent strategists of capital are beginning to understand how serious the situation has become. As Ted Grant explained, they often reach similar conclusions to the Marxists. It is now becoming evident to them that what they are facing is a crisis of the regime. Robert J. Samuelson in the Washington Post in an article called "The Great Reversal" (October 8, 2012) pointed out the following:

"What we are witnessing in Europe — and what may loom for the United States — is the exhaustion of the modern social order. Since the early 1800s, industrial societies rested on a marriage of economic growth and political stability. Economic progress improved people’s lives and anchored their loyalty to the state. Wars, depressions, revolutions and class conflicts interrupted the cycle. But over time, prosperity fostered stable democracies in the United States, Europe and parts of Asia. The present economic crisis might reverse this virtuous process. Slower economic expansion would feed political instability and vice versa. This would be a historic and ominous break from the past."

"What’s happening in America is different in degree, but not in kind, from what’s occurring in Europe. Stalled economic growth there is straining the political system’s ability to meet all expectations. People take to the streets; extremist parties expand. To avoid Europe’s fate, we should reduce people’s claims on the system and strive for faster economic growth. That’s the lesson. If we ignore it, history may slip into reverse."

This is an interesting piece of analysis. In fact it is impeccable analysis – but it also offers no solution whatsoever. The reason for this is that there is no solution under capitalism.

Europe is now at the heart of the storm. But if it were not for that, all eyes would be on the USA, for the first news item in the new year was about the US being on the verge of bankruptcy, facing a "fiscal cliff"/debt ceiling crisis. We must understand the seriousness of this situation, even though it is in part a product of the laws passed in the United States. They have been playing “chicken” with the lives of millions, i.e. they are pushing each other (Democrats and Republicans), daring each other to see who pulls back from the brink first. There was also a large element of theatre in all of this, but nonetheless, for the system, it is a very dangerous game to play.

How serious the situation is can be seen in a quote back in September 2011 from an American Admiral, Mike Mullen, Chair of the Joint Chiefs-of-Staff. It is not usual that an Admiral would speak in such terms. This is what he said: “I’ve said many times that I believe the single, biggest threat to our national security is our debt...” Thus a top US military man explains that debt is more of a threat than Al Qaeda, China, etc. What he understands is that the level of debt can lead to such a social crisis that it would undermine the stability of the United States.

But what have they done to solve the problem? They have done nothing, absolutely nothing. The level of US debt is now $3 trillion more than it was in 2010. These are enormous, almost unfathomable amounts. The overall figure of US debt now stands at $16 trillion. It is a black hole, which the Iraq and Afghanistan wars and the bank bailouts, stimulus packages, etc., have all contributed to. This is completely unsustainable. It is like defying the laws of gravity.

There has been much talk of a recovery. But where is the recovery? The latest figures indicate a sharp slowdown in the US economy at the end of 2012. The point is that if they don't carry out serious cuts, sooner or later, the markets will intervene and cause a catastrophe that would spread worldwide.

The ruling class demands cuts in pensions, wages, etc. In truth the differences between the Republicans and Democrats are superficial. On the fundamentals they agree there must be cuts. The rich caused the crisis, but the poor, the sick, elderly, and workers must pay for it. That is a finished recipe for class struggle in the United States.

Europe the key

At this moment in time, however, Europe is the key to the world situation, both economically and politically. In the recent past it was Latin America. There is still ferment there, of course, but Europe has leaped ahead. This is a fact of historical significance, due to the weight of the proletariat. The proletariat in the advanced capitalist countries, in the final analysis, is the key to the world revolution.

The psychology of the bourgeois in Europe is akin to that of a manic depressive, with violent mood swings, from black depression to euphoria, particularly in the stock exchange. It is like a yo-yo in a lift.

Dr. Johnson [Samuel Johnson the famous 18th century English writer who is best-known for his Dictionary of the English Language] once said that, "A good hanging concentrates the mind wonderfully." As the crisis of their system become ever more evident, some bourgeois are now being forced to think very seriously. Some like Mario Draghi, chair of the European central Bank, say: "We will defend the euro till the last drop of blood!" But he doesn't say whose blood!

It is clear that although six months ago the situation in Europe seemed to be on the very edge of a serious collapse in Europe. That collapse hasn't materialised yet. However, none of the fundamental problems have been resolved in Europe and since then and the economic situation outside of Europe has also deteriorated.

At the Davos meeting of the World Economic Forum which met this month, we see how the bourgeois economic experts have come to very similar conclusions to the Marxists, but from the opposite class perspective.

A Keynesian economist writing for The Guardian wrote the following:

"Davos has been through some violent mood swings these past five years. First there was denial. Then there was panic. Then there was hope that the worst was over. Now there is nagging concern that this downturn simply won't come to an end."

He continues:

"...Executives remained cautious about their short-term prospects and the outlook for the global economy. Far from planning for a robust global recovery, there is evidence that companies are hunkering down, concentrating on cutting costs and making themselves more efficient."

"...Many businesses are cash rich after laying off staff, mothballing investment and keeping the lid on wages, but the PwC report suggests they are in no hurry to invest their accumulated reserves.

"Businesses will only invest if they perceive growing demand for their goods and services. But the dilemma for the CEOs gathered in Davos is that the policies they have championed in the past – fiscal austerity, weaker trade unions, aggressive cost cutting – have hammered consumer spending. In the past, spending could be supported by rising household debt, but the banks don't want to lend and consumers don't want to borrow."

The bourgeoisie is sitting on trillions of dollars. They have not invested for five years and have kept wages down. The crisis will affect every country. Even China and Germany cannot escape it. Merkel's continued electoral support (although declining) can be explained because so far things aren't as bad in Germany as elsewhere, so people hope against hope that that will somehow continue.

However, we see a growing number of important strikes in Germany over wages and other questions. After sharp contraction in 2008, the modest recovery since then has emboldened workers to fight for what was lost. What we see in the south of Europe is Germany's future. Austria also, which currently has just 4.5% unemployment faces the same situation.

The Euro-zone economy reached its peak in 2007, and then entered into sharp decline in 2008/09. They still have not recovered the earlier levels, and all indications are that the European economy will go down even more now.

We saw the lunacy of speculation and credit in the previous period. Credit is only a means by which capitalism temporarily and artificially expands the limits of the system. The capitalists can avoid a crisis of overproduction by artificially expanding demand through the extension f credit. But this only prepares the ground for an even greater crisis at a later. Marx explained all this long ago.

An indication of this can be found in the enormous expansion of credit in the United States. In 1964 total credit in US was $1 trillion. By 2007 it had had gone over $50 trillion. Now we have a deeper crisis of over production than ever, precisely because of the previous expansion of credit to unheard of levels.

Neither Monetarism nor Keynesianism

Now the monetarists want to cut spending, to cut the debt, but all that achieves is to cut demand and further aggravate the crisis. The Keynesians, on the other hand, want to expand public spending to stimulate the economy. The problem with this is that there is no money with which to do it, unless you borrow it – in effect printing money – further increasing the level of debt, which only prepares more problems. The fact is that neither Monetarism, nor Keynesianism can solve the crisis.

Portugal, Spain, and Greece are still in a deep recession. They have been predicting a recovery every year since the crisis started. Now they say there will be a recovery in these countries in 2014, having conveniently forgotten about 2013! An indication of the state of the market in Europe is the sales of cars which fell to their lowest levels in 17 years – except for luxury cars which are being exported to China. Other than that, the industry is in a mess.

Germany, which until recently was growing much faster than its European partners, cannot escape the effects of the crisis. Germany was and is still the locomotive of Europe. Therefore a slowdown in Germany would mark a significant worsening of the situation in Europe and the world.

Chinese growth has slowed and Japan remains in a state of stagnation and crisis. It is not rocket science. If Europe and America are not consuming, China cannot continue to grow at the previous rate. This has serious repercussions in Latin America, for countries like Brazil, but also for Australia, etc. who had been doing quite well on the back of the Chinese boom.

The crisis that erupted in Europe and the United States in 2008-09 is now reaching those parts of the world economy that had until recently escaped the effects of the downturn. The world economy is truly globalised, with one region affecting the others, and now we have a truly world crisis of the whole system.

From a Marxist point of view we deal with economics as a science. However, we also have to understand that it not an exact science (as Engels explained), such as physics or chemistry. Precise predictions, going into every detail, are not possible. All economic predictions are therefore conditional.

However, the main point features of the economic situation are clearly visible. Whether there is another slump (though that seems most likely) or simply a long period of weak growth, the big picture of the political perspectives remains fundamentally the same. The point is that people's expectations cannot be maintained. In fact, they must be driven down.

Impact on the class struggle

What interests us above all in this situation is the effect all this is having on the class struggle. The main thing we have to remember is that all attempts of the bourgeois to re-establish economic equilibrium will destroy the social and political equilibrium.

Look at Portugal, for instance. The mass movement last September/October was so powerful that it forced the government to retreat on some questions. The movement was bigger even than the revolutionary demonstrations in 1974 when the old dictatorship was finally brought down. Who can seriously say there is no class struggle and no crisis? The crisis is starting in the South of Europe, where the economies are weaker but from there it will spread.

When Draghi, the Italian, say "We will save the Euro" he isn't referring to Italian money; he is talking about the role of Germany. It is Germany that decides everything. That wasn't the intention when they set up the Common Market, the forerunner of the European Union. The French thought they could leave the economic side of things to the Germans, while they would run affairs politically. That ignores the reality of the situation. There is the old saying “he who pays the piper calls the tune”. Germany is the economic powerhouse of Europe and it is the German bourgeois that decided. France has now fallen to the level of second class member of the European Union.

What is the proposal the French have come up with? Their solution is to issue Eurobonds, i.e. bonds that are not issued by individual countries, but by the Eurozone as a whole. What this means is bonds issued with the backing of the powerful German economy. Germany, however, would only agree to such a measure if it is granted control over the various countries' budgets! If the Germans have to pay for the debts of the other EU members, then it wants to see how they are spending their money. This amounts to the others giving up their national sovereignty to Germany. The French of course would never agree to that!

The Joker in the pack is David Cameron in the UK who now supports a referendum on whether Britain should stay in or leave the EU. This represents a jockeying for a position on his part as the Conservatives become ever more unpopular. UKIP, the United Kingdom Independence Party, has been doing well in opinion polls, taking votes of the Conservatives. This has been provoking an anti-EU mood within a section of the Conservative Party that is fomenting nationalist sentiment in an attempt to win back support. This is a dangerous game that Cameron is playing, as it could end up with Britain being forced out of the EU altogether at some time in the future, which would be a disaster for European capitalism.

Role of the reformists

Trotsky pointed out that betrayal is inherent in reformism, all reformism, particularly left reformism and centrism. Precisely because working people trust them, as they consider them “their” parties, they then become very angry and despondent once these parties betray them. This explains the violent shifts on the electoral scene that we are seeing in several European countries.

While Marxists recognise the role played by left parties such as SYRIZA in Greece and by leaders like Tsipras, etc., they do not have, and must not have, a sentimental approach. Marxists keep their eyes open without illusions. These leaders can shift to the left under the impact of the mass movement, but they can equally shift back to the right as they come under the pressure of the bourgeois. As they do not have a fully worked out alternative to the capitalist system – and only see the possibility of working within the system, hoping to eliminate the worst effects of the crisis for the masses – they inevitably have to either break with the system or buckle under the pressure and become serious “statesmen”.

What we have to also understand is that bourgeois democracy itself is not permanent or unchangeable. Its continued existence depends on certain conditions, including the possibility of granting workers some concessions, and also the strength of the reformist parties and their influence over the masses. So long as these parties and their leaders have authority they can hold the workers back, and keep them within certain limits. However, once they get close to power or are pushed into government by the masses, they are then forced to show their true colours. This is what happened to PASOK in Greece. The ability of the reformist leaders to hold back the masses is being tested and strained to the limit.

We have therefore returned to the situation Trotsky described in 1938: an organic crisis of the system. But there are also important differences with the 1920s and 30s. The European ruling class has serious problems.