So now we have it – Britain is officially on the verge of state bankruptcy. And we’re not just talking high finance here but politics as well. This coincidence of the gravest economic and financial crisis of capitalism with the constitutional impasse at Westminster is truly an explosive cocktail.
The assessment by ratings agency Standard & Poor that the British state could lose its top AAA rating because its borrowing levels are too high, sent shock waves through the markets yesterday. This was the despite the fact that S & P’s assessment was based on figures already made known about public debt, which goes to show just how fragile and nervous the financial markets remain.
They have good reason to be. Figures published by the Bank of England almost at the same time as S & P was delivering its judgement, show that printing money in a bid to ease the credit crunch has had little or no effect. The Bank's Trends in Lending report showed that lending by Britain's major banks to businesses and households actually slowed in April. It seems that the £125 billion injected into the system by the Bank has disappeared down a financial black hole.
It’s the same story across the Atlantic, where that other great debtor nation in the global economy has just witnessed the collapse of another major bank, BankUnited in Florida, which was declared insolvent by the Federal authorities. The closure came just hours after Alan Greenspan, former chairman of the Federal Reserve, the US central bank, warned that the global banking crisis was far from over. Greenspan, of course, presided over – no encouraged – the untrammelled, unregulated explosion of the financial system until it became a world of fantasy finance.
The consequences of the ongoing crash are all too obvious. Thousands more British Airways staff are set to be fired as a result of the company’s catastrophic £400 million losses for the year, with chief executive Willie Walsh saying he saw "no signs of recovery anywhere". Others are more dramatic in their assessment. Martin Wolf, the Financial Times’ senior commentator, said the “the fiscal costs of this crisis will be comparable to those of a big war”, adding: “Thursday’s threatened downgrade by Standard & Poor’s is a reminder of those costs. Loss of jobs and incomes will also scar the lives of hundreds of millions of people around the world.”
As far as the S & P verdict is concerned, there is no doubt that huge public spending cuts are on being prepared – whoever wins the next election – because no way is the economy going to “recover” anytime soon and produce the increased tax revenues that would reduce the debt that itself results from bank bail-outs and a slump in economic activity.
The combination of a state edging towards bankruptcy that is planning to slash services and a political system that is rotten to the core, is not only dangerous – it is unacceptable. There is an urgent need to reorganise both the economy and create a new democratic politics, because action on jobs and spending can only be achieved at the level of the state.
Clearly, however, the present capitalist state system is increasingly paralysed by its own crisis and where it has acted in terms of bank bail-outs and printing of money, has made no essential difference in preventing economic meltdown. The background danger is that sinister forces lurking in the background will act of their own accord unless we can mobilise a viable challenge to the status quo with a view to carrying through a fundamental transformation of a failed economic and political system.
AWTW communications editor