A Crucial Summer


The next three months will determine the political and economic shape of not just the Eurozone but that of the capitalist system for the next period writes Fred Leplat. The political and economic crises are combining and developing in a dangerous direction and out of the control of the ruling class. Four years of austerity measures imposed following the shock of the crisis of the 2008 have failed to restore growth. The road for the Eurozone out of recession is now longer and harder than that of the big depression of 1930s. Popular support for austerity measures is now ebbing, and continued mass resistance in Greece is a major obstacle for the EU establishment. The election of Hollande as President in France has broken the Merkel-Sarkozy axis of harsh austerity.

Major economic powers such as the USA and Japan now show moderate growth of at least 2%, and China of 8%. But the continuing recession in some of the EU countries, including major ones such as Spain and Italy (with the 12th and 8th GDP in the world) threatens the future of the Eurozone, the largest economic unit in the world, ahead of the USA and China. A break-up of the euro threatens the stability of capitalism which explains the recent volatility of the stock exchange. This also explains the appearance of alternatives, albeit within the capitalist framework, to the Merkel-Sarkozy-Cameron axis of harsh austerity. But the alternative of Hollande-Obama of growth through investment leaves unresolved the debt crisis affecting Greece, Spain and other countries on the periphery of the EU.

The continuing inability to resolve the economic crisis after four years exposes the ruling class as being incapable to influence the course of events. The ruling class is no longer able to unite behind a plan to resolve the economic crisis in its own interest. Hence we see the divisions erupting at recent inter-governmental summits. The declaration adopted at the G8 summit in the middle of May attempted to combine both strategies of growth and jobs as well as austerity and “fiscal responsibility”. At the summit, Germany opposed further bail-outs, while Hollande wanted to collectivise the debt with Euro-bonds. Both want to save the euro, but for different reasons. Merkel wants to keep a euro which is under-valued in relation to its economy to subsidise its exports. France wants to protect its banks which are extremely exposed to the Greek debts.

The major capitalist economies want to prevent a contagion of Greece to Spain and elsewhere, but cannot agree on how to do it. But they all agree that the system has to be rescued by making ordinary people pay for the cost of the crisis. One solution, now being rolled out in Britain, Italy, Greece, Spain and elsewhere, is for harsh austerity of privatisation and cuts in earnings and services in the hope of restoring profitability and hence growth. The alternative argued by Hollande and others is collectivising the debts by spreading the pain across the entire population of the Eurozone through Euro-bonds, and of major state investment to re-launch growth.

The divisions continued at the EU summit a few days later. Opposition to Eurobonds and further bail-out of Greece was maintained by Germany, Britain opposed the financial transaction tax proposed by Hollande, who in turn would support the Fiscal Compact if a commitment to investment and growth were added. The Fiscal Compact, a treaty signed by all but two of the EU countries, would require national budgets to be in balance or in surplus and would allow the European Court of Justice to fine a country up to 0.1 % of GDP if this was not done.

No agreement can be made on how to start to get out of the economic crisis until after the elections in France and in particular Greece on the 17th June. Meanwhile, the political divisions and paralysis of the ruling class are in turn exacerbating the economic uncertainty and crisis.

Next in line with possible collapse is Spain, the fourth largest economy in the Eurozone. The recent crisis at the new Banxia bank exposes the failures of the austerity measures. Created barely 2 years ago to consolidate failing regional saving banks. In the middle of May, it received a 4.5 billion euro bail-out and the de Guido, the Finance Minister, tried to reassure the country that the entire banking sector would only need 15 billion euro to cope with new provisions. Banxia was then nationalised at the end of May with a 19 billion euro bail-out, the largest bank bail-out in the nation’s history, and it is now estimated that the spanish banks would need 100 billion euros for recapitalisation. Four years after the start of crisis, the scale and extent of the debts of the banks is still not known. With unemployment at over 20% and youth unemployment at 50%, continuing strikes and mobilisations against austerity, and 78% support for the Indignados in opinion polls, mass resistance is a serious threat to the recently elected right-wing government of Mariano Rajoy Brey from the People’s Party.

But Britain is also in a precarious position. The British economy is going nowhere. When elected, the Tories had predicted growth of 2.8% in 2012 but it is now 0.5%, and the economy is now officially in recession having seen negative growth for two consecutive quarters. Business confidence reflected in falling orders is declining and personal spending is taking a plunge. With over 40% of exports to the Eurozone, a break-up of the euro threatens an even deeper recession. Even the OECD recently warned Osborne that the strict austerity of the recent period is threatening recovery and growth. The recent budget with pensioners made to pay for the reduced higher rate of tax on the rich and the failure of austerity has seriously dented the Tories support in polls. People no longer blame the previous Labour government for the crisis, the Tory lead over Labour on confidence in running the economy is down to 4% compared to 21% last year, and the personal rating of Cameron is level with Miliband. There is no end in sight to the recession, and the promise that we are just turning the corner is no longer credible. The chairman of RBS admitted at the end of May that it could take generations for the bailed-out bank to return to its pre-crisis value and that shareholders had no hope of recouping their losses any time soon!

A similar story of the failure of austerity is being repeated across all the countries affected by the crisis, including Italy, the fourth largest economy in the EU. With a growing realisation that austerity is a one-way ticket to poverty, a political crisis is brewing across Europe. In France, the anti-austerity Front de Gauche gained 11% of the vote, the highest for a party to the left of the Socialist Party for more than 30 years. In Greece, Siriza could be the largest party in the Greek elections on the 17th May which would deepen the political crisis as it calls for the nationalisation of the banks and a moratorium on paying the debt.

Preparations for a possible victory of anti-austerity parties of the left are already being made with an unprecedented witch-hunt against Syriza and the people of Greece. Greek corporations are threatening the sabotage of the economy with the closure of their company and the flight of their capital to “safe-havens”. The head of the IMF, Christine Lagarde, tells she has no sympathy with the impoverishment of the people of Greece as children of sub-Sahara Niger are even poorer. She adds that the children of Greece are now paying for the failure of their parents to pay taxes, when she herself does not pay taxes on her earnings of over £300,000. Plans for the expulsion of Greece from the euro are being drafted including by Merkel who suggests the repeating the East-German integration with privatisation, looser employment law and lower taxes.

The depth and length of the crisis is such that support for austerity is fading. The argument that we should not pay for a crisis for which we are not responsible is now more widely accepted. The usual remedies to prop up capitalism offered by traditional parties of the left and right lack credibility. The elections of anti-austerity parties like Syriza open the road for mass resistance against the system. Demands that appeared to be mildly reformist in the boom years after the war, such as nationalisation of the banks and programmes of public works, today take on an anti-capitalist dynamic. The need for the ruling class to apply austerity measures at all cost is leading to the erosion of the limited bourgeois parliamentary democracy with the imposition of un-elected “technocratic” governments or adoptions of treaties which circumvent national parliaments. The two key issues facing all of us is the resistance against austerity and the defence of democracy. With Greece in the front-line against austerity and the attempts to prevent its “contagion” to the rest of Europe, we have step up solidarity to prevent the isolation of a Syriza government and help create two, three many “Greeces”. If the people of Greece are defeated in their resistance against austerity, capitalism will eventually be able to get out of the crisis by imposing a new harsh soci0-economic model based on low wages, flexible working, and minimal public services.

Fred Leplat

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