Wednesday, January 30, 2013

Bankrupt states - bankrupt system

Things aren’t going well in Europe. France is totally bankrupt, according to employment minister Michel Sapin. According to the radio interview he actually said, “there is a state but it is a totally bankrupt state”.

Though immediately denied by the country’s finance minister Pierre Moscovic, Sapin’s candid comment does much to explain the flight of the country’s super-rich. They don’t like the government’s plans to increase taxes on the wealthy. At the same time, president Hollande’s government appears to be floundering in the face of the crisis.

Movie star Gerard Depardieu has been given a Russian passport by president Putin. Bernard Arnault, an entrepreneur operating in the luxury goods market was – until he left for Belgium a few days ago – the country's richest citizen and listed by the Billionaires Index as the 14th richest person in the world. And now it seems former president Nicholas Sarkozy is heading to London with his heiress wife Carla Bruni for “economic” reasons.

No doubt they’ll be welcomed by the ConDem’s Home Secretary Theresa May, despite her increasingly tough stand against immigration which, she says, pushes up house prices, forces people onto benefits, and suppresses wages for the low-paid. But May’s tired attempt to blame the foreigners for the worsening state of the British economy won’t wash.

In the totally interconnected and interdependent economy of global corporations, neither France, nor any other country in Europe, or indeed the rest of the world, is immune from the rapid disintegration now under way. 

The muted optimism promoted by Davos World Economic Forum spin-doctors – accompanied by a warning against nationalist protectionism from Klaus Schwab, the WEF’s founder – is already out of date.

The latest figures from Spain have joined Sapin’s candid admission in introducing a note of reality. Spain’s retail sales crashed by 10.7% in December, compared with the same month in 2011. The retail slump actually accelerated, from 7.8% for November and an annual rate for 2012 of 6.8%.

With unemployment soaring and incomes falling, retail sales in Spain have now fallen for 30 months in row and the decline has quickened since the prime minister, Mariano Rajoy, implemented further austerity measures – increasing VAT, slashing services, wages, jobs and pensions. Unemployment rose above 26% last month – a jaw-dropping 60% amongst young people – and is predicted to climb higher. Declining car and house sales indicate that the economy will continue to shrink. The deeper you look the worse it gets.

Production from Spain’s car industry has fallen below 2 million vehicles for the first time since 1993, crashing 17% last year. The industry has shrunk by a third from its high point before the 2007-8 crash. Car exports plunged even faster, plummeting 18% and dimming hopes that foreign trade can lift the economy out of slump as internal demand shrinks.

The Citigroup bank says it now expects Spain's economy to contract by 2.2% this year and another 2% in 2014, pushing unemployment to 28%. The bank is clear that Spain’s programme of austerity is being overwhelmed by the effects of the slump. The country’s public debt will surge from 88% to 110% of GDP in just two years.

Whether they admit it or not, capitalist states throughout the world are bankrupt. Their debts can never be repaid.  The USA’s world-beating debt has its political class in a stranglehold of mutually assured destruction. Deep across-the-board spending cuts seem certain to kick in on March 1 through what is known as the “sequester”.

It’s not only the states that are bankrupt, it’s the entire system of profit-hungry capital accumulation that is unsustainable and dangerously out of control. At Davos, there was talk of the “worst of the crisis being over”. All the indications are that the opposite is true.   

Gerry Gold
Economics editor

No comments: