FT-CI

Economic Outlook

A specter is threatening Europe

24/05/2012

By Paula Bach
Thursday, May 17, 2012

The Nobel Laureate in Economics and New York Times columnist Paul Krugman predicted the “Greek euro exit, very possibly next month.” If this prediction comes true, both Krugman and the publications Financial Times and Der Spiegel maintain that the panic would spread to the rest of the eurozone and that the next step would be a run on the banks in Spain and Italy that could lead, either to the possible freezing of bank accounts and prohibiting withdrawals, to an injection of credit from the European Central Bank with “more flexible” policies later, or else, directly to the end of the euro.

Recession: The limits of the financial bailouts

At the end of last year, facing the imminent risk of bankruptcy of some bank that would trigger a new situation like the Lehman Brothers failure, the European Central Bank (ECB) decided to extend the unlimited provision of liquidity to banks at a fixed interest of 1% annually, to 3 years. As we indicated at that time, “that massive injection of liquidity, was far from becoming new credits that would act as a stimulus to the eurozone’s economy,” managing, only temporarily, “to contain a crash, but in no way acting on the tendencies towards recession that are settling in, strongly, in Europe.” (1) Scarcely a few months later, the so-called troika negotiated a new “assistance” plan for Greece and the restructuring of its debt that, as we also indicated, “avoids Greece’s disorderly bankruptcy and its exit from the euro within a short time, but fails to resolve, rather, it brutally worsens, the problems of the country, at the same time leaving big uncertainties about the future of the European Union (EU).” (2)

If the European policies of financial bailouts contained the tendencies to a “Lehman Brothers-style” crash, the violent adjustments, in classical neo-liberal style, accelerated the recessive elements, not only in the weakest countries, but among all the members of the eurozone, that grew 0% during the first quarter of the year. The Italian economy contracted by 0.8%, recording three consecutive quarters of negative GDP growth; Spain contracted by 0.3%, recording 2 consecutive quarters of decline. Greece contracted by 6.2% again; France recorded zero growth, and Germany, with an extremely weak growth of 0.5%, represents the most vigorous economy of the eurozone. The irony is that this predominantly recessive situation would end up provoking, on the one hand, severe political crises, like that currently taking place in Greece, and, on the other hand, conditions of bank insolvency, as in Spain, that, by other means, revived tendencies towards the financial crash.

Spain: Recession and bank nationalizations

To the policies of fiscal austerity and cuts in social spending implemented in Spain during recent years, is added the austerity plan and labor reform (that makes layoffs cheaper and easier) launched by Rajoy’s conservative government to comply with the demands from Brussels and Berlin. These measures have only deepened the recession, with the unemployment rate reaching close to 25%, with which, the total number of the jobless reached an historic maximum of more than 5.5 million people. The continuing recession in Spain is causing a persistent fall in property values that makes a large number of the people that took out a mortgage in recent years, currently owe more than their homes are worth. It is the result of the fact that under the policy of deleveraging and cleaning up bank balance sheets and liquidating their real estate stock, the banks’ risk is transferred to the buyers. If we connect this situation with the reductions of social benefits and the increase in unemployment, it is understandable that the weak link of the Spanish economy is located in its banks, extremely involved in the business of real estate speculation. Bankia, the fourth-largest banking company of Spain, was supposed to be nationalized a few days ago, when the government introduced a package of measures that includes a large increase in provisions to the banks. However, these measures increased distrust in the banking sector, that led the stock market declines, and they did not manage to slow down the flight of capitals, a matter that led the Minister of the Economy to ask the ECB for more backing in purchasing the Spanish debt. In its report to the SEC, the BBVA (second-largest bank in Spain) brings up the fact that financial tensions in Europe are currently worse than those that followed the bankruptcy of Lehman Brothers in September, 2008.

A neo-Keynesian united front

Spain’s pressing economic and financial situation should be understood as part of a European context, in which strong social and political tensions are prevalent. To the fall of 16 governments in Europe must be added the recent election results. (3) A complex political context where elements of polarization, to the right and left, stand out, in the framework of the prevailing tendencies towards recession, creates in broad leading groups of the bourgeoisie, not only the “suspicion” that the financial measures implemented up to now could turn out to be insufficient, but a profound fear that the financial policies from Berlin and Brussels will finally make the situation go out of control. It is in this context and over and above the urgent nature of the financial and economic situation, that one must understand the predictions of Paul Krugman, Nouriel Roubini and The New York Times, The Financial Times, and Der Spiegel. A sort of neo-Keynesian united front is growing, headed by Krugman himself, but which could include even important figures like Hollande, or the leader of Syriza, the coalition of the reformist left, ready to avoid a collapse of the euro, but pressing as much as possible so that the German establishment and Brussels will “take it down a notch.” This could mean various measures, such as a more decisive intervention from the European Central Bank, no longer lending to banks and accepting debt securities as collateral from the various states, but buying debt securities directly from the several states, the acceptance of some type of eurobond plan to ease the debt burden, that the ECB will authorize a certain level of inflation that will allow the economies of southern Europe to regain competitiveness at the expense of the famous Keynesian “money illusion” (4), like the imposition of some kind of puncture on the financial sector. That is, policies similar to Obama’s half-hearted measures in the United States. But let us recall that not even a qualitatively more daring reformist policy, like that implemented by the Roosevelt administration in the United States, beginning in 1933, enabled the US economy to recover the level it had previous to the crisis of 1929. Shortly thereafter, the preparation for the Second World War, with the setting up of the military-industrial complex parasitically exploiting a demand guaranteed by the state, signaled the beginning of the real recovery of the US economy.

But will Greece finally leave the eurozone? Different analysts maintain that the market has been preparing for such a situation and that the measures already implemented by the ECB, for the ultimate “bailout” and restructuring of the Greek debt, would have outlined a perspective of relative containment, because of which, Greece’s exit would not necessarily entail the disintegration of the eurozone. Although this hypothesis cannot be ruled out, one must bear in mind that the political crisis and the worsening of the situation in Spain and also in Italy undermine the scope of this contention. Will the weakened Merkel find herself forced to implement some kind of flexible version of her policy? We cannot know; what is certain is that, as Krugman explains well in his most recent book, the current situation resembles the way John Maynard Keynes described the decade of the 1930’s: “a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse.” (5) If that chronic state mainly affects Europe, it also affects the weak US economy and threatens the no longer so vigorous Chinese economy. There are no reassuring solutions for the worst crisis in history since the 1930’s, in which elements of political polarization are beginning to emerge, and in which any strategy designed by the bourgeoisie is going to be directed at unloading the crisis, more or less obviously, onto the shoulders of the workers, by preparing new and worse catastrophes.

Notas:

1. Cuestiones estratégicas (“Strategic matters”), Paula Bach, La Verdad Obrera, N° 460.

2. Postergan la bancarrota por temor a que se hunda el euro (“They are delaying bankruptcy out of fear that the euro will sink”), Juan Chingo, La Verdad Obrera, N° 464.

3. See El triunfo del Partido Socialista en Francia, reportaje a Juan Chingo (“The Socialist Party’s Victory in France,” an interview with Juan Chingo), and Elecciones en Grecia: un rechazo a los partidos de la austeridad (“Elections in Greece: a rejection of the pro-austerity parties”) Alejandra Ríos, La Verdad Obrera, N° 474. To these results must be added the recent defeat of Angela Merkel and her government coalition, the CDU, in North Rhine-Westphalia, at the hands of the Social Democrats, which was interpreted as a national plebiscite.

4 . A widespread reduction of wages concealed under the inflationary mechanism. The nominal increases of wages are always below the level of inflation, on account of which their value in real terms falls, but as they nominally increase, they create the illusion that they are growing, and that stimulates consumption.

5. ¡Acabad ya con esta crisis! (“End This Depression Now”), Paul Krugman, 2012, Editorial Crítica, Barcelona, España.

Related articles

No hay comentarios a esta nota

Newspaper

  • PTS (Argentina)

  • Actualidad Nacional

    MTS (México)

  • EDITORIAL

    LTS (Venezuela)

  • DOSSIER : Leur démocratie et la nôtre

    CCR NPA (Francia)

  • ContraCorriente Nro42 Suplemento Especial

    Clase contra Clase (Estado Español)

  • Movimento Operário

    MRT (Brasil)

  • LOR-CI (Bolivia) Bolivia Liga Obrera Revolucionaria - Cuarta Internacional Palabra Obrera Abril-Mayo Año 2014 

Ante la entrega de nuestros sindicatos al gobierno

1° de Mayo

Reagrupar y defender la independencia política de los trabajadores Abril-Mayo de 2014 Por derecha y por izquierda

La proimperialista Ley Minera del MAS en la picota

    LOR-CI (Bolivia)

  • PTR (Chile) chile Partido de Trabajadores Revolucionarios Clase contra Clase 

En las recientes elecciones presidenciales, Bachelet alcanzó el 47% de los votos, y Matthei el 25%: deberán pasar a segunda vuelta. La participación electoral fue de solo el 50%. La votación de Bachelet, representa apenas el 22% del total de votantes. 

¿Pero se podrá avanzar en las reformas (cosméticas) anunciadas en su programa? Y en caso de poder hacerlo, ¿serán tales como se esperan en “la calle”? Editorial El Gobierno, el Parlamento y la calle

    PTR (Chile)

  • RIO (Alemania) RIO (Alemania) Revolutionäre Internationalistische Organisation Klasse gegen Klasse 

Nieder mit der EU des Kapitals!

Die Europäische Union präsentiert sich als Vereinigung Europas. Doch diese imperialistische Allianz hilft dem deutschen Kapital, andere Teile Europas und der Welt zu unterwerfen. MarxistInnen kämpfen für die Vereinigten Sozialistischen Staaten von Europa! 

Widerstand im Spanischen Staat 

Am 15. Mai 2011 begannen Jugendliche im Spanischen Staat, öffentliche Plätze zu besetzen. Drei Jahre später, am 22. März 2014, demonstrierten Hunderttausende in Madrid. Was hat sich in diesen drei Jahren verändert? Editorial Nieder mit der EU des Kapitals!

    RIO (Alemania)

  • Liga de la Revolución Socialista (LRS - Costa Rica) Costa Rica LRS En Clave Revolucionaria Noviembre Año 2013 N° 25 

Los cuatro años de gobierno de Laura Chinchilla han estado marcados por la retórica “nacionalista” en relación a Nicaragua: en la primera parte de su mandato prácticamente todo su “plan de gobierno” se centró en la “defensa” de la llamada Isla Calero, para posteriormente, en la etapa final de su administración, centrar su discurso en la “defensa” del conjunto de la provincia de Guanacaste que reclama el gobierno de Daniel Ortega como propia. Solo los abundantes escándalos de corrupción, relacionados con la Autopista San José-Caldera, los casos de ministros que no pagaban impuestos, así como el robo a mansalva durante los trabajos de construcción de la Trocha Fronteriza 1856 le pusieron límite a la retórica del equipo de gobierno, que claramente apostó a rivalizar con el vecino país del norte para encubrir sus negocios al amparo del Estado. martes, 19 de noviembre de 2013 Chovinismo y militarismo en Costa Rica bajo el paraguas del conflicto fronterizo con Nicaragua

    Liga de la Revolución Socialista (LRS - Costa Rica)

  • Grupo de la FT-CI (Uruguay) Uruguay Grupo de la FT-CI Estrategia Revolucionaria 

El año que termina estuvo signado por la mayor conflictividad laboral en más de 15 años. Si bien finalmente la mayoría de los grupos en la negociación salarial parecen llegar a un acuerdo (aún falta cerrar metalúrgicos y otros menos importantes), los mismos son un buen final para el gobierno, ya que, gracias a sus maniobras (y las de la burocracia sindical) pudieron encausar la discusión dentro de los marcos del tope salarial estipulado por el Poder Ejecutivo, utilizando la movilización controlada en los marcos salariales como factor de presión ante las patronales más duras que pujaban por el “0%” de aumento. Entre la lucha de clases, la represión, y las discusiones de los de arriba Construyamos una alternativa revolucionaria para los trabajadores y la juventud

    Grupo de la FT-CI (Uruguay)