The Crisis, Part Two

Submitted by martin on 9 June, 2010 - 12:26 Author: Colin Foster

On 7 June the German government, which faces no acute government-debt crisis, announced £66 billion cuts.

The cuts will come mostly from welfare benefits, but will also slice off 15,000 public sector jobs.

Germany's move is part of a wider pattern.

Germany is pushing for other European Union countries to adopt a constitutional amendment like the one Germany voted through in May 2009. That amendment comes into force from January 2011 and prohibits all but the smallest budget deficits from 2016.

France has already made a constitutional amendment, banning budget deficits from 2018.

Britain's coming cuts are part of a drive across Europe for governments to retrench.

The 750 billion euro "rescue package" fixed up in May by the eurozone governments does not fit the pattern, but was adopted only under fear of Greece defaulting. The constitutional amendments include allowance for breaking the bans in economic crisis. But the governments' general direction is clear.

It means that "neoliberalism" still rules. Governments are still geared to keeping their countries as attractive sites for footloose global capital to perch in.

That means open borders (for capital and commodities, not necessarily people); privatisation; easy-going regulation; low taxes on the rich and corporations; and union-bashing.

It also means infrastructure - education, health, transport, and communications systems - good enough for the multinationals. For now the governments reckon that the advantages of keeping inflation and interest rates low will (for the multinationals) outweigh the costs of damage through cuts to public services.

The advantages also, in their view, outweigh the possible costs of a "double-dip" downturn caused by those cuts, so long as the "dip" is mild.

The USA and Japan depart from the European pattern. Both still run huge budget deficits without blinking, though in the USA states like California started making big cuts long ago.

Why? The US federal government, whatever the long-term damage to its global hegemony from the current crisis, benefits short-term because US Treasury bonds are the safe haven of last resort for capitalists worldwide. US 10-year bonds are still trading at 3.2% interest, lower than most European countries. (Greece, 8.3%. Portugal, 5.4%. Ireland, 5.3%. Spain, 4.7%. Italy, 4.3%. Britain, 3.5%. France, 3.1%).

Japan's exceptionality is different. The USA had falling prices from August 2008 to April 2009, but is back to about 2.2% pa inflation now. Japan is still stuck in a long-term pattern of falling prices. The Japanese government does most of its borrowing within Japan, and has to offer only an 0.2% interest rate for short-term borrowing or 1.3% for ten years.

The European governments could choose to allow higher inflation - the IMF has suggested a target of 4% - to erode their debt backlog. For now they have decided not to.

The choice of big, quick cuts is not enforced by iron economic laws. If all the European governments decided differently, world financial markets would have to live with it. The value of the euro would fall relative to the dollar and the yen, and that is about all.

It may come to that anyway. There is a huge wall of debt repayments due in 2011 and 2012 from Italy, Spain, and Portugal. The existing 750 billion euro "rescue package" does not look like enough to ease them through, and the governments may have to choose further emergency measures.

In any case, the cuts drive is not a measure to cure the crisis. It is the form the next stage of the global capitalist crisis takes given the decision by European capitalist governments to cleave to the rules of neoliberalism.

Fight the cuts, fight neoliberalism, fight capitalism!

Add new comment

This website uses cookies, you can find out more and set your preferences here.
By continuing to use this website, you agree to our Privacy Policy and Terms & Conditions.