Jump to content
The Education Forum

Euro crisis will give Germany the empire it's dreamed of


Recommended Posts

The euro crisis will give Germany the empire it’s always dreamed of

The Telegrah

By Peter Oborne Politics Last updated: July 21st, 2011

http://blogs.telegraph.co.uk/news/peteroborne/100098260/this-crisis-will-give-germany-the-empire-its-always-dreamed-of/

Many of the biggest losers from the Wall Street Crash were not those greedy speculators who bought at the very top of the market. There was also a category of investor who recognised that stocks had become badly overvalued, sold their shares in the summer or autumn of 1928, then waited patiently as the market surged onwards to ever more improbable highs.

When the crash came in October 1929, they felt thoroughly vindicated, and waited for the dust to settle. The following spring, when share prices had consolidated at around a third lower than the all-time high reached the previous year, they reinvested the family savings, probably feeling a bit smug. Then, on April 17, 1930, the market embarked on a second and even more shattering period of decline, by the end of which shares were worth barely 10 per cent of their value at their peak. Those prudent investors who had seen the Wall Street Crash coming were wiped out.

There was one crucial message from yesterday’s shambolic and panicky eurozone summit: today’s predicament contains terrifying parallels with the situation that prevailed 80 years ago, although the problem lies (at this stage, at least) with the debt rather than the equity markets.

After the catastrophe of 2008, many believed and argued – as others did in 1929 – that it was a one-off event, which could readily be put right by the ingenuity of experts. The truth is sadly different. The aftermath of that financial debacle, like the economic downturn after 1929, falls into a special category. Most recessions are part of the normal, healthy functioning of any market economy – a good example is the downturn of the late 1980s. But in rare cases, they are far more sinister, because their underlying cause is a structural imbalance which cannot be solved by conventional means.

Such recessions, which tend to associated with catastrophic financial events, are dangerous because they herald a long period of economic dislocation and collapse. Their consequences stretch deep into the realm of politics and social life. Indeed, the 1929 crash sparked a decade of economic failure around much of the world, helping bring the Weimar Republic to its knees and easing the way for the rise of German fascism.

So we live in a very troubling period. The situation is very bad in the United States, where ratings agencies are threatening the once unimaginable step of downgrading Treasury bonds, and Congress is consumed by partisan wrangling over raising the nation’s debt limit. But it is desperate in Europe, because the situation has been exacerbated by a piece of economic dogma.

The faith of leading European politicians and bankers in monetary union, a system of financial government whose origins can be traced back to the set of temporary political circumstances in the immediate aftermath of the Second World War, and which was brought to bear without serious economic analysis, is essentially irrational. Indeed, in many ways, the euro bears comparison to the gold standard. Back in 1929, politicians and central bankers assumed that the convertibility of national currencies into gold (defined by the economist John Maynard Keynes as a “barbaric relic”) was a law of nature, like gravity. European politicians have developed the same superstitious attachment to the single currency. They are determined to persist with it, no matter what suffering it causes, or however brutal its economic and social consequences.

There is only one way of sustaining this policy, as the International Monetary Fund argued ahead of yesterday’s summit in Brussels. Admittedly, the IMF should not be regarded as an impartial arbiter. Theoretically, its responsibilities stretch around the globe, but it has become the plaything of a reactionary European elite, of whom its latest managing director, Christine Lagarde (a dreadful and backward-looking choice), is the latest manifestation. However, the IMF was entirely correct when it pointed out that the only conceivable salvation for the eurozone is to impose greater fiscal integration among member states.

This advice was finally being taken yesterday – and it is almost impossible to overestimate the importance of the decision which European leaders seemed last night to be reaching. By authorising a huge expansion in the bail-out fund that is propping up the EU’s peripheral members (largely in order to stop the contagion spreading to Italy and Spain), the eurozone has taken the decisive step to becoming a fiscal union. So long as the settlement is accepted by national parliaments, yesterday will come to be seen as the witching hour after which Europe will cease to be, except vestigially, a collection of nation states. It will have one economic government, one currency, one foreign policy. This integration will be so complete that taxpayers in the more prosperous countries will be expected to pay for the welfare systems and pension plans of failing EU states.

This is the final realisation of the dream that animated the founders of the Common Market more than half a century ago – which is one reason why so many prominent Europeans have privately welcomed the eurozone catastrophe, labelling it a “beneficial crisis”. David Cameron and George Osborne have both indicated that they, too, welcome this fundamental change in the nature and purpose of the European project. The markets have rallied strongly, hailing what is being seen as the best chance of a resolution to the gruelling and drawn-out crisis.

It is conceivable that yesterday’s negotiations may indeed save the eurozone – but it is worth pausing to consider the consequences of European fiscal union. First, it will mean the economic destruction of most of the southern European countries. Indeed, this process is already far advanced. Thanks to their membership of the eurozone, peripheral countries such as Greece and Portugal – and to an increasing extent Spain and Italy – are undergoing a process of forcible deindustrialisation. Their economic sovereignty has been obliterated; they face a future as vassal states, their role reduced to the one enjoyed by the European colonies of the 19th and early 20th centuries. They will provide cheap labour, raw materials, agricultural produce and a ready market for the manufactured goods and services provided by the far more productive and efficient northern Europeans. Their political leaders will, like the hapless George Papandreou of Greece, lose all political legitimacy, becoming local representatives of distant powers who are forced to implement economic programmes from elsewhere in return for massive financial subventions.

While these nations relapse into pre-modern economic systems, Germany is busy turning into one of the most dynamic and productive economies in the world. Despite the grumbling, for the Germans, the bail-outs are worth every penny, because they guarantee a cheap outlet for their manufactured goods. Yesterday’s witching hour of the European Union means that Germany has come very close to realising Bismarck’s dream of an economic empire stretching from central Europe to the Eastern Mediterranean.

History has seen many attempts to unify Europe, from the Habsburgs to the Bourbons and Napoleon. This attempt is likely to fail, too. Indeed, a paradox is at work here. The founders of the European Union were driven by a vision of a peaceful new world after a century of war. Yet nothing could have been more calculated to create civil disorder and national resistance than yesterday’s demented move to salvage the single currency.

Link to comment
Share on other sites

Saving the euro at workers’ expense

Saturday, July 30, 2011 By Lee Sustar

euro_debt_crisis_by_roarmag.jpg

German Chancellor Angela Merkel and French President Nicolas Sarkozy — and the bankers whose interests they serve — hope Greece will be able to stagger forward, making debt payments and avoiding the financial domino effect of an out-and-out default. Image: Roamag.org The euro will survive for now — but only because working people in Greece and other European countries face greater suffering.

That’s the not-so-hidden agenda behind the new US$227 billion bailout of Greece organised by the most powerful countries of the European Union, mainly France and Germany.

The rescue comes little more than a year after a $155 billion rescue that was supposed to stop the debt crisis.

See also:

United States: the nonsense battle over debt

However, the deal is contingent on even greater austerity measures in Greece, where workers have struggled for months against cuts in social spending, higher taxes and growing unemployment.

“To secure the fresh funds promised by the eurozone last week, the Greek government has had to commit to years of strict austerity,” columnist Gideon Rachman wrote in the July 25 Financial Times. “The country’s future seems to promise blood, sweat and tear gas.”

But as with the previous bailout, the money isn’t really intended for Greece, but rather for the bankers who hold Greek government bonds.

Thanks to a guarantee by European governments, bankers who choose to contribute to a “voluntary” debt restructuring for Greece will get 69 cents on the dollar of their holdings of bonds.

That’s a loss, but it’s vastly better than the 20 or so cents on the dollar that the banks would get if Greece out-and-out defaulted.

Instead, Greece has carried out a “selective default”, meaning that its creditors will roll over its old loans to new ones at much lower interest rates — 3.5% — to be repaid over 15 or 30 years.

European governments will provide collateral on those loans via the European Central Bank (ECB).

The European Financial Stability Fund (EFSF), created last year to organise the bailouts of Greece as well as Portugal and Ireland, will use the $632 billion at its disposal not only to make new loans, but also to buy government bonds and recapitalise European banks.

Portugal and Ireland will also have access to the 3.5% interest rates on government bonds.

That’s a lot of money — but it isn’t enough to pay back Greece’s debts, much less alleviate the suffering of workers.

Greece’s current debt is more than $500 billion, a crushing burden for a country of just 12 million people.

The lower-interest loans will reduce that amount by only $38 billion — just 8%. Greece’s debt would remain above 150% of gross domestic product (GDP).

Given the limited relief in this latest bailout, there’s no conceivable way that Greece will be able to repay that debt.

European officials blame Greek workers for “living beyond their means”. In fact, the root of the crisis was an easy-money lending spree by big banks since the creation of the euro in 1999.

The banks were able to treat a Greek or Irish government bond the same as a German one, and they were able to hold far less capital in reserve than they would have if Greece had remained outside the eurozone.

This, in turn, enabled them to dramatically expand lending in relation to the money they had on hand.

When the bubble burst in 2007-2008, the banks had to be rescued by national governments. The result was an explosion of government debt.

Then the same banks that had been bailed out demanded that governments repay that crushing debt in full. The so-called “peripheral” economies were the first to feel the crunch.

To keep the eurozone from unravelling completely, the two countries that dominate it, France and Germany, have now twice overcome their disagreements to bail out Greece.

This time, by giving Greece just a bit more breathing room, German Chancellor Angela Merkel and French President Nicolas Sarkozy — and the bankers whose interests they serve — hope Greece will be able to stagger forward, making debt payments and avoiding the financial domino effect of an out-and-out default.

Foreign investors will move in to grab whatever they can in a fire sale of Greek government assets, which is expected under the terms of the latest bailout.

Meanwhile, the newly empowered EFSF will, Sarkozy said, act as a European version of the International Monetary Fund (IMF). It will make loans to heavily indebted countries to forestall a crisis — as long as they agree to conform to the austerity agenda.

But even if Greece manages to push through still more attacks on workers — no sure thing, given the scale of resistance — the debt crisis threatens to bring down other countries as well.

In the days before the July 21 European summit that came up with the latest Greek bailout, Italy and even France were under fire from investors worried about those governments’ ability to repay their debts.

As a result, interest rates on Italian and French bonds jumped sharply. Panicked, the Italian government pushed through an austerity budget.

As for Germany, the July 21 Wall Street Journal wrote: “Germany is no more responsible for Italy’s and Spain’s debts than it is for Greece’s. More importantly, Germany doesn’t have resources to write a check for Italy and Spain even if it wanted to.

“At most, with its debt burden already over 83% of GDP, Germany has the resources to recapitalise its own banks after a Southern European meltdown.”

All this highlights a fundamental problem with the European rescue plans: the countries that fork over money to provide loans and collateral for Greece are themselves on shaky ground, especially given the scale of the bailouts.

Rather than a comprehensive and decisive solution to the euro mess, the second Greek bailout is another effort to kick the can down the road and hope that economic recovery provides an eventual solution.

A more likely scenario, though, is a new crisis in other debt-burdened eurozone countries.

As the July 27 FT noted: “A broadening of the eurozone debt crisis to other, larger, countries such as Italy or Spain, would exhaust funds available to the European financial stability facility, the EU’s bail-out mechanism, which is due to provide much of the external help to Greece.”

Austerity is already strangling growth in Greece as wages are cut, consumer demand plummets and investment dries up. There’s no reason to believe that the latest squeeze on Greece will fuel a recovery.

And if the debt crisis breaks out anew in Greece or some other country, European banks (and some US ones) will find themselves in need of yet another rescue. But a bailout of banks hit by a Greek default would stretch the European financial system to breaking point.

In other words, the euro crisis is far from over. The weak economy means debt burdens in the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) are all likely to grow relative to GDP.

With the day of reckoning for the euro postponed for now, European governments will get on with the business of hammering the working class, wiping out decades of economic and social gains at breakneck speed.

In Greece, it’s unelected bureaucrats from the ECB, European Union and IMF dictating the terms. The centre-left PASOK government simply rubber-stamps their edicts.

On July 20, BBC News provided a grim summary of the euro-austerity campaign before the latest Greek bailout. Greece will be hit with $9.4 billion in tax increases between 2011 and 2014, including the value-added tax, along with a 15% cut in public-sector wages and a 30% pay cut for workers in state-owned enterprises.

With unemployment already at 15.8%, the suffering will only grow.

Portugal has been hit with an austerity program in exchange for its $112 billion bailout last year.

This includes an increase in the value-added tax, reducing workers’ purchasing power, and cuts in a range of social services.

GL%20banner%20ad1.jpg

Ireland, which got a $122 billion bailout a year ago, is cutting its budget by $8 billion — a huge sum in a country of only 4.6 million people.

Spain, where unemployment has doubled to 21% since the recession, is on track to cut its budget by 8%.

Italy has cut $100 billion from its budget, in part by targeting health care and family tax benefits.

And the austerity drive isn’t confined to the eurozone. Britain is carrying out its biggest wave of cutbacks since the Second World War, aiming to eliminate 490,000 public sector jobs.

Bankers and corporations across Europe are demanding a sharp cut in social spending and a transfer of wealth to help them survive the crisis.

Thus, both conservative and social democratic governments are carrying out the same program of cuts, cuts and more cuts.

If democracy gets in the way, conditions will simply be imposed by an anonymous group of officials.

These relentless attacks have provoked the largest wave of resistance among European workers in decades.

A strike movement swept France in late 2010, involving wider groups of workers than the famous general strike of 1968.

General strikes have taken place in Portugal and Spain, marking the largest worker mobilisations in decades.

Greek workers carried out a series of general strikes involving both public and private-sector workers.

In Spain, the initiative has also passed to young people — the “indignants” who, inspired by the Egyptian revolutionaries of Tahrir Square, occupied the main plaza in Madrid and cities around the country.

That, in turn, set an example for Greek protesters, who occupied Syntagma Square outside the parliament building in the days before the government vote on austerity measures in late June.

These struggles weren’t successful in stopping the austerity drive. The ruling classes of Europe have made it clear that it will take a much greater level of working-class resistance to defeat these attacks.

But that lesson is being absorbed by working people across the continent, especially young people. As the attacks intensify, the potential for a bigger and more radical fightback has grown.

[Abridged from SocialistWorker.org.]

From GLW issue 889

Link to comment
Share on other sites

Please sign in to comment

You will be able to leave a comment after signing in



Sign In Now
×
×
  • Create New...