Eurogeddon
Capitalist crisis lurches into a more acute phase.
The last few weeks have witnessed the capitalist crisis of overproduction beginning to enter its most destructive stage, where the bourgeoisie itself starts to become aware that its economic system is beyond all control and to tremble at its prospects of survival.
“Investors have gone on strike. The Americans are getting their money out as fast as they decently can. British banks have stopped lending to all but their safest eurozone counterparts, and even those have been denied access to dollar funding. The UK hardly has anything to boast of; it’s got its own legion of problems, many of them not so dissimilar to those of the eurozone periphery.
“But almost anything is going to look preferable to a currency which might soon be assigned to the dustbin of history. All of a sudden, the pound is the European default asset of choice.
“What we are witnessing is awesome stuff – the death throes of a currency [the euro]. And not just any old currency either, but what when it was launched was confidently expected to take its place alongside the dollar as one of the world’s major reserve currencies. That promise today looks to be in ruins.” (‘Death of a currency as eurogeddon approaches’ by Jeremy Warner, Telegraph, 25 November 2011)
“The Treasury and Bank of England are making contingency plans for ‘economic armageddon’ if the euro falls apart, business secretary Vince Cable said yesterday as the European commission slashed its growth forecasts and predicted that the continent could be plunged back into recession next year.” (‘UK Treasury prepares for “economic armageddon”’ by Patrick Wintour, David Gow and Nicholas Watt, Guardian, 11 November 2011)
What has brought about this dramatic state of affairs is centred around the growing inability of European countries to pay their debts, which is ultimately a symptom caused by the world crisis of overproduction.
Nothing about the crisis can be understood without understanding that it is a crisis of overproduction
It was Marx who first worked out the inherent mechanisms of the capitalist system and was thus able to develop the understanding that capitalism cannot help but generate completely unavoidable crises of overproduction that periodically bring the whole of capitalist economies to a disastrous standstill.
The fatal flaw in the capitalist system is that the resources necessary to put in train the production of commodities that people need (factories, farms, raw materials and so on) are all the private property of people whose only interest in using them is as a means of increasing their wealth by accumulating capital. In other words, profit is the sole motivator of production. However, maximisation of profit demands the minimisation of the costs of production, including the amount paid in wages and the amount paid in taxes for the provision of public services in any given country. There comes a point therefore, where the working class is too impoverished to buy all that capitalism is producing, and this is where the crisis of overproduction kicks in.
Bourgeois banks and governments take all kinds of steps to avert the crisis, such as lending money to the workers to enable them to keep buying, or even providing the unemployed with paid work. However, none of this resolves the crisis. Lent money, whether lent to individuals or to governments, has to be repaid. If it is lent to individuals, then as debts mount, the proportion of those individuals’ wages that goes into debt servicing gets ever larger, diminishing what is available for the purchase of capitalist commodities, laying the basis for crisis if one has not already started, and aggravating it if it has.
Because bourgeois economic experts do not accept the basic tenets of Marxism they have proved completely unable to predict the course that the crisis will take. If it is seen as simply a debt crisis, or a credit crunch, then one would expect order to be restored once stern measures have been taken to ensure that, as far as possible, debts are repaid. If, however, it is understood to be a crisis of overproduction – of too much production chasing too little purchasing power – then it is obvious that austerity can only make matters worse, since it further reduces the already too low ability of the masses to purchase the glut of goods that the capitalists are desperate to sell.
Experience has shown in the present crisis that austerity has indeed made matters worse. This in itself is proof that the crisis is really a crisis of overproduction. Austerity is simply killing what remains of the market for capitalist products.
In the eurozone, “retailers saw sales drop 0.7 percent in September as households reined in their spending amid the ongoing debt crisis”. (‘Concern as eurozone retail sales fall’ by Emma Rowley, Telegraph, 8 November 2011)
In the US too, “Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession – from December 2007 to June 2009 – household income fell 3.2 percent … The full 9.8 percent drop in income from the start of the recession to this June – the most recent month in the study – appears to be the largest in several decades.” (‘Recession officially over, US incomes kept falling’ by Robert Pear, New York Times, 10 October 2011)
So severe has the fall been that even relatively ‘efficient’ producers (ie, those with the lowest costs of production) are now beginning to join the ranks of those whose future is under threat: “The latest data suggested the German economy could slow sharply in the next three months.” Indeed, already in September German industrial output was down 2.7 percent, while factory orders fell by a whopping 12 percent. Naturally, “Germany’s bleak outlook will make it even less likely to support the eurozone’s most indebted economies in the future, adding to the risk of a eurozone break-up.” (See Emma Rowley, op cit)
Because of austerity, “Industrial output buckled in September with falls of 4.8 percent in Italy … and 1.7 percent in France from a month earlier, as the effects of the debt crisis … finally hit with a vengeance. EU commissioner Olli Rehn slashed growth forecasts from 1.6 percent to 0.5 percent next year, warning ‘that recovery has now come to a standstill and there’s the risk of a new recession unless determined action is taken’.”(‘New recession threatens the globe as debt crisis grows’ by Ambrose Evans-Pritchard, Telegraph, 11 November 2011)
The problem is that nobody can determine what determined action might be possible that wasn’t totally counterproductive! The New York Times has been equally unhelpful in its pronouncements:
In an editorial of 30 September 2011, it bemoaned “Europe’s serial mismanagement of its debt problems”,which “has become a grave threat to global recovery”, concluding that austerity was the reason for the economic deterioration of recent months: “The big picture, in fact, has gotten much worse. Greece’s indebtedness is growing, European bank balance sheets are shakier and investors are increasingly sceptical that Europe has the will to stabilise shaky credit and stock markets. Also conspicuously lacking is any clear plan for generating the economic growth needed to begin paying down those growing debts. Instead, heavily indebted nations are yielding to pressure to embrace more of the austerity medicine that will only make them sicker.” (‘More of the same won’t save Europe’, New York Times, 30 September 2011)
The bad news is that there can be no effective plan for ‘generating economic growth’ outside of ever bigger and more destructive wars (which the imperialists are prosecuting with increasing determination) or the overthrow of capitalism, which one really cannot expect bourgeois governments to espouse – any more than would the New York Times!
It is not only European producers who are suffering as a result of austerity measures being imposed everywhere. Ambrose Evans-Pritchard for instance informs us that “The OECD’s index of leading indicators for China, India, Brazil, Canada, Britain and the eurozone have all tipped below the warning line of 100, with the pace of the decline in Europe exceeding the onset of the Great Contraction in early 2008.” (Op cit)
Yet still austerity remains the prescribed medicine.
France, desperate to retain the AAA credit rating that enables it to service its debts relatively cheaply despite the fact that its banks are facing massive losses as a result of exposure to Greek and Italian bad debt, is responding by announcing a second package of cuts in four months, saving €112bn by increasing tax on big firms, raising VAT on restaurants and construction and cutting pensions, schools, health provision and welfare.
Danny Blanchflower, currently an Economics professor in the US and formerly an external member of the Bank of England’s interest rate-setting Monetary Policy Committee noted the obvious: “It is like the 1930s. Imposing austerity on countries already in recession is the way into a death spiral.” Yet what choice does France have? It would definitely lose its AAA status even sooner without the austerity measures, and in that case it would find itself bleeding increasing proportions of its diminishing resources into the hands of the usurers that are lending it the money to keep going.
Failure of austerity in the UK
The enthusiastic imposition of austerity as the answer to everything on the part of the British government has fallen flat on its face, with the Chancellor of the Exchequer having to admit that public finances have not improved in spite of all the hardship that austerity has visited on the British working class. Liam Halligan elaborated on this recently:
“Government spending in August was 7.2 percent higher than in the same month in 2010. During the 12 months to August, public expenditure outstripped that of the year before, even after inflation.
“The UK borrowed around £150bn in both 2009/10 and 2010/11 and will borrow £125bn in this fiscal year. These figures are six to eight times average annual borrowing totals during the previous decade.
“The entire fiscal debate is couched in terms of ‘paying down the deficit’. But, again, this doesn’t convey reality. The deficit is merely the nation’s annual credit card bill. The real issue is the UK’s mortgage – the national debt. Net public debt, £581bn as recently as 2008/09, is set to reach £940bn by the end of 2011/12, a 62 percent nominal rise in 36 months.
“Every year, of course, while the annual deficit falls, the national debt still spirals up. By 2015/16, even with the ‘austerity plan’, net debt will be £1,500bn says the Treasury – all of which will need servicing by continued interest payments – like any mortgage.
“Back in 2009, the UK spent £31bn – around 6 percent of total tax receipts – on debt interest. That’s money down the drain. By 2015, debt services costs, according to the 2011 budget document, will be £67bn a year – 10 percent of the tax take. These shocking numbers are also underestimates, given assumptions of future ‘government savings’ and, most crucially, benign gilt rates.
“Include the cost of ‘financial interventions’, in other words, bank bail-outs, and public-sector net debt is already £2,266bn, according to the Treasury fine print.” (‘Talking up austerity will never bring down the UK’s debt, Mr Osborne’, Telegraph, 9 October 2011)
The UK’s debt problem won’t go away despite austerity because austerity is strangling the British economy. Austerity is further aggravating the crisis, which means that profits are declining, unemployment is increasing and wages are sinking – all of which lead to a massive reduction in tax revenues. The government may be spending less because of its austerity programme, but it is also taking in less because of its austerity programme – demonstrating the sheer futility of austerity in the face of a crisis of overproduction.
In fact, austerity is causing public debt to escalate rather than reducing it.
Why the crisis of overproduction presents as a debt crisis
Debt starts to mount up as soon as governments and individuals start to mortgage their future incomes in order to pay for current consumption. This is of course fine, so long as the expected future income is forthcoming and the borrower does not borrow more than can affordably be repaid. However, when a crisis of overproduction intervenes, not only do workers find their incomes severely reduced, but governments do too.
As profits and incomes fall, tax income also plummets, while the interest on loans escalates as borrowers become more of a credit risk. The rise in interest rates itself makes default more probable, and before long the system is witness to default after default, bankruptcy after bankruptcy, every one of them exacerbating the crisis of overproduction.
Government debts have risen spectacularly in recent years as the bourgeoisies of various countries have tried to intervene to prevent the worsening of the crisis of overproduction. After all, every one of the prestigious bourgeois schools of economics throughout the world, with all the most venerated professorial geniuses, had proved beyond any shadow of a doubt that Marx had got it wrong – that crisis was not inevitable, but was merely the result of mismanagement. From Keynes on, it was received wisdom that, with government intervention, capitalist crisis could be averted.
Therefore, governments were mobilised to employ people directly as well as to institute public works with a view to keeping the economy constantly ‘stimulated’ – ie, to inject purchasing power into an otherwise flagging economy.
Then, shortly after the subprime crisis broke out, the various imperialist governments agreed among themselves that disaster would be averted provided concerted action were taken by all of them to spend their way out of crisis. Gordon Brown, a brilliant student of modern bourgeois economics and a devotee of its illustrious professoriat, was hailed as the saviour of humanity for championing this cause of universal stimulus and convincing the G20 of the need to implement it.
This brought about a massive leap in the public debt of the various countries concerned and staved off some of the worse effects of the crisis for several months – but Marx had the last laugh when, within a year, the crisis crashed through the barrier of universal stimulus – with all the more force for having been temporarily contained.
Public debt also grew exponentially as a result of governments needing to rescue their bankrupt banks. In times of overproduction crisis, banks find themselves unable to collect money owed to them both by customers who have lost their jobs and/or suffered a fall in income and by the increasing number of businesses that cease to be profitable and collapse.
In the current crisis, this general phenomenon has been aggravated by the fact that for years capitalism was artificially boosting demand for its products by encouraging lending on a massive scale to people who lacked the means to repay even at the time of lending – the subprime mortgagors. Respectable banks were attracted into this business by the rates of interest that could be ‘earned’, and a whole industry grew up round packaging this toxic debt in such a way that even the most cautious lenders could be persuaded that it was a safe loan.
Be that as it may, banks all of a sudden found themselves holding such high levels of bad debt that they themselves became uncreditworthy, making it impossible to carry on providing their banking services. These were the circumstances in which the investment banks Lehmann Brothers and Bear Stearns bit the dust.
However, the catastrophic effect of these failures on the capitalist class and its ability to continue the process of economic production was such that bourgeois governments were terrorised into riding to the rescue of most of the remaining bankrupt banks with billions of pounds to ensure that they could continue in business. The fact is that if banks fail, a fatal blow is dealt to the whole capitalist system of production, since capital needs to circulate uninterruptedly in and out of the ‘money’ form that it takes when deposited in banks.
The bank is like a heart pumping blood through the body, except that what it pumps is ‘liquidity’ to the economy. If the heart stops, death ensues. When a bank fails, it takes with it all the capitalists whose funds are transiting through it at the time, causing abrupt and incalculable disruption to the economic activity of the country.
This is why governments have paid up billions of pounds to save the banks on behalf of the entire capitalist class – but now find that they are facing unpayable debts themselves because, notwithstanding the bank rescue, the economy is still not generating enough wealth to enable government debts to be serviced as per contract. This is how a banking crisis turns into a crisis of sovereign debt.
The sovereign debt crisis in the eurozone
Because of the crisis of overproduction, it has become increasingly likely that country after country is sooner or later going to find itself unable to pay its debts. This is because its domestic producers are not generating the profits that are needed to service each country’s loans – precisely because so much purchasing power has gone out of the economy worldwide. The countries in the eurozone that went down first were those which were least ‘efficient’, ie, those whose production costs were highest, making them the least able to compete in a shrinking market.
The reason for high production costs is mainly relative technological backwardness, although the blame is always directed at any benefits the workers might receive, such as decent pensions, holidays or wages. Other factors may also play a part – Greece is said to have been weakened by tax evasion and Spain by the bursting of the property bubble. Countries such as Greece, Spain and Portugal, which are all heavily dependent on tourism, almost certainly also lose out as austerity forces families in other countries to abandon the idea of a foreign holiday.
An added problem for countries in the eurozone is that they could not improve their competitiveness by allowing the exchange rate of their currency to slide, as they would have done in the past, because they were saddled with the euro.
As it becomes clear to those who lend to governments that there is a danger of default, these lenders naturally charge higher and higher rates of interest, which is what is meant when in the coy language of financiers it is said that the yield on government bonds is rising. This means that debt servicing costs are escalating, governments cease to be able to manage their budgets and default becomes even more likely.
And so interest rates go up still higher. Once they hit 7 percent it is generally recognised that they become unserviceable. European sovereign default began to threaten first Greece, then Ireland, then Portugal and now Italy, with Spain not far behind.
Why should it matter that a eurozone country defaults on its sovereign debt?
The main reason sovereign default is feared in the eurozone is that prominent among the creditors that will lose out are the banks of other eurozone countries.
The German or Finnish electorate are indignant about being asked to bail out Greece or Portugal, whose people are portrayed to them as profligates living in idleness and plenty on the backs of industrious and thrifty northern workers. Their prejudices, while being encouraged for the purpose of spreading disunity and confusion about the root cause of and real answer to the crisis, have nevertheless had to be swept aside by their governments, who have dutifully backed proposals for bail-outs of the failing countries.
This has not been done out of concern for the wellbeing of the afflicted countries, however, but only out of concern for the fate of German and Finnish banks, which are major creditors standing to lose billions if and when these countries actually default. But, as ever, avoiding default actually involves lending still more money to countries that are already a serious credit risk, thus endangering still further the economic well-being of the lender country and exacerbating the downward spiral into collapse.
What Europe as a whole has been trying to do is to pool its resources to put together a rescue fund so overwhelmingly large that it is able to guarantee to lend European governments as much as they need to keep afloat at affordable rates of interest. In this way it hopes to ensure that outside lenders will keep lending at these affordable rates and that the fund will not too often be left holding the bankrupt baby. However, since by definition those borrowing from the rescue fund will be bad credit risks, nobody is particularly anxious to contribute to the fund in question.
The various European governments, knowing that their countries’ banks are going to suffer a severe hit if the weaker economies default, are anxious to put in place a firewall to prevent interest rates rising, yet are just as anxious not to have to contribute very much to it. To the extent that their banks are exposed to losses on bad debts, the money markets are now tending to factor in the probable need of rescuing banks when assessing each country’s creditworthiness – with the result that interest rates (bond yields) are rising even for countries whose financial difficulties have not yet become apparent.
As the Financial Times put it recently: “Sometimes a number tells the story best. On Tuesday [4 October] that number seemed to be eurozone bank credit default swaps, or CDS, which show the region’s financial system is closer to breakdown than at any time in recent years.
“The iTraxx credit defaults swaps index, which measures the risk of default for eurozone banks, has leapt above levels seen around the time of the collapse of Lehman Brothers in 2008. This highlights worries that many banks are struggling to fund themselves as Europe’s debt crisis deepens.” (‘CDS numbers count against banking system,’ by David Oakley and Tracy Alloway, 5 October 2011)
This inability is manifesting itself very concretely in other ways too. Because Greece is now recognised as likely to default, with a possible 50 percent ‘haircut’ being forced on its creditors, the banks of other EU countries that have lent to the various troubled countries, which now include Italy, are themselves in trouble.
“The escalating crisis threatens the rest of Europe through bank exposure. Mediobanca said Europe’s 20 biggest banks hold €186bn of Italian sovereign debt, led by Intesa SanPaolo (€64bn), Unicredit (€39bn), BNP Paribas (€12bn), Dexia (€13bn), Commerzbank (€9bn), and Crédit Agricole (€8bn).” (‘France cuts frantically as Italy nears debt spiral’ by Ambrose Evans-Pritchard, Telegraph, 9 November 2011)
Franco-Belgian bank Dexia has already had to be rescued by a Belgian nationalisation, its second taxpayer-financed bail-out in three years. Dexia has €3.4bn of Greek loans on its books, but Deutsche Bank too has €1.1bn. The loss of such massive amounts of their cash means that the banks could become unable to pay their debts either to other banks, governments or customers.
Inevitably, countries such as Germany, whose banks are exposed to the bad debt of Europe’s weaker economies, are going to feel constrained to overextend their public finances by rescuing their banks, thus themselves becoming a credit risk. The prospect of this is what is making these countries so anxious to ensure that the rescue fund firewall is put in place – to guarantee as far as possible that debts due to their banks will be paid.
The strategy, however, has been failing dismally, since there is a problem both in creating a fund that is large enough, and in obtaining the necessary consents of national parliaments to its set-up.
“The German parliament’s move to expand the eurozone bailout fund … is welcome, but the European debt crisis is no closer to resolution than it was two months ago. Even with Germany’s roughly $287bn increased contribution, the fund is still too small to provide more than a few days of calm to jittery markets …
“Even if all remaining countries, which include Austria, Slovakia and the Netherlands, vote to strengthen the bailout fund, it will still be limited to roughly $600bn, not nearly enough to quiet the crises building over Italy’s debt, France’s weakened banks and looming trouble elsewhere. Europe needs a completely different approach, like increasing the bailout fund’s lending capacity to $2tr or $3tr …” (Editorial, ‘More of the same won’t save Europe’, New York Times, 30 September 2011)
In order to increase the size of the fund, while bypassing the objections of national parliaments, the eurocrats hit on the wheeze of borrowing a further $1tr rather than raising it from national governments. If the New York Times is right, however, even if it were able successfully to borrow what it needed, the fund would still be insufficient to achieve its purpose.
The result, therefore, was predictable:
“Last week’s eurozone ‘agreement’, for all the related fanfare … made western Europe’s grotesque debt crisis even more acute, sowing further infectious spores of confusion.
“The deal itself, unveiled dramatically in the early hours of Thursday, was met with the now obligatory ‘relief rally’. The FTSE All-World equity index soared 4.1 percent, helped by signs of renewed US economic growth. European bank shares spiked no less than 12 percent on Thursday, as traders recognised, for all the official obfuscation, the latest dollop of government largesse.
“By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal [ie, ‘bond yields’ were continuing to rise to unaffordable levels]. This is alarming. For it is only by selling more bonds that the eurozone’s deeply indebted governments can roll over their enormous liabilities and keep the show on the road …
“Let’s be clear – if global bond markets stop lending to a number of large western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest.” (‘Why the latest eurozone bailout is due to fail within weeks’ by Liam Halligan, Telegraph, 30 October 2011)
The road to civil unrest – the road to revolution
It is becoming more obvious by the minute that this is the destination towards which the major western imperialist powers are all heading.
There are those who think that an imperialist power is such a fierce and powerful enemy that it is hopeless to even dream of overthrowing it. They even imagine that their ability to keep the working class of the imperialist countries behind them through their ability to offer the working masses a higher standard of living than prevails throughout the non-imperialist world will forever paralyse internal opposition to imperialism.
Let those people contemplate what is happening at present and realise that they are simply wrong and appreciate the profundity of Mao Zedong’s dictum that all reactionaries are paper tigers. These are Comrade Mao’s actual words:
“Just as there is not a single thing in the world without a dual nature (this is the law of the unity of opposites), so imperialism and all reactionaries have a dual nature – they are real tigers and paper tigers at the same time.
“In past history, before they won state power and for some time afterwards, the slave-owning class, the feudal landlord class and the bourgeoisie were vigorous, revolutionary and progressive – they were real tigers. But with the lapse of time, because their opposites – the slave class, the peasant class and the proletariat – grew in strength step by step, struggled against them more and more fiercely, these ruling classes changed step by step into the reverse, changed into reactionaries, changed into backward people, changed into paper tigers. Moreover, eventually they were overthrown, or will be overthrown, by the people.
“The reactionary, backward, decaying classes retained this dual nature even in their last life-and-death struggles against the people. On the one hand, they were real tigers; they devoured people, devoured people by the millions and tens of millions. The cause of the people’s struggle went through a period of difficulties and hardships, and along the path, there were many twists and turns.
“To destroy the rule of imperialism, feudalism and bureaucrat-capitalism in China took the Chinese people more than a hundred years and cost them tens of millions of lives before the victory in 1949. Look! Were these not living tigers, iron tigers, real tigers? Nevertheless, in the end they changed into paper tigers, dead tigers, and bean-curd tigers.
“These are historical facts. Have people not seen or heard about these facts? There have indeed been thousands and tens of thousands of them! Thousands and tens of thousands! Hence, imperialism and all reactionaries, looked at in essence, from a long-term point of view, from a strategic point of view, must be seen for what they are – paper tigers. On this, we should build our strategic thinking.
“On the other hand, they are also living tigers, iron tigers, real tigers that can devour people. On this, we should build our tactical thinking.” (Speech at the Wuchang Meeting of the Political Bureau of the Central Committee of the Communist Party of China, 1 December 1958)
There are many people who imagine that, just because imperialism has in the past been able to spread class collaborationism among the working class of the imperialist countries by bribing the leaders and making life relatively comfortable for the majority, these workers have therefore become irretrievably reactionary. But those who think this way are clearly thinking metaphysically and not dialectically.
These people should pay close attention to the above words of Mao Zedong, realise that the ability of imperialism to provide an acceptable standard of living to the masses, or even bribes to their potential leaders, is being swiftly undermined by the crisis, correct their crooked thinking and emerge from the paralysis and hopelessness that their erroneous thinking has imposed on them.
What they need to be doing is not wallowing in hopelessness but helping to prepare the working class for the hard but world-historic struggle ahead to overthrow imperialism and establish socialism.
Contradictory struggle to build a firewall
In the article cited above, Liam Halligan explained that the prospect of ‘haircuts’ now looms over all eurozone sovereign bondholders, many of whom are European banks whose finances are already shaky. Yet it now seems that the proposed European Financial Stability Facility, the rescue fund, is itself to be ‘levered’, ie, it is going to be borrowing in order to lend. Apparently this would enable money to be raised without having to obtain the consent of the various national parliaments.
When the various European governments cobbled together these latest proposals for their rescue fund, however, it was only with the greatest difficulty that consensus could be reached, and in the circumstances “The question of who will lend to the EFSF, on whose collateral, and who will ultimately repay the loans, was barely addressed.” Little wonder, then, that the new super-rescue fund failed to inspire confidence!
The result is that “‘euroquake’ fears, once viewed as outlandish, are gaining pace. Despite Thursday’s deal, and all the reassurances of a ‘durable solution’, the Italian government on Friday paid 6.06 percent for 10-year money, up from just 5.86 percent a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone’s third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.” (Liam Halligan, op cit)
In the event, the EFSF, which was supposed to borrow a trillion euros in order to act as ‘first loss’ insurer of Spanish and Italian bonds, suffered a failed auction, notwithstanding the high interest rates already being demanded. It attempted to borrow just €5bn by issuing bonds, but the issue had to be cut down to €3bn owing to lack of demand. As Ambrose Evans Pritchard commented: “The market has already cast its verdict on plans to leverage the EFSF (version III) to €1 trillion … seeing at once that the scheme concentrates risks in lethal fashion for creditor states, dooms France’s AAA rating, and is likely to contaminate the core very fast.” (‘Europe’s rescue fiasco leaves Italy defenceless’, Telegraph, 7 November 2011)
The failure to set up a credible rescue fund “has caused remaining international confidence in the euro to evaporate, and even German bunds to lose their ‘risk free’ status. The crisis is no longer confined to the sinners of the south. Suddenly, no-one wants to hold euro denominated assets of any variety, and that includes what had previously been thought the eurozone safe haven of German bunds.” On 25 November, Germany suffered the humiliation of seeing its bond yields rise above those of the UK. (Jeremy Warner, op cit)
Given the failure of the EFSF strategy, pressure is now mounting on the European Central Bank to step in to guarantee the debts of the eurozone. However, the funds of the European Central Bank are provided by eurozone members, with the largest share coming from Germany. And Germany has made it quite clear that it will say Nein to any proposal that ECB funds should be put at risk because when the debtors default, as they surely will, it is Germany that stands to lose the most.
Reflection of the crisis on the political front
When caught up in the technicalities of financial manipulation it is easy to lose sight of the one most important fact: “It is at the sharp end of employment and livelihoods, dispossessed homes and broken families that the human impact of financial turbulence is most keenly felt.” (Liam Halligan, op cit)
With the crisis having such life-or-death consequences for the masses of ordinary people, the bourgeoisie is faced with the prospect of workers’ resistance to their sharply deteriorating living standards, a resistance that has already emerged in the form of the Arab spring, and in nascent resistance movements in various imperialist countries as well. The conditions are developing in which the bourgeoisie is no longer going to find it easy to rule under the cover of bourgeois democracy, since the demand of the crisis is that highly unpopular and damaging measures be imposed on the working class and broad masses by those they have supposedly elected to represent them.
George Papandreou, until recently the elected social-democratic prime minister of Greece, tried to square the circle by offering to put proposals for further austerity to the Greek people in a referendum. He apparently thought that Greek people would see the ‘sense’ of further austerity and not only vote in favour in the referendum but also isolate the ‘trouble makers’ who are calling all the demonstrations and strikes.
Whether such calculations would have worked or not in Greece, the rest of bourgeois Europe was appalled by the precedent it would set. You simply cannot democratically ask a debtor if he would like to pay a debt he cannot afford to pay and abide by his decision! As a result, the European bourgeoisie realised that management of the debtor economy needed to be taken away from elected representatives who are dependent on maintaining a certain degree of credibility, however ill deserved, to remain in office and placed in the hands of some reliable bureaucrat.
As Ambrose Evans-Pritchard put in: “The Greeks were ordered to drop their referendum on measures that reduce their country to a sort of Manchukuo, with EU commissars ‘on the ground’, installed in each ministry, drawing up lists of state assets to be liquidated to pay foreign creditors.”(‘The great euro putsch rolls on as two democracies fall’, Telegraph, 13 November 2011)
Papandreou was therefore told to step aside in favour of a financial technocrat whose function will be to act as Greece’s Trustee in Bankruptcy, selling all he can of Greek assets in order to satisfy the bankrupt’s debts in as far as is possible, while reducing Greece and the Greek people to pauperism.
The man chosen for the task was Loukas Papademos, a graduate of the Massachussetts Institute of Technology, who was a professor at Columbia University before becoming economic adviser at Boston Federal Reserve Bank. From 1994 to 2002 he was governor of the Bank of Greece, at the time when Greece ‘qualified’ for eurozone membership largely thanks to extremely misleading accounts fabricated on its behalf by Goldman Sachs. So while the creditor vultures circling Greece squawk in outrage at the supposed faking of its economic prospects that enabled Greece to join the euro, they are inexplicably perfectly happy to have the man mainly responsible for that sleight of hand appointed to represent their interests!
It is hard to avoid the suspicion that Greece was shoehorned into the euro for the benefit of the imperialist banks, and that the same man will now shoehorn Greece out of the euro, yet again for the benefit of the imperialist banks. Mr Papademos will not turn from a poacher to a gamekeeper. He has been and always will be a gamekeeper in the pockets of the super-rich.
It is not only Greece’s social-democratic George Papandreou, however, who has been replaced by an unelected placeman. Silvio Berlusconi of Italy has suffered the same fate after a long campaign of political, financial and sex scandals aimed at having him removed.
Berlusconi, one might have thought, would be ideally suited to represent imperialist interests, being the leader of the People of Freedom political movement, a right-wing party he founded in 2009. As of 2011, Forbes magazine has ranked him as the 118th richest man in the world, and the third richest man in Italy, with a net worth of US$6.2bn. Yet he was positively driven out of office.
Ambrose Evans-Pritchard claims that it was the European Central Bank that “engineered the downfall of Silvio Berlusconi by playing the bond markets, switching purchases on and off to enforce compliance with its written dictates … and ultimately allowing 10-year yields to spike to 7.45 percent [anything more than 7 percent being considered unsustainable] to drive him out. Europe’s president Herman Van Rompuy swooped in to Rome to clinch the putsch. ‘Italy needs reforms not elections’, he said.”
In replacing Berlusconi in favour of a person considered more suited to playing the role of Italy’s Trustee in Bankruptcy, the European bourgeoisie has again decided to have resort to an unelected technocrat with a similar background to Papademos. Mario Monti is also US-educated, having graduated from Yale. He spent 10 years as a European commissioner, helping to set up the internal European market, and in 2005 became an adviser to … Goldman Sachs.
Interestingly, the head of the European Central Bank, Mario Draghi, has a similar pedigree. He graduated from MIT, was in charge of the Italian privatisation programme from 1993 to 2001, was governor of the Bank of Italy in 2006, and from 2002-06 he was vice president of … Goldman Sachs. And that sulphurous US investment bank was heavily implicated in the creation and marketing of the very financial instruments through which US subprime debt was repackaged as top-rated loans and spread to financial institutions all over the world.
We can be sure that a major part of the preparations being undertaken by the government for the eventuality of the collapse of the euro, which will certainly impact horrendously on jobs, pensions, welfare benefits, schools and hospitals in this country, will be readying the repressive organs of the state – the police, the army, the judiciary, the prison service – for a cruel and decisive response in the face of public resistance that is sure to come.
The possibility that the British ruling class too will conclude that what Britain needs is reforms not elections is very real. With or without elections, we can be sure that ‘reform’ – for the worse – is coming.
The working class too must make its preparations. Capitalism has proved its lethal nature. The only thing that enables the minority class of the filthy rich to continue to rule is lack of understanding among those that it rules of certain basics – in particular the fact that a socialist planned economy is the only possible alternative to capitalism; and that to install such an economic system requires the overthrow of the bourgeois state, which exists only to defend capitalism.
With a socialist understanding and socialist organisation, the victory of the proletariat over capitalism is assured.
