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.
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
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
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.
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.
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.
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.
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
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.
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!
By Michael Roberts http://thenextrecession.wordpress.com 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
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 http://www.voxeu.org/article/club-med-and-sun-belt-lessons-adjustment-within-monetary-union).
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
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
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
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
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
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
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
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
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
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.
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
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
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
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.
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
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
“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
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
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
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
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
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
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
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
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
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.
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
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
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
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
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!
By Michael Roberts
May 17, 2012 http://thenextrecession.wordpress.com
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
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
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
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.
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:
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%)
Radical Left+Socialist Party combined:
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.
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).
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!
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.
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
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
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.
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
From Sarkozy to socialism
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
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.
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
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
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
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.
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
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
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.
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
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
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
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
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.