'Our cuts will be with a guillotine'

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

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

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

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

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

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

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

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

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

Something has to give.

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

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

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

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

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

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

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

Gerry Gold

Economics editor

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

Signals at red as wrecking crew take over

Trying to find an image that conveys the gravity of the global economic crisis is proving a real challenge. Since its far from being a natural disaster, like the earthquakes currently shaking Nothern Italy, transport analogies might help.

Consider a 17-carriage eurozone high-speed train crashing into a wall of concrete. The front coaches – Ireland, Greece, Spain – have already been crushed, whilst Italy and Portugal are just now rearing up into the sky.

Many of those on the following coaches are only dimly aware of the problem and their governments are driving blind, donkeys chasing tthe elusive recovery carrot, always just out of reach.

If we stretch the transport analogy, we might say that there are two, much longer trains: the United States and the European Union. They are meeting head-on on a cheaply-made, shoddily built and fragile Chinese bridge now disintegrating under the shock.

The highly volatile fuel that brought the trains together in a paroxysm of mutually-assured destruction was a dangerous mixture of coal, oil, gas – and most explosive of all - credit and debt, with the Chinese buying US debt like there was no tomorrow, to keep the whole global system of production and consumption in business.

As of yesterday, however, as part of measures to reverse the return to slowdown and slump the Chinese announced that, for the first time, they’ll bypass the dollar, scrapping the US currency as the intermediary exchange currency. From Friday, they’ll deal directly with Japan, their biggest trading partner, exchanging yuan for yen. The implications are far-reaching, especially for the US which is the world’s most indebted nation.

Or, perhaps to give a more urgent flavour we could use a nuclear analogy, as in the uncontrollable meltdown of the Spanish economy. Yesterday alone saw the EU turn down Spain’s plan to save the failed Bankia, which reported the biggest loss in the country’s banking history; the departure of the central bank governor; retail sales slumping by 9.8% in April; the cost of borrowing soaring to levels likely to trigger the need for a bail-out. 

We’ve all been made familiar with the internal, country-by-country-by-regional comparative accounts of falling, or slowing GDP, soaring levels of unemployment, declining house prices, unassailably essential reductions in supposedly oversized public sectors; all explained by specific national characteristics, mistakes, like the alleged laziness of the Greeks (whose working day just happens to be much longer than the average German).

But dig a little deeper, and you begin to realise, as many do, that the debt disease is systemic, something to do with the flow of almost worthless currency around the arteries and veins of the entire global economy. If only we could fix the money problem – that private interests have taken over the issue of “money” (actually credit, to be more precise), swamping “our democracy”, some say we’d be able to return to a kind of normality. 

Ah but, say others, it’s all down to human greed, human nature. Not us, of course, we’re the altruists, the good guys. It’s them, they’ve succumbed to it. They’ve got the world in their greasy palms. (In the 1930s, they, the bad-guy banksters of the day were called, made equal to “World Jewry”, with dire consequences).

No, it just won’t do. These are all partial, one-sided, half-assed “explanations” for something more fundamentally wrong. And that is the breakdown of the social, economic and political relationships that came to dominate as a result of post-1945 measures generated to satisfy the internal dynamic of the system, aka capitalism.

This depends on, and is defined by privately-owned, profit-seeking capital invested in factories, offices, networks, and the right, or rather necessity to use some of it to employ wage and salary earners as the source of its most necessary expansion. Otherwise known as “growth”.

It’s the system stupid. Let’s build a new, different one, using the best bits of the old one to plan the sustainable production of goods and services to satisfy need. Before they wreck it all.

Gerry Gold

Economics editor