A New Stage in the Crisis of Capitalism – Part One

“To the toiling masses of Europe it is becoming ever clearer that the
bourgeoisie is incapable of solving the basic problems of restoring
Europe’s economic life.” (Trotsky, On the United states of Europe,
1923)

The immediate cause
of the panic is the crisis of the euro. This is ironic. Not long ago
they were talking about the euro as a rival to the U.S. dollar as a
global reserve currency. Now the convulsions of the euro are driving the
world’s stock markets down and raising fears that the world is about to
fall back into slump.

The once prosperous euro zone is now teetering on the edge of a
terminal crisis. The markets believe that the weaker euro zone countries
will not be able to take the necessary action to reduce their deficits.
The fears over the Greek debt problems have rapidly turned into fears
over Portugal and Spain. Only by injecting huge funds from an emergency
fund can the European bourgeoisie shore up the shaky edifice.

The global financial crisis of 2008 was related to sub-prime
mortgages, but now the crisis is related to what one might call
sub-prime government debt. In the past, the bonds of European countries
were considered to carry virtually zero risk. But now sovereign default
in one of the world’s core economic areas has become a serious threat.
The Economist put it like this: 2008 will be remembered as the year
when the banks defaulted; 2010 will be remembered as the year when
governments defaulted.

Europe’s troubles can lead to a general crisis of world capitalism.
On Monday May 24, Washington Post carried a very interesting
headline: “One false move in Europe could set off global chain
reaction”. That adequately sums up the situation. The situation is so
fragile that any small incident: a missed budget projection by the
Spanish government, the failure of Greece to hit a deficit-reduction
target, a drop in Ireland’s economic output – could set off a chain
reaction that could lead to a global slump.

The conclusion of the article is striking: “the future of the
U.S. economic recovery in the hands of politicians in an assortment of
European capitals”. This is most revealing. It shows the extremely
fragile and unstable nature of the economic recovery, which finds its
reflection in the extreme nervousness of global markets. Almost anything
can cause a sudden collapse of “confidence”. Credit markets worldwide
could suffer gridlock, throwing the world economy back into recession.
The euro crisis is only the tip of a very large iceberg, and as with a
real iceberg, the part you see is frightening enough, but the hidden
part is what is really deadly.

In a distorted way, the nervousness of the markets is a reflection of
the growing awareness of the bourgeois that the economic crisis will
lead to a sharp revival of the class struggle everywhere. The question
is simply stated: will governments be able to force the workers to
accept huge cuts in the public sector budgets in the interests of saving
capitalism? The spectacle of workers taking to the streets in Greece,
Portugal and Spain has already given them an answer that they did not
want to hear.

The crisis in Greece is only the accident through which necessity
reveals itself. In Greece, the chain of European capitalism has broken
at its weakest link. But there are several other very weak links. Even
if they find a temporary solution to the problems of Greece, the fear
that the contagion will spread to Portugal, Spain, Ireland and Italy.
And Britain, though not part of the Euro Zone, will not be far behind.

Effects of globalisation

At bottom the crisis is a manifestation of the fact that the
productive forces on a world scale are coming into contradiction with
the narrow limits of private ownership and the nation state. Like the
Sorcerer’s Apprentice, the bourgeoisie has conjured up forces it cannot
control.

In a sense, the bourgeoisie is the victim of its success. The
capitalists attempted to overcome the limitations of the nation state by
increased exploitation of the world market. After the collapse of the
USSR, two billion people joined the capitalist world market. The entry
of China, Russia, Eastern Europe, and the increased participation of
India, provided them with vast new sources of markets, investments and
raw materials.

However, dialectically, everything is turning into its opposite. The
process has reached its limit. Globalisation now manifests itself as
a global crisis of capitalism. The factors that previously served
to push the world economy up are now combining to push it onto a vicious
downward spiral. We saw something similar in 1997 and 1998 when the
East Asian financial crisis spread rapidly through Thailand, Indonesia,
South Korea and other nations. Now Europe is facing the same prospect.

It may be argued that Greece, Spain, Portugal and Ireland represent
only about four percent of world economic activity. But once the
dominoes start to fall, the effect can pass rapidly from Greece to
Portugal and Spain, then to Ireland and Italy, then Britain. Confidence
in the euro would collapse, causing chaos in world money markets that
would end in a new crisis in Wall Street. In the words of Cornell
University economist Eswar Prasad: "the debt crisis and its ripple
effects are bad news for all corners of the world".

The Washington Post continues:

“Inside the euro zone, banks are intimately linked, with a web of
investments and cross-country bond holdings that could be a main vector
for financial ‘contagion,’ with a default in one country weakening banks
elsewhere.”

Europe in crisis

Drawing by Latuff.The
crisis is pushing Europe, and its nation states, into dangerous and
uncharted waters. There were growing fears about the exposure of banks
to European governments and private borrowers. If nothing was done,
European governments would have been faced by the same fate that was
suffered by Lehman Brothers. Greece could be on an inexorable path
towards default.

By May 7th, yields on the weaker euro-area countries’ government
bonds rose sharply, as the markets showed their muscle. There is a real
threat that foreign financing for these countries would cease
altogether. The bond markets’ nervousness indicates that the investors
are quite prepared to see whole nation states go under. They are firm
believers on the old Chinese proverb: “What do you do when you see a man
falling? – Give him a shove!”

It is true that all euro-area countries have an interest in avoiding a
default. If Greece goes under, the markets’ attention would immediately
pounce on Portugal, Spain, Ireland and Italy. Confidence in the euro
would plunge. Yet the German bourgeois do not like the idea of paying
the debts of “profligate” countries.

On May 2nd euro-zone governments and the IMF set out the terms of a
€110 billion ($145 billion) rescue for Greece. That was far more than
had previously been promised but it was not enough to settle investors’
nerves. Stockmarkets in Europe and America slumped on May 4th and fell
again the next day. Greek bonds continued to trade at the level of junk
bonds.

Caught on the horns of a dilemma, the European bourgeoisie did not
know what to do. The policymakers have been accused of doing too little,
too late. But in reality, whatever they did would be wrong. In the end
Germany and the European Union were forced to act to save the euro zone.
In the early hours of May 10th finance ministers, meeting in Brussels,
agreed on an emergency plan to prop up the euro zone. The main element
is a “stabilisation fund”, worth up to €500 billion ($635 billion). Of
this, €60 billion is to be financed by the sale of EU bonds.

The fund is to be supplemented by up to €250 billion more from the
IMF. In addition, the European Central Bank (ECB) said it would purchase
government bonds to restore calm to “dysfunctional” markets. It will
offer banks unlimited loans at a fixed interest rate. Yet again the
governments are handing out billions to the banks to prevent a collapse.
But in the first place, there is no guarantee that there will not be
such a collapse, and in the second, who will pay the bill for these huge
sums?

The financial markets’ initial reaction was naturally euphoric. How
could the sharks not be euphoric at the prospect of further billions of
taxpayers’ money being shoveled down their greedy gullets? Germany’s
stock market closed more than 5% higher on May 10th. France’s main index
went up by almost 10%: big French banks are heavily exposed to Greece,
so they also stand to benefit handsomely.

However, this euphoria soon gave way to a more somber view. The
market knows that the whole thing has been hastily cobbled together, and
there is no guarantee that it will work for long. The package,
despite its impressive scale, only buys time for Greece and other
vulnerable troubled governments to cut their budget deficits and to
improve their lost export competitiveness. If that is not done, there
will be an even worse crisis in the euro zone in a few months.

National conflicts

A strained relationship.
Photo by the office fo the Prime Minister of Greece.The
appearance of European unity was in reality an illusion. Behind the
façade of unity and solidarity, all the nation states jealously guarded
control over their national interests and their national banking
systems. These divisions have been cruelly exposed by the present
crisis.

The parsimonious spirit that lies behind all the talk of an
“international rescue” is shown by the long delays in approving the
plan, which even then was further delayed by failure to agree on details
such as the interest rate to be charged for access to funds. And
immediately after the deal was signed, the conflicts between the
national governments began.

Germany is insisting that the money will be raised and controlled by
governments, not bureaucrats in Brussels. They do not want huge amounts
of money being handed out without close monitoring. In other words, the
money will be given to Greece with the strictest monitoring and control.
Britain said it will not sign up to it.

Jean-Claude Trichet, the central bank’s president, was accused of
“caving in to political pressure to help out spendthrift governments”.
Axel Weber, the head of the Bundesbank, Germany’s central bank, who may
succeed Mr Trichet when he steps down next year, openly criticised the
ECB’s conduct in the pages of Börsen-Zeitung, a German
financial newspaper. In his defence, M. Trichet maintains that the
central bank was “fiercely and totally independent”, a statement that
not many people believe these days.

A speech made by Merkel during a rowdy session of the German federal
parliament made matters worse. She said that "the current crisis facing
the euro is the biggest test Europe has faced in decades," and: “If the
euro fails, then Europe fails". The already panicky markets plunged
again.

Germany took a unilateral decision to ban the short selling of EU
government debt and banks. The move was taken because of the German
Chancellor’s increasing desperation ahead of last Friday’s vote on the
euro bailout. The opposition MPs and increasingly her own coalition
members are becoming increasingly angry. Merkel had to do something to
prove that Germany was not simply writing a multi-billion euro cheque
from the taxpayer to bail out Greece and others. She was trying to show
that Germany was taking steps to defend itself.

This was no more than a mild attempt to control speculation. It has
no chance of success. But the markets want complete freedom to pursue
their predatory activities. The move wiped billions of euros off the
value of shares and drove the single currency down to a four year low.
It infuriated Germany’s European partners, who had not been consulted.
There were unprecedented public recriminations from Christine Lagarde,
the French finance minister. There were naturally loud protests from
London (both Labour and Tories were agreed), reflecting the completely
parasitic character of British capitalism’s reliance on finance capital.

Hypocrisy of German capitalists

The underlying sickness of European capitalism is reflected by the
feverish movements of the stock exchanges. The financial world is being
shaken by rumors of the possible collapse of the euro zone. All the
official denials have not helped to calm the jittery nerves the markets.
In this mood of panic, the bourgeois seek to find someone to blame. The
Germans blame the Greeks. The Greeks blame the speculators. The French
blame the Germans.

Increasingly, the finger is being pointed at Berlin. Germany, which
was the engine of growth for the whole EU, its banker and de facto
leader, is now the target of all the pent-up anger and frustration of
its partners. Why are the Germans so stingy? Why did Merkel not do more
to help Greece earlier? At a recent meeting of European leaders it is
said that President Sarkozy threatened to leave the euro zone if Berlin
did not help Greece

The criticisms of her neighbours do not go down well in with Berlin.
The prostitute press in Germany and other countries are trying to
portray the situation as “Europe helping lazy Greek workers.” That is a
lie. This crisis was not brought about by the workers of Greece or any
other country. It was created by the voracious and reckless actions of
the bankers and capitalists of both Greece and the rest of Europe. And
the present “rescue plan” is a plan to rescue, not Greek workers, but
the bankers of Germany, France and other countries who own most of the
debts of Greek capitalism.

The public displays of moral outrage in Germany reek of hypocrisy.
German capitalism benefited more than any other from the introduction of
the Euro. The German capitalists enjoyed a privileged position in the
years of boom. Their exports invaded every market, taking advantage of
the fact that weaker economies like Greece, Spain and Portugal, could no
longer devalue the currency to protect their national market. German
banks were happy to make profits out of lending to Greece, Spain and
Eastern Europe. They made a lot of money then, but they are not prepared
to accept losses now.

Germany’s dilemma

The problem is that, in the end, somebody has to pay the bills.
Merkel managed to push through the euro zone-wide bail-out mechanism on
May 21. But opposition among German voters is growing and it is
spreading to Merkel’s coalition partners and political allies. “Once
again, we’re Europe’s fools” was how Bild, the
influential German newspaper, greeted news of the euro rescue plan. In
the latest polls, 47 percent of Germans are in favor of returning to the
deutschmark. In a crucial state-level election May 9 Merkel’s governing
coalition was heavily defeated. This is a sign of mounting
dissatisfaction with her Christian Democratic Union and its coalition
ally, the Free Democratic Party.

The weaker members of the rich man’s club, known as the “Club Med”
economies, currently have a 3 trillion euro mountain of debt and their
ability to service it is in doubt. The “markets” are nervous about this.
That is to say, the bankers are nervous, because they fear that they
may not get their pound of flesh. That means, in the first place, the German
bankers. Exposure of German banks to Club Med debt may be as much
as 500 billion euros. Thus, despite all the huffing and puffing in
Berlin, what is being discussed here is not aid to Greece, but aid
to the German bankers and their European partners in crime.

From the point of view of German capitalism it was a case of “damned
if you do, and damned if you don’t.” If they provided Greece (and other
weak euro zone economies) with money, they would have trouble at home,
and anyway there is no guarantee it will succeed. If they refused, a
Greek default would have a domino effect throughout Europe and on a
world scale, which would pull Germany down with everyone else.
Therefore, Merkel was forced to swallow hard and approve a huge bailout.

At some point, Germany may conclude that further bailouts are just
throwing money into a bottomless pit. At that point, Germany may decide
to cut its losses. Germany may decide that the ECB should ignore its
rules and purchase the debt of the weak euro zone governments by the
simple device of printing money (“quantitative easing”). The euro zone,
including Germany, would be paying for it this with the weakening of the
euro and higher inflation.

The Germans complain a lot, but they overlook the fact that the euro
zone provided Germany with considerable economic benefits. Since the
euro was adopted, unit labor costs in Club Med have increased relative
to Germany’s by approximately 25 percent, further improving Germany’s
competitive advantage. Its neighbors are unable to undercut German
exports with currency depreciation, and German exports have benefited.
The result has been a massive €110 billion (2007) current account
surplus for Germany towards the rest of the Euro-zone. That means that
Germany exports €110 billion more to the Euro-zone than it imports,
which is paid for by massive lending from German banks. For German
capitalists this was of tremendous benefit in the short-run but in the
long-run it is completely unsustainable.

In order to revive the deutschmark, Germany would have to reinstate
the Bundesbank, withdraw its reserves from the ECB, print its own
currency and then re-denominate the country’s assets and liabilities in
deutschmarks. This would be difficult, but not impossible. The other
members of the euro zone would face far greater difficulties if they
wished to return to their old currencies.

However, since German banks own much of the debt issued by Club Med,
the losses caused to Germany by a break with the euro zone would be far
greater than remaining within the euro zone and financially supporting
it, at least for the time being.

Greece – the sick man of Europe

Greece joined the Euro in 2001. At that time German capitalism was
puffed up with its own importance following reunification. The moving of
its political centre to Berlin in the heart of Europe symbolised its
unlimited ambition to become the Master of Europe. Under these
conditions the Imperial Master graciously accepted the accession of
Greece as a further step towards consolidation of German domination of
the Balkans, which began with the German-inspired intrigue to break up
Yugoslavia.

However, Greek capitalism is the weakest of several weak links in
European capitalism. The Greek bourgeoisie – one of the most corrupt and
reactionary in Europe – thought that it was being very clever when it
joined the European rich man’s club. Like the frog in Aesop’s fable, it
blew itself up to an enormous sise, and then it exploded.

Even in 2001, the real weakness of Greek capitalism ought to have
been clear to a blind man. It was graphically expressed in the huge
deficits in the current account, budget and public debt. As long as the
boom continued, Karamanlis could comfortably maintain himself in power
for four-and-a-half years. He easily won two elections. The Greek
economy appeared to be healthy, with growth averaging over 4% a year up
to 2007.

The tourists were streaming in, construction was booming as a result
of the 2004 Olympics. Greek ship-owners were making record profits from
China’s export boom; Russian oligarchs were buying expensive land on
Aegean Islands. There were subsidies from the European Union. Last but
not least, Greek membership of the Euro seemed a guarantee of future
prosperity.

But the global
economic crisis cruelly exposed the underlying weakness of Greek
capitalism. As a direct result of the adoption of the euro, the Greek
economy has lost competitiveness. Many Greeks are underemployed. This
affects the youth in particular, with a sharp rise in youth unemployment
and a reduction of openings in education. The unemployment rate for
young graduates in Greece is 21%, compared  with 8% for the population as
a whole.

The growing mood of discontent that was seething beneath the surface
was shown by the violent youth protests after Alexandros Grigoropoulos, a
15-year-old schoolboy, was shot dead by a policeman in December 2008.
The murder triggered five nights of riots. The protests quickly spilled
into the main streets of Athens, and thence across the country. There
were violent clashes with riot police and tear-gas filled Syntagma
Square. Groups of youths burned cars, broke shop windows decorated for
Christmas and tossed in petrol bombs.

These demonstrations were on an unprecedented scale, resembling an
uprising of the youth. Demonstrators attacked police stations and public
offices in a dozen cities, causing damage estimated at more than €100m
($130m). Hundreds of school students battled with police after the
teenager’s funeral. Others threw stones at policemen on guard outside
parliament, shouting “let parliament burn”. This was already a warning
to the ruling class. It showed the pent-up anger of Greece’s youth,
which was only an extreme expression of a general discontent in Greek
society.

Throughout history, every revolution has been anticipated by a
movement of the youth – particularly the students, who are a sensitive
barometer that reflects the buildup of contradictions and tensions in
society. This was the case in Russia in 1901 and in Spain in 1930. In
both cases, the demonstrations of the student youth were a warning of
the revolutions of 1905 and 1931.

Kostas Karamanlis. Photo by
New Democracy.The protests caused paralysis of the
authorities. The right wing government of Costas Karamanlis, terrified
of provoking an even bigger movement, was unable to impose a curfew or
order mass arrests. The memory of the military dictatorship in the 1970s
was too fresh in people’s minds. Attempts to arrive at a consensus
between political leaders on how to quell the unrest quickly broke down.
On December 10th there was a 24-hour strike by public-sector unions,
despite Karamanlis’s appeal for it to be cancelled.

These events caused alarm among the international strategists of
Capital. On 11^th December The Economist commented:

“There is something weird and frightening about the sight of a
modestly prosperous European country—assumed by most outsiders to have
recovered from its rocky history of coups and civil strife—that is
suddenly gripped by an urban uprising that the authorities cannot
contain.”

The events of December 2008 led inexorably to the fall of the
Karamanlis government. George Papandreou, the Pasok leader, called for a
general election. “Effectively there is no government…we claim power,”
he said. The Pasok gained in popularity as the support for the New
Democracy melted away in a welter of financial scandals.

The Pasok government

The general election on October 4^th 2009 resulted in a
landslide victory for the Panhellenic Socialist Movement (Pasok) that
surprised both the political observers and the Pasok leaders. This was a
clear reflection of growing popular discontent. 43.9% of voters backing
the party, giving it 160 seats in the 300-member parliament. The
centre-right New Democracy party was shattered. It won only 33.5% and 91
seats—its worst-ever showing at the polls.

This was the biggest victory for Pasok since it first came to power
in 1981. It goes against the trend Europe in the recent elections where
social democratic parties have been defeated. It was a clear vote for
change. The Communist Party (KKE) took 7.5% and 21 seats, while Syrisa, a
left-wing coalition that arose from a split from the CP, took 4.6% and
13 seats. Laos, a far-right party, increased its share of the vote to
5.6% and won 15 seats – at the cost of the ND.

Unlike his father, Andreas Papandreou, and like Blair in Britain,
George Papandreou has worked to pull the party to the right. Brought up
in Sweden, and educated in the USA, he enjoys friendly relations with
Obama. Initially he promised stimulus of up to €3 billion ($4.4 billion)
to accelerate economic recovery and above-inflation increases in wages
and benefits for public-sector workers. He also promised real rises in
wages and pensions to encourage Greeks to spend again. He talked of
exporting renewable energy, harvested on sunny mountainsides and windy
Aegean Islands, and persuading Greek software developers abroad to set
up companies at home, and so on and so forth.

But these reformist dreams immediately evaporated like a drop of hot
water on a hot stove. They came into conflict with the harsh reality of
economic crisis, collapsing tax revenues and a soaring budget deficit.
The Karamanlis government admitted that Greece had manipulated its
figures to qualify for the euro in 2001. Papandreou admitted that this
year’s budget deficit was not 6.7% but 12.7%.

George Papandreou. Photo byphilippe grangeaud/solfé communications.It is true that
the Greek capitalists, with the mentality of a petty haggler in the
marketplace who wishes to sell rotten fish by placing fresh ones on the
top, tried to get round the problem by the simple expedient of
falsifying the statistics to conceal the facts – something they are,
incidentally, not alone in practicing. But sooner or later the facts
become known. The source of the problem, however, was not in Athens and
its faulty accounting.

The problem is precisely with the mechanism of the “free market
economy”, which operates with the same rationality as a herd of
antelopes in the veldt. As long as the market was heading upwards, they
did not pay any attention to the niceties of economic and financial
soundness. But once the markets head downwards panic sets in and a
stampede begins. Now that the stampeded has begun, nothing can stop it.
The speculators rush blindly from one market to another in search of a
safe haven. In the process, they trample the crops, demolish houses and
kill anyone who stands in their path.

The markets decide

There was an old saying: man proposes and God disposes. Nowadays it
would be more correct to say: Man proposes but the Market disposes. With
a budget deficit almost 13% and a public debt of 125% of GDP,
international investors were not impressed with Papandreou’s promises,
and sent him a little message to convey their opinion. Spreads on Greek
government bonds over German Bunds began to widen, and have continued to
widen ever since. This is the financial equivalent of laying hold of a
man’s genitals and exerting a gentle squeeze.

Papandreou wants social peace with fiscal austerity. But the two
things are incompatible. Papandreou wants to avoid direct confrontation
with the trade unions, but he has only two alternatives: either he
defends the interests of the workers or those of the capitalists. And he
has made his choice. Papandreou is compelled to cut living standards in
order to placate the almighty Market, just as Agamemnon was obliged to
sacrifice his daughter Iphigenia in order to placate the Gods of
Olympus. However, Agamemnon ended up very badly as a result of his
actions, and his successor will not end up any better as a result of
his.

The Greek premier is trying to hide behind the IMF and the anonymous
“international speculators” that have brought Greece to its knees. But
for the millions of Greek workers who are faced with savage cuts in
their living standards, these arguments do not excuse the actions of the
Pasok leaders. The Greek workers hate the speculators, the IMF and the
bourgeois leaders of the EU. But they cannot forgive a government that,
while calling itself socialist, has so readily bent the knee to the IMF
and Brussels.

Immediately, Papandreou found himself ground between two millstones.
The prime minister’s promises of fiscal austerity have not convinced the
markets. For every step back the reformist leaders take, the bourgeois
will demand ten more. The Economist remarked: “By Greek
standards Mr Papandreou has been courageous, but he should have been
braver still. Ireland set the pace on December 9th by producing a budget
that sharply cut public-sector wages.” And it added: “Hard times,
unfortunately, demand harsh measures.” Here is the real voice of the
bourgeois: stony-faced, hard hearted, and completely impervious to human
suffering. All must be sacrificed on the altar of Capital!

The austerity measures approved by the Athens government were too
little for the bourgeoisie, but too much for the workers. The Greek
workers, following their marvelous revolutionary traditions, immediately
reacted with mass street demonstrations. Feeling themselves betrayed by
the government they hoped would defend jobs and living standards, the
workers of Greece have taken to the streets. For months, Athens and
other cities have been rocked by mass protest demonstrations. One
bourgeois commentator in Britain described the situation in the
following terms: “Greek workers against European bankers.” That puts it
very well.

Marx wrote that France was the country where the class struggle was
always fought to the finish. The same can be said of Greece. The
memories of the Civil War and the bitter divisions between Left and
Right, and later of the Junta and the Polytechnic uprising of 1974 are
burned on the consciousness of the masses. The divisions between the
classes constitute a fault line running through Greek society that can
explode at any time.

The question can be put very simply: the bourgeoisie cannot afford to
maintain the concessions that were forced from them in the past. But
the working class cannot tolerate any further attacks on their living
standards and conditions. The workers of Europe will not stand with
their arms folded while the conquests of the last fifty years are
systematically destroyed. The developments in Greece therefore show what
will happen in every country in Europe as the crisis unfolds.