They were all in it together, not just Goodwin

At last! Something we can agree with Labour’s former chancellor, Alistair Darling, on. Fred Goodwin (formerly Sir) should not be singled out by the establishment.

Goodwin certainly had a big hand in the virtual destruction of the three-century old Royal Bank of Scotland, but he was far from alone in his responsibility for the causal chain of events that brought the global financial system to the brink in 2008.

There’s an entire class of people whose positions should be on the line for allowing and encouraging the massive expansion of the system of credit and debt.

The Financial Services Authority, the toothless body created by the previous government, cheered from the sidelines as balance sheets more and more resembled a house of cards.

Darling’s New Labour government was at the forefront of ensuring London’s role as the base for the world’s banks and other gambling houses.

But can any of them be blamed for doing their jobs? Surely they were just doing what was necessary to keep the economy on the growth path? Yes indeed.

Having thrown in their lot with capitalism - the social and economic system that distributes profits extracted from the value-generating activities of those employed in the production of commodities to otherwise disinterested shareholders - they also became its playthings.

But it was their choice, and they are collectively responsible. And as the crisis intensifies it exposes more of those who constitute that collective web of responsibility.

Now the inner logic of the system has brought 25 of the 27 governments of the European Union together in a most terrible Faustian pact.

What they are calling a “fiscal union” is a drawing together of the otherwise helpless in an unprecedented assault on their populations. Their intention is to ensure that the entire population of Europe gets to experience the austerity conditions already wrecking the lives of the 50% of young people without jobs in Greece and Spain.

And all with the objective of a “return to growth” at some time in the distant future.

So what are the prospects?

Fresh from chairing the global economy session at the World Economic Forum in Davos, eminent Financial Times commentator Martin Wolf has this to say about the fiscal union:

“The IMF now forecasts a recession in the eurozone this year, with a decline of 0.5 per cent in overall gross domestic product. GDP is forecast to fall sharply in Italy and Spain, and stagnate in France and Germany. This is a terrible environment for countries seeking to cut fiscal deficits. Forecasts are far from satisfactory for other high-income countries. But the eurozone is the most dangerous part of the world economy: only there do we see important governments – Italy and Spain – menaced by a loss of creditworthiness.”

And in a chilling forecast, Wolf looks back to guess at the future:

“Just as it was not the dominant cause of the collapse, but rather sloppy lending and improvident private borrowing, so fiscal discipline is not the cure. This attempt to vindicate the catastrophic austerity of Heinrich Brüning, German chancellor in 1930-1932, is horrifying.”

A repeat of the ensuing events in Germany is indeed horrifying to contemplate. There can’t be such a repeat. The debt-fuelled growth that produced global corporations more powerful than any single country means that today’s crisis affects all countries simultaneously.

The capitalist system of production and its inseparable financial twin have been on life-support since 2008. It’s time to pull the plug.

Young, workers, the unemployed, students and older people must now draw together in a global network of People’s Assemblies. They can establish the power not only to settle accounts with those responsible for the crisis but build a society motivated by meeting human needs in place of the narrow interests of shareholders.

Gerry Gold
Economics editor

Headless chickens rule EU roost

A French president playing second fiddle to a German chancellor announcing a “fiscal union” to keep eurozone spending under control was patently an uncomfortable moment for Nicolas Sarkozy. His misery was written all over his face.

Perhaps Sarkozy was reflecting on historical precedents from past conflicts between the two countries while he was standing next to Angela Merkel. More likely, Sarkozy realised that the idea of Germany laying down the rules about a country’s national spending could only harm his re-election prospects.

Whatever was going through his mind, the announcement itself was more wordy than substantial. Within hours, the agency Standard & Poor said that the credit ratings of all 17 eurozone countries – including Germany and France – was threatened with a downgrade. All except Greece, whose debt now carries the dubious sobriquet of “junk status”.

As financial commentator Jeremy Warner noted, the agreement between Germany and France was about “as clear as mud” and notably failed to “address the immediate crisis” of the sovereign debt burden that is overwhelming country after country.

Warner’s concern that a long-term plan to keep spending under tighter control, reinforced by plans for a new European Union treaty, is hardly what the markets were waiting to hear, is all too real. But the inaction in the eurozone is not simply the result of German intransigence over using the European Central Bank to buy up a country’s bad debt.

Debt mountains express not simply profligate spending by member states but the consequence of the collapse of a credit-fuelled period of rapid economic expansion. While it lasted, debt could be repaid out of higher tax revenues. Bond dealers, banks and non-EU states couldn’t get enough of the interest-bearing debt.

The economic recession was not caused by the financial collapse of 2008, as is usually stated. In Britain, for example, the economy slowed markedly in the first years of the century. This trend was obscured by easy credit and rising house values (which many used to borrow against). When the meltdown came, it exposed the deep flaws within the capitalist system of production which requires year-on-year growth to sustain profit levels.

Merkel and Sarkozy can only address the debt issues because the nature of the capitalist economy is a given and not up for debate or change. Even so, creating more debt to “solve” existing debt is hardly a solution. Nor do cuts in state spending help. That only intensifies the recession by reducing consumer demand still further. And printing new money, as central banks are doing, simply adds to inflationary pressures while providing speculators with more resources.

All in all, policy makers and political elites are damned if they do and damned if they don’t. In management speak, it’s a lose-lose situation. Their predicament is made more complicated by a political system based on individual nation states in the midst of an entirely globalised, transnational economic and financial system.

The political class resemble headless chickens right now and is mostly concerned with self-preservation and gaining an edge over competitor nations. Democratic procedures are being jettisoned as too lengthy, too costly and too bothersome. Italy and Greece have non-elected governments run by bankers, while EU bureaucrats intend to determine spending on social welfare programmes under the Merkel-Sarkozy project.

Turning things round into a “win-win situation” will require bold strategic thinking and action – sooner rather than later – that aims at a political and economic transformation. We have to extend democracy in new ways beyond the all-too-narrow confines of capitalist ownership and control which is the root problem.

Paul Feldman
Communications editor