Marcus Halaby<\/i><\/p>\n
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\u2019s Socialist party government.<\/p>\n
Meanwhile, global financial markets went into a major panic, on fears that the Greek debt crisis could spread to other countries.<\/p>\n
Market panic<\/p>\n
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.<\/p>\n
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 \u201cblue chip\u201d stocks like 3M and Procter & Gamble.<\/p>\n
This prompted the US financial watchdog, the Securities and Exchange Commission (SEC), to investigate whether the market\u2019s volatility had been caused by a \u201cfat finger\u201d incident \u2013 the name given to artificial market moves caused by individual human error \u2013 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.<\/p>\n
But their fears were not at all irrational. The credit ratings agency Moody\u2019s had cited \u201cvery real, common threats\u201d to the banking systems of several southern European countries and the UK, arising from doubts about their governments\u2019 ability to service their state debts.<\/p>\n
Britain\u2019s political paralysis<\/p>\n
The foreign exchange market\u2019s 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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Despite this, the BBC\u2019s Robert Peston expects \u201canother alarming flight\u201d 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.<\/p>\n
Capitalist contradictions<\/p>\n
Amongst the many contradictions that exist in the capitalist system, the two of the most destructive are:<\/p>\n
\u2022\tthe contradiction between the demands of the world market and the straightjacket of the nation-state; and<\/p>\n
\u2022\tthe contradiction between the increasingly social character of the means of production and the private character of its ownership.<\/p>\n
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.<\/p>\n
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.<\/p>\n
The German Chancellor Angela Merkel (and her counterparts in the EU and in the US) dithered over Greece\u2019s request for a loan, demagogically placing the need to look after \u201ctheir own\u201d 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.<\/p>\n
Merkel faithfully passed on the demands of her own country\u2019s bankers and bosses for savage austerity measures as the conditions for Greece\u2019s rescue.<\/p>\n
Greek workers\u2019 resistance<\/p>\n
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.<\/p>\n
This shows us that mass resistance \u2013 in the form of general strikes, mass demonstrations and so on \u2013 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 \u2013 without a government based on the workers\u2019 organisations and defending their interests \u2013 the bosses and bankers will still find ways to claw back their losses from society as a whole.<\/p>\n
Sovereign debt crisis \u2013 epilogue to the credit crunch<\/p>\n
We are now seeing the emergence of a Europe-wide sovereign debt crisis, on a similar scale to the so-called \u201ccredit crunch\u201d of two years ago. How has this arisen, and just who are these faceless \u201cmarkets\u201d, whose periodic bouts of manic depression the politicians treat like the infallible and impartial advice of disinterested experts?<\/p>\n
In the first instance, this crisis of state finances is \u2013 quite visibly \u2013 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.<\/p>\n
The first obvious sign that this bubble was going to burst arose in the so-called \u201csub-prime\u201d 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.<\/p>\n
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.<\/p>\n
As it became more and more clear that the real value of these loans \u2013 and the complex derivatives based on them \u2013 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.<\/p>\n
This was the \u201ccredit crunch\u201d that brought down major institutions \u2013 Lehman, AIG, Bear Stearns, Northern Rock, Freddie Mac and Fannie Mae \u2013 with such force, and which threatened to bring about the collapse of the financial system as a whole.<\/p>\n
Governments across the world \u2013 with US President George W Bush and UK Prime Minister Gordon Brown in front \u2013 rescued the panic-stricken bankers with public funds to prevent this. But they did so in a way that socialised the banks\u2019 losses, and massively increased the public debt.<\/p>\n
The role of the capitalist state<\/p>\n
In this way, they demonstrated the role of the state under capitalism, that of being \u201ca committee for managing the common affairs of the whole bourgeoisie\u201d, as Marx and Engels put it.<\/p>\n
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.<\/p>\n
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.<\/p>\n
It is bad enough to be in hock to loan sharks, but \u201cwe\u201d are all now in hock to global loan sharks, who are only still in business because \u201cour\u201d politicians lent them money that they never be repaid.<\/p>\n
The co-ordinated measures taken by the G20 countries in the Spring of 2009, to provide a \u201cfiscal stimulus\u201d 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 \u201cquantitative easing\u201d measures taken by Gordon Brown\u2019s government in the UK, essentially amounting to printing money and quietly devaluing the currency.<\/p>\n
The risk of default<\/p>\n
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.<\/p>\n
It should be no surprise that it has been Europe\u2019s 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.<\/p>\n
However, what applies to these smaller economies will also apply to richer and larger countries sooner or later \u2013 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.<\/p>\n
The chaotic market versus the need for planning<\/p>\n
The second destructive contradiction within the capitalist system \u2013 between social production and private appropriation \u2013 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.<\/p>\n
The IMF, for example, proposed a global tax on banks\u2019 liabilities \u2013 a \u201cfinancial stability contribution\u201d \u2013 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.<\/p>\n
The UK\u2019s Labour chancellor Alistair Darling welcomed this proposal. However, Canadian finance minister Jim Flaherty expressed his scepticism, saying that it might not be \u201cbe an appropriate tool for all countries\u201d, and warning that a \u201cperceived government guarantee against failure\u201d could encourage \u201cexcessive risk-taking\u201d.<\/p>\n
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.<\/p>\n
What does it tell us that such proposals are being discussed right now?<\/p>\n
First of all that the combined state debt is now too large for a new bailout in the event of a new banking crisis.<\/p>\n
Secondly, that bankers and politicians alike fully expect such a crisis to happen within the next few years \u2013 even if there is an intervening period of economic growth.<\/p>\n
What a doomed system this is \u2013 one that has periodic and near-fatal heart attacks that it does not know how to cure but must learn to live with.<\/p>\n
But it also tells us that the palliative measures used so far \u2013 the fiscal stimulus, the quantitative easing, and the loan guarantees from richer states to poorer ones \u2013 are running out. The bosses and bankers needs cuts in state spending to restore their confidence \u2013 even if this will slow down or kill off the economic recovery. But to impose these measures, they need the state \u2013 with its police and its repressive powers \u2013 to forcibly hold down those layers of society that will bear the brunt of them, battering them into submission if they try to resist.<\/p>\n
They need to wage a ruthless class struggle against the majority of society. But as both the Greek workers\u2019 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 \u2013 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\u2019s political paralysis therefore reflects and is part of an international social paralysis.<\/p>\n
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.<\/p>","protected":false},"excerpt":{"rendered":"
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\u2019s Socialist party government. Meanwhile, global financial markets went into a major panic, on fears that the Greek debt […]<\/p>\n","protected":false},"author":7724,"featured_media":0,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[104],"class_list":["post-3274","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-archive"],"_links":{"self":[{"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/posts\/3274","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/users\/7724"}],"replies":[{"embeddable":true,"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/comments?post=3274"}],"version-history":[{"count":0,"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/posts\/3274\/revisions"}],"wp:attachment":[{"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/media?parent=3274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/categories?post=3274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fifthinternational.org\/en\/wp-json\/wp\/v2\/tags?post=3274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}