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.
After 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.
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.
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.
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 next general election.
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, and 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 can 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 bourgeois 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 their assets along with the rest of big business, and put it all under the democratic control of the European working class!
London 16 December 2011.