When a return to 'normal' spells crisis

Gamblers, speculators and investors on the world’s capital markets are watching and wondering what is going to happen now, in the wake of the US Federal Reserves’ decision to begin slowing the growth of credit.

There is widespread concern that the relatively minor reduction of $10bn per month in the US quantitative easing programme - from $85bn to $75bn – will trigger a new, much greater period of volatility than occurred last year, when the proposal for “tapering” was mooted.

The latest World Bank report is couched in terms which attempt to calm and limit precipitate action by the people who manage the world’s capital whilst preserving what they claim are “healthy signs” for the masters of the global economy, if not for the 99%.

Nevertheless the Bank warned that “a severely negative response to the return of monetary policy to normal might lead to capital flows to emerging markets falling by up to 80% for several months.”

Despite its professed humanitarian objectives for eradicating extreme poverty, reducing inequality, improving health and promoting environmental sustainability, in practice the World Bank is a key agency for promoting global capital.

In the 1980s it used a policy of so-called “structural adjustment”, drawing countries hit by crisis into debt dependency in exchange for a damaging involvement in labour-intensive production of commodities for export to the globalising economy. The result was impoverishment for millions.

The Bank became increasingly subject to the demands of corporations which were busy growing into transnational behemoths. In the 1990s it was instrumental in the adoption of the “Washington Consensus”. This involved the dismantling of international controls on capital flows, deregulation of markets, privatisation of public utilities and reducing the independence of national governments.

Now the Bank is attempting to assess the likely consequences of the slowing and ending of five-year post-crash, loose-money global hysteria and to prepare countries for what is to come. Its attempt at being encouraging is hardly convincing, predicting a modest “acceleration” in global growth.

Its assessment of risks and uncertainties provides a more sobering view. In the eurozone area things are particularly gloomy, with the report admitting that there “is still a long road ahead before all of the problems that the global financial crisis laid bare are fully resolved”.

The World Bank acknowledges that the “drivers” of the growth required to come out of recession “remain unclear” and adds: “Moreover with the banking sector still weak and details on a fully fledged banking union still being worked out, the currency bloc remains susceptible to shocks, including a tightening of policy in the United States.”

 

It expresses concern about “significant amounts of spare capacity” that have opened up and “a permanent deterioration in job skills and employability of the jobless”. The report adds: “At the same time, continued sharp credit contractions raise the spectre of deflation, which could exacerbate debt overhang problems and result in a much more muted recovery than considered in the baseline.”

And in China where extreme volumes of credit have limited the slowing of growth since the crash, the Bank warns that “abrupt unwinding of investment in China [there] remains a possibility, which if realised could sharply reduce GDP by 3% or more with significant knock on effects in the region and other economies with close trading linkages”.

Today’s news direct from China won’t be encouraging for the calm, measured approach the World Bank would like to see. The uncontrolled shadow banking sector now accounts for more than 30% of total finance in the world’s second biggest economy, up from 23% a year ago.

There’s a recipe for global volatility, if ever there was one.

Gerry Gold

Economics editor

Cypriots angry against bail-out at their expense

Punish the poor, protect big investors and retain Cyprus as an offshore banking haven for oligarchs. That was the meaning of measure rammed down the throats of Cypriots over the weekend under the direction of the infamous Troika.

Instead of restructuring broken banks, the right-wing government was told by the European Union, the European Central Bank and the IMF to cut the value of ordinary people’s deposits as the price for an £8.6 billion bail-out.

But if they thought it was a clever move, they have been proved completely wrong. Fears immediately grew of a run on banks around Europe after panic-stricken scenes in Cyprus. Cash points ran out as savers tried to pre-empt government measures to dock their accounts.

Even as an emergency session of the Cyprus parliament began, there were warnings that the Cyprus crisis could spark off of the next global financial crisis. Savers in Greece, Italy, Portugal and Spain may also panic if they think they are next. Anti-austerity Strikes and demonstrations around Europe are adding to the tension.

Eurozone finance ministers in Brussels and Berlin want to take 6.75% of the savings of those with less than €100,000 and 9.9% of those with over that amount. Cyprus’ new president Nicos Anastasiades’ claims that the measure will mainly hit Russian oligarchs who use the island for money-laundering has failed to convince as pensioners and life-savings are hit hard.

Financial experts like David Kotok of Cumberland advisors have expressed amazement: “The madness of this decision about Cyprus is unfathomable. We expect runs on Cypriot banks when they open on Tuesday. Europe has found a new way to shoot itself in the foot.”  

So is Cyprus – a small country of 1.1 million – simply a unique case? Well, of course every country is special, not least Cyprus, which has been divided into two for 40 years since being invaded by Turkey in 1974. Unemployment stands at a record high of 15%. 

Yet the banking sector has mushroomed – fuelled by speculation in the island’s property market – to become more than eight times the size of the nation's economy. The Russian mafia has exploited Cypriot banks for money-laundering and rubs  shoulders with native property-speculating millionaires in the luxury villas on the coastline.

And, in addition to its tax-evading oligarchs, the Russian government has strategic reasons for retaining influence there. It is a stop-off point for ships supplying the Assad dictatorship with arms. British bases on the island are to be turned into NATO bases, under a secret agreement made last autumn.

The rulers of Europe desperate to save the euro are bearing down on ordinary people to impose the needs of the banks and the economic system over which they preside. 

The needs of the ordinary people of Cyprus as well as modest pensioners from cold climates, let alone the country’s fragile eco-systems many of which have been destroyed by rampant speculative building, count for nothing in this entire debacle.

But this is the pattern, not only in Cyprus, but also in Ireland, Spain, Italy and UK. The demands of millions of people to end austerity have been ignored. In Italy, where a majority voted against further cuts, the electorate is left disenfranchised.

The disarray at the top of the European Union is leading to dismay in significant circles. Today the Financial Times commented: “The biggest risk is political. The prescription of universal austerity combined with kid-gloves treatment of big investors in banks is increasingly toxic to European voters. Leaders have just added fuel to the fire.”

Leaving the Euro, however, as some politicians in Cyprus and Britain are threatening to do, will not solve the deep debt crisis that lies behind the dictatorship of the Troika. That will require taking the power from the bankers and their political allies and re-structuring the economic system so that it works for people and not profiteering speculators.

Corinna Lotz

A World to Win secretary

Eurocrats fear 'protest against entire system'

The game is up for eurozone countries Italy and Greece and a fatal blow to the single currency may not be far behind. A deadlock of different sorts has arrived in both countries and the political systems are locked into the impasse.

At the heart of the crisis are the austerity programmes imposed on the population from the outside, by the infamous Troika – the European Central Bank (ECB), European Union (EU) and the International Monetary Fund (IMF).

Ordinary people in both Italy and Greece have had enough. And their resistance has had an impact, not in the sense that austerity policies have been reversed – they haven’t – but in the inability of the political system to deliver what the Troika demands.

Troika officials are in Athens this morning, combing through the books and demanding more cuts before further tranches of the bail-out are transferred to Greece (from where they leave instantaneously for a creditor foreign bank or hedge fund).

Athens agreed to cut 150,000 public sector jobs by 2015 in return for financial support.  Under that plan, 25,000 employees were to be transferred this year to a "mobility" scheme, the first step towards redundancy.

With unemployment having reached a European record of 27%, the coalition government fears enforced redundancies will lead to total unrest. “The public sector has shrunk by 75,000 people in the last one and a half years," the finance minister, Yannis Stournaras, said. "There will be no layoffs."

With its GDP set to contract for a sixth straight year, unemployment is forecast to be more than 30% by the end of this year. Over 60% of those without work are under 25.

This cuts no ice with Troika monitors, with spokesman Thomas Wieser declaring: "All that was agreed in the bailout plan has must be implemented.”  

Across the sea to the west, near neighbour Italy is without a Pope, without a government and, from next month, will be without a president when Giorgio Napolitano stands down. Napolitano was in Berlin over the weekend, getting his marching orders from Chancellor Merkel, self-appointed guardian of the euro.

The line from Germany is that, whatever happens, the electorate must be kept away from the ballot box any time soon following last week’s general election. That resulted in the anti-establishment Five Star Movement founded by comedian Beppe Grillo picking up 26% of the vote and 163 MPs. They met for the first time yesterday and the only thing they agree on is not working with discredited political parties and leaders.

With the formation of a government ruled out, Napolitano is preparing to appoint another “technocratic” government of officials and so-called experts. Yet this is the regime led by banker Mario Monti that the Italian voters rejected overwhelmingly, with over 57% casting their ballots against anti-austerity parties.

This time Bank of Italy governor Ignazio Visco is front-runner to take over as premier.

This would be a slap in the face for ordinary Italians who have seen the economy dive into depression, with output having fallen by 10% from its peak, and where youth unemployment is at a staggering 37%.

What Napolitano is considering will effectively amount to a coup in a country where a corrupt, bureaucratic state is considered the problem by most people. “Nothing like this has ever happened before in the history of the Italian Republic. We are seeing a true crisis of the regime,” said Professor Luca Ricolfi from Turin University.

Grillo dismissed the ploy and repeated his vow to “bring down the old system” and added: “We’re not a political party, we’re a civic revolution. This country is in ruins with two trillion in debts and we have to rebuild it from scratch.”  

In Brussels, the old order is trembling at the prospect of Greece being thrown out of the euro and Italy – if Grillo had its way – deciding to quit the single currency. Giles Merritt from EU think-tank Friends of Europe said Brussels could handle old-style politicians like Silvia Berlusconi.

Grillo really worried them, he added, because it was a “protest against the entire system, and they are afraid it is spreading to other countries”. He’s not wrong there.

Paul Feldman

Communications editor

Pesky voters ignore markets, vote against austerity

When an anti-austerity, anti-establishment internet-based political movement with few policies and led by a comedian, gets 25% of the vote in a general election, you know for sure that the political system is travelling on a one-way ticket to disintegration.

Beppe Grillo's Five Star Movement (M5S) won 54 seats and cashed in on Italians’ hatred for a corrupt, incompetent state that has cut their pensions, living standards and left record numbers of young people out of work.

Deadlock is what the markets didn’t want. That’s why Mario Monti was appointed by the European Central Bank to head a caretaker government 15 months ago as Italy’s debt mountain threatened to overwhelm the euro. But given half a chance, the electorate rejected his policies.

The ex-Goldman Sachs banker only got 10% of the vote when he put his austerity programme to the electorate. And with Silvio Berlusconi also raging against Brussels and promising everyone a tax cut, many voters backed a man who has somehow evaded prison.

As a result there is no immediate prospect of a stable government to manage Europe’s third largest economy. And the markets don’t like the stalemate at all. After initial polls showed the centre-left alliance winning, the markets rallied.

Then when the electoral deadlock was confirmed, black turned to red on trading screens around the world. Italian bonds were sold off, trading in the major banks was suspended, the stock markets plunged and the euro crisis returned with a vengeance.

“This looks like a recipe for total gridlock,” commented Nicholas Spiro, a sovereign debt analyst. “On current projections, financial markets are facing the worst of both worlds in Italy: a full-blown political crisis in the eurozone’s third largest economy and a severe setback for the liberal economic agenda championed by Mr Monti.”

Pesky voters!

Enrico Letta, deputy leader of the Democrat party, concluded that the “absolute majority of Italians have voted against austerity measures, the euro and Europe,”.  This, he claimed, sent a “a very clear signal to Brussels and Frankfurt”.

But is anyone listening at the headquarters respectively of the European Union and the European Central Bank? No they’re not. The EU and the ECB is desperately to prop up a weak currency and austerity, austerity and yet more austerity is the mantra. No matter that it doesn’t work. They have no alternative.

Spending your way out of the crisis is no good because it’s a global economic recession that is already dependent on large-scale printing of money to prevent a full-blown depression. It’s not just the political system that’s broken.

Grillo’s Five Star Movement is hostile to Brussels and the indecently corrupt Italian establishment. It wants to reform parliament by halving its size and a new electoral law based on proportional representation. Other than that, it has little to say.

Grillo – called everything from “sans-culotte satirist” to “populist, extremist and very dangerous” –  hands it back with interest. His nickname for Berlusconi is “the psycho-dwarf”, while he refers to the technocrat Monti as “rigor Montis”.

Grillo told the Financial Times last year: “We are occupying a void, which in other places like Greece has been filled by Nazis and extremists. We are a response to government ‘parasitism’, corruption, a system of political diarrhoea.” Recent scandals include arrests at the top of state-controlled Finmeccanica to corruption probes into the Eni and Italy’s third-largest bank.

Grillo does not appear on television or take part in debates. His movement – it’s definitely not a party – is driven by the use of social media. He runs Italy’s most-read blog and the M5S organises on two levels – internet and local grassroots.

He used the social network “meetup”, which was already active in Italy, to set up local support groups across the country. There are now more than 700 such meetup groups, with more than 100,000 members.

In Britain too, the establishment and the state is also mired in a variety of scandals. The old politics is dying right across Europe and further afield as the recession coincides with  a crisis at the top.

A new politics, a democratic transformation of political systems, is not only possible – it’s absolutely necessary.

Paul Feldman

Communications

EU referendum also about who rules Britain

In raising questions about Britain’s membership of the European Union, the leader of the Tory Party has put constitutional questions about the state and democracy on the agenda. While David Cameron would like to confine these to the EU, we should make how Britain itself is governed the main question.

Naturally, as a ruling class politician, the prime minister is mostly concerned about prospects for the City of London and the major corporations when eurozone countries hand tax and spending policies to the European Central Bank – without the people of Europe having a say. Countries outside the eurozone – like Britain - could find themselves at a disadvantage.

And obviously, from a political point of view, he is keen to outflank the right-wing  populism of Ukip, whose fear and loathing of foreigners in general and Europeans in particular knows no limit, and bring his own eurosceptics into the fold.

But in his long speech, Cameron was also compelled to cloak himself in the language of democracy and emphasise the right of people to decide for themselves. In doing so, he opened up a can of worms for the ruling class because voters are also deeply troubled by a self-evident “democratic deficit” in Britain as well as the EU.

One of Cameron’s stated reasons for announcing a referendum on the EU in 2018 if the Tories win the next election is the “gap between the EU and its citizens which has grown dramatically in recent years”. He says that this “represents a lack of democratic accountability and consent”.

But his remark that the “EU is seen as something that is done to people rather than acting on their behalf” puts him on dangerous ground. Because while this is true, it also applies to the electorate’s relationship with the state and political institutions in this country.

When he points that “people are increasingly frustrated that decisions taken further and further away from them mean their living standards are slashed through enforced austerity” he wants to confine this to countries like Spain, Greece, Italy and Ireland.

But this could and should be extended to what’s going on in Britain. The vicious austerity drive imposed on working people, which has seen a massive transfer of wealth to the rich, may appear as the result of decisions taken at Westminster.

But in reality, the policies flow from the ConDems’ slavish commitment to maintaining the status quo of corporate and financial power. Their source is equally as “further and further away” as those carried out in the eurozone. No mandate was sought for the cuts before the last election – by any of the parties.

The deficit was so huge as a result of the global crisis that, from a capitalist point of view, it had to be cut. And that meant taking the axe to public spending to persuade the financial markets not to impose exorbitant borrowing costs. Not much democracy at work here Cameron!

So we should extend the debate about democracy. We should make the central issue who rules Britain and by what means. Have, as Cameron claims, the people actually lost control and their voice to Brussels? Or, as is the case in practice, they never had either in the first place?

The British state and its institutions rule for the powerful, the elites, the rich and the establishment in general and a referendum on membership of a crisis-ridden EU that is beyond reform won’t change that.

Labour certainly won’t raise these fundamental questions. They are solely concerned that a referendum might undermine the “national interest”, by which they mean those of business and finance. Hell would freeze over before Ed Miliband talked about anything else.

A campaign is gathering pace around the project for an Agreement of the People for the 21^st century. It proposes a new constitutional settlement in Britain that would spur democratic transformation everywhere and lay the basis for a Europe where powers rests firmly in the hands of the people. Lend it your support.

Paul Feldman

Communications editor

Infinity and beyond is Bank's view of crisis

Who’d be an economics forecaster at a time of chaos and crisis? Only six weeks ago, Bank of England experts thought they had the situation covered. Now they’ve ripped up those forecasts and are starting again.

Admitting they have no idea about what is going on, and even less about what to do, the worsening crisis in the eurozone led Mervyn King, the BoE’s governor, to excuse their astonishing bewilderment when he appeared before the Commons treasury committee:

“It is impossible to imagine a situation in which you just do not know what the situation will be in a part of the world that is close to you and is half of your trade”, he said. “And that makes it impossible to engage in any sensible forecasting.”

So for King and his colleagues, the laws of economics appear to have broken down. And there’s nothing in the history books to provide any insight.

Ever since the crisis erupted in Greece, European leaders, together with the heavy hitters from the IMF have attempted Herculean feats to keep it isolated, with firewalls and barriers of all kinds.

But the crisis has morphed. Strongman Hercules has given way (temporarily) to Sisyphus – the king punished by being compelled to roll an immense boulder up a hill, only to watch it roll back down, and to repeat this action forever.

Forever? Well, it certainly seems this way in the other illuminating comment from King - a weird, contradictory warning to the public against seeing any end to the crisis.

“When this crisis began in 2007-2008, most people including ourselves did not believe that we would still be right in the thick of it” [he really, really said it], “in the middle of it, quite this late,” King told MPs. “All the way through, I’ve said to this committee that I don’t think we are yet half-way through – I’ve always said that and I’m still saying it.”

So, if we’re to understand this correctly, the longer the crisis has gone on, the end disappears into infinity as “half-way” fades into the distance. He’s not wrong. On the same day, figures for the UK’s state borrowing showed that the deficit is still growing. Tax revenues are falling and unemployment has driven up welfare spending. Chancellor Osborne had to postpone a 3p petrol duty rise for fear of sending the economy over the edge. That’s how precipitate things are.

After taking a quick look at the books, Vassilis Rapanos, 64,  the finance minister of the newly elected Greek coalition government, resigned on Monday due to ill health.  

Also on Monday, Spain and Cyprus became the fourth and fifth casualties in the 17 country eurozone forced to admit bankruptcy and beg for help. Eurozone finance ministers are meeting today to consider the appeals. Spain is asking for €100 billion. Estimates put the cost of a bailout for Cyprus as high as half of its €17.3 billion economy.

The reaction from credit ratings agency Moody’s was predictable, whatever Mervyn might say. They downgraded the ratings of 28 of 33 rated banks, by one to four notches, following a cut to Spain's sovereign rating to just above junk status earlier this month.

With Germany’s Chancellor Angela Merkel refusing to share the total eurozone debt burden “as along as I live”, the struggle playing out in Europe, as in the rest of the world, is the endgame between national sovereignty and the transnational cabal of giant corporations and the investment funds that largely own them. They also have the World Trade Organisation and International Monetary Fund on their side.

A conspiracy? Yes, indeed, but one that results from the objective logic of the system of debt-fuelled profit-seeking growth known as capitalism. With its markets for commodities and credit super-saturated, its logic now demands contraction by up to 90% of pre-crisis levels and the destruction of public spending.

The interconnectedness that resulted from three decades of global expansion provides the path of transmission for the debt contagion. But in the right social hands, the technology, the infrastructure, the corporations themselves, are the source of the solution.  

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

A gigantic 'no' from Europe's voters

Political crisis is spreading like a forest fire through Europe following the inconvenient intervention, for the ruling classes that is, of millions and millions of voters in Britain, France, Greece and now Italy.

A rejection of austerity has produced the rare ousting of an incumbent president in France, the overwhelming rejection of austerity parties in Greece, a hammering for the ConDems in Britain and in Italy huge success in local elections for a new movement led by a comedian.

The 5 Star Movement, led by Beppe Grillo, a tussle-haired comedian who wants Italy to quit the euro, made some stunning advances. In Parma, it knocked Silvio Berlusconi's PDL which had previously ruled the city, into fifth place, winning 20% of the vote.   

"We are an epic change. And this is just the beginning. The parties are melting into a political diarrhoea. The citizens are taking back their institutions," Grillo said in a YouTube message.

This concerted rebuff for the old political order has had an immediate impact on European capitalism’s cherished project, the single currency. With bankrupt Greece unable to form a government in time to meet bail-out conditions, its ejection from the euro is a distinct possibility.

Jason Conibear, director of the global foreign exchange specialist Cambridge Mercantile, said of the election results: "There's every chance the euro will go into freefall in the weeks ahead against all the major currencies…Whether it was right or wrong, until the French and Greek elections this weekend there was at least a script. The script of austerity has now been torn up and the sovereign peoples of Europe are starting to ad lib."  

In another eurozone country, Spain, the slump in the economy has left banks on life support and needing a bail-out sooner rather than later. Whether the Spanish state can find the resources for this operation is an open question. Industrial production has fallen by 7.5% in a year and one in four workers is unemployed.

Right round Europe, the massed voices of voters through the ballot box express a clamour for change. The political class, old and new, have tried to embrace the movement. In Greece, Alexis Tsipras, leader of the second most successful party, the united left bloc Syriza, declared:

“The people of Europe can no longer be reconciled with the bailouts of barbarism.” He added: “We want to create a government of leftist forces in order to escape the bailout leading us to bankruptcy ... We're not going to let in through the window what Greek people kicked out the door.”

Such a government seems an impossibility, however. And unless Greece meets its EU/IMF loan obligations, it may not be able to pay public sector salaries next month.

In France, president-elect Francois Hollande pledged to “finish with austerity” after defeating Nicolas Sarkozy, whose political party, the UMP, is facing a break-up as a consequence of his ousting. But Germany’s chancellor Angela Merkel has told Hollande there can be no going back on the fiscal pact agreed by eurozone states.

Although voters have spoken in dramatic terms, solutions to the crisis will have to be found outside of the parliamentary arena. For example, Hollande’s “growth” policy is not an option because the global capitalist economy is in a period of great contraction. This has a momentum of its own that is more powerful than any policy adjustments that might be made.

The parliamentary state, however democratic it appears, is actually part of the problem.  It has all but merged with corporate and financial power. Effectively, we live in a  corporatocracy not a democracy.

Voters around Europe have demonstrated their potential to challenge for power itself rather than being content with rearranging the deckchairs. In every country, the electorate has to become a thing for itself rather than an object for others to use and abuse. Helping to build this self-awareness with the aim of putting Europe’s bourgeois elites out of their misery, is the challenge.

Paul Feldman

Communications editor 

Greeks sold into debt slavery

“It's no exaggeration to say that today is a historic day for the Greek economy,” said Lucas Papademos, banker and unelected prime minister of Greece. Yes indeed. February 21 was the day he signed his country’s people into debt slavery for the foreseeable future.

He also abandoned his country’s right to self-determination, turning Greece into a department of the Brussels bureaucracy, which will now have a permanent team of officials in Athens to enforce cuts and make pay-outs.

The terms of the second bail-out of Greece’s sovereign debt are so harsh that even officials inside the European Union secretly acknowledge they can’t be met. Even if every Greek worked round the clock for nothing, the country’s debt mountain cannot be made manageable.

A confidential 10-page “debt sustainability analysis” by EU officials says the spending cuts demanded will deepen a five-year old recession, making it extremely difficult – in actual fact, impossible – for Greece to gain from the €170bn bail-out.

“The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline,” the report cautioned. Here the resistance by Greek workers, which has already produced several general strikes and violent confrontations with the state, is a key factor. The report’s key passage (with translation) says:

“Greater wage flexibility [eurospeak for wage cuts] may in practice be resisted by economic agents [trade unions]; product and service market liberalisation may continue to be plagued by strong opposition from vested interests [workers] ; and business environment reforms [free market competition] may also remain bogged down in bureaucratic delays.”

So the bail-out might have to rise to €245 billion, the report admits, because one thing is certain – Greece won’t be able to borrow on the financial markets this side of the Messiah making an unexpected return. Under the bail-out terms, banks and private investors are being asked to accept a write-down of 53% in what they loaned to Greece (while the European Central Bank keeps 100%). Bankers may yet revolt against these terms and derail the bail-out agreed after 14 hours of negotiations.

There is absolutely nothing in the bail-out but new loans to service existing and upcoming debt. This is a desperate deal to keep the ailing euro afloat at the expense of the entire population of a member state. Already unemployment for the under-25s in Greece is nearly 50%, having risen by more than a third since November 2010. The national suicide rate has doubled from 2.8 per 100,000 people in 2008, to about 6 last year. Hundreds of people are sleeping rough on the streets. Half of the country’s small businesses cannot pay wages and Greeks have withdrawn about a third of the money on deposit at the banks, fearing financial meltdown.

The Greek state is now in turmoil, not trusted by large sections of the population. "The political system is incapable of handling the situation. The people who created the problem are now going to solve the problem: that's the paradox," said broadcaster Stelios Kouloglou.

Between them the two ruling parties, Pasok and New Democracy, now only command a third of the votes in the latest opinion polls. No one knows what the general election scheduled for April will produce. That could derail the bail-out because smaller parties have not signed up to the deal unlike Pasok and New Democracy were made to. A military junta ruled Greece from 1967 until 1974 and with the country beginning to resemble a failed state, a new intervention by the colonels is not to be dismissed.

What the bail-out shows yet again is that the global debt crisis is insoluble within the present profit-driven economic framework. Reduced living standards produce lower tax revenue, more unemployment, higher welfare benefits and more bad loans for banks to deal with. This is not a Greek but a global problem, with countries like the US and Britain amongst the most indebted. The prospect for “economic justice” under these conditions is less than zero. For that to happen we will have to make capitalism history.

Paul Feldman
Communications editor

The fate of Greece a warning to all of us

Greece has “reached the limits of the social and economic system”, according to its public order minister Christos Papoutsis, and its “people cannot take any more”. It’s a message that will reverberate around the whole of Europe this year.

As unemployment soars to new highs in Britain, especially among young people, the system has indeed reached its “limits”. To those charting the course of the rapidly deepening crisis, the Greek drama is just the full-dress rehearsal. A global slump of terrifying proportions is threatening, only held back by central banks making cheap credit available to stricken banks and the printing of money by state agencies.

Papoutsis is a hated figure inside Greece. He is a minister from Pasok, who amazingly still call themselves “socialist”, who joined with others on Sunday to impose yet more savage cuts in spending, reduce pensions and sack thousands of public sector workers. Yesterday, the Greek cabinet under Lucas Papademos, the unelected prime minster and Goldman Sachs advisor, met in the wake of the violent protests that accompanied the vote in parliament.

On Sunday, Papademos bullied the Parliament into agreeing the terms of the latest IMF, European Central Bank (ECB) and European Union bailout. He threatened the country with a much worse result if Greece were forced to leave the eurozone in the wake of a default.

Papademos is well-qualified to act as the voice of capitalist finance. Amongst his many posts, he was senior economist at the Federal Reserve Bank of Boston in the 1980s, and vice-president of the ECB from 2002 to 2010. His assault on democracy forced coalition parties to expel more than 40 MPs for failing to back the bill.

Clearly shaken by the riots and burning buildings in the centre of Athens, Papoutsis was begging for mercy. "The government is making superhuman efforts”, he said. “From now on, Europe has to take the responsibility", washing his hands of any further responsibility.

But his appeal fell on deaf ears. Eurozone finance ministers cancelled today’s meeting with Greece when it became clear that the Athens government had again failed to deliver on the latest round of assaults designed to consign its people back to and beyond the poverty of the 1930s. They want more cuts and an undertaking that whoever wins April’s general elections will implement the EU’s demands. Democracy? Forget it.

The day after the vote in Athens, credit ratings agency Moody’s went fishing for more and bigger victims. They put the UK, France and Austria on negative outlook. By raising the prospect that the three countries would lose their triple A ratings due to exposure to the eurozone debt crisis, Moody’s issued instructions to these governments: the pace of the assault on living standards must be accelerated and its scope broadened out to the rest of Europe’s population.

Every day, further evidence emerges of the unstoppable catastrophic implosion of the capitalist economy. In the last quarter of 2011, Greece’s GDP dropped by 7% compared with the same period last year, a steeper decline than the 5% recorded in the third quarter, according to preliminary data published by Elstat, the national statistics body. Greece’s economy has now shrunk in every quarter but one since mid-2008.

It’s not only Greece that has reached the limits of the social and economic system. It is now time to make a leap to something new. As with the Telaithrion Project in Greece, in every country people are experimenting with different ways of living and producing the necessities of life and a great deal can be learned from them. The Transition Initiative has gone global since its launch in 2007.

But the challenge is to go beyond alternatives. Whilst the current profit-seeking capitalist system exists it is obliged to drive up the rate of exploitation of what corporations see as theirs to take – human labour and the natural resources of the planet. The system must be dismantled and its components used to build anew. Let’s compost capitalism.

Gerry Gold
Economics editor

Dracula is alive and well in Brussels

Eurozone finance ministers gave Dracula-style bloodsucking a bad name last night when they rejected proposals brought from Athens for even more severe austerity measures.

Their message was loud and clear: Nothing less than the reduction of Greece to a vassal state will satisfy the major capitalist powers who run the European Union.

Greece will be reduced to absolute penury – the population is not far from that already – and be expected to import goods from Germany, France and other north European economies.

All this to save the doomed single currency project and prop up the continent’s banks which are presently dependent on massive hand-outs by the European Central Bank.

Greece cannot be allowed to default by the EU because the financial markets would then move on to other heavily indebted EZ states like Portugal and Spain, driving up their borrowing costs. So the Greek people must be made to suffer pain beyond human endurance.

Yesterday the national government in Athens led by an unelected prime minister and Goldman Sachs adviser came to Brussels with a €3.3 billion cuts package hopeful of securing a €130 billion bail-out in exchange.

Under a draft agreement between the major parties, the minimum wage in the private sector was to be cut by 22%, pensions reduced further and tens of thousands of more jobs abolished in the public sector. It’s not enough, they were told when they got to Brussels.

They were sent back with instructions, yes instructions, to come up with another €325 million in cuts, get them voted through parliament by Sunday with a pledge from all parties that they would honour the cuts whatever the result of the upcoming general election.

They were also warned of more intensive involvement in the Greek economy to improve tax collection and accelerate the sale of state-owned assets. “In short, there is no disbursement before implementation,” said the well-fed Jean-Claude Juncker, the prime minister of Luxembourg.

And yet the cuts already implemented have helped create an unemployment rate of well over 20% and seen Greece’s national output plummet by 11% in a year. No wonder trade unions staging a 48-hour strike from today described the cuts package as the “tombstone of Greek society”.

More cuts will not only deepen the economic crisis – they will actually make it more difficult for Greece to repay its massive debt, requiring even larger bail-outs in the future.

But all this is apparently of no consequence to the EU’s dominant power, Germany. Perhaps the country’s historians will make a parallel comparison with the harsh Versailles treaty imposed on Germany after defeat in World War One. Impossible reparations payments broke the country’s economy and stimulated the growth of far-right nationalism.

For all intents and purposes, Greece has lost its right to self-determination in the face of decisions taken by overwhelmingly more powerful states in the EU. Democracy has been replaced by unaccountable rule from Brussels.

The country’s political class is set on a course to further disaster and the virtual enslavement of the population. If they had an ounce of concern for the people, political leaders would tell Brussels to go to hell, repudiate Greece’s foreign debt and declare default. But we know they won’t.

Limited strikes aimed at changing their minds won’t work because the political class is committed to the capitalist system, whatever the cost. Therefore, Greece’s unions, students, unemployed, small shopkeepers and farmers should form their own united democratic institutions in the face of dictatorship from Brussels.

A democracy for the people, expressing the power of the majority in place of the corrupt political institutions at the heart of the Greek state would allow working people to stand up for their rights. They could then make an appeal to millions of others struggling against austerity in Europe to come to their aid and launch a European spring.

Paul Feldman
Communications editor

Beware the light at the end of the tunnel

Some optimists are saying that things are beginning to look up because of a fall in unemployment, particularly in the US but also to some small extent in the UK. Yesterday, those closer to the action put things in perspective.

Ben Bernanke, chairman of the US Federal Reserve, dampened the optimism that had seen stock markets rise. January’s fall in the unemployment rate to 8.3% “understates weakness in the U.S. labour market”, he said. “It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work. There are also a lot of people who are either out of the labour force because they don’t think they can find work or in part-time jobs.”

That’s another 15.1%. Bringing the total to more than 23%.

But what about the unexpected 243,000 increase in jobs? Bernanke wasn’t impressed. He’s keeping the interest base rate as near to zero as it can go – at 0.5%, until 2014 - to avoid a further brake on the economy. And even with inflation below the 2% target, the fact that it remains above the interest rate means that businesses are being paid to borrow. No wonder there’s a few jobs appearing.

Meanwhile, millions of families have already lost their homes and millions more are stuck with impossible mortgage payments on houses whose market value has dropped like a stone. As Bernanke put it “the amount of negative equity in the United States is about $700 billion (£447 billion), which is enormous and so there is no conceivable programme [that will get] everybody in the country above water.”

The US is only one part of the global capitalist economy, albeit a very large one, and the health of the two are inseparable. The increase in US jobs is supposed to reflect confidence that there’s a solution in sight for the eurozone crisis, but who’s kidding who?

The process of dismantling the monstrous, decades-long accumulation of credit and debt is underway. “They” call it “deleveraging” and tell us that we’ve all been living way beyond our means. The consequences are just beginning to appear.

Greece was gripped yesterday by another general strike as its government again postponed agreement to the €130 “bail-out” that would see wages slashed by another 20-30%, another 15,000 public sector jobs eliminated, and pensions chopped. People with good jobs, homes and cars last year, are this year homeless, hungry and cold on the streets.

Spain’s economy shrank 0.3% in the last quarter of 2011, and is expected to be officially in recession in 2012. France cut its growth forecast from 1% to 0.5%. Unemployment in the eurozone has been rising throughout 2011, hitting a new record of 16.5 million in December, and it is expected to continue rising throughout 2012. In the 27 EU countries, 23.8 million are unemployed – 9.9%.

And don’t forget Iceland, where the banking crisis hit early and hard. It is now on the brink of new catastrophe. Thousands of households face poverty and loss of property because of loans that, in some cases, have more than doubled as a result of the last currency crash and subsequent price inflation.

The International Labour Organisation says this in its Global Employment Trends 2012: “After three years of continuous crisis conditions in global labour markets and against the prospect of a further deterioration of economic activity, there is a backlog of global unemployment of 200 million – an increase of 27 million since the start of the crisis.”

Astonishingly, the ILO says that 400 million new jobs will be needed to avoid a further increase in unemployment. “Hence, to generate sustainable growth while maintaining social cohesion, the world must rise to the urgent challenge of creating 600 million productive jobs over the next decade.”

That is simply not going to happen. Even the ILO admits that a “dangerous third stage” in the world economic crisis is on the cards, noting that “policy space has been seriously limited, making it difficult to stop, or even to slow down, the further weakening of economic conditions”. The light at the end of the economic tunnel is actually a train crash in the making.

Gerry Gold
Economics editor.

'Clueless' as global crisis worsens

The World Bank is warning of a global downturn worse than that of 2008/09 which saw trade drop by 90% at it lowest point and production following suit. In a sharp about-face from the optimism of its June 2011 report, the Bank now says “the world economy has entered a dangerous period”.

It warns that countries do not have the “fiscal and monetary space” to stimulate the global economy or support the financial system to the same degree as they did in 2008/09. In other words, no rescue packages will be available this time round which is about as stark a message as it comes.

Following turmoil on the world’s financial markets in August, global trade volumes declined at an annualized pace of 8% during the three months ending October 2011, mainly reflecting a 17% annualized decline in European imports. On balance, the World Bank said global economic conditions were "fragile and there remains great uncertainty as to how markets will evolve over the medium term."

In an open admission that they, nor anyone else can do anything to prevent the worsening collapse, Andrew Burns, Manager of Global Macroeconomics and lead author of the report says “the importance of contingency planning cannot be stressed enough.”

The report admits: “An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.”

Underlining the interconnected self-feeding spiral of decline of the global capitalist economy, the Bank’s latest report adds: "The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome." Failure to resolve high debts and deficits in Japan and the United States and slow growth in other high-income countries, could trigger sudden shocks, the report says.

On top of that, political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects. In a sign that billions of people in developing countries are to be abandoned to their fate, the Bank warns that they “should evaluate their vulnerabilities and prepare contingencies to deal with a downturn”.


Meanwhile, the crisis in Europe is deepening by the day, as evidenced by the latest unemployment figures in Britain. The number out of work rose to its highest level in more than 17 years in November. The number of people without a job rose by 118,000 in the three months to November to 2.685 million, the highest level since August 1994. The number of young people without a job jumped to 1.043 million in the three months to November, taking the unemployment rate in the age group of 16-24 year-olds to 22.3%.

Unemployment looks set to rise further. Banks and retailers have cut jobs in recent weeks and Britain's largest food group Premier Foods announced yesterday that it would slash 600 jobs in the face of weak consumer demand.

None of this is surprising, given the ConDem coalition’s spending cuts and the crisis within the eurozone economies. In a sign of desperation, the Bank of England is expected to launch another round of “quantitative easing” – aka printing of money – next month in a bid to inject some life into the economy.

The sense of a loss of control at state level is palpable, as the unwinding of the economic and financial crisis continues to outrun governments. As one minister told the London Evening Standard this week: “The thing to remember, the unsayable thing, is that no one, not governments, not bond markets, not ratings agencies, not the World Bank, the ECB or the IMF has a bloody clue what to do about any of it.”

Gerry Gold
Economics editor

Hungary crisis driven on by new credit crunch

A chain under stress usually breaks at its weakest link. For the global financial system, the pressure point could well prove to be Hungary.

Although not in the single currency, Hungary’s depressed economy is entirely dependent on credit from banks that are in the eurozone, particularly those located in neighbouring Austria and Italy.

Those credit lines have dried up as a result as the drift to a full-scale banking crisis in Europe takes its toll on lending, leaving Hungary vulnerable to a sudden withdrawal of funds.

Banks everywhere, including the UK, are now reluctant to lend to anyone, including other financial institutions, for fear they won’t get their money back. And their scope for lending has been further reduced by a requirement to increase their asset base (which led to a run on Italian bank Unicredit’s shares yesterday).

Hungary’s beleaguered autocratic government led by the populist Viktor Orban yesterday had to pay interest of 10% to borrow some short-term money. A debt-swap auction was cancelled for lack of interest.

Hungary needs to roll over nearly €5bn of external debt this year and in February is due to start repaying a loan from the International Monetary Fund that saved the country from collapse in 2008.

The country is now asking for more help from the IMF. This won’t be straightforward as the IMF is demanding political and economic policy changes first. The danger of a Hungarian sovereign debt default remains high, which would have a contagion impact throughout Europe.

Orban’s nationalist posturing is adding to the risk, as does a growing political crisis which last weekend saw tens of thousands of people rally in Hungary against a new constitution that gives the state draconian new powers over its citizens (as well as the central bank, much to the angst of the EU and IMF who are not particularly bothered about the rest). A declaration on the “decline of democracy and the rise of dictatorship” in Hungary was circulated by a number of former political dissidents.

Other so-called periphery countries, like Rumania and Poland, are equally vulnerable to a credit crunch. Austrian, French, German, Greek and Italian banks are heavily committed to loans to these countries.

There are no “solutions” in sight, as billionaire investor George Soros acknowledged in relation to the eurozone crisis. Soros was only stating the obvious when he warned that a collapse of the single currency would be “catastrophic not only for Europe but also for the global financial system".

The stresses are showing up throughout the system. A survey by the Bank of England reveals that Britain's banks are more worried now about a credit crunch than at any time since the first one brought down Northern Rock in late 2007. Inter-bank lending rates have risen as a result of the eurozone crisis and these have been passed on to companies in the form of higher interest charges.

The survey also showed the first increase in default rates on loans by bigger business in two years. "For large and medium-sized corporates, default rates were reported to have picked up for the first time in two years and a further pick-up was expected," the survey said.

The central bank's quarterly Credit Conditions Survey also showed that small businesses' demand for credit had fallen sharply, and that banks expected demand for credit to drop in the coming months. The survey confirms that the UK economy is on a knife edge, heading from recession to outright slump.

Paul Feldman
Communications editor

Capitalism has no moral dilemma

An Occupy London delegation – not everyone at St Paul’s is happy with this – is due to debate prospects for an “ethical capitalism” tonight with city fund managers, religious leaders, former bankers, and tax reformers.

Leaving aside for the moment the somewhat fantastical notion that capitalism could/should have an ethical dimension, the question is at least a million miles away from the real world.

The global contraction is undermining belated attempts by leaders of the 17 eurozone countries to agree on a new treaty which would supersede national sovereignty. Pushed, prodded, warned and threatened by the credit rating agencies acting as the voice of capitalist finance, plans for further assaults on living standards are to be co-ordinated and enforced at supranational level. They call it “fiscal union”. Germany’s chancellor, Angela Merkel believes it will take years to achieve.

China’s manufacturing output is contracting, undermining those who asserted that the country would drag the rest of the world economy out of recession, while Britain’s has nosedived; and Brazil’s economy has gone into decline.

The democratically-elected governments of Greece and Italy have already been pushed aside by administrations by the bankers for the bankers. Alongside the feverish political activity, central banks in the eurozone are following the Bank of England, making their survival-of-the-fittest plans for when the first of the commercial banks fail.

There is no precedence for the scale of this crisis. References to the 1930s abound but the so far slow-motion crash of 2011 is surely beyond comparison. Look to Ireland. The people there were amongst the first to feel the consequences of the ending of the long credit-fuelled boom as its property frenzy ended with the collapse of the Anglo-Irish bank in 2007/8.

The measures taken to pay off the punitive cost of bail-out funds from the EU-ECB-IMF Troika, and bring about a “return to growth” have meant an astonishing economic contraction and a reduction in real incomes. Real national output has contracted by 12.5%, but that conceals a bigger slump in the day-to-day economy. Nominal gross national product (GNP) has fallen by 22%. Consumer demand is down a third. Unemployment at 14.3 per cent is misleadingly low - with no work to be had many young people have emigrated – some to work on the tar sands of Alberta.

It is already a deeper depression than the 1930s. Public sector pay has already been cut 14% on average (with a pension levy), rising to 30% for the top managers. Entry-level jobs for graduates at the big four accounting firms have dropped by a third to €21,000. Office rental costs in Dublin have halved, and house prices are down 53%.

In common with the other 16 countries, membership of the eurozone meant that a currency devaluation to improve its export potential wasn’t possible. So Ireland was forced into an internal devaluation of the cost of labour, slashing wages, salaries, pensions and public sector spending.

The second wave of the global crisis is now underway with a vengeance. As the economies of Greece, Italy, Spain and Portugal disintegrate, Ireland’s people will be in the firing line again. The Fine Gael/Labour coalition is already slashing deeper into living standards.

As a concept, “ethical capitalism” is more about theology than political economy. The bottom line is necessarily the primary concern of an economic system based on profit which in turn demands continuous growth. This is how the Protestant ethic works out in practice in present-day society.

In the end, a moral shift here or there can make no difference to dealing with a profound, historic and fundamental crisis of the system of production itself. The pressing debate to be held within the occupation and strike movements is on developing not-for-profit sustainable alternatives and how we get from A to B.

Gerry Gold

Economics editor

Don't lose pension strike momentum

The commitment shown by at least 1.5 million workers in 29 unions who staged a 24-hour strike against attacks on the pensions, and marched in cities and towns in their tens of thousands, is now in jeopardy.

Union leaders are resuming talks with the ConDem coalition today in a bid to reach a settlement before the government’s imposed deadline of December 31.

But if they were really serious about defending their members’ interests, union bureaucrats would be boycotting the talks because, in reality, there is nothing really to negotiate about.

For yesterday’s historic action was, as every striker knows, not about winning an improvement in their hard-won pensions but about stopping the government from cutting them through higher contributions and having to work longer before entitlement.

So any “compromise”, along the lines called for by the wretched Ed Miliband – by the way just nine out of 258 Labour MPs backed a Commons motion supporting the strike – must mean worse pensions in one form or another.

A contributions increase will slice even more off the value of real wages, already reduced by a government-imposed, pay freeze – which union leaders did nothing to oppose. With chancellor Osborne imposing a below-inflation 1% pay limit for the next two years, incomes in the public are set to plummet by 15% by 2014.

We repeat: what is there to negotiate about?

While the government has declared class war on behalf of the banks and corporations, union leaders continue to live in a fantasy world where “common sense” will prevail and an all-out conflict can be avoided.

Worse, they consider their members as cannon fodder to be sent over the top before suing for peace. Conscious of the feebleness of their opponents’ officer class, the Coalition is playing a divide-and-rule game. Their plan is to get the teaching unions to agree a separate deal and split them from other unions.

The major Labour-affiliated unions like Unison have no plans for further co-ordinated national action – not least because of the dangers (for them) that it could lead to calls for strikes that are more than a one-day affair (which the government can handle).

Instead, if there is no deal by Christmas, there is talk of local, rolling so-called “smart” strikes. These will have no impact whatsoever and contain the danger of demoralising and isolating groups of workers.

Yet the conditions exist to maintain the momentum of yesterday’s tremendous strike. Osborne’s budget will slash the incomes of every household, not just those in the public sector as the Institute for Fiscal Studies report today shows.

The British economy is heading for recession, along with the rest of global capitalism. While trade unions were marching for their rights, the major central banks took desperate measures to try and prop up the euro. But it’s too late – another credit crunch is under way, leading to a second financial meltdown worse than that of 2008.

The deepening crisis will hit everyone very hard and provides the opportunity to bring all sectors of society together in new ways. Local, alternative seats of power such as people’s assemblies can maintain the energy of November 30 and more.

Limiting our response to calls for more strikes or days of action is inadequate. In Greece, for example, a number of general strikes have failed to end the massive attack on living standards.

Overriding every government’s actions are the demands of the financial markets and the recession that makes it impossible to return to the “growth” that is the lifeblood of the capitalist system.

The success of the pensions strike confirms without a shadow of a doubt the will to confront the government. Now is the moment for the rank and file to demand an end to negotiations and seize the initiative through the creation of democratic assemblies that can mount a serious challenge to the failed profit system itself.

Paul Feldman

Communications editor

London banks in doomsday planning

Reports that London-based global banks are playing “war games” to work out what to do if a country quits the eurozone or the currency collapses, is a stark indication that the financial crisis is out of control. Survival is the only item on the agenda as meltdown looms.

The scenario planning coincides with rising political tensions across Europe, with the Franco-German alliance seeking to sideline Britain. Der Spiegel has dubbed Britain the “sick Empire” in advance of today’s meeting between chancellor Merkel and prime minister Cameron. Other right-wing papers and members of her ruling party have stoked up old enmities between the two countries.

Merkel and French president Sarkozy want, it seems, to make Frankfurt and not London the pre-eminent financial centre in Europe. It is hard to see how that squares with the deepening crisis of the euro itself, with Spain and other countries facing unsustainable interest rates on new loans.

Traders are selling bonds (fixed-term loans) as fast as they can. No one wants to be holding Spanish, Italian or anyone else’s debt when the music stops. And stop it will, with

Terry Pratt of IG Markets remarking that Spain’s difficulties are “the latest blow to the common currency, which is now looking ever more moribund as each day passes”.

According to the Bank of England, UK banks do about half their lending outside Britain, with Europe accounting for about a third of the total. But it’s their ability to absorb large losses that is in the spotlight. Their exposure to France and Germany alone is equal to 130% of their core capital. At least one lender has Italian exposure equivalent to 54% of capital, according to the Financial Times.

And then there are indirect exposures which no one seems to be able to total up. A UK-based bank may have lent to an overseas hedge fund which in turn is tied up in Greek or Italian bonds. Hence the “war games”, with the FT reporting:

It is Friday night, after stock markets have closed across Europe, and there is some shocking news: Greece has pulled out of the euro. By the time markets reopen on Monday morning, UK banks must be prepared for the worst. How dangerous could this be for other eurozone governments and banks? What would it mean for customers? Investors? Would funding markets freeze instantly? These are some of the war-game scenarios UK bankers are acting out – often in real time over a weekend – as they plan for some grim possible consequences of the eurozone debt crisis.

A new credit crunch is well under way, with inter-bank lending crucial to sustaining the financial system, drying up. As in 2008, the fear is of lending to another institution and then finding they can’t pay it back. This only adds to growing liquidity problems and the UK authorities are apparently monitoring funding levels twice daily.

Not all the FT’s readers are sympathetic about the plight of the banks, with one writing: “Looks like the bank's bonus pools are finally under threat owing to the destruction of the real economy through excessive leverage, reckless mortgage lending based on fraud and deceit, financial speculation and looting. The sooner the banks are nationalised, bonus pools used to invest in the real economy and bank management put in jail the better.”

The question is, how do we achieve that goal? Ed Miliband, the Labour leader, has again committed his party to building a “responsible capitalism” and the parliamentary system is a proxy for corporate and financial power. While the bankers do doomsday planning, a strategy for a new political and economic democracy ought to be top of our agenda.

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