“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

Far right steps into political vacuum in France

French voters have used the ballot box to express widespread disillusionment with the main parties and their proposals for austerity measures.

Nowhere is this more clear than in the third place achieved by the neo-fascist Front National leader Martine Le Pen (who, incidentally, enjoyed the support of a column in the Daily Mail, a paper that courted the Nazis in the 1930s).

 Le Pen actually finished second in a number of high unemployment, declining areas of northern France which have been hit hard by the recession and the austerity measures imposed by president Nicolas Sarkozy.

 The result of the first round is to create huge political uncertainty in the heart of Europe at a time when the common currency is under constant pressure and with support for a “fiscal union” waning in a number of countries, including the Netherlands.

For Sarkozy, coming second to Socialist Party candidate Francois Hollande earns him the dubious honour of the first incumbent president to lose the first round since the Fifth Republic was founded in 1958. Predictions of a low turnout were overturned by a surprisingly high vote.

But one out of three voters rejected not only Sarkozy but chose candidates from outside the two main parties.

Seasoned observers of French politics have noted:
 * “a disenchantment with politics” (New York Times)
 * “Few are voting in the expectation of a better tomorrow. The chief appeal during the second round will be 'Vote to stop X!' rather than 'Vote for Y!'” (Telegraph)
 * a “strong anti-system vote” ...“The first round result revealed a dissatisfaction and restlessness in France. The elites are despised. The economic future is feared. There is insecurity. All of that leads to volatility in the polls.” (BBC)

Lest anyone think this means Hollande in power would signify a victory for the left, his various nicknames – “Flanby” (after a caramel pudding), “living marshmallow”,“pedalo in a storm” – sum up the lack of threat he poses to the status quo. He recently visited the City of London to reassure the bankers.

But anything he may lack in left rhetoric is more than made up by the Left Party’s Jean-Luc Mélenchon, who succeeded in coming fourth with 10.8% of the vote. Mélenchon, dubbed the “Gallic George Galloway”, is an ex-Trotskyist from the International Communist Organisation (OCI). In the election campaign he called for a “civic insurrection” and a citizen’s revolution without going into further details.

Mélenchon has already promised support for Hollande in the next round in a bid to prevent Sarkozy from winning.

But, electoral horse-trading aside, the biggest shock of first round was the unexpectedly high vote for FN candidate, Le Pen, daughter of fascist Jean-Marie Le Pen. With 18% of the votes, she was the dark horse, who defying all predictions, beat even her father’s 17% result - itself unexpected - back in 2002.

 Le Pen has toned down her father’s anti-immigration, white supremacy stance since she become FN leader. But she reverted to his anti-Arab racism during the election campaign, saying “all Franco-Algerians” were a potential security threat. Le Pen and Sarkozy seek to outdo each other in attacking immigrants and defending “Frenchness”.

Fear of losing to Hollande will no doubt drive Sarkozy even further to the right in a bid to tap in to the FN’s constituency.

The first round results are an expression of the deep disquiet with the existing political system. A defeat for Sarkozy will intensify the crisis not only for Sarkozy and his party, the Union for a Popular Movement. It will destabilise the close relationship between France and Germany and the European Union project.

This is under considerable pressure. In the Netherlands, Geert Wilder’s far-right Freedom Party which is close to Le Pen’s in its anti-Muslim racism, refused to agree budget cuts over the weekend, pushing the coalition government towards collapse.

The far right parties in Europe are cashing in as the mainstream bourgeois parties as well as those like the Socialist Party in France who are also part of the political establishment desperately defend the indefensible status quo. Mapping out a clear, democratic alternative to the failed capitalist state and the unsustainable economic system it represents was never more urgent. Corinna Lotz A World to Win secretary

Confusion at the top masks a deeper crisis of legitimacy

Theresa May’s palpable discomfort over the Home Office’s inability to read a calendar can only add to the general disdain voters feel for the political class which goes beyond the issue of Abu Qatada and his intended deportation into the hands of Jordanian torturers. With Tory backbenchers flexing their muscles over House of Lords reform and a host of other issues, the uncertainty in government is palpable. A collapse of the ConDem coalition, wished for by papers like the Daily Mail and Daily Telegraph, is not out of the question. It could be hastened by the reported defection of some Tory MPs to the nationalist UKIP party in the coming days. UKIP is now reportedly polling higher than the Lib Dems. This is not an issue solely confined to the UK either. In France, Sunday’s first round of the presidential election is expected to produce a record low turn-out. No surprise there because the two principal candidates, Nicholas Sarkozy and Socialist Party’s Francois Hollande are committed to making public spending cuts. The left unity candidate Jean-Luc Melenchon, who was a Socialist Party minister in earlier political life, is polling well over 15%, clearly an indication that the two-party system offers nothing to the majority of voters. In Greece, without a government for months since an EU-IMF-ECB coup that led to the installation of a Goldman Sachs advisor as prime minister, it’s a similar story. Next month’s general election is certain to see a massive rejection of Pasok and New Democracy, who have between them carved up Greek politics for generations. In the United States, Congress is deadlocked by the Republicans while the Democrats are finding it difficult to hide their disappointment at Barack Obama’s first term. There is no enthusiasm for Obama, who has presided over an economy in decline, or his challenger Mitt Romney and the race for the White House is said to be too close to call. In the UK, the break-up of traditional party politics is the form that the growing revolt against the cosy but totally ineffectual parliamentary system is taking. The most staggering example was the collapse of Labour’s massive majority in the Bradford West by-election, which saw George Galloway triumphant. In Scotland, Labour has lost control of Glasgow City Council for the first time in 40 years and is expecting a hammering at the hands of the Scottish National Party in local elections on May 3. In London, maverick populist Boris Johnson may well defy the general hatred of the Tories to stay on as the capital’s mayor. According to a report in the Financial Times, many MPs campaigning for the local elections have returned to Westminster telling the same story, that “voters appear disillusioned with all the major parties and are increasing turning to smaller parties as an outlet for their frustration”. Amber Rudd, Conservative MP for Hastings, says the disdain for mainstream politics was palpable on the doorsteps. “There was an exasperation and disengagement with politics that I’ve never seen before.” The YouGov tracker poll since the 2010 elections shows a rise in support for “others” – none of the three main UK parties – inexorably rising from 8% to 17% today. Neither the Tories nor Labour are likely to win an overall majority again on this basis. At the back of voters’ minds is a growing understanding that the political system itself – not just the parties – has failed them. At a time of economic crisis, the system has come down in favour of the masters of capitalism – the banks, corporations, hedge funds, bond markets and the rich. Key services like education and health are being turned into commodities where the markets not need decide what happens. We should use this tremendous disquiet to open up a wide debate not just about this or that party, but on the historic question of how to create a real democracy in place of the comprehensively undemocratic state that becomes more oppressive by the day. It’s the best way to block the clear danger of right-wing populism filling the vacuum. Paul Feldman Communications editor

Headless chickens rule EU roost

A French president playing second fiddle to a German chancellor announcing a “fiscal union” to keep eurozone spending under control was patently an uncomfortable moment for Nicolas Sarkozy. His misery was written all over his face.

Perhaps Sarkozy was reflecting on historical precedents from past conflicts between the two countries while he was standing next to Angela Merkel. More likely, Sarkozy realised that the idea of Germany laying down the rules about a country’s national spending could only harm his re-election prospects.

Whatever was going through his mind, the announcement itself was more wordy than substantial. Within hours, the agency Standard & Poor said that the credit ratings of all 17 eurozone countries – including Germany and France – was threatened with a downgrade. All except Greece, whose debt now carries the dubious sobriquet of “junk status”.

As financial commentator Jeremy Warner noted, the agreement between Germany and France was about “as clear as mud” and notably failed to “address the immediate crisis” of the sovereign debt burden that is overwhelming country after country.

Warner’s concern that a long-term plan to keep spending under tighter control, reinforced by plans for a new European Union treaty, is hardly what the markets were waiting to hear, is all too real. But the inaction in the eurozone is not simply the result of German intransigence over using the European Central Bank to buy up a country’s bad debt.

Debt mountains express not simply profligate spending by member states but the consequence of the collapse of a credit-fuelled period of rapid economic expansion. While it lasted, debt could be repaid out of higher tax revenues. Bond dealers, banks and non-EU states couldn’t get enough of the interest-bearing debt.

The economic recession was not caused by the financial collapse of 2008, as is usually stated. In Britain, for example, the economy slowed markedly in the first years of the century. This trend was obscured by easy credit and rising house values (which many used to borrow against). When the meltdown came, it exposed the deep flaws within the capitalist system of production which requires year-on-year growth to sustain profit levels.

Merkel and Sarkozy can only address the debt issues because the nature of the capitalist economy is a given and not up for debate or change. Even so, creating more debt to “solve” existing debt is hardly a solution. Nor do cuts in state spending help. That only intensifies the recession by reducing consumer demand still further. And printing new money, as central banks are doing, simply adds to inflationary pressures while providing speculators with more resources.

All in all, policy makers and political elites are damned if they do and damned if they don’t. In management speak, it’s a lose-lose situation. Their predicament is made more complicated by a political system based on individual nation states in the midst of an entirely globalised, transnational economic and financial system.

The political class resemble headless chickens right now and is mostly concerned with self-preservation and gaining an edge over competitor nations. Democratic procedures are being jettisoned as too lengthy, too costly and too bothersome. Italy and Greece have non-elected governments run by bankers, while EU bureaucrats intend to determine spending on social welfare programmes under the Merkel-Sarkozy project.

Turning things round into a “win-win situation” will require bold strategic thinking and action – sooner rather than later – that aims at a political and economic transformation. We have to extend democracy in new ways beyond the all-too-narrow confines of capitalist ownership and control which is the root problem.

Paul Feldman
Communications editor

Spain's voters disenfranchised by markets

There can be only one winner in Sunday’s general election in Spain. And it won’t be the voters, many of whom are so disillusioned with the country’s political system that they seem set to stay at home in droves.

Even though the discredited Socialist Party (SP) looks likely to hand over the reins of state power to the right-wing People’s Party (PP), the financial markets are closing in. They know that the PP has no policies to tackle the country’s budget deficit or the growing debt crisis in the regions and is winning with anti-SP rhetoric.

So yesterday, the effective interest rate on Spanish government borrowing soared beyond 6% into what is considered the danger zone. Mariano Rajoy, the PP leader, will find himself in the firing line next Monday morning when Moody’s, Standard and Poor, Goldman Sachs and the other predatory operators in the financial markets move in.

In a mass sell-off of government bonds on Tuesday, investors’ fears spread beyond Italy and Spain to triple A-rated France, Austria, Finland and the Netherlands. Neil Williams, chief economist at UK fund manager Hermes, said “Markets are losing patience so they are going for the jugular, which is the core countries and not the periphery.”

In dealing with the crash of 2008 governments, central banks and global agencies added many trillions to the global accumulation of credit and debt, yet the growth the system needs to pay it off has not been forthcoming.

The “recovery” has now given way to a contraction. So the interest can never be paid, let alone the inflated capital, at least while forms of parliamentary democracy – however enfeebled – stand between the corporations, financial markets and living conditions of ordinary people. These must all be swept away in futile attempts to minimise the impact of the crash of 2011 on profits.

After a weekend of frenetic activity, two non-elected US trained economists have been appointed to spearhead the next round of assaults on the population of Europe. Mario Monti has been installed as replacement for the odious Berlusconi, and Lucas Papademos is the new prime minister of Greece, which includes anti-Semitic, far right LAOS – the Popular Orthodox Rally Party in its provisional government.

They’ll all be getting their instructions from the “Frankfurt group” which includes the International Monetary Fund, Germany’s Chancellor Angela Merkel, France’s President Nicolas Sarkozy, a bevy of European Union officials, with Barack Obama, USA and Hu Jintao, China’s President lurking threateningly in the background.

Every one of the now 7 billion occupants of the 200 or so states is directly and immediately affected by the unfolding of the interacting social, financial, economic, political and ecological crises of humanity and its planetary home. In Britain, youth unemployment has hit a record high of 1.016 million, as the overall jobless total rises to 2.62 million in the midst of a recession deepened by spending cuts.

The ruling classes everywhere fear any challenge to their rule, concerned that they might inspire others into revolt. Peaceful protests claiming the authority of the 99% find themselves confronting the forces of the state in its many forms. The brutal clearance of Zucotti Park won’t be the last to be seen of Occupy Wall Street. The Corporation of London has restarted legal proceedings against Occupy LSX, and its maturing programme of discussions on the economy, democracy and the state.

Amongst the most recent, but shortest-lived of the occupations, Cardiff, delivered one of the clearest objectives so far: “The monetary market system itself must be replaced with a resource-based economic model where everyone’s needs are provided for free.”

The collapse of the eurozone, the appearance of mass unemployment, the attacks on pensions, services and welfare, demands the alternative called for in Cardiff. On November 30, millions will strike in Britain against the government’s attack on public sector pension rights. To maintain the momentum, trade unionists should seize the initiative and create people’s assemblies in every community to carry the struggle forward towards a new political and economic democracy.

Gerry Gold

Economics editor

Greece is stuffed by the Merkozy

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

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

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

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

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

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

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

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

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

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

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

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

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

Paul Feldman

Communications editor

Sarkozy forms crisis cabinet while unions dither

As oil refineries and public transport depots are blocked, petrol stations run dry and young people riot in the Paris suburbs, political tensions are rising in France. The unrest will climax today in demonstrations throughout the country intended to influence Wednesday’s vote in the country’s Senate.

To quell the huge mobilisation of workers, pensioners and young people, President Nicholas Sarkozy has formed a crisis cabinet to ensure the continuity of fuel supplies, with three departments – the interior, economy and environment ministries put in charge of preventing disruption of supplies.

The wave of protests against the Sarkozy government’s attack on pension rights has closed schools across France and seen clashes with riot police on the streets. Workers at France’s 12 refineries are in their eighth day of strike. Protesters are blocking access to many fuel distribution depots round the country.

It is the sixth day of weekday protests and work stoppages called by national labour union confederations since June, but the unrest has intensified since last week when unions at railways and refineries began open-ended industrial action, joined now by truck drivers and delivery workers. Since September 7, pension protest numbers have involved a staggering 15 million people, according to official sources.

A majority of French people -- 71 percent in one poll -- back protests against the plan to raise the minimum and full retirement ages by two years to 62 and 67 respectively, a measure the government says is the only way to stem a ballooning pension deficit.

France is one of a very few countries remaining where pensions arrangements are almost universally provided by the state. Payments to pensioners are taken out of current tax receipts. Trade unions have fought long and hard to protect the right to a decent income after a lifetime of work.

It is no accident that the French Senate is voting on the same day that the UK coalition government finally gives the details of its unprecedented assault on the public sector. These two events, and many similar are choreographed by the return to recession which marks the end of the phoney recovery. Capitalist society has entered into a period of contraction and nothing can be allowed to stand in its way.

But as the French state steps up its operations, leaders of France’s main trade unions have no plan beyond pressurising a government that is determined to see through cuts in pension provision.

All the union chiefs know that Sarkozy will not give in and are feverishly even now considering their exit strategy even as the fuel shortage worsens and protests spread to the volatile suburbs, the banlieues. As the right-wing daily, Le Figaro, notes, the union confederations are divided over their strategy facing a government which will not give in to their demands. The strategy of the Confederation General de Travail (CGT) faces pressure to call a general strike, something which it has signally failed to do so far. The mass defence of jobs, services, benefits and rights is leading directly to a confrontation with the state, something that they and the other union bureaucrats are desperate to avoid.

Workers and students should join forces with local communities to form People’s Assemblies that can move beyond protest and challenge the French state. The French ruling class and union bureaucrats are haunted by the spectre of the 1968 General Strike, when the possibility of people’s power arose but the opportunity wasted.

Gerry Gold
Economics editor

Sarkozy’s ‘Thatcher moment’

The outcome of the strike movement sweeping France is being monitored closely by The Economist and other voices of the market economy. “Let battle commence”, urged The Economist (15 November). “Can Nicolas Sarkozy be a French Margaret Thatcher?” asked Les Echos, a business newspaper. “Is Sarkozy ready for a long trial of strength with the unions à la Thatcher?” mused Le Parisien, in a reference to the class conflict that shook Britain between 1982 and 1986.

Previous French governments have lost their nerve in the face of strikes and demonstrations against plans to impose what is referred to as the Anglo-Saxon globalisation model by the country’s trade unions. This is viewed, correctly, as an economy based on flexible, low-cost labour, the unfettered movement of capital and a continuing reduction in social benefits and rights.

Will Nicholas Sarkozy stand firm, The Economist asks? It recalls with alarm the attempt in 1995 by the Chirac government to break up the country’s excellent public-sector pension schemes. Sarcastically, the magazine notes: “In the end, Jacques Chirac's government did what French governments do best: it backed down and dropped the whole plan.” It sees more hopeful signs this time, as Sarkozy confronts strikes by transport workers, civil servants, teachers and protests by students against plans to open universities to corporate investment.

Sarkozy wants to end what are known as “special regimes”. These allow railway, electricity and gas workers to retire on full pension after 37½ years of pension contributions, rather than 40 years in the rest of the public sector. Some 500,000 workers, and 1.1m pensioners, benefit from these regimes. Over the next four years, Sarkozy wants to lengthen the required contribution period to 40 years. The government also wants to extend to 41 years the required pension-contribution period for all workers, as well as introduce changes to the labour market and the benefit system.

The Economist is keeping its fingers crossed. By comparison with his predecessors, the magazine notes, Sarkozy has done exactly what he said he would do. And he has calculated that the leaders of the strike movement are looking for a compromise rather than building a momentum to bring down his government. The government has said it is prepared to talk about details in an effort to woo union leaders. The Economist is not completely convinced that France will enter the world of Anglo-Saxon globalisation, however, warning: “The deal he [Sarkozy] does on special regimes needs to be scrutinised to see how far he keeps his word.”

Nevertheless, the strike movement in France, along with industrial action by railway workers in Germany and nurses in Finland, indicate a rising tide of militancy just as the wheels come off the global economy. With the euro rising to new heights against the declining dollar, exports from the European Union become more expensive. This is what is driving the state and employers to reduce workers’ conditions. The events in France could presage a European-wide period more like the revolutionary year of 1968. Now that would really get The Economist worried!

Paul Feldman
AWTW communications editor