Like a cancer brought under remission in one part of the body, only to pop up again elsewhere, the world capitalist economic crisis is back

Last year the Greek ponzi scheme, whereby the extent of Greek national debt was hidden from its creditors (international finance capital) came to an end. This touched off a firestorm. International finance capital became increasingly unwilling to lend to Greece (buy Greek bonds), and the regime had to turn to the European Union for some sort of bail out. In exchange, the top EU states demanded austerity measures from the Greek regime. This was to cut the Greek state expenditures, thus supposedly reducing Greek debt. Among other steps, the Greek regime was forced to cut over 14 billion euros ($20.5 billion) from public spending, including immediately eliminating 15,000 public sector jobs and cutting ten times that amount by 2016. It involved a 22% cut in the minimum wage and similar cuts in pensions for retirees. These were just a few of the measures to be taken.

It was obvious in advance that this could not resolve the Greek debt crisis. Predictably, the Greek economy went into a tailspin. As workers saw their pay cut or lost their jobs entirely, businesses started to close. The contraction of the economy meant that state income was reduced, meaning an even greater increase in debt as a percentage of the overall economy (GDP). This then required a new set of draconian austerity measures, and Greece plunged into absolute poverty with mass unemployment and homelessness.

Since nobody seriously thought these austerity measures would reduce Greek debt as a percentage of GDP, why were they imposed in the first place?

The answer, in part, lies with the tendency for the rate of profit to fall. Economist Michael Roberts demonstrates this tendency: ‘the mass of profits in the US rose only 6% from 1997 to 2007 and then fell absolutely in 2006.’ (Thenextrecession.com, May 14, 2012)

On the individual level, the capitalists respond to this tendency by cutting their labor costs (wage cuts, speed-up of the work pace, etc.) On a collective level, they seek to cut the “social wage”, further cutting into the share of production that workers consume. Even on their own terms, this cannot work as it cuts into their markets, but the capitalist class can only see and try to deal with the immediate problem. Basically, the capitalist class built up huge debt by speculation. It carried out this speculation (real estate booms, etc.) because “normal” investment (in actual production of goods) was not sufficiently profitable due to the tendency described above. When the debts started to come unwound, it sought to force the working class to pay them, as happened in Greece. So what these austerity measures will do – if carried through – will be increasingly draw the European working class into the famous “race to the bottom” in which workers of one country or region compete with those in other regions for who will work cheapest and thereby lose the fewest jobs.

Workers in the United States have experienced this process for years now. Official statistics show that US real wages (after inflation) have stagnated for over ten years now. Since these statistics underestimate inflation by about 2% (www.shadowstats.com), this means real wages have been falling in reality. With a few exceptions (e.g. China), this has been the general process throughout the world. While it has been resisted time and again, often by strikes, ultimately this resistance was overcome. In part that is because this trend cannot be fought on a piecemeal basis.

In Greece, however, the resistance came to a head. A series of mass strikes periodically shut down the country. This budding mass workers’ revolt ultimately led to the explosion of support for the left alliance Syriza. This alliance, now in the process of formally becoming a political party, is less than ten years old. It first developed out of a split in the traditional Greek Communist Party, the KKE. This party (KKE) has strong roots in the Greek working class, stemming from its days leading the resistance to fascism during WW II. A split off from the KKE combined with other left groups, mainly of Greek youth, to help lead anti-globalization protests early in this century. They combined this with participation in elections, and in 2004 they formally formed Syriza.

In 2007, Syriza got 5.6% of the vote. Today it is challenging the two main parties and threatens to become the number one vote getter in the upcoming elections, with polls showing something like 30% support. This is based on the Syriza leadership’s commitment to reject the demands for austerity and to reverse the austerity measures already taken. The commitment of the Syriza leadership to reject austerity, coupled with their rocket-like rise in the polls, has combined with a weakening in the economies of several other (and larger) euro zone countries to bring to the fore the contradictions inherent in the entire euro (and European Union) project.

To understand the present euro zone crisis, it is necessary to understand the European Union history and its basis for formation in the first place.

Europe has a long, long history of wars, going back to the 30 Years War (1618-48, involving Germany and other countries), the Seven Years War (1756-63, involving France, various German states, Austria and other states), the Napoleonic Wars (1799-1815), The Crimean War (1853-56), the Austro-Prussian (Seven Weeks) War (1866), the Franco Prussian War (1870-71), the Balkan Wars (1912-13) — and then of course World Wars I and II, which in part were the logical outgrowth of all the previous wars. Except for the crazed Nazi state, the capitalist powers tried desperately to avoid WW’s I and II as they knew what devastation – and risk to their system – would result. Try as they might, however, they could not prevent the inevitable; it was the very nature of capitalism that drove them to war.

Arising out of WW II, the European powers were more determined than ever to avoid a new war. This determination was heightened by the existence of an even stronger Soviet Union. In 1949, three years after the end of WW II, six Western European nations formed the Council of Europe which led five years later to the “Schuman Plan” which sought to regulate those heavy industries that are related to arms manufacture. Thus, we can see that the origins of the EU lay in great measure in trying to soothe the tensions between the European nations that had continually led to wars in the past.

Historically, one of the first signs of such tensions – whose basis is economic competition – has been tariff wars, which have tended to break out during times of economic crisis. During the post war economic upswing, with the Western economies expanding and such competition therefore lessening, tariffs had a tendency to decline. This general tendency was formalized in Western Europe through a series of tariff (custom duty) agreements, which also increased the economic integration of the region. As this developed, new Western European countries entered the accords and in 1986 the European “Single Market” was created.

One impediment to international investing is uncertainty over future changes in exchange rates. If a German capitalist, for instance, is considering investing in Greece, under the old monetary system he or she must try to predict what will be the future exchange rate between the (then existing) German Deutschmark and the Greek drachma. As the European economies became ever more integrated, it seemed increasingly in the interests of the capitalists to eliminate this risk by creating a single currency for the entire region. Thus was the euro created.

But from its inception the currency had some fundamental contradictions or flaws. These contradictions flow from the fact of the different nation states themselves. The states in the euro zone all have different origins, different traditions, differences in their relationship to world capitalism, somewhat different economies, and different domestic traditions. This directly relates to a nation’s fiscal policy – mainly what their money supply and interest rates will be. But the countries in the euro zone surrender control over this to the European Central Bank, which contains within it the contradictory needs of the capitalist class of the different member nations. (For more on this, see: http://www.viewpointonline.net/crisis-of-euro-is-crisis-of-world-capitalism.html)

European capitalism was able to paper over these flaws during a time of economic stability and boom. Now, they are returning with a vengeance.

German and French capitalists have taken advantage of the EC and the euro zone to drive into the economies of the weaker EU nations, including Greece. They have massive loans in those countries. Also, as relatively stronger economies, they have been hit less hard by the world economic crisis. Italy and Spain are different cases, and their potential situation does not bode well for the future of the euro.

One of the agreements taken to keep the euro stable was that no national government deficit could be over 3% of its national GDP. Greece is far in excess of this, running a deficit that is expected to exceed 10% this year (and was 9.1% last year). Spain also exceeds this limit, with a deficit of 5.3% of its GDP and the Italian deficit, while barely in excess (3.2% — about equal to that of the USA) is rising markedly (from a previous 2.5%). While these deficits are far smaller as a percentage of GDP, the concern arises from the fact that these economies are way larger than that of Greece. (The Spanish economy is 4.9 times as large and the Italian 7.2 times as large as the Greek economy.) In boom times, the increased ease with which finance capital could move from region to region and country to country facilitated economic growth. Now, in the case of the EU, it is having the opposite effect. Seeing an excellent chance that a new Greek regime can default on their loans, they are more or less refusing to buy Greek debt (bonds). And predicting that the same might happen in Spain and Italy, they are demanding a premium to buy bonds there. The regimes of both nations are now having to pay interest rates of over 6% to get loans. (The greater the risk, the greater return the lenders will require.) Even French capitalism is potentially at risk of being drawn into this whirlpool as it has lost its triple-A credit rating.

The response to this crisis on the part of the two main powers in the EU – France and Germany – is a product of their historic differences. Writing in “Business Week” (5/24/12), commentator Clive Crook explains: “Germany mainly wanted a broader union—to surround itself with friendly states even if the newcomers were at different stages of economic development than those at the European core. France sought a deeper political union, one that would subdue German economic power and give Paris more reach. Compromising, they chose to broaden and deepen at once. The European Economic Community expanded to take in new members. It developed a thin, yet feverishly proliferating, federal layer of government, complete with a parliament and executive. These two drives were in tension. Members of an ever-widening union had less in common than countries in the advanced-economy core, making political and economic integration ever harder.”

Exacerbating this long standing tension is the recent elections in France. Under pressure from the French working class, which is also moving to oppose further austerity, a new Socialist regime has just come to power under newly elected President Francois Hollande. While not going as far as Syriza leader Tsipras in rejecting austerity outright, he is committed to the idea of encouraging economic growth as a means of resolving the deficit crises. In other words, he is moving towards a classic Kenyesian approach of government spending.

This is anathema to much of German capitalism because of the hyper inflation it experienced leading up to WW II.

On top of this, German capitalism sees itself as being the singular leader of Western European capitalism. It does not want any authority that can challenge this potential. A strengthened European Commission could potentially be such a challenge. For both these reasons, the French regime is leading the way in calling for increased fiscal powers for the European Commission and the European Central Bank. Among other things, they are calling for new means under which the stronger national economies would share the risk of the weaker ones (by pooled bonds, for instance). And Germany is strongly resisting just such measures.

The growing crisis is increasing exactly the nationalism that the entire European Union project was meant to combat. For instance, the Italian bank UniCredit has recently been withdrawing funds from its German subsidiary to shore up its home base in Italy. German bank regulators are now objecting to this and are moving to regulate this subsidiary, which step would be in violation of EU rules. But who cares about rules when national economic interests are at stake? Meanwhile, some of the weak states are pressing for joint financial debt risk, which Germany is strongly resisting.

Which way will it go — increased consolidation of power in the European Commission and an increased role for the European Central Bank, or the departure from the euro of Greece, most likely followed by other weaker nations and then a possible break up of the euro entirely?

The breakup of the euro zone would be an economic disaster, including for Germany, 42% of whose exports go to euro zone nations. But increased consolidation would force German capital to pay for the increased risk of the weaker euro zone nations. It would weaken the role of the German state both domestically and within the EC as a whole. In addition, it would seem that it would increase the pull of the far right (possibly fascist) nationalist forces such as le Penn’s National Front in France and Greece’s New Dawn party. On the other hand, further consolidation of power in the European Commission and the European Central Bank would only mean that the tensions are further compressed, only to burst out even more explosively at some future time.

The ultimate outcome may not be entirely under the control of the European capitalists. A major factor in the equation will be the outcome of the Greek elections (June 17). In the first round, neither the pro nor the anti-austerity parties won decisively enough to form a government. Since that time, both Syriza and New Democracy (the foremost capitalist party) have gone up in the polls and are virtually neck-and-neck (at around 30% each). If the old line Greek Communist Party – the KKE – were to drop its sectarian position and join Syriza, then Syriza would be in the clear lead. (Whichever party comes in number one gets 50 additional seats in parliament, making it easier for it to form a government.) However, KKE is not going to do this. Despite this, the fact that the leadership of Syriza continues to take a strong stand against austerity has led to its continued increased strength.

On the other hand, Greek and world capitalism is trying to blackmail the Greek electorate. They are pulling their money out of Greece, threatening to bring down the entire Greek banking system. They are also threatening to kick Greece out of the euro zone if a new regime reneges on the austerity measures. Losing the euro and returning to the drachma would result in massive inflation there, which would further devastate the standard of living. Greeks know this, which is why by about a 3 to 1 majority they favor remaining in the euro zone. Syriza leader Tsipras is countering this threat by claiming that it is just a bluff; the eurozone leaders would not dare kick Greece out. He may well be right, but this is far from certain. Many Greek voters know that it may not be a bluff, which is why some of them are turning to the New Democracy; in these desperate times the alternative seems even worse. Better the devil you know than the one you don’t know.

If New Democracy ends up forming a new government, then Germany capitalism may tend to feel reinforced as far as its uncompromising attitude towards Greek austerity. This would then tend to carry over to other nations like Spain and even Italy. It would seem that this would tend to strengthen the hand of German Prime Minister Merkel in relation to her French counterpart Hollande. If Syriza comes out on top and is able to form a new government, then the opposite seems likely to result. Perhaps a Tsipras-led government would agree to some compromise relating to austerity in return for Greece remaining in the euro zone.

A third possibility must be considered: That once again neither side – the pro and the anti austerity sides – emerge strong enough to form a new government. The pro-austerity side is mainly made up of New Democracy and Pasok, the Greek Socialist Party. Together these two parties did not win a majority the last time and may not again. On the other hand, the KKE refused to join a coalition government with Syriza and probably will refuse again. There are several other small anti-austerity parties, but together with Syriza they may not be able to puit together a new government. In that case, the Greek regime would remain in limbo. How long can that continue and what would be the outcome in Greece and in the EU as a whole? Without having a clear view of the movement in Greece, including the general consciousness, it’s impossible to say. But ultimately it seems that a certain tiredness would be bound to result. At that point, Greek capitalism would try to assert itself more decisively.

Whether Syriza or a New Democracy forms a government or another stand-off results once again, the current arrangements of the euro are not tenable. All the old tensions, which were papered over during a time of economic expansion and stability, are returning with a vengeance. These will add to the world capitalist economic crisis. It also still remains to be seen how the Syriza leadership will deal with this crisis. One thing is clear: Extra-ordinary steps are necessary – steps outside of the ordinary rules of capitalist democracy – in order to prevent further suffering on the part of the working class. This would include taking the banking system under public ownership, but as this is done the bank workers themselves would have to take steps to prevent the owners of capital from taking their money out of the country. It would also require a joint, coordinated effort on the part of workers throughout the EU and world-wide in fact. As a first step towards that, teams of workers in different industries should be sent to meet with their counterparts in other countries.

A Syriza led government which fully carries out its commitment to reverse the austerity measures would be a huge step forward, especially if it is linked with the initial extra-parliamentary steps outlined above. Such steps would tend to deepen and spread as a center of workers’ power developed. If this process is carried through to its conclusion (a subject requiring much further discussion), then ultimately the working class could come to power, perhaps first in Greece and then elsewhere, and finally resolve the world capitalist crisis. However, there is much ground to cover until then and many lessons to be learned and conclusions put into practice. The working class movement the whole world over must observe and absorb those lessons.