Divide and rule in Greece and Egypt

The sigh of relief expressed by the financial markets and the major capitalist governments over the outcome of the Greek election reveals how desperate the ruling elites are for any “good news”, however ephemeral it proves to be.

The crisis of the euro is now centred on Spain, the fifth largest economy in Europe, which now faces sovereign bankruptcy as well as debt-ridden banks. And next in line is Italy.

Whatever the right-wing New Democracy-led government cobbles together, the fact is that the Greek economy has been smashed, working people can take no more austerity measures and basic supplies like medicine are drying up.

So nothing is different this morning, except that Syriza, which wanted to renegotiate the draconian bail-out terms, did not win. The Brussels bureaucracy and German chancellor Merkel were terrified that an “unreliable” left coalition might come to power in Greece, just as the euro is in its deepest ever crisis.

But it remains a narrow victory for the New Democracy, Greece’s conservative party, which garnered only 3% more of the vote than the Syriza left coalition. Party leader Antonis Samaras is now in negotiations to form a coalition with the Pasok pseudo-Socialist Party, which received 12%, in an attempt to increase his majority – in advance of either party’s agreement to the talks.

Real fear spread in the commanding heights of Europe after the May 6 general election in Greece when the Syriza party, lead by Alexis Tsipras, appeared out of nowhere to gain some 17% of the vote. Syriza’s share of the vote has risen to 27%, thus bucking the notion that European voters cannot be enthusiastic about a left radical party.

Syriza is a coalition of 13 groups including democratic socialists, euro-communists, Marxists and greens. It is, however, pro-European Union as well as in favour of staying in the euro and simply wanted to ease the burden on the Greek people.

Tapping into the suffering caused by the harsh terms of the bailout, Tsipras has won over public sector workers many of whom have received no wages for months, unemployed young people and Greeks of many political complexions who feel they have nothing to lose by taking a chance.  

Meanwhile, in Egypt, the military has effectively seized power as the country awaits the result of the presidential election. It has issued a declaration granting itself sweeping powers. The document by the Supreme Council of Armed Forces (Scaf) says new general elections cannot be held until a permanent constitution is drawn up. It also gives the Scaf legislative control.

On the eve of the elections, under the influence of pro-Mubarak judges, Egypt’s Constitutional Court, dissolved parliament. Emergency laws were then revived, which give the military free rein to arrest civilians without reference to the courts.

It is a pre-emptive coup d’état by Egypt’s “deep state” – the military-economic establishment – has moved to forcibly end the dual power situation that has prevailed in Egypt since Mubarak’s overthrow by a mass uprising last year.

The two candidates in the election both stood for reaction. On the one side, the Muslim Brotherhood Mohamed Mursi, on the other, the continuation of  Mubarak's “deep state” through prime minister Ahmed Shafiq. So in the absence of a real choice. In both rounds, voters opted for the candidate who would best counteract the contender they do not want. In other words, “the lesser of two evils”.

Have we seen the exercise of the people’s will in either of these elections?  In Greece, even though 55% of voters opposed the pro bail-out parties, the country now has a pro bail-out government! In Egypt, the army is determined to retain control – whatever the outcome of the presidential election while dissolving parliament altogether.

Elections have made no difference in either country to decide who truly holds power. The elections were in fact a form of democracy denied, with serving to polarise and divide society and allow the elites to stay in power – a form of “divide and rule”.  The conclusion?  If there ever was a time to create new forms of democratic expression such as people’s assemblies, it is now.

Corinna Lotz

A World to Win secretary

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Facebook riches show how obscene the system is

As people wander the towns and cities of Greece and Spain today looking for work, food and simply the means of survival, in California a company that makes no profits at all will sell its shares for over $100 billion.

Mark Zuckerberg and the other people behind Facebook will be richer beyond their wildest dreams, billionaires many times over, by close of business as the corporation goes from a private enterprise to a public one by selling shares on the stock exchange.

While the Greek Olympic Committee humiliatingly had to find sponsorship from a German car firm to stage the torch handover yesterday because the country is bankrupt, Zuckerberg are his friends are laughing all the way to the bank.

The contrasts between Facebook and the rest of us don’t just border on the obscene – they are way beyond that. In the United States itself, the real unemployment rate is said by experts to be closer to 14% than the 8% cited by official figures. Hundreds of thousands are homeless and many millions below the poverty line.

The Facebook “flotation” is also another prime example of fantasy finance, the same stuff that drove the debt-laden boom of the first years of the century and eventually helped to bring the global economy down.

Millions of small investors, drawn by the prospect of easy money are, however, likely to get their fingers burnt as the major financiers move in.

With the global economy on a knife-edge the unreality persists. Still the bankers are paid in telephone numbers (on top of their bonuses) while 25% are out of work in Spain and the Greek standard of living has fallen off a cliff as a result of austerity demanded in exchanged for loans.

The eurozone crisis is intractable. It’s not a matter of if but when Greece either leaves or is ousted from the single currency. Fresh elections next month seem certain to propel the left-wing Syriza into government. Its leaders have pledged to renegotiate the bail-out terms with the EU and European Central Bank but stay in the euro. They can dream on.

As in Spain, where 16 banks were downgraded overnight, people in Greece are beginning to take their money out of the banks just in case they wake up one Monday and find their euros have been replaced by the New Drachma or the New Peseta at much lower values.

Judging by the near hysteria from prime minister Cameron in London, the impending break-up of the euro will precipitate an economic slump as well as a banking crash that according to the BBC’s Robert Peston was only narrowly avoided at the end of last year.

Martin Wolf, the Financial Times’ leading analyst, confirms this. He wrote last night: “These perils are not of concern to the eurozone alone. Taken as a whole, this is the world’s second-largest economy, with the largest banking system. The risk that a bigger eurozone upheaval would cause a global crisis is real. As frightening is the likelihood that eurozone crises would become permanent features of the world economy.”

There is no future for the majority along this road. The capitalist system is actually broken and beyond repair. There is no choice but to think along the lines of reconstructing the economy along lines of co-operation, mutuality and not-for-profit, democratically-owned enterprises.

That would involve cancelling all sovereign debt. Bond markets that are presently holding countries to ransom would be shut down, along with the stock markets. Investment bank speculation would become a thing of the past. All the expertise in the financial industry would be put towards creating new, equitable monetary arrangements between countries.

This scenario undoubtedly seems a long way to most people. But with the crisis reaching a tipping point, these are the sorts of considerations we will have to apply ourselves too in the near future.

Paul Feldman

Communications editor

The 99% lose out all over Europe

In the end, the “choice” was between a British government determined to protect the City of London at all costs and the rest of the European Union agreeing to allow bureaucrats to impose co-ordinated spending cuts on their increasingly angry populations.

Thus the “interests” at stake in the all-night crisis summit in Brussels were essentially the same – whatever side of the Channel the member states happened to be located. And they weren’t those of ordinary people, the 99%.

Prime minister Cameron used Britain’s veto to try and keep the City free from any new EU taxes and regulations, while chancellor Merkel and president Sarkozy were driven by the financial markets towards a so-called fiscal union to save the euro. The 1% are the only potential winners here.

Cameron’s talk of “national interests” is in any case somewhat hollow, considering that the City is dominated entirely by global investment banks and dealers. Individuals n the UK own just 10% of the shares traded on the London stock exchange compared with 54% in 1963. Foreign investors, of all types, are the biggest group and now own 42% of shares on the London stock market.

All Cameron is concerned about – just like his New Labour predecessors – is protecting the tax revenue from a financial sector that was itself bailed out in 2008 to the tune of billions (while cutting the budget deficit at our expense). All Merkel and Sarkozy are worried about is cutting sovereign debt deep enough to appease the financial markets. Same difference.

The political breakdown in Brussels cannot disguise the summit’s failure to agree on a rescue plan for the single currency, or at least one that might impress the financial markets. The European Stability Mechanism (ESM), the permanent rescue mechanism due to come into force in July 2012, will be capped at €500bn while the Germany opposed giving it the banking licence sought by Herman Van Rompuy, president of the European Council.

Running in parallel is a profound banking crisis. Yesterday, “stress tests” showed European banks had a shortfall of €115bn compared to €106bn in October. Germany's banks were found to need more than double the amount of capital anticipated. And French banks are also under pressure. The rating agency Moody’s has downgraded three French banks including Societe Generale, which it says may need government support.

The banking crisis is directly connected to the sovereign debts overwhelming countries like Greece, Italy, Spain, Ireland and Portugal. Many banks are exposed to loans to these countries and do not have sufficient capital to handle a default, let alone the collapse of the euro. In a desperate move, the European Central Bank has cut interest rates, given loans to cash-strapped banks and is accepting virtually any collateral for loans, including the notorious mortgage-backed securities that drove the 2008 meltdown. ECB chief Mario Draghi admitted that a new credit crunch was under way, with banks refusing to lend to each other.

The EU was until the 2008 crisis a cosy, corporate, bureaucratic, undemocratic club run increasingly on free-market lines. It was the European arm of capitalism’s globalisation project. Deregulation of the financial system applied throughout the continent, not just in Britain.

Because the global economy’s growth was fuelled by debt, the recession exposed its soft underbelly and wrecked the finances of national governments. It wasn’t deregulation that did it for the capitalist economy but the in-built drive to grow or die to sustain profits that ultimately broke the back of finance.

A democratic Europe run in the interests of ordinary people, the disenfranchised majority, is a goal worth struggling for. The chances of the EU as presently designed being the vehicle for such a project are precisely nil. Cameron, Sarkozy and Merkel have made that abundantly clear.

Paul Feldman
Communications editor

Laughing all the way to the bank

It’s hard to know what is more irrelevant – the report of the Independent Commission on Banking or Ed Miliband’s call for a code of conduct will allow bankers to be struck off in the same way as doctors.

Let’s talk about the official Vickers report, which today recommends that the banks build a wall between their traditional high street operations and the place where all the profits lie – the global, speculative money markets.

Make them separate operations, the argument goes, and the state will never again have to bail out and effectively nationalise many banks as it did in 2008/9 when the global financial system went into melt-down (NB: triggered by the collapse of Lehman Brothers, which was an investment bank).

If Vickers’ proposals were a solution – and they patently aren’t – the state would surely act immediately because the crisis is far from over. Instead, any changes are unlikely to be effective before 2019! The Vickers report makes cosmetic surgery look good.

British banks are sitting on countless billions of worthless Greek and other sovereign debt. They are not lending because their balance sheets are stuffed full of “non-performing” assets – bad debts to you and me.

Of course, none of these banks are truly “British” but parts of a globalised system that, particularly in Europe, is staggering from pillar to post. As the American economist Paul Krug noted over the weekend:

“Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat… And now it’s all coming to a head. We’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.”

Krugman, however, along with many other economists, mistakenly believes this what we are living through is predominantly a financial crisis in which a misplaced emphasis on debt has overwhelmed economies and prevented a “return to growth”.

In truth, the financial system’s exponential growth was a state-encouraged response to a global economy that could only expand through pumping unlimited amounts of credit into the hands of consumers, corporations and governments.

Deregulation of banking, which accelerated from the late 1990s onwards, was not a cause but a consequence of globalisation itself. The production of commodities expanded so rapidly that there way no way consumers could buy them without credit. And when the price of homes got out of reach, people were lent more than they could ever afford to repay.

With money sloshing around global markets, it was no surprise that banks developed ever more creative ways of making profits with a range of exotic “products” like credit default swaps. But even these depended on some consumer somewhere along the line making interest payments. And when some US homeowners began to default in 2007, the financial system began its unravelling, which continues.

By the time of the crash, global financial assets were reckoned to be 4.5 times the value of the real economy. Measures that include derivatives increase the ratio to 10 and more times. Some observers like Market Oracle believe that less than half of the debt in the system still has to be accounted for.

Denied unlimited credit, the productive economy has gone into free fall and is heading for outright depression. The savage attack on living standards in Britain reported today by the Institute for Fiscal Studies – while bosses’ pay soars - is capitalism’s response.

In this context, striking off a banker for bad behaviour as Labour leader Miliband suggests, has got to be the feeblest idea of them all! The system as a whole is broken, unsustainable and needs replacing. Democratically-owned and controlled banks and corporations, run along not-for-profit lines, beckons. How to achieve this is another debate. What’s the alternative?

Paul Feldman

Communications editor

Europe in the eye of the storm

With Europe firmly at the epicentre of a new stage of the global financial crisis, the heads of government meeting in Brussels today is hoping for the best but undoubtedly preparing for the worst. As events spiral out of control, there are warnings of dire political consequences from predicted social unrest as governments slash and burn spending on public services and jobs.

The European Union itself is now under severe strain as an economic and political entity. Inter-bank lending is virtually frozen and the single currency severely weakened since the financial meltdown in Greece and the emergency intervention of the Intenational Monetary Fund.

Spain, in particular, is in dire trouble and we’re not talking about the country’s shock defeat by the Swiss at the World Cup. Unemployment is already a catastrophic 20% - twice that level among young people – and the Socialist Party government’s cuts programme has provoked plans for a General Strike.

As the crisis moves from banks to nation states, Spain is being talked about as the Lehman Brothers of the 2010 crash,. Many foreign banks are holding Spanish government debt that is no longer worth what it was bought for. With their own balance sheets looking decidedly unhealthy, the banks are on strike. Francisco Gonzalez, chairman of the BBVA financial services group, admitted: "Financial markets have withdrawn their confidence in our country. For most Spanish companies and entities, international capital markets are closed."

The comparison with Lehman Brothers is as serious as it can get. Lehman’s collapse in the autumn of 2008 plunged the world economy into recession. A collapse of the Spanish economy would usher in a deep, unparalleled slump. In the United States, top fund manager John Hussman, in his latest weekly market commentary, believes that the country is already in recession. Spain going belly up and asking for €250 billion to shore up its finances could prove the last straw.

The is what made billionaire philanthropist and investor George Soros issue a stark warning of how the deepening economic and financial crisis will strain political systems come to their limits. He told a conference: "If there is no exit, (it) is liable to give rise to social unrest and, if you follow the line, social unrest can give rise to demand for law and order and (sow the) seeds of what happened in the inter-war period.” This was a hardly disguised reference to the rise of Nazi Germany in the wake of the Wall Street crash and the onset of the Great Depression.

Soros is concerned that he “fiscal discipline” – cutting budget deficits – is a big policy mistake and that the thing to do is to maintain public spending along the lines advocated by John Maynard Keynes in the 1930s. That presupposes that a) this will lift capitalist economies out of recession and b) governments are free to adopt this course.

A year or so of central banks in America and Europe printing money à la Keynes in a bid to “restore growth” has failed. This is because the economic crisis is a combination of over-producton and mountains of debt which have wrecked the financial system and not one of under-consumption. In fact, much of the new money printed simply leaked out of national economies into global financial markets.

Of course, Soros is right in that cutting budget deficit will only worsen the crisis, leading to higher unemployment and severely reduced living standards. But with capitalist governments competing with each other for decreasing amounts of available credit, there is little choice in the matter. Spain and Greece have put the frighteners on the Clegg-Cameron coalition and tightening the regulation of the financial system is a little like bolting the stable door after the horse has fled.

The threat of dictatorship raised by Soros is not outlandish. Any idea that day-to-day politics is possible as this crisis unfolds should be put to one side, along with notions that the budget cuts can be thwarted with protest and pressure alone. Revolutionary economic and political solutions along the lines suggested in our Manifesto are more to the point.

Paul Feldman

Communications editor