Crisis and revolt in Europe

By Nick Everett — Today the global capitalist economy faces its greatest crisis in 80 years. First there was the credit crunch beginning in August 2007, when governments around the world stepped in to bail out the banks. Then, in September 2008, there was the collapse of Lehman Brothers, precipitating the greatest financial crash since 1929. The deep recession that followed was euphemistically called the Great Recession of 2008-09.

Then came the sequel, the sovereign debt crisis, which hit the euro zone hard. As Greek economist Costas Lapavitsas has observed, “The hour has come to pay the piper, and ordinary citizens across Europe are growing to realise that socialism for the wealthy means punching a few new holes in their already-tightened belts”.

Media coverage and public debate have often pointed the finger at Greeks and their southern European cousins as somehow responsible for the present stage of the crisis: “Greek people are dishonest and lazy, Greek politicians are corrupt, the country is backward” and so on.

But this is evidently a crisis that knows no national boundaries. And while working people are being asked to pay for this crisis, it is not one of their making.

‘Marx had it right’

At the heart of this crisis — a crisis of capitalism — is the decline in the rate of profit. Put simply, there is too much capital compared to the surplus value extracted from workers. You know just how deep the crisis is when mainstream (bourgeois) economic commentators cite Marx favourably. Nouriel Roubini, who predicted that the credit boom of the mid-2000s would end in disaster, told the Wall Street Journal:

“Karl Marx had it right. At some point capitalism can destroy itself. That’s because you cannot keep on shifting income from labour to capital without having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working. What’s individually rational ... is a self-destructive process.”

George Magnus, senior economic adviser to the giant Swiss bank UBS, who describes himself as “a member of the Marx-is-relevant school”, argues: “Put simply, the economic model that drove the long boom from the 1980s to 2008 has broken down.

“Considering the scale of the bust, and the system malfunctions in advanced economies that have been exposed, I would argue that the 2008/09 financial crisis has bequeathed a once-in-a-generation crisis of capitalism, the footprints of which can be found in widespread challenges to the political order, and not just in developed economies.”

Ordinarily, capitalist recessions — in a boom and bust cycle — help to restore profitability by destroying capital. But the bail-outs of banks have limited capital’s destruction. The free-market right understands this problem. Kick away “the crutch of the state”, they argue. The trouble is that it is the crutch of the state that has been holding up the world economy.

End of postwar boom opens door to neoliberalism

The present crisis of capitalism has in fact been with us since the early 1970s, when the postwar economic boom came to a grinding halt. This boom was itself made possible by World War II, which destroyed capital on a grand scale, and by the subsequent reconstruction of the advanced capitalist economies of Europe and Japan.

The principal beneficiaries of this boom were the capitalist classes of the US, Japan and Germany, the main centres of imperial power. In West Germany and Japan, where the capitalist classes suffered humiliating defeats, US investment poured in under the Marshall Plan. New manufacturing industries were established, while wages were suppressed. In Spain, Portugal and Greece, dictatorships suppressed union activity and maintained pitifully low wages.

Since the 1973 recession, and the exhaustion of the postwar boom, wages in the US have stood still. Economic growth has been achieved by offering workers easy loans — later known as “sub-prime mortgages” — to encourage spending. As house prices soared, houses served as collateral on mortgages that could not be repaid. The result was a gigantic housing “bubble”.

Bubbles involve the price of various assets rising far above their long-term average. In the short term this can act as an economic stimulus: households borrow and spend more on the strength of the higher price of their homes, thereby increasing effective demand. But the collapse of a bubble means that asset prices fall. Firms and households find themselves facing bankruptcy, saddled with the debt they accumulated in the bubble years. So they cut spending and concentrate on paying off their debt, trapping the economy in recession.

Alongside this line of credit to households, state spending — much of it corporate welfare aimed at providing an economic stimulus — was financed by soaring public debt. The US public debt now exceeds $15 trillion. Similarly, in the UK, Italy and Greece, public debt is at least as much as GDP (i.e. as much as those economies produce in a year).

The US housing bubble was replicated in Europe in the mid-2000s. What were apparently buoyant low wage national economies (referred to as the PIIGS — Portugal, Italy, Ireland, Greece and Spain), achieved speculative growth as their economies were deregulated and foreign investment poured into housing construction and tourism.

But in 2008, the housing bubble burst spectacularly in one country after another. The euro zone — a monetary union of 17 European states established in 1999 — provided the conditions for the internationalisation of the crisis. The troika — the European Union (EU), the European Central Bank and the International Monetary Fund — granted emergency loans to states facing bankruptcy in return for the enacting of “economic reforms” (i.e. savage austerity measures).

Spain’s bubble bursts

Between 2000 and 2005, half of all new jobs in Europe were created in Spain, the fifth largest economy in Europe. Spain was held up as an example low wage economy, the European “tiger”.

But this economic growth proved short lived, fuelled as it was by property speculation. Between 1997 and 2006, Spanish property prices increased by 150%. That increase in prices both helped support, and was then fuelled by, a boom in credit, with household indebtedness rising from 52% of disposable income in 1997 to 115% by 2007.

In 2008, the bubble burst, heralding a period of dramatic economic collapse. Gross domestic product shrunk by almost 4% in 2009. Between 2008 and 2010, unemployment doubled. The construction and real estate industries, which had accounted for a fifth of the country’s economic growth in 2007, shed 2 million jobs.

Europe’s capitalist bankers and political leaders, fearful that a bailout of Spain’s economy would have disastrous consequences for the entire European banking sector, demanded one of the most severe austerity programs on the continent, worth €15 billion.

Spain’s Socialist Workers Party (PSOE) prime minister, Jose Luis Zapatero, responded to the crisis by blithely following the EU’s dictates, implementing an austerity package that cut child benefits, slashed salaries by up to 15%, raised the retirement age from 65 to 67, cut pensions, introduced “reforms” that worsen labour and pay conditions and lifted the ban on employing workers indefinitely on temporary contracts. No expense was spared in propping up the financial sector, bailing out multiple regional banks at a cost of tens of billions of euros.

The PSOE austerity measures failed to instil confidence in European financial markets. In the lead-up to the presidential election, last November, the yield on 10-year Spanish bonds reached a record 7%.

Zapatero deserts a sinking ship

In a desperate attempt to restore the PSOE’s declining fortunes, Zapatero stepped down as prime minister and called early elections in November last year. PSOE candidate Alfredo Perez Rubalcaba, the former interior minister, attempted to win favour with the campaign slogan “Fight For What You Want”. Rubalcaba promised to defend public services and make the rich pay more tax.

But voters weren’t buying it; they deserted the PSOE in droves. Some shifted their vote to Izquierda Unida (the United Left, IU), while others simply stayed home.

The indignados movement, a forerunner to the Occupy movement inspired by Egypt’s Tahrir Square, had brought hundreds of thousands into street protests on May 15, June 19 and October 15. Occupations of Madrid’s Plaza del Sol spread to numerous other city squares throughout the country. This movement favoured the IU, which doubled its vote, from 780,000 to 1,680,000 and increased its parliamentary representation from 2 to 11 deputies.

During the election campaign, Communist Party general secretary and IU candidate Luis Centella called for “democratic planning of the economy”. But the IU’s program did not advocate the replacement of a capitalist government with a government of working people and the expropriation of the banks and capitalist big business — a necessary precondition for establishing a planned economy that can meet the needs of the majority.

The main beneficiary of the PSOE’s collapse was the right-wing Popular Party (PP), led by Mariano Rajoy.

The EU responded to Rajoy's election by demanding €30 billion of additional cuts, more than double what the PSOE government had already implemented. German Chancellor Angela Merkel promptly phoned Rajoy, stating “This is a difficult time for Spain and Europe, and you have received a clear mandate from your people to adopt and implement without delay the necessary reforms”.

Editorials of major capitalist newspapers echoed Merkel’s call. The Wall Street Journal wrote, “Mariano Rajoy has won a big majority, but now he has to use it”. The Financial Times editorial followed suit, calling on Rajoy to move “quickly to implement painful spending cuts and other austerity measures”.

Since the May 2011 mobilisation of the indignados movement, calls have been made on the leaders of the Workers Commissions (CCOO) and General Union of Workers (UGT) federations — led by the IU and PSOE — to launch a general strike. But their response has so far been feeble. In March the first general strike in 18 months took place, but the unions failed to follow up with further mobilisations.

It was the initiative of the Spanish miners — seeking to reverse a 63% cut to state subsidies for the coal mining industry — that brought the masses back onto the street in July.

Coal miners take the lead

On May 31, 8000 miners launched an indefinite strike, blocking streets and railroads and occupying coal mines. In the main square of Oveido, the regional capital of Asturias, workers established an occupation using the same tactic as the indignados. In response, the guardia civil (military police) were deployed, using rubber bullets and tear gas, to repress the miners.

When attacked, Asturian coal miners fought back against police with firecrackers and homemade munitions. On June 18, in a general strike across several mining provinces, transport workers, relief teachers and shipbuilders joined the miners’ struggle.

Determined to win wider support for their cause, thousands of Spanish miners participated in an 18-day marcha negra (black march) from Spain’s northern coal mining regions of Asturias, Leon, Palencia and Aragon to Madrid.

In recognition of the coal miners’ vanguard role, their marcha negra was given a heroes’ welcome when it arrived in Madrid on the evening of July 11. With their helmet lanterns shining, many of the miners wept as they were greeted by supporters, who, with raised fists, sang the “Internationale” and the miners’ anthem “Santa Barbara”. Shouting “Si se puede” (“Yes we can”) and “Long live working class struggle”, supporters accompanied the miners all the way to the Puerta del Sol, Madrid’s central plaza and the meeting point for Spain’s indignado protest movement last year.

Celestino Duran, a miner from the Santa Lucia de Gordon coalfield, told the Guardian, “If the mine closes then the whole community will disappear. We saw that happen in the neighbouring colliery at Cistierna. They closed it and a community of 2,000 people now has just 150 inhabitants.”

Cuts in subsidies to coal mining, expected to result in the loss of 8000 miners’ and 30,000 other workers’ jobs, will save the Rajoy government just €200 million, a fraction of the billions of euros of public spending cuts already announced. But a concession to the miners would set a dangerous precedent for a conservative government that has to date stood intransigent in the face of growing opposition. Its political credibility with European lenders derives in large part from its ability to contain domestic revolt.

New round of austerity measures

Determined to stare down the new wave of resistance the miners’ struggle had inspired, Rajoy announced a new round of austerity measures on the morning of July 12, as miners and their supporters rallied outside the federal parliament. The cuts form part of an austerity package, negotiated with the EU, in exchange for a bail-out package that gives the government one more year to comply with the required 3% of GDP deficit target.

A sales tax hike and further spending cuts were announced, aimed at saving the government €65 billion over the next two and a half years. The new cuts include more wage cuts for government workers; closures of state-owned companies and privatisations of railways, airports and harbours; reduced unemployment benefits; and bringing forward an increase in the retirement age.

On July 24, Spain’s minister of employment, Fatima Banez, announced that the government had decided to extend aid to the long-term unemployed, but with new restrictions on access to the €440 per month subsidy, called Plan Prepara, distributed to the 600,000 unemployed workers no longer eligible for regular benefits. Only the unemployed who do not live with their parents and whose income does not go over €481 a month will be eligible for the help.

Most affected will be young jobless workers, who already suffer more than 50% unemployment. Access to health care will be pared back for long-term unemployed youth, and university fees have risen 33-56%, an average increase of €540 per year. Student grants have been cut and eligibility restricted. Banez’s rationale for the cuts is that the plan has supposedly been a failure because, of the 600,000 who have benefited, only 6% had found jobs—as if the unemployed preferred €440 to a job.

On the same day, the government presented draft legislation that will permit fast-track evictions of tenants who default on their rent payments. Landlords will no longer be bound to a minimum contract for five years if they want the property for personal use. The measure will also eliminate the use of the consumer price index as the basis for raising rent, meaning that landlords will be able to impose higher rents by threatening to evict.

This comes at a time when a record 46,559 people have been evicted from their homes in the first half of 2012. This in spite of the fact that there are now 3.5 million empty houses (13 percent of the total) throughout the country.

Still more is to come. From September on, approximately 150,000 immigrants in Spain who do not have residency status will no longer be eligible for free health care.

A rise in the sales tax from 18 to 21 percent on products and services like food, drinks, transport, health, clothes and water, will mean around €470 a year more for a family.

In a recent meeting with King Juan Carlos, Rajoy stated that the government plans on making around €90 billion in budget cuts over the next two years, starting in 2013. The government wants to show that it is meeting its deficit targets in order to seek a second bail-out in September. The fundamental objective of all these measures is the destruction of the social gains won by the Spanish working class by a ruling class that sees public spending on education, health, pensions, public services and infrastructure as restrictions on its own wealth accumulation.

A recent report by the IMF reveals the growth of inequality in Spain since 2007 was surpassed only by Lithuania over the same period. The IMF report notes: “The income gap between workers with permanent and temporary contracts further widened, with now close to three quarters of temporary workers in the bottom half of the income distribution. Around half of all youth are unemployed, a third has dropped out of school, and those who have jobs are largely on temporary contracts.”

CCOO and UGT betray the miners

For now, the CCOO and UGT appear to have demobilised opposition to the austerity measures. In early August, after 67 days of strike action, the CCOO and UGT called miners back to work in the regions of Aragon, Leon and Asturias. Their betrayal followed a meeting with the government, in which the latter affirmed its intention to proceed with the cuts. The end of the strike has cleared the way for savage repression against striking miners, more than 100 of whom are currently being prosecuted.

In Santa Cruz del Sil, in Leon, where miners occupying a pit decided to continue their protest, a spokesman for the miners said, “What is happening is a lack of coherence which did not occur even in [dictator General] Franco’s time”.

But the huge outpouring of solidarity with the miners on July 11-12 and the sizeable mobilisations that took place in the subsequent days — including a blockade of the Catalan parliament in Barcelona — show that the Spanish working class remains defiant.

A recent opinion poll showed a further decline in support for both the ruling right-wing Popular Party (from 44% in the November 2011 elections to 37% in July) and the discredited PSOE “opposition” (from 28.7% to 23.1%). The United Left polled increasing support (from 6.9% last November to 13.2% now).

The rise in electoral support for the United Left and the threat of further breakouts of mass resistance are no doubt raising fears among the country’s rulers of a repeat of the rise of SYRIZA in Greece as a major left-wing opposition political force. The coherence of the radical left within SYRIZA is worthy of close examination. The economic collapse that has taken hold in Greece is now unfolding in the Spanish state. And the mobilisations of resistance in both countries point toward the need for coordinated action by Europe’s working classes, whose futures remains closely bound together.

(This is the text of a talk presented at “Europe in Revolt”, a public forum organised by Socialist Alternative in Perth on September 5.)

Direct Action — September 21, 2012