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

It's deeper than tax avoidance

Supporters of UK Uncut, a relative newcomer to the world of protest, in common with millions of others, are justifiably angry about the savagery of the Coalition’s cuts programme. They say the cuts aren’t necessary and that the government is implementing them out of ideological spite.

Like the official pronouncements from the TUC, UK Uncut , on the one hand, insists that the size of the budget deficit isn’t a problem because the UK’s credit rating remains high. And on the other hand, they say that there are alternatives which could be used to reduce the total of government debt.

UK Uncut activists specialise in activities designed to highlight tax avoidance by corporations including Vodafone, Boots, and Tesco, as well as the banks who they blame for the economic crisis. Their hope must be that if enough people get angry, they’ll force the government to change tack.

UK Uncut activists were greatly encouraged by Johann Hari’s recent article in The Independent which i) denies that the scale of debt in the UK is a problem, and ii) asserts that debt is “part of the cure”. The facts suggest, claims Hari, “the need to spend more, not less, to get the economy back to life – and pay back the debt in the good times, when we will be able to afford it.”

Leaving aside the nature of Hari’s “good times”, the problem with accumulating more debt following the logic of the inter-war years economist John Maynard Keynes, is, as the article itself points out, contained in a key lesson of history:

“The Great Crash of 1929 was followed by a US President, Herbert Hoover, who did everything Cameron demands. He cut spending and paid off the debt. The recession grew and grew. Then Franklin Roosevelt was elected and listened to Keynes. He ramped up spending – and unemployment fell, and the economy swelled. Then in 1936 he started listening to the Cameron debt-shriekers of his day. The result? The economy collapsed again. It was only the gigantic spending of the Second World War that finally ended it.”

Yes, but no.

It wasn’t the gigantic spending of the Second World War that ended the global recession of the day, but the destruction of surplus productive capacity that had been accumulated during the previous period funded by speculative investment – and debt.

While tax avoidance by private equity companies like Boots, who are registered in a tax haven in Switzerland, is a scandal, it’s a symptom rather than a cause. It’s corporate-driven globalisation that has enabled corporations to dominate national governments and force down tax rates, as well as register offshore. Any threat and they’re off overseas like a flash.

Ironically, during the credit boom, New Labour funded its spending via tax revenues from the City. That came to a sticky end with the credit crunch and the recession that followed. Now, despite the crisis-deniers, the global recession is deepening, inflation is accelerating, debt is growing – all at rates which outpace anything any government or group of governments can do. Increasing tax revenues wouldn’t make much of a dent in the national deficit and would leave the fundamentals of capitalism unchallenged and unchanged.

These are symptoms of a long-developing spiralling problem that has bedevilled capitalism during its entire three and a half centuries: Competition for profit amongst capitalist enterprises forces them to invest in productivity-enhancing technologies that drive the rate of profit down. This in turn requires an increased volume of sales which surpasses the available market. Credit allows a few more turns on the spiral of growth, until it too becomes unsustainable.

Though the crisis didn’t erupt into view until 2007/8, the endpoint had already been breached in 2004/5 when consumers reached the limits of their ability to juggle their credit card debt, and mortgage payments came under pressure. So once again, the only road the capitalist class can follow now is to eliminate the surplus capacity in every country. Halting that process requires the elimination of the profit system itself and a move towards a sustainable, not-for-profit economy.

Gerry Gold

Economics editor

The American dream is a nightmare of foreclosures

Las Vegas – known best for its gambling haunts – now has a new reputation. It’s America’s No.1 city for foreclosures, with more people losing their homes here than elsewhere in the country.

Artist Emily Kennerk has created a 22-hour video installation which shows an image of every home foreclosed in 2009. (Foreclosure is the legal process whereby a bank or lender obtains a court order that terminates the borrower’s right of redemption. It is harsher than repossession).

Describing her installation, Kennerk says as you walk around the town you can’t help but see “this ghost town is forming around you. It’s broader than Las Vegas. This is the first generation that’s going to have to deal with the death of the American dream”.

More than four million US homes have been repossessed in the past three years. A website currently lists 2,304,257 foreclosed properties in the US. In the state of Nevada where unemployment stands at 14%, more than six out of ten of all home sales are currently from foreclosures.

At the start of the sub-prime mortgage crisis, back in September 2008, the US Treasury took the mortgage giants Fannie Mae and Freddy Mac into government “conservatorship”. These two mortgage corporations were set up under Roosevelt’s New Deal during the Great Depression of the 1930s. Along with Ginnie Mae (the Government National Mortgage Association) they currently guarantee $5 trillion in US mortgages and 96.5% of all newly originated mortgages in the US.

So far the government has injected $145 billion into them to cover their losses. The mortgage market now is almost a wholly owned subsidiary of the United States government, according to former Federal Reserve chairman Paul Volker. "Almost all the mortgages made now are insured by the government, bought by the government, and the guys at Fannie Mae and Freddie Mac are the market . . . It’s clear Fannie Mae and Freddie Mac need to go. "

But the US is not only affected by a housing crisis. The malaise goes far, far deeper. Three trends have come together. Economists estimate that the annual incomes of the bottom 90% of Americans have risen only 10 per cent in real terms over the past 37 years while the incomes of the top 1 per cent have tripled.

Thus, a “slow economic strangulation”, which began well before the Great Stagnation, now means that income mobility is declining just as inequality rises sharply. Even families with a gross joint income of $70,000 per year, are only “a pay check or two from the streets” as one Minneapolis worker puts it. Medical expenses are a nightmare. Even families on twice the US median joint income have to borrow heavily to have essential, life-saving operations.

Arthur Miller’s 1949 play, Death of a Salesman, dramatised the anxieties arising from US Great Depression of the 1930s and the reliance on credit to provide necessities. During the Cold War years, such plays were seen as an attack on great American dream. But in today’s Great Stagnation, following the years of easy debt-fuelled consumer credit, which analysts call the “Great Moderation”, it’s certainly not playwrights who are pricking the dream-bubble.

The inability of the capitalist system, not only to ensure the fundamental necessities of life, but the very notion of a positive future is self-evident. Cities and states are staring at bankruptcy while trillions of government dollars have failed to revive the economy. As American comedian George Carlin quipped: “It’s called the American Dream because you have to be asleep to believe in it.”

Corinna Lotz
A World to Win secretary

When GOD spoke to Cameron and Clegg

What we learned from last night’s BBC documentary on the formation of the first peacetime coalition government for almost 80 years is that in times of crisis, the state will always step into the breach and bang heads together.

We’re not talking about any old state here but one that promoted the development of capitalism in the 19th century along with a colonial empire that made Britain the pre-eminent imperial power. A key role of the capitalist state is ensure a continuity of political power. Parliamentary government is essentially the public façade of the state, the mechanism by which it expresses itself, and seeks democratic legitimacy and authority.

Well before the May 6 general election, there was a real probability that Britain was heading for a hung parliament, with no single party able to command a majority. Public disdain for all the major parties was self-evident, especially as they were tip-toeing around the big issue of public spending cuts. The election itself was a fraud because no party was prepared to own up to what it would do if elected.

Senior civil servants under cabinet secretary Sir Gus O’Donnell (aka GOD) began planning for a hung parliament well before the election. In Five days that changed Britain, a documentary about the formation of the coalition by BBC political correspondent Nick Robinson, O’Donnell is frank about his intentions.

He wanted a coalition government with a comprehensive agreement on policy to take office as soon as possible. During the week of the inconclusive election, there were riots on the streets of Athens as Greece’s debt crisis went from bad to worse. Eurozone leaders met at the weekend to work on a bail-out for Greece and to defend the euro. The financial markets were on edge.

O’Donnell told Robinson: “What might have been a minority government wouldn’t have had the strength in parliament to pass the tough measures that were needed to get us through this problem [Britain’s public debt crisis]. So the key issue then was that the markets would really make us pay a price on a Monday morning by selling our debt [government bonds]. And that would have been a real problem for the country.”

O’Donnell thus acknowledges two related issues: global financial markets make and break governments; the role of the state is to help create the conditions through which the markets that finance state borrowing can be appeased by spending cuts. The net result is to sustain the capitalist economic and financial system at all costs. Here the state is true to itself.

Of course, O’Donnell wasn’t the only factor in the emergence of the Lib Dem-Tory coalition. David Cameron seized the opportunity to put “national interest” above party politics with decisive leadership and engineered a coup against his own right wing at the same time. Nick Clegg did the same against his left wing to get into bed with the Tories rather than New Labour. Both men deceived their parties during the negotiations facilitated by O’Donnell’s team, as the documentary shows.

All this makes the coalition government fragile and somewhat unstable at a moment when it tries to impose the largest cuts in public spending ever seen in Britain. Behind the scenes, other areas of the state are preparing for all sorts of eventualities and scenarios in the event that the coalition fails to deliver. That is why fighting the cuts also means taking on the state in a struggle for power itself which would enable us in turn to deal with financial markets. Taking part in the campaign to create People’s Assemblies thus become more important than ever.

Paul Feldman
Communications editor