The impending collapse of so-called “emerging” economies from Ukraine to Turkey illustrates dramatically the domino-effect of the global financial crash, with the weakest countries going to the wall first. Rising political tensions at national and regional level are also dangerous signals that the crisis is destabilising international relations.
Countries like Ukraine have relied on external funding to develop their economies; now the same banks are themselves in deep trouble and are pulling their money out where they can in a desperate bid to reduce their massive exposure. Ukraine has seen its currency crash by 20% and its stock market reduced by 80%. The $20 billion it is seeking from the International Monetary Fund will soon be swallowed up; Iceland is already asking for more from the IMF.
The conflict between Ukraine’s prime minister and president ahead of scheduled elections is mirrored in Turkey, where the military and the courts are undermining the elected Islamic-based government. In Russia, stock markets have crashed by over two-thirds since May and the fall in the price of oil is reducing state revenues sharply. Russia’s already soured relations with the United States and Britain are certain to worsen.
Meanwhile, as even the Bank of England belatedly acknowledges, the financial crisis has a lot further to run, with insurers and hedge funds next in line in the meltdown. Some estimates suggest that up to 30% of the world’s 8,000 hedge funds could disappear shortly.
At a conference in London last week, Professor Nouriel Roubini, a former US Treasury and presidential adviser known for his accurate prediction of financial crises, said he would not be surprised if the US and other countries soon had to close their stock markets for more than a week to halt descent into "sheer panic".
He added that turmoil over world trade, currency markets and debt is likely to cause tensions between the Western world and emerging superpowers such as Russia, China and "a bunch of unstable oil states". Roubini warned: "It's the beginning of the decline of the US financial empire. The Great Depression ended in a massive war. I hope that's not going to happen but it's pretty ugly now."
Roubini, who does not mince his words, summed up the predicament facing capitalist governments and states. "The bail-outs have not worked because the markets are no longer rallying, and the policy-makers have run out of options. It's like we're walking blind in a minefield. Every situation has become risky and no one can trust each other. The banks are too big to be allowed to fail, but they're also too big to be saved."
Roubini’s remarks are no exaggeration of the dangers we face as a result of the crisis. History has demonstrated how economic recession and slump fuels militarism, nationalism, protectionism and, ultimately, war. Prime minister Brown’s plan to bring forward a few public-private infrastructure projects are meaningless in this situation (his suggestion came on the day that the government launched its draconian attack on people with disabilities, trying to force them to take non-existent jobs).
Nothing less than a root-and-branch reorganisation of the economy and financial system will suffice. As our Charter for Democracy says, we need to “eliminate speculation and profit as the basis for society, ensuring that both ecological care and basic human needs shape production, consumption and lifestyles”. We urge readers to back the Charter and work to establish local and national Conventions for Democracy to build support for the transfer of political and economic power to the majority. It’s time to plan to put capitalism out of its misery before it can inflict unimaginable pain on the working people of the world.
AWTW communications editor