Marcus Halaby
On Thursday 6 May, the same day that voters in Britain went to the polls, riot police battled demonstrators outside the Greek parliament in Athens, protesting against a massive cuts package announced by George Papandreou’s Socialist party government.
Meanwhile, global financial markets went into a major panic, on fears that the Greek debt crisis could spread to other countries.
Market panic
Shares in the largest European banks fell substantially, taking major stock market indices down with them. The British FTSE 100 index closed down 2.6 per cent, the German DAX index 3.3 per cent and the French CAC-40 index 4.1 percent. Even Japanese markets were affected, falling by up to 4 per cent in morning trading, and closing down by 3 per cent.
The major US indices closed down by up to 3.5 per cent, and the Dow Jones index even fell by 9 per cent at one point, its biggest within-day fall since the stock market crash in October 1987. This was led by falls of up to 40 per cent in “blue chip” stocks like 3M and Procter & Gamble.
This prompted the US financial watchdog, the Securities and Exchange Commission (SEC), to investigate whether the market’s volatility had been caused by a “fat finger” incident – the name given to artificial market moves caused by individual human error – despite the absence of any evidence for one. In this way, the SEC hoped to reassure traders that there were no more fundamental reasons behind these dramatic falls.
But their fears were not at all irrational. The credit ratings agency Moody’s had cited “very real, common threats” to the banking systems of several southern European countries and the UK, arising from doubts about their governments’ ability to service their state debts.
Britain’s political paralysis
The foreign exchange market’s reaction the following day, to the inconclusive result of the UK general election, demonstrated similar fears that the next British government might not be able to impose cuts quickly enough to avoid a similar crisis of market confidence.
The pound fell against the euro, and to a one-year low the dollar. Meanwhile bond traders, who decide how expensive it is for governments to borrow, watched avidly for the smallest signs that the Tories and the Liberal Democrats could reach a deal for a government with a stable parliamentary majority, to impose the cuts that all three main parties in Britain agree are necessary to appease the bankers and bosses.
The German parliament finally gave its approval to the 110 billion euro European Union (EU) and International Monetary Fund (IMF) rescue package for Greece on Friday 7 May.
Despite this, the BBC’s Robert Peston expects “another alarming flight” of capital from the euro, from credit to Eurozone banks, and from Eurozone company shares and other euro-denominated assets when the markets re-open after the weekend.
Capitalist contradictions
Amongst the many contradictions that exist in the capitalist system, the two of the most destructive are:
• the contradiction between the demands of the world market and the straightjacket of the nation-state; and
• the contradiction between the increasingly social character of the means of production and the private character of its ownership.
The first of these contradictions made itself visible in the Greek crisis. The struggle that is now taking place worldwide, over who will bear the cost of the economic crisis, primarily takes the form of a struggle between the classes within each country. But it also takes the form of a struggle between nations and nation-states.
The real choice facing the European bourgeoisie was one between bailing out Greece or being forced to bail out the (primarily) French and German financiers that held Greek bonds, in the event that Greece defaulted on them and withdrew from the Euro.
The German Chancellor Angela Merkel (and her counterparts in the EU and in the US) dithered over Greece’s request for a loan, demagogically placing the need to look after “their own” voters over the outrageous demands of the Greek people, who were portrayed to public opinion at home as being lazy, corrupt, wasteful, profligate and so forth.
Merkel faithfully passed on the demands of her own country’s bankers and bosses for savage austerity measures as the conditions for Greece’s rescue.
Greek workers’ resistance
However, the resistance of the Greek working class forced them to soften their demands, when it became clear that the Greek government could not impose them without provoking an explosion. The cuts package that Prime Minister Papandreou got through the Greek parliament is much less severe than what was first demanded of him.
This shows us that mass resistance – in the form of general strikes, mass demonstrations and so on – can force the capitalists at home and abroad to bear some part of the cost of the crisis that they caused. But it also shows that without resolving the question of political power – without a government based on the workers’ organisations and defending their interests – the bosses and bankers will still find ways to claw back their losses from society as a whole.
Sovereign debt crisis – epilogue to the credit crunch
We are now seeing the emergence of a Europe-wide sovereign debt crisis, on a similar scale to the so-called “credit crunch” of two years ago. How has this arisen, and just who are these faceless “markets”, whose periodic bouts of manic depression the politicians treat like the infallible and impartial advice of disinterested experts?
In the first instance, this crisis of state finances is – quite visibly – the direct result of the bailouts that ended the first phase of the crisis of banking solvency that culminated in Autumn 2008. And this, in turn, had its roots in developments in the real economy, with declining profit rates in non-financial businesses, and historically low global interest rates, leading to the growth of a bubble of speculative capital in a bloated financial industry.
The first obvious sign that this bubble was going to burst arose in the so-called “sub-prime” mortgage market in the United States. The growth of this market, like the massive extension of consumer credit more generally, had allowed workers to continue buying consumer goods and housing, despite real wages that had been more or less stagnant for over a decade.
An increase in unemployment in the US (relatively mild compared to what has happened since), led to a noticeable increase in house repossessions. This in turn spread panic through the credit derivatives markets, where the banks had packaged up and sold to each other the loans they had made to the general public.
As it became more and more clear that the real value of these loans – and the complex derivatives based on them – was much lower than had been assumed, the banks increasingly stopped lending money to each other, and instead started speculating about which other banks were the most exposed.
This was the “credit crunch” that brought down major institutions – Lehman, AIG, Bear Stearns, Northern Rock, Freddie Mac and Fannie Mae – with such force, and which threatened to bring about the collapse of the financial system as a whole.
Governments across the world – with US President George W Bush and UK Prime Minister Gordon Brown in front – rescued the panic-stricken bankers with public funds to prevent this. But they did so in a way that socialised the banks’ losses, and massively increased the public debt.
The role of the capitalist state
In this way, they demonstrated the role of the state under capitalism, that of being “a committee for managing the common affairs of the whole bourgeoisie”, as Marx and Engels put it.
By this, we mean not just that politicians act to defend the interests of individual capitalists (however corrupt their relations with them might be in any given instance). Rather, it is that the political class as a whole understand that the duty that they owe, to the ruling class that they serve, is to act to preserve the profit-making system itself.
The very same financial industry, whose central pillars had just been bailed out with cheap state credit, then made it more expensive for those same governments to borrow it back, to finance all those day-to-day matters that states borrow money from the bond markets for all the time.
It is bad enough to be in hock to loan sharks, but “we” are all now in hock to global loan sharks, who are only still in business because “our” politicians lent them money that they never be repaid.
The co-ordinated measures taken by the G20 countries in the Spring of 2009, to provide a “fiscal stimulus” to stave off a catastrophic slump, could only succeed in putting off consequences of the bailouts for the moment. The same has been true of the “quantitative easing” measures taken by Gordon Brown’s government in the UK, essentially amounting to printing money and quietly devaluing the currency.
The risk of default
What the markets fear most of all is that governments could default on their debts, in this way passing on the cost of their crisis to their creditors (banking, state and private) in other countries, as has already happened on a smaller scale, and in a different way, in Iceland.
It should be no surprise that it has been Europe’s smaller economies (like Ireland and Greece) that were first to be hit by a crisis of market confidence in their state finances. In both of the above cases, their governments could not print new money themselves (due to the rules of Eurozone membership), and simply did not have the resources to fund large and decisive bailouts of their own banking systems.
However, what applies to these smaller economies will also apply to richer and larger countries sooner or later – the UK very much included. This is why the capitalists in all countries are demanding austerity measures and the reduction of state deficits, threatening capital flight and the withdrawal of credit if this does not happen.
The chaotic market versus the need for planning
The second destructive contradiction within the capitalist system – between social production and private appropriation – can be seen in the mechanisms that governments have tried to negotiate to deal with the next financial crisis, to achieve through state intervention what competition and market mechanisms cannot achieve on their own.
The IMF, for example, proposed a global tax on banks’ liabilities – a “financial stability contribution” – to a meeting of G20 finance ministers in April 2010. This would be paid into a global fund, which over time would amount to between 2 and 4 per cent of the GDP of the participating countries.
The UK’s Labour chancellor Alistair Darling welcomed this proposal. However, Canadian finance minister Jim Flaherty expressed his scepticism, saying that it might not be “be an appropriate tool for all countries”, and warning that a “perceived government guarantee against failure” could encourage “excessive risk-taking”.
Similarly, the Greek bailout has forced EU governments to discuss the creation of a 60 billion euro “European stabilisation mechanism” to be managed by the European Commission, so that any future bailouts of Spain or Portugal do not have go through the complex mechanisms of several national parliaments.
What does it tell us that such proposals are being discussed right now?
First of all that the combined state debt is now too large for a new bailout in the event of a new banking crisis.
Secondly, that bankers and politicians alike fully expect such a crisis to happen within the next few years – even if there is an intervening period of economic growth.
What a doomed system this is – one that has periodic and near-fatal heart attacks that it does not know how to cure but must learn to live with.
But it also tells us that the palliative measures used so far – the fiscal stimulus, the quantitative easing, and the loan guarantees from richer states to poorer ones – are running out. The bosses and bankers needs cuts in state spending to restore their confidence – even if this will slow down or kill off the economic recovery. But to impose these measures, they need the state – with its police and its repressive powers – to forcibly hold down those layers of society that will bear the brunt of them, battering them into submission if they try to resist.
They need to wage a ruthless class struggle against the majority of society. But as both the Greek workers’ struggle and the British election results show, the capitalists and their politicians are still far from achieving the balance of forces necessary to be confident about the outcome of this struggle – whether in terms of their own unity of ranks, or in terms of the passivity and resignation of the workers and the lower middle class. Britain’s political paralysis therefore reflects and is part of an international social paralysis.
Our task, the task of revolutionary socialists, is to address those layers within the working class, who today are looking to their trade unions and their traditional reformist parties for protection, with a programme to resist austerity, and to direct the resistance to it from being a purely defensive struggle to the struggle for a new, socialist society.