The downgrading of Greece’s credit ratings by Standard & Poor’s has sent shockwaves around the world’s financial markets, with stock exchanges seeing significant falls yesterday. The fear is that Greece could default and drag the rest of the eurozone into a severe crisis, putting immense pressure on the euro. The problem the bourgeois face is the Greek working class, which is not taking this lying down.
If anyone had any illusions that the crisis that erupted back in 2008 is now behind us, that we have somehow “turned the corner”, they only need to look at Greece to see how false that is. The fact is that already back in the 1990s all the contradictions had accumulated within the capitalist system for a serious crisis to erupt. In 1997-98 there was much speculation that we were on the verge of a major crisis.
However, all we saw then was a “recession” in 2000-01, followed by further sustained growth. In some countries, like Britain for instance, there was no recession at all. Some serious bourgeois analysts have now explained that the way the system avoided a crisis back then is what has prepared the present crisis. The boom of the first decade of the new century was based on massive injections of credit. The working class was being squeezed when it came to its share of national income. A greater share of that income was going to profits and workers’ wages were being pushed down relative to the absolute amount of wealth being produced.
Such a situation in normal circumstances would have produced a crisis of overproduction. But the credit made up for the gap! The state, the private corporations and a large section of the population were building up debt on an unprecedented level. It wasn’t so long ago that banks were throwing money at people, with easy mortgages and credit cards galore. That credit was at the base of the boom. People were spending, companies were selling and making profits, and it all seemed an upwards cycle of expansion of the market.
The problem is that debt has its limits. At some point it must be paid back, or at least the interest on the debt must keep flowing into the banks. The point had to be reached where this mechanism would come unstuck and once it did, a vicious downward spiral would begin. The first signs came in 2007 with falling profit levels; then came the financial crash and one bank after another teetering on the edge of collapse. There was a sudden sharp turnaround in the situation that came as a shock to most people.
They managed to stop a total financial collapse thanks to the huge amounts of capital pumped into the banking system by the state. But that is like a heroin addict curing his addiction by taking bigger and bigger doses of heroin; it makes him feel good in the very short term, but doesn’t solve the underlying sickness.
Capitalism is now truly globalised, and just as the boom was global, now the crisis is global. However, within the chain of capitalist countries that make up the system some links are weaker than others. And what we are seeing in relation to the European Union is the chain beginning to break at one of its weakest links.
Greece also had its boom, and quite a powerful one at that, but it was based on credit, public finance, international lending, and aid from the EU, all of which meant the country was piling up a huge debt. Now that debt has come home to haunt the big powers within the EU, in particular Germany. The crisis in Greece risks undermining the euro and spreading to the rest of Europe.
Stock markets fell sharply yesterday and the euro to the dollar exchange rate fell to less than $1.32, something which had not be seen for more than a year. In Athens shares fell by 6 per cent and in Portugal by close to 5 per cent. What sparked off this fall on the stock markets was Standard & Poor’s [S&P] downgrading of Greece’s long-term credit rating to junk status. This is the first euro-zone member to suffer such a fate.
S&P have not done the politicians much of a favour by doing this, but then their job is to advise the big investors on where to invest and not invest, and it is clearly their opinion that the Greek economy is so sick that any money invested there is at high risk. What S&P are saying is that there is no guarantee that Greece will be able to climb out of the hole it had got itself into.
How jittery the markets are is shown by the fact that the “Vix index” rose by more than 30 per cent in one day. This is it biggest one-day leap since the present financial crisis broke out. The “Vix index” is defined as the measure of “fear” in the US stock markets!
What is of even greater concern is that the actual amount of further credit that Greece requires is not clear. The initial €45bn bail-out may not be enough to pull Greece back from the brink and the IMF is considering increasing its contribution. The EU’s share at the moment stands at €30bn and the IMF’s at €15bn, which could go up to €25bn. In Washington there is speculation that the overall bail-out may have to be at least €70bn.
However, the required figure could be even bigger. According to today’s Financial Times (FT), “Market participants say that figures around €90bn ($119bn, £78bn) were bandied about several weeks ago, which roughly coincides with what many economists calculate is necessary.” Greece in fact would need about €150bn to manage its debt over the next three years, and at least half that amount would have to be provided in the very short term.
Last year Greece’s budget deficit rose to 14 per cent of GDP and the overall public debt, if things continue as they have been over the past two years, is expected to reach 150 per cent of GDP. This situation is posing a huge dilemma for the major financial institutions, in particular for the European Central Bank and all the major capitalist powers within the EU. If they allowed the “market to let rip” and let Greece default, this would have a major impact on the euro, even breaking it up.
There is already speculation among some bourgeois analysts that it may be necessary to proceed to a two-tier euro, one for the weaker economies such as Greece, Portugal, possibly Ireland and a few others, and one for the stronger economies such as Germany and France. That would be the beginning of the end for the euro, with dramatic effects on the economy as a whole.
The fact is that the Greek crisis is part of the overall global crisis and because of that should it go into a downward spin there could be no end in sight and this could spread to the rest of Europe and have a major impact, therefore, on the world economy.
That explains why Jean-Claude Trichet, president of the European Central Bank, has declared that a Greek default is “out of the question”. For now debt restructuring is not regarded as an option by the top EU officials. That means they must find the resources to back up Greece. It is like being on a train where one of the carriages is about to derail. The passengers in the other carriages cannot sit idly by in the belief that it won’t affect them. They too will be pulled off the rails once it starts, but helping the other passengers will come at a price.
As the FT pointed out, the level of lending envisaged would be “contingent on Athens implementing a massive fiscal tightening equal to about 15 per cent of gross domestic product by 2015 – and that assumes the eurozone and IMF are willing to roll over their lending to Greece indefinitely at low rates.”
What this means is that the international financial institutions like the IMF, together with the EU, are only prepared to go ahead with such a bail-out if the Greek government seriously tackles debt, and that means severe cuts in public spending. That explains why the governor of Greece’s central bank is now urging the PASOK government to move “faster and more decisively” to cut public spending.
As the FT pointed out, “George Provopoulos, head of the Bank of Greece, said the government should cut the budget deficit this year by more than 5 percentage points of gross domestic product – against its current target of 4 points. ‘This would reverse current unfavourable trends and surprise markets in a positive way,’ Mr Provopoulos said as he presented the bank’s annual report.”
The PASOK government is facing a huge dilemma, however. Its leaders accepted the logic of capitalism long ago. They see no other possible alternative system and therefore must carry out the policies demanded by the capitalists. The government has already forced through three major economic packages and now it has come up with a fourth, which includes an attack on social security. It is a de facto abandonment of the right to a pension for everyone.
Prior to the present crisis, pension levels were at 70% of wages. This has already fallen to 50% now. They are introducing a system like that adopted by Pinochet in Chile in the past. There will be one guaranteed national pension for everyone of €360 per month and the workers will have to look to private pensions to top up the rest. The trade unions have calculated that all pensions will be cut by anything between 30% and 50%.
These measures are part of the conditions imposed by the IMF and EU. But as if that were not enough, the IMF has called for a cut in wages also in the private sector, as well as further cuts in pensions. They have also asked for 200,000 public sector workers to be sacked. And the government has already agreed to this. On top of this we have Merkel in Germany, for her own domestic political needs – local elections are coming up in May – demanding further stringent measures be carried out in Greece.
The problem the Greek and international bourgeoisie are facing is how to impose all this on the Greek working class. As the FT pointed out, “Popular anxiety is escalating as experts from the International Monetary Fund, European Commission and European Central Bank make the rounds this week of Athens ministries and political party leaders, revealing figures the government has been at pains to disguise.” It also added that, “The socialist government of George Papandreou, prime minister, has succeeded in containing social unrest over three successive austerity packages since December because union leaders have so far stayed loyal to the Panhellenic Socialist Movement.”
There is a huge mood swing taking place in Greece at the present time. There are symptoms of a more aggressive mood developing within the working class. We have already seen two major general strikes in February and March, and many other strikes.
For the workers those mobilisations were seen as a warning to the government and the bosses. But to the trade union leaders, they were clearly intended as a means of letting off steam, and they made no further preparations to escalate the struggle. They were calling for calm, and expecting the government to back off. The problem is the government cannot back off!
Trotsky explained in Trade Unions in the Epoch of Imperialist Decay that the trade union bureaucracy has an organic tendency to fuse with the state. In times of boom, when capitalism can make concessions, the tops of the trade unions tend to get closer to the bosses and the state, and the capitalists can use the union leaders to achieve some kind of social peace. The problem for the trade union leaders is that this cosy relationship tends to break down, not out of their own will, but because capitalism enters into crisis and cannot give those concessions that allow for a certain stability within the system.
The system is no longer giving jobs, pensions, decent healthcare and education systems and so on. GDP is expected to fall by 4% in 2010. Official unemployment already stands at 12%, compared to 10% in September. The real figure is most likely closer to 20%. These are the conditions in which the trade union leaders are forced to distance themselves from the bosses and the government that is carrying out their policies.
We are seeing the beginning of such a process today in Greece. The PASOK government has not backed off. On the contrary, it has continued with its anti-working class offensive and this is creating ruptures between the PASOK leaders in government and the PASOK trade union leaders, who have been forced to agree to the call for another general strike for next week, on May 5.
Both ADEDY and GSEE have called the general strike. ADEDY, the civil servants’ union, is becoming increasingly militant, and in the recent period has been organizing almost daily rallies of one kind or another. This is the result of the growing pressure from below as thousands of its members face the risk of losing their jobs. Only yesterday, we saw thousands of public sector workers demonstrating in central Athens against proposed job cuts. This came after a 6-hour transport workers’ strike that completely paralysed bus, trolley and metro services.
The Greek workers are clearly not prepared to pay for the crisis of capitalism. According to an opinion poll by Mega, a private Greek television channel, more than 70 per cent of those questioned said they were against the government’s decision to seek help from the IMF.
In another opinion poll published on Sunday it was revealed that 68% of the people are not prepared to accept “sacrifices”, while only 31% were prepared to make some degree of sacrifice. Just one month ago the figures were the opposite, with only 30% refusing outright any sacrifices and about 68% prepared to make some. One interesting, and not unimportant detail was the fact that 80% of the population is predicting social unrest in the next few months.
The polls also reveal that support for the PASOK government is falling and that Papandreou, the Prime Minister, has been losing out in the popularity ratings. According to the latest polls, PASOK now stands at 31%, 10% down from the elections; the New Democracy, conservative party, stands at around 22-23% and the extreme right party at 4.5%. This shows that while the PASOK is losing support, this is not to the benefit of the right-wing parties. Meanwhile to the left of the PASOK, Syriza at 4.5% and the KKE (Communist Party) at 7.8% remain stable.
An interesting point revealed by the polls is that 60% of the people believe that what is required is a new party. When asked “What kind of party?” the response was either a “genuine” Left or a Social Democratic party. This shows that the swing in society is to the left and not the right. It shows that while there is a desire for radical change, the workers do not find an expression for this in the leaders of the workers’ parties.
However, this is beginning now to have an impact within the left. The leader of the left within the Synaspismos party, Lafazanis, has come out publicly stating that it is necessary to go back to “revolutionary Marxism”. He has stated clearly that what we have before us is not a crisis of “neo-liberalism” but of “capitalism”. He has also called for a break with the capitalist European Union and has raised the prospect of a socialist Europe in the future. This is clearly an indication of the wider radicalisation taking place within the Greek labour movement finding an expression in the words of Lafazanis.
The Greek Communist Party (KKE) is also being affected, and this is being seen in a new series of expulsions from the party. Recently two of the party’s leaders in the Teachers’ Union were expelled for expressing dissent towards the party’s trade union tactics. Last week in fact the PAME [the KKE’s faction within the general private sector union, the GSEE] called a strike on its own. This means at most mobilizing only one quarter of the forces of the GSEE. In fact it was a complete failure. The party sent its youth members to picket hotels and factories in a completely sectarian manner. But all this is leading to questioning within the party, as the case of the two teachers’ leaders demonstrates.
Also within the PASOK there have been some initial rumblings of opposition, but at this stage it is still very small. No major leader with any authority, no PASOK MP, has come out in support of any left criticism. Opposition within the party is weak, but the PASOK trade union leaders are being forced into opposition. This means that in the coming months even the PASOK cannot escape the impact of the present crisis and inevitably divisions will open up and widen further.
In these conditions the PASOK government is becoming weaker as each day passes. It is being used to carry out the policies the previous ND government could not. The advantage of the PASOK for the Greek bourgeois is that it has the link to the trade unions and is seen by many Greek workers as their party. It is presently spending its authority to apply the policies imposed by the IMF and the EU, but this cannot last forever.
The dilemma, however, of the Greek bourgeoisie is that the conservative ND party is in a weak position. It is not making ground in the opinion polls, and neither is the far right LAOS party. In fact, in order to regain some kind of credibility, Samaras is presenting a demagogic, populist opposition to the IMF-imposed measures and putting forward a Keynesian solution to the crisis! He is in fact attacking Papandreou for being too “neo-liberal”! This is a desperate attempt to recover the party’s fortunes in the polls, for if it were to get back into office it would have to carry on with the present government’s policies.
The present crisis is putting immense pressure on Greek society. The workers cannot take any more and the bourgeoisie have only just started to implement their plans. This means the prospect before us is one of heightened class struggle. This is already leading to a process of political radicalization, which is beginning to express itself within the mass organisations.
The first reaction of the Greek workers, faced with this crisis, was to put in office the PASOK and hope that this would bring about some degree of change. On the industrial front, the initial impact of the recession was to paralyse many sections. Now, however, it is seeping into the consciousness of the Greek workers that this is not a temporary crisis that can be overcome by making a few sacrifices. They realise that the attack is on all fronts, jobs, pensions, conditions, etc. and there seems to be no end in sight. In these conditions, the only conclusion they can draw is that they must fight. In such a situation only the ideas of Marxism can explain what has happened and offer a way out.