After having sworn there was no need for it, finally the Spanish government of Rajoy was forced to ask for European help to bail out the banking system. On Saturday, June 9, the European Union agreed to deliver up to 100 billion euro to help rescue Spanish banks.
The method which was used, the details of which have still not been made public, was an attempt to conciliate Spanish demand for direct funding for the banks with German reluctance to do so. Finally, despite Rajoy’s ridiculous protestations to the contrary, what we have is a bail out and one for which the Spanish government is responsible.
Money, up to 100 billion euro, will be given either by the European Financial Stability Fund or the future European Stability Mechanism to the Spanish state-owned Banking Orderly Restructuring Fund (FROB). This means that any money given will be added to the Spanish national debt. If Spain takes the full 100 billion euro offered, this will bump debt to GDP ratio from 80% to a very dangerous 90%. The exact amount which will be asked by Spain is not known.
Even though the Spanish government insists that there are no “conditionalities” attached to this money, all European officials have said exactly the opposite. To start with, any banks receiving money will be forced to carry out harsh “restructuring”, which means closure of offices, massive lay-offs, and losses for its bond and shareholders.
The interest on this bail out (between 3 and 4%) will be paid by the Spanish state adding 2 to 4 billion to its budget deficit (around 0.3 % of GDP). This will mean, inevitably, a new round of austerity cuts as the government attempts to stick to its targets for reducing the deficit. The Spanish working class will be asked to pay the bill for saving the banks, on top of all the other attacks that have already been introduced. Summarising the mood of the people, on the day the bailout was announced the hashtag #NoEsUnRescateEsUnSaqueo (#ItsNotABailoutItsLooting) was trending in Spain.
For his own political reasons Rajoy has insisted in not using the term “bail out,” and insisted that this “financial aid” will not affect the Spanish deficit reduction targets. European officials and institutions have been coming out with statements every day contradicting the Spanish president. His attempt to present himself as a strong man, defending Spanish “national sovereignty,” standing up against the diktats of Europe and even being the one who has the solutions to the crisis in Europe have all been exposed as farcical. This has further destroyed his political credibility.
The reason why the German ruling class has finally agreed to lend this money to Spain is because of the wider implications of the Spanish crisis for the future of the euro. Foreign banks are heavily exposed to the Spanish banking system. At the top of the list, US banks are exposed to the tune of 227 billion US dollars, German banks 186 billion, French banks 144 billion, UK banks 137 and banks in the rest of the euro-zone 180 billion.
It is impossible to separate the problems of the Spanish banking system from those of the state debt. In the last few months there has been a steady flow of international capital away from Spanish state debt. Meanwhile, the Spanish banks have borrowed massively from the European Central Bank, through the low interest Long Term Re-Financing Operation, and have invested a large part of that money in Spanish debt, of which they now hold a majority. This is a nice way of making money off the public purse, borrowing from the ECB at around 1.5% and then putting that money into Spanish debt at over 6%! In May alone, Spanish banks borrowed 286 billion euro from the ECB, an all time high. Spanish and Italian banks took 159% of all ECB lending in that month (the figure is over 100% because some country’s banks have a positive balance with the ECB).
So, the Spanish banks are in crisis and they hold Spanish debt, while at the same time the Spanish state debt is getting larger in order to bail out the banks. Someone commented that the current operation to bail out the banks is like using your credit card to pay off your mortgage. That is, paying off bad debt by getting even more indebted. Or in the assessment of the Financial Times this action could amount to lending the country rope with which to hang itself.”
The verdict of the markets is clear. After an initial rally in the stock exchange and a small fall of the yields on the Spanish debt, the markets entered into panic mode again, sending interest rates on 10 year bonds briefly over the 7% level, the highest since Spain joined the euro. This level is clearly unsustainable.
Precisely the reason why Spain had to go to Europe cap in hand to ask for money for its banks was that the state could not raise this money in the market as it was being punished with very high interest rates. Now, the European bail out of the banks, rather than alleviating the pressure on state debt has increased it.
As with all the other previous measures taken by European capitalists to try to prevent the crisis from getting worse or attempt to contain it, the effect has been to postpone the moment of truth but at the cost of making the problem bigger and worse.
One of the reasons why there was such urgency in taking measures in relation to the Spanish banks was to try to contain the impact of the likely victory of Syriza in Greece this coming Sunday. Now the risk is that we might already be witnessing a slow-motion run on both the Greek and the Spanish banks. This week the rate at which money is being withdrawn from banks accounts in Greece reached 800 million euro a day. Individuals and companies are withdrawing their money in euro in advance of a possible return to a massively devaluated drachma.
Spain as part of the European crisis of capitalism
As the Spanish government is forced to implement more and harsher austerity measures the economy is going deeper into recession, making it impossible to reach the deficit reduction targets and thus increasing the markets’ lack of trust in Spanish debt.
Deeper recession in the economy makes it impossible for a large number of families to pay off their mortgages to the banks and prevents real estate companies from being able to sell their property in the market, thus forcing them to default on the loans they have taken from the banks. Spanish private debt (household and companies) already amounts to 320% of GDP. As the recession deepens, the banking crisis gets worse as a result.
At the same time the rating agencies are busy downgrading Spanish state debt, banks and regional governments to a point where they will soon become junk and no-one in their right mind will want to buy them.
The inevitable conclusion from this vicious downward spiral is that Spain will need a full European bail out. However, the Spanish economy is larger than that of Portugal, Greece and Ireland together. There is no money in any of the European funds to bail out Spain.
In these conditions, the pressure towards national unity is increasing with more frequent meetings between Rajoy and the leader of the social-democratic opposition Rubalcaba. At some point this government will fall and will have to be replaced by some sort of “technocratic” or “national unity” government as in Greece and Italy before.
The crisis in Spain is also having an impact on Italy, with interest rates on Italian debt rising to over 6%, closely following those of Spanish debt. Italian public debt has now reached over 120% of GDP. The implication is that after Spain, Italy will follow in having to ask for a bail out. (That is if Cyprus does not collapse before!)
What is the alternative?
One can understand how this situation is creating a mood of anger in Spain. The banks are in difficulty and they are given 100 billion euro, guaranteed by the tax payers. But 5.6 million people are unemployed, there are 1.7 million families where all their members are unemployed, over 300,000 families have had their homes repossessed by the banks and the jobs of 8,000 miners are at stake because of cuts in subsidies worth just 200 million euro, and none of them are given any help. The cry is becoming louder: bail out the people, not the banks!
United Left (IU), correctly, has called for a campaign of joint mobilisations against the bail out of the banks (see http://www.izquierda-unida.es/sites/default/files/doc/Declaraci%C3%B3n_C_Ejecutiva_Rescate_11_06_2012_0.pdf). IU is correctly rejecting the bailout plan and denounces the fact that the people will have to pay for it. It is asking for any measures to be subject to a referendum and is demanding the nationalisation of any banks which receive state money. This is all correct. Unfortunately, the alternative programme which the leadership of the coalition has put forward is not adequate to deal with the question. It talks about “democratising the European Central Bank” so that it can become a “lender of last resort” and issue Eurobonds.
These ideas are based on the premise that there is, somehow, a solution to the crisis within the limits of the capitalist system, by introducing some regulations and strengthening the European institutions “against the markets.”
In reality what should be explained clearly is that this is a crisis caused by the very way in which the capitalist system works. United Left should accompany this correct call for mobilisation with an explanation of the nature of the crisis and put forward a clear socialist alternative.
The starting point should be: “working people will not pay for the crisis of capitalism”. The whole of the banking and financial sector should be nationalised, but not in order to absorb losses and then re-privatise it, but rather in order to take over its assets and use them in the interests of the majority of the population. The banks are sitting on a huge amount of empty properties. These should be nationalised and used to create a stock of social housing and rented out for no more than 10% of a family’s income. Mortgage repayments should be capped at 10% of income and frozen in cases of unemployment.
A full inquiry should be carried out into the banking system, in order to uncover where the profits of the banks during the housing bubble have gone and to bring to justice all those involved in corruption scandals, illegal financing of political parties, etc. associated with it. Such an enquiry should be run by elected representatives of mortgage holders associations, bank sector workers and the trade unions. We cannot trust the politicians of parties involved in corruption to investigated corruption. As a matter of fact the votes of the Popular Party in Parliament defeated today a proposal by United Left to create a Commission of Enquiry into the banking crisis.
Payment of interest on the state debt (which have eaten up 29 billon euro from the state budget this year) should be immediately stopped. The state debt should be repudiated as a whole. It is not so much a question of whether it is illegitimate from a moral point of view, but whether it is in the general interest of Spanish working people to pay back the bankers, financiers and speculators or not. The question is simple, if the interest on the debt is 29 billion euro and cuts in education and health are 10 billion euro, what comes first? Which is in the “national” interest?
However, none of these proposals, which are reasonable and would generate massive support from workers and youth, can be fully implemented within the limits of the capitalist system, and this also needs to be explained.
Of course if the debt was repudiated then the state would have to find another source of financing the budget. The Spanish economy is in the middle of a deep recession. However, there are plenty of resources. The nationalisation of the key sectors of the economy under democratic workers’ control would allow the development of a rational plan of production to satisfy the general needs of society and use the labour force of 5.6 million unemployed to carry it out. Only by abolishing the private property of the means of production can a system able to fully use the resources of society be created: socialism.
The struggle must be stepped up
The unions have already announced a national day of protest demonstrations on June 20 and there are different calls coming from the indignados movement for demonstrations and protests. However, the struggle which is now focusing everyone’s attention is the all out strike of the coal miners. The unions have called for a general strike in the mining valleys on June 18 and that day should be used as a rallying point for a national campaign of demonstrations, strikes and road blockades.
A victory for the miners would give a massive boost to the general movement of struggle against austerity and cuts. Faced with the media blackout of the miners’ battle, the unions and United Left should organise a national campaign of solidarity with public meetings, workplace collections, speaking tours of miners’ representatives, etc.
A general strike in Asturias should be called immediately as a first step towards a national 48-general strike in solidarity with the miners and against the bail out of the banks. The March 29 general strike and all the other massive demonstrations and movements of the last few months have shown the enormous potential for a sustained campaign of struggle. The June 20 day of protest called by the unions, on its own, cannot achieve anything. The government completely ignored the March 29 general strike. The conclusion to be drawn is clear: the struggle must be stepped up!
The experience of Greece shows that in this period even 24-hour and 48-hour general strikes, in isolation, cannot force back the austerity cuts and attacks of the ruling class. At some point the attention of the movement will turn towards the political front. The masses will start to understand that it is necessary to build a political alternative to the system as a whole in order to make any struggle successful.
United Left could grow massively, in the same way that Syriza jumped from 5% to 30% in a short space of time. In conditions of acute capitalist crisis different ideas and proposals will be put to the test. The Keynesian proposals currently advanced by the IU leadership will not stand the test of practice (as we will soon see in Greece). The building of a strong Marxist tendency within United Left, the trade unions and the movement of the youth is a most urgent task.