What’s behind the series of crises in the eurozone?
As Karl Marx explained over 100 years ago, a developed credit system both gives greater elasticity to capitalist production and accentuates capital’s tendencies to overproduction and overspeculation.
From the early 1980s to 2008, global credit markets expanded enormously. They developed a dizzying variety of new forms of credit, and a dizzying speed at which different forms of credit could be exchanged with each other.
That expansion helped propel the expansion and restructuring of capitalist production known as “globalisation”. It set the scene for a series of crises, but until 2007-8 the whirl of expansion was able to pick up again relatively fast after each crash.
The crash of 2008 was big enough that governments had to nationalise or bail out major banks — “socialism for the rich”, “socialising losses” after an orgy of “privatising gains” — and world trade shrank sharply in 2009.
A crisis, as Marx explained, brings “a tremendous rush for means of payment — when credit suddenly ceases and only cash payments have validity”. Except that in today’s capitalism there is no really “hard” cash.
Every form of “cash” — US dollars, British pounds, euros — is only an IOU issued by one government or another, or, for the euro, a group of governments.
But that’s three years ago...
Capital has been unable to go back to a more “sober” way of life. The lurch of capitalist policy away from neo-liberalism which many predicted in 2008 has not happened.
Capital is still drunk on credit. The global amount outstanding on foreign exchange derivatives rose from $14 trillion in 1999 to $63 trillion in mid-2008, then fell back to $49 trillion (mid-2009), but has risen again to $58 trillion (mid-2010).
Capitalist governments have more extensive credit than banks. They were able to intervene to save the banks in 2008. But that intervention strained their credit, and in a time when global credit markets were becoming tighter. At the same time governments’ incomes shrank because of the downturn in trade and production following the financial crash.
Most governments now depend on getting credit in global financial markets, not on siphoning savings from their own citizens as they used to. For eurozone governments the discipline is especially tight, since they cannot print their own money, and the European Central Bank was set up with rules that limit its assistance to governments.
Some eurozone governments were bound to run into credit difficulties. The first were Greece, Ireland, and Portugal. For Greece especially, each “bail-out” (they are actually “bail-outs” for the mostly French and German banks which have lent to the Greek government, not for the Greek people) has only made things worse.
The cuts imposed on Greece have reduced production in Greece, and hence the Greek government’s income, and made it even more unable to borrow on global markets.
If the Greek government is left simply unable to make its due payments, then the consequences not just for Greece but for capital across Europe will be huge.
French and German banks which hold Greek government debt will become insolvent and need to be bailed out (again) by the French and German governments.
The French government’s credit rating has already been put in doubt because of the mere risk of such a thing happening. At the next step down the road, France would become another, but much larger, Greece.
Lenders in the global credit markets who have seen Greece go down will wonder who’s next, and become more reluctant to lend to, for example, the Italian government. That will be self-reinforcing: because Italy won’t be able to get new loans, it will be unable to pay back old ones, and so it will be even less able to get new ones. Already Italy has to pay interest rates well above the odds to borrow on global markets.
Can the eurozone and EU summits set for Wednesday 26 October fix things?
Such “crashes” would be much bigger than the collapse of Lehman Brothers, which set off the global crisis in September 2008.
They could well lead to the collapse of the eurozone, and a retreat by European governments back to national currencies (or possibly smaller currency unions). The impact of that on European capital, which depends day to day on the low costs of doing business across Europe, will be huge. Because the costs of not doing so would be so big, European leaders will come up with some scheme or another on 26 October.
They will find some way to patch things up for a while. As the previous so-called “bail-outs” patched things up for a while, only to make them worse longer-term.
Just patch things up for a while, or solve the crisis?
In principle the big powers of the eurozone have the financial clout to solve the credit problems of Greece and even of Italy.
We should not underestimate the power and resourcefulness of capital. The cuts programmes in Ireland and Spain are brutal, but they are “working”, so far, in capitalist terms.
Since the EU’s leaders know that the crisis is so dangerous, it is possible that on 26 October they will do something more radical than expected. But radical enough to restabilise government finances across Europe? That seems pretty much impossible, if only because the processes of compromise necessary for eurozone and EU decisions are too cumbersome.
Wolfgang Münchau writes in the Financial Times (24 October): “The triple A rated [strong credit] countries [like Germany] have left no doubt that they are willing to support the system, but only up to a certain point. And we are well beyond that point now... I believe... European leaders will agree a deal. My concern is not about failure to agree, but the consequences of an agreement....”, which he says, could put the EU on course for a “catastrophic” outcome, “maybe only a few weeks or months away”.
Moreover, given who is devising it, any deal is certain to include further attacks on workers’ conditions and rights, and not only in Greece. The probability is a deal which attacks workers’ conditions and rights, but only delays the crisis.
The outside chance is a deal which patches things up for a bit longer, but at the cost of even sharper attacks on workers’ conditions and rights.
Won’t a breakdown of the capitalist EU be a step forward for the opponents of capitalism?
No. It is not true that the worse for capitalism, the better for socialists. Anguish from crashes and crises may provoke a fightback that brings great progress, but only if the socialists are, and are seen to be, fighting for a rational programme to mend things.
A break-up of the existing economic coordination of Europe will bring huge economic disruption, unemployment, pauperisation, and a boost to right-wing, nationalist, backward-looking politics. It is not within the power of socialists either to prevent, or to provoke, such a break-up, but it is within our power to argue for a better form of economic coordination, rather than short-sightedly rejoicing at the break-up.
The project of the European single currency was botched from the outset, in 1999-2000 — hurried through on the wave of capitalist triumphalism typical of the time, and with questions about how it would deal with tricky imbalances glossed over.
Against regression to a Europe with new barriers between countries, we should counterpose European unity on the basis of democracy, social levelling-up, and workers’ unity across the frontiers.
What would that mean?
European high finance is endemically crisis-prone. European banks have $55 trillion outstanding in loans, four times more than US banks do.
To make those loans, they have borrowed $30 trillion from “wholesale” markets — essentially, from other banks and corporations, rather than less volatile borrowing from households — ten times more than US banks.
The latest declaration by the European Trade Union Confederation calls for:
“Eurobonds to facilitate investments for sustainable jobs, a financial transaction tax..., the end of tax havens, tax fraud and evasion, and a halt to tax competition”. That is too little, too abstruse, too disconnected from action on the ground.
Labour movements across Europe should unite to demand, as an emergency measure, the expropriation of European high finance, and its conversion into a Europe-wide banking, mortgage, and pension service.
Greece’s debt should be cancelled, and a new beginning made. Social minima and workers’ rights should be levelled up across the continent.