The latest “decisive” EU
summit-to-end-all-EU-summits-and-fix-the-Eurozone-crisis-once-and-for-all
has signally failed to do so – just like all the previous “decisive”
and “final” summits. As in previous meetings, within days the results
were declared completely unsatisfactory by the markets. These gatherings
of EU heads of state are now a thoroughly debased currency. Nothing has
changed except that the national contradictions are sharper and more
insoluble than previously thought.
The latest “decisive” EU
summit-to-end-all-EU-summits-and-fix-the-Eurozone-crisis-once-and-for-all
has signally failed to do so – just like all the previous “decisive”
and “final” summits. As in previous meetings, within days the results
were declared completely unsatisfactory by the markets. These gatherings
of EU heads of state are now a thoroughly debased currency. Nothing has
changed except that the national contradictions are sharper and more
insoluble than previously thought.
almost two years, the EU has failed to solve the Greek crisis.
Everybody now accepts what we have argued from the very beginning:
Greece cannot pay back its debts. The austerity measures that were
forced on the people of Greece have had the opposite effect: pushing the
economy into a deep slump with falling living standards, a collapse of
demand, high unemployment, lower tax revenues and therefore more debt.
Everybody now accepts that sooner or later Greece will default and be
forced to leave the Eurozone. This will have very serious repercussions
for the whole of Europe.
The crisis in Greece caused serious problems, but it is dwarfed by
other issues. Spain and Italy need to raise around €1 trillion in the
bond markets over the next 3-4 years to repay debt and interest
previously accumulated. This will lead to a further deterioration of
their public finances to absolutely unsustainable levels. Italy is
currently paying 7.17% interest on 10 years bonds, an intolerable
figure. Italy’s debts alone amount to €1.9 trillion. This is of a scale
sufficient to wreck the whole eurozone.
The basis of the present crisis is immediately obvious. It is simply a
question of who, if anyone, will pay for the staggeringly large debts
that have accumulated in Europe. If the money is not found very soon the
entire eurozone and even the EU could disintegrate rapidly amid mutual
recriminations and protectionism.
The debt crisis is merely the outward expression of the underlying
problem that is the contradiction between the colossal potential of the
productive forces and the narrow limits of private ownership and the
nation state. Capitalism must of necessity produce a crisis of
overproduction. That is, a crisis in which the potential production in
the economy becomes too much for the market to absorb due to the
colossal potential of the productive forces.
The profits of the capitalists are ultimately derived from the unpaid
work of the workers. In the last period the share of Capital has been
enormously expanded at the expense of the working class. The resulting
restricted purchasing power of wages is an objective barrier to the
expansion of capitalist production. For a time this barrier can be
overcome through a massive expansion of credit, as we saw in the 20
years before the 2008 collapse. Now, however, the bourgeoisie must face
the consequences.
Permanent austerity
Obama and Cameron have been demanding that “something be done” to
solve the Eurozone crisis. What they mean is that Germany should agree
to indefinitely bank-roll the entire Eurozone, which it will not and can
not do. In the last few days Merkel has once again restated that she is
utterly opposed to expanding the Euro bailout fund beyond €500bn, which
is widely understood to be nowhere near enough to cover Europe’s
yawning deficits.
The German bourgeois are not prepared to underwrite the debts of
Spain and Italy. Instead they wish to place the entire burden of the
problems of European capitalism on the shoulders of the working class.
Their demand for “discipline” and “budgetary responsibility” is an
attempt to impose a regime of permanent austerity, not just on Greece
and Italy, but on every country in Europe. This is a finished recipe for
two things: a deep slump and an explosion of the class struggle.
The deal, if it is implemented, means extreme austerity by law. It
means making the working class pay for the crisis a legal requirement,
overseen by unelected bureaucrats. Martin Wolf in the Financial Times
describes the deal thus:
“general government budget deficits shall be balanced or in surplus:
this principle shall be deemed respected if, as a rule, the annual
structural deficit does not exceed 0.5 per cent of nominal gross
domestic product… Such a rule will also be introduced in member
states’ … legal systems… The rule will contain an automatic
correction mechanism that shall be triggered in the event of deviation… This
would mean that, on deeply uncertain estimates of structural deficits,
the Commission – a body of unelected bureaucrats – would impose
sanctions on elected governments, when the latter are under great
pressure. What is the Commission going to do if they still fail to
comply? Take them over? The answer, we now know, is: yes. This is a
constitutional monstrosity.” (my emphasis).
Quite how and when member states are supposed to reduce budget
deficits to within 0.5%, when they are currently running often at around
8%, and when the bond markets are charging interest rates of around 7%,
is not answered by this treaty. Moreover it doesn’t even address the
problem that Italy does not have any structural deficit, and yet is
being bled dry by the financial bloodsuckers.
Despite all their whining about speculators and ratings agencies, the
EU leaders are not prepared to expropriate the speculators. National
sovereignty, which was always something of a fiction under the
domination of a global market, is now sheer pretence, an empty facade.
More integration?
The “fiscal compact” was proposed by Germany, and the French, who are
supposed to be equal partners but in fact have now been reduced to a
subordinate role, had to support it. Merkel and Sarkozy find themselves
compelled to push for more and more economic and political integration
in Europe. To some extent, this idea has a certain logic. We pointed out
when the euro was launched that it is impossible to have a common
currency without a common taxation regime and a unified state. However,
that is impossible for Europe to achieve on a capitalist basis. On the
contrary, the push for integration under German domination and austerity
will soon turn into its opposite, leading to a breakup of the Euro and
even the EU.
On the present basis, integration does not mean a common solidarity
between European peoples whereby fiscal and credit imbalances are
written off for the common good. It means the complete domination of
Europe by Germany. Further moves in this direction will provoke
political crises in one country after another.
Germany’s economic success was based, on the one hand, on keeping
down wages in Germany and boosting productivity, on the other, by
exporting goods and services to countries such as Italy and Greece.
During the boom, German (and French) banks were happy to lend them money
to buy German goods. This is at the roots of their debt problems. The
German bourgeoisie enriched itself by selling to these countries on the
basis of credit. But now they are demanding that the debts be repaid.
But they cannot be repaid. One cannot squeeze blood from a stone.
The insoluble national contradictions will burst forth again and
again, and the petty insults between European leaders will turn into
full-blown divisions. It cannot be ruled out that when the decisive
moment comes and they have no other option, the Bundesbank might agree
to underwrite the debts of Italy and Spain in order to prevent the
collapse of the euro. The problem is Germany cannot afford to fully bail
out Spain, let alone Italy and France, which is already under threat
from the bond markets.
National contradictions
The German bourgeois are digging their feet in. According to the Guardian:
“Jens Weidmann, Germany’s central bank chief, threatened to boycott
the move [to boost the IMF bailout fund for the Euro] unless
non-eurozone IMF contributors, such as the US and Britain, also provided
additional loans.”
The latest is that Cameron has said no to this.
Just as the protectionist and nationalist pressures increase, we are
witnessing the beginning of an inexorable slide towards European
disintegration and protectionism. During a boom, all the national and
class contradictions can to some extent be hidden. During a crisis, all
the contradictions that were masked but built up during the boom
reassert themselves, and this is a very big crisis.
The collapse of the Eurozone would immediately call into question the
future of the European Union itself, would push both Europe and the
world economy into to a colossal depression, as the head of the
International Monetary Fund has warned. The growing euro crisis and the
diplomatic rift between Britain and France prompted Christine Lagarde to
issue her strongest warning yet about the health of the global economy.
She warned that unless something was done, the world economy faced
“retraction, rising protectionism, isolation”. She added: “This is
exactly the description of what happened in the 1930s, and what followed
is not something we are looking forward to.” The IMF managing director
fears that Europe’s slide into a deep recession will have serious
implications for the rest of the global economy. “The world economic
outlook at the moment is not particularly rosy. It is quite gloomy,” she
said, in the understatement of the year.
Ms Lagarde’s fears are well founded. The contradictions are growing
all the time. There has been a sharp escalation in the trade battle
between China and the United States, which casts a long shadow over the
future of globalization and world trade. This is the most worrying
aspect of the present situation from a bourgeois point of view. We must
remember that it was precisely protectionism, trade wars and competitive
devaluations that turned the 1929 Crash into the Great Depression of
the 1930s.
Britain’s “splendid isolation”
These EU “summits” resemble a circus, and every circus must have its
clown. This necessary function is admirably fulfilled by the
Conservative British premier David Cameron.
Britain has under a viciously right wing Conservative government been
swallowing similar medicine to that prescribed by Merkel and Sarkozy in
the new treaty. The only difference is that it is self-proscribed. Our
“home grown” austerity has led to further economic decline, falling
living standards and unemployment of 2.6 million. The government
recently announced big falls in consumer spending, a huge rise in
unemployment and the fastest rising inequality in Europe.
With such a record to be proud of, David Cameron felt emboldened to
challenge the whole of Europe. Why should we British accept the
indignity of allowing a bunch of foreigners to force us to cut the
living standards of the working class, when we are perfectly capable of
doing it ourselves? And so we had the farce of Cameron courageously
“vetoing” the treaty. Except that nobody paid the slightest attention to
this “veto”.
Cameron was addressing himself, not to the leaders of the EU but to
his own Tory Party, where anti-European (not to say anti-foreigner)
ideas have always predominated. He did not go to Brussels with the idea
of objecting to the unacceptable austerity measures – evidently our
friend in Downing Street has no problem with that.
Nor was he there to defend “British national interests.” No, he
applied the veto to protect his friends in the City of London. Merkel
proposed a tax on financial transactions. Our David wanted to save the
wealthy bankers from having to cough up what amounts to a tiny fraction
of what they have taken from society. To speak of Cameron defending
British interests here is laughable. One cannot even speak of defending
British banks, since half the banking assets are foreign owned, most of
them American!
Cameron’s decision to veto the treaty last week caused fury among the
other EU leaders. It puts a big question mark over Britain’s membership
of the EU. British capitalism cannot afford to leave the EU, with which
the majority of its trade is tied up. So, in this act we see all the
narrow, short-sighted stupidity of the British ruling class. This little
incident shows just how far British capitalism has degenerated. The
former workshop of the world has lost its industrial base and is
completely dependent on the parasitical finance sector. Internationally,
it carries very little weight.
The Europeans see Britain as little more than a pathetic satellite of
the USA. However, despite all the petty insults flying back and forth
between London, Berlin and Paris, Merkel clearly does not want Britain
to leave the EU. She perceives that such a development would massively
accelerate the disintegration of the whole EU. And, for the time being,
she will endeavour to tie the EU together with safety pins.
Unfortunately for her, the unending economic shocks will constantly push
the EU nations apart.
The crisis of the EU has led immediately to a political crisis in
Britain. There is now an open split between the anti-EU Tories and the
pro-EU Liberal Democrats. Nick Clegg, the Lib-Dem leader pointedly
stayed away from the House of Commons in the debate on Cameron’s
European escapade. Leading Lib-Dems have been vocal in their criticism
of Cameron. Tory MPs have been even more vitriolic in their attacks on
the Lib-Dems, one of them describing them in the Commons debate as
“lickspittles” of Europe. The rift in the Coalition will get even wider
with time. This government may not even last till the scheduled next general
election date.
No future under capitalism
The political and economic commentators are constantly talking about
the problem as though there is some hidden, magic solution to the woes,
and they are exasperated and perplexed that no one seems to have found
it. In reality, there is no real way out of this crisis. It is possible
that in a desperate last ditch attempt to save the Euro, the European
Central Bank will start printing a lot of Euros, as Britain and the US
have done with their respective currencies - the recent treaty opens
the door ever so slightly for that. They may resort to these measures in
an attempt to ease the pressure on government bonds and “resolve” the
debt crisis. But this would be a desperate measure, pregnant with the
most serious consequences.
This option would be the equivalent to a man taking heroin. The
initial effect appears to make the problems disappear, but then it is
realised that not only do the problems come back even worse, but the
drug introduces new problems. Unrestricted monetary expansion will
eventually lead to high inflation or even hyper-inflation. This would
end in an even deeper economic slump that could wreck the whole of
Europe.
Already countries such as Italy and Spain are facing a strike of
capital as the banks rush to shed their massive exposure to what are in
effect insolvent nations. In general banks are ceasing to lend to the
European private sector as the big bourgeoisie understands that no
investment is safe in these times. So generalised has this crisis become
that Standard & Poors has threatened to downgrade all eurozone
countries’ credit ratings, which would only be a belated recognition of
the way the big banks have been treating the region for some time, and
with good reason. France, whom no-one is talking about, is likely to be
downgraded in a matter of days and even Germany felt the pinch when it
recently failed to sell more than 50% of the bonds it put up for sale.
With nothing but endless austerity in sight the whole Euro and EU
project could very quickly unravel under the white heat of the class
struggle. The European leaders are playing a dangerous game. Greece is
likely to be forced to leave the Euro and the EU. The Irish government
is openly toying with the idea of a referendum on this treaty, which the
finance minister Michael Noonan has admitted would be a referendum on
whether to stay in the Euro. After the row with Britain, the
Presidential candidate of the French Socialist Party has warned that he
will renegotiate the present treaty. That is just the start.
The serious bourgeois commentators are worried:
“The most plausible outcome of the orgy of fiscal austerity:
long-term structural recessions in vulnerable countries. To put it
bluntly, the single currency will come to stand for wage falls, debt
deflation and prolonged economic slumps. Can this stand, however big the
costs of a break-up?” (Martin Wolf).
It is clear to everyone that unending austerity is not only a crime
against the poor, but also makes the economic crisis worse, not better.
Greece shows the future of Europe. It has taken the austerity medicine
proscribed in the corridors of power and the only consequence has been
economic depression, an entirely predictable collapse in the market and a
resulting fall in government tax revenues, making the debt even harder
to pay.
Faced with the collapse of capitalism humanity has only two choices.
Either to resolve the crisis by cancelling the debt, which means
expropriating the banks and big business in general, or instead to
pursue a beggar-thy-neighbour policy in which each national bourgeoisie
attempts to unload all the system’s contradictions onto the others.
Naturally, we can expect the European bosses to choose the latter.
There is no future for the people of Europe under capitalism. This is
being hammered home as Europe stumbles from one phase of the crisis to
another. We say: No to austerity! Why should millions of people spend
decades as slaves paying interest to finance capital? Cancel the debts,
nationalise the banks and finance house together with their assets along with the rest of big
business, and put it all under the democratic control of the European
working class!
