The fate of Greece a warning to all of us

Greece has “reached the limits of the social and economic system”, according to its public order minister Christos Papoutsis, and its “people cannot take any more”. It’s a message that will reverberate around the whole of Europe this year.

As unemployment soars to new highs in Britain, especially among young people, the system has indeed reached its “limits”. To those charting the course of the rapidly deepening crisis, the Greek drama is just the full-dress rehearsal. A global slump of terrifying proportions is threatening, only held back by central banks making cheap credit available to stricken banks and the printing of money by state agencies.

Papoutsis is a hated figure inside Greece. He is a minister from Pasok, who amazingly still call themselves “socialist”, who joined with others on Sunday to impose yet more savage cuts in spending, reduce pensions and sack thousands of public sector workers. Yesterday, the Greek cabinet under Lucas Papademos, the unelected prime minster and Goldman Sachs advisor, met in the wake of the violent protests that accompanied the vote in parliament.

On Sunday, Papademos bullied the Parliament into agreeing the terms of the latest IMF, European Central Bank (ECB) and European Union bailout. He threatened the country with a much worse result if Greece were forced to leave the eurozone in the wake of a default.

Papademos is well-qualified to act as the voice of capitalist finance. Amongst his many posts, he was senior economist at the Federal Reserve Bank of Boston in the 1980s, and vice-president of the ECB from 2002 to 2010. His assault on democracy forced coalition parties to expel more than 40 MPs for failing to back the bill.

Clearly shaken by the riots and burning buildings in the centre of Athens, Papoutsis was begging for mercy. "The government is making superhuman efforts”, he said. “From now on, Europe has to take the responsibility", washing his hands of any further responsibility.

But his appeal fell on deaf ears. Eurozone finance ministers cancelled today’s meeting with Greece when it became clear that the Athens government had again failed to deliver on the latest round of assaults designed to consign its people back to and beyond the poverty of the 1930s. They want more cuts and an undertaking that whoever wins April’s general elections will implement the EU’s demands. Democracy? Forget it.

The day after the vote in Athens, credit ratings agency Moody’s went fishing for more and bigger victims. They put the UK, France and Austria on negative outlook. By raising the prospect that the three countries would lose their triple A ratings due to exposure to the eurozone debt crisis, Moody’s issued instructions to these governments: the pace of the assault on living standards must be accelerated and its scope broadened out to the rest of Europe’s population.

Every day, further evidence emerges of the unstoppable catastrophic implosion of the capitalist economy. In the last quarter of 2011, Greece’s GDP dropped by 7% compared with the same period last year, a steeper decline than the 5% recorded in the third quarter, according to preliminary data published by Elstat, the national statistics body. Greece’s economy has now shrunk in every quarter but one since mid-2008.

It’s not only Greece that has reached the limits of the social and economic system. It is now time to make a leap to something new. As with the Telaithrion Project in Greece, in every country people are experimenting with different ways of living and producing the necessities of life and a great deal can be learned from them. The Transition Initiative has gone global since its launch in 2007.

But the challenge is to go beyond alternatives. Whilst the current profit-seeking capitalist system exists it is obliged to drive up the rate of exploitation of what corporations see as theirs to take – human labour and the natural resources of the planet. The system must be dismantled and its components used to build anew. Let’s compost capitalism.

Gerry Gold
Economics editor

Beware the light at the end of the tunnel

Some optimists are saying that things are beginning to look up because of a fall in unemployment, particularly in the US but also to some small extent in the UK. Yesterday, those closer to the action put things in perspective.

Ben Bernanke, chairman of the US Federal Reserve, dampened the optimism that had seen stock markets rise. January’s fall in the unemployment rate to 8.3% “understates weakness in the U.S. labour market”, he said. “It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work. There are also a lot of people who are either out of the labour force because they don’t think they can find work or in part-time jobs.”

That’s another 15.1%. Bringing the total to more than 23%.

But what about the unexpected 243,000 increase in jobs? Bernanke wasn’t impressed. He’s keeping the interest base rate as near to zero as it can go – at 0.5%, until 2014 - to avoid a further brake on the economy. And even with inflation below the 2% target, the fact that it remains above the interest rate means that businesses are being paid to borrow. No wonder there’s a few jobs appearing.

Meanwhile, millions of families have already lost their homes and millions more are stuck with impossible mortgage payments on houses whose market value has dropped like a stone. As Bernanke put it “the amount of negative equity in the United States is about $700 billion (£447 billion), which is enormous and so there is no conceivable programme [that will get] everybody in the country above water.”

The US is only one part of the global capitalist economy, albeit a very large one, and the health of the two are inseparable. The increase in US jobs is supposed to reflect confidence that there’s a solution in sight for the eurozone crisis, but who’s kidding who?

The process of dismantling the monstrous, decades-long accumulation of credit and debt is underway. “They” call it “deleveraging” and tell us that we’ve all been living way beyond our means. The consequences are just beginning to appear.

Greece was gripped yesterday by another general strike as its government again postponed agreement to the €130 “bail-out” that would see wages slashed by another 20-30%, another 15,000 public sector jobs eliminated, and pensions chopped. People with good jobs, homes and cars last year, are this year homeless, hungry and cold on the streets.

Spain’s economy shrank 0.3% in the last quarter of 2011, and is expected to be officially in recession in 2012. France cut its growth forecast from 1% to 0.5%. Unemployment in the eurozone has been rising throughout 2011, hitting a new record of 16.5 million in December, and it is expected to continue rising throughout 2012. In the 27 EU countries, 23.8 million are unemployed – 9.9%.

And don’t forget Iceland, where the banking crisis hit early and hard. It is now on the brink of new catastrophe. Thousands of households face poverty and loss of property because of loans that, in some cases, have more than doubled as a result of the last currency crash and subsequent price inflation.

The International Labour Organisation says this in its Global Employment Trends 2012: “After three years of continuous crisis conditions in global labour markets and against the prospect of a further deterioration of economic activity, there is a backlog of global unemployment of 200 million – an increase of 27 million since the start of the crisis.”

Astonishingly, the ILO says that 400 million new jobs will be needed to avoid a further increase in unemployment. “Hence, to generate sustainable growth while maintaining social cohesion, the world must rise to the urgent challenge of creating 600 million productive jobs over the next decade.”

That is simply not going to happen. Even the ILO admits that a “dangerous third stage” in the world economic crisis is on the cards, noting that “policy space has been seriously limited, making it difficult to stop, or even to slow down, the further weakening of economic conditions”. The light at the end of the economic tunnel is actually a train crash in the making.

Gerry Gold
Economics editor.

UK heads for recession as '1930s moment' nears

Greek debt is but one black hole among many in the eurozone crisis which threatens to tip the world into a ‘1930’s moment’ according to IMF managing director Christine Lagarde. But the problems facing global capitalism are far deeper.

Even Lagarde had to acknowledge that there is “little margin for manoeuvre” and that the real problem is "America's debt and deficit - the lack of a medium-term plan to reduce it”. Even that doesn’t begin to get to the heart of the matter.

Only yesterday the worst-case expectation was that the UK’s Gross Domestic Product – the key measure of growth - fell by 0.1% between October and December. But today’s official figure from the Office for National Statistics reveals that the UK economy actually shrank by 0.2% in the last quarter of 2011, and is heading for recession.

Accumulated UK government debt broke through the £1 trillion mark as a dual consequence of falling tax revenues, continued support for the financial sector and higher welfare bills as a result of soaring unemployment.

Despite the ConDem’s stated intention to reduce the country’s dependence on debt, its combined corporate, public and household debt has increased to 507% of GDP and the country remains where it was in the league table of the richer nations when the crisis broke in 2007/8 – right at the top.

Despite all the evidence, there are some like governor of the Bank of England Mervyn King, who try to present even the darkest of messages in a glowing halo of hope for the future of the capitalist society.

He said: “All crises come to an end, and businesses will find ways to trade with each other and meet the needs of consumers whatever the transitional problems posed by deleveraging.” Of how and why this might happen he gave no sign, making his message rather mystical in content.

Oliver Blanchard, the International Monetary Fund’s chief economist also tried to package his warning that Europe's debt crisis could tip the world economy into recession with the faintest hint of a rosy future "With the right set of measures, the worst can definitively be avoided and the recovery can be put back on track," he said. "These measures can be taken, need to be taken, and need to be taken urgently."

Only the first indications of the impact of these ‘measures’ have been seen so far in the millions of dispossessed American families, and hundreds of millions thrown out of their jobs worldwide.

But there are some who are, however reluctantly, coming to the conclusion that the game is up. In a wide-ranging article inspired by the Financial Times ‘capitalism in crisis’ series, its senior commentator Martin Wolf reviews the defining characteristics of civilisation.

Taking in the insolubility of the crisis of extreme financial instability, the prospect of a global economic collapse, the impact of humanity on the planet, and the role of leadership, he observes that states alone are now unable to supply the ‘public goods’ of education, health, control of crime and pollution.

“Ours is an ever more global civilisation that demands the provision of a wide range of public goods. The states on which humanity depends to provide these goods, from security to management of climate, are unpopular, overstretched and at odds. We need to think about how to manage such a world. It is going to take extraordinary creativity.”

Wolf doesn’t offer a solution, because the only ones available within the framework of capitalist civilisation are too brutal and unacceptable to liberal thinkers like him.

It is time to open a new era, based upon co-operation in a democratically-controlled, ecologically restorative system of production and distribution designed to satisfy the needs of the 99%.

Gerry Gold
Economics editor
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Democracy bad news - for financial markets

There argument about whether democracy is good for capitalism was settled yesterday – by the financial markets. Any notion that people should have a choice about whether they should shoulder the burden of the global crisis was put to rest.

Markets recoiled in shock after Greek Prime Minister Papandreou’s unexpected announcement that he would call a referendum on the eurozone bail-out package which piles hardship upon hardship on the country’s people.

The suggestion of a democratic interference induced a cardiac arrest. Concern that Greece was now heading for default sent bank shares in particular plummeting. France’s Société Générale recorded its biggest one-day fall since it was privatised in 1987. The bank holds lost of pretty worthless Greek government debt.

Markets in government issue bonds – historically the safe-haven fall-back for investors – look as though they’ll also need resuscitation. The price Italy has to pay to borrow against its debt soared to over 4.5% above what Germany pays, despite heavy intervention by the European Central Bank.

This gap – or “spread” – is similar to one that that forced the Greek, Irish and Portuguese governments to seek mercy from the rest of the world, subordinating the fate of their people to the grim-faced come-what-may survival of the capitalist system.

Gary Jenkins, head of fixed income at Evolution Securities said “We may have reached the tipping point.” With a name like that, they should know, but what the outcome might be is beyond their, or anyone else’s ability to predict.

Last week, the 17 eurozone leaders thought they had a deal to avert a Greek default and

and prevent a European and global collapse into the unknown. The only certainty associated with the terms of the deal is that it must mean a further huge assault on the Greek people.

To receive new loans, the Greek government must impose still further cuts in public sector wages and scrap many bonuses, suspend 30,000 public sector workers for a year, cutting their wages cut to 60%, suspend wage bargaining, cut some pensions by 20%, increase taxes and implement a range of other measures.

So recourse to a popular referendum in the home of democracy is unlikely to meet with a majority in favour.

With his surprise move Papandreou, leader of the ‘Socialist’ PASOK, has thrown his party into turmoil. With only a tiny majority in Parliament, two members of his government have threatened to vote as independents, and a third is calling for a government of national unity. But he managed to win the support of his cabinet.

Then he was promptly summonsed to Nice to meet the leaders of Germany and France, who expressed total surprise at the referendum call.

It is more than 2,500 years since “the power of the people” was adopted as the basis for democracy in Athens. In the intervening period the forms of government in which, supposedly, all the people have an equal say in the decisions that affect their lives have changed many times over.

The advent and rapid development of capitalist society spread the parliamentary form as the means of resolving conflict in nation-states between the old feudal landowners, the new owners of accumulating capital, and latterly in Britain at least, keeping a lid on the aspiration of workers.

But, in the latter part of the 20th century, the credit-financed spread of global corporations overwhelmed and changed the role of parliamentary governments, who must now either submit to the rule of capital or leave the stage to someone who will.

In the occupation of towns and cities across the world, a new form of democracy is stretching its limbs, discovering its identity, assembling its forces in assemblies and occupations. They can easily establish relationships with employee-owned trusts like Publix in the US and John Lewis in the UK and co-operatives in manufacturing, distribution and finance, like Mondragon in Spain.

Then people’s assemblies could start to challenge the failed political system and open up a period of real democracy throughout the world. There’s no doubt it’s needed if we want to stop the rule of the financial markets.

Gerry Gold
Economics editor

Hedge fund raises spectre of 1933 as 'mobs' gather at bankers' doors

The irresistible force of the global economic and financial crisis is outstripping attempts by Europe’s governments to agree on a plans for tackling the continent’s debt mountain.

Confusion reined as first an emergency meeting of eurozone finance ministers scheduled for today was cancelled, sending stock markets tumbling around the world. Then European Union political leaders announced they would proceed with their summit. Nobody breathed a sigh of relief.

German chancellor Angela Merkel is staunchly defending German banking interests and the Italian coalition government is crumbling as it struggles with the EU demands for cuts which are needed, allegedly, to keep speculators in the country’s debt at bay. The far right Northern League is opposed to proposals to raise the pension age.

So-called vulture funds have been seen circling over Greece’s assets, which the International Monetary Fund, European Central Bank and EU insist are put up for sale in exchange for rescue funds in excess of €100bn and rising.

In the shadows lies a real terror of the consequences for the UK and the US should any EU deal unravel the interconnected network of credit default swap insurance that links everything to everything.

If the proposed 60% reduction of Greek government debt owed to private sector banks is made compulsory, and the country still defaults, the insurance clauses will be invoked and no one knows what the consequences will be.

But if the reduction or “haircut” is left as a voluntary option, hedge funds will be able to clean up, stoking the fury of the mounting protests as they learn the scale of profits being made out of the Greek tragedy at the heart of Europe.

Meanwhile, yesterday in the USA, the anti-Wall Street occupation in Oakland, California was forcibly broken up and cleared. According to local reports:

“Yesterday morning at 5am over 500 police in riot gear from cities all over central California brutally attacked the Occupy Oakland encampment at 14th & Broadway. The police attacked the peaceful protest with flash grenades, tear gas, and rubber bullets after moving in with armored vehicles. Apparently the media was not allowed in to document this repression, and the police established barricades as far apart as 11th and 17th. Over 70 people were arrested and the camp gear was destroyed and/or stolen by the riot police.”

The protestors are regrouping, but the forces against them are mounting. In an opinion piece in the Financial Times hedge fund owner Ray Dalio turns up the political heat as the capitalist contraction gets seriously under way.

Dalio is owner of Bridgewater, the world’s most successful hedge fund. His operation has grown ever more successful in the last few years, making profit rates of 25% out of the turmoil since 2008. Dalio's analyses are studied by influential people the world over. He writes:

“Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames.

“Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings. In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict.

“When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective ‘mob’ rule. This dynamic can lead to a self-reinforcing downward spiral.”

Dalio warns that the “ineffectiveness of government” creates the “perceived need for someone to gain control of the mess” and says that this was the reason the Nazis were elected to power in Germany in 1933.

These should not be taken as idle musings but as an indication of the nervousness in ruling class circles about the consequences of the catastrophe staring global capitalism in the face.

Under conditions of political and social crisis, the capitalist state has in the past dispensed with its democratic shell to maintain the rule of the corporations. What Dalio is saying is that that could happen again. We ignore his warning at our peril and double our efforts to win the argument for an entirely new political democracy around people’s assemblies in place of the decayed, anti-democratic state we now endure.

Gerry Gold

Economics editor

The crisis behind the Tory revolt

When more than a quarter of a governing party’s MPs defy instructions and vote against their own prime minister, you sense the political storm clouds are gathering over Westminster

In fact, but for the Labour Party and the Liberal Democrats coming to David Cameron’s rescue, the government would have been defeated on the motion for a referendum on Britain’s membership of the European Union.

What last night’s vote confirms is that the Coalition is led by two men who lack the support of their own parties because deputy prime minister Clegg hardly commands total backing either.

Cameron, a one-nation, free-market Tory was defied by a parliamentary party much further to the right who lost their standard bearer when Liam Fox, the disgraced defence secretary, was forced from office.

The right’s disdain for Cameron is so visceral, many wouldn’t care if the government fell and they found themselves a new leader. They may yet get their wish.

An unstable government, which was propelled into office by state officials when last year’s election produced a stalemate, is the reflection in politics of the equally volatile economic and financial crisis that has rocked Europe in particular.

Cameron and his cabinet know that the British economy’s fate is interdependent with what happens in the 17 eurozone countries within the EU. That’s why they resisted the referendum call, even if in their hearts of hearts they may agree with it.

When Greece formally defaults on its unrepayable foreign debt, as it is certain to do, the impact on Europe’s banks will be totally unpredictable. That’s the problem EU leaders are struggling with day after day, without convincing the markets they are getting anywhere.

So far they’ve come up with a fund of about €100 billion to bail out the banks that will be hit by a Greek default. Some observers say that a sum ten times that amount – i.e. €1 trillion – is the minimum required to provide temporary relief because countries like Italy and Spain are next in the firing line.

We should not underestimate the historic nature of the failure of the “European project”. It was designed to avoid a repeat of the two world wars of the 20^th century by bringing different nations under one common umbrella.

Economic integration was to be followed by political integration. In this way, economic crisis would be a thing of the past – as would free-for-all market competition. It has not turned out like that.

Since the mid-1990s, changed economic conditions have driven the market into the heart of the EU, which consequently became a regional arm of corporate-driven globalisation. What has emerged is a bureaucratic, often secretive, quite undemocratic EU run in the interests of capital and finance.

The Tory right are not entirely off target in their criticisms of the EU – except their alternative – to raise the Union Jack, batten down the hatches and make sure foreigners get no further than Calais – is hopelessly reactionary. Their opposition to the EU is entirely nationalist, cloaked with fake concerns about democracy and parliamentary sovereignty.

Whether it is the EU crypto-state or the British version, real sovereignty actually lies with a network of probably no more than 150 “tightly-knit” corporations, according to complex systems theorists whose ground-breaking study was published recently.

They rule through political and other proxies at national state, European and global levels (the World Trade Organisation, for example). This corporate-state partnership is beyond reform. It is the problem and not part of the solution.

A network of democratically-run People’s Assemblies has to create a sovereign power in its place and institute a new dawn of co-ownership, self-management and mass involvement. It’s the best way to deal with the rising tide of nationalism that last night’s vote expressed.

Paul Feldman
Communications editor

End the rule of the 1% as economy implodes

The force of the global economic implosion, which has seen unemployment skyrocket to a 17-year high in the UK, overwhelmed its first eurozone government last night. It is unlikely to be the last.

The Slovakian parliament voted to reject a stronger European Financial Stability Fund (EFSF) and hence a second rescue package for Greece. This was despite immense political pressure from the European Central Bank, the European Commission and the International Monetary Fund, as well as the US administration

They all warned of the systemic nature of the worsening crisis and the direst of consequences for the world capitalist economy should Greece be allowed to fail. As a result of the vote, the coalition government of Slovak Prime Minister Iveta Radicova fell after a small party in her ruling coalition refused to back the plans

The EFSF is the capitalist powers’ main weapon in dealing with the debt crisis that threatens the European common currency, the region's banks and the global financial system. But eurozone rules require all of the 17 member states to ratify the new plan and Slovakia was the last to vote after all the others had given their agreement.

Now the international lending agencies, responsible for holding the crumbling system together, have to stitch together a new interpretation of the rules allowing the package to be put into operation, whilst they wait to see if a more compliant government will emerge in Slovakia.

Just a few short weeks remain before the Greek government will run out of money and cease to be able to pay wages or pensions for the public sector employees who make up one fifth of the country’s workforce. But the price of the new, wholly inadequate deal would see further tax rises, jobs destroyed, wages cut and – to the banks’ horror – a write-down of the money they are owed by the Greek government by as much as 50%.

As those in the race to contain or deflect the impact of the deepening crisis struggle with its European expression, insolvency practitioners in the United States and elsewhere are gearing up for a busy time ahead.

Bankrupt book chain Borders, for instance, recently closed its doors after failing to find a buyer. Moody's credit rating agency says the number of troubled companies rose for the third month in a row in September, an ominous sign similar to the third quarter of 2007 when the economy slid into recession and the ensuing crash engulfed the world.

And in another blow for the New Green Dealers who are promoting an eco- friendly growth-oriented capitalist solution to climate change, recent failures included renewable energy companies Evergreen Solar and Solyndra. The latter collapsed in a politically-charged bankruptcy after taking a $535 million loan from the US federal government.

This time around China cannot come to the aid of the ailing system. As is now becoming clear, its huge injection of spending on infrastructure developments to ward off the impact of the global crisis on its domestic economy, has taken its toll internally.

A Reuters special report on China noted: “Local governments had amassed 10.7 trillion yuan in debt at the end of 2010. The government expects 2.5 to 3 trillion yuan of that will turn sour, while Standard and Chartered reckons as much as 8 to 9 trillion yuan will not be repaid – or about $1.2 trillion to $1.4 trillion. In other words, the potential debt defaults could be even larger than the $700 billion U.S. bail-out programme during the 2008 crisis.”

Be warned. Any and every attempt at shoring up the defences of the capitalist system will involve an unimaginable, intolerable assault on the lives of billions of people. Almost a million young people are on the dole in Britain already, according to today’s figures.

Saturday’s global occupation of city and town squares should become the focus for shaping a new social, economic and democratic political system founded upon the satisfaction of human needs. The 1% cannot be allowed to continue their rule over the 99%.

Gerry Gold

Economics editor

Capitalism - guilty as charged!

It is rare enough for anyone on the voice-of-the-establishment BBC to even mention the ‘C’ word let alone devote a whole programme to it. Even rarer then for it to broadcast a two-parter entitled “Capitalism on Trial”.

Reality will out, however, because the evidence that this is a crisis of the system as a whole is piling up, hour by hour.

Today, Italy’s debt was further downgraded. Yesterday, frantic discussions over the worsening Greek-focussed Eurozone crisis led to a postponement of the country’s aid package.

The reason? European banks are in no position to cope with an inevitable Greek default. So they are going to have to be bailed-out in advance! In the meantime, a new credit crunch is gripping financial markets.

Consumer spending has slumped, with incomes slashed by inflation, unemployment and short-time working. Sales of petrol in the UK, for example, have fallen by 15% since 2008.

Hosted by former Tory Michael Portillo, who admitted having a small part in the early 1986 Big Bang deregulation of the financial markets by the Thatcher regime, the programme gave air-time to a handful of the BBC’s favourite commentators.

Its own Robert Peston, the FT’s Gillian Tett, and the ever-lugubrious Will Hutton were among those offering a variety of defences of the crisis-ridden system, accompanied by those in favour of state intervention and others who would prefer to see “creative destruction” allowed free rein. Even the Socialist Workers Party’s Alex Callinicos got a look-in, drawing attention to Marx’s discovery of the tendency of the rate of profit to fall – the system’s most fundamental flaw.

But it was Peruvian economist Hernando de Soto who got closest to the heart of the problem, explaining the necessity of current attempts to reconnect the stratospheric book values of financial assets that were set free by the Big Bang to the real value-producing components of the global economy.

When the 30 years of deregulation driven on by the expanding needs of globalising manufacturing corporations stretched the credit system to breaking point in 2007/8, the requirement outlined by de Soto became unpostponable.

On the sidelines, the Coalition’s George Osborne’s rabbit out of a hat of “new” credit for small businesses is more confidence trick than conference trick. It finds him floundering against the stream of more wildly radical would-be policy makers who are calling for bank and mortgage debts to be wiped out by 50-100% “haircuts”, so that consumers can be freed to start spending again.

Portillo’s programme ended with a serious challenge – the system may be in crisis, but as yet nobody, he suggested, has come up with a well-defined replacement.

It’s a test that cannot be ignored and must be taken up by the crowds of people assembling in city centres across the planet. How can we extend the multitude of not-for-profit, democratically-controlled, worker and consumer co-operatives to the rest of society?

How do we bring the corporations and financial centres under social, common, democratic control? What bits of the old system can prove useful and what should be discarded (eg hedge funds, stock markets)?

We have to aim to go beyond resistance, beyond protest and pressure, beyond strikes and even occupations to actually challenge and remove the system’s grip on people’s lives and futures.

There is a need to contest political, state power itself because that’s how the system is held together. Creating new democratic forms like people’s assemblies, we shoud bring them to the point of challenging and replacing the old order.

That has to be the focus of the growing occupations of places like Wall Street (where trade unionists will join today’s march) and plans for similar actions worldwide on October 15.

Capitalism has had its “trial” and been found guilty as charged.

Gerry Gold

Economics editor

Panic as new meltdown looms

On the eve of the third anniversary of the collapse of Lehman Brothers – the investment bank which became the icon of the crash of 2007/8 – the world’s financial markets are once again in a febrile state little short of panic.

Exposure to Greek debt this morning led the ratings agency Moody’s to downgrade two French banks, indicating how close to another financial meltdown we are.

A Greek default, which will threaten the euro as a trading currency, seems impossible to avoid. Interest charges on lending to the Greek government have gone off the scale. One three-year bond, which was trading at 20% in June, now commands an astonishing 172%.

Jeremy Warner, the Telegraph’s senior business commentator, warns: “Greece is already effectively a cash only economy. Most forms of credit has effectively dried up, the Greek banking system is finished, and capital controls to prevent what little money that remains from leaving the country are surely only a matter of time. European banking must prepare for the worst as far as Greece is concerned.”

Charges on Italy’s €1,900bn debt mountain have also soared to record levels. The desperate Berlusconi government is offering state-owned properties and power companies for sale to the managers of China’s investment funds.

As the second phase of the global capitalist crisis breaks through, stark new figures tell the human story of millions of lives throughout the world, already wrecked by failed and now abandoned attempts to bring about a return to growth.

In 2010, 46.2m Americans fell below the poverty line, taking the rate to 15.1% of the population from 11% in 2000. More US citizens are living in poverty than at any time since records began more than 50 years ago according to the US Census Bureau.

With the more affluent having so far managed to stabilise their income, the 2.3% drop in median household income of all Americans in 2010 from the previous year masks a much greater decline for those below the line. Increasing long-term unemployment has depressed wages and left many without any income at all.

The number of Americans without health insurance rose by nearly 1m people to 49.9m. Nearly a quarter of American children are now living in poverty. Their number increased for the fourth year in a row to 22%, the highest since 1993.

Across the border, Mexico had 53 million people - half the country's population - living in poverty in 2010, according to the Monterrey Institute of Technology, with almost 20% in extreme poverty. Even for those working, according to the Bank of Mexico, 95% of the 800,000 jobs created in 2010 paid only $10 a day.

In Greece, poverty has visibly increased on the streets of the capital of four million, where people huddle in sleeping bags in empty alleys and can be seen rummaging through rubbish containers, looking for food or scraps of metal or glass to sell.

NGO Klimaka estimated the population living on the streets has increased by a quarter to 17,000-20,000 over the past two years. With Greek unemployment now over 16%, the new homeless come from all walks of life.

In the UK, the number of homeless families rose by 10% to 44,160 households in the past year, the first increase since 2004. Real incomes for UK families have dropped by 3.5% in the last year, according to the Institute for Fiscal Studies (IFS).

IFS researcher Robert Joyce, predicted the future in quietly measured tones: “The current economic downturn began more than three years ago, and may seem like old news. But, as in other developed countries, the most severe consequences of the recession on UK living standards have only just begun to be felt, and will continue to be felt for years to come.”

The global economic contraction the collapse of Lehman Brothers set in motion is driving debt-strangled Europe and everywhere else towards a second, far more devastating implosion. The Arab Spring could well be followed by the European Winter.

Gerry Gold

Economics editor

Laughing all the way to the bank

It’s hard to know what is more irrelevant – the report of the Independent Commission on Banking or Ed Miliband’s call for a code of conduct will allow bankers to be struck off in the same way as doctors.

Let’s talk about the official Vickers report, which today recommends that the banks build a wall between their traditional high street operations and the place where all the profits lie – the global, speculative money markets.

Make them separate operations, the argument goes, and the state will never again have to bail out and effectively nationalise many banks as it did in 2008/9 when the global financial system went into melt-down (NB: triggered by the collapse of Lehman Brothers, which was an investment bank).

If Vickers’ proposals were a solution – and they patently aren’t – the state would surely act immediately because the crisis is far from over. Instead, any changes are unlikely to be effective before 2019! The Vickers report makes cosmetic surgery look good.

British banks are sitting on countless billions of worthless Greek and other sovereign debt. They are not lending because their balance sheets are stuffed full of “non-performing” assets – bad debts to you and me.

Of course, none of these banks are truly “British” but parts of a globalised system that, particularly in Europe, is staggering from pillar to post. As the American economist Paul Krug noted over the weekend:

“Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat… And now it’s all coming to a head. We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.”

Krugman, however, along with many other economists, mistakenly believes this what we are living through is predominantly a financial crisis in which a misplaced emphasis on debt has overwhelmed economies and prevented a “return to growth”.

In truth, the financial system’s exponential growth was a state-encouraged response to a global economy that could only expand through pumping unlimited amounts of credit into the hands of consumers, corporations and governments.

Deregulation of banking, which accelerated from the late 1990s onwards, was not a cause but a consequence of globalisation itself. The production of commodities expanded so rapidly that there way no way consumers could buy them without credit. And when the price of homes got out of reach, people were lent more than they could ever afford to repay.

With money sloshing around global markets, it was no surprise that banks developed ever more creative ways of making profits with a range of exotic “products” like credit default swaps. But even these depended on some consumer somewhere along the line making interest payments. And when some US homeowners began to default in 2007, the financial system began its unravelling, which continues.

By the time of the crash, global financial assets were reckoned to be 4.5 times the value of the real economy. Measures that include derivatives increase the ratio to 10 and more times. Some observers like Market Oracle believe that less than half of the debt in the system still has to be accounted for.

Denied unlimited credit, the productive economy has gone into free fall and is heading for outright depression. The savage attack on living standards in Britain reported today by the Institute for Fiscal Studies – while bosses’ pay soars - is capitalism’s response.

In this context, striking off a banker for bad behaviour as Labour leader Miliband suggests, has got to be the feeblest idea of them all! The system as a whole is broken, unsustainable and needs replacing. Democratically-owned and controlled banks and corporations, run along not-for-profit lines, beckons. How to achieve this is another debate. What’s the alternative?

Paul Feldman

Communications editor

Greece is the first domino to fall

The global debt crisis has claimed its first sovereign state victim in the shape of Greece, which has effectively defaulted on its international loans. It won’t be the only country to suffer this fate or its population the last to feel its social impact.

The eurozone’s political heavyweights Germany and France sealed Greece’s fate last night when they agreed that private holders of Greek’s mammoth debt will take a hit of €50 billion over three years. Whether the banks and bond holders in the firing line will do so quietly is another question, however.

Not even achieving an agreement in Brussels can paper over the deep divisions between Bonn and Paris about how to prevent the collapse of the euro as a trading currency or prevent financial contagion moving on to other economies like Spain and Italy.

All the 17 eurozone governments could agree was that a "controlled" failure was the only way to prevent the collapse of the single currency and a global financial rout. In the end, the figures are meaningless and only add to the debt mountain facing Greece.

Athens will get another bailout package totalling €159bn. This is on top of the €110bn “rescue package” agreed less than two months ago. The country’s debt is by various manoeuvres, including subsidising interest rates, cut by a quarter.

So get this straight. You give someone more money to pay back existing debt, adding to the total outstanding, extend the repayment period by decades and ask some lenders, including the European Central Bank, to take less in return.

That’s the world of fantasy finance that was built by the banks and has now been adopted as the way to go by governments.

Refinancing is clearly a miracle cure of our age! Shame this arrangement is only available to states facing bankruptcy and not individual households running out of money for housing, food, transport and energy.

The deal means that banks could be forced overnight to write down as losses billions of euros in losses on Greek debts, leaving them short of capital. Financial experts say the

the debt restructuring could also trigger payouts on billions of dollars of credit derivative contracts, used to hedge against or speculate on a Greek default

The emergency summit was accompanied by a truckload of wishful thinking. Dutch Prime Minister Mark Rutte said: "We have thus sent a clear signal to the markets by showing our determination to stem the crisis and turn the tide in Greece, thereby securing the future of the savings, pensions and jobs of our citizens all over Europe."

What has actually happened is that the “peripheral” economies like Greece, Ireland and Portugal are being cut adrift or reduced to vassal states to buy up goods produced in northern Europe. The European Union is beginning to resemble a corporate empire with cheap labour subsidiaries disguised as countries.

France pushed through a plan to create the European eqivalent of the International Monetary Fund and there was agreement for most countries to rein in their spending to protect the euro. It won’t be enough to hold back a crisis generated by mountains of debt built up in every sector over decades.

As Reuters correspondent Felix Salmon noted: “Overall, this looks like a deal which can quite easily be scaled up and used as a framework for future default/restructurings … But there’s nothing here to reassure holders of Portuguese and Irish bonds — or even Spanish and Italian bonds, for that matter — that they’re home safe. Greece will be the first EU country to default on its debt. But I doubt it’ll be the last.”

The second wave of the global financial crisis that has shaken global capitalism is under way and is certain to be much more devastating than the first shock of 2008.

Paul Feldman

Communications editor

Second wave of the crisis reaches land

In pursuing what the prevailing law defines as their perfectly legitimate individual interests, investors are collectively destroying the universe within which they – and we – all live. As agents of the capitalist way of doing things they have no alternative.

The latest assault on Italy, where investors are bailing out of banking and the market rate of borrowing has soared underlines, what is surely obvious to all – the second wave of the crisis which erupted in 2007-8 is now underway.

The punitive rates of interest charged for the loans needed by Greece, Portugal, Spain, Ireland, Italy and Iceland to avoid default only ensure that such defaults are inevitable.

Rating agencies have now declared Ireland’s debts to be worthless. Greece is virtually certain to default in the immediate future. The recession – decline in production – in each of these debt ridden countries is deepening. A collapse of the euro as a currency, leading to an immediate slump in trade, is a distinct possibility.

The formerly mighty US is locked into a political impasse over proposals to reduce its staggering $14 trillion debt mountain. If it is not sorted out soon, the US government will come to a default and the unthinkable – a dollar default – comes closer.

Occasionally, in struggling to find solutions to the impossible contradictions which dog their attempts to explain the deepening crisis and find solutions, a rare commentator will be found shedding light on the inevitable consequences of following the current path.

The Financial Times’ Martin Wolf is one member of this rare breed. In a recent column reviewing the crisis in the eurozone he revealed another two of the impossible contradictions that are skewering the global economy -

- the more successful a country is in reducing its debt burden in order to be able to return to growth, the deeper its recession gets. Latvia’s GDP, for example has dropped 23% since the crisis erupted.

- the more successful a country turns out to be in cutting its costs, the worse the debt burden becomes.

The solution? Wolf says “debt restructuring [a polite term for state bankruptcy, default, and debt cancellation] is merely a necessary condition for an exit. It is unlikely, in all cases, to be enough.”

His chilling prediction sets the scene for the coming months. “Some economies may just wither away.”

Putting it simply, mounting and ongoing resistance to the measures – “austerity” hardly begins to encompass it – being used to attempt to reduce unsustainable global levels of debt, means that debt must now be “restructured”, wiped out.

But the debt grew throughout the last 40 years to fund growth. So growth must now give way to contraction. Latest estimates suggest that the value of Greece’s debt must be reduced by 75%. And so must its production. And not just in Greece.

Grasping how markets, governments and corporations are driven by forces more powerful than the sums of their parts is vital. We have to get to grips with the contradictory forces at work in the capitalist economy and show that the system itself is broken and unsustainable.

Cuts in services, £9000 fees for university courses, soaring unemployment, inflation, mounting house repossessions, privatisation and attacks on pensions are the consequences of the crisis that broke in 2007-8.

What is coming up the line as the second wave of the global tsunami advances will shake society to its foundations. At the same time, it will create opportunities for transcending capitalism and creating a rational, sustainable economy. It’s a chance we can’t afford to squander.

Gerry Gold

Economics editor

A dictatorship of capital in the home of democracy

The global “psychological operation”, aka psyops, that helped to secure last night’s vote of confidence in the Greek parliament for the hastily reorganised Pasok cabinet is a clear expression in its historical birthplace of the negation of democracy.

Massive demonstrations in Syntagma Square in front of Parliament, accompanied by general and other strikes have delivered that message. Yet all of the notions of the will of the people, all citizens having a say, equal participation, self-determination have melted into the air.

On the eve of the confidence vote “inspectors” from the International Monetary Fund (IMF) and the European Central Bank (ECB) arrived in Athens to reinforce the hurricane of warnings of the terrible consequences for Greece should it fail to adopt the prescribed measures.

These are designed to ensure that the monstrously, impossibly, unsustainably indebted country meet its obligations to other governments, banks and financial institutions.

These two unelected agencies represent the interests of the participants in the global financial system – the banks, hedge funds, bond dealers, speculators and gamblers in derivatives that stand to lose unimaginable sums of unearned, mostly imagined title to wealth.

And the pressure is certain to mount in the days running up to July 3, when the “socialist” government must vote – if the “international community” has its way – to make a new, even more severe assault on its own people who clearly can’t and won’t take any more.

Let’s not suggest for one moment that there’s a global conspiracy, that the psyops operators are acting according to an agreed plan, (although who knows what was discussed earlier this month at the annual Bilderberg meeting).

No conscious conspiracy is needed to excite the credit ratings agencies Moody’s and Standard & Poor, who’ve simply continued to do their job – putting a set of letters (CCC, the lowest) to the likelihood that Greece will be able to pay the interest on its debts - simultaneously ensuring that soaring interest rates put it into the realm of the impossible.

Nobody needs to tell the banks and investors who’ve lent to Greece that the only way to defer the looming global breakdown is to close down any drain on profitability, to eliminate public sector spending, to transfer whatever is left to the for-profit corporations.

But why is Greece’s debt so important that it has become the focus of world attention? Compared to the amount the US owes – its national debt is approaching $14 trillion – it hardly seems worth bothering about.

There are plenty of people talking of a new Lehman moment, a reference to its collapse in 2008 which triggered the present financial crisis. They are only too aware of the interconnected web of debt dependency that ties countries, corporations and populations.

German, French and British-based banks have massive holdings of Greek debt that would be worthless if a default takes place. And banks have so far only written off around half the vast overhang of fantasy finance created in the globalisation period from the 1980s onwards.

Where does Greece fit into all of this? It is the home for the world’s largest fleet of merchant ships. Close to 4,000 vessels, approximately one fifth of the world’s total, carry oil and many other commodities around the world in tankers and containers making a huge contribution to world trade.

With trade certain to collapse as it did in 2008 – when it plummeted by 90% – and tourism, Greece’s second largest source of income certain to fall as living standards in the rest of Europe decline, Greece hasn’t a hope of sustaining its repayments.

In 508BC, following a popular uprising, the government of Athens was reorganised around an assembly of all of the citizens. It was an early model of democracy. In the ferment of political discussion on the squares of cities, towns and villages of Greece, Cairo, and Madrid a new richer concept of democracy is emerging.

Its needs to embrace the ending of the dictatorship of capital over people’s lives and the principles of self-determination expressed, for the first time, through demos and kratos – people and power.

Gerry Gold

Economics editor

IMF turmoil adds to sense of crisis

At another time, the fate of the head of the International Monetary Fund would not have mattered too much. But photos of Dominque Strauss-Kahn being led away in handcuffs by New York police have unsettled global markets.

And with good reason. The IMF, along with the European Union and the European Central Bank (ECB) is centre stage in a drama that has all the makings of an unravelling of the global financial system that would put the 2008 crisis in the shade.

Strauss-Kahn was due to hold talks in Europe today over the details of financial support to Portugal, which faces state bankruptcy, and about Greece, which is heading for default on its foreign debt despite a huge bail-out last year. Instead, Strauss-Kahn is due in court to face sex allegations relating to a hotel maid.

Most economists believe that Greece will default, with some loans having to be written off and longer repayments granted for the remainder. But the implications of such a move are so serious that Strauss-Kahn and European leaders like Germany’s Chancellor Merkel were desperate to find another solution.

Earlier this month, José Manuel González-Paramo, an ECB executive board member, said a Greek debt restructuring would be a disaster for the eurozone. There would also be knock-on effects on the balance sheets of banks in France, Britain and Germany that hold Greek debt. The risk premium demanded on Greek debt by international investors has rocketed.

"A restructuring would have legal and systemic consequences that are difficult to calculate right now but would in all probability be bigger than after the collapse of Lehman Brothers," he said. Just in case anyone needs reminding, when Lehman Brothers filed for bankruptcy in September 2008, it triggered a seizure at the heart of the global financial system and led to the deepest recession since the 1930s.

Greece’s predicament is just one of the consequences. Despite massive cuts in public spending - average pensions were cut by over 20% last year and civil servants wages slashed by 15% - the government’s deficit has actually risen because the recession has reduced tax and other revenues.

The country's debt has spiralled to 142% of national income. Portugal's total has reached 93% of GDP. Britain's annual debt of 10.5% last year pushed its total to 80%, compared with Germany's 83% and France's 82%. Greece’s Socialist Party government has announced plans to cut an extra €23bn in expenditure by 2015 and privatise €50bn in public assets, leading to threats of more strikes. There have been nine general strikes in the last 12 months.

At moments of crisis, the role of individuals like Strauss-Kahn – who played a key role in brokering help for Ireland, Portugal and Greece – is critical. So the enforced absence of the head of the IMF is not exactly what global capitalism was looking forward to this week.

As a former French finance minister, Strauss-Kahn personally knew most of the key leaders and officials managing the crisis. He was also due to challenge Nicolas Sarkozy for the French presidency next year on behalf of the country’s Socialist Party. That now seems improbable, leaving Sarkozy to walk home.

And if you think the financial crisis is confined to Europe, think again. President Obama has called on Congress to raise the upper limit on the federal deficit, which is currently running at $14 trillion a year. Yesterday he warned that if investors "around the world thought the full faith and credit of the US was not being backed up, if they thought we might renege on our IOUs, it could unravel the entire financial system".

If you’ve got any spare cash, it might be a good time put find a suitable mattress.

Paul Feldman

Communications editor