Last week Angela Merkel was warning
that peace in Europe could be endangered if an agreement was not
reached at the EU summit on how to manage the crisis that has engulfed
the euro and the whole of the EU economy. Speaking to the German
parliament she said, “No one should think that a further half century of
peace and prosperity is assured. It isn’t. And that’s why I say if the
euro fails, Europe will fail, and that mustn’t happen." Some of the more
serious strategists of capital have even raised the prospect that the
euro could break up. The 27 EU leaders on Wednesday night, however,
finally produced a three part deal.
Last week Angela Merkel was warning
that peace in Europe could be endangered if an agreement was not
reached at the EU summit on how to manage the crisis that has engulfed
the euro and the whole of the EU economy. Speaking to the German
parliament she said, “No one should think that a further half century of
peace and prosperity is assured. It isn’t. And that’s why I say if the
euro fails, Europe will fail, and that mustn’t happen." Some of the more
serious strategists of capital have even raised the prospect that the
euro could break up. The 27 EU leaders on Wednesday night, however,
finally produced a three part deal.
The banks exposed to Greek debt will have to accept a write off 50%
of what is owed to them. A sum of 30bn euro will be used as a
“sweetener” to get the banks to accept this “voluntarily”, which in
effect means an additional 30bn euro of taxpayers’ money being given to
the banks. This measure, the so-called “haircut”, is aimed at
alleviating the pressure on Greece. As things stood Greek debt was
expected to reach over 180% of GDP. At the moment it stands at just over
160%. With the deal reached last night the aim is to get Greek’s debt
down to 120% of GDP by 2020.
That means cutting the overall debt by 40 percentage points of GDP in
the eight year period 2012-20, around 8% per year. If one takes into
account that Greece’s annual interest payments on its debt presently
stands at 7.2 percent of GDP, and expected to fall to 5.2 percent by
2020 – if all goes according to plan of course – one can see that even
with this “rescue” package Greek governments for the next decade will
have to apply severe austerity measures. The plan includes a demand that
Greece raises an additional 15bn euro from privatisations on top of the
50bn euro worth of privatisations it has already agreed to, though
everyone agrees that this is not feasible.
The second part of the deal involves raising the so-called
“firepower” of the European Financial Stability Facility (EFSF). The
“bailout fund” is to be raised from the 440bn Euros decided earlier this
year to one1trillion Euros. This is not actual real money that the
governments are having to pay out immediately.
What the European leaders have done is set up a fund based on
‘special purpose investment vehicles’ (SPVs). What this means is that
bonds will be issued with the EFSF as guarantor. The idea is that these
bonds will be trusted as they have the EFSF behind them, and thus
countries with lots of money like China or oil-rich countries can be
attracted to invest in them. The SPVs having accumulated such funds will
then in turn buy the bonds of countries like Spain or Italy, which
would otherwise find it difficult to get buyers. Basically investors who
no longer trust Italian or Spanish bonds can buy European bonds –
presumably because Germany is seen to be at the heart of the EFSF – and
then their money will be used to buy the junk bonds of Italy and Spain.
The EFSF is also taking on the role of insurer, partially guaranteeing
anyone who buys these junk bonds directly. A lot of speculators are
going to make a nice packet out of all this, as they know they all be
protected from the damaging effects of any potential default in Italy or
Spain.
Thus, although the European leaders have presented their “deal” as
what is required to calm the markets and stop the whole of the eurozone
and the EU from being dragged down by the domino effect, with one
country after another being hit, in reality they have solved nothing.
They have merely bought a little time. Whether that will be a few weeks
or days we will see. The time they have bought is for one purpose only:
to put in place severe austerity measures in Italy, Spain, Portugal,
Greece and other EU countries.
The third part of the deal is bank recapitalization. By June 2012 the
European banks must raise106bn Euros in new capital. This is a
precautionary measure to protect them against possible government
defaults and also to defend the Italian and Spanish economies from an
onslaught by the speculators. The banks are supposed to raise this money
from the market, but if they cannot, the governments will have to step
in, further increasing government debt.
Once this package was announced stock markets rose around the world and the euro gained on the money markets.
What has actually been achieved
But what has actually been achieved? And is it enough to avoid
another serious crisis soon? It is very clear that the European
bourgeoisie is not thinking in the long term. The reason for that is
that do not have a long term solution. The package they have come up
with amounts to simply taking a few short steps back from the precipice
and buying a little extra time.
In the short term countries like Spain and Italy will have some
respite. However, in the long run – which is not too far in the future –
these countries will inevitably end up like Greece and will also be at
risk of default. Once that happens, i.e. once Italy and Spain can no
longer service their debts, the burden will fall on those who provided
the insurance, i.e. countries like Germany and France and a few others.
That will mean increasing the debt of these countries.
The fact that the banks have had to accept a 50% “haircut” on Greek
debt means that in reality they have been forced to accept a de facto
partial default of Greece. Technically it is not a default, it is not
Greece unilaterally declaring it can’t or won’t pay, but in practice
that is what it is. The banks have had to accept that they won’t see
much of their loans to Greece and it is better to try and get back half
than nothing at all.
This, together with the recapitalization they will have to undergo,
is going to put immense pressure on European banks, particularly the
French and German. Thus a bigger and more severe banking crisis is being
prepared for the not too distant future. This will mean a credit
squeeze on borrowers, which will further push the economy into
recession.
Again, what we have here is a classic case of temporary stop-gap
measures that avoid immediate crisis, but simply pile up even bigger
contradictions for the future, preparing a much deeper crisis further
down the road. This, as Marx explained, is in the very nature of
capitalism. It can get round a crisis for a period, sometimes even for
decades, only to prepare new and bigger crises.
The measures agreed by the EU leaders do not solve anything, they
merely postpone the crisis. As some of the shrewder strategists of
capital have admitted, these measures will calm the markets for a few
weeks, but once it becomes clear that the fundamental causes of the
crisis have not been removed, turmoil in the markets will erupt again.
The deal, for instance, involves Italy cutting its debt to GDP ratio,
achieving a balanced budget by 2013 and a surplus by 2014, bringing
about a reduction in overall gross government debt to 113% of GDP in
2014. Italian public debt stood at 119% of GDP in 2010, and now totals
€1.9 trillion, making it one of the biggest public debts in the world.
Interest on this level of debt in 2011 stands at 4.8 percent of GDP, or
about 77 billion Euros. Thus on top of cutting 6 percent of GDP from the
debt by 2013, the Italian government also has to find close to 5% to
cover interest. That means cutting the equivalent of more than 10% of
GDP from its overall debt, which means severe austerity measures. In
fact the Berlusconi government is being pressurized to speed up the
introduction of such measures, including the raising of the age of
retirement from 65 to 67.
All governments across Europe are under pressure to implement similar
austerity measures. The agreement is explicit about this point: “All
Member States of the euro area are fully determined to continue their
policy of fiscal consolidation and structural reforms. A particular
effort will be required of those Member States who are experiencing
tensions in sovereign debt markets” And then it goes into specific
detail about what Spain and Italy in particular should do. The conquests
and rights the working class has won for decades are now all under
threat, including basic trade union rights such as collective
bargaining. But all this is doing is cutting even further into the
market. Workers are losing their jobs, services are being cut and
borrowing is becoming more difficult. It is a never ending downward
spiral whereby cuts in public spending lead to cuts in consumption,
which lead to falling GDP rates, which means government revenues
plummet, magnifying even further the contradictions.
In the agreement reached last night, in reference to Italy we read
that the EU leaders, “…welcome Italy’s plans for growth enhancing
structural reforms.” But none of the measures proposed can lead to
economic growth. They all point in the opposite direction.
Crisis of the system
The reasons for this are not to be found in this or that policy, in
this or that country that has supposedly “lived beyond its means”, but
in the very nature of the capitalist system. Capitalism goes through
slumps and booms. For periods, sometimes relatively long periods, such
as 1948-73 it can boom on a grand scale. In such periods we are told
that capitalism has solved all its contradictions and crashes such as
took place in 1929 will never be repeated. But just as it goes through
booms, these are inevitably followed by crisis. The post-war boom ended
with the 1974 recession.
The present crisis was prepared by the way the capitalists pulled
themselves out of the crisis of the 1970s. From the 1980s onwards
capitalism as a system was on the offensive against the working class,
attacking all the gains made by the workers in the previous period.
Trade union rights came under attack, in an attempt to weaken the
workers’ ability to resist the attacks. Real wages relative to overall
national income fell. In the workplace there was increased pressure,
speed ups, a reduction in breaks, longer hours, casualisation of labour
and so on. There was wave after wave of privatizations as modern,
publicly owned companies were sold off cheaply to allow capitalists easy
quick profits. State involvement in the economy as a whole was
massively reduced.
All this cut into real purchasing power relative to the amount of
goods being produced. This was partially overcome by the later opening
up of large parts of the world economy to capitalism, with the collapse
of the eastern European bloc and the Soviet Union and the transition of
China to capitalism. It provided new markets, but also a source of cheap
labour. This allowed also a cheapening of many consumer goods, making
life more bearable for the workers.
However, underlying this whole process was an extraction of more
surplus value from the workers. This explains the growing level of
profits throughout this period. But if you have increased profits, it
means the share of real value going to the workers is going down. The
system got round this contradiction, i.e. falling real wages and the
need to sell more, by an expansion of credit on an unprecedented scale.
As a result, debt ballooned everywhere. So long as that growing
credit was providing a stimulus to the economy, everyone seemed happy.
Growing consumption, fuelled by credit, had an impact on the market.
Growing demand led to growing levels of production and increased
profits. But all this had a limit and that limit was eventually reached
in 2007-08, when the banks entered into crisis and had to be bailed out
by public money. After decades of denouncing any kind of state
intervention in the economy, suddenly the state was forced to intervene
in a massive way, providing billions to the banks.
What that meant was a transfer of private debt from the banks to the
state. And once the state was heavily indebted it handed the bill to the
working class in the form of austerity measures. Thus, what we have
seen is the very same credit – debt – that had been a key element in
providing stimulus to the economy, is now the cause of the present
crisis.
What this reveals is that the underlying contradictions of the
capitalist system, partially masked by the credit boom, have now come to
the service. It is this that is undermining the European Union. On the
back of the boom they managed to cobble together an agreement to create
the Euro. So long as the economy was booming, this also masked the huge
differences in the economies that make up the eurozone.
The most glaring contradiction is between the level of the Greek
economy and the German. The productivity of German labour is 30% higher
than in Greece. This reflects the more developed and advanced nature of
German capitalism. In Germany there has been more investment in industry
and this makes it a powerful competitor on European and world markets.
The Greek bourgeoisie on the other hand is far more dependent on the
state and on EU finance. The Greek economy is far less developed and its
industry more backward.
In such a situation, so long as the credit boom was working, and the
overall cake was growing, Greece could also benefit. Now, however, that
that cake has stopped growing, competition is more severe and the
stronger economies, in particular Germany, have been squeezing the
weaker, like Greece and Italy. Greece is now in its fourth year of
recession and Italy has hardly been growing at all. This makes it even
more difficult for these countries to finance their debts and are thus
forced to borrow even more. This situation could not continue forever
and now there is crisis.
All policies lead to ruin
The dilemma facing the bourgeoisie is that in such a scenario neither
of the two classical economic policies, Keynesianism and monetarism can
work. Historically, capitalism has swung between the two. During the
post-war period Keynesian thinking dominated. This basically meant that
the state – through deficit financing – must play a large role in the
economy, providing stimulus through public spending. The idea is that
when the state invests in major projects such as road building,
healthcare, housing, even running parts of production, etc., this
provides jobs, which creates demand, which in turn stimulates further
growth. This at least was the theory.
Eventually in the 1970s a pronged period of deficit financing led to
the accumulation of public debt led and to rising inflation. This
produced a 180 degree change in economic policy everywhere. The aim
became that of getting inflation down. Thus monetarism came back to the
fore. The idea was that because growing deficit financing had led to
inflation, the money supply had to be brought under control. This
involved raising interest rates and reducing drastically public
spending. Large scale privatization of state owned companies was part of
all this.
In the present conditions how can either of these policies produce
the desired results? The state is heavily indebted everywhere. With the
massive bank bailouts of 2008 public debt shot up everywhere. But that
debt was not the result of the state spending money on developing
infrastructure, providing jobs, etc. It was simply a huge amount of
money thrown down the bottomless pit of bank debt. Thus the debt went up
with no classical Keynesian effect in terms of stimulus to the economy.
Monetarism on the other hand would involve reducing the money supply
and pushing up interest rates. If they do that in the present
circumstances it would massively increase the cost of borrowing,
dampening lending and therefore further cutting investment. It would
also massively increase the level of the already existing stock of debt.
The fact is that they have exhausted the use of the two classical
options, Keynesianism and monetarism and now all that seems left open to
them is the printing of money. They disguise this by using such terms
as “quantitative easing”, but changing the name doesn’t change the
essence of the things. Printing money is a desperate measure, which
indicates the bourgeoisie is in a blind alley. They think that if they
throw large quantities of paper money into the economy this will
stimulate spending. But the only thing printing more money has done in
the past is to provoke higher levels of inflation. It eventually leads
to the devaluation of the currency and therefore more money is required
to buy the same products. In the long run it can lead to
hyper-inflation.
And hyper-inflation is what the German bourgeoisie fears above almost
anything else. That explains why the German bourgeois, that dominates
the EU, is using its economic weight to impose austerity on the rest of
Europe. But by forcing austerity on Europe they are merely bringing
closer a European-wide recession and making it even deeper when it
comes.
Austerity in Greece, Italy, Spain and elsewhere means cutting the
market everywhere. Paradoxically that also means cutting the markets
into which German industry exports. That explains the very sluggish
growth in Germany now. It also means making it more difficult for these
countries to grow out of their debts.
Greece has partially defaulted already. Sooner or later it will
default completely. What has happened in Greece will be repeated in
Portugal, Ireland, then Italy and Spain and several others. As each
country approaches such a critical point the vultures will strike and
aggravate the situation, pulling down one country after another. When
that happens the debts of Italy and Spain that have been insured by the
Germany and France will become unpayable and thus the debt accumulated
in the South of Europe will be transferred to the North. It will thus
become an all-European debt crisis, accompanied by severe all-European
austerity.
The measures agreed to on Wednesday at best can only put off a
serious crisis for some weeks or months, possibly into next year. What
the capitalists are doing is actually completely illogical from an
economic point of view. According to the “laws of the market” Greece
should be allowed to completely default and then be expelled from the
Euro and the EU itself.
Such a scenario would have grave consequences, however, for the rest
of Europe. It would set in a motion a chain reaction of one sovereign
default after another. It would lead to a collapse of many French and
German banks, heavily exposed to Greece, and would plunge the whole of
Europe into deep depression.
So as we see what is logical from a strictly economic point of view
cannot be applied without taking into account the wider ramifications of
such a policy. But apart from this, there are the political and social
implications. The Greek workers are being pushed to the limit of what
they can tolerate. This is provoking class struggle on a scale not seen
for years.
Moving towards revolution
Greece is being pushed towards revolution, and revolution these days
is very contagious, because the same conditions are developing
everywhere. The movement in Greece is an inspiration to workers in other
countries. And the working class has never been as strong as it is
today. In spite of all previous propaganda about the working class
having been reduced in size, the reality is that the overwhelming
majority of the population is now part of the working class in the
Marxist sense of the term, i.e. that they depend on wage labour.
In the recent period we have seen massive mobilisations of the
workers and youth across large parts of Europe. In Greece we have seen
general strike after general strike. In Ireland we saw huge
demonstrations as the crisis engulfed the country. We saw the
magnificent movement of French workers last year. In Spain the movement
of the indignados has revealed the widespread anger that had been
building up among the workers and youth. In Italy too we have seen
powerful mobilisations.
What we are witnessing is the beginning of an all-European
revolution. At present some countries are affected more than others.
This reflects how far the crisis has gone in each of these countries.
But there is no doubt that all countries are moving in the same
direction. They are all on the same road, with some further ahead and
other a little behind. In Britain we are seeing the preparation of what
will prove to be possibly the biggest trade union mobilisations this
autumn since at least the 1970s and possibly even greater.
The willingness of the workers to struggle is clear. Unfortunately,
what is also abundantly clear is the lack of fighting leadership of the
trade unions and workers’ parties. In Greece it is the social democracy,
PASOK, a party created by the workers in the 1974 revolutionary
overthrow of the hated Colonels’ regime, that is now implementing
draconian austerity measures. In Spain, the “socialdemocratic”
government of Zapatero has introduced the austerity measures, even
reaching agreements with the right-wing PP and will now pay for it with a
massive electoral defeat in the forthcoming elections. In Portugal, it
was the Socialist Party government which carried out the austerity
measures agreed to the bailout terms and was subsequently smashed at the
elections in June. In Italy the former Communist Party leaders have
fused with bourgeois formations and formed the Democratic Party. This
party is critical of Berlusconi for not being serious enough, by which
they mean he is not determined enough in carrying out austerity. In
Britain we have the Labour leadership making it clear that they have no
real alternative. The only difference they pose is that they might apply
austerity more slowly. They say that while in opposition, but it is
clear that once back in government they would continue with the same
policies as the present Conservative-Liberal coalition.
All these leaders are products of the past, when capitalism was
booming. They can see no other system but the capitalist system. If
capitalism cannot grant genuine improvements for workers then these
leaders simply accept that. They apply austerity hoping that this policy
will work and that one day everything will sort itself out. But it
won’t sort itself out. This is the most serious crisis since 1929 and
may prove to be even worse.
Limits of reformism
In these conditions the reformist Left sees the cause of the crisis
not in the fundamental contradictions of the capitalist system but in
such things as “lack of government regulation”, not enough “market
regulation”. In Britain some of them even go as far as stating that the
present government is carrying out austerity out of ideological
prejudice, conveniently ignoring the fact that in Spain and Greece it is
the social democracy that is carrying the very same austerity.
Other on the left, for example the KKE in Greece, are calling for an
exit from the euro and even from the EU itself. This ignores the fact
that inside or outside the euro, Greece owes a lot of money. A
capitalist Greece outside the European Union would face a massive slump.
Two thirds of Greece’s exports are to the EU. The truth is that inside
or outside the EU Greece would face more or less the same disastrous
economic scenario. This crisis is not due to the existence of the
European Union. It is a crisis of the capitalist system. Iceland was not
part of the EU and yet it was the first to succumb.
That does not mean that we argue in favour of the European Union. On
the contrary, we consider the EU simply a bosses’ union aimed at
bolstering the interests of the powerful European capitalists. The EU is
imposing anti-working class policies everywhere. And this body cannot
be reformed into some kind of “social Europe”. We are opposed to it, but
the answer is not so many little national capitalisms, but the unity of
the workers of Europe in the struggle for a United States of Socialist
Europe.
What we are facing is a global crisis of capitalism. That is
reflected in such movements as the #Occupy Wall Street movement that has
spread to many cities around the USA and the whole world.
What is being prepared is revolution. The Arab revolution was part of
this process. Europe came very soon after and now the United States are
being affected.
The task of the Marxists
In such conditions what are the tasks of the Marxists? In all our
material over many years we have been warning that such a crisis would
erupt sooner or later. We stood our ground when many others were
abandoning the struggle. Many former lefts have become right-wing social
democratic politicians. They saw no future for genuine socialist ideas.
But the reason why the Marxists stood their ground is because we were
armed with the scientific method of Marxism, a method which does not
stop at looking at the superficial aspects of any given situation. We
look deeper into all the underlying contradictions and see where these
will eventually lead.
The problem is that the mass of ordinary working people is not armed
with such a method and understanding. So long as the system seems to be
working, providing jobs, housing, healthcare, education, decent wages,
etc., most people will tolerate the system. Now, however, a huge shift
in consciousness is taking place among millions of workers and youth.
When the crisis erupted in 2008 we were told that it was temporary.
The banks were bailed out, public debt rose and austerity measures began
to be implemented. Now thee years later instead of seeing some
improvement, some movement towards better conditions, the crisis is
getting worse. The workers after having grudgingly succumbed to the
first wave of attacks, are beginning to understand that this is no short
term, temporary crisis that can be overcome with a small dose of
austerity. The onslaught on living conditions is inexorable and never
ending.
This is creating a gaping chasm between the needs of the workers and
the policies and thinking of the workers’ so called leaders. There is an
enormous gulf between the objective situation, which can only be
resolved through the abolition of the capitalist free market, and the
programmes of the leadership of the political and trade union
organisations of the working class. The leaders of the trade unions
across Europe are not up to the task posed. When they move, they
generally do so under pressure from below, and even then they mobilise
with the explicit aim of letting off a bit of steam, putting up a token
struggle and then getting the workers back to work. This is the case
even in Greece after last week’s 48-hour general strike.
There is another side to this, however. As the limits of the
leadership are exposed more and more, pressure will build up from below
to elect more militant leaders. This process has already begun in some
countries. In Italy this process has led to the FIOM, metal workers’
union within the CGIL confederation, taking on the role of opposition.
This will be repeated in all countries.
From the struggle to transform the unions into real fighting
organisations, the workers will eventually move to transform their
existing mass organisations. In Greece we see the pressure that is being
brought to bear on all the Left parties. The KKE leadership is under
pressure to abandon its sectarian approach to the rest of the Left. The
PASOK ranks have moved in the trade unions, pushing the PASOK trade
union leaders of the PASKE faction to break with the PASOK and there is
even talk that this layer may move towards the formation of some new
party. It is still early days, but we can see how the pressure from
below is building up.
In this situation the Marxists must know how to act. We are still a
small force, but in some countries we have established ourselves as a
serious opposition force. We must build up our forces patiently,
intervening in the mass movements and winning the most advanced layers.
This work is preparatory work for the bigger task that lies ahead, that
of intervening in the mass left currents that will inevitably rise in
the future. If we build up a sufficient base at a certain point we will
connect first with the most advanced layers of workers and youth, and
then with the wider layers.
The crisis we have entered cannot be solved by playing with the
system, by tinkering with this or that aspect of the economy. The system
must be removed and replaced with a rational planning of the economy
under the control of the working class. There is no other way. Millions
are already, in a more or less clear way, drawing the conclusion that it
is the system itself which is in crisis. This is reflected in the
opinion polls which show there is overwhelming support for the protest
movements (indignados, #occupy, etc) which have developed.
The task of the Marxists is to reach these advanced elements of the
youth and the working class which started to struggle and explain that
the struggle for socialism is the only alternative. The training and
educating of Marxist cadres rooted in the working class movement is the
necessary precondition for the building of a Marxist leadership.
Therefore we call on all our readers to join us and help us build the Marxist Tendency in all countries. Our time has come.
