The 99% lose out all over Europe

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

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

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

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

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

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

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

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

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

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

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

Paul Feldman
Communications editor

'Go time' has arrived

The sudden appearance of the global contraction over the summer is inducing a state of chaos amongst the governments of the world’s major economies.

Three years after the financial crash all attempts to bring about a recovery lay in ruins.

Italy’s Berlusconi government yesterday announced VAT-rises as a further provocation to mass street protests and strikes against its previous round of austerity measures in an attempt to forestall a downgrade of its debt.

Greece's finance minister Evangelos Venizelos pledged to speed up delayed privatisation and market “reforms”, while his Irish counterpart said Dublin was considering making a deeper fiscal adjustment than planned next year to boost market confidence.

"We are in the middle of a peculiar war – if we lose, we lose everything," said Venizolos. "If we don't complete structural reforms, if we don't change the way the state and the economy work, we will be stuck."

The problem, however, is that even if they do what the IMF and European Central Bank demands, they will still be stuffed.

Britain’s economy is heavily dependent on the service sector which slowed at the fastest pace in a more than a decade last month while orders for new construction have fallen to the lowest since 1980.

Today’s call by 20 “leading economists” for the government to abandon the 50p tax rate for high earners to boost the economy – as if it would make the slightest difference – shows how far from reality these apparently learned men and women have drifted.

The US economy which needs close to 200,000 new jobs each month to prevent a dive into recession added no jobs at all in August. President Obama’s expected plan for a $300 billion job creation programme is certain to meet powerful Republican opposition and a replay of the political deadlock over the debt ceiling.

When governments rushed to the rescue of the bankrupt banks they took on responsibility for the three decades-long accumulation of credit. They attempted to shore up the already tumbling house of cards with props made of unrepayable sovereign debt, adding immense sums to existing deficits.

Government after government launched slashing attacks on all programmes of expenditure – health, education, social services, transport, police - you name it, under the guise of “austerity”. Wages were frozen, effectively reduced by rising prices, and pensions undermined.

But each and every one of the brutal attacks on their populations made only a small contribution to the deficit reduction. Every austerity programme so far introduced is founded upon an expectation of a return to growth which has not been and can not be forthcoming.

As Mark Dow, hedge fund manager and former IMF economist, puts it for Reuters global news agency:

“I am not by nature an alarmist. But the cancer is metastasizing at an ever-accelerating rate. Italy, Spain and even France are now genuinely at risk. Failure to stem the tide now could well undermine faith in the modern global capitalist system — a system already stretched by political polarisation and income inequality — with potentially massive social implications. In short: It’s go time.”

Amongst Dow’s proposals are to drive Greece, Portugal and Ireland out of the eurozone, allowing their economies to disintegrate, their populations to be abandoned to their collective fate. These are the kind of horror scenarios now being openly debated.

“Go time” it most certainly is – but not in the way Dow envisages. Time is up for the capitalist system of production for profit which is clearly beyond repair. And the bell has surely tolled for the political elites that know only how to force their populations to shoulder the burden of a crisis they didn’t create.

Gerry Gold

Economics editor

German corporations demand survival of the fittest

The Eurozone is cracking apart as German-based industrial corporations demand the end of support for poorer, peripheral debt-laden countries so that wages can be forced down. In the back rooms of the financial powerhouses the talk is of leaving Portugal, Ireland, Spain and Belgium to collapse, throwing millions into permanent unemployment.

Why? Because globally co-ordinated attempts to bring the world’s financial institutions back from the brink of Armageddon by printing money, failed to produce anything more than a temporary – and phony – recovery of growth.

Phony, because the figures did nothing to hide the close to 10% unemployment in much of the developed part of the world, rising to 20% in Spain. Phony, because increased manufacturing filled stock levels but didn’t translate into enough increased sales. Phony because investment in China is giving way to inflation and export-dependent growth is slowing there and in India.

And now the debt contagion that is the principal feature of the global capitalist crisis, has spread to local and municipal authorities in the United States and other countries.

More than 100 US cities are already facing the prospect of bankruptcy. American cities and states have debts in total of as much as $2 trillion. In Europe, local and regional government borrowing is expected to reach a historical peak of nearly €1.3tn (£1.1tn) this year.

Cities from Detroit to Madrid are struggling to pay creditors, including providers of basic services such as street cleaning. Last week, Moody's ratings agency warned about a downgrade for the cities of Florence and Barcelona and cut the rating of the Basque country in northern Spain. The debts of Naples, Budapest and Istanbul's have achieved unenviable “junk” status.

You don’t need to try to imagine the consequences. Just look at Detroit. Fifty years ago, Detroit was home to almost 2 million people. Today, many of the once bustling, car-clogged streets of the motor city are largely abandoned. The population is less than half what it was. One in five houses is empty – in some areas it is eight out of ten. Property prices have collapsed to the point where houses can be had for $100, although the average price is $7,500 (£5,000). The city council gives homes away to those prepared to pay the outstanding property taxes.

Now the city authorities, faced with talk of bankruptcy, plan to downsize Detroit by cutting off services, such as policing and sewerage, to large parts of the blighted metropolis in an effort to pressure residents to move to core neighbourhoods of a smaller city.

The mayor of Detroit, Dave Bing, said that his administration cannot afford to go on providing services such as schools, firefighters, buses and rubbish collection to large areas of the city where the population has dropped sharply. The fall in the number of people paying property taxes has left a $300 million hole in the budget.

Bing told the Detroit Free Press that no one will be forced to move but those who remain outside of designated parts of the city "need to understand that they're not going to get the kind of services they require".

In Britain, rising interest rates and declining tax income are hitting hard already, driving the government’s deficit to record levels yet again. This can only intensify the increasingly shaky Coalition’s drive to cut spending, forcing hundreds of thousands out of work.

It couldn’t be clearer. Capitalist society is no longer able to provide the basics of life for the majority. Its replacement cannot come a moment too soon. People’s Assemblies can surely become the organising focus for a new kind of not-for-profit society. Remaking the financial system will be amongst their first tasks.

Gerry Gold
Economics editor

This will be our last blog before the holiday period. We will resume publication on Thursday, 30 December.