'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

Economic crisis meets disillusioned voters

Coalition Chancellor Osborne says that economic “recovery” is taking longer than expected, but this is a deliberate deception because all the indications are that recession in the UK is part of an international trend.

This is accentuated rather than slowed by government austerity programmes under the cosh of the financial markets, the IMF and the European Central Bank.

If conditions in Europe are anything to go by – and they most certainly are – the world economy is in an uncontrollable downward spiral.

The Office for National Statistics says Britain's annual output (GDP) fell 0.2% in the first quarter of 2012 after contracting by 0.3% at the end of 2011, putting the economy back into recession. Since these are provisional figures, it may well be a lot worse

On Monday, a Bank of Spain report showed gross domestic product in that country falling 0.4% in the first three months of 2012, adding to a 0.3 %  contraction in the previous quarter. Unemployment is 23% and growing. A continuing fall in property prices is choking the supply of bank credit as lenders are forced to make provision for increasing quantities of bad loans.

The Bank of Greece forecasts the Greek economy will shrink by about 5% this year – the fifth consecutive year of contraction. This year’s contraction comes after a 6.9% drop in 2011 and a cumulative shrinkage of more than 13% since 2008. Unemployment is to set to put one in five Greeks out of work this year.

Many private sector workers are facing wages delays as 300,000 companies do not pay salaries on time because of a drop in sales and scarce funds. Their pay is also plummeting by over 15%. Greece had one million companies in 2009, but 250,000 have since closed.

In Germany, which has carried the burden of the eurozone debt crisis, manufacturing output is shrinking at the fastest pace since 2009 while further spending cuts are on the agenda in France and Italy.

In the UK, public sector workers whose salaries have been frozen whilst inflation surges are the sharp end. A million young people are without work, condemned to becoming a lost generation.

With the ConDem regime staggering from one political crisis to another and becoming increasingly unstable, it is not surprising that only 24% now believe the current system of coalition government is working, according to the Hansard Society’s latest survey.

Dr Ruth Fox, director of the Hansard Society's parliament and government programme, said: "2011 was one of the most turbulent and momentous years in recent history, but it appears that the economic crisis, the summer riots and phone hacking did not lead to any greater interest in or knowledge of politics.” She added: "The public seem to be disgruntled, disillusioned and disengaged.”  The survey showed:

* 42% of people said they were interested in politics - down 16% on 2010 and the lowest figure since the audit was first carried out

* 48% of people said they would definitely vote if a general election was called tomorrow - down 10% from last year and again, the lowest figure in the audit's history

* 30% said they were unlikely or absolutely certain not to vote - up 10% from 2010

  

The collapse of the Dutch government and the rejection of the major parties by voters in France are European-wide indications that, as one leading economics commentator put it, “the street might overwhelm the establishment”.

So, the economy is broken and people have lost faith in the political system. Now is clearly the time for a sustainable, not-for-profit economy that is freed from the need to “grow” directed by a new system of democracy based on a global network of Peoples Assemblies.

Gerry Gold

Economics editor