Stark warnings from the International Monetary Fund about
the risk of financial collapse in Europe have coincided
with indicators from the Brookings Institution and the Financial Times showing that the global economy is “on the ropes”.
They give some context to Coalition prime minister Cameron’s
“hour of reckoning” speech to the party faithful today. Except that it is not
just for the British economy that the bell tolls but for capitalism
internationally, if its own agencies and researchers are to be believed.
The IMF said that the euro area's debt crisis was the main
threat and the risks to global financial stability had risen in the last six
months, leaving confidence "very fragile". Concerns centre on European
banks offloading $2.8 trillion in assets over two years to cut their risk
exposure. That could shrink credit supply dramatically.
Report author Jose Vinals said: “The choice today is between
making the necessary but tough policy and political decisions or delaying them –
once more – in the false hope that time is on our side. It is not."
His fears are confirmed by indicators compiled by the
Brookings Institution and the Financial
Times which show that “the global economic recovery is on the ropes,
battered by political conflicts within and across countries, lack of decisive
policy actions, and governments’ inability to tackle deep-seated problems such
as unsustainable public finances that are stifling growth.”
All of the Tiger (Tracking Indices for the Global Economic
Recovery) measures show that the global economy is operating at a lower level
than before the 2007-8 crash and heading downwards. Spokesperson Professor
Eswar Prasad warned: “In the absence of a broader range of decisive policy
measures – including fiscal, financial system and structural reforms needed in
many countries – the world economy may soon be down for the count.”
This is the stark reality of global contraction which is the
driving force at the epicentre of the planetary emergency.
The brutal treatment of protesters demonstrating against
German chancellor Angela Merkel’s visit to Athens, together with the rise of
the fascist Golden Dawn in Greece are clear warnings of the depths of barbarity
the defenders of the system will plumb as do what is necessary to save
capitalism.
Merkel’s visited Greece to strengthen the
determination of the government of prime minister Antonis Samaras which must
force another round of austerity onto the Greek people. They are already going
through intolerable pain in terms of cuts to living standards, unemployment,
shortage of medicines and homelessness.
Merkel is acting as spokesperson for the Troika – the IMF,
the European Central Bank and the European Union – which once again is confounded
by the facts. Three years ago they said
that Greece 's
economy would contract by 2.6% in 2010, before growing by 1.1% in 2011, and 2.1%in
2012. Greek GDP instead contracted by 4.5% in 2010, 6.9% in 2011, and is likely
to shrink a further 6% this year.
But Greece
is not an isolated case.
According to Professor Prasad, The Brookings-FT Tiger index
shows growth momentum has dissipated in nearly all major advanced and emerging
market economies. Central banks of the major advanced economies have responded
with a range of conventional and unconventional policy monetary policy actions.
He says while these measures have put a “floor on short-term
financial market risks” they have been unable to reverse declining growth
momentum. “As a result, financial markets continue to go through short-term
cycles of angst and euphoria even as indicators of real economic activity
remain mired in weakness.”
These indicators reveal the objective movement of the global
capitalist system which has already brought millions of people onto the streets
protesting against the unbearable consequences of contraction. On any measure,
the capitalist system of production has failed. At the same time, threatening
political reaction is the order of the day in Britain ,
Greece , Spain and in
many other countries.
Gerry Gold
Economics editor
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