Europe faces a protracted period of austerity, with major contractions in output, consumption and employment. The crisis has started with the smaller, more vulnerable economies like Greece, Portugal and Ireland. But the others will follow, starting with Britain. [Part one]
France and Germany
The French bourgeoisie did very well out of the EU, although it never succeeded in winning ist goal of achieving political domination. The inexorable rise of Germany has pushed it into second place. But the general advance of European capitalism gave it a level of prosperity that enabled it to grant important concessions to satisfy the powerful and militant French working class.
All that has changed. The insistence with which Paris pressurized Berlin to pay the Greeks indicated the precarious state of French capitalism. The French banks are almost as exposed as those of Germany to the Greek economy. A Greek default would bring the financial sector of France to its knees, provoking a deep crisis. That is why the French capitalists protested more loudly than anyone else at the hesitations of Merkel. Finally, the Germans paid up, but now France is faced by a serious dilemma.
Charles Maurice de Talleyrand said that speech was given to man to disguise his thoughts. This is very applicable to the French President Nicolas Sarkozy. He has pledged to cut France's deficit to 3 per cent of GDP by 2013. But so far, only small savings have been announced, such as not replacing all retiring civil servants. But the main problem facing the bourgeoisie is the unfortunate fact that people are living too long, with the average French worker spending 24 years in retirement, well above average for a developed nation. Thanks to the militant tradition of the French workers, they have achieved a welfare state far superior to Britain and many other countries in Europe.
The fact that the French have achieved something resembling a civilized mode of existence is a source of deep resentment in London and Washington, where it is held up as the worst example of the “wasteful European model”. People are entitled to reasonable free health care and pensions. What a scandal! The defenders of the “Anglo-Saxon (i.e., barbarous) model” shake their heads in disbelief. This is no way to improve efficiency and create wealth (for the capitalists)!
The French bourgeoisie is inclined to agree. They have gradually succeeded in whittling away the gains of the past, such as the 30 hour week. But there is a problem. The French workers have a very irritating habit of going on strike and taking to the streets when they are attacked. They have on several occasions forced governments to retreat and even overthrown them. The government in Paris, well aware of the militant traditions of the working class, has so far not made any major commitments on spending cuts.
Nicolas Sarkozy is keen to push through a major “reform” that would raise the retirement age, currently 60. But he is compelled to proceed slowly, for fear of arousing the powerful French working class. His tactic is to cut, but slowly, inch by inch, while all the time making comforting noises about protecting social values, consensus and so on. However, at a certain point this gradualism will break down. The breaking point will probably be over the pensions issue. And the French workers will be on the streets once again.
Germany itself will begin a spending squeeze from next year and is expected to cut at least €10bn every year until 2016. Subsidies will be targeted, and there will be tax rises and departmental spending cuts. These harsh measures are intended to set an example to the rest of Europe. The excuse is that Germany has to comply with rules on dealing with debt written into its constitution. But this argument will have no effect on the powerful German trade unions, who will not take long to follow the example of the Greek workers. In this way, “contagion” applies not only to the financial markets but also to the class struggle.
Iceland and Ireland
The inevitability of sharp and sudden changes in the situation is shown by events in Iceland, a country that had enjoyed high living standards and political stability. In January 2009 protests in the capital Reykjavik brought thousands of people on to the streets in the biggest demonstrations the country has ever seen. As Parliament reconvened on 19 January, they were initially prevented from meeting, as 2,000 demonstrators blocked the parliament building. There were violent clashes between police and young demonstrators. As a result, the coalition government between the Samfylkingin (Social Democrats) and the Conservative Independence Party has broken up. The government of Iceland was thus the first to fall as a consequence of the present economic crisis. It will not be the last.
The class struggle is growing in Ireland, where, as in Iceland and Spain, a period of rapid economic growth and feverish speculation has ended in complete collapse. This is provoking a mood of anger. In February 2009 some 200,000 workers and their families took to the streets in Dublin, to demonstrate their opposition to the government's decision to impose a pension levy on 300,000 public sector workers. There was a factory occupation of workers by Waterford Crystal.
On 6 November, 2009 tens of thousands of people have participated in demonstrations in Dublin, Cork, Waterford, Galway, Sligo, Limerick,Tullamore and Dundalk. A major union SIPTU voted massively to join the public sector strikes on November 24th, when well over 250,000 Irish workers in the public sector were on strike. This is the shape of things to come.
Britain and Europe
Of the major European powers, Britain stayed out of the European Union (the EEC as it was then called), with the delusion that it could still maintain an important independent role in world affairs. This foolish dream was soon reduced to ashes, and the British bourgeois was forced to crawl on its knees to get into the EU. Even so, London was subordinated to Washington (this is what is known humorously as “the Special Relationship”) – a fact that did not pass unnoticed in Berlin, and, above all, Paris.
The British capitalists did not join the Euro, and this now appears as an act of supreme judgment. It allowed them to devalue the pound sterling, giving British exports an advantage over the Euro countries. This actually revealed the weakness of British capitalism, not strength. Devaluation of the currency was the method traditionally used by the weaker European economies to compete. By presenting the falling value of the pound sterling as an act of supreme judgment, the British bourgeoisie is merely advertising its own bankruptcy.
The British are not popular in Europe, where they are regarded with suspicion, not without reason, because of their dependence on the USA. When the Conservative leader Cameron went to Paris for talks with Nicolas Sarkozy, he could not resist making a smug comment about the euro, which visibly irritated the French President.
The following day, the British Prime Minister told Ms Merkel that not only was Britain outside the euro, but that he would block German proposals, tabled at meeting of finance minister on Friday, to give the EU new economic powers to police the budgets of single-currency member states.
"Britain wants a strong and stable euro zone," he said. But he immediately proceeded to throw a spanner in the machinery: "Britain is not in the euro and is not going to be joining the euro. So Britain would not agree to any arrangement or treaty that drew us further into supporting the euro area. Any treaty – even one that just applied to the euro area – needs unanimous agreement of all 27 member states, including the UK, which of course has a veto."
This is what someone called the gentle art of winning friends and influencing people. If the Germans did not express their indignation openly at this arrogant stupidity, it was only because they expected nothing else from the political representatives of the British ruling class. In Europe a lot of the anger at the financial system is directed towards London and New York, where most of the world's currency traders and debt investors are based.
Britain’s European partners, irritated by the British airs of superiority and angry at the “unfair” advantage obtained by the devaluation of sterling, have sharply reminded them of their responsibility to Europe, and demanded that they participate, with money on the table, to the rescue plan. Grumbling and cursing under their breath, the British bourgeois are obliged to put their hand into their pocket.
Cameron’s smug sense of superiority in the face of the Euro’s difficulties is out of place. It reminds one of the attitudes of another Conservative prime minister, Stanley Baldwin, who, in the 1930s, described Europe as a “madhouse”. Answering Baldwin, Trotsky remarked that Britain was only the last ward in the European madhouse, and the last ward was usually reserved for particularly violent patients.
Britain will not escape the general ruin because it is not a member of the Euro zone. The crisis in Europe will be expressed in falling demand and therefore a shrinking market for Britain’s exports, most of which are sold in Europe. The crisis in the euro zone (Britain's biggest export market) will undermine Britain’s recovery, which in any case is very weak. Cameron was told in no uncertain terms that Germany sees Britain (which has the EU's highest budget deficit), as a prime candidate for contagion if market panic over Greece, Portugal and Spain spreads.
The government in London is now a shaky coalition between the Tories, in whose ranks the anti-European chauvinists are the majority, and the pro-European Liberals. The Tory right wing is seething with resentment at what they see as the excessive influence of the Liberals in the government. The question of Europe is a very sore point, which can later provide the spark that ignites a crisis in the coalition.
Fearing that the markets will begin to attack the pound, the Tories have begun to slash public spending. The coalition Government declared that the "years of plenty" for public spending were over yesterday, as it admitted that its £6.2bn package of immediate savings was "only the start" of a huge programme of cuts. But the markets are unimpressed. The first wave of cuts amounts to only 1 per cent of total government spending and a fraction of the £156bn deficit in the public finances.
The Institute for Fiscal Studies (IFS) warned of more pain to come. It warned that these measures would cut borrowing by only £5bn this year. "This is less than a tenth of the fiscal repair job that Alistair Darling's 2010 Budget forecast suggested will be needed over the next few years," it said. The bosses want to see real cuts – not a manicure, but the amputation of arms and legs. Investors are waiting to see if the UK Government possesses the will and the ability to make the deep cuts they consider necessary. And the markets decide.
For the time being the wave of panic that swept across the euro zone countries has not spread directly to Britain, despite its huge deficit. But this is only a temporary respite. At present, Britain is waiting on the sidelines, watching cautiously as the euro agonizes. But the markets could target the UK at any time. It is a measure of the seriousness of the situation is that the new government expressed relief that increased tax receipts meant that the deficit was £7bn less than expected, and therefore “only” £156bn.
Britain will be affected by the crisis in the euro zone. Without growth in Europe, there will be little demand there for Britain's exports, just at the time when the Conservative-Liberal coalition is hoping for an export-led recovery. The euro is already weakening against the pound, partially eroding the competitive achieved by the depreciation of sterling.
The next period will see a far more serious attack on living standards, which will provoke an overwhelming response from the trade unions. In the 1970s Britain was notorious as the country in Europe with the biggest strike movement. But ever since the Thatcher government defeated the miners, the unions have been on the defensive. Now all that will change. There will be strikes and demonstrations not seen since the 1970s.
The mood of militancy will shake up the unions from top to bottom, pushing out the old conservative leaders and replacing them with others who are more responsive to the wishes of the rank and file. Given the organic connection between the unions and the Labour Party, the latter will be pushed to the left, as happened in the 1970s. The whole situation in Britain and the rest of Europe will be transformed.
“Most Americans know that the U.S. economy is in bad shape, but what most Americans don't know is how truly desperate the financial situation of the United States really is. The truth is that what we are experiencing is not simply a "downturn" or a "recession". What we are witnessing is the beginning of the end for the greatest economic machine that the world has ever seen. Our greed and our debt are literally eating our economy alive. Total government, corporate and personal debt has now reached 360 percent of GDP, which is far higher than it ever reached during the Great Depression era. We have nearly totally dismantled our once colossal manufacturing base, we have shipped millions upon millions of middle class jobs overseas, we have lived far beyond our means for decades and we have created the biggest debt bubble in the history of the world. A great day of financial reckoning is fast approaching, and the vast majority of Americans are totally oblivious.” (Global Research, 4 June, 2010)
When Obama rang Zaptero to urge him to carry out cuts, this was a de facto recognition of the umbilical chord that connects the crisis in Europe to the crisis in the USA itself. The above lines express the fact that the American dream is a thing of the past. The present generation of American youth will be the first since the Great Depression that cannot look forward to better living standards than their parents.
Even before the economic collapse, the rich were getting ever richer and the poor, poorer. Now an unbridgeable abyss is opening up between rich and poor, between “haves” and “haves-not” in the “land of the free”. The article quoted above listed fifty facts that underlined the seriousness of the crisis facing the USA.
In 1950, the ratio of the average executive's pay to the average worker's pay was about 30 to 1. Since the year 2000, that ratio has soared to between 300 and 500 to one. Two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans. The bottom 40 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
More than 24% of all homes with mortgages in the United States had defaulted as of the end of 2009. Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. That was almost twice the level of a year earlier. Americans have seen the re-emergence of the tent cities and soup kitchens not seen since the 1930s.
According to a new report based on U.S. Census Bureau data, at the end of 2009 only 26 percent of American teenagers between the ages of 16 and 19 had jobs, which represents a record low since statistics began to be kept in 1948.
As a result, a critical mood already exists, especially among the youth in the USA. There is a questioning of the existing order and its values, which was not there before. This mood will be strengthened and generalized in the next period. Even the election of Obama reflected this mood, insofar as it expressed a deep desire for a change – a desire that has not been satisfied by Obama and the Democrats. Obama’s approval ratings have already collapsed.
We see the outline of the future transformation of the American trade unions in the election of Richard Trumka, the miners’ leader. Trumka does not want to mobilize the workers, but is under pressure. In the next period, the unions will be under tremendous pressure to put words into practice, not just in the USA but in all countries. In the USA the ground is being prepared for a break with the Democratic party and a Campaign for a Mass Party of Labour.
Already there are the first signs of a political rebellion against the Democrats. Less than two years ago North Carolina was one of the centres of the grass-roots army that propelled Barack Obama to victory in what was a conservative state. Now frustrated with the results, former Obama supporters have linked up with labour organizers to gather signatures to start a third party, North Carolina First.
The prime movers in this initiative is the SEANC and its parent group, the Service Employees International Union, possibly the nation's most politically powerful trade union. They are funding the effort, and immediately after it was announced, they hired more than 100 canvassers who are rounding up the signatures needed to qualify as a third party on the general election ballot.
"Our whole agenda is to turn that apple cart around and say, 'No more are we going to blindly support you because you're a Democrat,' " said Dana S. Cope, executive director of the 55,000-member State Employees Association of North Carolina (SEANC), which is leading the effort. "We're going to support you because you're right on the issues and if you're not right on the issues, we're going to remove you from office."
Chuck Stone, a longtime SEANC leader who is chairman of North Carolina First, asked: "Does it really matter if you put a Democratic label or a Republican label on them when they go up there and support big companies and big insurance?"
These comments are highly significant because they show the early beginnings of s shift in consciousness, the realization of the need to establish a political party that does not represent “big companies and big insurance” but the needs of ordinary working class people. This reflects the same process that the British workers experienced a hundred years ago, when they broke with the Liberals to form the Labour Party. But what the British workers took generations to achieve, the American working class can accomplish far more quickly.
Probably the movement for a third party in North Carolina will be merely an episode. But it is an episode that anticipates what will occur in the future. A Labour Party in the USA will attract to its banner all the most oppressed and revolutionary layers of society: African Americans, Latinos, the Native Americans, the women, the youth etc. The same enthusiasm that we saw in Obama’s electoral campaign will be reproduced on a higher plane and with even greater intensity. Very quickly, an American Labour Party will pass from the timid reformist policies advocated by the conservative union leaders to a very radical socialist policy.
Eastern Europe and Russia
Twenty years after the fall of Stalinism, the restoration of capitalism in Eastern Europe and the former USSR has solved nothing. For a while, on the basis of the world capitalist economic boom, the new capitalist classes of the former Stalinist states could establish something resembling stability.
The Asian crisis of 1998 caused shock waves, but on the basis of the devaluation of the ruble, the Russian economy soon recovered and grew, mainly on the strength of its huge oil and gas reserves. The economies of Eastern Europe benefitted from their connection with the EU. They exported their surplus workforce to Western Europe, which benefitted from this pool of cheap labour. In turn, the remittances sent home by the migrant workers provided an additional source of capital for Eastern Europe.
Now all that has turned into its opposite. The migrant workers have returned home to swell the ranks of the unemployed. A number of countries in Eastern Europe are faced with the specter of crisis and bankruptcy. Like Greece, Latvia has suffered a fiscal crisis that saw its debt rated as junk. In the fourth quarter of 2009 Latvia's GDP contracted by 18%, and it has fallen a further 10% in the first quarter of 2010. Wages have fallen by an average of 8.8%, and unemployment has reached more than 22%. This is a slump on the lines of the Great Depression.
Hungary is not far behind Latvia. In October 2008 Hungary was forced to seek a $25bn rescue package from the International Monetary Fund and the EU. Now Hungary faces a Greek-style financial crisis. The country's currency, the forint, dropped 6% against the dollar after comments of a representative of the new government. The cost of insuring the country's debt jumped by one percentage point. This means that it will be more expensive for the country to borrow money in the international markets.
This leaves markets and economists fearful that Hungarians will default on their home loans, sparking a banking crisis in the country. This will affect the economies of Germany and particularly Austria.
Romania's economy was severely hit by the recession, and shrank by 7.1 per cent in 2009. Unemployment jumped from 4.9% in January 2009 to 8.1% in January 2010.The government had to go to the IMF for help and got a €20bn rescue loan, on condition that it carried out a savage policy of cuts. This includes a reduction of public sector wages by 25% and pensions and unemployment benefits by 15%, with the aim of reducing the budget deficit to 6.8% of GDP. All government spending will be cut by 20% and anywhere between 80,000 and 300,000 workers out of a total of 1.4 million in the state sector will be sacked.
This has aroused the Romanian workers. On May 31 tens of thousands of public sector workers went on strike against the government’s austerity plan, which includes cuts in pay and pensions. According to a poll by the Bureau of Social Research, half of the people think that Romania is worse off today than under Ceausescu, with 56% saying that under the “communist” regime ordinary people were treated with more respect, and 60% of Romanians think that politicians are more corrupt today than before 1989. A similar position undoubtedly exists in other countries of Eastern Europe and above all in Russia itself.
In Russia, too, the economic crisis acted as a shock that is having profound political and social effects. The recent movement of the miners indicates that the Russian working class is beginning to recover from the psychological effects of the collapse of the USSR and capitalist restoration. These events show how quickly the Russian workers can move once they enter the road of struggle. On the basis of struggle, they will rediscover the old traditions and ideas of Leninism, which have lain dormant for a long time, but have never disappeared from the collective consciousness of the Russian proletariat.