Italy bosses call for 'shock therapy' as recession takes its toll

The south of Europe is fast becoming engulfed in political turmoil as the economic contraction deepens. After protests against soaring electricity prices, austerity and corruption turned violent Bulgaria’s government has collapsed. "I will not participate in a government under which police are beating people," says prime minister Boiko Borisov.

In Greece, Bulgaria’s southern neighbour, workers are once again taking to the streets in the first general strike against austerity for 2013, joining farmers who have been blocking roads for nearly a month, protesting at high production costs and fuel prices.

Despite more than 20 general strikes, economic conditions continue to deteriorate. Claims by the government of Antonis Samaras that the country has now turned the corner would be considered laughable if the situation wasn’t so serious.

Two-thirds of employees in the private sector no longer receive regular pay. Unemployment has passed 27% and is predicted to reach 30% this year. More than 60% of young people are without a job. Benefits run out after one year, so now only 225,000 jobless Greeks are currently receiving monthly state assistance.

Last summer, all but the lowest-paid employees were hit with an emergency bill in additional taxes, often for several thousand euros. Further charges were levied on electricity bills, with households that failed to pay disconnected from the power grid. And another round of tax increases took effect this year, the price of further bailout funds secured in December.

Savas Robolis, professor of economics and public policy at Panteion University in Athens, and the head of research at the General Confederation of Greek Workers says: "The standard of living of the average Greek worker between 2009 and 2012, in a span of 36 months, has declined by at least 50 percent."

GDP is expected to contract by a further 4.1% this year, and Robolis warns that that country is fast approaching a tipping point in which “Greek workers and unemployed people may soon not have enough money left to pay taxes while covering their basic needs. If that happens, it would be the worst possible outcome for the Greek economy and Greek society."

Figures show a sharp fall in the country’s trade deficit, but the published figures so far don’t tell us whether the fall in imports is due to a reduction in capital imports which would signal yet a further sharp contraction.

An election in Italy this weekend is set to replace the appointed technocratic government of Mario Monti. The new government which, amazingly, could see the return of Silvio Berlusconi, due back in court to face sex charges after the election, will take charge of what many call the sickest economy in Europe.

Italy, the eurozone's third-biggest economy, has been in recession since the second half of 2011. After 14 years of near-zero growth it is now smaller than in 2001 and shrank most out of the rich G7 countries last year, its GDP contracting by a bigger than expected 2.7%. 

But as the latest snapshots from the OECD club of rich countries show, a return to growth in Italy or anywhere else is ruled out as the global capitalist recession deepens. Economic output across the OECD's 34 member states fell by 0.2% in the three months to the end of December, representing the first contraction since early 2009. The OECD said that the contraction was "particularly marked" in the European Union, where GDP fell by 0.5%  in the fourth quarter.

Marcella Panucci, director-general of Italy’s big employers’ federation, Confindustria, is pushing for a stable government, that she hopes will pursue “shock therapy” policies to restore growth. This open call to destroy living standards is a real sign of a deepening political and social crisis not just in Italy, but throughout Europe.

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.

On a knife edge

Share markets around the world suffered another roller-coaster day yesterday as nervous traders decided it was a good time to sell. Everything points to the most dangerous moment for global capitalism since the autumn 2008 meltdown.

Many and varied reasons are being cited by the traders who sold (and later bought) shares during the day, moving huge sums to (relatively) safer places, including US Treasuries and German government bonds.

The Financial Times’ Chris Giles blamed Europe’s sovereign debt crisis, which, he said, “sent shock waves across the world as it proved that the recovery from the great recession was neither steady nor guaranteed.” It sounds authoritative and convincing.

"The main reason for the fall in South Korea, is the risk of war with North Korea," said Kim Joong-hyun, a strategist at Shinhan Investment in Seoul. The warship was sunk two months ago, on March 26, and North Korea’s leader Kim Jong Il has now severed all communications with the South.

The US Dow Jones sank below 10,000 due it was said, to disappointing news of falling house prices. New regulations on US financial institutions are adding to the problems, threatening banking profits. Credit in the US has been shrinking for two years - overall bank lending is down more than 20% percent from where it began 2009 - and Obama’s legislation has been under way for months.

In London, the FTSE 100 index of Britain's biggest companies dropped 2.5%, falling below the 5,000 mark to 4938. It was shadowed downward by markets in Germany, France and Spain. Here the reason given for the collapse was an instruction from the International Monetary Fund to Spain’s government to sort out its bankrupt banking sector. At the weekend, the Bank of Spain seized Cajasur, a small but troubled savings bank and trade unions have started preparations for a general strike.

Each of these and many other different localised “explanations” for market movements reveal aspects of the crisis in each region of the global economy. Others are searching for a connecting thread. Washington Post staff writers Howard Schneider and Neil Irwin believe they have found one in the realm of politics:

“The knife-edge psychology currently governing global markets has put the future of the US economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.”

They suggest that one false move could lead to a sovereign default in Europe, adding: “Bank holdings of European debt are now being studied with the same focus given to holdings of US mortgage-backed securities as the global financial crisis unfolded in 2008 - and with the same suspicion that problems in one part of the world could wreck others.”

What they are describing is a universal crisis of the capitalist system, brought about by decades of attempts to offset falling rates of profit with pumped up balloons of credit- and debt-led growth. Politicians and states are struggling in vain to keep up with the unravelling that began two years ago.

The crisis makes its appearance in the realms of the economy, in international relations, in the crisis of the democracy and the state, in the tipping of the planet’s ecosystems into irreversible changes, and in the degrading commodification of culture.

Many new people joined A World to Win on the revolutionary road at our conference last weekend because not one of these parts of the crisis can be resolved on its own or within the economic and political framework of capitalism. You should make the same choice.

Gerry Gold

Economics editor

Protests and strikes are mounting throughout Europe as governments begin to carry out the austerity measures required to attract the investment funds needed to postpone state bankruptcy.

Mounting civil unrest is undermining investors’ confidence in European governments’ ability to impose the brutal measures on their populations.

It is patently clear that agreement on a €750 bailout package to prevent the collapse of the euro is hopelessly adequate to stem the attack on the currency.

Panic moves in the USA, Germany and Venezuela yesterday against speculative investment markets are adding to the global instability as hedge funds look to move their headquarters and activities to the less-regulated East.

The German government banned “naked shorting” – the selling of shares and bonds that the sellers neither own nor have borrowed.

In the US, Chris Dodd, the Senate banking committee chairman, proposed letting regulators decide whether banks should be banned from dealing in all derivatives in a last-minute amendment to the financial regulation bill

Venezuela's Chavez-led government took control of foreign currency trading in an attempt to prevent further attacks on the bolivar.

The International Monetary Fund has forced Romania’s six-month old centrist government to promise cuts to state wages of 25% and to pensions of 15% as part of an effort to meet the requirements for the release of the next tranche of loans in a 20 billion-euro bailout package. This scale of attacks on living standards will prove to be just the down payment.

Trade unions in Romania have called a mass demonstration in Bucharest today. If their forecast turnout of 60,000 proves correct, the protest outside government headquarters will be one of the biggest since the revolutionary overthrow and execution of the Stalinist Nicolae Ceauşescu and his wife Elena in 1989.

Greek unions have called the fourth in a series of general strikes for tomorrow against a 10% cut in wages and spending in the public sector, an increased retirement age, VAT increases and the freezing of pensions.

A group of left-leaning members of the European Parliament – the United Left / Nordic Green Left (GUE/NGL) – are attempting organise co-ordinated protests in the week of 21 to 26 June against the power of the financial markets.

The MEPs have put together a series of left-sounding demands:

• Workers must not pay for the crisis - Make the super rich and bankers pay

• Solidarity with the Greek workers and for the unity of working people across Europe

• No to cutbacks, wage cuts, unemployment and increases in the retirement age

• No to privatisation of public services

• End the dictatorship of the financial markets, credit ratings institutions and the IMF

• Stop the bailouts of the banks - nationalise the banks and financial institutions in the interests of working people

But their intention to send use these protests to send “a clear message to the European establishments” and “building a European-wide resistance to the ongoing neo-liberal agenda” is wholly inadequate.

Financial markets are not susceptible to protest or even actions of the German state, representing the most powerful economy in Europe. Shares on European markets tumbled further, as did the euro, after Germany’s attempts to ban short-selling.

One London-based bond trader commented: "Nobody ever thought they'd do this in a million years and it raises the long-term question of who is now going to want to buy their debt."

A World to Win has a different set of aspirations to the MEPs. We’ll be discussing our plans to replace the dictatorship of financial market and the for-profit capitalist system with collectively owned, democratically managed not-for-profit system at our conference on Saturday.

Gerry Gold

Economics editor

Bankers plan to bankrupt Greece

European governments have joined forces with the likes of Goldman Sachs and a large collection of globalised banks. They are ganging up to bully the Greek government into upping the assault on the country’s working people.

Finance ministers have given the Greeks a month to make up their mind. What they’ll do if the PASOK government doesn’t have the stomach for the brutal measures needed to extract an estimated 12% reduction in living standards hasn’t been spelt out.

You couldn’t ask for a better illustration of the coming out of the transnational capitalist class in all its glory. You might even see it as a second coming.

The first was when governments and central banks banded together in an historically unprecedented mutual burst of co-ordinated action to pour trillions of their respective currencies into the open hands of the banks.

Most of it promptly disappeared into the vaults. The remainder is now being divvied up as profits to shareholders and the infamous bonuses supposedly needed to keep high performing staff loyal.

Some of the cash escaped from captivity and is now appearing in “surprising” price hikes, like the rise in the annual inflation rate to 3.5% January in UK, way beyond targets and forecasts, and despite the worst recession for generations.

At least part of the story of how so many of the world’s governments – not just Greece – got into this mess is fairly well-known: the outpouring of generosity to the highly-respected organisations comprising the global financial system was necessary to prevent financial meltdown and a complete collapse of the economic system.

Some people say it worked, at least to some extent. Just imagine what would have happened if they hadn’t done it. And maybe there’s some truth in it. But now we’re beginning to see the real consequences.

The managers of the hedge funds and the pimps who arrange the credit default swaps like the one that seduced the Greek government are threatening to declare any and every country bankrupt that fails to implement a programme of public sector wage, service and job cuts, matched with savage tax rises.

Iceland and Ireland have already been forced down that route. The former’s government is trying to negotiate its way out of the referendum it called to head off huge opposition from its population to the cost of paying its bankrupt banks’ debts to the UK and the Netherlands.

Ireland’s austerity programme has failed to solve its problems. Its government leapt in early to guarantee the debts held by its financial institutions which have now leapt to a staggering eleven times the country’s annual output. The guarantee must now be worthless, just like the similar promises offered by so many others.

If the transnational financial class has its way, public sector jobs, wages, homes, pensions, health and social care, as well as emergency services like fire and ambulance will have to go. Only those jobs that contribute directly to profit will remain, and only those where wages and condition can be reduced to match the lowest anywhere in the world.

Under these objective conditions defensive trade union action and protest must merge with revolutionary solutions and actions such as those we propose in our draft Manifesto. Workers and those without jobs should join with farmers, people with small businesses and the self-employed in every country to set up new democratic organisations as the basis for revolutionary governments. These will take the power to cancel the debts outstanding to the speculative investors, close down the markets they operate in and redeploy their traders to useful work.

Gerry Gold
Economics editor

Greek debt crisis: a warning from history

Greece has moved centre stage as the global debt contagion engulfs Europe. But Italy, Portugal and Spain are not far behind, whilst France and even Germany, whose banks have many billions invested in the other countries, are waiting in the wings. No wonder EU leaders are holding a crisis meeting tomorrow.

Greek public sector workers are taking to the streets today in protest against the government’s austerity programme. This is designed to appease the hedge fund managers who are raising the cost of borrowing, and the foreign exchange dealers who have launched an unprecedented assault on the euro.

The Panhellenic Socialist Movement (PASOK) was elected in October and pledged to rescue Greek capitalism after the break-up of the previous right-wing government. But PASOK has struggled to get to grips with the worsening economic and social crisis.

Today’s strike by unions PASOK could once count on against pay and pension cuts is accompanied by a continuing blockade of main roads by farmers, including the border with Bulgaria. They are demanding financial support the government can’t afford to give.

The immediate threats to the country’s political stability arise from the payments due on its mountainous debts, now proving impossible to service as its economy – largely dependent on tourism and shipping – has taken a big hit from the global recession.

But the Greek government is not alone. It just happens to be the weakest of the pack of highly indebted countries which includes Portugal, Italy, Ireland, Spain, France, the UK and the US, not forgetting Dubai.

Greece’s public spending deficit exceeds 13% of the value of annual output of goods and services, Spain’s 11.4% and Portugal’s 9.3%. All these are far in excess of the 3% safe limit determined by rules set by the EU for countries using the euro currency.

These deficits are funded by borrowing – selling bonds to investors, speculators on the private markets whose only interest is “interest” or “yield”, the amount they can charge. As the problems of repayment mount, so does the cost of borrowing. The principle is the same whether we’re talking about global investors or doorstep, pay-day lenders. Fail to make a payment and the interest due is added to the principal - and then the rate rises. Defaulters are treated very severely. Brutally.

Some consider the UK safer from the effects of debt contagion, because it is outside the euro zone. But its deficit is way up there at more than 12%, and the pound is also under pressure from the foreign exchange traders.

Bankers and hedge fund managers now call the shots, demanding public sector wage and benefit cuts, tax rises, pension reductions and the ending of vital services. Respected figures like George Magnus, senior economic advisor to UBS Investment Bank, talk in hushed tones about the need for governments to balance the risks of a breakdown in “social cohesion” arising from the prescribed “structural reforms” needed to attract investors like him.

The system of elected government that Europeans have got used to during the thirty years of corporate-led globalisation cannot survive the scale of the devastation needed to sustain the capitalist system. Greece was ruled by a military Junta between 1967 and 1974; Spain’s fascist dictatorship lasted from 1939 until Franco died in 1975. The Salazar government in Portugal lasted from 1933 until his death in 1970. The Nazis came to power in 1933 as the effects of the Great Depression were felt throughout the world.

That Depression only came to an end when fascism and the Second World War eliminated the surplus productive capacity produced by the speculative growth of the 1920s. Today’s globalised financial, economic and political crisis exceeds by far the conditions of the 1930s. The costs of resolving it within the capitalist framework cannot be countenanced.

We invite you to join the discussion of alternative, revolutionary solutions put forward in our draft Manifesto.

Gerry Gold
Economics editor