Sick global economy hit by new contagion

The list of countries hit by the wave of withdrawal of speculative investment capital lengthens by the day. Countries amounting to half the global economy are being forced to spend currency reserves, raise interest rates and consider controls over the movement of capital.

A contagion of capital flight is hitting Argentina, India, Indonesia, Russia, Brazil, South Africa, Hungary and Turkey. A dramatic reversal in the global marketplace, which began in May and is accelerating with every new shock statistic, is forcing the governments of “emerging” economies to savage the living standards for their already low-income populations.

Each country has a different story to tell: worse or better attempts at managing their economies; higher or lower levels of foreign currency reserves; more or less extremes of corruption of government ministers; levels of civil unrest ranging from the benign to insurrectionary. But the source of the crisis invading their borders lies elsewhere, beyond their control. 

Investors on the global financial markets – better known as speculators, or gamblers – were spooked last May by the US Federal Reserve’s announcement of its intentions to begin reducing its $85 billion per month programme of credit creation. The withdrawal of funds – known by the jargon quantitative easing – began soon after and has recently been accelerated.

The Fed will have taken many factors into account in the central bank’s decision to reverse the programme of credit creation which – together with the sharp reduction in take-home pay – has been a key factor in the jobless economic “recovery” following the 2007-8 crash. 

Ballooning levels of “margin debt” figured high among the triggers for the decision.  These are investments made with money borrowed on the expectation that the Fed would continue pumping credit into the economy. Indicators suggested that these investments had reached danger levels, threatening another financial collapse.

China’s central bank is also being obliged to follow a similar path. Having fought the global recession with a huge programme of credit-financed construction of cities, roads and railways it recently made tentative steps in opening its borders to volatile international investors.

Some analysts estimate that foreign financial institutions now have almost $1 trillion tied up in the Chinese economy, either as investment in or loans to corporations. George Magnus, senior independent economist at UBS, says that the Chinese banking system resembles that of Japan during the 1980s in the years leading up to that country’s financial crash.

“If the dollar were to appreciate it could cause problems for those banks that have borrowed in dollars. Anywhere you have a banking system that uses a non-domestic currency, there is a possibility of a mismatch that could cause issues when the value of your liabilities runs away from you,” said Magnus.

In China, which became the manufacturing powerhouse for the global corporations in the last century, growth has slowed for 11 of the last 14 quarters. The Markit/HSBC manufacturing Purchasing Managers Index fell to a six-month low of 49.5 in January, suggesting the overall factory sector contracted again from December.

With 50 being the dividing line between growth and contraction, the omens are very bad indeed for a global economy depending on China sucking in raw materials and components and assembling them for sale back to the richer half of the world.

In the US, manufacturing grew at a substantially slower pace last month as new order growth plunged the most in 33 years. Some blamed the severe weather, as if things will improve along with the seasons. So the world’s two biggest economies are in deepening trouble.

Assessing the long-term prospects for humanity including the impact of environmental degradation and climate change, Christine Lagarde, managing director of the International Monetary Fund, is calling for a new Bretton Woods arrangement.

She said in a BBC lecture that such a meeting was needed to restore economic sustainability and reduce global tensions. She was invoking the spirit of multilateralism and a return to the “brotherhood of man” philosophy promoted by economist John Maynard Keynes at the 1944 meeting in the United States.

To this listener her lecture invoked only the spirit of Humpty Dumpty. She would be better off getting ready for global Meltdown II.

Gerry Gold

Economics editor

Spectre of deflation haunts global economy

For the first time since 2009 the UK rate of inflation has fallen to the Bank of England’s target of 2%. For most people, whose real incomes have been falling, a slowing in the rate at which prices increase is surely a welcome relief. But alarm bells are ringing for the capitalist economy as the spectre of deflation looms large.

Despite the pre-Xmas furore over energy prices, fruit and meat price increases slowed at the end of last year in the UK. The prices of toys and computer games fell at a faster rate last month than a year ago. Supermarkets are reducing the amount they charge for petrol and diesel.

There’s a similar story in the major economies of the United States and Europe where the threat of inflation has receded.

Conversely, in Japan, after two decades of deflationary slump, an increase in inflation has been welcomed. But this measure of the success of the attempt to shock its economy back to growth through devaluation and credit looks like being short-lived.

Whilst continuing to promote an optimistic tone on prospects for growth (what else could she do?) Christine Lagarde, managing director of the International Monetary Fund, is leading the charge against the newly emerging menace of deflation.

“The growing danger of deflation threatens to derail the global economic recovery,” she says.  “If inflation is the genie then deflation is the ogre that must be fought decisively.”

So what’s the problem?

Falling prices tend to induce their own downward spiral. People put off buying decisions as long as possible as they wait for prices to drop, reducing demand. A reduction in demand leaves markets oversupplied and prices drop further and faster.

Good for consumers, at least in the short term. But bad, very bad for producers, and especially the hedge funds who own the giant global corporations and see profits dropping like a stone if the trend continues.

So employers are forced to take action – reducing real wages which in turn further reduces demand, driving up productivity and cutting production by shutting factories, taking capital out of circulation.   

No wonder they’re worried. The long-term impact of chasing short-term profit by transferring production to “emerging economies” where labour has been relatively cheap, has had long-term unwelcome side-effects.

A newly published analysis by Marxist economist Michael Roberts digs into 50 years of data to explain why productivity growth has declined and the dynamism of global capitalism is waning as a result.

Roberts begins with a report from the US Conference Board (a business research body), which says: “Emerging markets, and especially China, account for the bulk of world’s productivity growth. But the years of rapid, easy improvement appear to be over. Since these countries remain significantly less productive than mature economies in US dollar terms, the ongoing shift of economic activity away from the latter adds to the global productivity slowdown.”

Now the rate of growth in China is dropping fast to an official 7.7% - a 14 year low. The slowdown is accentuated by its government’s attempts to rein in the effects of its monstrous post-2008 crash credit expansion. And that’s really bad news all round for the global economy.

A slowdown in China – which some analysts suggest has reduced real growth to as low as 3% - contributes to driving the self-feeding spiral of decline into a global depression.

Roberts sums up the analysis of the Conference Board thus: “This slowdown seems to me another signal that the world economy (or at least the advanced capitalist economies) is struggling with a depression.  It also shows that increasingly world capitalism is failing to provide dynamic growth.”

With demand from emerging economies slowing, prices on the global commodities exchanges are dropping. The price of an ounce of gold – the universal measure of the value of commodities – dropped last year from $1,900 to $1,200.

Deflation has another damaging result. The real value and cost of debt actually increases. Highly indebted countries, corporations and individuals around the world had better take note. Talk of a “recovery” is not only premature but entirely ignores what’s really happening in the global economy.

Gerry Gold

Economics editor

Exclusive: Sell the Acropolis, says Merkel in bugged phone call

German Chancellor Angela Merkel has complained to President Barack Obama about the bugging of her mobile phone by America’s infamous National Security Agency. In fact, according to whistleblower Edward Snowden, the NSA has access to just about everyone’s emails and phone conversations.

We’ve been passed a transcript of a three-way conversation between Merkel, Mario Draghi, the head of the European Central Bank in Frankfurt and Christine Lagarde, head of the International Monetary Fund, who was in Washington at the time. The call took place in May 2012 when the Greek government was close to collapse over its plans for further drastic cuts in public spending before a new bail-out was agreed.

Merkel: What are we going to about Greece? German taxpayers are fed up with their attitude. We can’t keep bailing them out if they are not going to make sacrifices. If they won’t sack civil servants and cut their pensions, we should throw them out of the euro.

Draghi: Madame chancellor, with all due respect, we can’t just eject them from the euro because it could easily lead to the domino effect.

Merkel: What is a domino?

Draghi: It a piece of black plastic or ivory used in a game, it is oblong shaped and has white dots on one side. You stand them on their end, next to each other. If you push one over, the others will fall too. This is called a domino effect. Many wars start this way.

Lagarde: Madame chancellor, I think what Signor Draghi is saying is that if Greece leaves the euro, others may consider that the single currency is only for rich countries. Others like Spain and Portugal may also run into difficulties and the euro could collapse.

Merkel: Ah, so. We keep Greece in the euro but insist they cut their spending before they get more bail-out funds. Is that correct?

Draghi: The difficulty is that it’s hard to see what how they can reduce their spending much more. I am told that the government has run out of money to pay for imported medicines and that hospitals cannot pay their electricity bills. We may have to lend them more money so that they can repay the banks the interest on the loans they gave them in the first place.

Merkel: We have to do something. Tourists from Germany are being abused when they go on holiday in Greece. The Greeks seem to blame us for their problems yet we have gone out of our way to help them. Perhaps they could sell the Acropolis or the Palace of Knossos? That would raise some money, surely?

Lagarde: Yes. I know some hedge funds here in Washington that would buy these monuments and lease them back to the Greeks. There must be many more temples and palaces that could be sold in this way. We should ask their government to draw up a list. We have to stand shoulder to shoulder over Greece. Other countries must know that if they get into debt that the most important thing is saving the banks and the financial system. These are our priorities.

Draghi: Many European banks are still in some difficulties over the excessive debt on their balance sheets. Protecting them has to be top of our agenda.

Merkel: Agreed. So we will tell the Greek government to, how do you say, swallow the medicine because in the long run it will cure them! By the way, who do you think will win the European Champions League final in Moscow [between Bayern Munich and Chelsea]?

Draghi: It won’t be a Greek team!

Lagarde: Nor a French one!

The trillion dollar question with no answers

If nothing changes, the US government will run out of money, somewhere between October 22 and November 1 and plunge a fragile global economy into another meltdown. With the two parties in Congress locked in deadlock, time is running out.

Already, two million federal government workers are having their pay cheques delayed, and 800,000 of them might never be paid at all. The days are running into hours as the deadline approaches for Congress to award itself a further extension of its towering $16.7 trillion debt (a trillion has 12 zeros, by the way).

But with no sign of a solution to the week-old US government shutdown forced by the Tea Party wing of the Republicans, a political deal looks less – and an historic, unprecedented default by the world’s biggest national economy – more likely.  

Updated forecasts from the International Monetary Fund can only intensify the deepening political crisis. In its World Economic Outlook, the monetary hit squad now expects the global economy to grow only 2.9% this year, down from the 3.2% it estimated just six months ago, in July.

And, as everyone with half an eye to political economy knows, capitalist economies become unsustainable with anything less than 3% growth.

The figure for the US, still the world’s largest economy, sees a sharp drop from 2.8% in 2012 to 1.6% in 2013, nowhere near enough to see unemployment fall to 7%. This is the level the Federal Reserve, the US central bank, says will trigger a reduction in quantitative easing, the massive inflationary programme of money printing supposed to bring about the mythical recovery.

The interventionist wing of US capitalist interests argue that the faltering signs of recovery call for more credit to be pumped up. But the Tea Party and its friends will intensify their hijack of the government – insisting on sharper, more brutal spending cuts as the price of an agreement.

The 0.5% increase in the forecast for the UK, which triggered press demands for an apology by IMF chief Olivier Blanchard to chancellor Osborne over the former’s criticism of the latter’s austerity drive, is nothing to celebrate. Despite being the biggest increase among the developed countries, it only raises the expectation of UK growth to a dismal 1.9%.

Sainsburys operates at the sharp end of capitalist interests. Its sales are a key measure of the impact of economic conditions on people’s ability to buy food.  Its boss Justin King expects frozen wages and inflation to bring about a further 2% drop in real incomes over the next 12 months. No recovery there.

The IMF sees conditions in the euro area continuing to worsen for this year, with an overall shrinkage of 0.4%. Germany will at best make a 0.5% rate of growth. Italy will shrink by 1.8%, and Spain by 1.3%. Next week, the IMF together with its European Central Bank and European Commission partners in the “troika” will be back in Greece. The ongoing global crisis has forced its economy to contract by one quarter since the 2007 crash, and further 4% shrinkage is expected this year.

The IMF has also been busy in nearby Serbia. Lazar Krstic, the 29-year-old finance minister, pledging to stabilise government debt by 2017, yesterday launched the country’s own savage austerity and privatisation programme. This is part of the price of hoped for EU membership, and he is also seeking billions of euros in loans from the United Arab Emirates to avoid imminent bankruptcy.  

Look further afield to the “emerging and developing countries’” and the story becomes even more gloomy, with negatives across the board. China’s three-year deceleration is continuing, its growth rate shrinking towards 7%.

Xi Jinping, president of the second largest national economy, said he expected a "long and tortuous process" of world economic recovery. That’s a euphemism for further brutal assaults on living standards just about everywhere for the foreseeable future. If global capitalism was on a supermarket shelf, its “use by” label would be a long time in the past.    

Gerry Gold

Economics editor

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

China's 'unsustainable'' economy weighed down by debt

Hopes that the continuation of China’s long boom will drag the rest of the developed capitalist world – the so-called advanced economies – back from contraction have been further dashed

The country’s part in the global economic spiralling slowdown was underlined yesterday when rating agency Moody’s joined Fitch in downgrading the country’s credit outlook. The downgrade from positive to stable was the agency’s response to the news that China’s growth rate has slowed to 7.7%, continuing the downward trend of the last two years.

News of the slowdown - greater than expected by market speculators who were banking on 8% or higher – reverberated around the world. Prices on the commodity and stock exchanges dropped sharply as demand for key inputs, including copper and oil, will fall.

Fitch downgraded its China rating last week. The agency sees warning signs in the massive expansion of credit from 130% of gross domestic product in 2008 to 200% in 2012. This is partly the result of the state’s huge investment in new cities and transport infrastructure, which was the response to the 2007-8 financial crash.

But the growth in credit is also the product of a hardly-regulated shadow banking industry offering “wealth-management” products to the minority of new rich who’ve benefited from China’s emergence as the world’s second largest economy.

The investment from abroad in search of cheap labour, which drew millions of Chinese into the workforce serving the profits of global corporations is now in decline as companies like Foxconn, which runs Apple’s assembly plants is looking elsewhere  in the world. Some corporations are even returning to the United States where real incomes have been driven down.

China’s state infrastructure programme, heavily promoted by former premier Wen Jia Bao, encouraged local administrations into spending way beyond their means in order to stave off the worst effects of the global crash, but he saw its limits.

"Another year of propped-up growth via state spending and a credit deluge would, we fear, push China dangerously close to proving Wen Jiabao correct - that the current economic model is 'unsustainable'," said Alistair Thornton, senior China economist at IHS Global Insight. "If something is unsustainable, at some point, it won't be sustained."

Despite the warning signs, China’s central bank has cut interest rates twice since June to reduce borrowing costs for businesses and consumers and increase lending.

And China is far from exempt from the continuing global slowdown. Yesterday the International Monetary Fund once again cut its forecast for world growth to 3.3% for 2013, from its January prediction of 3.5% whilst trying but failing to convince the markets that it remains upbeat about the future.

The IMF’s latest World Economic Outlook sees the eurozone as a whole contracting by 0.3%, the US slowing to 1.9% growth as the government slashes spending, but it also saw growth slowing in large emerging economies like Russia, China, Brazil and India.  

Summarising the latest set of global data, leading economics professor Eswar Prasad says: “The global economic recovery remains stuck below takeoff speed, unable to achieve liftoff and facing the risk of stalling.”          

Prasad’s warning that “politicians around the world continue to avoid tough structural reforms, instead relying on central banks to continue propping up growth”, implies a redoubling of the assault on living standards that has produced 60% unemployment among young people in Greece and Spain. 

Without these more vicious “reforms”, says Prasad, “policy and political uncertainty remain sources of drag that could prevent the world economy from attaining liftoff, raising the risk of a crash”.

On the day that UK unemployment rose by 70,000, you have to say that the “crash” Prasad warns about is a more likely outcome than “liftoff”.

Gerry Gold

Economics editor

Resistance by Cypriots deepens eurozone crisis

The deepening crisis in Cyprus, where every single MP voted against plans to steal a portion of people’s savings, has thrown eurozone leaders into turmoil. Clearly the snail pace of parliamentary processes forcing through austerity is proving too slow for Europe’s ruling elites.

Cypriot MPs effectively rejecting the blackmail letter drawn up by Berlin and sent via the dreaded Troika of European Union, European Central Bank and the International Monetary Fund. 

Buoyed up by the huge anger uniting its people and to everyone’s surprise, not even the MPs of the right-wing government voted in favour of the ‘deal’ which would have seen the EU dipping its hands into every bank account to extract 10% of any money they can find.

In saying ‘No’, the MPs joined the growing resistance across Europe – from Italy, to Spain and Greece – to austerity measures that are designed to rescue a capitalist system that is drowning in debt.

The attack on savings – while leaving bank creditors out of the frame – is a new tactic designed to extract tribute for the sovereign debt monster affecting so many countries blown up in the wake of the Great Global Crash of 2007-8.

Even the Church of Cyprus’ Archbishop Chrysostomos is with the opposition, at least for the moment: "The entire wealth of the Church is at the disposal of the country ... so that we can stand on our own two feet and not on those of foreigners." The church is a major shareholder in Cyprus's third-largest domestic lender, Hellenic Bank

Banks and the stock market remain closed. No one knows when (or should that be if?) they will reopen. The 1.1 million population of the small island, as well as the bevy of foreign tax-avoiders are denied access to their funds. But the threat of a Europe-wide bank run contagion is very real. People everywhere are eyeing up the security of their savings. Those that have any.

The fragile peace engineered by the co-conspirators of the Troika in the form of a Europe-wide banking union has been shattered. In a sign of nervousness in other eurozone countries, Spain’s finance minister declared savings accounts in his country

“sacred”, adding Cyprus was “special and unique”. Wishful thinking.

But as Cypriot finance minister Michael Sarris flew to Moscow seeking help, much to the consternation of EU officials, the problems mounted. Even if Russia granted an extension of an existing loan and reduced the interest rate, it wouldn’t make a difference. Cyprus may even offer newly-discovered gas resources could also be on offer.

Wolfgang Schäuble, German finance minister, is insisting that the Troika’s plan prevails.

After the vote in Cyprus, he said: “Cyprus is living with a banking sector with low taxes and favourable laws that is completely overdrawn and that makes Cyprus bankrupt. This business model is not sustainable.”

With the two big Cypriot banks living off emergency liquidity from the central bank, the real possibility is that the country will be ejected from the euro, plunging the single currency into a downward spiral.

Cyprus is part of a growing global contagion which austerity policies have deepened,

Inflation is rising just as manufacturing is declining. With only the faintest signs of life in the US economy, investors have now begun to assess the likelihood - and catastrophic consequences - of an end to the years of historically low interest rates.

Ben Bernanke, chairman of the US Federal Reserve ominously began a speech with these words: ‘Why are long-term interest rates so low in the United States and in other major industrial countries?’ Later today, he’s expected to give his views on the end of quantitative easing.

With these new developments in an increasingly desperate situation, our attention must turn from just resisting austerity to replacing the bankrupt system altogether. A global network of peoples’ assemblies has to take control of the banks and the financial networks. Then they could be converted into a democratically run not-for-profit service to co-operative enterprises producing for need.  

Gerry Gold

Economics editor

Leaving cloud cuckoo land

The International Monetary Fund is amongst the most influential institutions on the planet. It has a membership of 188 countries and employs 2,400 staff. Half of them are economists. If anyone should know about the state of the global  economy and its likely trajectory, you might think it was the IMF.

But you’d be wrong. The IMF has just had to “revise” its growth forecasts downwards, not for the first time. Fear not, Britain has its own forecasters. But they’re no better.

The Office for Budget Responsibility was created by the Coalition in 2010 to provide as its website proclaims “independent and authoritative analysis of the UK’s public finances. It is one of a growing number of official independent fiscal watchdogs around the world”.

It too got it’s forecast wrong. Badly. And now it’s own up time.

In its latest Forecast Evaluation Report, the OBR says: “Following the Coalition’s first Budget in June 2010 we forecast that the recovery would be slower than its predecessors, but nowhere near as slow as it has been. We forecast that GDP would rise by 5.7% from the first quarter of 2010 to the second quarter of 2012, but the latest data suggest it has grown by only 0.9%.”

Ask virtually anyone on the street whether the economy is going to improve and they’d give it the thumbs down. Nothing could be more obvious.

How is it that these highly paid experts got it so wrong?

Are they, perhaps, living in cloud cuckoo land, in “an unrealistically idealistic state where everything is perfect”? Are they perhaps unaware of reality or deranged in holding such an optimistic belief’?

The truth is the OBR, like the IMF, is collectively blinded to reality by the views held by all in common and expressed recently by an eminent political figure, who said: “21st-century politics is, in fact, increasingly post-ideological. The biggest challenges we face are similar in most countries: growing our economies in a way that creates opportunities for everyone, providing high-quality health and education services, ensuring safety and security.”  [my emphasis]

This was former New Labour prime minister Tony Blair in a collection of essays on  "Government for New Times”. The extract is from the first of five lessons Blair claims to have learnt from his period as PM. It’s not surprising that Blair remains wedded to the growth that has brought the planet’s ecological systems to the limits of their ability to support life.

But you might find his second lesson a bit of a shocker: "The second lesson is that you have to aim for systemic change. The pace of change in the modern world is incredible, with the emergence of new powers, such as China, India, and Brazil; new technologies in communications, energy, and medicine; and new global challenges like climate change and the financial crisis. Only systemic change, as opposed to incremental or piecemeal reform, will allow government to keep pace in a rapidly changing world.”

Has Blair suddenly become a revolutionary?

We might even agree with his third lesson that “the best systemic change and delivery begins with the right conceptual analysis”. But Blair, the IMF and the OBR share the same foundational concept held by the 1% – there is no alternative to the capitalist system of production.

And they’ll do anything to preserve it. Like destroying the productive infrastructure of Iraq, and causing the death of more than 1 million people in order to give contracts to the oil corporations for its reconstruction and exploitation.

Or driving down living standards, cutting public services and reducing real wages in Europe and North America to compete with emerging powers.

These are the kinds of things that Blair and his co-thinkers mean by “systemic change”.

Real system change requires new forms of democratic ownership and control, a switch from production for profit to sustainable production to meet socially-determined priorities and the removal of the political elites that act as proxies for corporate power. We need, therefore, an Agreement of the People, a constitution that puts the majority in charge. Please come to the assembly on November 17 to work on this very strategy.

Gerry Gold

Economics editor

Global economy heading 'down for the count'

Stark warnings from the International Monetary Fund about the risk of financial collapse in Europe have coincided with indicators from the Brookings Institution and the Financial Times showing that the global economy is “on the ropes”.

They give some context to Coalition prime minister Cameron’s “hour of reckoning” speech to the party faithful today. Except that it is not just for the British economy that the bell tolls but for capitalism internationally, if its own agencies and researchers are to be believed.

The IMF said that the euro area's debt crisis was the main threat and the risks to global financial stability had risen in the last six months, leaving confidence "very fragile". Concerns centre on European banks offloading $2.8 trillion in assets over two years to cut their risk exposure. That could shrink credit supply dramatically.

Report author Jose Vinals said: “The choice today is between making the necessary but tough policy and political decisions or delaying them – once more – in the false hope that time is on our side. It is not."

His fears are confirmed by indicators compiled by the Brookings Institution and the Financial Times which show that “the global economic recovery is on the ropes, battered by political conflicts within and across countries, lack of decisive policy actions, and governments’ inability to tackle deep-seated problems such as unsustainable public finances that are stifling growth.”

All of the Tiger (Tracking Indices for the Global Economic Recovery) measures show that the global economy is operating at a lower level than before the 2007-8 crash and heading downwards. Spokesperson Professor Eswar Prasad warned: “In the absence of a broader range of decisive policy measures – including fiscal, financial system and structural reforms needed in many countries – the world economy may soon be down for the count.”

This is the stark reality of global contraction which is the driving force at the epicentre of the planetary emergency.

The brutal treatment of protesters demonstrating against German chancellor Angela Merkel’s visit to Athens, together with the rise of the fascist Golden Dawn in Greece are clear warnings of the depths of barbarity the defenders of the system will plumb as do what is necessary to save capitalism.

Merkel’s visited Greece to strengthen the determination of the government of prime minister Antonis Samaras which must force another round of austerity onto the Greek people. They are already going through intolerable pain in terms of cuts to living standards, unemployment, shortage of medicines and homelessness.

Merkel is acting as spokesperson for the Troika – the IMF, the European Central Bank and the European Union – which once again is confounded by the facts.  Three years ago they said that Greece's economy would contract by 2.6% in 2010, before growing by 1.1% in 2011, and 2.1%in 2012. Greek GDP instead contracted by 4.5% in 2010, 6.9% in 2011, and is likely to shrink a further 6% this year.

But Greece is not an isolated case.

According to Professor Prasad, The Brookings-FT Tiger index shows growth momentum has dissipated in nearly all major advanced and emerging market economies. Central banks of the major advanced economies have responded with a range of conventional and unconventional policy monetary policy actions.

He says while these measures have put a “floor on short-term financial market risks” they have been unable to reverse declining growth momentum. “As a result, financial markets continue to go through short-term cycles of angst and euphoria even as indicators of real economic activity remain mired in weakness.”

These indicators reveal the objective movement of the global capitalist system which has already brought millions of people onto the streets protesting against the unbearable consequences of contraction. On any measure, the capitalist system of production has failed. At the same time, threatening political reaction is the order of the day in Britain, Greece, Spain and in many other countries.

Gerry Gold

Economics editor

Fear not, the TUC remains 'vigilant' as Osborne attacks rights

Chancellor George Osborne’s plan for workers to sell off their employment rights, making it easier and cheaper for bosses to sack people, might well have produced a tough reaction from a trade union leadership prepared to confront the despised ConDems.

The proposals are to be rushed through parliament to come into effect next April. Dressed up as a voluntary scheme, it is almost certain to be compulsory for new employees, however.

They will have to sign a contract that abandons hard-fought for rights on redundancy pay, unfair dismissal and maternity leave. In exchange for a few shares of dubious value, workers will also give up rights to training and flexible working.

At a stroke, these laws will create a modern form of bonded labour to satisfy some mad Tory dogma as well the deeply reactionary people who constitute the party conference delegates assembled in Birmingham.

With the TUC threatening all sorts of action some time next year over public sector pay, here was a golden opportunity to ratchet up the rhetoric at least. But over at Congress House, home of the Trades Union Congress, there was not so much fire in the belly as a

dose of post-lunch sleepiness.

Outgoing general secretary Brendan Barber restricted himself to “deploring” the plans, adding that “these complex proposals do not look as if they will have very much impact as few small businesses will want to tie themselves up in the tangle of red tape necessary to trigger these exemptions”. Amazing, Barber claimed that Osborne’s plans were “said for effect” but the TUC would be “vigilant” just in case they were the thin end of a “future anti-employee wedge”.

So that’s okay then. No need to get alarmed. Just a keep watch just in case the Tories turn really nasty! What world is Barber living in, you may ask? The Tories and the Lib Dem – who hate unions just as much as their Coalition partners – are whittling away rights at a rapid rate.

Only recently, business secretary Vince Cable – who, as we know exchanges frequent text messages with Ed Miliband – announced plans to restrict payouts for employees who win employment tribunal cases, as well as making it harder for them to make a claim in the first place.

Pension rights for millions of public sector workers have been eroded, without much resistance from union leaders with one or two notable exceptions such as Mark Serwotka of the civil servants PCS. Real wages have been cut by years of pay freezing. But don’t despair, the TUC remains “vigilant”!

Which makes you wonder about the thinking behind the TUC-organised October 20 March for a Future that Works. Taking place safely on a non-working day to avoid any kind of strike action, it is surely designed to let off steam while letting the ConDems off the hook.

As the economy continues to deteriorate, with public finances going from bad to worse according to the International Monetary Fund today, Osborne and the rest of the cabinet have their backs to the wall and are extremely vulnerable.

Neither the TUC nor Miliband’s Labour Party have any intention of rocking the political boat, however. They are prepared to wait it out to 2015 in the forlorn hope that a change of government will put things right. With Labour committed to spending cuts and attacks on welfare benefits, that’s not going to happen.

Yesterday, Osborne cynically used the phrase “workers of the world unite” when announcing his plan to scrap employment rights, while last week Miliband invoked the imperialist Tory Disraeli in a speech that over 50 times mentioned the phrase “One Nation”. With the parties virtually interchangeable, it tells you everything you wanted to know about British politics and forgot to ask.

Paul Feldman

Communications editor

Global economy 'off the rails'

No one any longs thinks that piling on the pressure through austerity, grinding millions into the dust, can possibly make any difference to the debt crisis. But despite increasingly strident calls, “pushing for growth” is a non-starter.

The influential Brookings Institution has just updated its tracking “Indices for the Global Economic Recovery”. Professor Eswar Prasad, inventor of the index introduced the latest findings with a stark warning:

The engines of world growth are running out of steam while the trailing wagons are going off the rails. Emerging market economies are facing sharp slowdowns in growth while many advanced economies slip into recession. Political fragmentation and gridlock have hurt confidence and stunted the effectiveness of macroeconomic policies. Financial markets have shed their optimism and investors are clamouring to retreat to safe havens as confidence has tumbled.

Parallel meetings of the G20 richest countries in Mexico and of 300 hedge fund traders and investors in Monaco have been able to do little more than watch the train wreck from the platform’s edge. The G20 declaration warned of the impending addition to the global catastrophe arising from US attempts to follow the European example, reducing, or even slowing the growth of its towering wall of debt.

Whilst in the European bolthole for the extraordinarily rich, Jamil Baz, chief investment strategist at GLG Partners told the speculators taking a break from sunning themselves on the terraces: “The crisis has not even started. It will take 20 years for us to reach escape velocity,” he said, tossing back another glass of champagne. “It will be devastating.”

For the Greek people, however, turned into guinea pigs by the EU, IMF and European Central Bank, their plight can’t get much worse. Tens of thousands of Greeks made unemployed and homeless by attempts to solve the deepening crisis queue for food at soup kitchens. The Orthodox Church says it is currently feeding a quarter of a million people daily. 

The Athens Chamber of Commerce says that 68,000 Greek businesses closed over the last 17 months and it expects a further 36,000 to close in the next 12 months. The economy is at a standstill. Businesses have no credit so no-one is paying for anything. The government which controls much of the economy has stopped paying its bills. As of last month, it owed nearly €7bn to the private sector. 

In 30 days it will run out of money, unless a coalition government can show eurozone authorities that it has both the determination and the means to implement a further round of brutalising austerity and so earn the next tranche of bailout funds. They’ll be certain to be relying on the fascist gangs of Golden Dawn who enjoy strong support from the police.

The Greek people are in the front of the firing line but they are not alone. The Spanish and Italian governments are screaming for more help and the terms of any deals will be no less stringent. International lenders, unimpressed by last week’s €100bn loan to Spain, have driven the country’s borrowing costs to even higher, impossible rates.

The logic of all this crash is another Great Depression, much worse than that of the 1930s, and a breakdown of political co-operation. You saw as much this week when Manuel Barroso, president of the European Commission, lost his cool in a press conference and blamed investment banks in the US for causing the recession when asked about the eurozone crisis.

Another world is not only possible but absolutely necessary for there is no way out through the current political system which is in a mutual dance of death with economic and financial elites.

A global network of local People’s Assemblies can act as opposing poles of attraction for all those whose interests lie in replacing the failed, bankrupt capitalist system. Assemblies can build on the achievements and successes of worker’s co-operatives, credit unions, and a broad range of democratically-owned and operated enterprises as the foundations of a new start. Allowing things to carry on as they are is not an option.

Gerry Gold

Economics editor

State is the enforcer of austerity

Q. Why did the 100 billion euro loan to bailout Spanish banks recycled from the 27 members of the European Union via the European Financial Stability Mechanism go to the government rather than, as some wanted, direct to the banks where it is needed?

A. Because the people who run the EFSM act as ciphers for the needs of the global capitalist system. And they have to ensure that states – governments, civil administrations, legal system, armed forces including police – extract the repayments on the loans from their populations.

In the social, economic and political system that operates currently there’s no other way to make it happen.

If the people of a country elect a government that’s less than willing to enact the needs of global investors, the “international community” does everything in its power to ensure that it is replaced, by a more compliant power.

It’s a salutary warning as the people of Greece go to the polls again this Sunday, deciding whether to back Syriza’s policy of opposing the bail-out conditions imposed on the country by the EU, the IMF and the European Central Bank.

Within hours of the announcement of the loan to Spain, after the briefest period of market traders’ profit-taking euphoria, the reality of the crisis returned. No amount of new credit can restore Spain, or any other part of the global economy to growth.

Potential lenders, so-called “vulture” funds, pushed Spain’s cost of borrowing to a new record of 6.8%. A further 18 banks had their credit rating reduced.

Stephanie Flanders, the BBC’s Economics Editor put it like this: “It's largely the grim prospects for the Spanish economy that has led Fitch and other ratings agencies to downgrade so many Spanish banks in recent days. Emergency lending is helpful. But it can't make the recession go away, and it can't take away the need for many more years of fiscal austerity...the vicious circle is complete. And not just in Spain.”

The second phase of the crisis that erupted five years ago is engulfing the world and the global economy is contracting. Unemployment levels are already higher in some countries than were reached in the worst period of the 1930s. Millions have lost their jobs and homes, millions more have had their wages slashed, seen pensions wiped out.

The only plans on the table from governments, central banks and international agencies like the IMF are far more doses of austerity which are certain to see more public services eliminated, and “restructuring” by which they mean wiping out surplus productive capacity.

The Greek heath service is in already in tatters increasingly unable to provide life-saving drugs, as pharmaceutical companies refuse supplies until bills are paid.

Zombie car manufacturing giant, GM, brought back from the dead in 2009, employs more than 200,000 world-wide and operates in 157 countries. With a return to growth off the agenda, GM is pushing to rid itself of responsibility for paying pensions to former workers.

Its CEO Dan Akerson, says that the European car industry has an overcapacity of 7-10 plants, and is in “constructive” discussion with unions which will see tens of thousands of job losses accompanied by savage wage and benefit cuts.

As recent history has shown, the spiral-down logic of capitalist contraction leads only one way – to forced labour. It’s no coincidence that the plight of unpaid security staff featured so prominently in the Royal Jubilee celebrations. The continued existence of the for-profit regime depends on unimaginable conditions for those in any kind of productive work, and the abandonment of the rest to their own fates.

The alternative to the profit system is one based on identifying and satisfying the needs of the 99%. To make it happen, we’ll have to replace the worn-out, compromised system of politics dominated by corporate interests, with a global network of People’s Assemblies which can take the productive resources into social ownership and set them to work under democratic control.

Gerry Gold

Economics editor

EU-IMF blackmail aimed at Ireland and Greece

The principle of self-determination of nations may, to some, appear irrelevant in the context of the eurozone crisis. The 17 countries signed up to the single currency are all, on the face of it, independent states free to determine their own destiny.

Dig deeper and it’s another story, however. Take the examples of Greece and Ireland, two of the so-called “periphery” eurozone states.

They may be at opposite ends of Europe but they share one thing in common – a clear and present threat to their right to determine their own future.

Irish voters have been told in no uncertain terms to vote “yes” in Thursday’s referendum on whether the country should back the new European Union fiscal union treaty that imposes strict spending controls on member states.

Yesterday, Irish prime minister Enda Kenny went on television to warn voters that a rejection of the new treaty would bring “uncertainty at a time Ireland definitely doesn’t need it”. He attacked the No side for “its politics of negativity, of defeat, of opportunism and of fantasy economics”.

This was a bit rich coming from a political class that helped drive the Irish economy and financial system into the ground in a rampant demonstration of the self-same fantasy economics.

Jim Stewart, senior lecturer in finance at Trinity College, Dublin, points out in the Social Europe Journal, says the fiscal treaty can be added “to the list of flawed policy making that has helped turn an economic crisis … into a national catastrophe.”

If the Yes vote succeeds, the treaty will be incorporated into the Irish constitution and gives other signatories the right to bring a case against Ireland in the event of non-compliance. “It is the same thinking that initially set penal interest rates on Ireland’s borrowing under the EU/IMF Programme.”

In practice, the long struggle for Irish independence is fundamentally weakened by a form of EU blackmail imposed by Germany, the European Commission, the European Central Bank and the International Monetary Fund. And this is the case in Greece too.

Christine Lagarde, the managing director of the IMF, has now added insult to injury with a fresh attack on the Greek people who are seen as thankless for daring to hold a general election on the bail-out terms imposed on the country in exchange for loans.

Lagarde said Greeks had to take responsibility for their fate, adding that deprived children in Africa needed more help than people in Greece. "I think they (the Greeks) should help themselves collectively ... by all paying their tax." That’s a bit difficult when one in five is out of work – rising to 50% amongst young people – and the economy is in free-fall as a result of the EU-IMF imposed austerity measures.

Just as in Ireland, ruling class politicians are passing on the threat if voters next month repeat their support for parties like Syriza that want to renegotiate the bail-out conditions. Antonis Samaras of New Democracy said a vote against the loan terms would leave Greece with “no food, no drugs, no fuel. It will have to live with permanent power cuts".

What Samaras is saying in effect is that there is no point in next month’s elections which follow the recent stalemate. You can vote against austerity but in the end, the EU-IMF will have their way. You can vote against the fiscal treaty in Ireland, but ultimately there’s no choice, according to prime minister Kenny.

The struggle for self-determination clearly needs renewing and not just in Greece and Ireland. Working people throughout the capitalist EU will have to create their own popular, democratic independence, working together across Europe on a new revolutionary and equal basis.

Paul Feldman

Communications editor

“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

Egyptians pays heavy price for IMF loan

The Egyptian government has accepted a $3.2 billion loan from the International Monetary Fund (IMF) in return for a ruthless austerity programme, cuts in food subsidies, the introduction of a sales tax and more privatisation.

These are the same terms that the military turned down last year, saying it would saddle the country with unacceptable repayments for years to come and amounted to a threat to Egypt's national sovereignty.

But the IMF insists that Egypt must cut its budget deficit, and use the same methods as Greece and Britain to do so. Just as elsewhere, their only vision of the future is of the mass of people ground down to keep the capitalist show on the road.

Egypt has a funding gap of around $11bn over the next 18 months and has asked the World Bank for $1 billion, the European Union for $660 million and $500 million each from the African Development Bank and the Arab Monetary Fund, on top of the IMF money.

Without these loans, the economy will collapse and a massive devaluation of the Egyptian pound will let inflation rip. Egypt’s foreign reserves have fallen to around $10 billion as the government spent $26 billion in one year to prop up the currency.

Egypt's loan potential has been assessed by the European Bank for Development and Reconstruction (EBDR), on and the whole tone of their report shows the underlying causes of the revolution mean nothing to them and they want to go on promoting the same policies. The EBDR praises the pre-revolutionary period of "comprehensive reform", and talks of the "major success story" of external liberalisation.

The Egyptian Initiative for Personal Rights (EIPR) has analysed the EBDR’S technical assessment and says it "reveals the Bank’s lack of commitment to democracy and development in post-revolutionary Egypt"

Amr Adly, head of the EIPR's Economic and Social Justice Unit says: "The assessment simply ignores the cronyism and corrupt nature of the privatisation process during that period where public assets (state-owned enterprises, public land and even natural resources including fresh water and natural gas) were mainly transferred into the hands of a few cronies who where closely tied to the regime." (Thanks to Platform London for highlighting the EIPR report).

The EBDR's so-called "success story" ignores the mounting poverty, unemployment and economic injustice that set the scene for January 2011 revolution. But the banks' recipe for post-revolutionary Egypt is to go even further down the same road.

Clearly European capitalism believes that recent parliamentary elections in Egypt have produced a government that will toe the austerity line - and they are right.
The Muslim Brotherhood has joined with the army and the elite to steal the revolution from the people.

With income from tourism and exports in collapse it seems unlikely that the government will be able to stave off a massive economic crisis and devaluation, allowing inflation to rip.

As the presidential election looms, the Egyptian 99% need to consider whether this is the way to achieve what they sacrificed so much for. The issue of what kind of economy they want will take centre stage alongside what kind of democracy they want.

It is crucial that the advanced forces of the Arab Spring – the youth in particular – prepare plans for an economic transformation that can offer an alternative to putting the country's future into the hands of the banks and the IMF. A future where democratic People's Assemblies take control of the economy and place enterprises, including tourism enterprises, into the ownership of those that work in them is surely the way to go.

It is a co-operative future that takes economic power out of the hands of the corrupt elite, and runs the economy for the benefit of the many not the profit of the few. This is the only way to deliver the economic and social justice the revolution set out to achieve.

Penny Cole

Greek parliament imposes debt diktat

As Greek finance minister Evangelos Venizelos knows only too well, the measures being imposed on all but the super rich in Greece are raising the spectre of massive social division.

Venizelos, popularly known as the “Bull of Athens,” due to his thickset features and heavy shoulders, perhaps ironically bears the name of noted revolutionary and Greek founding father Eleftherios Venizelos.

It was today's Venizelos, a former opponent of Papandreou, who did the dirty work for the former Prime Minister by persuading the left in Pasok to agree to accept the EU-IMF imposed austerity measures.

He has made repeated appeals for national unity, imploring members of parliament not to resist the massive cuts that will wreck Greek society. He warned: "We are running the risk of burning ourselves. We must steer the ship to the safe harbour of debt restructuring. It requires national unity and for us to send a message of credibility.”

In response, the Greek parliament agreed massive minimum wage and pensions cuts in a bid to secure the bail-out deal intended to stave off the first bankruptcy of a eurozone state.

They have imposed a 22-percent cut on the standard minimum monthly wage of €751. For those under the age of 25, the cut will be even more brutal, a 32-percent reduction.

In addition, in another form of collective punishment for workers still holding on to jobs, they imposed wage freezes on some staff groups until the unemployment rate, currently 21 percent, falls below 10 percent.

Monthly pension payments above €1,300 euros will be reduced by 12 percent. Supplementary’ pensions, which are paid for out of workers' own contributions, will be slashed by up to 30 percent.

The trigger for the default, as Moritz Kraemer, S&P’s Head of Sovereign Ratings for Europe, the Middle East and Asia, explained it, was the Greek government’s ‘retroactive insertion of collective action clauses’ against private holders of Greek debt.

The crux of the matter is this: the bail-out deal depends on a sufficient proportion of bondholders agreeing to accept losses of 53.5 per cent on the nominal value of their Greek holdings, with actual losses put at around 74 per cent, but, according to S&P’s classic capitalist ‘methodology’, the Greek decision to replace agreement to losses with enforcement against investors was enough to send its assessment off the credit rating scale and into default.

In times of crisis it requires the remnants of democratic forms of government to impose a brutal collective punishment on those who depend on wages and pensions for their livelihoods, shrinking the economy bloated with decades of credit and debt, whilst protecting the “rights” of investors to compete for the last remaining profits to be squeezed out of those still in work.

Central banks are pouring hundreds of billions more into the monetary clouds buying themselves time to ‘restructure’ economies in trouble. Portugal and Spain are next in the firing line.

No amount of austerity will solve the crisis in Greece. Placing the burden on the 99% in society, as the supine parliamentarians have done, only makes things worse. Even the one-day general strikes undertaken by the Greek trade unions, and fighting outside Parliament have not brought about a change of direction from the political parties. Support for Pasok, which is the governing party, has fallen to only about 20 percent according to current polls.

But Venizelos is right about his country’s “historical and existential crisis”. Greece has indeed lost its right to self-determination, which it fought for so hard centuries ago. But there is an alternative for all those who want to free themselves from diktats from Brussels, the IMF and the ratings agencies. That is to form networks of democratically controlled assemblies and to reshape its economy on a not-for-profit basis, alongside other countries inside and outside the European Union.

Gerry Gold
Economics editor

Down with the 21st century Troika!

Whoever coined the term ‘Troika’ for the combined staff of the International Monetary Fund, the European Central Bank and the European Commission has a grim sense of recent history.

During the 1930s, Troikas – commissions of three appointees - were instruments of Stalinist repression operating at every level of administration. They were introduced to circumvent the legal system with a means for quick execution or imprisonment following a conviction without trial.

Troikas were responsible for sentences of death or exile for more than 600,000 Soviet citizens. They had other punishments available too. They and other parts of the Stalinist machine were used to consign upwards of 20 million people to forced labour camps.

And forced labour camps using and consuming 15 million workers from close to 20 European countries were also the basis of the economy in Nazi Germany before and during World War Two.

What have all these terrible episodes of 20th century European history got to do with today, you may ask? Surely the EU-ECB-IMF version of the Troika has nothing like labour camps in mind?

Well, let’s give them the benefit of the doubt on that one. But the logic and the consequences of the actions they are pursuing in Greece (soon to be visited on other countries) – unless they are halted – are just as terrifying.

Greek workers are to be reduced to pauperism to deliver the terms of the €130 billion bail-out agreed in principle this week. For the Greek economy to approach anything like competitiveness, its workers would have to be driven to work for lower levels of pay than anywhere else. That is equally certain to stoke up the revolt.

Germany’s stronger economy, is already dependent on ultra-low rates of pay. Its low wage sector grew three times as fast as other employment in the five years to 2010. Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former East German region. Greek workers will have to labour for less.

Having done its work in Greece, the Troika must now turn its attention back to the rest of Europe where conditions are deteriorating fast. But their efforts won’t be enough to keep a lid on the volatility and growing social resistance around Europe.

Back in December, Pedro Nuno Santos, vice-president of the Socialist Party in Portugal’s parliament, transmitted something of the feeling of the protests in the streets against the new right-wing government’s plans to raise the working week to 42 hours. and cut wages by 16% for the higher paid, and 8% for lower paid public workers.

"We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won't pay," he said. "Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (Troika) accord. We should make the legs of the German bankers tremble," he said.

Santos’ call for southern European states to join forces to resist the austerity dictates of the stronger northern economies was quickly replaced by the 17 eurozone countries agreement on a stricter fiscal discipline which will loom large in the Troika’s armoury over the coming period.

The scale of today’s global crisis, prepared by decades of ballooning fantasy finance, overshadows the 1930s. We cannot begin to imagine the consequences of allowing capital to continue to its reign. Strikes and street protests have to become part of a wider revolutionary struggle for power over capital and crony political state systems. We cannot defeat the modern Troika without that perspective. And to succeed, we need a global network of organisations that are committed to seeing this struggle through to the end.

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
h

Hungary crisis driven on by new credit crunch

A chain under stress usually breaks at its weakest link. For the global financial system, the pressure point could well prove to be Hungary.

Although not in the single currency, Hungary’s depressed economy is entirely dependent on credit from banks that are in the eurozone, particularly those located in neighbouring Austria and Italy.

Those credit lines have dried up as a result as the drift to a full-scale banking crisis in Europe takes its toll on lending, leaving Hungary vulnerable to a sudden withdrawal of funds.

Banks everywhere, including the UK, are now reluctant to lend to anyone, including other financial institutions, for fear they won’t get their money back. And their scope for lending has been further reduced by a requirement to increase their asset base (which led to a run on Italian bank Unicredit’s shares yesterday).

Hungary’s beleaguered autocratic government led by the populist Viktor Orban yesterday had to pay interest of 10% to borrow some short-term money. A debt-swap auction was cancelled for lack of interest.

Hungary needs to roll over nearly €5bn of external debt this year and in February is due to start repaying a loan from the International Monetary Fund that saved the country from collapse in 2008.

The country is now asking for more help from the IMF. This won’t be straightforward as the IMF is demanding political and economic policy changes first. The danger of a Hungarian sovereign debt default remains high, which would have a contagion impact throughout Europe.

Orban’s nationalist posturing is adding to the risk, as does a growing political crisis which last weekend saw tens of thousands of people rally in Hungary against a new constitution that gives the state draconian new powers over its citizens (as well as the central bank, much to the angst of the EU and IMF who are not particularly bothered about the rest). A declaration on the “decline of democracy and the rise of dictatorship” in Hungary was circulated by a number of former political dissidents.

Other so-called periphery countries, like Rumania and Poland, are equally vulnerable to a credit crunch. Austrian, French, German, Greek and Italian banks are heavily committed to loans to these countries.

There are no “solutions” in sight, as billionaire investor George Soros acknowledged in relation to the eurozone crisis. Soros was only stating the obvious when he warned that a collapse of the single currency would be “catastrophic not only for Europe but also for the global financial system".

The stresses are showing up throughout the system. A survey by the Bank of England reveals that Britain's banks are more worried now about a credit crunch than at any time since the first one brought down Northern Rock in late 2007. Inter-bank lending rates have risen as a result of the eurozone crisis and these have been passed on to companies in the form of higher interest charges.

The survey also showed the first increase in default rates on loans by bigger business in two years. "For large and medium-sized corporates, default rates were reported to have picked up for the first time in two years and a further pick-up was expected," the survey said.

The central bank's quarterly Credit Conditions Survey also showed that small businesses' demand for credit had fallen sharply, and that banks expected demand for credit to drop in the coming months. The survey confirms that the UK economy is on a knife edge, heading from recession to outright slump.

Paul Feldman
Communications editor