European debt crisis escalates

By Doug Lorimer

Europe's debt crisis returned to haunt markets Monday as investors fretted over a possible Greek default”, Associated Press reported April 23. Reuters reported two days earlier that the “emerging consensus in the markets [is] that Greece will have to restructure its 327 billion euros in sovereign debt, in spite of the European Union/International Monetary Fund rescue [of €110 billion] it secured one year ago”.

Greece’s public debt level is expected to rise to 160% of its gross domestic product next year. The Reuters report added that, “Private economists have been saying for months that this debt mountain is unsustainable, but some policymakers in Europe appear only now to be waking up to that fact”. The Greek EU/IMF bailout ― agreed by Greece’s social-democratic government to fund the buyback of its maturing government bonds and future government borrowing ― is to be paid for through a significant reduction in the living standards of Greek working people, via higher taxation and inflation, lower wages and pensions, rising unemployment (expected to be 15% next year, compared with 7.1 % in August 2008) and reduced public services.

Massive privatisation program
On April 15, the Greek government announced that it would sell off €50 billion in publicly owned assets over the next four years, including Hellenic Post, Hellenic Railways, the Public Power Corporation, the Public Gas Corporation, the Pireaus port authority, Athens International Airport, and the Thessaloniki water utility. These assets are to be sold off at “fire sale” prices to help cover repayment to European, principally French and German, banks that provided most of the EU bail-out money.

The Greek bailout was recommended by European capitalist politicians as a model for the Irish government debt bailout. Last December, the outgoing Irish government was forced to accept an EU-IMF package of €85bn to cover government borrowing resulting from Dublin’s bail out of the Irish banks. The reckless borrowing of the Irish banks had led them to grow to nine times the size of the Irish Republic’s economy. The Irish banks have received €46 billion in new capital from the government (equivalent to one-third of annual Irish output). But it has not proved to be enough.

At the end of March, the Irish government announced that the Irish banks would require another €24 billion in government funds in order to put them back on their feet. The total of €70 billion was equivalent to over 45% of Ireland’s currently falling GDP and amounted to the largest bailout of a national banking system in history.

As with the Greek government debt bail out, the Irish banking bail out is to be paid for by Ireland’s working people, through huge cuts in public services, higher taxes across the board, 30,000 job losses in the public sector and more from the private sector, forcing thousands to emigrate out of the country. Meanwhile, the bank executives and capitalist politicians responsible for Ireland’s banking collapse are to enjoy retirement pensions of between €115,000 and €650,000 a year.

On April 23, the Irish Independent daily reported: “The monster pensions are on top of multi-million euro termination payments, tax-free lump sums and golden handshakes for the 10 men at the centre of the banking collapse. Pensions experts last night calculated that the cost of providing the generous pensions that the likes of former Taoiseach [i.e., PM] Bertie Ahern, [former finance department] mandarin David Doyle and top bank bosses such as Brian Goggin will receive will top €60m over the course of their retirement.

“The revelations come just days after it emerged that former AIB [Anglo-Irish Bank] managing director Colm Doherty has received a payment and pension package worth €3m. “It also comes in the wake of a stark warning from the Central Statistics Office which shows that almost 900,000 workers, mainly in the private sector, have no pension at all.

“However, ordinary workers are either directly paying for the massive pensions of the boom-and-bust bosses or are rescuing the banks paying out the generous retirement packages. An ordinary worker would need to put aside €35,000 a month to fund the type of lavish pension that is to be paid out to the likes of former regulator Patrick Neary and ex-Taoiseach Brian Cowen, a special investigation by the Irish Independent shows.”

Portugal seeks bailout
Portugal is now following Greece and Ireland in seeking an EU/IMF debt bailout. On March 24, Portugal’s social-democratic government resigned as the country’s central bank predicted a double-dip recession this year and the government failed to get parliamentary approval for a savage austerity program of tax hikes, pay cuts and reductions in welfare benefits. On April 24, Associated Press reported that “Portugal has for a second time revised upward the debt-stressed country’s budget deficit last year, releasing official figures that said it was 9.1 percent of gross domestic product instead of the previously announced 8.6 percent.” The deficit figure is far above the 17-nation eurozone’s mandatory limit of 3%.

The AP report added: “The revised deficit figures are another setback to Portugal’s economy as its government negotiates the terms of a badly needed bailout to try to avoid bankruptcy. Portugal requested the bailout this month as it struggled with high debt after years of poor economic growth and amid forecasts of faltering output. Delegations from the European Commission, the European Central Bank and the IMF were in Lisbon last week to start negotiations on the terms of the rescue … The bailout could amount to €80 billion (US$116.7 billion) and the parties must fix the final amount and determine the interest rate.”

Undoubtedly, the Portuguese bailout, like the Greek and Irish bailouts before it, will be used as a bludgeon to force the working people of Portugal to pay for the bailout through cuts in public-sector jobs, tax hikes and cuts in social services.

Those who lent money to these governments got paid handsomely for it ― the returns of bond investment over the last 25 years have been even better than investing in the stock market. But those profits are supposed to be payment for taking risks. But as soon as things went wrong, the banks still want to be paid in full. The argument is that if the debts of the Greek, Irish and Portuguese governments and their banks are not honoured, then other European banks will go bust. But this argument is bogus. It is based on the premise that banking should continue on the basis of making huge speculative profits out of investing in bonds to capitalist governments and other banks, rather than as a service to the public by providing credit to small businesses and householders. It is also based on the premise that the capitalist economy ―  production for profit ― must survive at all costs.