Cut Down Ratings And The Split In Europe | by Farooque Chowdhury

by Oct 13, 2011All Articles

With confusing creditworthiness two more countries and many banks in Europe have “achieved” downgraded ratings over the last few days. And, there is a split. The Germans and the French have, temporarily, disagreed to agree. For the financial elites, political implication of these pulls and pushes is in the wings. “There is a high risk that this crisis further escalates and broadens,” Wolfgang Schaeuble, the German finance minister warned.
The sovereign debt crisis now burdened with downgraded rating of Italy and Spain, the third and fourth largest economies in the euro zone, needs financial power of the two European giants, Germany and France, to salvage it. But the giants were split on the question of salvage approach. They have unity of aspiration in rescuing interest seeking capital. But they differ on the rescue path. Ultimately, because of their common interests, they have to agree. They will agree on at least one point: press down people, take away labor’s bargaining capacity, appropriate whatever people have.

Belgium, a former colonial plunderer, owns a public sector debt equal to Ireland. The country has been warned of a downgraded rating. France is also at risk of facing the same reality. If it slips down, a larger problem will appear: financial support for the PIG would tumble. Fitch said: market confidence in Italy had been eroded. Fitch’s rating for Italy is now equal to Malta and Slovakia. The south European state with the largest debts in the euro zone, at 1.9 trillion euros – 120% of GDP, seemed is teetering.

But Franco Frattini, the Italian foreign minister, does not care about those ratings, it seems. He trusts market, which is now ravaging people. A confident Frattini said: “markets don’t care much about the role of Fitch, Moody’s and company.” However, the Spanish economy ministry expressed “respect” to the downgrading decision. It seemed, the political representatives of the financial elites are confused with their tools, domain and approach. A confused mind of “confident” capital!

Moody’s has downgraded credit rating of 12 UK financial firms: Lloyds TSB, a division of part-nationalized Lloyds Banking Group, government-controlled RBS, Nationwide Building Society, Co-operative Bank, Santander UK, and the building societies of Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire. Nine Portuguese banks have experienced the same. Simultaneously, French banks are over-exposed to peripheral euro zone debt.

However, the UK chancellor George Osborne is confident in the viability of his country’s banks. He said: “I’m confident that British banks are well capitalized, they are liquid, they are not experiencing the kind of problems that some of the banks in the eurozone are experiencing at the moment.” During an interview with Radio 4, Osborne expressed his agreement with the governor of the Bank of England, who said on October 6 that the world was facing its biggest ever financial crisis. Osborne said: “Not only have we faced the biggest banking crisis of my lifetime and your lifetime, the deepest recession since the Second World War, but also Britain was at the epicenter of it.” (guardian.co.uk, Oct. 7, 2011)

But the British leader, it seems, considers that the mighty British financial firms are immune to capitalist disease as he expressed during the interview. Probably, he has forgotten that poor Greece is putting pressure on the rich French and the Germans, and there is capital’s globalization, which has made immunity impossible for the big capitals. A Greek default would create catastrophic consequences for the European and global economy. It will be impossible for the British finance capital to escape that consequence.

Banks and financial firms, cruel characters appearing comical at current time, are one of the stakes of the entire system. Capital cannot dream to let these drown. The European banks, as the IMF estimates, need up to 200 billion euros. Paris wants to use the EFSF, the euro rescue fund, to recapitalize its own stake. Berlin prefers to use the fund as a last resort. Market appears as the first choice to the Germans. But, market is not behaving in a way that can be perceived by capital rational.

Greece has also made impact on the Belgian-Franco municipal lender Dexia, which is facing the threat of becoming the first major European institution to fall victim to the eurozone debt crisis. France and Belgium are arguing over respective taxpayers’ share to salvage it. The two countries plan to break up Dexia and provide state guarantees to cover a “bad bank” of assets. To provide state guarantee, they have to use public money, the old, easy escape route, which is virtually stealing public money.

Greece standing on the brink of bankruptcy has created a buoyant investment market, for which capital was counting days. Germany having high stake in Greece is now trying to grab a bigger part of the country by taking the role of advisor there. Already, the German government has voted in favor of a European bailout fund to aid Greece. Germany now has offered its civil servants and banking experts to Greece with the task of showing salvation path: cut down red tape, set up a new state bank, formulate laws, attract private investment, design project finance, etc. The German consultants will bring salvation!

Crisis brings new opportunity. Germany is looking for investment opportunities in Greece. The German economy minister has made a deal during his Athens visit. He brought with him German industry representatives seeking business in Greece, whose ruling elites have put important chunks of public property on sale. A scramble for Greece will not be surprising. It will be a competition that capitalizes bankruptcy. Labor with a huge reserve army there is hard pressed that puts capital in a better bargaining position.

Greece is at a crossroads and will need to implement “much stricter structural reforms” to avoid default, IMF mission chief to Greece was cited as saying by a German newspaper on October 8. It’s an old, global prescription the bosses prescribe. A “much stricter structural reforms” will press the Greek people much strictly, and that is more dispossessions, more hardship, snatching away of bargaining capacity of labor.

Capitals still are trying to act jointly, especially as they face stronger competitors. The heads of the French, German and Italian employers’ lobbies on October 8 called for stronger European economic and political union. They suggested EU’s only “determined” action. “A diverse Europe, composed of many countries, will only be in a position to maintain its economic position and retain its role of political decision-maker in this changing world if it progresses relentlessly toward a political union,” the heads of France’s MEDEF, Germany’s BDI and Italy’s Cofindustria said in a joint letter. They like to follow this path “to confront the United States, China and emerging economies”, as they said. The business leaders are aspiring to build bridge of unity on a foundation split by competition at its core.

But for capitals, still there is no way out from crisis. “There should be no confusion about what is happening. These are desperate remedies for increasingly desperate problems. […] These shifts may be too little and too late – and millions may still pay the price of that”, said an editorial of guardian.co.uk (Oct. 7, 2011)

The people in the UK, as people of other countries, are paying the price. Citing PricewaterhouseCoopers guardian.co.uk informs: British workers going to retire with private pensions will be facing harder days as their pension incomes are substantially less than three years back. Overall pension incomes are now 30% lower than they were three years ago. (Oct. 8, 2011) These facts provided by the main stream cannot be ignored by capital. And, capital cannot ignore the reaction these acts, appropriation at social level, will produce.

Dhaka based free lancer Farooque Chowdhury contributes on socioeconomic issues.

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