“The eurozone has ten days at most”, wrote Wolfgang Münchau, the sober, economically-orthodox commentator on European economics for the Financial Times, on 28 November.
“Unless something very drastic happens, the eurozone could break up very soon”. Already, he says, with the rise in the interest rates that governments have to offer to sell bonds [IOUs repayable after a fixed period of years], and the banks finding it increasingly difficult to raise funds, “important parts of the eurozone economy are cut off from credit”.
The European Summit deal of 27 October was no good. It was supposed to backstop eurozone governments’ creditworthiness, but now Italy, Spain, and even France are struggling to raise funds.
Banks in Europe face a “funding crunch” (FT, 28 November), unable to sell enough bonds to pay off the old bonds which fall due this year.
The 27 October scheme envisaged the European Financial Stability Facility boosting itself mightily by borrowing on global markets, but it hasn’t been able to. The scheme’s specific plans for Greece could be unworkable because of social resistance, and in any case are unlikely to reverse the trend for previous “bail-out” plans to depress Greece’s economy and thus actually to increase, rather than reduce, the ratio of Greek government debt to Greek economic output.
German chancellor Angela Merkel now recognises that the scheme was a flop, and on 14 November urged drastic new moves to stronger economic union and political union in Europe.
Even if Merkel’s plans were fully adequate to manage the crisis, which they are not, the mechanics of decision-making in the eurozone’s and the European Union’s patchwork semi-federalism are cumbersome and slow, and the global financial markets can be lightning-fast.
Banks and governments depend on raising fresh credit in the global markets every week. Once they lose creditworthiness, they can fall over the edge very fast. In the current climate, as soon as one weaker eurozone economy falls over the edge, saying that it can no longer pay back its bonds, then global financiers will rush away from lending anything, at any price, to other weaker economies. They will follow each other over the edge, with each fall making further economies weaker. (Thus, if Italy says it can no longer pay its bonds, many French banks will face ruin, and it will become a question whether France can pay its bonds).
That, I guess, is why Münchau thinks that bold new decisions at the next European Summit, on 9 December, are the only hope for averting “violent collapse”.
The “violent collapse” would seize up the global credit markets through which capitalism feeds and breathes in the same way that the Lehman Brothers collapse did in September 2008, only on a much greater scale.
The fact that Britain is not in the eurozone would be secondary. A British economy already double-dipping would crash along with the rest of Europe.
For the labour movement and the left to rejoice at the collapse, because it is bad for capitalism, would be foolish. It would be equally foolish for the labour movement and the left to make ourselves humble helpers for one or another Euro-capitalist rescue scheme. All the capitalist rescue schemes involve harsh cuts and privatisations, and all may be hopeless anyway.
The specifically eurozone part of the global capitalist crisis stems in large part from the inbuilt inadequacy and clumsiness of a “unification of Europe” which is only a quarter-unification and is managed from above, bureaucratically, and within neo-liberal dogmas, by patchwork compromises between capitalist clusters which simultaneously, like all capitalists, compete viciously.
Eighty-eight years ago Leon Trotsky wrote: “To the toiling masses of Europe it is becoming ever clearer that the bourgeoisie is incapable of solving the basic problems of restoring Europe’s economic life. The slogan: ‘A Workers’ and Peasants’ Government’ is designed to meet the growing attempts of the workers to find a way out by, their own efforts. It has now become necessary to point out this avenue of salvation more concretely, namely, to assert that only in the closest economic co-operation of the peoples of Europe lies the avenue of salvation for our continent from economic decay...”
That is true today, too. The labour movement and the left should neither plaintively advise the Euro-bosses, nor foolishly rejoice at the prospect of the break-up of capitalist Europe into a bearpit of countries very closely intertwined economically, yet erecting walls between themselves and competing without restraint.
We, the labour movement and the left, need our own plan for the reconstruction of Europe in the interests of the working class, based on social ownership and control of the great accumulations of productive wealth and in the first place of the banks, on workers’ control of economic life against the domination of the global markets, and on social levelling-up across the continent.
We are far from that. The European TUC calls only for “Eurobonds to facilitate investments for sustainable jobs”, “a financial transactions tax”, and “fair taxation”. The “Party of European Socialists”, the Europe-wide link-up of social-democratic and Labour Parties, held a special conference on 25-26 November in Brussels, but produced no better ideas. Several of the social-democratic leaders — in Greece, in Spain, and in Portugal, until very recently — have been in government pushing through the cuts-and-privatisation “answer” to the crisis, against working-class resistance.
And the more insular British labour movement has not even started a debate about the continent-wide dimensions of crisis.
We need a voice in the European labour movement calling for workers’ unity across Europe with a common programme to remake European unity.
Euro exit is no short cut to left victories
The Research on Money and Finance group, centred at the School of Oriental and African Studies in London, has produced a big new report: “Breaking up? A route out of the eurozone crisis”.
It seeks to present a left-wing case for Greece quitting the euro. Oddly, though the report collects valuable information and analysis on the eurozone crisis as a whole, it says almost nothing about policies in other countries.
“To keep the analysis manageable, it is assumed that only Greece defaults and exits, abstracting from [the possibility of] another country following suit”. The presumption, then, is that the eurozone continues, only minus Greece.
A workers’ government in Greece, which moved decisively against the bankers, the bosses, and the rich, would not submit quietly to eurozone and EU rules. It would make large demands for the cancellation of debt, and might well end up going for default on the debt and exit from the eurozone. It would need to stimulate solidarity across other countries in order to thrive.
Greece is a small country, which, as the report notes, “lacks foreign-exchange reserves”. It is dependent on imports for energy and many foodstuffs and medicine, as well as high technology. It imports much more than it exports ($48 billion as against $16 billion in 2010), and depends on tourism to make good much of the difference. It has no large export industries which could suddenly become super-competitive in world markets with a little extra investment.
A government dependent solely on the force and sharpness of Greece’s economic elbows in the global markets would be in trouble. Yet workers across Europe face cuts similar to those in Greece, and sometimes only a few degrees less severe, and could be inspired into common struggle by a Greek workers’ offensive raising Europe-wide demands.
The converse sequence, recommended by the report, that default and exit “could trigger a deep and progressive transformation of the Greek economy” or be “the preamble to a broad programme that would restructure Greek economy and society” (for the better), has less logic.
What are Eurobonds?
The French government and the European Commission propose “eurobonds”, but the German government is vetoing them. These would be bonds sold by national governments, but guaranteed by the entire financial might of the eurozone.
Buyers of such bonds would know they were sure to get their money back. If the Greek or some other government issuing them could not pay, then other eurozone powers would step in to honour their guarantees, and sort it out between themselves and Greece later.
All eurobonds, irrespective of the country that had issued them, would be equally solid assets. There would be a huge market in these eurobonds, making them attractive to governments and banks across the world who want assets which are safe and which can easily be exchanged for cash whenever they want.
A large eurobond programme would settle the immediate crisis caused by governments like Greece, Portugal, Ireland, and increasingly Spain and Italy, not being able to borrow on global markets.
Its downside, as capitalists in the stronger countries of the eurozone, especially Germany, see it, would be to lead to weaker economies constantly running into debt blow-outs. Either that, or it would have to be accompanied by strong control by central eurozone institutions over the budgets of those weaker economies, something difficult to legislate for and even more difficult to enforce without unmanageable odium.
German and other capitalists also think that a large eurobond programme would lead to a decline in the relative value of the euro as compared to the US dollar, the Japanese yen, etc., and thus to their exports having more difficulties in countries outside the eurozone.
The European Financial Stability Facility, set up in 2010, already issues a sort of eurobond, but in limited quantities. The European Central Bank, in the current crisis, has started buying up old bonds of the weaker countries, in an effort to stop them becoming unsaleable.
It is possible that, faced with a choice between cataclysmic collapse of the eurozone, and measures which store problems for the future but avert collapse today, the euro-leaders will go for some, probably limited and modified, new version of eurobonds. If they do, they are sure to link the move with attempts to impose even sharper cuts.
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