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  • Margaret Thatcher The Death of a Shopkeeper Margaret Thatcher The Death of a Shopkeeper Baroness Thatcher, Britain’s former Conservative Prime Minister died on 8 April 2013 at the age of 87. She was the UK Prime ...
    Posted 8 Apr 2013, 15:33 by heiko khoo
  • Michael Roberts the Euro crisis is a crisis of capitalism
    Posted 16 Mar 2013, 06:43 by heiko khoo
  • No vacation for the euro By Michael Roberts   July 24th 2012   I’m off on a short holiday, but there will be no vacation for the euro this summer.  Europe’s ...
    Posted 25 Jul 2012, 04:20 by Admin uk
  • ‘Payback time’: Lagarde’s Myths By Mick Brooks        Christine Lagarde, the managing director of the International Monetary Fund (IMF) was interviewed by the Guardian (26.05.12). The interview was treated by Lagarde as part ...
    Posted 28 May 2012, 10:12 by Admin uk
  • The crisis of capitalism and the Euro By Mick Brooks       The gloomy prognosis for the world economy outlined by Marxists has been confirmed. What we see stretching before us is an age of capitalist-imposed austerity. On ...
    Posted 27 May 2012, 15:28 by Admin uk
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Margaret Thatcher The Death of a Shopkeeper

posted 8 Apr 2013, 13:34 by heiko khoo   [ updated 8 Apr 2013, 15:33 ]

Margaret Thatcher The Death of a Shopkeeper

Baroness Thatcher, Britain’s former Conservative Prime Minister died on 8 April 2013 at the age of 87. She was the UK Prime Minister from 1979 to 1990 and the most influential Conservative politician since Winston Churchill. Her single-minded self-assured determination earned her the label of the Iron Lady and inspired awe, reverence and revulsion from her supporters and detractors alike.

Thatcher grew up in a classical English petty-bourgeois family. Her father owned two grocery shops in Grantham. He preached the word of God, was staunchly patriotic, and became the town’s Mayor from 1945-6. His self-confidence derived from selecting of tins of food that command a good price and turn a good profit. His daughter, Margaret, also formed her intellectual outlook around the petty proprietor’s fetish for the magical qualities of prices.

The English aristocratic bourgeoisie suffered irreparable damage to their standing in society during the Second World War. They were tainted by the economic crisis before the war and by their common sympathies with Adolf Hitler, whose supporters had included the former King, Edward VIII. This led to a landslide electoral victory for the Labour Party in 1945, and socialist measures in healthcare, education, housing and welfare, were combined with a significant extension of public ownership.

Margaret studied chemistry at Oxford, but she lacked outstanding intellectual gifts or innovative entrepreneurial talent. The egalitarian spirit of the post war era provided the opportunity for this determined and forceful young woman to secure herself leadership over the University’s Conservative Association providing a plebian face within their circle. Margaret had to struggle within this ambient for recognition by hard work. This was greatly helped by her ability to go without sleep. She once said, Marxists get up early to further their cause. We must get up even earlier to defend our freedom.” Of course by freedom she meant the freedom of the bossy proprietor.

Her marriage to Dennis Thatcher in 1951 elevated her into ranks of the bourgeoisie. He had inherited his wealth and felt that business distracted him from dabbling in amateur military escapades. He was generally seen as a blithering incompetent buffoon to be shunted out of ears reach, in case some bigoted diatribe escaped his lips, but Margaret dearly loved him, and treasured the life opportunities his wealth had opened up for her. Dennis funded her career change from studying the chemical composition of ice cream, to studying to become a barrister; the traditional pathway to acquire the rhetorical skills and mindset, required for a career in Westminster politics. She won a parliamentary seat for the Conservative Party in 1958 and quickly made her mark by voting to reinstate beating people with sticks as a form of corporal punishment.

The increasing power of the workers within society was reflected in their ability to extract and win concessions through trade union activism. The workers were no longer willing to be pushed around, to bow down to ‘their betters’, or to work as servants and maids for the elite. The emasculation of the Conservative aristocracy made Margaret Thatcher appear to acquire the ideal characteristics of what a ‘real conservative man’ would be like - obstinate, determined, bigoted, and proud of it. Lessons to deepen her voice followed - all the better to gobble up her wimpish male colleagues in the future.

The 1960s were characterized by an entrenched social-democratic consensus whereby social and economic development was widely seen as the product of an alliance between the classes. Employment was easy to come by and wages rose, and public housing, health care and education expanded rapidly. This all smacked of communism to Margaret Thatcher, who was allowed to bark vitriol against socialism to the gleeful cheers of her bourgeois-aristocratic colleagues in parliament.

The victory of the mineworkers against the Conservative government in two strikes in 1972 and 1974 led to an election, which the then Prime Minister, Edward Heath, claimed would answer the question ‘who runs Britain?’ He lost the election to a minority Labour government and Margaret Thatcher became the Conservative Party leader in 1975.

A deep economic crisis in the 1970s led the new Labour Party government, under orders of the International Monetary Fund, to attack the wages and conditions of the working class. Once again class conflict dominated politics, as the dead were unburied and rubbish piled up on the streets during bitter strikes. The 1979 election saw the Conservatives, led by Margaret Thatcher, swept to power. The era of the shopkeeper had come! The government presided over a collapse in productive employment, and social unrest took the form of riots, protests and strikes. The economic collapse had both real and manufactured roots, and it produced bitter social divisions.

The shopkeeper insider her, meant she automatically gravitated toward economic theory based on price. Her ideology imagined a world of free and unrestricted competitive pressures where atomized individuals replace organized workers. The pathway to this free market utopia involved selling off state resources and public housing at prices that were absurdly low. This created a significant constituency within the working and middle classes who suddenly acquired money from nothing. In this way the shopkeeper’s delusion, that an economy is simply a nation of buyers and sellers, was materially anchored in the minds of those who suddenly had loads of money. In this way a significant minority acquired a material stake in Thatcher’s ‘property owning democracy’. Making goods and services was replaced by selling second hand bricks; producing coal, steel, ships, trains and cars was replaced by speculative instruments conjured up by a Thatcherite tribe of arrogant barrow boys who were encouraged to take over the trading floors of the City of London, elbowing aside the ‘toffs’ in bowler hats, and revolutionizing financial markets in a cocaine fueled speculative orgy.

So severe was the economic dislocation and the scars of social conflict that the Government was in deep crisis. However, luck was on the side of Mrs. Thatcher, as President General Galtieri of Argentina used their nation’s historical conflict over British occupation of the Malvinas Islands to launch a war to take them by force. Thatcher dispatched the British fleet and reconquered the Islands, whipping up a wave of jingoistic flag-waving. Riding a new tide of popularity, the real war was begun. Its objective was to smash the central core of trade union strength, the National Union of Mineworkers. Huge reserves of coal were stockpiled, the police were militarized, and war was declared on millions of British workers. Thatcher proclaimed the miners’ union to be agents of the Soviet Union. When she described them as ‘the enemy within’ she had the look of hysteria in her eyes. The strike lasted a year and was defeated. This was a result of Thatcher’s determination and an impotent response by the majority of Labour and Trade Union leaders. The defeat of the miners union led to greater control by capital over labour and a long period of passive industrial relations.

The greatest nonsense is spoken about Thatcher’s significance in the struggle against what she called ‘the Evil Empire’ of the USSR. The role of the US President Ronald Reagan and Margaret Thatcher was insignificant and peripheral. Even though the Soviet press had given her the name, ‘the Iron Lady’, of which she was so proud. The collapse of the USSR was a result of internal disintegration not external pressure.

What finally brought about Thatcher’s demise was a policy to redistribute the local government tax burden onto the poor, via a Poll Tax based on household numbers, rather than property value or size. This backfired, producing ferocious riots and civil disobedience. After so many years of fighting the poor, and generating ever more wrenching social divisions, the Conservative inner circle decided to ditch the shopkeeper. Her own cabinet colleagues hatched a secret plot to oust her. She had become so divorced from reality that she was completely unaware of the scale of intrigue against her, within her closest entourage. On 22 November 1990 a tearful and resentful departure was announced from the steps of number 10 Downing Street. This is the last most people recall of her political life before she was driven off into political oblivion. Her inability to be able to distinguish between prices and real wealth is an appropriate analogy to the incapacity to distinguish between her legacy and reality. In recent years, she suffered from a mental decline into a hallucinatory state of mind. Unfortunately, the nation that she changed continues to suffer from ideological delusions that her policies helped to implant. Sadly, the present Conservative government is once again scapegoating the poor and the working class, and bitter social conflict is back on the agenda. As conservative England mourned her legacy, in some part of Britain, celebrations spontaneously broke out on news of her death. No doubt her legacy will continue to provoke a sharply contested debate. May the Iron Lady rust in peace!


Michael Roberts the Euro crisis is a crisis of capitalism

posted 16 Mar 2013, 06:43 by heiko khoo

Michael Roberts Euro crisis is a crisis of capitalism

No vacation for the euro

posted 17 Jun 2012, 13:55 by Admin uk   [ updated 25 Jul 2012, 04:20 ]

By Michael Roberts   July 24th 2012

  I’m off on a short holiday, but there will be no vacation for the euro this summer.  Europe’s political leaders might have thought that their ‘agreement’ at the Euro summit at the end of June might give them some respite from ‘speculative attacks’ on the government bonds of Spain and Italy.  But no such luck.  The interest-rate demands by potential investors in these government b0nds has rocketed to new records i.e.  around 7.5% on Spanish ten-year bonds compared to just 4% before the crisis began.  And the euro has weakened to a two-year low against the dollar and the pound.  Every day it is getting more expensive for the Spanish government to service its debt.

A crisis is brewing for the Spanish government that could well explode within the next few weeks.   Spain’s economy is slipping deeper into recession, with the latest real GDP data showing an accelerating annualised decline of 1.6%.  Spain’s 17 autonomous regional governments that are responsible for important public services like education and health are increasingly owning up to being bust.  Both Valencia and Murcia have asked for a central government bailout.   Others will follow.  This is increasing the budget deficit and the debt level for the central government.  Whereas Spain’s public debt ratio was under 60% in 2010, by the end of this year it will be 90% and that does not account for a lot of hidden debt that takes the contingent liabilities for the Spanish taxpayer to over 100% of GDP.

Given a contracting economy, that debt level cannot be contained, however much the government tries to impose an austerity programme on its people.  The Conservative government, along with the all regional governments that it also controls, is trying to apply a massive austerity package of €67bn over the next three years designed to meet the fiscal targets set by the Euro leaders.  They have demanded such targets in return for agreeing to lend Spain €100bn to bail out its banks.  Many Spanish banks, particularly, the smaller regional savings banks, are bust because they lent so much to local real estate agents and households to support the housing bubble that exploded across Spain in the last decade.

This credit bubble also led to outright corruption in the banks.  The management of Bankia, former executives of the IMF, are now under investigation for cronyism and covering up the accounts.  The same thing happened in the Irish real estate bubble, where the leading mortgage bank, Anglo-Irish, went bust, leaving the taxpayer to pick up the pieces to the tune of 25% of GDP with public funding used to bail out all the bank’s bondholders at 100%!  The chairman of Anglo-Irish has now been arrested for corruption and fraud.

The austerity measures won’t work in achieving the fiscal targets, even if the Spanish government can manage to impose them on the people.  The cuts to public spending and the hikes in all forms of taxation (except corporate taxes, of course, that are being reduced to support the profitability of the capitalist sector) are destroying household spending, while the capitalist sector goes on an investment strike and tries to shift its profits abroad.  The flow of cash being withdrawn from Spain by its corporations and foreign investors has become a river.  The graph below shows the net outflow of private capital from Spain (blue line) and the consequent rise in ECB lending to cover the loss  (Target-2, it’s called – red line).  The Spanish economy is being drained of capital.

Spain’s economy minister, Luis de Guindos, met German Finance Minister, Wolfgang Schäuble, to plead with him to provide more support for Spain, but without further draconian fiscal strings attached.  Guindos wants to avoid a full bailout package controlled by the dreaded Troika of the ECB, the EU Commission and the IMF.   The Germans are playing tough, but they do so at the risk of Spain and Italy slipping into the abyss that Greece is already in.  At best, Spain has until October when a massive debt repayment of €28bn must be made.  At worst, things could come to a head within a month.

There is a temporary way out.  The government has stopped paying its bills to creditors (hospitals and schools have stopped paying for services).  So cash has built up in the government coffers to the tune of about €40bn.  This could be used to pay back bond holders for the rest of the year.  And the ECB could also step in and buy Spanish government bonds to relieve the pressure.  But these tricks would only be a temporary sticking plaster and no solution longer term.

Spain faces a future that is already a reality in Greece.  The narrow victory for the pro-bailout parties in Greece in June has solved nothing.  On the contrary, the three party leaders in the coalition have bickered over how to find €11.5bn in further austerity measures without hurting the Greek people any more.  The answer from these leaders has been at sixes and sevens.  They say there will be no cuts in 2012 (arguing they can be piled up into the 2013 budget) and yet the dreaded Troika has arrived in Athens demanding that they be found, even though the government has not even decided where to make the cuts.  They are talking about slashing pensions yet again.

The pro-business Greek PM Samaras has been trying to speed up the sell-off of Greek public sector assets as his solution.  Yet his privatisation commissioner has resigned because of the lack of progress.   Previous fiscal targets set by the Troika have not been met and won’t be.  Indeed, it is now clear that the Troika will eventually have to put it to the Eurozone leaders that Greece needs yet another a bailout package of €60bn along with even more fiscal tightening to take it through to 2015.

Will the Germans be willing to cough up yet again and will the Greek people be prepared to take yet another hit?   They are already being asked to swallow a reduction in the government deficit of 10% of GDP deficit in 2010 to an expected 5.5% surplus in 2014.  This is an unprecedented ‘cold turkey’ cure and it won’t work.   More likely is that Greece will be forced to default, after all, or funding will be cut off before the year is out.  The Troika is supposed to recommend the payment of another €31.5bn in funding in September to keep Greece going – it may not happen.

Samaras has now declared that Greece is in a Great Depression like the 1930s.

Samaras won the June election narrowly by promising that he could renegotiate the terms of the bailout package to make it easier for Greeks to meet its terms.  But his government has dismally failed to get any concessions whatsoever from the Euro leaders.  Germany and other important international creditors are not prepared to extend further loans to Greece beyond what has already been agreed.  The IMF has signalled it won’t take part in any additional financing for Greece.  And Germany’s Merkel already has difficulty uniting her centre-right coalition behind recent bailout decisions in parliamentary votes and so would be unwilling to risk a rebellion in another rescue for Greece.   German Vice Chancellor Philipp Roesler said: “What’s emerging is that Greece will probably not be able to fulfil its conditions.  But if Greece doesn’t fulfil those conditions, then there can be no more payments.”

The reality is that Greece was and is a very weak capitalist economy run by one of the most inept and corrupt capitalist class anywhere.  Its people work the longest hours in Europe and have raised productivity considerably since joining the EU and the Eurozone (see my post, Europe: default or devaluation, 16 November 2011).  But big business and the political elite in Greece have squandered the value created by their workforce, by taking it abroad or engaging in conspicuous tax-avoiding consumption.  The World Bank ranks Greece at 100th (just ahead of Papua New Guinea) in the list of ease of doing business.  It’s easier to do business in the Republic of Yemen than in Greece.   It takes 77 days (and probably a few bribes) for a business to turn on electric service; in Germany, it takes 17 days.  Greece ranks 70th on the most recent press freedom index, behind Bhutan and ahead of Nicaragua.  Only one in ten Greeks think there are enough corruption prosecutions or strong enough punishments for financial offences.  During the crisis, Greece’s governing elites have not dealt with corruption but instead imposed austerity on their people, mainly by destroying their pensions and public services.

I have discussed before how this euro crisis will turn out (The euro end game?, 5 June 2012).  On a capitalist basis, there are two possibilities.  The first is that the Germans and the other solvent Eurozone states agree to boost the transfer of funds to the likes of Greece, Spain and Italy.  Currently, they are pledged to about €500bn and have about €200bn left.  They need to pledge at least €1trn, or around 10% of Eurozone GDP.  This would be enough to cover government borrowing needs for the three countries over the next three years.  But it means doubling the fiscal commitment and potential exposure for Germany and the other Northern European states to defaults and losses.  Longer term, the Euro leaders will have to introduce permanent mechanisms for full banking and fiscal union, like the federal US or Australia, or the centralised UK, where a deficit on government spending or in private transactions between say, Wales and London, or New York and Mississippi, are just settled by federal fiscal and monetary transfers.

In Florida, Arizona, and Nevada, automatic fiscal stabilisers – lower tax liabilities to the federal government and increased receipts of transfers, including unemployment insurance, food stamps, Medicaid payments, and welfare – operate.  The effect of these automatic stabilisers is typically to offset as much as 40 cents of every $1 decline in state GDP.  The net fiscal transfer from the federal government to Florida, Arizona, and Nevada during the worst of the recession may have amounted to 5% or more of their GDP.  Nothing of comparable magnitude exists within the Eurozone (see

And the crisis in the Eurozone is worse because of the linking of sovereign risk and banking risk, which is partly the result of large holdings by banks of bonds issued by their national authorities.  Unlike the Eurozone, US states do not have to bear the cost of restructuring their banks and can rely instead on federal vehicles.   The persistence of crisis in Greece, Ireland, and Spain is less to do with the so-called ‘inflexibility’ of labour markets and more to do with the lack of a fiscal union, the absence of counter-cyclical transfers and the link between sovereign risk and banking risk.

Not that US fiscal union has solved the imbalances of income and wealth between US states – it has not.  But the lack of fiscal union in the Eurozone exacerbates the crisis that began with the failure of capitalist production across the developed economies.   Also, the relatively new Eurozone has a very large gap in costs between Germany and the European periphery – as much as a 25% difference – while nothing of comparable magnitude exists within the US.  For example, between 2003 and 2011, the mean hourly wage in Florida, Arizona, and Nevada remained about 10% less than the US average and consumer prices diverged little as well.  So the crisis has been more protracted and painful for Greece and Spain, even had they been able to rely on a more supportive federal system.

It remains to be seen which way the  Franc0-German leadership want to go: to find more credit for Spain and Greece, or not.  If they cough up more cash in the next few months, it will mean extra costs for Germany and a very weak euro for years (although that will help exports).  But the alternative of a euro break-up is also very expensive.  I have made an estimate of the cost of a total euro breakup for each country relative to their GDP.  It ain’t pretty for Germany – and even worse for Greece.

Defaults on loans made to Greece or Spain would hit German pockets directly through their banks and government finances.  And if Italy, Spain etc reverted to their own national currencies and devalued heavily, then their exporters could start to take market share from German suppliers and thus hit German GDP growth, much dependent on exports.  Of course, devaluation would mean that many corporations in Spain and Italy will default on their euro debts, causing wide scale business disruption and a huge jump in unemployment from already high levels.  On balance, it  would be marginally worse for Italian or Spanish capitalist sector to leave the euro than it would to stay in and suffer austerity.  Either way, it is hugely painful for the average household.

There is the socialist alternative that I have also outlined in previous posts (An alternative programme for Europe, 11 September 2011).  This is the adoption of a Europe-wide policy by governments through a fully publicly-owned European banking sector aimed at supplying credit for businesses and households.  Debts run up by governments to bail out these would be written off at the expense of bondholders (i.e mostly banks and hedge funds).   A pan-European plan for investment, employment and growth based on an expanded public sector would be drawn up.  Of course, this alternative is not possible while there are no governments in Europe willing to back it and instead are committed to preserving the rule of capital in the Eurozone.  So we must await the decisions of the French and German elites to cough up more money or not and/or the reaction of the Spanish, Italian and Greek people to the prospect of more austerity.  This is no holiday.

Greece: the exit poll?

by Michael Roberts

“An old man marched over to me and declared: “I am voting for the thieves.” (This is how a lot of Greeks now refer to Antonis Samaras’s party, ND, and their left-wing partners, Pasok.)”  Guardian reporter.

So New Democracy (ND) has won a narrow victory.  Indeed, leftist Syriza led among 18-34 year-olds and 35-54s. So the ND victory is entirely due to seniors like those quoted above.  There has been a polarisation on the right towards ND and to the left around SYRIZA, but the anti-bailout parties still polled more than the pro-austerity parties by 53% to 47% (including those parties that did not make parliament).

ND’ s victory is a blow to the chances of the Greek people of getting out of the deep depression that the economy is in, with near 25% unemployment, a contraction in output of around 7% annual rate (down nearly 20% since the peak) and the government and utilities running out of money to provide basic services like health, lighting and heating.

ND is the leading right-wing party and responsible, along with ‘collaborationist’ ‘socialist’ PASOK, for the mess in the first place.  ND represent the rich, the people who don’t pay their taxes and big business and the banks in Greece.  They have ended up as the largest party ahead of the leftist SYRIZA through a combination of fear that Greece will be thrown out of the European Union if the people elect the left; through black propaganda against the left; and through hints and promises by the Euro leaders that the pro- bailout parties can negotiate a better deal on austerity.  During the campaign, much was made by ND that it could so.  The Euro leaders made it clear that a new deal could be negotiated.  And the OECD on the eve of the election called for a new package.  These promises just won it for ND.

The EU leaders are preparing a package of incentives to convince the Greeks to stick to the country’s current bailout deal.  The package includes further reductions in interest rates and extended repayment periods for the bailout loans, as well as EU money to spur investments in Greek public works programmes through the European Investment Bank.  As one Euro official put it, off the record, “In the scenario where Samaras wins the elections, we would like to see him committing very clearly to his adherence to the memorandum.  Then we would get together with the new Greek government and say: here is what we can now do to make life a bit sweeter, a bit less harsh.”

But this is all talk.  All it means is that austerity will continue, but at a slightly less severe pace.  For example, under some of the plans being considered, public investment spending would be targeted at upgrading government-owned properties so that they could be made more attractive for sale in Greece’s €50bn privatisation plan!  So Greece’s public assets will still be sold off for a song in return for a few concessions on spending.  It’s no surprise that PASOK is reluctant to join a coalition without involving SYRIZA in any austerity measures.  Indeed, any sort of government may be difficult to form.

The reality is that the Greek economy is on its knees and won’t be able to get up even with a little less whipping from the EU leaders.  Already many public health services have stopped.  Non-governmental organizations are filling in with the kind of aid more associated with the developing world.  Diseases such as HIV and malaria are on the rise.  The medical charity Medecins du Monde known for its work in the Third World, saw the number of Greeks coming to its clinics double in 2011. “Many patients are retired elderly citizens whose pensions have been substantially reduced because of the austerity measures implemented by the government in recent years,” the charity noted in recent research.

The escalating cost of heating and electricity, the result of tax rises brought in by the government following the bailout, coupled with a rising number of unpaid invoices, could lead to power cuts.  Energy companies in Greece are already struggling.  The state-run PPC needs to pay €450m (which it doesn’t have in its coffers after recent falls in revenue) by 22 June 22 or persuade its banks to roll over its debts. And people increasingly can’t pay their bills.  Close to one-third of the Greek population – the highest level in Europe – was considered at risk for poverty or social exclusion by Eurostat in 2010, when the economic and political situation was not as dire as it now appears. And nearly 20% of Greek children live in homes unable to afford at least 3 out of 9 basic items.

And the examples of hardship in general just mount.  Journalists at Eleftherotypia, who brought out one last special edition on Saturday, have been without pay since last August. They have survived through “personal Marshall plans” from friends and family or, in the case of Yannis Bogiopoulos, his wife’s unemployment benefit of €600 a month, which runs out in December.  Sustained by donations from labour organisations around the world and the communist trade union federation, the Halyvourgia steelworkers have also been unpaid since October.  Eleni Trivoulidou, a divorced, unemployed mother of four almost-grown but still dependent children, has been unable to find any kind of work for the past two years. She’s studying for an accountancy qualification at night school, but in the meantime survives on handouts from her parents – whose pensions have just been slashed – and ex-husband.

Government coffers could be empty as soon as July, shortly after this month’s pivotal elections. In the worst case, Athens might have to temporarily stop paying for salaries and pensions, along with imports of fuel, food and pharmaceuticals.  The new government will face a shortfall of €1.7bn because tax revenue and other sources of potential income are drying up.

The wrenching recession and harsh budget cuts have left businesses and individuals with less and less to give for taxes — and growing incentive to avoid paying what they owe.   An essential element of Greece’s recovery plan has been to collect more taxes from a population that has long engaged in tax avoidance. The government is owed €45bn in back taxes, only a fraction of which will ever be recovered.   When Nikos Maitos, a longtime official in Greece’s financial crimes investigation unit, and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his licence plate number to warn residents.  “One repercussion of the crisis is that people are harder to find.  And when you do find them, they don’t have money.”  As Harry Theoharis, a senior official in the Greek Finance Ministry who helps oversee the country’s tax payment system, said. “You can’t keep flogging a dead horse.”

Still there has been an aggressive enforcement campaign aimed at 500 wealthy individuals and companies, including former ministers and heads of state agencies and enterprises. People took notice in April when a former defence minister was arrested on charges of corruption and making false declarations related to his income and taxes.   But Nikos Lekkas, a top official at the financial crimes agency where Mr. Maitos works, said Greek banks had obstructed nearly 5,000 requests for account data since 2010.  “The banks delay sending the information for 8 to 12 months,” he said. “And when they do, they send huge stacks of documents to make it confusing. By the time we can follow up, much of the money has already fled.”   One challenge lies in what Mr. Lekkas calls the big fish — 18,300 offshore businesses belonging to wealthy Greek individuals and companies. Authorities are trying to trace the owners through property records, and they recently seized several large properties linked to offshore companies whose owners owe tens of millions of euros to the state.

That leaves collectors having to go after mostly smaller tax evaders.  But even they have had to take large pay cuts and find it hard to pay for the gasoline needed to reach their targets. Salaries and pensions in the private and the public sectors have been cut by up to 50%, leaving Greece €495m short of its revenue targets in the four months ended in April. With less cash, consumers have curbed spending, leading thousands of taxpaying businesses to fail.  Income expected from a higher, 23% value-added tax required by the bailout agreement has fallen short by around €800m. That is partly because cash-short businesses that were once law-abiding have started hiding money to stay afloat, tax officials said.   Greece’s General Accounting Office said recently that the state collected 25% less revenue in May than it did a year earlier.  A pro-bailout government will be unable to change any of this.

So what is likely to happen?  Germany does not want a Greek exit because of the collateral damage it will do, but it also wants the Greeks to stick to the fiscal austerity programme. The Greeks don’t want or can’t stick to austerity, but they want to stay in the euro.

There are three possible outcomes:  1) in order to avoid a euro meltdown, the Euro leaders make significant concessions on the fiscal targets and on the time to meet them, write off more Greek debt and provide funding for growth projects; or 2) a new Greek government agrees to revised fiscal targets and persuades its parliament and people to implement them; or  3) Greece rejects the targets and/or cannot meet them at the next review by the Troika.  So the Troika stops further funding, Greece defaults and then exits the Eurosystem as the ECB stops funding the Greek banks.  The Euro leaders take a chance on handling the consequences of a Greek exit by offering more support for Eurozone banks and Italy and Spain.

Which is the most likely?  1) 20%  2) 30%  3) 50%

“If Greece get Germany in the quarter-finals, will Angela Merkel try to tell the Greeks how many goals they have to concede?” – black joke doing the rounds in Syntagma square.

17 June 2012

‘Payback time’: Lagarde’s Myths

posted 28 May 2012, 10:12 by Admin uk

By Mick Brooks       

Christine Lagarde, the managing director of the International Monetary Fund (IMF) was interviewed by the Guardian (26.05.12). The interview was treated by Lagarde as part of the unremitting pressure being put on the Greek people from the international establishment to vote for the parties supporting the 2012 bailout in the coming elections in June.      

Greece has seen its economy collapse by 20% since the world crisis struck. The country is deep in debt and creditors are demanding the Greek people shoulder further hardship as the price of their ‘rescue’. The troika (the IMF, European Central Bank (ECB) and European Commission), who have been imposing the austerity programme, are demanding further wage cuts, pension cuts, cuts in public spending and faster privatisation as the price of the latest bailout.

Billed by the Guardian as “the smiling assassin” Lagarde’s heartless remarks about the Greeks are typical of the myths being spread by the representatives of world capitalism to get people in Greece and all over the world to accept penury as necessary and inevitable. Lagarde treats Greece as a spoiled and wilful child that has to be made to take its nasty medicine ‘because it’s good for you’. 

In fact Greece is a country divided, like Britain, the USA and France, along class lines. When asked about the cuts in public services that the IMF insists on imposing, she blames the Greek people, declaring repeatedly, “They should also help themselves, by all paying their tax.” Is that it? Is the problem just that all Greeks are tax dodgers?

 Workers employed in a public or private sector workplace in Greece pay income tax automatically, just like British, American or French workers. They have no choice. It is deducted at source. When they buy goods in a shop, they pay the Value Added Tax (VAT). How can they not pay?

Greek millionaires do not pay tax. Instead they employ expensive accountants to dodge their obligations. This is very expensive for the Greek state. Because the rich don’t pay their share it also means that the resulting restricted budget spending imposes hardships upon poor Greeks, who are at the sharp end of cuts in public services.

This tax dodging by the rich is not a Greek characteristic. It is a characteristic of the rich and of big business. Vodafone and Amazon in the UK for instance are notorious tax dodgers. The Tax Justice Network estimates that the British Treasury loses £120bn a year in the ‘tax gap’ – more than £25bn in taxes avoided, £70bn evaded (a criminal offence) and £28bn uncollected.

Lagarde was asked what Greek children could have possibly have done so wrong that the IMF is punishing them so that their mothers now can’t afford the services of midwives and the price of life-saving drugs. She replied as follows: “I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education.”

This is emotional blackmail. It is also tommy rot. The IMF is not an institution that has ever lifted a finger to help poor kids in sub-Saharan Africa. On the contrary. In the 1970s the IMF sought to impose Structural Adjustment Programmes (SAPs) upon the people of the poorest countries, including almost the whole of Africa. These countries were in debt, you see, just like Greece now. The SAP policies were abandonment of food subsidies and price controls, no protective tariffs or subsidised fertilisers for local farmers, open house for international business to come in and drastic slashing of public services (including education). Does this remind you perhaps of the troika’s ‘cure’ for Greek debts?

The result of the austerity was hundreds of ‘IMF riots’ (as they were called) all over the less developed world. Some achieved their goals. In 1987 President Kaunda of Zambia was forced to reintroduce price controls on food prices. The World Bank concluded, “The early demise... of the adjustment package imposed by the IMF resulted from an unrealistic ...assumption that the majority of middle and lower income urban Zambians would tolerate pauperisation.” Isn’t it also an unrealistic assumption that the Greek people will tolerate pauperisation at the hands of Lagarde and the rest of the gang?

The Guardian put to Lagarde that the Greeks have had a nice time and it was now payback time. “That’s right,” she agreed completely. This the essence of the case put by the defenders of capitalist austerity. The Greeks, and other feckless South Europeans, partied away on loans funded by the industrious North Europeans. Now it’s payback time. This is racist caricature posing as political analysis. In fact, of course, Greeks have on average much lower living standards than Germans and other North Europeans, and work longer hours.

Here is the reality. The crisis of capitalism from 2008 caused a drop in government revenues and a steep rise in outgoings all over the world (not just in countries bordering the Mediterranean). Many of the loans from French and German banks in particular went to subsidise a Greek government debt swollen on account of this capitalist crisis. Greek government debt stood in 2012 at an insupportable 166% of Gross Domestic product (GDP). The crisis was not caused by the Greek government. It was precipitated by the greed and stupidity of the global banks.

International financial institutions also lent to Greek banks so that Greek consumers could borrow more. The banks did so, it goes without saying, in order to make money. In fact they were panting with greed at the time. Many Greeks lost their jobs on account of the Great Recession (triggered by the banking crisis, don’t forget) and couldn’t pay their debts to the banks. In other words the banks screwed up. Tough, you might say.

Now the banks want us to bail them out again. If anyone is behaving like a spoiled child it is them. They learned in 2008 that they can blackmail capitalist governments to rescue them with taxpayers’ money. So they’re back for more. The international financial establishment is desperate to bail out the banks. It is they who are really being rescued. That’s what it’s all about. They do not care about the welfare of the Greek people. They can go to hell.

Occasionally there is a glimmer of recognition that this is the case. Here’s the Guardian leader (28.05.12): “If this is a morality tale, it is not Ms Lagarde’s yarn about northern v southern Europe – but about out-of-control banks, for whom the rest of us are now having to pay.”

The pity is that the leader stops there. It doesn’t ask the obvious question. Why should we have to pay, and keep on paying? Why can’t we stop the banks being out-of-control? The obvious answer: take them over and run them as a public service.

It should not be a surprise that the head of the IMF is a heartless hypocrite. Lagarde was a member of the French Tory government before her present appointment. As the finance minister she complacently watched as the easy money flowed south, and did nothing. Now shje singas a different tune.

Stanley Fischer administered capitalism’s dirty work at the IMF before her. Money from the banks poured in to East Asia till the bubble burst in the crisis of 1997. The IMF then imposed bailouts on East Asian countries; these inflicted hardship on the masses there and pulled the chestnuts out of the fire for the world’s banks at the same time. The price paid for the rescue was the same as in Africa in the 1970s – open up to international capital – and in Greece now – sell off public assets as fast as possible. Then Fischer swanned off to a lucrative berth at Citicorp – job well done for, the banks at least.

All these people are cut from the same cloth. This is not about a mistaken analysis. It is about the naked class interests of the capitalists and their determination to make the working class and the poor pay for their crisis. Let’s make sure we don’t let them get away with it.

The crisis of capitalism and the Euro

posted 27 May 2012, 15:28 by Admin uk

By Mick Brooks      
The gloomy prognosis for the world economy outlined by Marxists has been confirmed. What we see stretching before us is an age of capitalist-imposed austerity. On the other hand revolutionary possibilities are beginning to open up on account of the unprecedented hardships being inflicted on the working class in all the main capitalist countries.           

The crisis began in 2007 in the form of a financial crisis, called the ‘credit crunch’. In fact it was a classical crisis of capitalism.        

By 2008, as the major capitalist powers rushed to bail out the banks at whatever the cost, output dipped and, with it, tax revenues. The inevitable outcome of increased state outlays and falling income was that governments of all political complexions ran deficits. They were spending more than they were getting in. Public debt soared. This fiscal crisis of the state was another manifestation of the crisis of capitalism.       

The crisis then appeared next as a sovereign debt crisis, a particularly severe crisis of the weakest and most indebted capitalist governments.

The crisis was compounded by the existence of the Euro. The Eurozone consists of 17 nations of the European Union (EU). They have abandoned their national currencies and adopted the Euro as a single currency.

Capitalist competition produces winners and losers, among firms and between nations. Naturally the weaker capitalist countries experienced the greatest economic difficulties and ran the biggest deficits. This sovereign debt crisis was particularly acute within the peripheral countries of the Eurozone.

In addition peripheral country banking systems were under more strain because they had borrowed from the core net exporting nations and gone into debt to pay for their imports. In effect Greek banks were being lent money by banks in countries like Germany to lend to Greeks in order to buy German products. This caused stresses to the structure of the Euro. So, within the Eurozone, the crisis was perceived as a crisis of the Euro.

These difficulties have been dragging on for a long time now, and they threaten to drag the rest of the world economy back into recession. So the notion has taken hold that the faulty architecture of the Euro is the sole problem holding economic growth back in Europe and beyond. This is completely wrong. The Euro was launched in 1999 and worked perfectly well for almost a decade despite its fundamental design flaws.

The reason it seemed to work was that the world economy was booming all this time. It was the Great Recession of 2008-9 that opened up the cracks in the structure of the Euro. If capitalism were crisis-free, then no doubt the Eurozone could have carried on indefinitely despite its faulty structure. It is the crisis of capitalism that threatens to lay the Euro low.

Capitalism is a system that runs on profit. At bottom the underlying cause of the Great Recession was a fall in the rate and mass of profit. US profits peaked in the third quarter of 2006, according to the US Bureau of Economic Analysis. (American economic statistics are the best in the world and the USA is still by far the most important capitalist economy.) Thereafter they fell dramatically, and had halved by the end of 2008. This is itself would have caused a crisis, even without the ‘credit crunch’. In fact the fall in profits is the underlying cause of the banking crisis, and the subsequent events are also unfolding aspects and forms of appearance of this fundamental crisis of capitalism.

The Great Recession is over. The crisis continues. Profits have revived, but there has been no new surge of investment that could propel the world economy forward. Upon the onset of recession a period of capital destruction is necessary to restore the rate of profit. But the authorities, by intervening to prop up the banks and other bankrupt capitalist institutions, have delayed that destruction of capital from taking place. Indeed they would argue that the ‘cure’ of firms going to the wall wholesale would have been worse than the disease.

As a result we have experienced, even after the Great Recession ended, a period of stagnation that Reinhart and Rogoff in their book This time is different (Princeton, 2009) and others find typical of ‘Great Depression’ crises. For Britain the present ‘recovery’ (the country has dipped back in recession in 2012) is the slowest for a hundred years – worse than 1930-34, 1973-76 and 1979-82.

The Euro crisis

Since the Euro crisis has been the flashpoint of renewed recessionary pressures within the world economy for the past year or so, we concentrate on events in the Eurozone. The Euro is a currency without a nation state to back it up. Countries with their own money have two economic levers which they can try to use to manipulate the level of the currency and to influence the level of economic activity generally. These are fiscal policy (taxing and spending) and monetary policy.

Countries surrender monetary policy along with their currency when they enter the Eurozone. Emissions of Euros are determined by the European authorities, in particular by the European Central Bank (ECB). Moreover the ECB is constrained by various rules which do not restrict the operations of other central banks, such as the Bank of England or the American Federal Reserve (Fed). As we discover in the course of our narrative, control over monetary policy does not mean that the ECB can effectively control the level of interest rates throughout the Eurozone.

The Euro is an example of a fixed exchange rate currency. Joining the Euro involves a commitment never to devalue. Devaluation (a one-off reduction in the value of the currency within a system of fixed exchange rates) or depreciation (a gradual reduction within a system of floating exchange rates) gives a country a temporary competitive advantage. With devaluation the native currency becomes cheaper and buys fewer units of foreign exchange than before; home country exports become cheaper for people living abroad, while imports are dearer in the home market. So exports should soar while imports fall. This is only ever a quick fix, since the real problem a country faces is a lack of competiveness on the part of home producers. But this quick fix is denied to members of the Eurozone – in principle for ever.

Fiscal policy within the Eurozone is nationally determined. Nation states jealously defend their right as to how much to tax their citizens and how to spend the money. This means that countries in the Eurozone get no help when it comes to transfers from rich to poor and indebted countries.

During the boom years after the launch of the Euro, interest rates throughout the Eurozone tended to converge to a level determined by the monetary policy of the ECB. Government bonds issued in Greece would pay similar ‘returns’ (interest rates) to their holders to those in Germany. This showed that ‘the markets’ (the rich people who buy these bonds and so lend money to governments) regarded both German and Greek government debt as risk free. In conventional financial analysis risk and return are what ‘investors’ weigh up when buying pieces of paper – the higher the risk, the greater the return they will demand.

The Euro produced a clear division between core countries (above all Germany) and the periphery – Greece, Portugal and Ireland, but also Spain and Italy. The core countries ran trade surpluses with the periphery and lent them money – to keep on buying their exports. The periphery bought more imports than they exported and borrowed from the core countries to pay for imports from Germany and other countries.

The debt trap

The Great Recession generated both inflationary and deflationary pressures within the world economy. Though inflationary forces have not completely subsided, it is clear that deflation is a more dangerous enemy to the world economy for the future. The case of Greece, locked in a debt trap, is a clear example.

As the Great Recession rolled on and state debt and deficits rose to dangerous levels, the markets began to factor in risk for the government securities of peripheral countries. They demanded a higher return for the privilege of lending to the Greek, Portuguese and other governments. As a result government debts ballooned further and the distressed countries were paying more and more of their overseas earnings just to pay the interest on the debt.

The debt trap opened up for Greece in particular, just as it has held poor countries in its vice-like grip for decades. Take the example of Egypt. Between 2000 and 2009 Egypt, a desperately poor country, paid $3.4bn more in interest to its creditors than it received from them. This was a direct transfer from poor to rich nations. Despite the fact that Egypt repaid a total of $24.6bn over this period, the debt burden grew by 15% (World Bank – World Development Indicators 1960-2008). In effect the Egyptian people were thrust by the turning of the debt screw down a deep hole from which they could not emerge unless they threw off their debt shackles by revolutionary means.

Greece now faces the prospect of having the same fate imposed upon it – the transition from a middle income to a ‘third world’ country. In thrall to debt and in need of handouts, it is being administered by the troika (the International Monetary Fund, European Commission, and European Central Bank) who in effect rule the country like conquerors. The powers that be have even demanded that Greece rewrite its constitution so as to give priority to the repayment of foreign debt. This arrogance is an echo of the classic colonial era. In 1882 British troops occupied and annexed the whole of Egypt for non-payment of debt. Rosa Luxemburg commented on this:

“It should now be clear that the transactions between European loan capital and European industrial capital are based upon relations which are extremely rational and ‘sound’ for the accumulation of capital, although they appear absurd to the casual observer because this loan capital pays for the orders from Egypt and the interest on one loan is paid out of a new loan.” (Accumulation of capital, p.438, Routledge, 1963)

This is exactly what is happening in Greece. When asked whether a cut-off of loans ordered by the troika would mean that Greek civil servants and others wouldn’t be paid, Syriza MP Panagiotis Lafazanis shrugged, commenting, “The loans basically cover interest payments.”

The case of Greece

At the time of writing (May 2012) the Greek people have suffered five years of falling living standards as a result of austerity policies, with a cumulative collapse of 13% of Greek national income over that period. They face an indefinite future of more cuts and hardship. The economic and political crisis in Greece is the hot headline issue of the day at the time of writing. The existence of the bailout deal negotiated in February 2012 hangs in the balance. So does Greece’s continued membership of the Eurozone and the future of the single currency itself.

The newspaper headlines scream lies at us. The first lie is that the bailout is for the benefit of the Greek people. On the contrary, the conditions imposed as part of the bailout are the cause of the people’s suffering. The European authorities have shown a cold hearted indifference to the plight of the Greeks. They have no interest in their welfare. 

The crisis began as a banking crisis and governments all over the world intervened to bail out the banks. French and German banks in particular had incautiously bought huge sums of Greek government bonds and lent to Greek banks. Now they are in trouble. The so-called rescue of Greece is in fact a further cynical attempt to bail out these banks, the cause of so many of our woes.

We are told that the Greeks are lazy tax dodgers. This is racist abuse masquerading as political analysis. In fact Greek workers put in longer hours than German workers. It is the case that they are far less productive than the Germans. This is not their fault. It is because of a persistent failure by Greek capitalists to invest.

Greek workers in the public or private sector can no more avoid tax than British, German or American workers. Income tax is deducted at source. Value Added Tax is paid every time you buy something. It is true that there is a longstanding culture of Greek millionaires dodging tax. This characteristic is by no means confined to Greece. Companies like Vodafone in Britain are notorious for not paying taxes. Greek capitalists have more opportunities to get away with it because of the weakness of the Greek state, that’s all.

So the Greek people in particular are the victims of a crisis of capitalism, not of their own over-borrowing. In the same way working class people in Britain or the USA are not responsible for the crisis (as they are sometimes accused of being) because they accepted loans in the boom years when the banks were literally hurling money at them.

Options for the future

The case for Eurobonds

The Greek government has to offer usurious returns on the bonds it issues because the bond vigilantes claim there is a danger of default and demand ever-higher rates of return. One way of countering the speculators would be to issue a Eurobond with the finances of the entire European Union mobilised behind it. At present the German government borrows at 1.3%, while the Italians have to pay 5.8%, and the Spanish state 6.2%. The Greeks have been paying even more outrageous and punitive rates for years now. The Eurobonds would be a risk-free investment with AAA rating. Interest paid would be low, at German rates. So what’s the problem? The problem is the whole nature of the EU as a multinational capitalist institution.

The dilemma facing the European Union authorities posed by the crisis of the Euro can be dealt with in several ways:

Fiscal union:

If Eurobonds were adopted the money raised could be transferred to the Greek government or other deserving causes. At present fiscal policy (what governments spend their money on) is determined at national level. Eurobonds would be a big step towards fiscal union, towards turning Europe into one country. The German government argues that this would encourage ‘irresponsible’ borrowing by peripheral countries.

So it’s not going to happen. The European Union is not united. It is riven by national antagonisms. National governments will oppose any steps to fiscal union on the grounds that it would take away their power. Eurobonds would pose the case for one government for Europe.

Why should the rich countries take the risk of helping out the Greeks or other poorer member states, they argue? The German capitalists, the big winners from the single market, have effectively vetoed the idea of Eurobonds for now. They may have to make concessions later in extremis.

Muddling along: This has been the easy option so far, given the national antagonisms which have paralysed the decision-making process in the European Union. ‘Kicking the can down the road’ has been the wearisome cliché in the financial press. Now it seems the EU has run out of road.

Break up: The single currency must proceed towards fiscal union or it will collapse at some point. At present fiscal union is politically impossible. Yet more temporary fixes are possible to prevent a break up, but it seems that some senior figures in the counsels of the EU are steeling themselves for a Greek default and possible exit from the Eurozone. The consequences of this will be discussed later.

The fiscal compact

The fiscal compact is a new European Union Treaty which has been signed by all the members of the EU apart from Britain and the Czech Republic. It is due to come into force in 2013. It commits its members to maintain a balanced budget. Member countries are allowed to run a maximum government deficit of 0.5 % of GDP and a public debt of 60% of GDP. The fiscal compact has been imposed on the EU at the behest of the German government, whose bourgeois politicians think this is the way to impose fiscal discipline upon their lax-minded partners.

The fiscal compact is insane. Public deficits ballooned open in all the countries both inside and out of the EU with the coming of the Great Recession. This did not happen just because some countries were run by politicians who were weak of will. Growing government deficits and debts were universal. Deficits grew because the inevitable effect of recession is to shrink governments’ tax revenues and force them to pay out more in unemployment pay and other benefits. This is quite apart from the need they felt to bail out the banks at all costs. So governments of all political persuasions began to run deficits and clock up bigger debts. The injunction from the EU not to let it happen is like King Cnut demanding that the waves roll back at his command.

Bizarrely, policing the policy on deficits under the fiscal compact has been left to the European Court of Justice. It will have the power to fine countries that exceed the guidelines. We have to ask: what will the imposition of fines on countries that are running a deficit on their government finances do to those deficits?

The fiscal compact is a classic policy of neoliberalism. It seeks to place the burden of the crisis onto the shoulders of the working class by attacking wages and the social wage aspect of government spending. In Britain the Trident nuclear submarine programme is not under threat! The compact commits the EU as a whole to a vicious policy of imposed austerity when it is becoming increasingly obvious that austerity will not serve to right the European economy. It in effect assumes that capitalism always works perfectly, when that is manifestly not the case, and that problems only come about when governments interfere in the smooth workings of the free market.

Some countries, such as Ireland, have to conduct a referendum in order to confirm the fiscal compact. Francois Hollande campaigned as President of France on the pledge that he would renegotiate the compact. He won the Presidency on that promise. So there’s trouble ahead for the neoliberal establishment in their attempt to force it through.

Angela Merkel and the grey men in the top echelons of the EU reject this resistance with contempt. What has democracy got to do with it, they ask? How can ordinary people understand the wonderful complexities of the market economy? The EU ‘doctors’ alone understand that never-ending austerity, mass unemployment and shrinking living standards are all good for us! 

All the same, weariness with austerity is growing all over the European Union and beyond. A mood of profound questioning and opposition is in preparation. Austerity is quite simply not working. Millions of workers are looking for a better way.

The long term refinancing operation (LTRO)

Though the normal reaction to the crisis within the EU has been institutional paralysis, the European Central Bank under its new President Mario Draghi has made attempts to palliate the problem. Draghi realised that something must be done even if it was just a matter of ‘kicking the can down the road’. The ECB saw that European banks were once again upon the brink in the autumn of 2011. This was revealed by interviews with insiders like Benoit Coeure of the ECB in a TV programme called The great Euro crash aired by the BBC on May 16th 2012. The banks had to be rescued.

Draghi was influenced by the policy of quantitative easing (QE), practised by the British and American central banks. The effect of QE was indeterminate, but the authorities were desperate enough to clutch at straws. At least this policy of printing money (for that is what it was) had not caused levels of hyperinflation like those of Weimar Germany in 1923 or Zimbabwe more recently.

Draghi, restricted by the strict rules of the ECB, could not actually print money. But he could lend to European banks in case of emergency. He launched the long term refinancing operation (LTRO), a European-wide expansionary monetary policy. LTRO was quite dramatic in its impact. The ECB succeeded in lending a trillion Euros to commercial banks in just three months! The ECB lent at a very low rate of interest - 1%. Then the European banks bought national government bonds with the loan. In the case of Spanish and Italian banks they got a return of more than 5%. This was entirely risk free. It was money for old rope. But there were dangers to the wider economy, even if the banks were saved for the time being. In effect insolvent banks were given the money to lend to insolvent nation states.

The effect of banks entering the market and buying government securities was to reduce the interest rates that the Spanish and Italian governments in particular had to offer in order to borrow money to finance their debts. Spanish and Italian borrowing was getting perilously close to a danger level. Above an interest rate of about 6 or 7%, more and more government revenue is swallowed up in servicing the state debt, and the country enters the sort of death spiral we see so clearly in Greece.

Unfortunately the effect of LTRO was small and short lived. As soon as it was abandoned Spanish and Italian government interest rates spiked up again. Why was the policy abandoned? First LTRO seemed to be pouring money into a bottomless pit. Secondly national antagonisms to the policy, particularly the objections of the German Bundesbank, caused its withdrawal.

The fundamental reason why LTRO didn’t work was because the banks were busy deleveraging, winding down loans and rebuilding their assets. Martin Wolf reports (Financial Times 25.04.12) that, “58 large banks based in the European Union could shrink their balance sheet by as much as 2trn Euros by the end of 2013, or almost 7% of total assets.” But households have been responding to the crisis in exactly the same way. If everyone saves and nobody spends, the economy can enter into a deflationary spiral.

 The banks behaved as they did because they were privately owned. Even state-supported banks were permitted to cock a snook at the urgent needs of the population for credit. Only public ownership and control of the banks run as a public service under a government determined to build a better, socialist society could change that.

The European Financial Stability Fund (EFSF)

By 2010 even the European authorities realised they needed a fund to ‘support’ member states in trouble. They needed a ‘big bazooka’ to bail out the banks of countries in trouble. The word ‘support’ is in inverted commas because the European Financial Stability Fund (EFSF) operates in a similar manner to the International Monetary Fund. It descends upon debtor nations and reads them homilies about cutting their coat according to their cloth. In practice this means imposing the burden of adjustment upon the working population. This is certainly how the dreaded troika operated in Greece.

There were a number of problems with the EFSF. The fact that it is due to expire in 2013 indicates that the EU authorities saw economic crisis and distress as a wholly exceptional, rather than an inevitable part and parcel of capitalist ‘progress.’  All that was needed therefore, they supposed, was a one-off emergency instrument.

Secondly the usual unedifying quarrels between the warring brothers within the EU meant that the ‘firewall’ (for that is what it was intended to be) was a long way from being fireproof. Though the headline figure of 750bn Euros seemed enough to bail out Greece or Portugal, it was way short of combating a serious assault on Spain or Italy by the bond markets. The front page headline in the Financial Times on 15.05.12, ‘Faith fades in euro firewall’, says it all. So far from being a big bazooka, the EFSF was just a pea shooter.

The funds for the EFSF were not available in one lump sum in any case, but came from various tranches, or little pots of money, for which a case had to be made out separately every time. The European Stability Mechanism (ESM) that replaces the EFSF is intended to be permanent.  The funds it can lay its hands on in time of difficulties have been whittled down to 500bn Euros, at the behest of the Bundesbank. The IMF demanded unsuccessfully that it be bumped up to 1trn Euros. 500bn Euros would definitely not be enough to rescue Spain or Italy.

The failure of austerity

It is quite clear that the policy of giving the overriding priority to cutting the deficit at all costs has failed. When we say that it has failed, we mean that it is not restoring the capitalist system to sustained growth, full employment and ever-increasing prosperity.

That is not the  ‘aim’ of capitalism: is not the maximisation of happiness, or even of GDP; it is the maximisation of profit.  Since capitalism is a system where production is for profit, the purpose of austerity policies is to cut the wages and social wage of the working class in order to boost profits, not to return us all to full employment and prosperity.

But, even in its own terms, the effect of austerity is contradictory. To take the case of the UK, more than 380,000 public sector jobs have already gone. Infrastructure spending has collapsed by 25% over the past year. But government borrowing continues to rise and, if the deficit has narrowed, the reason is for that is tax rises, not cuts. In fact 88% of the intended cuts have not been implemented yet, though already the working population groans under the burdens imposed upon it by the Tory-led government. There is no end in sight.

What capitalists need in a crisis are profitable markets. Cutting the market in a crisis in order to raise profits can push capitalist firms teetering on the edge into bankruptcy. This can be seen most clearly in the case of Greece. As the economy collapses, firms go bust and stop paying taxes. Since the government is losing revenues it can’t pay its bills and now has mounting unpaid debts with private contractors. So attempts to cut the deficit can actually serve to keep it at an unsustainable level. Greece had a million companies in 2009. A quarter have since closed while a further 300,000 don’t pay their workers on time. The Greek economy is spiralling down into a chasm.

The huge wartime debts after the Second World War of ‘victor’ countries such as Britain were eventually scaled down. Britain emerged from the War with a national debt of 250% of GDP.  But it was economic growth that allowed the debt to be paid down over time.

This was not because governments after 1945 consciously decided to go for growth, rather than paying off the deficit, as some critics of austerity argue should be done today. On the contrary the state can do little to influence, let alone determine, the rate of growth in a capitalist economy. The post-War boom was not planned and implemented by governments. It happened because the laws that govern the accumulation of capital were functioning in a uniquely favourable environment. The golden age of 1948-73 will never recur. The economic perspectives before us are unremittingly bleak. So the problem of government deficits will not just disappear.

In the case of Greece, the Financial Times leader (22.02.12) argued: “Greece’s deficit reduction is off track largely because of a depression caused in part by the global slowdown and mostly by the programme itself.” Austerity may be self-defeating; but that doesn’t mean the capitalist class will automatically abandon the policy. It may not work, but they will persist with the policy unless they are knocked back by the struggles of the working class. It is their natural reaction, the only way they can unload the burden of the crisis on to the workers.

An extreme illustration of the pressures of an austerity programme is provided by the case of Portugal. David Bencek, analyst at the Kiel Institute for the World Economy, estimates that Portugal needs to run a primary surplus (a surplus that doesn’t include interest payments) of 10% of GDP for the next few years to reduce its debt to manageable levels. What this means is that Portugal would have to export a tenth of its output year after year with nothing in return, and would have to pay interest on its existing debt on top of that, also getting nothing in return. Clearly that is an impossible burden to bear.

For Portugal, Ireland, Greece and Spain the ratio of debt to GDP has increased every year since 2008, despite desperate attempts to economise. This shows that austerity is actually a tourniquet that cuts off the life flow of blood round an economy. Greece has cut and cut yet it still runs a deficit on government spending. It is like the labour of Sisyphus, condemned forever by the gods to roll a huge boulder up a hill, only to see it slipping down again after all his efforts.

Greece’s plight in 2012

In Greece yet another bailout was negotiated in February 2012. As usual it imposed further hardships upon the Greek people. And yet the bailout was correctly billed as the biggest debt default in history. By the time of the latest bailout the Greek public deficit had ballooned to 166% of Gross Domestic Product (GDP). The plan was to reduce it to 120% by 2020 (still a crushing burden). !30bn Euros in new money was to come to the rescue.

The vast majority of this cash went to rescue the European banks. Private holdings of Greek assets by foreign banks were transferred to the ownership of international financial institutions. It was the foreign banks that were really being saved. The bailout has allowed private banks in Europe to wriggle out of some of the obligations they took on when they lent to Greece. Hardly any of this huge injection of cash went to ordinary people in the form of wages and benefits. Instead their living standards got a further squeeze.

But for the first time some of Greece’s debt was actually to be written off.  There was a write down of billions of Euros in securities held by Greek and European banks (the actual amount was subject to haggling).

This had a paradoxical effect on the Greek economy. Though it reduced the intolerable debt burden, it also wiped out elements of Greek workers’ pension schemes and assets held in Greek banks (both of which were invested in Greek securities). This leaves Greek banks on life support. Their vaults are now stuffed with ‘assets’ in the form of Greek government debt, which could prove worthless.

This was an orderly default managed by the powers that be as the least worst option in the situation. We advocate a unilateral default by the Greek people. Let us be quite clear; that would challenge the power of capitalism that is grinding down working class living standards in Greece and all over the world. The capitalist class knows that. It will respond accordingly.

It is quite clear that the bailout solved nothing. Three months later it is ancient history. Michael Roberts posted an estimate of Greek indebtedness on his blog on May 10th:

“Greek government debt stands at 337bnEuros as of March 2012. Of that about 220bn Euros is held by the EU institutions (EFSF, ECB) and the IMF. Foreign banks have reduced their holdings dramatically to about 36bn Euros in long term debt. In addition the ECB and Eurozone central banks have lent the Greek banks about 250bn Euros directly and indirectly. So when we add it all up, the Germans, French and others face default by Greece on a total of 500bn Euros, or 5% of Eurozone GDP.”

In May the parties that have supinely supported the Greek austerity programme imposed by the terms of the bailout received a shattering blow in the elections. The main victor was the left wing coalition Syriza, committed to a clear anti-austerity programme involving renegotiation, and if necessary repudiation of the debt. All the same no party could form a government, and Greece drifted into political chaos.

European banks have continued to withdraw their funds from Greek banks since the bailout. In this uncertain atmosphere Greek citizens also began to withdraw their cash and hoard it. Billions of Euros have disappeared from the vaults of Greek banks over the past year. This is a slow-burning run on the banks (called a ‘bank jog’). Panic can feed on itself. As Mervyn King, the governor of the Bank of England noted during the Northern Rock crisis in the UK in 2007, "Once a bank run has started, it is rational to join in." The Greek banks are insolvent. Foreign banks have been running down their holdings in Greek financial institutions for months, making the situation worse. Any shock can push the banking system over the edge.

Prospects for the future

Nobody knows whether the Euro will survive. In the past its permanence was taken as an act of faith by the EU authorities. That confidence is now gone. Narrow calculation suggests that the Euro could survive a repudiation of the Greek debt. But the chaos associated with debt cancellation could cause contagion that drives the world economy back into recession. That in turn could lead to the breakup of the Eurozone and the destruction of the single currency.

The toxin that caused the credit crunch in 2007 was the sub-prime mortgage scandal. Sub-prime (rotten) mortgages were only issued in a few states of the USA. They were diced up, incorporated in dodgy derivatives, sold all over the globe, and incorporated into bank assets. In so doing they poisoned the entire world monetary system and had repercussions all over the planet. That’s the magic of the world division of labour imposed under capitalism! In the same way a disorderly Greek default or the exit of Greece from the Euro could be the first in a row of dominos to go down in the world economy.

In the first place a default would put enormous pressure on European banks. The world banking system is a complex skein of interdependence. British banks, for instance, are not heavily exposed to Greek finance, but they have invested heavily in French and German financial institutions, which are tied to Greek debt up above their necks. In addition Britain is the most indebted country of all the major economies. A bank collapse, or even wobble, could have knock-on effects on consumer debt and state finances. Adding together household, corporate and government debt in 2012 the UK owes 507% of its GDP. Nowhere is safe.

Secondly, having claimed a scalp in Greece, the bond vigilantes would really go on the warpath. This is called contagion. Where would they strike next – Portugal, Spain or Italy? The real economy in Europe is very weak. Another financial atom bomb like the collapse of Lehman Brothers in 2008, which took us within a whisker of the destruction of the entire world financial system, could lay the whole continent low. This would have reverberating effects on the rest of the world economy.

Trade  is another connecting rod that spreads the crisis from country to country. An economic collapse in a country’s trading partners is bad news. It hits exports. The Tories in Britain are already blaming recession on the continent for Britain’s poor economic performance. Actually their complaints are premature. If a Greek collapse, or any other dramatic disaster, hits the Eurozone then that will have incalculable effects on the British economy and beyond.

Who’s next?

Spain seems to be next in the speculators’ cross hairs. Though it is true that Spanish banks were quite heavily regulated (they were not permitted to dabble in dodgy American derivatives for instance), that did not stop the debacle. The reason is not far to seek. Capitalism is an unplanned system. It is quite obvious now, as we survey the carcases of empty unsold and half-built homes all over Spain, that the crazy housebuilding boom was unsustainable. Yet all the banks knew at the time was that this was a boom they had to be part of. House prices are still falling in Spain, down 21.7% from the 2007 peak, and experts think they have a long way further to drop.  More than half Spain’s young people are unemployed.

Also Spain has a federal constitution which gives wide powers to regional governments. This was a concession to national minorities and depressed regions. These regional governments are not going to automatically obey instructions to rein in their spending from the right wing PP government in Madrid that they oppose. They will do their best to look after their own, and, in these depressed times, that means running budget deficits, even if and especially if the regions are effectively bankrupt.

Spain is said to have a two tier banking system. Some Spanish banks, such as Santander, are internationally known. (So was RBS; so was Lehman Brothers of course.) But the banks most in peril are probably the regional cajas (savings banks), which are tied up with local government and, in many cases, with the construction industry. For instance Bankia was a conglomerate formed from seven cajas and floated on the Spanish stock exchange in 2010. With losses of 120bn Euros it had to be rescued by the Spanish government in the first half of 2012, for fear of wider repercussions from its collapse.

Can the Euro survive?

The immediate flashpoint for the world economy is Greece. Polls show that a big majority of Greeks want to stay in the Eurozone. Older Greeks in particular will have bad memories of the Drachma. But they can’t pay and won’t pay the monstrous debts imposed upon their nation. This is a correct and healthy instinct. The Greek people correctly see the debt as the enemy that is impoverishing them. They need a revolutionary government that will move decisively to cancel the debts. That would involve capital controls and the nationalisation of the banks, which are effectively bankrupt in any case. No country in the world needs its banks to be run by a bunch of unaccountable speculators. Finance should be the servant of the people, not its master.

The EU treaty covering entry into the Euro is quite clear. Formally there is no procedure for leaving the Eurozone. There is certainly no way that other member states can expel one of their number. Does that mean that negotiations between a Syriza-led government committed to alleviate the debt burden and the EU authorities is all a matter of bluff and double bluff, as the leaders of Syriza suggest? Syriza’s hope is that their opponents will blink first in this game of poker.

Certainly both sides are playing mind games at present The outcome of the standoff is uncertain. It depends in part on whether the EU authorities are prepared to make concessions at the last moment to save the European ‘project’ – for the time being. Even if they do, that will not be the end of the story.

The real question

The question for socialists is not – can the Euro survive? We have no control over that. What workers want to know is – how can we bring this nightmare to an end? The May 2012 Greek elections saw a massive reaction against the terms of the bailout, and the parties that supported it. The leftist coalition Syriza was the big gainer in the elections, on a programme of renegotiation of the deal. The overall results of the ballot were indecisive. It seems from opinion polls that Syriza may make further gains in the elections scheduled for June. At present the Greek working class is the advance guard of the movement against capitalist austerity.

The pro-bailout parties (Nea Dimokratia (ND) and the Panhellenic Socialist Party (Pasok) have raised the question of Greece’s expulsion from the Eurozone as an electoral scare. Most of the press coverage in the rest of Europe has followed the same line. After all the millionaires who own the media could not care less about the welfare of the Greek people, but the fate of the Euro affects their profit and loss account.

It is obvious that the imposition of a harsh programme of declining living standards upon an entire nation against their will a challenge to democracy. The economic establishment has complete contempt for the people’s will when that conflicts with the neoliberal nostrums they peddle. That is not to say that the capitalist class can foment a military coup in Greece at present. The balance of class forces would not allow that.

But for now the EU authorities are beginning to tire of having to deal with the difficulties of the recalcitrant population and their preference for voting for the ‘wrong’ people. They want the Greeks to take their nasty medicine. If they don’t, they can see the Portuguese, the Irish, the Spanish and the Italians all queuing up for preferential treatment.

The troika has already shown that it is quite prepared to play hardball if it sees the existence of the Euro, which it associates with the imposition of austerity, to be under threat. As Wolfgang Munchau puts it (14.05.12), “Technically, the European Central bank could decide not to accept Greek bonds as collateral. It could refuse to grant a request for emergency liquidity assistance. Greece would then have no choice but to leave ‘voluntarily.’ But this would be an incredibly hostile act.”

Indeed it would be a declaration of economic war. There is no doubt that the authorities would try to bully a radical government with the threat of withdrawal of funds. Faced with a disorderly default, one led by a movement of the Greek people from below, they would be quite prepared to expel or winkle Greece out of the Euro, whether that is legal according to EU treaties or not.

The united pressure of the capitalist media can have an effect on the consciousness of the mass of the population, unless it is being argued against in every workplace and neighbourhood. The Greek people have been taken to the abyss and invited to stare over the edge. That is how the leaders off Pasok and ND, who have betrayed their people so shamefully, put it. They play upon fear of the unknown. They also warn (or rather threaten) that if Greece refuses to sign up to the bailout terms, the flow of international funds will be cut off. Civil servants and other public workers will simply not be paid. These are powerful arguments that can sway people unless they are countered with steely clarity.

We have every sympathy with the demand for the complete cancellation of the debt. Indeed we believe that to be a precondition for freeing the Greek people from debt slavery to international finance capital. Such a measure would have to be supplemented by taking over the Greek banks and imposing severe capital controls to prevent the capital flight that is already happening.

It would be a mistake by the radical left in Greece to make exit from the Euro its main demand. Greek workers would naturally ask the question ‘why leave the Euro?’ If the parting of the ways in the form of expulsion from the Eurozone comes because the Greeks repudiate the debt, then the EU authorities will have put themselves in the wrong. Socialists in Greece should strive always to put the representatives of capitalism in the wrong and keep them there.

We don’t know how damaging the expulsion of Greece from the Eurozone could be. It is safest to fear the worst. Charles Dallara, head of the International Institute of Finance, quoted in the Guardian (17.05.12), assessed it as, “Somewhere between catastrophe and Armageddon.” He probably had it about right. The early signs are that, if Greece falls, Portugal, or Ireland, or Spain or Italy would be next in the firing line. Greece has only about 2% of the GDP of the Euro. But, as Michael Roberts has shown (see above), the knock-on effects could be enough to throw the entire world economy back into recession. Another recession, so soon after the last serious collapse, could in turn cause permanent scarring to the European and the wider world economy.

Amid the crisis there are frictions and arguments within the senior counsels of the EU. The election of President Hollande and the Greek results reflect a growing electoral weariness with austerity policies all over Europe – particularly when it is becoming increasingly obvious that they don’t work. The arguments also reflect national antagonisms within the EU, and an increasing resentment at the dominance of Germany in the decision-making process. After all German capitalism is pursuing its own interests through the institutions of the EU; as a net exporter and creditor country these don’t necessarily coincide with those of all the other member states.

How intelligent and far sighted are the capitalists’ representatives within the counsels of the EU? Since the ruling class internationally do not all have common interests, and since capitalists work by instinct rather than according to a rational plan, there is massive scope for disagreements. The political process itself reflects this. It does not always throw up far-sighted representatives of the ruling class. It may reward those best able to plot, manoeuvre and cobble together coalitions of interests solely concerned to hang on to power instead.

Having said all that, the EU decision-making process is hopelessly flawed. Angela Merkel in particular seems to replicate Herbert Hoover’s paralysis during the course of the Great Depression. (Hoover was US President before the election of Roosevelt.) The survival of the Euro is not, and never was, a matter of pure capitalist economic rationality. No such thing exists. The Euro’s future will be the outcome of a complex interaction of political and economic factors. We predicted in the past that ‘on balance’ the Euro should survive as the world economy slowly revived.  This was not a hard and fast prediction. Perhaps we underestimated the collective stupidity of the EU authorities! In any case at the time of writing the Euro’s survival hangs by a thread.

This is not just a Greek crisis. It is a crisis, both economic and political, of world capitalism. Millions of workers all over the world are suffering hardship as a result. They see no way out at present; no major force is offering a clear way forward. So they are disoriented and angry. They are in the process of seeing through the lie that, after one further round of belt tightening, they will finally reach the sunlit uplands of full employment under capitalism. The polls all over Europe in particular show electoral weariness with never-ending austerity. Big protests, strikes and demonstrations are the order of the day. In this context a defiant movement of the Greek workers can generate a huge movement of solidarity from the world’s working class. The EU authorities think they can bully the Greeks because they live in a small country, isolated from the rest of the protests. Let us strive to prove them wrong!



Greece: heading for the exit?

posted 7 May 2012, 14:21 by Ian Ilett   [ updated 18 May 2012, 02:25 by Admin uk ]

 By Michael Roberts

  May 17, 2012

 The Greeks are having another election on 17 June.  The 6 May election was a disaster for the Troika.  An anti-austerity party, Syriza, gained the balance of power and ensured that no pro-Troika government could be formed. Now Greece is in a limbo for another month under a surprised premier, Panagiotis Pikrammenos, the president of Supreme Court.

But the Greek economy is not standing still.  On the contrary, the economy is beginning to melt down.  First, the austerity measures are collapsing.  In June, Greece should have improved tax collection by 1.5 percent of GDP, reduced social spending by 1% of GDP and implemented another pay cut and reduced public sector jobs by 12%.   It has not done so.  Also, unpaid debts owed by the government to third parties for over 90 days now stand at €6.3bn euros, or 3.1% of projected GDP this year.  Athens is supposed to shrink its budget hole to 6.7% of GDP this year based on a supplementary budget approved by parliament earlier in the year.  The EU Commission’s spring forecast sees the deficit at 7.3%.

More immediately, the Greek president announced during coalition negotiations last weekend that deposits in Greek banks are falling by up to €1bn a day.  At that rate, the banks will be under water before we get to the election result.  The banks will have to rely on emergency lending assistance (ELA) from the Greek central bank.  But that requires collateral and Greek banks are running out of those too.

Worse, the ECB is not willing now to take collateral from some Greek banks because they have not yet restructured their balance sheets since private sector involvement (PSI) bond swap, which required them to recapitalise.  Recap funds from the EFSF have been delayed because of the political impasse and the ECB wants to wait for that funding.  So, in the meantime, the banks must again rely on ELA from the central bank.  All these demands for ELA will drive up the central bank’s liabilities to the Eurosystem (already at €125bn) to new heights.  So a financial crisis is brewing in Greece while its politicians start an election campaign.  I

It seems that Mrs Merkel and other Euro leaders still do not get it.  A Greek default is seen as a ‘one-off’ without serious consequences for the rest of the Eurozone.  But that’s wishful thinking.  I have estimated the exposure of other Eurozone states (and their taxpayers) to a disorderly Greek sovereign debt default.  Adding up what the Greek government owes to other EU governments from the two bailouts, what the central bank debts are to the Eurosystem and how much the ECB has already lent to Greek banks and holds in Greek government debt, we find that the Eurozone is exposed to around €500bn of potential losses, or near 5% of Eurozone GDP.

Germany and France alone are exposed to around €150bn each.  And this is just exposure to sovereign debt.  If the Greek private sector should also default on its loans.  French and German banks will take a sizeable hit (French banks have about €25bn lent to Greek companies.  When you add all this in, the total exposure is closer to €750bn.

The Germans and other Euro leaders seem unwilling to renegotiate the bailout package to reduce Greek public debt and reverse the austerity measures as any Syriza-led government will demand.  That poses the likelihood that the Euro leaders will force Greece out of the euro by cutting off funding to the government and to the banks from the ECB.  The Greek government only has cash to last until the end of June to pay for public sector salaries and services.  With the ending of Troika money, it will default on its debt obligations.  Then the Euro leaders can expel it from the euro system, even if the Greeks go on using the euro for money.  The IMF reckons that this will cause a 10% contraction in Greek real GDP over the next year and with a 50% devaluation in any new Greek currency, inflation would jump to 35%.  Credit for companies and households would disappear, so bankruptcies will mushroom.  The Greek government would have to act to nationalise the banks, impose capital controls on any flight of money out of Greece and also take over major companies.

The rest of the Eurozone and Europe will not escape from the consequences of a Greek exit. The whole of Europe would be plunged into a deeper recession, probably contracting the European economy by up to 5% in one year, while inflation would rise too.  So the Germans and the other Euro leaders will have to decide what to do or the euro itself could head towards break-up before the year is out.  The firewalls against ‘contagion’ are not adequate.  The new European Stability Mechanism (ESM) is still not in place and its effective functioning could be delayed until the autumn while the German parliament gets round to ratifying it.  The ECB does not appear willing to consider any more extraordinary measures for liquidity support to the PIIGS.  And the Euro leaders are bickering about austerity or growth.

And austerity is not working.  The irony is that before the crisis, fiscally-prudent Germany saw public spending rise at a much faster rate than in Greece or Spain, but since the crisis, it is Greece that is taking a truly humungous hit to public services and conditions.

There is a way out of this. But it’s not on the basis of the pro-banking, pro-capitalist policies of the Euro leaders. Greek state finances would be fine if the richest Greeks paid taxes and did not spirit their money offshore to buy property in Kensington, London or Monaco, with the connivance of Greek banks and politicians granting their wealthy friends and multinationals all kinds of tax advantages and favours that have diluted tax revenues to the point where there is not enough in the kitty to maintain public services.  According to the Tax Justice Network, over a trillion dollars lie in offshore banks and companies in tax havens (not all Greek money of course).  Recover this money and governments could not only reduce their debts but pave the way for a lowering of taxes across the board to encourage investment and growth and increase spending power for the majority.

Capital controls, public ownership of the banks and major corporate sectors to organise a plan for investment and growth: this is not just an alternative programme for Greece but for all of Europe.

 by Michael Roberts, 7 May 2012

  The two collaborationist parties in Greece have lost the election.  Together they have polled only 32% of the vote with the leading party, the conservative New Democracy, getting under 19% and the Blairite PASOK just 13%.  So, even with the boost of 50 extra seats in parliament, the two parties will have only 149 seats, two short of a majority.

The anti-austerity parties that managed to cross the threshold of 3% for seats in parliament did well, polling over 46% of the vote.  But the anti-austerity vote is hopelessly divided between the outright fascists and nationalists on the right, polling about 17% between them; and the left including SYRIZA (which finished second), the stalinist Communists and pro-Euro moderate left, polling just under 29% combined.

The collaborationist parties’ votes were mainly from the better-off and middle-class professionals in the private sector.  The anti-austerity parties were backed by the pensioners, the poor, the unemployed and the youth, but their alternative to austerity was confused by nationalists and fascists who want to blame the Eurozone leaders and immigrants from Turkey and Eastern Europe for unemployment.  On the left, the Communists’ main demand was to leave the Eurozone and a refusal to join any anti-austerity coalition.

The result is a bad defeat for the Troika and the policies of austerity.  The argument of the collaborationist parties was that there is no alternative to the bailout agreement and austerity.  Of course, there is an alternative.  I have outlined this in previous posts (An alternative programme for Europe, 11 September 2011) and it has been presented to some extent by the leaders of SYRIZA.  It would mean reversing the austerity measures without leaving the euro.  How?  The first measure of an anti-austerity government would be to write off the debt burden with the banks and the Eurozone governments.  The now defeated collaborationist government already agreed to a version of debt restructuring imposed by the Troika.  But this  restructuring was a joke.  The Greek government and its people are still left with a huge debt burden through the rest of this decade that will mean its debt ratio will still be larger than that of Italy now even if all goes well on austerity, which it won’t.

The Troika’s restructuring just replaced part of the government debt owed to foreign banks with new debt backed by European governments and imposed a full recapitalisation of Greek banks without any allowing move towards public ownership.  Now Greek government debt will owed not to banks, but mainly to other European governments.  The IMF leaders were desperate to ensure that this package was sustained by the new government.  They secretly invited Greek pro-austerity leaders to meetings to discuss policy just before the election.  In these private discussions, the IMF argued in favor of those parties that accept the necessity of the austerity package. The ultra neo-liberal Drasi candidate Miranda Xafa, a former Greek representative to the IMF, attended the IMF’s spring session of the fund.  Fortunately, the IMF and the Troika have failed – for now.

Look at how the IMF and the Troika doled out their money.  Less than 10% of the new funding is going to help the Greek government fund its deficit or get the economy going.  Over 90% has gone to fund foreign and Greek banks. Instead, if Greek government debt had been written off and new money lent directly to the Greek government to recapitalise the banks through public ownership and launch a programme of public works to revive the Greek economy, there would have been no need to condemn millions of Greeks to a generation of austerity.  But of course that cannot be allowed to happen because it would mean the curbing of the failed and corrupt Greek capitalist business sector and would pose a real threat to Europe’s banking sector and multinationals.

It may be that the New Democracy can find one of the opposition parties to agree to join a coalition.  But to do so, would probably mean having to try and renegotiate the bailout deal with the Troika anyway.  Alternatively, the Greek president may call another election in June.  If the Greek people have not reached the right decision this time, then they must do it again until they do!

Any attempt to meet Troika demands is hopeless, anyway.  The Greeks cannot deliver what the Troika wants.  With the Greek economy contracting by 6% this year, the fiscal targets cannot be met.  Indeed, next month the new government must find another €11bn in austerity measures to keep to Troika targets for 2012 and 2013.  How are such measures going to be greeted by the Greek people and the new parliament?  At some point, either later this year or early next, the Troika will have to announce that the Greek government is failing in its commitments.  Then the Euro leaders will have to decide whether to provide yet more funding with yet more austerity measures to tide Greece over, or not.  That will be a decision for German Chancellor Merkel and new French socialist President Hollande.

France: defeat Sarkozy and build a mass movement for socialism

posted 2 May 2012, 04:35 by Admin uk   [ updated 2 May 2012, 04:38 ]

 by Erik Andersson, member of the Swedish Left Party

 The first round of the French presidential elections took place on Sunday, 22 April. Let us start with a comparison between the election results in 2002, 2007 and 2012:

Radical left:

2002: 13,7% (Biggest party Lutte Ouvriere 5,7%)

2007: ~9% (Biggest party LCR, 4%)

2012: 12,8% (Biggest party Front de Gauche, 11,1%)

Socialist Party:

2002: 16,18%

2007: 25,87%

2012: 28,63%

Radical Left+Socialist Party combined:

2002: ~32%

2007: ~34,8%

2012: ~41,43%

One can note that the Socialist Party´s share of the vote for the labour/left parties has risen since its catastrophical election in 2002. The election results in 2002 came after an impopular spate in power, during which the communist party also participated in the government.

The radical left are back at the levels of 2002, after a deep slump in support. But it is relevant to note that they have managed to reach that level in spite of the fact that the Socialist Party has grown by almost ten percentage points during that time period. It is also noteworthy that the two trotskyite parties have lost more than 80% of their votes since 2002. While the votes for the radical left was pretty evenly devided between three different formations in 2002, now 86% of the votes are concentrated to one alternative (Front de Gauche – The Left Front).

Since The Left Front is an alliance between mainly the communist party on the one hand and the newly formed Left Party (Parti de Gauche) on the other, corresponding comparisons are hard to make. However, the combination of the enthusiasm that comes from the feeling of uniting rather than splitting further, and Melenchóns radicalization of the message, has borne fruit. It is worth noting that Melecnhón just a few years ago was a government minister for the Socialist Party. That shows that in times of crisis, radicalization of the labour movement and society can come from unexpected directions.

The second round – break the Merkozy axis!

Ahead of the second round, Hollande has a clear yet shaky lead – according to the opinion polls he will beat Sarkozy by 7-10 percentage points. A lot is dependent upon how the voters of the other big candidates place their votes in the second round. A lot of people probably think that the voters of Marine Le Pens will automatically pass over to Sarkozy en masse, but it isn´t that simple. In fact, in an opinion poll published in Liberation after the first round, 31% of Le Pen´s voters say that they will vote for Hollande in the secound round, while 48% have decided to vote for Sarkozy.

Outside of France, we are mostly reached by the racist policies of the Front Nationals, but we need to dig deeper than that to understand the success of Le Pen, and why many of her voters will opt for the social democratic candidate in the second round. The daughter of Jean-Marie Le Pen has tried to broaden the message of her party to include a protestionist economic policy and has demanded tougher demands on banks and big business, as well as presenting herself as a defender of public services.

At her election meetings, the mentioning of Sarkozy´s name has often been met with boos. To appeal to conservative workers with racist tendencies, Sarkozy needs to do more than stigmatize roma and muslims: he needs to deliver answers to the economical and social crisis of France. And because he has committed to an ideology of austerity, he has relatively few aces on hand with which to win over the worker voters of the Front National.

It is interesting to note that the voters of centre candidate Bayrou are almost evenly divided in the groups: 38% who said they will vote Sarkozy, 32% who support Hollande, and 30% who claim that they will abstain. Among the supporters of Melenchón, 83% say they will vote for Hollande in the second round (I suppose that the rest lean towards abstention). In his speech at the Stalingrad Square last sunday, the presidential candidate of the Front de Gauche called on his supporters to throw themselves with full force into the struggle to deliver a devastating blow to Sarkozy. He said that this is not about a single person or country, but a struggle on a european level for ”all those who live under the weight of the Merkel-Sarkozy axis”. A defeat for Sarkozy – one of the main props of the european right wing, would open the way for the left, Melenchón argued.

This resolution on the left to defeat the right can, contrasted to the ambivalence of the Le Pen voters, prove decisive. Melenchón has carried out a campaign with massive gatherings of tens of thousands in city after city. This force mobilized to defeat Sarkozy could become overwhelming.

From Sarkozy to socialism

If Sarkozy is defeated, it would be the curtain opening for a larger drama. The thoughts naturally drift towards the french left wing government in the early 80s, which adopted radical policies and was finally defeated. Today, Hollande is putting forward a much more modest programme than Mitterand, but the challenges the Socialist Party will meet in power will most likely open up a polarization within the french labour movement, when the strategical issues is boiled down to daily tactical decisions.

In the long run, the french labour movement needs to develop a coherent socialist programme for the 21st century. The Socialist Party has already steered a bit to the left with the election programme of Hollande, and the fiery rethoric of Melenchón has poured gasoline on a popular wrath. This paves the way to deepening class conflicts – without as well as within the french labour movement.

The people power that has shown its strenght during the election campaign of Melenchón needs to be organised permanently and mold a coherent political project, anchored in the senses and daily struggles of millions of people. All the hundreds of thousands of people that have participated in the election gatherings of the Left Front need to step into the arena as a permanent political force. Trade union mobilizations alone are not enough – the working class has to point the way out of the crisis of capitalism.

Erik Andersson, member of the swedish Left Party


posted 8 Apr 2012, 11:50 by Admin uk   [ updated 8 Apr 2012, 11:52 ]

 by Michael Roberts

  April 6, 2012

 I know many have already commented on what happened last week outside the Greek parliament building in Athens.  But it’s difficult not to express a feeling of anguish and anger together.  A cash-strapped Greek pensioner shot and killed himself outside parliament in Athens on Wednesday.

Dimitris Christoulas was a retired chemist, with a wife and a daughter, who had sold his pharmacy in 1994.   In a suicide note found by police, he said: “This Tsolakoglou government has annihilated all traces for my survival, which was based on a very dignified pension that I alone paid for 35 years with no help from the state.  If one Greek had taken a Kalashnikov into his hands, I might have followed him and done the same but because I am of an age that makes it impossible for me to take strong action on my own, I see no other solution than this dignified end to my life, so I don’t find myself fishing through garbage cans for my sustenance.”

Tsolakoglou is a reference to the wartime Nazi collaborationist Greek government.  George Tsolakoglou was a Greek military officer who was appointed by the Germans in 1941 as Greek prime minister.  Mr Christoulas correctly identified the nature of the current banker-led Greek government that has agreed to a crippling destruction of Greek living standards, public services and jobs in order to bail out Greece’s creditors, Europe’s banks, insurance companies and hedge funds – and to lie down before the neoliberal policies of the dreaded Troika (the EU Commission, the ECB and the IMF).

In his last statement to the world, Mr Christoulas went on: “I believe that young people with no future will one day take up and hang this country’s traitors in arms in Syntagma Square just as the Italians hanged Mussolini in 1945.”

Unfortunately,  Mr Christoulas’ act is not an isolated one.  The suicide rate in Greece used to be the lowest in Europe but it has soared during the crisis.  The latest data shows suicides jumped 18% in 2010 from the previous year as rising unemployment, higher taxes and shrinking wages drove ordinary Greeks to despair.  Last year, the number of suicides in Athens alone jumped over 25% from a year ago.

“This is the point to which they’ve brought us. Do they really expect a pensioner to live on 300 euros?” asked 54-year old Maria Parashou, who rushed to the square to pay her respects after reading about the suicide.  “They’ve cut our salaries, they’ve humiliated us. I have one daughter who is unemployed and my husband has lost half of his income, but I won’t allow myself to lose hope.”

I remind you of a previous post (Greece: a Sisyphean task, 13 February 2012) that repeated what Greece’s top bishop said about the state of Greek society under the jackboot of the Troika and the collaborationists. Archbishop Ieronymos of Athens and All Greece sent a letter to the banker prime minister Lucas Papademos saying that “the phenomenon of the homeless and the famished, a reminder of WWII conditions, has taken the dimensions of a nightmare,” adding that “the homeless increase by the thousands everyday, while small and medium-sized enterprises are forced to go out of business. Young people, the country’s best minds, choose to emigrate, while our fathers are unable to live after the dramatic cuts in pensions. Family men, particularly the poorest, those with many children, wage earners, are in despair due to repeated wage cuts and unbearable new taxes. The unprecedented tolerance of the Greek people is being exhausted, rage pushes fear aside and the risk of social upheaval cannot be ignored anymore by those who are in the position to give orders and those who execute their lethal recipes.”  He went on: “in these difficult and undoubtedly, crucial times, we should realise that every Greek home is plagued by insecurity, despair and depression, which unfortunately, have caused, and sadly enough, continues to cause the suicides of those unable to bear the ordeal of their families and the pain of their children.”

Elections are about to be announced after Easter.  The date is likely to be 6 May.  The two main collaborationist parties, the conservative New Democracy and the laughingly named ‘socialist’ PASOK are desperately trying to drum up enough votes to keep the bankers government in office.  Given that they will get most of the TV time and have the overwhelming backing of the main newspapers, they may yet succeed.  That’s partly because the anti-austerity parties, although doing well in the polls, are hopelessly divided and refusing to work with each other.

The horrible irony that proves Mr Christoulas so right is that whatever the pro-austerity coalition does, it will not be able to meet the draconian demands of the Troika.  The Greek capitalist economy is diving at about 6% yoy and has contracted by about 16-20% since its peak.  Unemployment is accelerating towards a 24% rate, with youth unemployment heading towards a staggering 60%.  Those who can leave the country are doing so.

There just won’t be enough to squeeze out of the Greek people to pay the demands of the Troika.  The government will fail to meet the fiscal and spending targets and then the Euro leaders will have to decide whether yet another ‘bailout package’ must be formulated, with yet more conditions or whether they will decide to ‘let Greece loose’.

The Euro leaders do not want to do the latter because of the ‘contagion’ effects throughout Europe’s financial markets that would lead to Portugal and Ireland also failing and more important onto Spain and Italy, which are also struggling under the heel of austerity.   So the leaders may opt for another package – PM Papademos and friend of neoliberal economist Mario Monti in Italy, has already hinted that it may be necessary.

The May elections are the next twist in the Greek tragedy, which has already spilt the blood of many.

Europe: the path to growth

posted 8 Apr 2012, 11:44 by Admin uk   [ updated 8 Apr 2012, 11:51 ]

   by Michael Roberts

 March 14, 2012

 An unpublished report by EU commissioners on the Greek Troika team reckons that Greece will need to make further cuts of €12bn on top of those already planned in public spending over the next two years to meet Troika targets.  The EU Commission’s Compliance Report said that further drastic reductions equivalent to 5.5% of GDP would be have to be agreed by the end of May to fill “fiscal gaps” in the next two years. The next government’s first task will be to find €7.6bn of savings in 2013 and another €4.1bn in 2014 to stay on track with the fiscal programme agreed with the Troika. The savings are likely to come from fresh cuts to pensions, new reductions in social transfers, the further slashing of pharmaceutical and healthcare spending, another round of cuts to defense spending and a ‘restructuring’ of central and local administration.  Greece has to achieve a primary surplus (ie after debt interest payments) on its annual budget of 1.8% of GDP in 2013 and 4.5% in 2014 to continue to qualify for the loans the Eurogroup approved this week.

That means that any new Greek government elected in early May will not only have to implement the existing Troika measures agreed under the new bailout package.  It would also have to tell the Greek people that it needs even more pain to be inflicted by the government if it is to meet Troika demands.  Given that the current coalition leaders have pledged that there will be no more cuts, we can imagine how this news is going to be received by the people.

The continued drive for fiscal austerity to solve the Euro debt crisis is becoming self-defeating.  Country after country in Europe is announcing that it cannot meet its own fiscal targets and needs more room.  Spain has got the EU leaders to agree to a slightly less demanding target for its government balance in this year although it still has to go from a deficit of 8.5% of GDP in 2011 to 3% by the end of 2013.  A huge task.  Portugal is likely to slip from its targets. Belgium says it now needs to cut more to meet its target and so does the Netherlands and even Finland.  And the story for the UK, the US and Japan is much the same.

The EU leaders are beginning to realise that austerity is not enough.  Debt targets will not be met without economic growth as well.  So more growth is now becoming the mantra of the Euro leaders and mainstream economics.   But how is growth in the weak European capitalist economies to be achieved?  They are contracting by anything between 1-6% of real GDP this year.  The answer from mainstream economics is what we might call the traditional ‘neo-liberal’ solution.  By that I mean that Europe’s economies must become ‘more competitive’.  That means cutting wages to get down unit labour costs, ‘deregulating labour and product markets’ to break the power of trade unions to defend wages and increase the power of employers to hire and fire; and to ‘open up’ professional occupations to the less well-qualified and with poorer expertise at lower incomes. In other words, to try and create conditions for the private sector and especially big business (both domestic and foreign) to want to invest in these economies.

So the neo-liberal solution depends on praying that the private sector gets more profitable and then will invest and create new jobs and thus economic recovery.  It is probably a vain hope.  The reality is that since the trough of the Great Recession in mid-2009, profitability in the major capitalist economies is still generally below that in 2007 (see the graphic below showing rates of profit and my post, The UK rate of profit and others,4 January 2012 ).  So there is no enthusiasm to invest in new capital while ‘dead capital’ remains a burden.

There is an alternative solution for the path to growth. The Greek debt default shows that renegotiating the debt should have been a big part of any proper solution to helping economic growth in Greece.  For a start, the default deal will mean that the Greek public debt ratio will fall from 166% of GDP to about 125% or even lower.  But default was refused and denied for two years by the Euro leaders, the banks and the Greek government.  Eventually reality ruled.  Of course, the Euro leaders and the bankers want Greece to be seen as a ‘one-off’.  But part of the way out of the economic slump for the weaker capitalist states like Portugal, Spain or Italy is to negotiate a debt ‘restructuring’ that reduces the burden on the electorate of paying interest and debt repayments to Euroepe’s financial institutions – who caused the crisis in the first place!  The money saved could then be spent on investment for jobs and growth.  Instead, around 90% of the Greek bailout package funds from the EU-IMF are being spent to recapitalise the banks, paying off private bond holders and repaying the IMF that’s lending part of the money!

The other part of the alternative solution would be based on public sector investment on a big scale in infrastructure, new technology and the environment, as well as funding for small businesses to pick themselves up.  Such a programme is way more job-enhancing than the squeezing wages and sacking people to achieve ‘competitiveness’ that the neo-liberal solution offers.  Indeed, you have to ask the question: to be more competitive than whom?  If Portugal slashes wages like Greece, deregulates and cuts public services to the bone in order to drive down labour costs and become more competitive, where does that leave Greece, Ireland, Italy and the others trying to do the same.  There is no advantage gained (except perhaps to exports outside Europe).  It all smacks of a zero-sum game.  Growth does not have to be export-led growth designed to ‘steal’ growth off other countries unable to cut costs as much.  If that were so, there would never be any growth.  Economic growth can come from increased domestic investment and employment – in other words from a larger cake rather than trying to redivide a smaller cake.

Since the euro started, Germany has not become more competitive in Europe than others because it improved the productivity of its labour force through new investment.  Indeed, productivity growth in Greece has been much more than in Germany since 1999 – up 25% compared to 10% for Germany.  Of course, Germany’s level of productivity is still much higher.  But Germany’s competitiveness improved because German workers’ wage growth was curbed.  Since 1999 German wages have risen only 22% while they rose 66% in Greece.  So although Greek competitiveness (as measured by unit labour costs) improved between 1999 and 2007 by over 5%, Germany did even better  (see my post, Europe: default or devaluation, 16 November 2011).  In other words, Germany stole some growth from Greece by squeezing wages at home.  The neo-liberal solution is to make workers pay for the recovery and boost profits, not to raise productivity through investment and deliver higher incomes for all.

Will a public investment programme work?  Well, it will if the examples of China and Brazil during the Great Recession are any evidence.  According to the IMF, in the last four years, China’s real GDP has risen in real terms 53%!  Brazil’s has risen nearly 16%.  Real GDP in the G7 countries and in the Euro area has not risen at all!  Indeed, in many mature capitalist economies, real GDP is still lower than in 2007.

Why have China and Brazil done so much better?  The Chinese government launched a massive public investment programme in 2008 of $600bn, or 8% of GDP, to combat the impact of the global slump.  Public infrastructure development took up the biggest portion. The projects lined up included railway, road, irrigation and airport construction.  Reconstruction works in the regions were expanded followed by funding for social welfare plans, including the construction of low-cost housing, rehabilitation of slums, and other social safety net projects.  Rural development and technology advancement programs were extended including building public amenities, resettling nomads, supporting agriculture works and providing safe drinking water.  Technology advancement was mainly targeted at upgrading the Chinese industrial sector, gearing towards high-end production to move away from the current export-oriented and labor-intensive mode of growth. This was in line with the government’s aim to revitalize ten selected industries.  To ensure sustainable development, the Chinese government also promoted environmental engineering projects.

To a lesser extent, Brazil did the same through its state-owned development bank BNDES that financed a huge infrastructure programme with cheap credit, much to the chagrin of the neo-liberal voices in the World Bank, the IMF and in Brazil itself.  The BNDES is responsible for 20-25% of all investment in the country.  Over 70% of extra lending to industry during the Great Recession came from the state-owned bank.  That move saved Brazil from the slump.

The reason such an approach will not be adopted by the current Euro leaders and governments is that it threatens the interests of the private sector, particularly big business and their profitability.  The idea that the state should lead economic recovery is anathema.  It is better to have no growth than state-led or controlled growth.  So the major capitalist economies are likely to continue to experience weak growth for years ahead, while the weaker capitalist economies will stay in depression.  Unemployment will fall only slightly and will still be higher than it was before the Great Recession several years down the road.  Indeed, it is my view that before the end of the decade we shall have to face another slump in capitalist production in order to clear ‘excess’ dead capital in the private sector in order to revive profitability.  For now, the private sector is unwilling to invest enough to drive a path for growth in Europe.

Greece: the biggest debt default in history

posted 10 Mar 2012, 02:48 by Admin uk

 by Michael Roberts

The Greek government has defaulted on its debts to private sector bond holders to the tune of €173bn.  That’s the biggest sovereign debt default in history.  This was achieved by a negotiated ‘voluntary’ deal with Europe’s banks, insurance companies, pension funds and hedge funds.  The Greek banks have taken the biggest hit, along with the Greek state pension funds (Greek state pensions are already being slashed).  Private sector involvement (PSI) in the deal was 95% of all bondholders, after the Greek government invoked so-called collective action clauses (CACs).  CACs meant that those who refused the accept the 50% haircut in the value of their bonds would be forced to because enough bond holders had agreed to the terms ‘voluntarily’.  The remaining bond holders still refusing the deal have until 23 March to change their minds and may still face default anyway.

Of course, the bond holders are not taking a hit to the value of their holdings without some sweeteners.  Under the deal, they receive new Greek government bonds with 30-year lives, paying about 3-4% a year in interest and guaranteed by the Eurozone financing operation, the EFSF.  And they also get some cash upfront for turning in their old bonds.  In addition, those bondholders that took out insurance against default (credit default swaps) may well get compensated for any losses by the sellers of such insurance,often the same banks and insurance companies that hold the Greek bonds in the first place! – such is the madness of finance capital.

With the default deal more or less settled, the Euro leaders will now agree to finance the Greek government’s remaining debt for the next three years at their summit meeting next week.  The Euro leaders in return are expecting the Greek government to impose on its people the most draconian reduction in living standards, public services, jobs and spending seen since the Great Depression for a European country (with the possible exception of tiny Latvia).  The Greek capitalist economy has sunk.  Real GDP fell in the last quarter of 2011 by 18% an annualised basis.  The cumulative fall from peak to trough is likely to be anywhere between 25-30%.  The consequences for the Greek people are difficult to comprehend (see previous posts).

The cruel irony is that the Troika’s demands to cut real wages, destroy trade union rights and labour conditions, while massacring the public sector through privatisations and cuts, will not do the trick and make it possible for Greece to become competitive and grow sufficiently to meet the fiscal targets set by the Euro leaders.  With Greece in such a deep recession, it cannot manage it.

The Troika target is for Greece to get its public debt burden down from 166% of GDP before the debt default to 120% of GDP by the end of the decade.  To achieve that, the Euro leaders and the IMF are providing around €130bn in new money plus €34bn left over from the previous Greek package to fund the interest to be paid on the new Greek government bonds, repayments to the IMF, money to recapitalise the Greek banks and money for the cash on the PSI deal.  But, of the total of €164bn funding, only €23bn is going towards financing the Greek government’s planned sharply reduced budget deficit.  In other words, all this Eurowide/IMF funding is going to pay back the banks, insurance companies and the ECB (another circle of finance!).  Hardly any is going to help the Greek economy and its people get out of the straitjacket imposed on them.

The reality is that just the slightest slip from the budget targets or from the supposed growth projections and the fiscal plan falls apart.  Indeed, the Greek government’s debt ratio could easily be even higher than now by 2020, if growth does not materialise or if privatisation proceeds are not achieved.  From here, about 75% of all the Greek government debt will be held by the Eurozone financial bodies, the IMF and the ECB, ie the Troika.  The remaining private sector debt is also guaranteed by the Troika.

So the question of what will happen when the Greeks fail to meet the targets set by the Troika over the next months will become a political question.  Will the Euro leaders and the IMF be prepared to give the Greek government more money or more time to pay, as they plan to do with Portugal and Ireland, if necessary?  Or will they cut the Greeks loose and let them fend for themselves, as it were, probably outside the Euro area?  The Euro leaders want to keep the Greeks inside because the precedent of a Greek exit could be really damaging to the whole euro project.  But they want the Greeks to take their fiscal hemlock (a la Socrates) or else.  The problem is that they cannot have both.

That question may come to a head even more quickly than the Troika thinks, if the Greeks decide in their upcoming election (it looks like 6 or 13 May) to vote in a government that is opposed to the austerity package.  The latest polls suggest that the those parties opposed will get a higher overall vote than those supporting it – although the anti-austerity parties are all hopelessly divided and may not work together.

Also there are signs that the pressure on left leaders in various parties in Europe is building up from below, forcing them to make statements opposing the Troika’s austerity programme.  The socialist candidate for the French presidency in elections in April-May, Francois Hollande, says he wants to renegotiate the terms of the fiscal compact that the Euro leaders have signed up to.  And Hollande is likely to win in May.  This weekend, Slovakia goes to the polls and looks set to elect an anti-austerity government in a complete reversal of its previous stance.

Sure, this is just talk from the left leaders.  After all Slovakia’s left leader is still committed to the last budget measures, although he now wants ‘progressive taxation’.  Nevertheless, it may not be so easy for the conservative Euro leaders to stick to their fiscal austerity policy, which is designed to appeal to the financial markets and right-wing nationalism in various countries, in the face of growing opposition.

The fightback may come to nothing if the Greeks provide enough votes for the pro-austerity parties to form a government, or if Hollande loses or does nothing afterwards.  If that happens, then the Greek economy will stay deep in depression for a decade and a whole generation of young people in Greece (53% youth unemployed), Spain, Italy and Portugal (among others) will remain without jobs and hope, and pensioners will be reduced to paupers.

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