Global capitalism's new world disorder

Yet again, in its latest world economic outlook the International Monetary Fund has been forced to cut its forecast for growth worldwide. Even as it casts around for signs of optimism in Japan and the UK, there is no hiding the profound corrosion of the global capitalist economy.

As Greek workers take to the streets again protesting against the latest round of slashing cuts in public sector jobs, Athens-based IOBE think tank is predicting that the country’s economy could shrink by as much as another 5% this year.

The Greek economy is now in its sixth year of deepening recession, shrinking 6.4% last year. "Fiscal consolidation and improved competitiveness have not been coupled with successful implementation of the structural reforms programme," said IOBE.

In plain language, it means that cuts in public sector spending, jobs, wages, pensions and working conditions actually have to deepen. They have already reached a point where millions have fallen into deep poverty. Unemployment is set to rise again, from 26.8% at the lat count to nearly 28%.

"As long as the recession persists, the economy isn't only burning fat but also productive tissue," said Nikos Vettas, the new head of IOBE.

But it’s not just Greece. The ongoing contraction in the eurozone is worsening. The forecast for the US economy is for it to slow – especially as the effects of its version of cutting government spending, known as sequestration, is magnified by the slowing down in the central bank’s credit expansion programme. This is expected to begin in September and global markets are already jittery about the consequences.

In summing up its review of country by country and region by region differences Olivier Blanchard, the IMF’s chief economist concludes:

“But you wonder whether there is not something behind. I think behind this is a slowdown in underlying growth – not the cyclical component but just the average rate,” said Blanchard. “It’s clear that these countries [Brazil, China and Russia] are not going to grow as fast as they did before the crisis.

“A permanently slower growth rate in big developing countries is likely to have profound repercussions for the world economy and translate into weaker growth for advanced countries as well.”

Blanchard’s concern about China, in particular, is well founded. The country’s banks are said to be veering out of control. Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30% rate, even as profits contract at a 35% rate.  Ratings agency Fitch says China's public debt may be as high as 50%-70% of GDP when "correctly counted" and it is unsure whether the authorities can absorb the looming financial crisis.

So we can be sure that a continuation of the existing world disorder will have disastrous consequences for the majority. For the 99%, who have nothing invested in the capitalist way of doing things, and nothing to lose from its replacement, another model, another way of organising society is certain to prove attractive.

Into the breach, with steps the steps the New Economic Foundation  ‘economics as if people and the planet mattered’, which says: “In our model growth is driven by the existence of a gap between the current income levels of firms and their future expenditure plans. Private banks are the only agents capable of filling this gap through the creation of new credit. A confident banking system, willing to grant credit to firms for productive investments, is thus a necessary prerequisite for the economy to prosper.”

But the NEF’s “new model” is the same old credit-and debt fuelled model of capital expansion that opened up the world to rule by global corporations and led to the crash.

What can we learn from the last four decades? Capitalist for-profit production has drawn the world together in an interdependent global network oriented to accumulation and dependent on growth for the benefit of shareholders. By switching to a democratically controlled not-for-profit model of production and distribution we can further develop that interdependence for the benefit of all.

Gerry Gold

Economics editor

'Our cuts will be with a guillotine'

As official figures revealed that Britain is deep into its second recession in four years, with contraction running at a rate not seen for half a century, the European dimension of the global crisis is set to get a whole lot worse.

The IMF-led assault team is back in Greece insisting on impossibly severe additional austerity measures for an economy that has already contracted by 20% in the five years since the 2007/8 financial meltdown. 

As their plane touched down, Greek prime minister Antonis Samaras said the country was in a Great Depression and that the economy was now expected to decline by a further 7% in the coming year – far worse than the previous 4.5% estimate.

But, as has now become clear, Greece’s agony is just a small part of the global economic contraction of a depth and ferocity that is hard to grasp

As Spain auctioned off its increasingly risky debt to postpone an inevitable bailout, this stark assessment came from the Spiro Sovereign Strategy consultancy:

Pretty much everything that could go wrong in Spain is.
 • The bank-focused bail-out is perceived as insufficient
• a funding squeeze in the regions is putting more pressure on Spain's creditworthiness
• non-stop austerity is increasingly seen as self-defeating and
• the recession is deepening.
 The question is no longer whether Spain can persevere with its adjustment, but rather how much more its economy and citizens can endure.

Cities across Spain are the sites of a mounting revolt against austerity, raising the political stakes and increasing the risk that the country would be unable to service its soaring debt.

Film Actor Javier Bardem, who won an Academy Award for his role as psychopathic assassin in No Country for Old Men, joined the protest appearing next to a placard bearing a revolutionary threat, declaring “Our cuts will be with a guillotine”.

The financial markets are responding - in a self-defeating action - by pushing Spain’s cost of borrowing to 7.5% and through the limits of sustainability. The only way they can get their money back is by squeezing the population beyond its limits of endurance.

Something has to give.

The global contraction follows a relentless capitalist logic. Once the seemingly limitless 60 year expansion of credit and debt ended in 2007, an historically unprecedented bust was sure to follow.

The eurozone downturn is being led by an increasingly severe slump in manufacturing, where output is falling at a quarterly rate of around 1%. Germany is now contracting at the steepest rate for three years, while the rate of decline in the periphery is also among the highest seen since mid-2009.

Companies across the region are cutting staff numbers at the fastest rate for two-and-a-half years as the outlook darkens. Service providers are now the gloomiest since March 2009, while manufacturers are slashing their stocks of raw materials in the expectation of ongoing weak sales in coming months.

The US manufacturing sector is struggling under the pressure from falling exports, which showed the first back-to-back monthly decline for almost three years in July. Growth of production is slowing closer to stagnation as a result, and rising levels of unsold stock will mean companies seek to scale back production in coming months.

China’s growth rate is also slowing, as it must, in response to shrinking markets in the US and Europe for the commodities churned out by the millions of low-paid workers in factories sub-contracted by transnational corporations.

Under these conditions, resistance to austerity in the form of protests, demonstrations, occupations, however angry, daring or violent quickly reaches their limits. They will give way to a movement that can break through the constraints of the failing social relations imposed by capitalism.

Some 150,000 software engineers worked collectively, for the common good developing Linux, the open source software that now powers the internet. They are the same creative, young people who produce the software that runs the global financial systems. They have the knowledge, and potentially the power to make trading platforms and communication networks part of a democratically-accountable global system of production, distribution and exchange. They just need asking!

Gerry Gold

Economics editor

Dracula is alive and well in Brussels

Eurozone finance ministers gave Dracula-style bloodsucking a bad name last night when they rejected proposals brought from Athens for even more severe austerity measures.

Their message was loud and clear: Nothing less than the reduction of Greece to a vassal state will satisfy the major capitalist powers who run the European Union.

Greece will be reduced to absolute penury – the population is not far from that already – and be expected to import goods from Germany, France and other north European economies.

All this to save the doomed single currency project and prop up the continent’s banks which are presently dependent on massive hand-outs by the European Central Bank.

Greece cannot be allowed to default by the EU because the financial markets would then move on to other heavily indebted EZ states like Portugal and Spain, driving up their borrowing costs. So the Greek people must be made to suffer pain beyond human endurance.

Yesterday the national government in Athens led by an unelected prime minister and Goldman Sachs adviser came to Brussels with a €3.3 billion cuts package hopeful of securing a €130 billion bail-out in exchange.

Under a draft agreement between the major parties, the minimum wage in the private sector was to be cut by 22%, pensions reduced further and tens of thousands of more jobs abolished in the public sector. It’s not enough, they were told when they got to Brussels.

They were sent back with instructions, yes instructions, to come up with another €325 million in cuts, get them voted through parliament by Sunday with a pledge from all parties that they would honour the cuts whatever the result of the upcoming general election.

They were also warned of more intensive involvement in the Greek economy to improve tax collection and accelerate the sale of state-owned assets. “In short, there is no disbursement before implementation,” said the well-fed Jean-Claude Juncker, the prime minister of Luxembourg.

And yet the cuts already implemented have helped create an unemployment rate of well over 20% and seen Greece’s national output plummet by 11% in a year. No wonder trade unions staging a 48-hour strike from today described the cuts package as the “tombstone of Greek society”.

More cuts will not only deepen the economic crisis – they will actually make it more difficult for Greece to repay its massive debt, requiring even larger bail-outs in the future.

But all this is apparently of no consequence to the EU’s dominant power, Germany. Perhaps the country’s historians will make a parallel comparison with the harsh Versailles treaty imposed on Germany after defeat in World War One. Impossible reparations payments broke the country’s economy and stimulated the growth of far-right nationalism.

For all intents and purposes, Greece has lost its right to self-determination in the face of decisions taken by overwhelmingly more powerful states in the EU. Democracy has been replaced by unaccountable rule from Brussels.

The country’s political class is set on a course to further disaster and the virtual enslavement of the population. If they had an ounce of concern for the people, political leaders would tell Brussels to go to hell, repudiate Greece’s foreign debt and declare default. But we know they won’t.

Limited strikes aimed at changing their minds won’t work because the political class is committed to the capitalist system, whatever the cost. Therefore, Greece’s unions, students, unemployed, small shopkeepers and farmers should form their own united democratic institutions in the face of dictatorship from Brussels.

A democracy for the people, expressing the power of the majority in place of the corrupt political institutions at the heart of the Greek state would allow working people to stand up for their rights. They could then make an appeal to millions of others struggling against austerity in Europe to come to their aid and launch a European spring.

Paul Feldman
Communications editor

Greece is stuffed by the Merkozy

If the political meltdown in Greece tell us anything, it is that the eurozone crisis has gathered an unstoppable momentum and the ruling elites can’t do anything about it.

Whatever decisions are made by the major economic powers at the G20 summit in Cannes, the die, as Julius Caesar is reported to have said on crossing the Rubicon, is well and truly cast.

The unravelling of the second phase of the financial meltdown that got under way in 2008 is running ahead of and proving stronger than the half-baked decisions made by political leaders from the US to Europe.

It is not a matter of if but when the euro’s claim to be a stable currency that rivals the dollar and sterling falls apart. The debt contagion has already embraced Italy, the world’s eighth largest economy, with France and Spain considered next in line.

Italy has the second largest nominal government debt outstanding in the eurozone, at €9.3 trillion. “Italy is a banana republic that didn’t depend so much on foreign capital in the past, but now it does, and markets are less forgiving,” said Daniel Gros, the director of the Centre for European Policy Studies in Brussels. “Italy is in the danger zone; that is quite clear now.”

The political consequences are grave. Silvio Berlusconi’s government is close to collapse, while George Papandreou's government in Greece is now in a state of utter chaos. Whatever little political dignity Athens had as it carried out spending cuts ordered by the IMF and European Union, was lost this week.

After Papandreou called for a referendum on the latest austerity package he signed up for in Brussels last week, the storm clouds broke and the markets tumbled. He was immediately summonsed to meet the Merkozy – aka the chancellor of Germany and the president of France. Papandreou was given his marching orders – call off the referendum and impose the cuts.

While the referendum plan was undoubtedly a populist move to quell the strikes and mass demonstrations that have racked Greece, it at least offered the opportunity for a democratic debate. Opposition to it came from the opposition New Democracy (conservatives) as well as the Greek Communist Party (KKE).

The KKE, an ultra-Stalinist party, is the third biggest in the Greek parliament. It has spent the summer striving to keep the Pasok government in power while posturing against it.

On October 20, its members in the trade union front PAME formed a human shield at the entrance to parliament during a two-day general strike. Armed with clubs and dressed in a para-military fashion, their aim was to prevent workers and students from storming the parliament building. This led to ugly clashes with anarchists, who the Stalinists typically labelled as agents provocateurs.

Fresh election in Greece – or anywhere else for that matter – would solve nothing. The dilemma remains. How can the mountains of state, corporate and personal debt that have overwhelmed the capitalist system be reduced in a way that does not lead to mass unemployment, a collapse of living standards and a global depression?

The answer is that from a capitalist point of view, there is no alternative. This is the twilight for parliamentary democracy everywhere. Its fortunes are inextricably linked to the corporations and banks who dominate economic matters.

In defending the limited political freedoms we have against the Merkozy and others, it is clear that we need something better. A new political and sovereign power that puts into practice the very meaning of the term “democracy”, which ironically comes from the Greek words “demos” (people) and “kratos” (power), will be needed to overcome the imminent catastrophe.

Paul Feldman

Communications editor

Crisis is alll pain and no gain for workers

The crisis in Greece, which comes to a head today with the vote in parliament to impose further massive cuts, also marks four years since the mother of all financial bubbles burst.

The post-war expansion of credit that funded globalisation showed itself to be unsustainable when the effects of the credit crunch emerged into the open in 2007. Attempts to limit the effects of a global collapse of production with colossal amounts of credit invented by governments and central banks simply spread responsibility for the problem.

Toxic debt was in effect transferred from a failing system of global financial and manufacturing corporations to sovereign states which are, in turn, forcing it on to their increasingly resistant populations. In Greece, an estimated 80% are against “austerity” measures being forced through.

On a global scale, contradictory pressures are at work. Growth is giving way to contraction. The hard line views of the Bank for International Settlements (BIS) are in the ascendant, causing consternation amongst softer, liberal Keynesians, like Martin Wolf of the Financial Times, and Adam Posen, a member of the Bank of England’s influential Monetary Policy Committee

The real message from the BIS in its annual report published this week is precisely the opposite of a confident recovery. Challenges left in the aftermath of the 2007/8 crisis require further actions that will most certainly produce a severe contraction. That is what they are intended to achieve.

Challenges are grouped under several headings. At the top of the list is public sector debt. The BIS believes that governments have hardly begun bringing debt down to “sustainable levels”. In addition to short-term measures, pension schemes and social benefits will have to go. “Governments that put off addressing their fiscal problems run a risk of being punished both suddenly and harshly,” the report warns.

Next comes private sector debt. In the United States and Europe, households, financial and non-financial firms are still drowning in debt, despite millions of repossessions, massive write-offs, the disappearance of many financial and retail institutions, and mass unemployment across the world. Once again they’ve only made a start.

“Growth during the pre-crisis years was heavily weighted towards finance and construction. In a number of countries, these sectors grew disproportionately to the rest of the economy and now have to shrink. [emphasis added]. Like most adjustments, it will be painful in the short run. Not only will this reallocation impose suffering on the people who worked and invested in those sectors, it will weigh on aggregate growth and public revenues as well.”

The BIS sees the need for globally co-ordinated action to deal with “global imbalances in financial flows”. As the report states: “The financial crisis showed us that the build-up of gross investment positions can lead to substantial currency, liquidity and other mismatches that can propagate and magnify shocks, creating damaging volatility in the international financial system.”

But they are whistling in the wind if they think that governments have any more hope of controlling the movement of capital corporate interests after the crisis than before.

And then there’s the problem of monetary policy. “Unconventional actions” including negative real interest rates and quantitative easing – central banks inventing credit to lend money to governments - have led directly to soaring inflation, especially in food and fuel. The BIS “solution”? Monetary easing must be reined in and interest rates must rise – especially in the UK. As soon as they do house-buyers in Britain will be facing a tsunami of house repossessions.

Fixing the aftermath of the global capitalist crisis is too painful for countless millions to bear. The workers of Greece are saying they’ve had enough and are not prepared to sacrifice living standards further on the altar of creditors and their profits. Up to 750,000 workers in Britain go on strike tomorrow, defying both the ConDems and Labour, in defence of hard-won pensions which are being cut to reduce the budget deficit. The message is clear: We can’t be doing with this unsustainable, ruthless system any more.

Gerry Gold
Economics editor

An 'offer' we can and should refuse

When Mervyn King, the governor of the Bank of England, let slip that whoever wins the election would subsequently be out of power for 30 years, he was speaking with inside knowledge. King knows better than anyone the real state of the country’s finances – and it doesn’t make bedtime reading.

It’s the stuff of nightmares, with a budget deficit that is so huge that it threatens to overwhelm the state’s finances. What’s happening to Greece (with Portugal, Spain and Italy next in line) is a warning of the events that follow when a sovereign debt gets too big to pay off.

What King is indicating is that the scale of the cuts in public spending that will be implemented after the election – if Britain is to avoid the fate of Greece – are so vast that the anger of those on the receiving end will destroy whatever government emerges after May 6.

Of course, if the leaders of the major parties acknowledged what King was talking about, you might have to pay people to vote next Thursday. Instead, the political class are bound by an omertà. The Sicilian oath of silence, which became associated with the Mafia, is the only way to describe what’s happening with less than a week to go to a general election that is at best fraudulent and at worst a major deception at the expense of the British electorate. It only confirms what a joke the Parliamentary system has become with its claims to democracy and to represent the “will of the people”.

For example, today Lord Mandelson, asked if there was a hole in last night’s TV debate on the issue , the business secretary told BBC Radio 4's Today programme: "I refute that."

He then wittered on about New Labour’s “deficit reduction plan”, and claimed: “I don't think it's fair to say we have left the public in any doubt about the size and scale of the turnaround and what's involved." Pull the other one. Everyone from the Financial Times to the Institute of Fiscal Studies is saying the exact opposite and I know who I’d rather believe.

Extending the Mafia analogy a little further, you could say that messrs Brown, Cameron and Clegg are making us an offer they think we cannot refuse. But why lend any of them our votes when they will use them to claim a mandate for destroying living standards? In a sense, the opinion polls point towards a general desire not to hand any single party a clear mandate. Such is the uncertainty and fear in many voters’ minds about what’s likely to happen when the dust has settled.

The crisis that is unfolding in Greece is now being compared to the sovereign equivalent of the collapse of Lehman Brothers in 2008 which precipitated global financial turmoil. The Greek people are resisting dramatic cuts in living standards that are a consequence of the collapse of a global capitalist economic model driven by debt. Naturally, the measures imposed by the International Monetary Fund will intensify Greece’s economic catastrophe as people have less money in their pockets.

Similarly in Britain, capitalism can only “return to growth” on the basis of a scorched earth policy founded on an unheard of reduction in living standards and jobs. May 6 will settle nothing. All the election will do is draw up the battle lines between government, the state and ordinary working people.

The struggles that are soon to unfold will quickly assume a social character that raises the question of questions: how do ordinary people achieve the power to call a halt to capitalism’s meltdown. These are the kind of issues we will take up at our conference on May 22.

Paul Feldman

Communications editor

Greek crisis triggers debt tsunami

A debt tsunami is now sweeping across Europe to Portugal, Spain and Italy and onwards to the shores of the United Kingdom, before crossing the Atlantic to the United States of America, triggered by the financial earthquake that hit Greece yesterday.

Share markets plunged after credit rating agency Standard and Poor downgraded the long-term credit rating of Greece’s government and banks to junk status, the first eurozone member to have its bonds declared worthless. Markets fear that many banks are stuck with worthless Greek bonds and that the world is heading for renewed financial meltdown.

S&P’s action was its response to the decision by the two biggest trade unions in Greece to call a 24-hour strike against the government’s austerity measures for May 5. This will be the third joint strike of the Greek General Confederation of Labour (GSEE) and Federation of Civil Servants (ADEDY) against the government’s budgetary measures since the beginning of the year.

This further deepening of the crisis undermined the bail-out deal for Greece cooked up between the eurozone countries and the International Monetary Fund, prompting the IMF to toss a further $10 billion into the pot. But the additional strings attached can only provoke further anger from Greek workers.

Early warning of the arrival of the tsunami in Britain has now been delivered to the parties contending to be the next government following next week’s General Election. Whilst all of the parties are keeping quiet about the detail of their plans to reduce the government deficit, the Financial Times and the Institute of Fiscal Studies have been doing their sums.

Both the IFS and the FT have identified black holes amounting to more than £30 billion in each of the manifestos of the three main parties.

The FT says the “next government will have to cut public sector pay, freeze benefits, slash jobs, abolish a range of welfare entitlements and take the axe to programmes such as school building and road maintenance – or make a set of equally politically perilous choices”. It has built a computer game enabling its readers to play at being Chancellor, to get the measure of the job he or she will have to do to attract investors to finance its debt.

The IFS said no party had come "anywhere close" to making clear where the axe would fall after the general election. This, it said, was despite the parties' plans implying the deepest cuts in spending since the 1970s and - in the case of the Conservatives - the biggest one-year reduction in public spending since demobilisation at the end of World War II.

The parties are keeping quiet because they too fear sparking a Greek-style revolt (actions taken or planned by university, college and school teachers against cuts are a sign of what’s to come). Never mind New Labour’s “hard choices” to be made, there’s a conspiracy amongst them all.

The IFS, the FT and the rest of the media and the political parties offer no choice at all. Somehow or other the cost of the debt must be paid by the millions of people being persuaded to vote for bailing out the capitalist system with the destruction of their jobs, pensions, health, education and social services.

But there is another way. We can build a better kind of democracy around a different kind of economy. A network of People’s Assemblies can oppose the next government and refuse to accept the cost of bailing out the banks and of putting profits into shareholders’ pockets.

They could decide to cancel the debt, outlaw speculation, close the profit system, and turn the private financial sector into a public service like, but even better than, the NHS.

Vote with your feet – take the revolutionary road on May 22nd.

Gerry Gold

Economics editor

Brown nails his colours to the hedge funds

New Labour’s Gordon Brown has spent his entire period in high office, first as chancellor, and more recently as prime minister, ensuring that the interests of the global financial sector are inextricably enmeshed with the British economy.

Yesterday he intervened personally on behalf of the gamblers and speculators to postpone European negotiations on trying to regulate the derivatives market until after the forthcoming election. Some 70% of the world’s hedge funds are based in London, with an estimated 80% of Europe’s hedge funds and 60% of private equity firms based in the UK.

Clearly it is they and the capital markets they operate that will determine what happens to the British economy whoever the Queen invites to form the new government in the next few weeks. The hedge funds have the power to make or break governments as they are demonstrating in the case of Greece.

Brown and his chancellor Darling are in cahoots with Timothy Geithner, Barack Obama’s Treasury Secretary in the US, in defending the freebooting masters of the universe. Last week Geithner wrote to EU officials warning that the directive was protectionist and would damage US funds. His letter angered Michel Barnier, EU commissioner for financial services, who said he was not amenable to pressure and would not take instructions "from Paris or London and certainly not from Washington."

Chancellor Darling, who lobbied his Spanish opposite number over the weekend, said Britain would seek more concessions because the current draft directive proposed by Spain threatened blocking international funds from the European market. The chancellor believes that this outcome would be “deeply damaging” to the hedge fund and private equity industries as well as to returns made by pension funds.

So you can see that despite the chorus of calls for regulation that echoed around the world during the worst days of the global meltdown, the interests of the capital markets make powerful governments of whatever political stripe into their servants, willingly or not. And the pressure is building, driving the elected governments of countries and unelected regional blocks into deeper conflict between themselves, but more importantly with their populations.

Brown’s two key interventions in two days – first supporting British Airways against the democratic decision by Unite members to resist the assault on their working conditions and income, and now putting himself between the European Union and the hedge funds, say more about New Labour than the tsunami of words that have already begun to flood the airwaves in the run up to the election.

The capitalist system of production together with the financial sector, its inseparable twin, express their requirements to capitalist governments which carry them out at whatever cost to the people they supposedly represent according to the mythology of “democracy”.

It’s one of the reasons why we call on the people to hang on to your votes in this election. Many people are asking how they can express their opposition when there is no party to represent their interests. In hanging on to your vote, we’re not suggesting that you sit on your hands.

We need to build a new kind of democratic organisation, one that will discuss how to transfer the ownership and control of land, finance, production, food distribution, housing and transport to the people who work in and use them.

To make a start, in response to the EU’s urgent warning to the UK to follow Greece in cutting public sector spending to reduce its debt, People’s Assemblies could organise a mass campaign to defy the financial masters. “It’s not our debt and we won’t pay it!”
That would be a start towards forming an international movement to defeat the power of capital in the form of global corporations and financial institutions in every country, uniting working people around the world against their common enemies.

Gerry Gold
Economics editor