|SocialismToday Socialist Party magazine|
Lost in Euroland
As the eurozone crisis develops, its political and institutional leaders are becoming increasingly desperate as they look for a way out. All roads are treacherous. As ROBERT BECHERT reports, however, this is also a severe test for the left.
"THE EURO SHOULD Not Exist (Like This): Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change". (UBS Investment Research, 6 September)
This blunt statement, at the start of a widely circulated report by a leading Swiss bank, summed up the fundamental character of the ongoing crisis in the eurozone. Despite a series of emergency meetings and the agreement of rescue plans, this crisis has continued to deepen, threatening not only the European economy but also to worsen the already deteriorating world situation, and a dreaded ‘double-dip’ recession. That was the reason US Treasury Secretary, Timothy Geithner, attended an EU finance ministers meeting in mid-September. European governments face a potentially massive crisis with no easy way out, as long as capitalism remains.
Desperate attempts are being made to patch up a ‘solution’, although how long any deal will last is a different question. Within 24 hours of a plan surfacing at the mid-October G20 finance ministers’ meeting, Angela Merkel’s spokesperson warned against "dreams currently doing the rounds" that everything will be solved at the following week’s EU summit. One minister warned of a "world of pain" if no solution was found, something which millions are already starting to suffer as the crisis hits.
The widely perceived helplessness of the governments and EU institutions, and the fact that they have been lagging behind events, incapable of putting forward a solution, have only added to the spreading popular fears of what lies ahead.
This is not an abstract crisis. The eurozone disarray is adding to the misery facing many workers and youth across Europe. Living standards are falling as inflation is rising, alongside unemployment in many countries. Cuts in services and wages are widespread. In Greece, currently the worse hit country, the vast bulk of the population is plunging downward into a deep economic and social crisis and facing a huge drop in living standards. The Financial Times estimated that "planned tax increases and spending cuts for 2011 are equivalent to about 14% of average Greek take-home income – or €5,600 for every household… [measured on] a per-head basis, the total 2011 austerity package is worth €2,200". (18 October)
Europe is on the edge, facing the possibility of a sudden crisis, especially a banking and financial meltdown that could paralyse much of the ‘real’ economy.
A wake-up call
AS POPULAR FEARS grew, governments in and out of the euro rapidly became aware of the potentially devastating impact that an event, like a sudden Greek default, could have. After looking over the abyss of what a new banking crisis and/or a country leaving the euro would mean, the main eurozone countries drew back and agreed to make another attempt to defuse the situation.
In recent weeks, warning signs were flashing. Rumours flew around about the condition of the banks. Many are facing a critical situation which is why the European Central Bank (ECB) has again taken steps to prop some up. While the early October collapse and subsequent nationalisation of the Belgian-French Dexia bank took the headlines for a few days, it was hardly mentioned that, simultaneously, two smaller banks, Max in Denmark and Proton in Greece, were also nationalised.
While UBS published its views on the euro, the chief executive of Bosch, the world’s largest auto parts supplier, warned that the eurozone has entered "an extremely critical situation". While the German-owned Bosch has full order books now, "in 2008-09 we experienced how fast these orders can melt away". (Financial Times website, 7 September)
The worsening world economic prospects are deepening the European crisis, not just in the eurozone but also in Britain. Wolfgang Münchau wrote: "The most disturbing aspect of the eurozone right now is that every crisis resolution strategy depends upon a moderately strong economy recovery". (Financial Times, 5 September)
The Committee for a Workers’ International (CWI) warned before the euro’s launch that it would not lead to unity, but would breakdown as a result of clashes between the rival national capitalisms and, in the absence of a workers’ alternative, strengthen nationalism. (See box)
In fact, the euro has created a Frankenstein monster. The Greek crisis has brutally revealed this truth. At one time, markets expected a ‘managed default’, and there were voices inside the stronger eurozone countries that Greece should be thrown out. The German transport minister, Peter Ramsauer, told Die Zeit in mid-September that it would "not be the end of the world" if Greece were kicked out of the single currency. But the growing realisation that this meant the prospect of massive collateral damage across the international banking system has forced other governments to act.
For now, discussion of forcing weaker countries like Greece to leave, or the possibility of stronger countries like Germany deciding to quit the euro, has stopped, although this can reappear in the future. The failure of Dexia was a wake-up call. One reason for Dexia’s collapse was its exposure to Greek government debt, estimated at 39% of its equity capital. But this is not unique. This summer, the comparable figure at Germany’s second biggest bank, Commerzbank, was 27% (Wall Street Journal, 31 August). Dexia’s collapse is a warning that it would be extremely expensive to maintain a financial firewall around Greece should it suddenly default.
A more drastic haircut?
WITH SPREADING FEARS of both the ‘health’ of banks and the impact of a Greek collapse, banks again turned to the ECB as a ‘safe’ place to invest, rather than lend to other banks, and for short-term funding. But it is not just a question of Greece triggering a crisis: unexploded financial bombs litter the European landscape. The European Bank for Reconstruction and Development has just cut back the forecasts it made in July for 2012 economic growth in central and eastern Europe – in Hungary, from 2.8% to 0.5%. Not only does this bode ill for Hungarians but it also threatens Austria’s banks, which are heavily exposed to Hungary.
The new drive to attempt to stem the crisis was behind the pressure in October to force Greece’s creditors to accept more of a ‘haircut’, a reduction in the amount of their loans they will actually get back. In July’s rescue deal an average 21% was agreed. At that time, the French government, fearing the impact on its own banks, rejected a 40% cut. However, by mid-October, figures of 40-60% were being discussed such was the seriousness of the situation. This, governments hope, would avoid a formal default and allow a managed restructuring that would prevent a sudden crisis. But even with this figure it would not be the rich who really paid, the banks would attempt to offload the cost onto taxpayers and customers.
Nevertheless banks resisted the increased losses. German banks, in particular, complained bitterly. Andreas Schmitz, head of BdB (German banking federation) complained that politicians should not declare ‘war’ against banks (Bild.de website, 15 October). The next day, Schmitz accurately summed up the current reality when he said that the 15 October anti-bank protests were "a diversion from the fundamental problem: that we can no longer finance our welfare states". (Financial Times website, 16 October) Of course, by ‘we’ he meant the capitalist system and its ruling classes.
Really, a poker game is going on as the different countries and financial institutions struggle over the size of the ‘haircut’ and the EFSF (European Financial Stability Facility), how the EFSF will be funded, the role of funding from outside the EU and other issues. Relations between the French and German governments have become strained. While there is enormous pressure to reach an agreement, even if there are doubts as to how long it will last, the risk of an ‘accident’ causing a disaster is ever present.
Dangerous to leave
FEARING THE CONSEQUENCES of a breakup of the current eurozone or an abrupt Greek default, the stronger EU powers are debating possible new structures to tighten controls over economically weaker countries as a price to provide financial support.
While eurobonds would appear to be a logical capitalist solution for the ruling classes to attempt, they would run up against the growing popular opposition in all countries to the idea of underwriting other countries’ banking debts. This is not simply a result of nationalist campaigns against, for example, Greece. Falling living standards in most countries and the bitter understanding since 2007/08 that much of the bailouts will actually end up in the hands of the banks and finance markets also fuel the opposition.
In answer to this opposition to financing other countries’ debts there are proposals to set up new structures to impose controls on eurozone countries. How effective they would be is another question. In 2003, the euro’s original stability and growth pact was ignored because the two largest powers, France and Germany, broke its conditions. In an attempt to escape political pressures for flexibility, the Dutch finance minister, Jan Kees de Jager, while supporting the German economics minister, Philipp Rösler’s idea of a European stability council that could impose sanctions, said that its decisions should be made by "academics and experts – but no politicians" (Spiegel Online, 22 August).
However, such measures would only backfire. In Germany there is already resentment at what is seen as the EU moving towards a ‘transfer union’. The tensions inherent within the eurozone will increase, especially in this period when there is no immediate prospect of sustained economic growth.
Events this year have posed the question about the eurozone’s future, whether all the present members will remain? As the UBS report (see box) shows, there would be substantial economic and political costs and dangers involved in leaving the zone. This is the Frankenstein factor. The eurozone countries have created a system which is imposing huge costs on some economies and strangling others, but which is very dangerous to leave.
However, while these costs can delay such a break, tensions could mount that will force a brutal shakeup. This is why, despite the massive overheads, there are discussions about the possibility and methods of a breakup. In Germany, there is a kind of undercover debate within the ruling class because, while leaving the euro would remove the need for it paying towards the weaker eurozone countries, this would, at a stroke, cut its ‘home’ market from 332 million to just under 82 million. At the same time, German exports would be undermined by a new currency that would probably initially soar in value.
A living struggle
ALONGSIDE THE MOUNTING euro crisis and national difficulties, there is rising anger among workers, youth and the middle class as the effects of the crisis bite deeper. This is the reason for the unpopularity of most European governments, the mass demonstrations and strikes in a series of countries.
A new stormy period has begun and sharper struggles will develop. While determined struggle, the threat of resistance or a very serious economic or social situation can force governments to make temporary concessions, generally the ruling classes will be forced by the crisis of their system to, at best, hold down living standards. That is the meaning of Schmitz’s statement and the reason why ruling classes will be forced to attempt to push attacks through.
Faced with serious opposition, governments will tend to move to use more authoritarian methods. These will vary according to the situation in each country but, in the worst-case scenario, the ruling classes will even look to dictatorial measures. Today, Greece is facing a social and economic disaster and its ruling class is not confident of what will happen. This is the background to the report last May in the German mass-circulation Bild, that the CIA was speaking of a possible coup in Greece in the event of severe unrest developing. This is unlikely in the near future, but in a situation of continuing turmoil such an attempt cannot be ruled out. The Greek military have done this before – the last time in 1967, and they ruled for seven years. But a new coup, in a time of deep crisis, could be quite different from the last colonels’ regime.
Such a development is not inevitable, but depends on the character and policy of the opposition movements, particularly the workers’ movement.
In some sense it is a race between the left and the right as to who will lead the opposition to the eurozone’s polices. In a number of countries, it has been right-wing populists who, in the absence or weakness of the left, have made electoral gains by combining some social issues with nationalistic, anti-EU and anti-migrant slogans.
Unfortunately, the response of the official leadership of the workers’ movement has been limited, with most of the pro-capitalist trade union leaders only organising action when they have been pushed from below. Even when actions are organised, union leaders try to restrict them to symbolic actions and strive to avoid them becoming a step in a serious struggle.
THERE IS A reluctance within the trade unions and in many left parties to challenge the EU or the euro, which is sometimes justified by pointing to the EU’s right-wing nationalist opponents. Rather than explaining that the EU is not a step towards socialist internationalism but a club of capitalist nations run in the interests of big business and the big powers, the largest grouping of European left parties, the European Left Party (ELP), talks of a ‘re-foundation’ of the EU. It does not mention any break with capitalism and, by implication, supports the continuation of the euro.
The UBS report warns of the wider possible consequences of a massive crisis and eurozone breakup. There would not only be huge disruption but the growth of national tensions and conflicts. UBS is not alone in warning of "some form of authoritarian or military government, or civil war". In mid-September the Polish finance minister warned the European parliament, in a ‘personal’ comment, of the dangers of new wars in Europe. Later, he was asked to explain this and he said that, while war is not likely "within a four-year legislative timeframe… Not in the months ahead, but maybe over a ten-year timeframe, this could place us in a context that is almost unimaginable at the moment".
While not immediately posed, future conflicts between states cannot be ruled out if the working class is not able to impose its own socialist solution to the crisis. But the EU, a completely capitalist institution that is effectively run by the major powers, is not a vehicle for either socialist change or democratic socialist planning.
The ELP, whose strongest parties are Die Linke (The Left) in Germany, Parti Communiste (PCF) in France, Bloco de Esquerda (Left Bloc) in Portugal and Izquierda Unida (United Left) in Spain, puts forward a number of individual policies that socialists support, although often these are vague, loose formulations. However, it does not link these together into an overall anti-capitalist, socialist programme.
This approach was seen in Die Linke’s three demands on what the German government should argue for at the October 15/16 G20 finance ministers’ meeting. They were: worldwide, strict regulation of ‘finance casinos’; a tax on financial transactions; and a coordinated conjunctural programme. However, these proposals could not be fully implemented under capitalism and, while Die Linke also mentioned its call for public ownership of the banks, its approach was one of demanding are measures that could be taken within capitalism.
Naturally, socialists argue for individual demands that can immediately improve the conditions of working people and the poor. But such campaigns should be accompanied by an explanation that these demands can only provide temporary improvements and that, especially in this time of crisis, a socialist transformation of society is required. Without this explanation they are attempts to run this system in a ‘better’, ‘fairer’ way, which will ultimately fail.
The speculators’ grip
A KEY FACTOR in the development of this crisis has been the massive pressure from the financial markets. Since the breakup of the post-second world war Bretton Woods currency system and the deregulation of finance there has been a huge explosion of the finance markets, alongside a similar growth of all forms of speculation in commodities, property and spread-betting on anything that moved, or didn’t. The figures are mind-blowing and hard to grasp. In the EU in 2010, finance transactions were 115 times the EU’s €12,300 billion GDP (Financial Times, 18 August). All the political leaders bow to these markets. Often their official statements are directed simply to the markets.
Naturally, the question of how to break the grip of this speculative market’s grip over nearly all aspects of life is a burning issue. It cannot be ruled out that different capitalist nations, or groups of nations, may attempt to isolate themselves or place some controls on these markets – in effect, states clipping the speculators’ wings in the wider interests of capitalism as a whole. But this would be no long-term solution. For example, an attempt to go back to a system of fixed exchange rates would not, in the medium or longer term, prevent currency crises or forced devaluations.
There is now growing support for a tax on financial transactions (a Robin Hood or Tobin tax). This is now the official policy of the EU Commission, seen as a useful political gesture and a way of raising funds. While socialists would not oppose such a tax, it would leave untouched the basic power of the huge financial and trading institutions that run these markets.
Similarly, simply leaving the euro would not solve the problems of Greece or other countries. Socialists opposed the introduction of the euro and today support breaking its grip and that of the ‘troika’ (the EU, ECB and IMF) that are effectively dictating what the Greek government should do. The key question in Greece is breaking with the capitalist system. Without this, living standards will fall for some time.
A socialist task
SOCIALISTS WOULD NOT oppose leaving the euro but would firmly link such a move to a socialist, not state capitalist, policy of bank nationalisation. In a single country breaking from capitalism, a state monopoly of foreign trade and capital controls would be necessary as a defence from the international markets until similar movements spread to other countries. These steps, as part of a policy to bring the commanding heights of the economy into democratically run public control and ownership, would allow a start to be made in planning the use of economic resources for the benefit of all. Without such a socialist policy the results of leaving the euro would be along the lines spelled out in the UBS report, namely a cut in living standards.
Much of the popular opposition to the EU is based on the way it is run in the interests of the big countries and companies, and the privileges of its bureaucratic elite. Socialists, however, while fighting nationalist oppression and EU diktats, do not oppose the EU or the euro from a narrow, nationalist standpoint. The unification of the whole of Europe would be an enormous step forward. But this cannot be achieved on a capitalist basis. The existing EU institutions are agencies of the capitalist ruling class, incapable of surmounting capitalist limitations.
The task facing socialists is to argue for a socialist internationalist alternative to the pro-business EU – a voluntary socialist confederation of European states. Without this there is the danger that opposition will take a nationalist direction.
This decisive turning point has opened up a new period of sharper struggles that will provide an opportunity to rebuild the workers’ and socialist movement, not as an end in itself but in order to build the forces that can fundamentally change society, end the chaos and instability of capitalism, and really make poverty and fear a thing of the past.