Greek crisis triggers debt tsunami

A debt tsunami is now sweeping across Europe to Portugal, Spain and Italy and onwards to the shores of the United Kingdom, before crossing the Atlantic to the United States of America, triggered by the financial earthquake that hit Greece yesterday.

Share markets plunged after credit rating agency Standard and Poor downgraded the long-term credit rating of Greece’s government and banks to junk status, the first eurozone member to have its bonds declared worthless. Markets fear that many banks are stuck with worthless Greek bonds and that the world is heading for renewed financial meltdown.

S&P’s action was its response to the decision by the two biggest trade unions in Greece to call a 24-hour strike against the government’s austerity measures for May 5. This will be the third joint strike of the Greek General Confederation of Labour (GSEE) and Federation of Civil Servants (ADEDY) against the government’s budgetary measures since the beginning of the year.

This further deepening of the crisis undermined the bail-out deal for Greece cooked up between the eurozone countries and the International Monetary Fund, prompting the IMF to toss a further $10 billion into the pot. But the additional strings attached can only provoke further anger from Greek workers.

Early warning of the arrival of the tsunami in Britain has now been delivered to the parties contending to be the next government following next week’s General Election. Whilst all of the parties are keeping quiet about the detail of their plans to reduce the government deficit, the Financial Times and the Institute of Fiscal Studies have been doing their sums.

Both the IFS and the FT have identified black holes amounting to more than £30 billion in each of the manifestos of the three main parties.

The FT says the “next government will have to cut public sector pay, freeze benefits, slash jobs, abolish a range of welfare entitlements and take the axe to programmes such as school building and road maintenance – or make a set of equally politically perilous choices”. It has built a computer game enabling its readers to play at being Chancellor, to get the measure of the job he or she will have to do to attract investors to finance its debt.

The IFS said no party had come "anywhere close" to making clear where the axe would fall after the general election. This, it said, was despite the parties' plans implying the deepest cuts in spending since the 1970s and - in the case of the Conservatives - the biggest one-year reduction in public spending since demobilisation at the end of World War II.

The parties are keeping quiet because they too fear sparking a Greek-style revolt (actions taken or planned by university, college and school teachers against cuts are a sign of what’s to come). Never mind New Labour’s “hard choices” to be made, there’s a conspiracy amongst them all.

The IFS, the FT and the rest of the media and the political parties offer no choice at all. Somehow or other the cost of the debt must be paid by the millions of people being persuaded to vote for bailing out the capitalist system with the destruction of their jobs, pensions, health, education and social services.

But there is another way. We can build a better kind of democracy around a different kind of economy. A network of People’s Assemblies can oppose the next government and refuse to accept the cost of bailing out the banks and of putting profits into shareholders’ pockets.

They could decide to cancel the debt, outlaw speculation, close the profit system, and turn the private financial sector into a public service like, but even better than, the NHS.

Vote with your feet – take the revolutionary road on May 22nd.

Gerry Gold

Economics editor

'The worst is yet to come'

The emergency state bail-out today of Britain’s major banks to the tune of £37 billion marks the end of an era and is the clearest indication that the recession that prompted the global financial crash is already turning into economic depression.

Shortly before he became prime minister, in July 2007, Gordon Brown told bankers that the previous ten years has been a period “that history will record as the beginning of a new golden age for the City of London”. He praised bankers for being “pioneers of free trade” with a “deep and abiding belief in open markets”.

How times have changed! Over the weekend, the very same bankers were forced to go cap in hand to the state to try and stave off total collapse. But boosting banks’ capital assets with taxpayers’ billions will not save the banks from the globally economic tsunami that is building with each passing day. As recession turns to depression, the indebtedness of the banks will grow exponentially as ordinary people can’t pay their debts and businesses go broke.

What is ending is the era of corporate-driven, debt-fuelled globalisation. The consequence is not some slowdown but the destruction of large portions of capital created in this period, leading to a cycle of mass unemployment, sharp reductions in consumption, even more job losses and the wiping out of lenders when people/corporations can’t service their debts.

As one commentator observed: “Usually, a banking crisis follows some form of economic crisis: lenders are hit by wave after wave of customer bankruptcies until they themselves cannot take any more and topple over. This time, the banking collapse has preceded the recession… Instead, last week’s stock market rout marked the point when the usual direction of cause and effect was reversed: now it is the real economy that is expected to take its cue from the markets.”

The indications are all present. A slowing world economy has forced down the price of oil, while mining companies are in difficulties because China is importing less. General Motors, once the world’s largest carmaker, is one of several colossal companies on the verge of bankruptcy. It has already temporarily shut down its European factories to preserve its precious cash reserves.

In Britain, Keith McGregor, restructuring partner at Ernst & Young, said: "UK profit warnings continued to come thick and fast during the third quarter, crossing over the 100 mark once again. It is deeply concerning to think that the worst is almost certainly yet to come for UK corporates." It is predicted that 2 million people could lose their jobs by the end of the year.

Homelessness charity Shelter predicted last week that there will be around 45,000 repossessions this year, with one in 150 homeowners already three months or more behind on their mortgage repayments. The number of court orders for mortgage repossessions is 24% higher than last year. The number of homes being sold in Britain has fallen to its lowest level since 1959 in August. The new house-building sector has collapsed, with tens of thousands being laid off.

Under these conditions, for the state to take on the debts of the banks is not only a massive transfer of wealth to the private sector – it also focuses future risk on itself. The next stage could be a currency crisis as government debt spirals out of control. Britain could then easily face its own “Iceland moment” and state bankruptcy. As a result of today’s actions, national public debt is likely to exceed total national income. Tax increases and spending cuts are on the immediate horizon.

The crash of banks and other financial institutions is at the same time the failure of the capitalist economic system as a whole, whose thirst for profit-driven expansion at any cost has brought humanity to this point of disaster and catastrophe. This the fundamental issue we will address at our Stand Up for Your Rights festival this Saturday.


Paul Feldman
AWTW communications editor

March on Wall Street

The jailing of press baron Conrad Black for defrauding shareholders has captured the headlines this morning. Black’s $32 million theft is simply the tip of an iceberg of what may be viewed as an entirely criminal situation in the world of business and finance. Black’s six and a half years in jail will perhaps seem small to the millions of people around the world who are imprisoned by debt for their entire lives - while traders play the financial markets to notch up record profits.

The fact is that 2008 is set to be the year when debts come home to roost. And, as credit becomes harder to obtain, debt is changing from being a millstone around their necks, into a nightmare. Mortgages have helped people afford a roof over their heads, whilst at the same time locking them into repayments they can ill afford. But now comes the nightmare of repossession.

In the United States, things are now so bad that people have taken to the streets – Wall Street to be exact – to protest against the way in which black communities and ethnic minorities have been hit especially hard. Yesterday, demonstrators paraded through the centre of US big business to protest against the eviction of millions of homeowners, the first ever march to target the financial markets. US civil rights leader, Jesse Jackson, who has campaigned for economic empowerment since he joined Martin Luther King as far back as 1965, led the march. He has spoken on U-tube of a financial tsunami in the US and last Friday called for a Marshall Plan to provide relief to people who lost homes and savings in an editorial in the Wall Street Journal.

The National Association for the Advancement of Coloured People, which organised the New York rally and a second one in Chicago, said in a statement:

“As the mortgage market continues to decline, millions of home-owners could face foreclosure in the coming year. Unfortunately, a disproportionate number of those home-owners are minorities who were targeted for sub-prime, predatory loans”.

Like his mentor, Martin Luther King, Jackson sees the issue of debt as a class question as much as an ethnic issue. In Chicago, where Jackson’s Rainbow Push coalition is based in a former synagogue, 30% of homes are in foreclosure. In Detroit’s Wayne County, a quarter of homeowners are in default, as Danny Schechter reports.

Lest anyone thinks these problems are unique to America, just look at what is coming up here. The lead story in today’s Times notes that as shoppers are set to blow a record £11.7 billion on their credit cards this Christmas, the new year will bring nothing but pain. It concludes:

“There are fears that the credit crunch will have a devastating effect on some families which are already deep in debt. Nearly 5 million people have still not paid off their store and credit card bills from a year ago, according to moneyexpert.com.”

It is time to get real. We need to work out a bold programme for a not-for-profit economy, not rely on the same politicians who have worshipped at the shrine of capitalism for all their lives.

Corinna Lotz
AWTW secretary