by Michael Roberts

 The Greek coalition party leaders carried through their capitulation to the Troika’s demand (see my post, Greek capitulation, 8 February 2012) by passing the terms of the new fiscal austerity package in the Greek parliament.,  The legislation was passed by 199 votes in favour to 74 against, with the party leaders expelling about 20 MPs from each of the two major parties who refused to vote for the deal, while  ignoring the massive street demonstrations outside parliament.  The Troika is now demanding that the party leaders commit themselves to implementing the measures whatever the result of the upcoming parliamentary election that the conservative New Democracy is demanding for early April.

As I explained in my last post (see above), the leftist parties that are opposed to the Troika deal are actually commanding around 40% of the vote in public opinion polls, enough to ensure the defeat of the existing coalition of conservative New Democracy, social democrat PASOK and far right LAOS (which has now quickly left the coalition).  So it is very likely that the Greek people, the majority of which are opposed to the Troika’s measures, will vote out the capitulators.  Remember under the deal, another 15,000 public sector workers are to lose their jobs with a target of 150,000 losses by 2015.  There will be a 20% cut in the minimum wage, the end of job security and union rights, the sacking of all supply teachers in schools and massive cuts in health spending.  Indeed, the Greek economy has already lost 500,00 jobs since 2008 and the share of employment among the working age population is now at it lowest since the overthrow of the military regime in the 1970s.

The shocking feature of this deal is that 90% of all these fiscal austerity measures are going to repay bondholders and not to promote economic growth or investment in jobs in the Greek economy.   Instead. by the end of next year, real GDP in Greece will have fallen by 20%, almost three-quarters of the total decline during the US Great Depression (29%).  The human cost of all this is difficult to comprehend.  This has provoked even the conservative Archbishop of the Greek Orthodox Church to protest.  Archbishop Ieronymos of Athens and All Greece sent a letter to Prime Minister Lucas Papademos saying that “the phenomenon of the homeless and the famished, a reminder of WWII conditions, has taken the dimensions of a nightmare,” adding that “the homeless increase by the thousands everyday, while small and medium-sized enterprises are forced to go out of business. Young people, the country’s best minds, choose to emigrate, while our fathers are unable to live after the dramatic cuts in pensions. Family men, particularly, the poorest, those with many children, wage earners, are in despair due to repeated wage cuts and unbearable new taxes. The unprecedented tolerance of the Greek people is being exhausted, rage pushes fear aside and the risk of social upheaval cannot be ignored anymore by those who are in the position to give orders and those who execute their lethal recipes.” 

He went on:  “in these difficult and undoubtedly, crucial times, we should realise that every Greek home is plagued by insecurity, despair and depression, which unfortunately, have caused, and sadly enough, continues to cause the suicides of those unable to bear the ordeal of their families and the pain of their children.”   The Archbishop warned the ruling Greek elite that “it is obvious that the drama our country is experiencing will not end here but it could take up new uncontrollable dimensions.”  The Archbishop then went on to condemn the Troika’s imposition of what is called ‘internal devaluation’ of Greek production costs (see my last post).   “Even tougher, more painful and unfair measures are being demanded within the same ineffective and unsuccessful policy that is being followed. We are forced to have even larger dosages of a medicine that has proven to be deadly. We are being demanded to undertake commitments that do not solve the problem and only temporarily postpone the foretold death of our economy while, at the same time, we surrender our national sovereignty. They use as collateral our country’s wealth and the wealth that we can recover from our land and our seas,”   The Archbishop added “the voices of the desperate, the voices of the Greek people, are being provocatively ignored in decision-making.”  

He then outright opposed the deal with the Troika:  “Greece will be able to make it if it will resist the blackmail that comes from abroad and rejects these deadly recipes … the Greece of culture, history and traditions cannot be lost because a few believed that this is possible.”  Such is the opposition of the majority to this capitulation to the Troika that it is no wonder the Greek police union has threatened to issue warrants for the arrest of the EU and IMF Troika officials!  The police unions stated that it “refuses to stand against” fellow Greeks.   And yet the coalition leaders continue with the mantra that THERE IS NO ALTERNATIVE (TINA) , the infamous slogan of the UK’s ‘Iron Lady’, Margaret Thatcher, when her government carried through the rape of British industry in favour of a rentier economy and the bankers in the 1980s.

The irony is that, once the proposed ‘voluntary’ default agreement on Greek government bonds is implemented by getting Europe’s banks and pension funds to agree to a ‘haircut’ of up to 70% in the value of the bonds they hold in return for new Greek bonds and a cash sweetener worth €30bn, Greek government debt will still be around 140% of GDP, more than double where it is supposed to be under Eurozone rules.  And up to 80% of that debt will now be owned by the official creditors (the EU, the ECB, the IMF and the EFSF).  The banks and pension funds will have been paid off (even if they take a small hit) and the Greek banks will be bailed out with public money to the tune of another €30bn.  The remaining problem will now be with the Greek people and Eurozone taxpayers.

In Greek myth, Sisypheus was a king punished by being compelled to roll an immense boulder up a hill, only to watch it roll back down and to repeat this throughout eternity.  This is what the Troika is asking the Greeks to do now.  The policy of austerity being imposed won’t work, as the Archbishop says.  The model that the EU and the IMF are following is that of Latvia.  Latvia is a small Baltic state with a currency that is pegged to the euro.  During the Great Recession, foreign creditors stopped lending to the small country.  Latvia’s leaders, on the advice of the IMF, decided to maintain its currency peg and reduce costs to get ‘competitive’ by ‘internal devaluation’.    As a result of public spending cuts, tax increases and the slashing of wages and employment, Latvia suffered the worst loss of output in the world during the Great Recession, a fall of 24% of GDP.   Unemployment rose from 5% to 20%, as it has now reached in Greece.  Unemployment would have been closer to 30% if some 10% of the labour force had not left Latvia for other parts of Europe looking for work.  Latvia’s small population fell 120,000.

Did the policy of internal devaluation restore Latvia’s fortunes?  No,  employment is still some 15% below its peak in 2007 and three years after the crisis, Latvia’s GDP is still 21% below its peak.  It would have been worse but the Latvian government finally decided to stop further its fiscal austerity measures in 2010 and the economy began to make a small recovery last year.  Despite a drop in unit labour costs of over 21%, net exports (after imports) have still made little contribution to economic growth.   So internal devaluation has achieved nothing.   Of course, this does not mean to say that if the Latvians had adopted a policy of devaluing their currency and expanding  spending, that Latvia’s small capitalist economy would have been in great shape by now.  Latvia is not Argentina, where devaluation and state spending (and outright government debt default) did enable a significant economic recovery after the deep recession and crisis of 2001 (at a time when the rest of the world was not in deep recession too).  It’s quite possible that if Latvia had adopted the Argentine solution, it would have ended up defaulting on its debts and would have needed a bailout from EU and IMF money that may well have not been forthcoming.

The choice for weak and small capitalist economies like Greece or Latvia is fiscal austerity or devaluation (but probably both) or a willingness on the part of the stronger capitalist economies to subsidise the weak.  That is the issue for the Eurozone leaders with Greece. In a way, this is a political issue for European capitalism.  If the strong capitalist states want to ‘unify’ Europe through a federation with fiscal and monetary transfers, they must pay a price in transferring back some of the surplus value they have captured through trade and capital flows out of the weaker states.

Take the UK.  This is a centralised nation state.  But regions like London and South East capture most of the value generated by the workforce.  As a result, London’s tax revenues constitute 45% of its regional GDP compared to public spending of 35%, a surplus of 10% of regional GDP compared to the national figure of a 10% deficit.  The North East of England raises only 29% of its region’s GDP in revenues while public spending reaches 62% of GDP, a deficit of 33%!  Wales, an annexed province of the UK from medieval times raises only 30% of its GDP in taxes but spends 66%.  Northern Ireland, another annexed part of the UK from the 16th century, raises 27% and spends 67%.  Thus the weaker region shave to be subsidised by the nationbal government to balance their books.  The British ruling class and the bulk of British citizens allow these fiscal transfers because they see the UK as a unified country or state that they wish to preserve.  If the political will changed, then maybe some of these ‘deficit’ regions would be ‘let go’ (the Scots are thinking about doing so anyway).

Is there political will on the part of Europe’s ruling class and the citizens of Germany to go on subsidising Greek capitalism while forcing it to accept bitter poison?  Greek capitalism is too weak to get out of this debt crisis on its own either through fiscal austerity and cutting costs internally or by devaluation and export growth.  So either the EU leaders must agree to subsidise economic recovery with more funds or they must cut Greece loose to its own fate.  Up to now, the EU leaders have been reluctant bail Greece out or to cut it loose.  To do the latter would set a precedent for other weak EU states and damage the status of the currency in world markets and the EU on the world political stage.  Remember what EU Commissioner Joaquin Almunia said at the start of the Greek debt crisis back in May 2010:  “Greece will not default.  In the euro area, default does not exist”.  But now a default agreement will be implemented this week.

Whatever the Greek coalition leaders agree to and try to implement, such is the weakness of Greek capitalism, it will not be able to meet its fiscal targets or get its debt down to reasonable levels.  Before the end of the year, the Troika will have to report that Greece is not delivering.  Then the EU leaders will have to decide whether they ‘let Greece go’ or not.  The EU leaders have agreed to more money for Greece  (or more accurately its bondholders and banks) in return for draconian cuts in living standards in order to provide more time to try and ‘ring-fence’ other vulnerable Eurozone states like Portugal and Ireland (where they are preparing extra funding).  So when Greece goes down, it will not affect the rest (or so the EU leaders hope).  Of course, the Greek people may force the issue earlier if they vote in an anti-Troika government in April.

http://thenextrecession.wordpress.com

  By Michael Roberts, January 26, 2012

 The strategists of capital are attending their annual jamboree in the snow playground of the super-rich in Davos, Switzerland for the World Economic Forum.  Many of the top 0.1% of income earners are there.  And this year the main theme is whether capitalism works and is fair. Capitalism is in crisis – and this time the word ‘crisis’ is not hyperbole.  Even the 2600 attendees at Davos recognise that.  According to a survey by the financial broadcaster, Bloomberg, almost 70% of those asked believed that the capitalist system is in trouble, with 32% saying it needs “radical reworking”.  Less than 20% reckoned ‘free enterprise’ is working.   Most Davos 0.1 percenters are really worried that this failure of capitalism to work could lead to ‘social instability’ in one form or another.

And more than half who were asked at Davos thought that inequality of income and wealth under capitalism was damaging economic growth.  But only one in five wanted any urgent action on the issue!  It seems that greed triumphs over economic logic – or should we say, class interest rules   According to a new study by the OECD, the top 10% of income earners in the world have on average nine times as much income as the bottom 10%.   You can imagine the ratio between the top 0.1% and the bottom 10%.  One of those top 0.1%, Mitt Romney, the main contender for the Republican nomination for the US presidency,was obliged to reveal how much he earned each year and what tax he paid out.  Romney is head of one of the biggest private equity companies (Bain Capital) and one of the highest earners in the US, making over $20m a year.  But he paid only 13.9% of his declared income in tax, way less than the average earner pays as a proportion.  It’s another example of how class rules under ‘free enterprise’.

Take income inequality in the UK.  It has been growing faster than in any other rich country, according to the OECD.  And is this based on reward for successful profit-making?  No.  As Andrew Haldane of the Bank of England has pointed out, when referring to the US, if bankers’ pay were linked to return on assets (ROA) a figure based on profits, it would be much closer to median household incomes than if based on return on equity (ROE), a figure based on the stock market.  Haldane calculated that, if the CEOs of the seven largest US banks had in 1989 agreed to index their salaries not to ROE, but to ROA, by 2007, their compensation would not have grown tenfold.  Instead, it would have risen (only) from $2.8 million to $3.4 million.  Rather than rising to 500 times median US household income, it would have fallen to (only) around 68 times.

Nevertheless, the world’s second richest man in wealth (a Mexican telecoms tycoon is the richest), Bill Gates of Microsoft told the Davos faithful that capitalism was a “phenomenal system” because there is no other system that has improved humanity.  He left aside the question of whether all humanity has benefited from capitalism or the role of capitalism in wars, pollution, global warming, unemployment etc.  Despite these things, Gates supported capitalism because “it has generated so much innovation – it gave me the chance I had as a young boy to start Microsoft and hire my friends.  Other systems don’t allow that to happen”.

Thus Gates promotes the myth that innovation is only possible through the incentive of profit.  Marx too recognised that the capitalist system was a mode of production that drove technology and raised the productivity of labour more than any previous mode of human organisation.  But he reckoned that a socialist, collective mode of production that melded cooperative labour to social need would be even more productive and would not generate the huge inequalities and economic destruction.

Indeed, many, if not most, key innovations that have benefited humanity in the last hundred years were more the result of the incentive of public funding for research in genetics, satellites, health and the environment, much of it done in publicly-owned institutions where profit played no role.  The internet, after all, was invented in the military sector as a form of communication.  And many other innovations like radar came through military funding by the state.    The software basics of Microsoft were already developed in academic circles.   Gates was an entrepreneur who came up with a model to capture those innovations in a profit-making operation.  Indeed, there is much better software available free as ‘open source’ material.  But Microsoft’s monopoly in marketing and links with hardware have kept such free alternatives from being used globally.  Publicly-funded research would just as well have developed such software innovations without the need for a mega corporation that has made a few people super rich by charging for what could be free to all.

Francis Fukuyama once wrote a famous book in the 1990s called The end of history, in which he argued that Western capitalist democracy was the conclusion of all human development.   Now after the Great Recession and the revelations about the extreme inequalities that exist under ‘liberal democracy’, Fukuyama obviously  thought he should do something more.  This week he wrote another article called “The Future of History” in the current issue of Foreign Affairs.  He mused that if some “obscure scribbler … in a garret somewhere (is this him?)” would “outline an ideology of the future that could provide a realistic path toward a world with healthy middle-class societies and robust democracies“… he “could not begin with a denunciation of capitalism as such, as if old-fashioned socialism were still a viable alternative. It is more the variety of capitalism that is at stake and the degree to which governments should help societies adjust to change.  The new ideology would not see markets as an end in themselves; instead, it would value them to the extent that they contributed to a flourishing middle class, not just to greater aggregate national wealth.”   

Fukuyama uses the word ‘middle-class’ as all apologists for capital now use it, as a euphemism for ‘working-class’, a word that no longer exists to describe the majority of people.  There are either the rich, the middle-class or the poor (see my post, The working  poor, 7 June 2011).  But whatever word you use, the 99% are not flourishing under modern capitalism.   Both the IMF and the World Bank have now presented reports that show that the major capitalist economies are struggling to sustain any recovery out of the Great Recession (see my post, The world economy – where are we now?, 18 January 2012). The IMF reckons the Eurozone will contract by 0.5% in 2012, with southern Europe dropping by around 2% or more.  Emerging capitalist economies will grow at a slower pace (5.4%) than the IMF thought back last September.  American capitalism looks a little better, but only with growth at 1.8% in 2012, hardly a rate that can get unemployment down or raise real incomes.  Indeed, Christian Lagarde, the head of the IMF, commented that “It is not about saving any one country or any one region. It is about saving the world from a downward economic spiral. It is about avoiding a 1930s moment … in which a combination of inaction, insularity and rigid ideology could cause a collapse of global demand.’

The figures for the UK economy were released this week.  In the last quarter of 2011, the UK economy contracted by 0.2% qoq after growing 0.6% in Q3’2011.  For the whole of 2011, real GDP rose just 0.9%, half the already paltry rise achieved in 2010.  Another quarter of contraction and the UK economy will be back in a ‘technical recession’, two consecutive quarters of decline.  This is still way short of the slump during the Great Recession of 2008-9, when British capitalism contracted 7.1%.  But it ain’t good.  While the government sector managed a small rise in Q4 of o.4%, the private sector declined, with manufacturing down 0.9%, the biggest drop in over two years.  The recovery from the trough of the Great Recession is stuttering, with only 45% of the output lost in the slump recouped so far.

The chief economist at the IMF, Oliver Blanchard, commented that the global economy is driving “with the brakes on”.  What are those brakes?  Well, one is the draconian measures of fiscal austerity being imposed on households and the public sector across Europe, but soon in the US and Japan.  This is squeezing back the only areas of growth in the economy since the Great Recession, the public sector.  But the other brake is the size and level of debt, both private and public, that capital is burdened with.  A recent report by the McKinsey Institute shows that debt relative to GDP in the major capitalist economies rocketed prior to the credit crunch in 2007.  But since then, ‘deleveraging’ that debt has made only limited progress in the major economies (MGI_Debt_and_deleveraging_Uneven_progress_to_growth_Report).

Now there are those who argue that debt does not matter and the burden of servicing it will fall when economic growth is restored to a sufficient level or, alternatively the real burden can be reduced by higher inflation.  Well, neither of these options is happening.  So the real burden of debt servicing is high.  The other argument is that one man’s debt is another’s credit.  So the size of debt does not matter because it just means that assets are up too.  But that assumes that debts are honoured and there is no default.  If there are defaults, then the reckoning comes.  We have already seen the impact of that when the housing market in the US collapsed and defaults on mortgages rocketed.  The banks found that their assets were worth way less than they thought.  Similarly, there is every possibility that the Greek government will default on its debt to the banks in Europe.  Indeed, it is currently negotiating a 60% ‘voluntary haircut’ on the value of its bonds held by those banks.  That entails huge losses to the banks.

Debt does matter and this form of deleveraging is a severely damaging to the real economy.  In effect, as debt or credit rises, the value it represents gets out of line with real value.  Its value becomes the buyer or seller’s expectation of its real value.  The value is thus fictitious, as Marx called it, which at a certain point will be exposed as such and forced to its real value through deleverage, ie liquidation, bankruptcy and, of course, job losses.

It is not debt as such that is the issue; it is what credit is used for.  Government borrowing used to invest in new industries and employment could pay for itself.  But borrowing to bail out banks that have taken losses on fictitious capital is clearly not productive, but a deduction of resources available for productive investment.  In the 13th century,at the beginning of capitalism, it was bankers bankrupting banks. In the 21st century, in modern mature capitalism, bankers are still bankrupting banks. But it is no longer just banks. In the UK, over half a million individuals and nearly 100,000 businesses have found themselves in insolvency since 2007.

What is clear is that the UK economy, along with other major capitalist economies, is suffering from a long depression similar to that experienced by Japanese capitalism after the collapse of its credit bubble in the late 1980s.  During the decade of the 1990s, Japan’s economy could only grow in real terms by 0.8% a year.  The huge private sector debt mountain was only written down very slowly to avoid a major slump.  The banks were bailed out by the taxpayer and Japanese households had to take the pain in a stagnation of real living standards.  Public sector debt rocketed to over 200% of GDP and household savings fell.

Japanese capitalism did not adopt the policies of fiscal austerity that are advocated by mainstream economics and implemented now.  So Japan avoided a significant rise in unemployment, but the economy stagnated and profitability remained in the doldrums.  Japan’s example shows that the option of fiscal austerity can be avoided, but without deleveraging to cleanse the corporate books of ‘dead capital’ and restore profitability, economic recovery will be weak.  Without profitability restored, capitalism stays in depression.

According to a new report by the International Labour Organisation (ILO), the world faces a challenge of creating 600 million jobs over the next decade.  Global unemployment is now 200 million – an increase of 27 million since the start of the crisis.  In addition, more than 400 million new jobs will be needed over the next decade to avoid a further increase in unemployment.  Even if those jobs were created, it would still leave 900 million workers living with their families below the US$2 a day poverty line, largely in developing countries. Young people are nearly three times as likely as adults to be unemployed.  Even those young people who are employed are increasingly likely to find themselves in part-time employment and often on temporary contracts.

Falling labour force participation masks an even worse global unemployment situation. In the world as a whole, there were nearly 29 million fewer people in the labour force in 2011 than expected based on pre-crisis trends, with 6.4 million fewer youth and 22.3 million fewer adults. This is equal to nearly 1 per cent of the actual global labour force in 2011, and nearly 15 per cent of the total number of unemployed in the world. If all of these potential workers were available to work and sought work, the number of unemployed would swell to over 225 million, or to a rate of 6.9 per cent, versus the actual rate of 6 per cent.  Globally, the employment-to-population ratio declined sharply during the crisis, from 61.2 per cent in 2007 to 60.2 per cent in 2010. This represents the largest such decline on record (since 1991).

Those meeting at Davos who defend capitalism as the only or best system of human social organisation have no answer to this appalling mess.

Michael Roberts blogs at http://thenextrecession.wordpress.com

London’s streets are mythically supposed to be lined with gold. The City of London, its corporate epicentre, hosts four hundred banks and is the world’s leading financial centre. It has its own quaint flag, government, and ancient traditions; even the Queen has to ask permission to enter the City. This symbolism holds a wider significance if one strolls a few hundred meters across the river Thames to Southwark, or Eastwards to Whitechapel or Bethnal Green, for there another forgotten world exists.    

 The grotesque disparity between the lives of the international banking elite and the poor of London is at the ultimate extremity of global inequity. London is a veritable mirror of world capitalism, home to hundreds of nationalities welded together by historical dramas acted out over centuries on a global scale.

 Sixty years ago the sun never set on the British Empire. The splendours of imperial might gained by trade and plunder, faded away as the Second World War came to an end. The British Empire disintegrated and the United States took over the reigns of world leadership. British capitalism was in deep crisis, most of those who fought Hitler’s armies in the war felt the social chasm caused by the Great Depression of the 1930s had to be eliminated forever. They swept aside Winston Churchill and with him many of the chains of subordination to the rule of the old elite.

 In 1945 a Labour Government committed to radical social change was elected. A National Health Service was created to provide universal quality treatment from the ‘cradle to the grave’ this became an example for the world. Treatment was not connected to your ability to pay and was funded by universal National Insurance. Housing was radically improved with slum clearance and the provision of low cost public housing for the working classes. Education from primary school to university was provided free. These were all radical reforms in the eyes of the working classes who remembered the workhouse and the dire poverty and hunger of the 1930s.

 But Labour leaders refused to fundamentally transform society. They left all the governing institutions of capitalism, alongside many medieval relics, like the Monarchy, the House of Lords and other reactionary anachronisms, untouched. In addition they left decisive levers of economic power in the hands of private banks and private companies. Although important enterprises and services were under public ownership, like coal, steel, transport, post and telecommunications, and some industrial enterprises; the key levers over the commanding heights of the economy remained in private hands.

 After the long post war boom driven by rising profit rates between 1946 and 1965, came an era of declining profits and consequent economic crisis. As prospects worsened, social unrest burst to the surface at the end of the 60s and in the early 1970s. The Keynesian ideology underpinning the public-private economic balance was challenged. The clash between the interests of the working classes and the capitalists took on an increasingly radical form. The Conservative Party claimed, that Marxist led trade union militancy, was undermining business ‘freedom’ and the viability of political governance.

 After a series of victories for the workers in industrial struggles in the 1970s, Prime Minister Margaret Thatcher defeated the National Union of Mine Workers (then Britain’s strongest trade union) in 1985, after a year-long strike. The period of offensive by the employers and the government in a struggle ‘against socialism’ was a thinly veiled assault on the working classes and their organisations.

 Britain and the United States were the main advocates of the ‘neo-liberal’, ‘monetarist’ ideology, that believes that free markets must not be hindered by state ownership and that there is ‘no such thing as society’. They see unfettered greed as a positive social force driving the individual and society forward.

 This ideology in one form or another became dominant in economic and political circles around the world. Its supreme victory was proclaimed with the fall of the Berlin Wall and the collapse of the USSR. Its ascendancy corresponded to an upward wave in the rate of profit in the main centres of capitalist power between 1982 and 1997. The period of falling profit rates after 1997 was largely hidden from public awareness by the extraordinary credit bubble that private banks, businesses and governments, did everything to encourage.

 The economic collapse of 2007-9 was followed by desperate attempts to make the working people of Europe and the United States suffer the consequences of a corporate and banking investment strike. Austerity measures expose the fact that the wealth of the rich is secure and protected, while the real living standards of the majority take an ever-bigger hit.

 As there is market panic and less liquidity, social stability all over the western world, keeps crashing against exposed rocks. Thieving bankers, insane military adventures, criminal activities by global media corporations, tax avoidance by the wealthiest companies, abuses at the centre of political power, incompetence at the tops of the police and judiciary, and an all-pervasive stench of corruption fills the air.

 It is small wonder that a single incident in London -an unexplained police killing- is followed by widespread riots and unrest. The acrid stench of burning buildings is the explosive and contagious response of a youthful underclass that is utterly and completely alienated by the institutions and practices of modern capitalist democracy.

 

By Michael Roberts

The new Greek bailout deal announced by the EU leaders late last week will leave Greece with a huge debt burden.  The EU and the IMF have imposed massive austerity measures on the Greek government and its people.  So it beggars belief that the ‘socialist’ government of PM George Papandreou should return from Brussels and congratulate themselves on ‘winning’ a deal.  They have not ‘saved’ Greece, but instead left it to a 30% cut in living standards over just a few years, and under the fiscal heel of the other EU governments.

The so-called private sector involvement in the deal is nothing of the kind.  The banks and other financial institutions of Europe hold €150bn of Greek government debt and are being asked to swap most of this debt for new Greek government debt that is of longer maturity (15-30 years) at a discount to the previous value of its holdings.  The headline ‘haircut’ on the value of this debt is reported at 21%, but this is an illusion.   Assuming 90% of their existing holdings are put into the debt swap, the final losses on the banks books will be just €17bn, or no more than 12% in losses.  But in return, the banks get new Greek debt with 5% annual interest guaranteed by the EU fund and get rid of the old junk Greek bonds at a rate way higher than it would at current market rates (they are currently priced at 50c to the par value).   Indeed, as the years go by, the banks will be able to get repayments on their EU-guaranteed Greek government bonds rated at top investment grade and so will get a big profit from the deal.  Also, as a result, by the end of 2014, two-thirds of the remaining Greek government debt will be owed not to the banks, pension funds etc but to other EU governments, the ECB and the IMF.

The debt swap deal with the banks will reduce the amount of debt the Greeks will owe a little, maybe just 20% pts maximum out of a debt burden of 160% of GDP.  Also, the Greeks get a delay in making repayments on the debt owed to the banks.  But the government is still left with a burden much greater than any other in Europe.  And the Greek people will be faced with a massive range of tax increases, cuts in pensions, social security and other public services and severe wage cuts; along with a rapidly contracting economy and unemployment at 16%.

The banks of Europe are only agreeing to take this small hit as the German government insisted on their ‘involvement’ because of the anger of its own electorate over the amount of taxpayers money that was going into bailing out the Greeks and others in Europe.  And here is the issue.  The Greek government has a massive debt of around 160% of GDP because it has had to borrow at ever higher interest rates from the banks and other financial institutions (pension funds, insurance companies).  So bailing out the Greeks is really bailing out the banks.  The banks gain either way – through the bailout (now) and through the debt swap (eventually).

What is the alternative?  The Greek socialists don’t see any and neither does any other socialist leader in Europe.  The alternative would have been for the Greek government to refuse to accept the draconian terms of the EU leaders and the IMF and instead negotiate a reduction of its debt with the banks.  In effect, the government would default on its debt and offer payment at say 25% of the original value, so that its debt burden fell to 40% of GDP – much more manageable.  If the banks refused, they would get nothing.  If the banks say they would not lend any more to the Greeks (almost a certainty), the Greek banks could be nationalised (they would have to be anyway as the losses on their holdings of Greek debt of €50bn would wipe out their shareholders capital).  The customer deposits of Greeks could be guaranteed to avoid a run on the banks.

This would be a very tough situation for the Greeks, but it would be no worse than what has been imposed by the EU leaders and the banks.  At least, they could decide their own future and make any sacrifices that reduce the burden on average Greeks, rather than the EU deal that saves the banks.  If the EU leaders moved to block funds to the Greeks and expel Greece from the euro, the government could appeal to the people of Europe and any friendly governments to resist this threat.  The EU leaders could be forced into a deal as they fear that a Greek default could lead to further crises in the rest of the EU and they badly need to make Europe ‘Greece proof’.

But does it matter if Greece has a big government debt?  Some Keynesian economists like Paul Krugman have condemned the Greek package because fiscal austerity measures will cause an economic recession in Greece and in the rest of Europe.  That’s true, but they also argue that it does not matter if Greece runs up budget deficits and has a large government debt.  After all, this can be financed by the Greek central bank just printing money for as long as is necessary to get the Greek economy going.  Krugman says if Greece is restrained from doing this because it is in the Eurozone, then that’s a good reason to leave.

The problem with this argument is that it does not recognise the nature of the capitalist economy.  It depends on profitability and that depends on the capitalist sector of the economy having freedom to raise money to invest at reasonable interest rates.  A bigger and bigger government owing more to the banks threatens the capitalist control of the economy and eats into profitability through higher taxes on profits and/or higher interest rates across the board.  Capitalism does not want and cannot afford a big public sector without threatening its own existence.  In that sense, under capitalism, public debt must be reduced.  That is the real meaning of being Greece proof.

http://thenextrecession.wordpress.com

By Mick Brooks

 

The financial crisis, the fiscal crisis of the state, the sovereign debt crises and the crisis of the Euro are all successive forms of appearance of the crisis of capitalism. Governments ran deficits and got deep into debt to bail out the banks and capitalism. Governments of peripheral countries like Greece mainly borrowed from abroad and got into debt to the banks of the dominant countries of the European Union.

The Euro is a common currency for 17 EU states. It is a form of fixed exchange rate system, where nation states have no power to devalue if they find themselves in economic difficulties. The problem with the Euro is that it is a currency not backed by any one nation state, so no country has the power or the will to defend it when it comes under pressure. That makes it particularly vulnerable in a crisis.

After the May 2010 Greek crisis, it seemed that the European Union had seen the speculators off for the time being. More important to the authorities in Europe than the fate of Greece, the threat to the Euro had been allayed. The Greek people, of course, paid for the ‘rescue’ with another round of austerity.

A year later it is clear that nothing had changed fundamentally. The institutional weakness of the Euro, concealed by years of boom, remained.

The Greek government debt and deficit are higher in 2011 than they had been a year earlier. It was quite clear by now that the Greek economy is in a vicious circle, where cuts fed economic decline and further decline necessitated yet more cuts. The Greek economy was in effect going on a diet by slicing off limbs in order to lose weight.

Commentators have mined Greek mythology for analogies with the plight of modern Greece. One is reminded of Sisyphus, condemned to eternally roll an enormous boulder up a slope, only to see it slide down again once he had reached the top.

One reason for the deteriorating economic situation was that much of this enforced austerity didn’t even go to pay off the country’s monster debts. Costas Lapavitsas estimated in the Guardian (21.06.11) that, “Servicing the debt will cost 12% of GDP, vastly more than health and education.” All this money will be syphoned off just to pay interest on the existing debt, not even to reduce the principal. Most of this money is drained out of the country.

Holders of Greek government securities are making higher returns than they would do even on the stock exchange.  Currently the return on two year Greek bonds stands at 28%. The spread (the difference between the rates on German bonds and those of the Greek government), hardly discernable at the beginning of 2010, was in the summer of 2011 a gaping 1,460 basis points (14.6%), further adding to the debt burden. The justification for these usurious rates is that the excess is payment for the risk that bondholders take by holding Greek government debt.

Commentators have suggested, quite plausibly, that, had the European authorities borrowed aggressively at low EU rates in January 2010 to prop up the Greek government, they could have seen off the speculators at comparatively little cost. But as L.P. Hartley commented, “The past is a foreign country.”

There is no doubt that Greece will default eventually. The only doubt is whether this will be a conciliatory, managed default organised by the EU authorities as the least worst option; or whether default will be a unilateral act of defiance at the continued imposition of intolerable burdens upon the Greek people.

How would a default proceed? We have only historical experience to go on, and every national default is a unique historic event. Having said that, Argentina’s default in 2001provides some clues.

Argentina has long gone through alternating periods of hyperinflation (from printing paper money to pay debts) and austerity. Reinhart and Rogoff lament (This time is different, p.259), “Perhaps Latin America would have done better in terms of economic stability had the printing press never crossed the Atlantic.”

After a period of rapid inflation in the 1980s the Argentine authorities opted for a currency board as a way of pinning the peso to the dollar and fighting rising prices. This meant that Argentina’s Central Bank could not issue another unit of the national currency unless it was backed by a greenback earned as foreign exchange through exports. It was an extreme form of fixed exchange rate system, offering the monetary authorities no room for manoeuvre.

The cure was worse than the disease. Inflation slumped, but so did economic activity. The pain was intolerable (just like Greece today). It was made worse by massive capital flight which turned into a run on the banks. The government responded to the run on the banks by effectively freezing bank accounts. Violent protests erupted. A state of emergency was declared but it didn’t save the government. President de la Rua escaped the people’s anger by helicopter in December 2001.

The interim government had no alternative: in the last week in December 2001 it defaulted on the major part of the intolerable burden $132bn of public debt. Much of the debt was foreign owned. It is not possible to default on foreign debt without severe damage to the domestic circulation of money, which was already in turmoil. All the currency is, after all, held in the home country banks.

The interim government was forced to suspend convertibility with the dollar. Devaluation followed as a matter of course, together with a period of chaos, where most economic activity was conducted by means of barter. Naturally foreign capital would not touch Argentina with a barge pole after this default.

Argentina is potentially a wealthy country with an export-oriented big business agricultural sector. The world economy was booming at the time, and the Chinese seemed to have an insatiable appetite for Argentinean soy. After the default the economy recovered rapidly, assisted by the cheapness of the Argentinean peso in world markets. The country grew by 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007. (Greece will not achieve this, as its main exports are to the European Union, still mired in the backwash effects of the Great Recession.)

Argentina began to run a huge trade surplus. It seemed once again a tempting prospect to foreign investors. A deal was negotiated with foreign creditors by 2005 in which they accepted part-payment of the debt. Bonds were swapped at 25-35% of their former face value. Once again Argentina was viewed as a sound investment and, after receiving assurances as to future good behaviour, good money was thrown after bad.

The prospects for Greece in the event of a default don’t seem as rosy as it was for Argentina. When Greece defaulted in 1826, the country was shut out of foreign capital markets for the next 53 years (Reinhart & Rogoff-This time is different, pp.12-13). Modern Greece has actually spent half of its existence in default and financial limbo with foreign investors.

The options facing Greece are default, deflation or devaluation (which means leaving the Euro).

1. Default

A default usually proceeds in the panic-stricken atmosphere of crisis. At the first hint of non-payment a flight of capital and a run on the banks begin. If a government is determined to go through with the default and sees no alternative, it must impose capital controls. It may have to declare a bank holiday as well, and shut down the ATMs. The only effective way to carry through a default effectively is therefore to nationalise the banks.

It may be argued that Greece needs the money on offer. After all the government is still running a primary deficit (a deficit excluding interest payments on the national debt). That means that at least some of the ‘rescue package’ will go to pay for public services, not just drain out of the country as interest payments. So it would be irrational to refuse.

This is a powerful argument. The troika will hand out the payments a tranche at a time. If the Greek parliament refuses to pass the package, civil servants and other public service workers will find that they are not being paid and public services will pack up as the money runs out.

That is how the troika intends to make the Greeks learn how to sit up and beg! But the situation is not governed by economic ‘rationality’. It is ruled by a swelling political mood felt by the vast majority of Greeks that they need to free themselves from the chains of debt.

2. Deflation

In Greece the prospects for deflation – a general reduction in wages and prices - are ruled out. In theory deflation means that, after immense hardship, wages and prices fall till the country becomes competitive. We already know that this is not happening in Greece.

When wages fall, workers do not just put up with it as economic theory predicts. Many leave paid employment and return to their ancestral village to help out on the family smallholding to eke out a living instead. The models used by neoclassical economics are hopelessly flawed.

3. Exit from the Euro

What about exit from the Euro? There is no constitutional procedure for this within the European Union, but that is the least of the Greeks’ problems. The new Drachma, if launched, would probably fall to half the value of the Euro. Many experts believe it would fall far further.

The good news is that this would give Greek exports a competitive edge. Their exports would be half the price that they were before on world markets. The bad news is that their creditors would demand that debts denominated in Euros be repaid in Euros. That would mean earning twice as many new Drachmas as before. That is why it is more important to repudiate the debt than to leave the Eurozone, though one might lead to the other in a crisis.

The traditional justification for higher interest rates on Greek government bonds than elsewhere in the Eurozone is that they are a compensation for greater risk. Yet the speculators seem curiously unwilling to swallow that risk, happy though they are with the return. This is a bone of contention in the tortuous negotiations between the Greek government and the hated troika.

The troika, charged with supervising Greece’s debt repayment, consists of the European Commission, the European Central Bank and the International Monetary Fund. As far as the Greek people are concerned the troika is united in grinding them down with its iron heel, driving them all to penury.

In the summer of 2011 the troika is demanding, as the price of its ‘aid’, the sacking of 150,000 public sector workers, 20% of the total. This is on top of years of hardship already imposed. The troika are demanding 50bn Euros from privatisation, which strikes most Greeks as looting of their national wealth. Inevitably, under present conditions of crisis, this would be a fire sale of assets.

Youth unemployment is already 40% - a generation going to waste. A quarter of the population are below the poverty line, 100,000 businesses have closed since the recession began and industrial production is down by 20%. This is all supposed to restore Greek competiveness!

The political crisis is boiling over. The overwhelming majority of Greeks oppose the terms of the bail out. They are right. It is really foreign banks that are being bailed out at the expense of Greek living standards.

The trade unions have launched eleven one day general strikes and one two day strike against the cuts in little more than a year. Though the ruling PASOK (Pan-Hellenic Socialist Party) has an outright majority in the Greek parliament, defections are putting the imposition of the cuts package on a knife edge.

The troika is divided among itself. The Germans under Merkel have been insisting that speculators who took the risky investment in Greek bonds should share in the losses. They have a point. The ECB is opposed to this, and to the creation of a Eurobond backed by the united authority of the EU.

The rating agencies protest against any clemency to the Greeks. Moody’s Investor Service, Standard & Poor’s and Fitch Ratings are the private capitalist concerns that fix a company’s – and a country’s – creditworthiness. These rating agencies, it will be remembered, are the firms that corruptly signed off incomprehensible Credit Default Obligations as triple ‘A’ rating – because they were paid to do so. This was one of the causes of the ‘credit crunch’. They are deeply implicated in the world financial crash.

Now they presume to declare on the prospects of entire nations. And they have decided that Greece, a country of 11 million people, has prospects not much better than junk bond status. The rating agencies have also decided that any rollover of Greece’s sovereign debt, leaving them on the books but making them payable at a later date, would count as a technical default.

In such a case the agencies can and would blow the whistle on Greece. That would obviously be a green light to the speculators to pull their money out, and could spell ruin for millions of Greeks as the markets effectively bankrupted the country.

So the ECB and the IMF are mortally hostile to a rollover of debt, In fact this would be the easy way out if they could get away with it. It would not, of course solve the problem, but it would buy time.

The ECB is rabidly opposed to the notion of a Eurobond. It also opposes ‘haircuts’ being imposed on Greek government bondholders (mainly French and German banks). It is determined that the Greek people should bear the entire burden alone.

If the whole weight of the European decision-making process and of the EU economy were thrown behind the creation of a European-wide security (a Eurobond) then loans at about the German level of 3%, rather than the usurious rates paid by the hapless Greek government, could be borrowed and passed on to the Greeks. That would require the dominant countries within the Eurozone to abandon their national interests in favour of subsidising Greece.

That opportunity is now gone. Panic has set in on financial markets.

The ECB and IMF are right against Merkel that they are caught in a dilemma. A dilemma is a choice of two alternatives, both of which are impossible.

The ECB and IMF are also concerned with the threat of contagion. If Greece is let off the hook only a little bit, then Ireland, Portugal and all the other debtor countries will be queuing up for equal treatment. If Greece collapses, that could be the start of a chain reaction that could drag the world economy right to the brink of meltdown as it was in September 2008. Commentators are starting to whisper about ‘a Lehman moment’ - that signalled the near-collapse of world banking.

Despite all the top US bankers and the Treasury Secretary being closeted away for an entire weekend no agreement on saving the stricken Lehman Brothers bank could be arrived at in September 2008. Whatever the reason, this failure is now seen as catastrophic – leading to the collapse of all the subsequent financial dominos. Greece could be the equivalent of Lehman Brothers in the sovereign debt crisis. Its default could bring down the Euro.

European-wide decision making is in a state of paralysis. Merkel is playing for time, as usual. Rather than sorting out a common position behind the scenes and presenting it to the world, the troika engages in public dissent.

There are two reasons for this: the first is the clash of national antagonisms within the EU. Merkel and Sarkozy are not concerned with the problems of the Greeks; they are too busy listening to the voices back home. The second is the fact that there is no way out of this crisis. That explains the air of incompetence and dithering displayed by the troika on the public arena as they spin out the moment of crisis.

Half-witted British Eurosceptics like Boris Johnson scoff at the plight of Greece and the Euro. ‘It’s nothing to do with us,’ they rant. The sub-prime mortgage scandal in Florida and California may have seemed to be nothing to do with us. But we’re all part of the capitalist world economy. British banks may have little exposure to Greece, but they are massively committed to Ireland. If Greece went down, Ireland would be next in line to go.

Though British banks have few direct holdings of Greek government debt, they have apparently been having a little flutter on Credit Default Swaps. Described as an insurance policy, CDS are really a form of gambling on the prospects of default. US banks also hold $34bn in Greek CDS. They stand to lose heavily if Greece goes down.

The effect of the rescue package is to save the bacon of the banks who imprudently lent to Greece.  Whatever the eventual outcome, it seems the banks will walk away laughing from the wreckage – as usual. It can confidently be predicted that the political and economic crisis will rumble on and on. No obvious solution is in sight. Only a concerted intervention by the working class can break the deadlock.

4 July 2011

June 13, 2011 by Michael Roberts

 Never play the wild rover, no more

  April 3, 2011 by Michael Roberts

 Left turn in the Ireland of crisis

 by Jonas Ryberg,  Socialisten (Sweden)

 http://www.socialisten.se/

  Ireland is one of the countries that has been hit hardest by the
capitalist crisis. In the late 90s the country became known as ”the
Celtic Tiger”. The political leaders of the traditionally biggest party
in the country, liberal Fianna Fáil, turned the country into a neo-
liberal experiment shop. The bank and finance sector was completely
deregulated, big parts of the welfare system was privatized and an
unprecedented campaign for loaning was launched, where ordinary wage
earners were convinced to loan up both on the house and car. During
some years it went well, really well. But also this bubble had to
burst, and the bigger the bubble the longer the fall. Time and time
again throughout history, bourgeois economists have claimed to have
found the solution to the up- and downturns in the economy. The latest
twenty years, it has been the neo-liberal prophets that the leaders of
the world have listened to.

Since the crash of 2008 we know that also this set of economists have
not managed to control capitalism. The experiment has had devestating
consequences for workers the world over, not least in Ireland where
they went from boom to bust in just a few months. Billions upon
billions of public money has been pumped into the banks to avodi a
complete collapse. It has even gone so far that the IMF has had to go
in to save the irish state. But that kind of help doesn´t come free –
now draconian cuts are being prepared in the public services.

It is with this background that Ireland went to the polls on February
25th. It was a total restructuring of the political landscape. Fianna
Fáil was more or less erased from the political map and lost more than
than two thirds of its support. Justly, the party took the hit for not
foreseeing the economical crisis and for selling out the independence of
the country to the IMF. Instead Fine Gael, the other bourgeois party,
stepped up as the biggest party. The party went to the polls promising
to renegotiate the terms for the deal with the IMF and to sanitize the
economy. But as many have said the electoral programmes of the two
parties are similar to each other and both fight for the same
electorate.

But the interesting things about this election was not the bourgois
twins of FF and FG. No, the interesting thing in this election was
that for the first time in many years the workers movement went
forward. Labour Party gets its best result ever and left-nationalist
Sinn Féin have finally got a breakthrough outside of Northern Ireland.
Apart from this, the United Left Alliance (ULA), a coalition of small
leftist parties and independent socialists, went into the parliament
with a bang and got five mandates. The frontal name for the left
alliance is Joe Higgins from the Irish Socialist Party, who was
a member of parliament and then won a seat in the  European parliament.

Even if we will see a continued bourgeois government in Ireland, or
maybe a settlement between Labour and the ”middle of the road-party”
Fine Gael, the elections shows the frustration that has built up in
Irish society after the crisis hit. The collected workers movement has
to come out against a coalition between Labour and Fine Gael, which is
unacceptable, and instead take a firm stance against the crisis
packages and cuts. In the coming years we will see harsh attacks on
public services and the living standards on ordinary people in
Ireland.

Socialists from both Labour, Sinn Féinn and ULA has to gather and
build resistance from below if the attack on the welfare is to be
fought back. Irish wage earners face an intense battle, but with a
strong workers movement as a megaphone in parliament it can now go
forward and build the movement on the streets!

----------------------------------------------------

Labour Youth Chair opposes coalition

Madam, – Last weekend saw a fantastic victory for the Labour Party, with 37 deputies elected to Dáil Éireann. I felt immensely proud, as a member, to have seen my party grow from strength to strength under Éamon Gilmore. The Irish people have offered Labour an historic opportunity to reshape the course of politics. As the second largest party in the State, the people have asked us to lead an opposition to Fine Gael. With some 76 seats, incredibly close to an overall majority, Fine Gael was selected as the party to govern.

In the interests of democracy, it is appropriate that the Labour Party provide a robust opposition and keep this administration in check. Some have argued that Labour must be a “mudguard” to Fine Gael and restrain some of the more extreme policies advocated by that party.

Unfortunately, Fine Gael already has the capacity to receive support from Independents and Fianna Fáil, making a Labour contribution to government irrelevant. In 1994, when there was an almost even split between Democratic Left/Labour and Fine Gael, with FG on 47 seats and DL/Lab on 38. In that situation, it was necessary and productive for Labour to be in government and indeed that coalition achieved a great deal. We campaigned for Gilmore to be Taoiseach and to break the mould of Irish politics in the recent general election. The electorate have voiced their opinions and offered us an historic opportunity to be a real force in Irish politics. It is important that we seize it, and offer a coherent opposition, which can implement real change for the people of this country.

We must not prop up Fine Gael and offer that party a monopoly of power. Fine Gael and Labour are distinctly different parties. In any other European state, we would lead the opposition. It ought to be no different in Ireland.

Allowing a government to form with 114 seats out of 166 is inherently undemocratic and would allow a discredited Fianna Fáil, who the people rejected outright, lead the charge. Labour Youth believes that this new government must be accountable to the people, and the only way of achieving that is by creating a strong opposition, led by the Labour Party and Mr Gilmore. – Yours, etc,

COLM LAWLESS,

National Chairperson,

Labour Youth,

Cypress Downs,

Templeogue, Dublin 6W.

(from the letters page of  the Irish Times)

----------------------

Unite calls for Labour to lead opposition

Is The Labour Party About To Miss The Best Chance In Its History

 by George_East on February 28, 2011

  http://www.allthatsleft.co.uk

 From the perspective of most other western democracies the politics of Ireland are pretty strange.  The two historically largest parties, Fine Gael and Fianna Fail, are both parties of the centre-right and yet would not ever consider entering coalition together.   Yes Fine Gael are more urban, more middle class and more socially liberal than Fianna Fail, but on economic philosophy there is little if anything between them.  Their respective origins, in the division between those who accepted the partition agreement of 1921 and those who rejected it is deeply rooted in a country which has a longer historical folk memory than most. 

So instead it is the Labour Party to which Fine Gael is looking as its coalition partner following last week’s seismic election result, which as, has Jackie South has reported,  seen Fianna Fail pushed into a poor third place not far ahead of Gerry Adams’ Sinn Fein.    Indeed the Labour Party, which has only once ever been in coalition with Fianna Fail, has always been the preferred coalition partner of Fine Gael which has never mustered sufficient seats in the Dail to govern on its own.

The Labour Party for the first time in its history is in second place in terms of numbers of seats and in terms of the first preference vote.  Fine Gael is comfortably ahead on both counts – with 36% of the vote (compared with Labour’s 19%) and a projected 75 seats (compared with Labour’s projected 38).  If Labour goes into government with Fine Gael the result will be a coalition government with a huge majority, commanding 103 of the 165 seats in the Dail.  It is what all the pundits expect to happen and coalition talks are underway according to Irish state broadcaster RTE.

Fine Gael are committed to the same policies of public spending cuts and austerity insanity of the despised outgoing government.  There will no doubt be considerable mileage for a while in blaming the last lot for the mess the Irish economy is in, but given that even further spending cuts and/or debt default are very real possibilities in Ireland in the coming years on the basis of the policies being pursued, one would have thought that this is a government to steer well clear of, particularly as a party of the centre left.  Indeed the fate of the Irish Green Party in the election, which saw the entirety of its parliamentary representation wiped out, should be a sufficient lesson in itself for parties of the left.  The polling position of the Lib Dems on this side of the Irish Sea should also ring alarm bells. 

Labour’s position, if it does go into coalition, has added potential for disaster as it is, like the British Labour Party, closely affiliated to the Trade Union movement.   Internal division and even splits in the party could easily follow if it puts itself in direct collision with many of its own members.

Unlike the Lib Dems in 2010 in the UK, staying out of the government would have the added advantage for the Labour Party of enabling it, for the first time, to be the official opposition.  Not only could it position itself to lead the fight against the suicidal economic policies that have been adopted but it could also through the oxygen of publicity afforded to the main opposition party in a parliamentary system permanently marginalise Fianna Fail.  This may be a once in several generation opportunity.  It is a moment in which Irish politics could finally align themselves along the familiar right-left lines seen in virtually every other western country.  

It seems sadly that the prospect for senior Labour Party TDs of getting their arses on the back seats of government limos is just too enticing.

Details of elections for 31st Dáil

Friday 25 February 2011

Summary of Seats Won (Change since previous election)

18  -60

70  +19

36  +16

13  +9

2

14  +8

Total  153   166

Click here for Elected candidates

www.electionsireland.org

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Just a brief few stats that may be of interest about the left.

The ULA polled  59,423 votes getting around 2.7% of the vote nationally and winning five seats.
(Socialist Party 26,770 , People Before Profit 21,551, Declan Bree and Seamus Healy 11,102)

The United Left Alliance (ULA) consists of three existing political parties,  Socialist Party (CWI),  People Before Profit Alliance  (including Irish SWP) and the Workers and Unemployed Action Group,^[2] as well as former members of the Labour Party.^[3]

The Workers Party polled 3,056 0.1% of the Vote

Left of Centre Independents polled 55145 votes around 2.5% winning six seats.
(To the List posted last Monday I added in Brian Markham, Sean Connolly Farrell, Robin Wilson, Mick Wallace, Veronica Cawley and one or two others that polled around 200 votes)
(Catherine Connolly may yet win in Galway West)

So over 5% of the vote nationally went Left other than to Sinn Fein or Labour. (that’s assuming I managed to include every Left candidate)
That is around half the vote Labour got in 2007.

www.cedarlounge.wordpress.com

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Ireland – Time to Resist

 By Finn Geaney (Dublin Council of Trade Unions and Irish Labour Party, personal capacity), who spoke recently at the Norwich Socialist Group

 On Saturday November 27th more than 100,000 people marched through the city of Dublin to protest against the widespread programme of cuts that affects every aspect of the lives of Irish workers and their families. Savage reductions in public services as well as pay cuts have been in operation for over two years. The loudest call at the demonstration was for the resignation of the Fianna Fáil/Green Party Government. Outside the General Post Office, the site where the Irish Republic was declared in 1916, a loud chant of ‘Out! Out! Out!’ left nobody with the slightest doubt as to the unpopularity of this government. The demonstration was called by the Irish Congress of Trade Unions (ICTU), the national body that unites all trade unions across the country.

The most recent opinion poll places the government parties at 16%, and in a recent by-election the government candidate received just a little above that percentage of the total poll.

Representatives of the International Monetary Fund came to Ireland in recent weeks in order to decide on what money they would loan to the Government, what interest rate they would charge on that money, and what series of cut-backs in living standards they would demand. With regard to the programme of cuts the IMF representatives found themselves in agreement with what the Irish Government had already agreed upon for the coming years. Their economic strategy is to reduce government spending from 35% of GDP which it is today to 3% of GDP within four years, without penalising the owners of banks, financial speculators or property tycoons, and without increasing capital gains taxes or introducing wealth or assets taxes or levying the property of the many multimillionaires who have left Ireland rather than pay any taxes here.

A very severe regime of falling living standards and reduced public services faces the Irish people in the coming decades unless these measures are reversed.

In an earlier indication of the widespread opposition throughout Irish society more than 40,000 students marched through Dublin on November 3rd in the largest student demonstration for a generation. More than two hundred special buses arrived in the capital carrying protesting students from all over the country. The issues raised on the march were threats of rising fees, reduced student supports and graduate unemployment. Yet following this protest university charges were increased by 30%.

Government Ministers and their supporters in the media have been trying to create an impression that the Irish people somehow support the programme of cut-backs. The nation must unite in this time of adversity, they proclaim. The dismal failure of Fianna Fáil governments over the last fourteen years is being clouded by hired commentators and economists in the big lie that everybody lived extravagantly over the period of the so-called boom and that now we have arrived at ‘pay-back time’. This falsehood is exposed by an OECD study produced two years ago that showed Ireland to be the 23rd most unequal society out of 29 developed countries studied.

The largest opposition party Fine Gael, identical to Fianna Fáil except in name, agrees with the current programme of cuts and has a few more of its own to add to the mix, such as their proposal to sack 30,000 public service workers. Unfortunately the Irish Labour Party too has accepted the big lie, but says that it would cut public spending this coming year by €4.5 billion rather than by the Government’s figure of €6.5 billion. All this is on top of the €7 billion that the Government took out in 2009 and the further €7 billion that was taken out in 2010. The Government now. plans to sell off major sections of publicly-owned industry in an effort to raise funds. Electricity, transport, postal services and health insurance are in the firing line. If the cuts did not work in the past why should they work now! Before the arrival of the IMF, trade union leaders had already agreed with the  Government for the implementation of a series of massive cuts over the next four years and had given up on the fight against the cuts that had already been imposed. This betrayal became known as the ‘Croke Park deal’, named after the historic location in which the betrayal was perpetrated. It is the absence of political leadership, combined with the abject betrayal of this current generation of trade union officials, that is making it possible for the Government to persist in its stated task and to remain in office.

One year ago, almost to the day, a general strike in the public services was called by the Irish Congress of Trade Unions. In the largest ever strike across the public sector, over 250,000 workers downed tools on November 23rd 2009. The same demand was advanced. Oppose the government cuts! Shortly after the demonstrators had arrived home from the marches that were held across the country trade union leaders were in talks with the Government agreeing that €1.3 billion be cut from the pay of public sector workers, along with other reductions in the public service. Yet the real power of organized workers was shown on that day. Civil Service offices were closed down, passport offices, the Revenue Commissioners and social welfare offices. Many Local Authority services were suspended. Schools, Colleges of Technology and Universities closed. So too did Dublin City Traffic Control services. Hospitals provided only a limited service on that day, as did the Courts. Swimming pools, museums, libraries, parks, as well as visitor attractions owned and operated by the State were closed. Department of Agriculture officers working at meat factories stopped work, as did customs officers at parts and airports. Off-duty police (gardai) joined their colleagues on pickets outside police stations. Prison officers paraded outside Mountjoy prison in Dublin alongside their work colleagues from other unions within the prison: across the road at the Mater Hospital nurses, oncologists, porters and other staff mounted their picket. Shortly after that, nurses, firemen and police officers (gardai) marched through Dublin in protest against the cuts in public service and the continuing attacks on public sector workers. Meetings of this group – Frontline Services – were held across the country over a period of weeks. Despite the protests of their members a trade union that represents army ranks, PDFORA, was prohibited from participating in these events.

Apologists for the capitalist system in Ireland have been describing the present economic crisis in the country as a classic situation of boom and bust, hoping thereby to soften political opposition by creating an expectation that somehow things will ‘work themselves out’. But they are incorrect. The recurrence of periods of boom and recession is part and parcel of the capitalist system, but there are aspects of the present crisis that are peculiar to the manner in which a boom in Ireland was generated in the early years of this century. The tendency of the rate of profit to fall, leading to a situation where the capitalists cannot realise the full value and profit inherent in commodities that are produced, create periodic crises within the system. Such crises, described by Karl Marx. in Capital as ‘ever-occurring explosions’, are endemic in the capitalist mode of production. But in Ireland other factors aggravated the situation. Financial institutions engaged in a spasm of frantic borrowing and lending. Combined with the sale across the world of new financial products such as hedge funds and credit default swaps, and an  out-of-control expansion of credit with no link to real production, created conditions for the Irish collapse.

Some seven or so years ago Irish banks began a crazy borrowing spree with major international banks. Billions of euro were borrowed. In 2003 alone some 10% of the value of Ireland’s Gross Domestic Product was raised in this way. By 2007 that figure had reached 60%. The money was used to fuel a property and building bubble. Massive sums were paid out for derelict sites on which luxury apartment blocks and shopping malls were constructed. Hotels were built in remote areas of the country where major tax concessions could be secured. Many of these building developments now lie abandoned or uncompleted in remote regions of the country. So many apartments are unoccupied that the Government is considering demolishing them. During the frenzy, bank owners and executives paid themselves enormous salaries and bonuses, even as these same banks were imploding. Industry chiefs did the same. The average pay of Chief Executive Officers in 21 of the largest private companies was €1.1 million in 2007. Two years later this figure had risen to €1.6 million, an increase of 45%.

A clique consisting of bankers, property speculators and Fianna Fáil Ministers pushed the process to breaking point. Planning decisions were secured through bribery; tax concessions that facilitated the accumulation of personal wealth by multimillionaires were introduced. Corruption became endemic. One Fianna Fáil Minister was sent to prison. Others, including, two Prime Ministers (Taoisaigh), were hauled before legal Tribunals to explain their actions. Some years ago oil and gas reserves that were discovered off the coast of Mayo were given scot free to Shell by a Fianna Fáil Minister.

One of the knock-on effects of the credit-based building inferno was to raise the cost of ordinary homes to such an extent that houses in Dublin became more expensive than in London. When property values collapsed, as inevitably they were bound to, creditors sought the return of their money. Irish banks found themselves in serious trouble; some were insolvent. But Irish workers are paying a big price for the profligacy of the rich minority. The Central Statistics Office estimates that today some 77,500 home owners are in arrears with mortgage repayments. 30,000 of these may have to default. Eviction is becoming a serious problem within the country. Huge costs are now also being borne by the middle layers of Irish society.

Friedrich Engels, writing of housing conditions in 1872, said that the growth of large modern cities gives land in certain areas “an artificial and often colossally increasing value”. Even he could not have foreseen the extreme extent of that phenomenon in Ireland in the early years of this century.

After the first hints of the impending crisis surfaced the Fianna Fáil/Green Party Government in September 2008 pledged that the Irish tax-payers would provide whatever funds the banks needed in order to survive. What became known as the ‘bank guarantee’ was introduced; all private deposits, investments and bonds would be safeguarded and guaranteed in full. The potential cost of this measure could reach €450 billion. Ireland’s Gross Domestic Product for that year amounted to €182 billion. In effect a large segment of Irish financial capitalism collapsed, but the State declared that all the existing banks would be maintained as private institutions using public funds as collateral. If the chips were cashed in then the total value of all final goods and services produced within the country for two years would not be sufficient to meet the debt!

Shortly after the decision to support these failing institutions was made a one percent levy on all wages and salaries was imposed. In addition child benefit was cut, Special Needs Teachers were sacked, many old people lost their entitlement to free medical care, and the pupil/teacher ratio was raised resulting in the loss of up to 2,000 teaching jobs. But these attacks on public services were not sufficient to save the banks. Share values collapsed. One bank, Anglo Irish, failed entirely but the Irish Government insisted in shoring it up, to the extent that to date an estimated €30 billion of public funds have been thrown away into this black hole of financial capitalism. The Government continued with its endeavours to find whatever cash that the banks found to be necessary. In early 2009 all public service workers suffered a cut of 7.5% in their pay (this was called a ‘pension levy’!) Out patients in hospital emergency wards were to be charged a fee of €100 for treatment. In January 2010 all public sector salaries and wages were reduced by a further 5%. The crisis did not abate. It worsened.

The country’s banks were massively indebted to international financial institutions, and they in turn were owed billions in unpaid loans that resulted from the collapse in the property market. The Fianna Fáil/Green Party Government again came to the rescue by setting up a state-owned body that would take over responsibility for these unpaid loans, the National Asset Management Agency (NAMA). It would be the tax-payer and not the banks that would have to chase up the defaulters; all this at a further possible cost of up to €80 billion.

Ireland is now affected by three interlinked crises. It faces a fiscal crisis: there is a €20 billion gap between Government income and expenditure. It faces a debt crisis: international banks and financial institutions will no longer lend money to the Irish Government or to Irish banks. It faces a banking crisis: some of the largest banks in the country are insolvent.

Over the past two years Irish banks have borrowed €119 billion from the European Central Bank (ECB), This amounts to around 25% of total lending by the ECB, to a country that represents no more than 1% of the total economy of the 27 countries of the European Union. The right wing political leaders of the dominant countries of the European Union would not allow that situation to continue, with all the implications that it has for the large financial institutions of Germany and France and for the trade of countries within the euro zone. The Irish Government’s continuing inability to solve the problems has led to the intervention of the International Monetary Fund and a loan of €85 billion. The penal interest rate of 5.8% imposed by the ECB and the IMF will cripple the country if allowed to proceed.

The strategy of the Fianna Fail/Green Party government is to take €6.5 billion out of the economy next year, and a further €9 billion in the two subsequent years. All of this is in addition to the €14.5 billion that have been taken out since 2008. The Government insists that money has to be raised by such measures as cutting social welfare payments, reducing pensions, cutting the minimum wage, reducing the pay of all public service workers, increasing tax on low-paid workers, abolishing social supports, introducing new taxes on homes and charges for essential services. The money lenders have been given assurances that their wealth will not be adversely affected by the current crisis. Ireland has one of the lowest tax takes as a percentage of GDP in the European Union, 32.5% versus an EU average of 40.9%.

The savage Budget that was carried through by the Fianna Fáil/Green Party Government, coupled with their Four Year Plan of austerity, constitutes a slash and burn strategy of which the IMF would be proud. They were. The IMF found themselves in agreement with the Fianna Fáil/Green Party Government. There are now some 270,000 fewer people at work in Ireland than there were in 2007. The current official rate of unemployment is 14%. The real figure is far higher as tens of thousands have emigrated in search of work. It has been estimated that the new Government measures will place a further 60,000 people on the dole queues. The trade union INMO (Irish Nurses and Midwives Organisation) estimates that a majority of this year’s 1,600 graduates in nursing and midwifery will have left the country in search of work before the end of 2010. In addition the Health Service Executive, a statutory body responsible for the nation’s health service, has stated that another 1,900 jobs were lost in the past two and a half years. According to the INTO (Irish National Teachers Organisation) one thousand fully qualified primary teachers cannot find regular work, eventhough more than one hundred thousand children are in classes of 30 or more. The Union of Students of Ireland estimates that over 1,250 people are emigrating from Ireland each week.

The introduction of the IMF to Ireland does not change the economic system. The rentier class will continue to speculate in parasitic, financial products, while stock markets devise new methods of making swift monetary gains. The Government pretends that growth is again beginning to emerge in the economy, but there is no real growth here. Capitalism has no answer. Profits are being made, but they are being exported by the multinational companies. More than €32 billion in profits is sent out of the country each year in repatriated profits. Employment in the multinational sector has dropped by 3,000 in the recent period. Growth in that sector alone does not guarantee expanding prosperity as only 10% of the goods and services that support multinationals is sourced within the country. Investment, the lifeblood of the system, fell by 9.5% in recent months. It is investment that drives productivity and jobs. Yet overall investment today is at 1998 levels. Reliance on foreign direct investment will not solve the unemployment problem in the country. Two years ago Dell abandoned Limerick for Poland at a cost of 1,500 jobs. The new foreign companies that are setting up in Ireland, such as Google and Microsoft, are only pecking at the surface of the jobs crisis.

The entire banking and financial sector has failed dismally to assist citizens or small businesses. A rational banking system is necessary in order to sustain industry and the services. But instead of such banks, modern capitalism has created instead a series of gambling casinos where entire pension funds and personal savings are gambled away on international stock markets. It is time to abolish that system. The whole gamut of banks and other financial institutions, including insurance companies, should be brought into public ownership and placed under democratic control. Compensation to previous owners should only be paid on the basis of proven need. The books of all these institutions should be open to public scrutiny so that the huge amounts of money that were made during the years of the so-called boom can be disclosed. The losses sustained by some constituted the gains secured by others. This information must be made public knowledge. The universal bank guarantee, introduced by the Irish Government in 2008 should be withdrawn. Similarly the undertaking by the Government to repay the €85 billion loan to the IMF and the European Central Bank should be withdrawn. The money that is being collected from Irish social welfare recipients and from the wages of public service workers is going towards the profits of the large German and French banks. This process must be halted. The rich should pay in full for the crisis that they created.

There is no solution to the current crisis within the confines of any individual country. The crisis of capitalism is an international crisis. The collapse of Lehman Brothers Bank in 2008 had repercussions for living standards across the globe. At the present time within Europe a number of countries are facing threats from financial institutions.  Greece, Portugal, Italy and Spain are all victims of the same clique of international money-lenders known as the ‘Bond Markets’. Like loan sharks these parasites move from country to country trying to extract the maxi

London saw the biggest trade union demonstration in British history on Saturday 26th March.

 The Trades Union Congress brought at least half a million people onto the streets to protest against the Conservative-Liberal Democrat (ConDem) coalition government's cuts in public expenditure.

Only the anti-war demo in 2003 was bigger, with well over a million.  So much for the end of history, the disappearance of class struggle. And after Saturday so much for the death of trade unionism. The biggest lesson of the day was that once the trade union leadership gives a lead it can unleash a mass movement.

The task now is to ensure that this is the start not the end of the campaign.