Now, even though Portugal is without a government, the price demanded by Germany and the richer EU countries for an €80 billion bail-out is even deeper cuts in public spending than were first proposed. The upcoming general election is definitely one to lose.
Portugal’s finances collapsed because its budget deficit grew rapidly following the onset of the global recession. But the money markets drove up interest rates until Portugal was borrowing at over 8.5%, adding to the total deficit at a rate which made it impossible to repay.
In the last year, Greece – which still has a “socialist” government and Ireland, which saw the ruling party wiped out at the recent general election, have suffered the same fate. Does the “contagion” stop at Lisbon, or is Madrid next?
Spain’s government – yet another one that claims the rubric “socialist”– is confident it can avoid Portugal’s fate – because it says it’s already making deep cuts in public spending! Youth unemployment is running at over 40% as a consequence. Meanwhile, Spanish bank assets are worth far less than before because of the collapse in property values and refinancing is increasingly expensive and hard to come by.
As the United States today desperately tries to avoid a shut-down of government activities as deadlock looms on reining in a federal budget swelled by endless borrowing, it is clear that capitalism is in a global bind.
You can cut – as the Coalition is doing in Britain – to avoid higher borrowing rates but that only deepens the recession. Spending more would leader to higher borrowing raters, which the banks won’t like. Why? Because in the perverse world of capitalist finance, the value of the government bonds, which they hold as assets, depreciates as rates rise.
At the same time, British banks are steadfastly refusing to resume rates of lending last seen before the credit crunch of 2007. That’s because their balance sheets remain toxic and full of bad debt. Even the right-wing press is fed up with the banks.
On Monday, the Independent Commission on Banking set up by the government reports and no one expects it to suggest any fundamental changes. The Daily Telegraph’s Jeff Randall, who is deeply pessimistic about the report, remarks: “The banks have captured our money twice over: as cash in their vaults and investments in their shares. We own all of Northern Rock, most of Royal Bank of Scotland and nearly half of Lloyds Banking Group. We rescued them – and in so doing became their prisoners.”
But this is not a new problem. By the outbreak of World War One, the banks and the monopolies had formed an unholy alliance against ordinary working people and elected governments alike. After creating the Federal Reserve – America’s central bank – President Woodrow Wilson declared:
I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilised world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.
In the recent period of corporate-driven globalisation, the tensions and contradictions between the capitalist state and capitalist finance have deepened to the point where governments tread warily. The only way to sort that out is to put an end to the power of the bond dealers, banks and money markets and create a new, socially-driven financial system. It doesn’t need me to tell you that bourgeois governments are not capable of such a revolutionary change.