The Greek crisis: Europe on the brink of a precipice

There is now open speculation about the euro’s survival and even that
of the European Union itself. The whole situation hangs in the balance.
And all for what? Because Greece cannot pay its bills. But this was
surely no surprise. Every serious person knew full well that the crisis
of the Greek economy was so deep that all the rescue packages could do
was to buy a little time.

Capitalism isn’t working – Photo: Jeff McneillThe
time is now up. Greece cannot pay its bills and that is that. So why
all the fuss? How does it come about that the problems of a small
country on the periphery of Europe can bring about a tragedy of such
dimensions? One might call it a Greek tragedy, were it not for the fact
that it is not at all confined to Greece. Its origins must be sought
beyond the confines of Greece and its repercussions will also be felt
far afield.

Why are the European leaders falling over themselves
in a desperate attempt to restore confidence? Why is Jean-Claude
Trichet, the president of the European Central Bank, demanding stricter
budgetary rules? Why has Mario Draghi, head of the Bank of Italy and
Trichet’s successor at the ECB, called for binding limits not on just
budgets but also on a host of other national economic policies?

At
the roots of the nervousness in the markets are doubts about the
stability of Europe’s banks. It is no accident that bank stocks were hit
hardest in the recent crash. After the last crisis there was a black
hole in the banks that governments have been attempting to fill by
shovelling in billions of taxpayers’ money. The result has been close to
zero. The banks are not lending, the capitalists are not investing, the
economies are stagnant, unemployment is growing, and now they are on
the brink of a new slump.

The problem is that to this very day
nobody knows what the real debts of the banks are. Decades of
deregulation and uncontrolled speculation in things like hedge funds,
whose workings are very obscure, mean that the danger to the global
financial system is systematically underestimated, like the bulk of an
iceberg that cannot be seen because it is submerged.

What is known
is that French and German banks are heavily exposed to Greece. This
alone explains the tender concern with which the governments in Paris
and Berlin view the Greek crisis. If (or rather, when) Greece defaults,
it would be followed immediately by a crisis of the banking system in
the two pivotal countries of the EU. That is why they cobbled together a
“rescue fund”, the European Financial Stability Facility. But it is a
case of too little and too late.

The crisis that began with the
bankruptcy of banks has now moved on to express itself as the bankruptcy
of whole nations. If Greece is allowed to collapse, other more
important economies will follow. That is why the leaders of the Euro
zone have called an emergency summit in Poland. Their previous plans are
in ruins. The debt exchange that was agreed to in July is now dead in
the water. They will have to throw it out and grant Greece some kind of
debt relief to prevent a collapse that would have devastating effects
throughout Europe.

Europe and America

Eu economic crisis – Illustration: LatuffSooner
or later the EU authorities must decide either to relieve Greece and
Ireland of their austerity programmes, or else pull the plug, pushing
them over the abyss of default. Despite all the brave talk about keeping
Greece inside the Euro zone, in the end they will have to take the
latter course. This will have the most serious consequences’ for Europe
and the world economy.

If the EU and IMF decide that they cannot
continue to throw good money after bad, and withhold their support, this
would push Greece into the abyss. This would signify what the markets
most fear: a disorderly debt default. The social, political, and
economic consequences of such a step would be incalculable – and not
only for Greece. This scenario would spell chaos on an epic scale.

But
this prospect is provoking alarm in ruling circles in Europe.
Economists are already talking about the breakup of the euro zone,
leaving Portugal, Italy, Ireland, Greece and Spain outside it. But if
you say “A”, you must also say “B”, “C” and “D”. Globalisation means
that every economy in Europe is linked to every other economy. So what
happens in even a smaller economy such as Greece will inevitably affect
all the others.

What would the consequences be for the rest of
Europe – for Britain, France, yes, and Germany too? It would trigger a
chain reaction of collapsed banks in those countries. French banks are
heavily exposed to Greece, but so are German banks. British banks are
rather less exposed to Greece, but heavily exposed to Ireland. Austrian
banks are exposed to Italy, and so on.

The results would be
catastrophic for Europe, and not only for Europe. An economic collapse
in Europe would send a Tsunami racing across the Atlantic, putting
pressure on the dollar and threatening to undermine the unstable
financial set-up in the USA. When Greece goes, the question is
immediately posed of the contagion spreading to other countries.
Ireland, Portugal, Spain and Italy will fall like dominoes. Banks will
collapse, starting with the Greek and Cypriot banks, and then proceeding
to the UK and US financial system, both of which are unsound.

In
order to prevent his from happening, some bourgeois economists are now
discussing other possibilities: for example, a German “Marshall Plan”
for Greece and southern Europe. The idea seems childishly simple:
Germany received millions of dollars in Marshall Aid, which enabled it
to rebuild its shattered economy after 1945. Why should Germany not do
the same for southern Europe? This is what the Americans are demanding
ever more insistently.

Sadly the historical parallel is misguided.
In 1945 the USA enjoyed a total hegemony over its competitors. Its
industry was intact, while Europe and Japan were devastated by the War.
Two thirds of the world’s gold was in Fort Knox. The dollar then was “as
good as gold”. Above all, the world capitalist economy was entering
into a phase of upswing that lasted almost three decades. None of these
factors exist now.

Germany is the leading power in Europe but it
does not possess the virtually unlimited economic reserves that the USA
enjoyed in 1945. Its shoulders are broad, but not strong enough to bear
the weight of the accumulated deficits of Greece, Ireland, Portugal,
Spain, Italy and the rest. Most importantly, Europe and the world are
not on the verge of a long period of upswing but, on the contrary, on
the eve of a new recession and a prolonged period of economic
difficulties and austerity.

Barack Obama accuses the eurozone that
it is dragging the rest of the world into crisis again, conveniently
overlooking the small matter of the huge US fiscal crisis and the
inability of the Republicans and Democrats to agree on a serious plan
for reducing the huge budget deficit.

The Americans are
desperately calling on Germany to “do more” to pull Europe out of
crisis. The Germans must cut taxes; they must boost the economy; they
must send more money to Greece; they must lead a coordinated fiscal
stimulus across northern Europe. Germany must do this and Germany must
do that. But who are the Americans to tell the Germans what to do?

Yes,
say the Europeans, but who pays for all this? To this question there
can only be one answer: France and Germany, or more correctly, Germany,
which is Europe’s banker of last resort. Those who have talked bib about
a Marshall Plan for Greece are now politely requested to put their
money where their mouths are. But this is easier said than done. It
immediately raises political problems that cannot easily be overcome.

Eurobonds?

Twenty
years ago, after the collapse of the USSR, the German ruling class had
big ambitions. Their idea was that a unified Germany could dominate
Europe, achieving by its economic muscle what Hitler failed to do by
military means. Over the past two decades, France has been increasingly
pushed into second place and Germany now rules the roost in Europe.

The
idea of a closer European Union will appeal to those sections of the
German ruling class that still entertain some illusions of grandeur. But
the past 20 years have also convinced Germany that such ambitions can
come with a very hefty price tag. This contradiction has been exposed by
the recent debate on the possible creation of “Eurobonds”.

Guy
Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe
in the European Parliament, is only one in a growing chorus of voices
calling for the creation of Eurobonds. Germany’s finance minister,
Wolfgang Schäuble, has suggested that Europe needs to move to full
fiscal union.

The Greens and SPD in Germany already back
Eurobonds. But they are facing an electoral backlash, not only against
fiscal union but against bailouts in general. The French have expressed
guarded support for the proposal. Even the British Conservative leaders
have adopted a surprisingly positive attitude (itself an indication of
the seriousness of the crisis), which is causing them problems with
their rank and file.

On the one hand, this idea contains a certain
logic. All history shows that it is impossible to achieve a firm and
lasting monetary union without some kind of political union. But here we
immediately run up against new contradictions. The creation of
Eurobonds would require a degree of political consensus that is simply
not there. Any movement in the direction of fiscal union will meet
fierce resistance. It would also require a fundamental revision of the
EU’s founding treaties.

The experience of the farce over the
proposed European Constitution shows that it is not easy to get people
to vote more powers for Brussels either in national parliaments or in
referenda. And the mood of euro-scepticism has become even stronger
since then.

But the governments of Germany and other northern
European are coming under pressure from increasingly restive public
opinion, unwilling to pay the debts of foreign states. The Merkel
government is unpopular and has just suffered a humiliating drubbing in
recent elections.

For the time being, Merkel is making the right
noises: Greece must stay in the Euro Zone; the Euro must stay; Germany
will do this and Germany will do that. But the fact is that Germany, the
most powerful economy in Europe, is showing signs of strain. Its
economy is slowing down, as a result of the general stagnation of the
world economy. Its politicians are showing signs of impatience at being
continually asked to put their hands in their pockets.

So far the
EU has bailed out the Greek economy, or at least provided some funds
with which the beleaguered Papandreou government could pay the wages of
its civil servants and the pensions of its old folk. But more money than
this is required. It is like pouring money down a bottomless well. And
in the end, one way or the other, Greece will still default.

All
that they have done is to yet again create a breathing space for Greece.
But this comes at a huge cost to the Greek people, who are presented
with the bill. As always, it is not the bankers and speculators who are
asked to pay but the poorest sections of society: the workers, the
unemployed, the old and the sick.

The price of “stabilising the
finances” and “restructuring” their economy is a brutal slashing of
living standards and an increase in unemployment. This will lead to a
further fall in tax revenue and thus a further increase in the deficit
in the public finances. In what way this madness is supposed to help
Greece to pay its debts is a mystery compared to which the Eleusinian Mysteries of old were child’s play.

Without
economic growth, tax revenues will remain stagnant, and the capacity to
service debts will continue to decline. But the world economic slowdown
and the merciless pressure to reduce the deficit through austerity, has
plunged Greece into a deep slump. Despite all the painful sacrifices of
its people, the government of Athens continues to miss its fiscal
targets.

Alarm at this prospect is compelling the politicians in
Brussels to take emergency measures to prevent the immediate collapse of
the Greek economy. They still possess a number of instruments they can
use: a relaxation of the demands of the creditors, an agreement not to
press too hard on Athens to meet unrealisable fiscal targets. This would
be quite a logical thing to do, on the grounds that it is not possible
to squeeze blood from a stone.

There can be no solution for the
problems of Europe without economic growth. Economic, social and
political stability, throughout Europe, depends on it, and not only in
Greece. But there is no prospect of a recovery of growth in the near
future.

Protectionist tendencies

The deafening chorus
shows that Europe is not short of proposals. They have proposals by the
bucket load. The problem is that none of these proposals can do anything
to solve the euro zone’s immediate problems. They cannot pay Greece’s
debts. They cannot stop the problem from spreading to other countries.
They cannot restore the shattered confidence of investors.

In the
most optimistic scenario, they may possibly (just possibly) do a little
to ease some problems in the long run (but, as Keynes pointed out, in
the long run we are all dead). But they will do nothing to resolve the
present crisis, which is clearly getting out of hand.

The hopeless
confusion of the economists is illustrated by the strange spectacle of
Jeff Sachs, the man who unleashed neo-liberalism onto Eastern Europe,
calling for a global version of the New Deal. The problem is that any
such suggestion is anathema to the Republican dominated Congress, which
is hell-bent on pursuing the opposite policies.

Neither free
market economics nor Keynesian stimulus policies have worked, or can
work. Governments and their economist advisers are in a state of
despair. There is no more money for fiscal stimulus, but austerity
policies only serve to depress demand still further, aggravating the
slump.

The greatest fear is that a new recession will provoke a
resurgence of protectionist tendencies and competitive devaluations, as
happened in the 1930s. This would have catastrophic effects on world
trade and pose a threat to globalisation itself. All that has been
achieved in the past 30 years can unravel and turn into its opposite.

The
measures recently announced by the Swiss National Bank to push down the
value of the Swiss franc is a warning of the way things are drifting in
the direction of protectionist policies and competitive devaluations.
It was this that turned the 1929-33 slump into the Great Depression of
the 1930s. The same thing can happen again.

Danger of reaction?

We
have pointed out repeatedly that all the attempts of the bourgeois to
restore the economic equilibrium will destroy the social and political
equilibrium. Greece is proof of this assertion. Already social and
political stability have been destroyed. And the realisation that all
the sacrifices have been in vain will make the austerity utterly
intolerable.

It is possible that the Greek ruling class will seek a
solution to their problems by moving towards reaction as they did in
1967. But the Greek workers remember 1967 and the crimes of the Junta.
Any move in that direction now would provoke civil war.

This
is recognised by an American political analyst, Barry Eichengreen
(Professor of Economics and Political Science at the University of
California, Berkeley.) in a recent article, significantly entitled: Europe on the Verge of a Political Breakdown
:“In Greece itself, political and social stability are already tenuous.
One poorly aimed rubber bullet might be all that is needed to turn the
next street protest into an outright civil war.”

Barry Eichengreen is not alone. Paul Mason, the economics editor of BBC2’ s Newsnight writes:

“In
the chancelleries of Europe, above all in Berlin, these are questions
that are impossible to mention. There is a total mismatch between
political expectation and what is imminent.

“It reminds me – as so
much of 2011 reminds me – of 1848. Metternich sneering out of the
window at the irrelevant mob, a few hours before his unceremonious
overthrow, Guizot unable to breathe with shock as he resigns his
ministry, Thiers, prime minister for one day, suffering a bout of 19th
Century Tourette’s in his carriage, hounded by the masses…”

These
lines show that the most intelligent bourgeois strategists are seriously
alarmed by the developments in Greece. The problem is not so much that
this could lead to civil war. The problem is that the Greek bourgeoisie
would not be sure of winning such a war. The working class is
undefeated. Behind them they feel the support of the mass of the Greek
population – not just the workers and peasants, not just the students
and intellectuals, but also the small shopkeepers and taxi drivers who
are driven to revolutionary conclusions by the sudden collapse of their
living standards.

The politicians in Brussels fear that Greece is
becoming ungovernable. If it has not yet become so, it is thanks to the
reformist leaders. The Pasok leadership’s is anxious to prove its
“statesmanlike qualities” and its patriotism, that is, its devotion to
the interests of the bankers and capitalists. It is willing to take upon
its shoulders all the odium of the austerity programme, and even to
sacrifice itself on the altar of Greek and European Capital, if
necessary.

In November 2001 there was an uncontrolled default in
Argentina, accompanied by a run on bank deposits. The banks closed their
doors, there were mass protests in the streets and the president had to
flee from the roof of his palace in a helicopter. Something similar
might occur in Greece, where protesters have hung a banner on the
railings of parliament showing a helicopter carrying off Prime Minister
George Papandreou.

The government is deeply unpopular. But who
could replace it? The right-wing opposition party does not want to take
over the reins of government in conditions of acute crisis with an
aroused working class. It is not the right wing that the bourgeoisie is
obliged to lean on to save it but the leaders of Pasok. Politicians like
Evangelos Venizelos and Elena Panaritis (the non-elected,
Western-educated MP advising Papandreou) and Papandreou himself are the
Saviours of the bourgeoisie: their only defence against the masses.

It
is the same story all over Europe. Without the reformist leaders,
capitalism could not last even for a week. For that very reason, talk
about the danger of fascism and Bonapartism makes no sense at the
present time. The ruling class all over Europe must base itself on these
organisations. The bourgeoisie does not need the fascists at this
moment in time. Any attempt to move in the direction of fascism or
Bonapartism at this point would simply provoke the labour movement to
action.

Of course, this can change. The present crisis can last
for years or even decades. However, at a certain point, the ruling class
will say: there are too many strikes, too many demonstrations, too much
disorder; we need to restore Order! Then there could be a movement
towards reaction. But even in such a case, the ruling class would have
to proceed carefully, first testing the ground by moving towards
parliamentary Bonapartism.

That is not the perspective now, either
in Greece or any other country in Europe. On the contrary, the pendulum
will swing to the left. The working class will have many opportunities
to take power into its hands before the ruling class can turn to
reaction. Of course, the movement of the working class is never in a
straight line.

The civil servants’ union, ADEDY, warned on
Wednesday that it was gearing up for action over the government’s plans
to extend a “labour reserve” scheme that would put civil servants on a
sharply reduced salary for 12 months before reviewing their status. This
shows that there are still important reserves in the working class in
Greece. New layers will move into struggle to replace those that are
exhausted by many months of constant activity.

We must not adopt a
superficial and impressionistic attitude to events like the events in
Greece. The masses cannot stay on the streets indefinitely. There will
inevitably be periods of lull, in which the workers will think deeply
about what has happened, criticise, differentiate and draw conclusions.
It is precisely in such periods that the ideas of Marxism can gain a
powerful echo, on condition that we are patient, that we listen to what
the masses are saying and put forward the correct slogans.

In the
revolutionary events that are coming, the advanced workers and youth
will learn. If we work correctly we can help them to draw revolutionary
conclusions, and come to understand the need for Marxism and a
revolutionary organisation.

All over Europe the working class and
the youth are taking the road of struggle. In Italy there have been a
general strike and mass demonstrations against the austerity plan.
Berlusconi’s programme is too little for the bosses but too much for the
workers. Outside parliament on Wednesday evening, riot police came
under a barrage of fire, paint bombs and even a pig’s heart, hurled by
angry protesters.

Moody’s have already warned of a possible
downgrade of Italy’s credit rating on June 17 and its decision is
expected by Saturday. Incessantly, implacably, the crisis is spreading
and new burdens are being placed on the shoulders of the working class
in every country.

What is the duty of the Marxists in this
situation? We do not aim to reach the masses with our propaganda. That
is beyond our ability. We aim at the most advanced elements of the
workers and youth. We do not put forward “easy” agitation slogans that
merely tell the workers what they already know. The workers need to be
told the truth. And the truth is that under capitalism the only future
that awaits them is a future of permanent austerity, falling living
standards, unemployment and poverty.

We must explain that only the
expropriation of the bankers and capitalists and the replacement of
capitalist anarchy by a democratic planned economy can provide a way out
of the crisis. In particular, we must counter the nationalist poison of
the Stalinists by advancing the slogan of the United Socialist States
of Europe, the only real alternative to the bankrupt bosses’ EU. Our
duty, to use Lenin’s expression, is to patiently explain.