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Proletarian issue 51 (December 2012)
Europe in chains: lessons of the economic crisis
Capitalism is revealing its inherent and inescapable flaws more clearly every day. It is the job of communists to use the hard lessons provided by this failing system to show workers that there is only one way out of the downward spiral.
Austerity regimes are being imposed on the working class and oppressed masses throughout the capitalist world as the ruling classes of the various countries frantically try to escape from the crisis in which their economic system has enmeshed us all.

In an effort to justify this unearned collective punishment, the ideologues hired by these billionaires can frequently be heard saying – no doubt from the comfort of one of their several luxury homes – that the working class has lived ‘beyond its means’ for decades and must now pay the price.

Britain

We are expected to believe that the present crisis is the result of the overweening generosity and kindness of the bourgeoisie, who have mollycoddled us, showering us with such ‘unaffordable’ luxuries as good health care, good education provision for all ages (for years in the UK it was provided without cost even at postgraduate degree level), and wage levels that allow for skilled workers at least to have foreign holidays, plenty of beer, household gadgets galore and even to own their own cars.

Indeed, if we compare what those of us in work had in 2008 (before the crisis hit Britain in earnest) with what our parents would have had at our age, let alone our grandparents), it is not difficult to persuade us that, by their standards, we have been living extravagantly.

However, figures released last month by the Office of National Statistics (highlighted in a Telegraph articleby Damian Reece) put this issue in perspective. Yes, wages have gone up:

Real wages, adjusted for inflation, are up 62 percent on average during the 25 years between 1986 and 2011. Everyone is better off. But do we pass the L’Oreal test? Are we worth it?

Well, yes, on the whole we are. Real GDP, the total value of our economic exploits, rose 83 percent during the same period so, as a workforce, we have added value to UK plc. Give yourselves a pat on the back.

The lowest paid have had the second highest increase, with the bottom 1 percent of earners seeing real wages rise 70 percent. The top 1 percent are up more than double with a 117 percent rise over the 25 years. People with higher-paid jobs generally requiring higher levels of experience, qualifications and skills do better over the long term than their less qualified colleagues – a fact school children should be made to memorise.

Even low-paid workers before the crisis were improving their position – that is, those low-paid workers who were on the books. Britain’s army of casually-employed, mostly immigrant workers who receive pay well below the minimum wage, do not of course, register in the official statistics. According to Mr Reece, “since the introduction of Tony Blair’s national minimum wage in 1998, the bottom earners have outstripped the top earners in terms of wage growth. The lowest 10 percent of earners have seen earnings rise 51 percent compared with a 30 percent rise for the top 1 percent.

But the increase in wage differentials nevertheless continues its upward trend – the rich continue to get richer under capitalism, while the poor, in relative terms, still continue to get poorer:

That said, the difference between the highest and lowest earners has widened since 1986 when the top earners had average earnings 8.1 times higher than the lowest. That compares with 10.3 times in 2011. But that ratio has improved since 1998 when it was 12 times – again a function of the minimum wage.

Since the crisis set in, however, as we all know only too well from personal experience, the working class is paying the price:

In the 1989-1993 recession, real wages continued to rise, placing significant cost burdens on employers, resulting in high unemployment. But between 2007-2012 real wages fell across the board. The bad news here is that falling real wages have not kept pace with rising inflation, squeezing real incomes and contributing to recessionary pressures by reducing consumer spending.”

However, we must console ourselves, thinks Mr Reece, with the realisation that “the good news is that those real wage cuts have reduced costs for employers so keeping unemployment at surprisingly low levels given the severity of the downturn. It’s now 7.9 percent.

Of course, Mr Reece is happy to use official unemployment figures, which have been massaged out of all connection with reality. Moreover, if wages have gone up 62 percent in the last 25 years while GDP has gone up 83 percent, what has UK plc done with the difference? Much of the answer lies in the concluding lines of Mr Reece’s article:

Real wages may be up 62 percent but the FTSE 100 is up 109 percent plus inflation-busting dividends which, if they had been reinvested in the market, would have produced a real total return of 672 percent.” In other words, the lion’s share has gone to the idle rich.[1]

Surely nothing better illustrates the fact that the current crisis is taking place not because of the supposed extravagance of the mass of working people but despite the increased levels of production that they have generated.

In any sane society, increased levels of production should be reflected in increased standards of living. In capitalist societies, however, they give rise to ‘overproduction’ – to the unsaleability of commodities produced, to the bankruptcy of the producers, to unemployment, destitution and misery ... and to austerity.

What a crazy world we’re living in!

Spain

If, under capitalism, workers are cyclically pauperised and deprived of the things they need because they have produced too many of the things they need, a most poignant example of this is given by the current situation in Spain.

Spain, one of the countries of the eurozone most threatened with sovereign default, is currently being relentlessly brought to its knees by its government’s austerity programme. Public expenditure has been slashed, and thousands of government jobs wiped out, while employees’ wages and benefits are being reduced in a frantic effort to contain the meteoric rise of public debt.

The main focus of Spanish overproduction has been in the construction of residential housing. Until crisis struck, there appeared to be no end to an insatiable demand for homes and second homes in Spain, with which the Spanish construction industry struggled to keep pace, while prices soared – an economic environment which lasted over 20 years and at the time seemed interminable. Naturally, in these circumstances Spanish banks became heavily involved in lending money for building, enabling them to extract large interest payments on their loans from the even larger profits being made by construction companies.

As a result of crisis, however, demand for homes began to dry up almost overnight, and Spanish banks were left high and dry as the builders to whom they had lent money found themselves unable to sell the homes they were building and were thus unable to repay their loans. The Spanish government intervened to rescue its banks at huge expense – an expense that has now to be met by taxpayers, ie, for the most part by the working-class masses, who are simultaneously required to pay higher taxes while accepting lower wages if they remain in work, or who are simply losing their jobs, and their earning power, altogether.

Unemployment has climbed to 25 percent, and is officially admitted to be over 50 percent for young people under 26 years of age. All this means that hundreds of thousands of Spaniards are no longer able to keep up payments on their mortgages, so that literally every day hundreds of mortgage foreclosures take place and Spanish families are forcibly removed from their homes.

The working class in Spain has produced too many homes (in relation to what the market can bear), so as a result hundreds of thousands of Spanish workers are rendered homeless. This is the logic of capitalism. An estimated 2 million homes are lying vacant and unsaleable,[2] yet hundreds of thousands of workers are on the streets.

In Spain, there is virtually no social provision for the homeless, not even the squalid B&Bs that may be offered to homeless families in the UK. As a result, a new kind of ‘Occupy’ movement has arisen in Spain, with families moving into empty flats, sometimes even the homes from which they have been evicted. These homes have no official water or electricity supplies, but families bring their own generators.

In the face of public rage, and also no doubt police demoralisation at being used to throw old grannies and little children out of their homes, the Spanish government has been forced to announce that the police will no longer be available to assist with evictions.

However, this will do little to alleviate the suffering of Spanish workers for, as Suzanne Daley pointed out in the New York Times recently: “In Spain, mortgage holders are personally liable for the full amount of their mortgages. Then penalty interest charges and tens of thousands of dollars in court fees are added at foreclosure. Bankruptcy is no answer, either – mortgage debt is excluded.”[2]

Such draconian legal provisions, condemning hundreds of thousands of the innocent unemployed to a lifetime of unrepayable debt to weigh down on them if they ever do secure a job in the future, leave the Spanish working class with no option but to fight.

Greece

The austerity programmes inflicted on Greece are now notorious – not only for their harshness, but also for the fact that they are worsening rather than improving Greece’s economic position.

We have reached a point where the policies adopted to resolve the eurozone debt crisis are causing more damage than whatever may have caused the problems in the first place. This is painfully obvious in Greece and increasingly so in Spain.

The troika of the International Monetary Fund, European Commission and European Central Bank is now demanding that Greece front-load austerity measures for 2013 on the grounds that the country is certain to miss the nominal deficit target for 2013. The Greek government had forecast a fall in gross domestic product of ‘only’ 3.8 percent, but the troika believes the fall in GDP is more likely to be of the order of 5 percent, according to the Greek newspaper Kathimerini. That would imply that Greece will miss the overall goal of a primary surplus (the surplus before the payment of interest on debt) next year.

Why is Greek GDP falling so fast contrary to what official forecasts have claimed? The global economic outlook might not help. But the Greek economy’s year-in, year-out annual shrinkage of a magnitude of 5 percent is caused primarily by the relentless pursuit of nominal deficit targets. If the economy misses the targets, more austerity is applied, which causes a continued fall in GDP, followed by another failure to meet the target. In other words, the troika is demanding policy action whose effect will be a further deterioration in the Greek economy, and thus a further deterioration in the debt ratio, which in turn requires further policy action of the same self-defeating kind.”[3]

While working-class and middle-class Greeks are expected to pay higher rates of tax while their wages, pensions and jobs are slashed, rich Greeks continue to evade tax – as do the rich everywhere. Recently, a respected Greek investigative journalist, Kostas Vexavanis, was threatened with imprisonment for breach of privacy laws when he published a list of Greeks holding Swiss bank accounts (such accounts being frequently implicated in tax-evasion exercises). Although the list had been made available to the Greek authorities several months earlier, no action had been taken.

Mr Papaconstantinou received a disc with the list of Greek depositors in 2010 from Christine Lagarde, who was then French finance minister, but did not instruct Greek financial police to carry out a full investigation. He said the list was later ‘mislaid’. Mr Venizelos also let the issue lapse after he took over as finance minister in 2011.”[4]

Two years later, much to the disgust of Greece’s foreign creditors, who are less understanding of the needs of rich Greeks given the losses they themselves are expected to suffer, “the only person charged with wrongdoing is Mr Vaxevanis”.[5] In the end, after an almighty outcry against the Greek bourgeoisie, the journalist in question was cleared in court.

Greece is being propelled back into the levels of economic backwardness that characterised it in the decades immediately following the second world war, when for a time the Greek bourgeoisie had to have resort to a fascist military junta to hold the masses in. Seeing that the workers are once more becoming uncontrollable, the bourgeoisie has been using a classic two-pronged approach to containing them.

On the one hand, it is facilitating the emergence of Syriza as an ‘alternative’ social-democratic party to bamboozle the masses and manipulate their ‘democratic’ choices, but, on the other hand, in case this strategy fails, it is helping to build up Greece’s main (but until recently quite insignificant) fascist party, Golden Dawn, by ensuring that the media give it generous publicity.

No opportunity is lost in Greece’s bourgeois media to publicise Golden Dawn’s nefarious programme and terrorist activities, or of endeavouring to inflame the anti-immigrant racism that Golden Dawn promotes for the purpose of diverting the anger of the masses away from the Greek and international bourgeoisie towards helpless, innocent and mostly penniless scapegoats of foreign origin.

In the meantime, steps taken by the Greek government to ‘save money’ include such humanitarian measures as cutting off the unemployed and indigent from medical treatment. As of July last year, Greek workers who have been unemployed for a year have lost all benefits, including healthcare rights. An underground movement of doctors has grown up to care for the uninsured, but, nevertheless, “In Greece right now, to be unemployed means death,”[6] as there is no access, for instance, to expensive cancer treatments such as chemotherapy.

Doctors do attempt to ‘liberate’ hospital supplies in order to treat the destitute, but if discovered they have to pay for the supplies themselves. Dr Vichas, a cardiologist who founded the doctors’ underground movement, admitted: “We’re a Robin Hood network.”[6]

The situation in Greece can be forcefully contrasted to that in socialist Cuba or the DPRK where, despite economic problems caused by a US blockade of their countries, free medical care remains available to all.

If the bourgeoisie in various imperialist countries did for a time introduce affordable health care for the masses, it was not entirely for the benefit of those masses alone, since the bourgeoisie is also liable to be afflicted if epidemics are allowed to rage.

In Greece today there is beginning to be seen a resurgence in cases of malaria, which had been all but wiped out. It comes in with those who travel abroad and with foreign workers (the media, of course, put the emphasis on the latter), as would be the case in other European countries too, but is beginning to spread in Greece as a result of deteriorating sanitation provision brought about by the government’s austerity programme.

And yet, despite all the austerity, Greece’s economic conditions continue to worsen. “Instead of Greece’s debt peaking at 167 percent of economic output next year, as predicted in the March bailout agreement, it will hit 189 percent and climb to 192 percent in 2014, according to projections presented to the Greek parliament.

Even under an ‘alternate scenario’ prepared by the International Monetary Fund in March, which attempted to project a pessimistic economic and fiscal picture, Greece’s debt was only predicted to peak at 171 percent of gross domestic product.”[7]

Why should Greece’s debt be increasing when so much austerity is being inflicted on the Greek people in order to generate the resources with which to pay it off? Wolfgang Münchau explains:

Why is Greek GDP falling so fast contrary to what official forecasts have claimed? The global economic outlook might not help. But the Greek economy’s year-in, year-out annual shrinkage of a magnitude of 5 percent is caused primarily by the relentless pursuit of nominal deficit targets. If the economy misses the targets, more austerity is applied, which causes a continued fall in GDP, followed by another failure to meet the target. In other words, the troika is demanding policy action whose effect will be a further deterioration in the Greek economy, and thus a further deterioration in the debt ratio, which in turn requires further policy action of the same self-defeating kind.”[3]

And what is true of Greece is also true of Spain, which “does not fulfil either of the two conditions stipulated by the IMF as a successful prerequisite for debt reduction. In the absence of a very big change in policy, we should expect Spain to go down the same tube as Greece.”[3]

Creditors at loggerheads

It is now evident to everybody that Greece is never going to be able to pay the whole of what it owes and that creditors are going to have to accept that they will lose money. This is setting creditors against each other, as they all try to manoeuvre themselves into a position of getting as much back as possible at the expense of the others.

This November, sparks were flying between members of the Troika that is managing Greece’s economy – ie, the European Central Bank and the European Commission on the one hand, and the International Monetary Fund on the other. The anger has been such that the IMF has refused to release to Greece the tranche of financial support which it had been promised, thus bringing Greece very close to a sovereign default that was only averted at the last minute.

The squabble has arisen because the Europeans, especially the German government, would rather give Greece more time to pay, reasoning that this might let them avoid having to write off some of Greece’s debts. The IMF, however, which is funded by non-European money as well as by European, and in particular by US money, is insisting on Greece keeping to its austerity timetable, even though this will mean its European creditors being forced to accept ‘haircuts’ (ie, losses).

Something else that appears to worry some creditors more than others is the fact that austerity is fomenting resistance among the working-class and middle-class masses, whose standard of living is being slashed dramatically. “At a recent conference hosted by the Centre for European Reform, I heard many of them argue with some force that collective austerity will prove self-defeating and will collide sooner or later with political resistance in the indebted countries.”[8]

It is perhaps not surprising that Europeans are likely to be far more concerned about popular uprisings in Europe than the Americans, but the 14 November one-day general strike observed in Spain, Portugal, Greece and Italy, with supportive action in other European countries, will have proved extremely costly to the European bourgeoisie both in terms of lost output and damage to property and in terms of maintaining control over the angry crowds.

Here is how Reuters reported the day of action:

In Lisbon, marches ended with a level of violence not seen since the crisis began, with police charging demonstrators who hurled stones and bottles, leaving nearly 50 people hurt.

Protesters in Madrid burned rubbish bins, filling the central boulevard with smoke, while in Barcelona demonstrators burned police cars.

Riot police fired rubber bullets to disperse protesters in both cities, where more than 140 people were arrested, including two who were said by police to be carrying material to make explosives, while more than 70 were reported injured ...

In Rome, scuffles broke out between police in riot gear and demonstrators who threw stones, bottles and fireworks. About 60 demonstrators were detained. Protesters occupied Pisa’s mediaeval Leaning Tower for an hour, hanging a banner reading ‘Rise up. We are not paying for your crisis’.”[9]

Given the trouble their system is in, the exploiters are no doubt deriving some comfort from the fact that the international revolutionary communist movement is in a much weakened state as a result of the collapse of socialism in the USSR and the former people’s democracies. Their security is unlikely to last, however.

Thanks to the crisis, which is gaining in strength by the minute, more and more people are realising that only socialism can cure the ills of capitalism, and that it is only under the leadership of tried and tested communist parties that the working class will succeed in overthrowing capitalism, installing working-class rule and building the new socialist society. Only then will the absurdities of capitalism be a thing of the past, as production will cease to be aimed at producing profit for a minority and instead be aimed directly at satisfying the material and spiritual needs of the broad masses of producers themselves.

NOTES

1. ‘The good and bad of 25 years of rising wages’ by Damian Reece, Daily Telegraph, 8 November 2012 (our emphasis)

2. ‘Spain evictions create an austerity homeless crisis’ by Suzanne Daley, New York Times, 12 November 2012

3. ‘Relentless austerity will only deepen Greek woes’ by Wolfgang Münchau, Financial Times, 8 October 2012

4. ‘Storm over “Lagarde list” intensifies’ by Kerin Hope, Financial Times, 2 November 2012

5. Editorial: ‘Greece arrests the messenger’, New York Times, 30 October 2012

6. See ‘Greek unemployed cut off from medical treatment’ by Liz Alderman, New York Times, 25 October 2012

7. ‘New debt forecasts dash Greek hopes’ by Peter Spiegel and Kerin Hope, Financial Times, 1 November 2012

8. ‘Merkel has decided to pay up for the euro’ by Philip Stephens, Financial Times, 16 November 2012

9. ‘Anti-austerity marches turn violent across southern Europe’, 15 November 2012
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