“Double meltdown” warning for Europe

Today the leaders of the 27 countries that make up the European Union meet in Brussels. Their desperate aim is to keep the debt crisis in Europe from spiralling out of control and ‘promote jobs and growth’.

On Tuesday, the Organization for Economic Cooperation and Development warned that the 17 countries that use the euro risk falling into a "severe recession." It called on governments and Europe's central bank to act quickly to keep the slowdown from dragging down the global economy.

After three years of pushing for ‘austerity’ to reduce debts accumulated by governments as they shored up the bankrupt banks, cuts in public expenditure have wrecked services, driven unemployment levels beyond anything seen in the 1930s, and triggered a political revolt – certainly in Greece. In a sharply polarised Greece polls indicate that the left-wing coalition Syriza is likely to win the election being held on June 17.

The French elections brought a new government committed to abandoning austerity in favour of growth, which is also the International Monetary Fund’s perspective. So the long-term pact between Sarkozy and Germany’s Chancellor Merkel is broken. 

The financial columns are full of doomsday scenarios assessing the consequences if an anti-austerity government results from a second election in Greece on June 17th and defaults on its debts.

But the impact would be small compared to the spectre of a ‘double meltdown’ which could see the simultaneous departure of Greece from the eurozone and a Spanish banking implosion, warned former IMF economist, now hedge fund manager, Stephen Jen, after credit rating agency Moody’s downgraded the entire Spanish banking sector.

Stephane Deo, an economist at UBS, says the slow-motion collapse of Spanish banks from toxic real estate loans could suddenly turn into a fast-moving bank run, as depositors accelerate the withdrawal of their deposits.

In the UK, the insults in the Coalition’s camp are flying back and forth between a previously unknown advisor - venture capitalist, Adrian Beecroft, and Business Secretary Vince Cable. Beecroft’s proposals to enable growth would remove protections for workers - allowing employers to sack them virtually at will. Cable says the idea is ‘bonkers’ because Britain’s workers are already amongst the least protected. Beecroft says Cable is a socialist.

But this renewed assault on workers’ rights and living standards throughout the world is the real meaning of all the talk of ‘restructuring’ and ‘rebalancing’.   

Today, as the discussion in Brussels reaches fever pitch the main idea is for Europe to move to a stronger, more mutual common defence by issuing ‘eurobonds’, in which the European Central Bank would raise loans from investors to be used wherever they might be needed. Eurobonds would protect weaker countries, like Spain and Italy, for example by insulating them from the impossibly high interest rates they now face when they raise money on bond markets.

But, also today, in a direct challenge to a more united Europe, Germany’s federal government is strengthening its national interest, holding an auction for some new bonds, borrowing money from investors in the way that governments do.  Only there’s something new about this auction. The relative strength of the German economy is so attractive to investors desperate for a safe haven, that the Germans have set the interest rate they’ll be paying at zero – 0%.

The IMF is also pushing the Bank of England to reduce its base rate below the half per cent it has been at for more than three years.

So, at its moment of sharpening crisis, the capitalist system has arrived at a new contradiction: competing to save the for-profit system means issuing credit at a not-for-profit 0%.  And with inflation above zero, investors will be inverting the essence of finance - paying to lend money.

The declining value of money reflects and can only accelerate the contraction in the real economy, bringing a global slump into view. The system is definitely broken. How to bring into being a needs-based, co-operatively run economy based on people’s assemblies is the issue of the day.

Gerry Gold

Economics Editor

Election deepens political crisis

The death at the weekend of writer Alan Sillitoe and the looming possibility of a hung Parliament have no direct connection. And yet looking back at Sillitoe’s writings, and reflecting on the latest twists in the election campaign, you can detect a profound shift taking place in British history.

Sillitoe’s brilliant story, The Loneliness of the Long Distance Runner appeared as a film in 1960. The story of a borstal boy symbolised the rebelliousness of an entire generation of young people – and the gritty realities of working class life in post-war Britain.

That world has passed. Communities of factory workers like those depicted in Sillitoe’s writings disappeared under globalisation and the policies of Thatcher and New Labour. New class relations have emerged. Workers are more dispersed and less unionised. Large sections of the community no longer work and live in impoverished conditions in, for example, former mining areas.

The old party loyalties have gone as a result. That, at the political level, can help to explain the sudden rise of the Liberal Democrats and an historic break-up of the two-party system. The choice between first the Tories and the Whigs and later Tories and Labour has dominated British politics for 200 years. Formal coalitions have been reserved for war time only.

That is why the threat of a Parliament without an overall majority for any party signals a moment of instability in which the “known knowns” are – at least temporarily – shattered, and has forced a realignment between those who represent capitalism.

The connection between this political transformation is inseparable from the economic processes of the last 40 years, in which the British welfare state has changed into a “market state” – entirely subservient to the rule of global capital. This process, explained in A World to Win’s book Unmasking the State, has led to a “hollowing out” of the state itself.

As the state’s role has altered, more and more people have lost interest in politics, realising that exercising your right to vote does not lead to any influence over those elected. Clegg’s sudden stardom following the first TV debate was not so much due to his personal charisma as the desire to pin on him the widespread disaffection with New Labour and the Tories.

After all, Clegg is even more ruling class than Cameron, and the Lib Dems are even more pro-banker than Brown and Cameron put together, if that’s possible. Don’t forget that Clegg’s deputy leader, ex-banker Vince Cable was the oil corporation Shell’s chief economist.

As Clegg knows only too well, Both Brown and Cameron’s “love bombing” is just hot air and he is walking a political tightrope. Many Lib Dem voters would see entering into an agreement with Cameron, as a "pact with the devil” and those who want to get shot of New Labour will feel betrayed if Clegg joins with Brown.

Achieving a stable form of government under these conditions could be well-nigh impossible. Some will see the political crisis as simply shadow-dancing while the real power-brokers remain hidden from view in the corridors of Whitehall and the global corporations. In some respects they are right.

But at the same time, to view politics separately form the deep currents underneath is also to miss the real moment of opportunity. The political crisis means that the ruling class is unable to rule in the old way at a time of a serious financial emergency. The strength of those in power is precisely that they are aware of this weakness and will do all in their power to address it.

Our strength must be to see it as an opportunity for those excluded from power to exercise their power in a meaningful way. That is why our strategy of forming People’s Assemblies is a thousand times more realistic than believing we can influence any parliament that will result from the election.

Corinna Lotz
A World to Win secretary