The December 8-9 European Union summit meeting did little to end the continuing eurozone debt crisis. Instead, with the exception of UK Prime Minister David Cameron, all the rest of the 26 EU leaders accepted German Chancellor Angela Merkel’s push to impose a fiscal austerity compact that was simply a souped-up version of the 1992 Maastricht Treaty,which on paper on paper committed all EU member states to limit their annual budget deficits to 3% of GDP and their accumulated government debt to 60% of GDP.
As the December 4 London Financial Times commented: “Contrary to what is being reported, Ms Merkel is not proposing a fiscal union. She is proposing an austerity club, a stability pact on steroids. The goal is to enforce life-long austerity, with balanced budget rules enshrined in every national constitution. She also proposes automatic sanctions with a judicially administered regime of compliance. She rejects eurobonds on the grounds that they reduce pressure on fiscal discipline.”
Cameron vetoed Merkel’s original proposal to have this enshrined in changes to the treaties establishing the EU, not because it would impose brutal government austerity measures upon working people, but because it would involve acceptance of a financial services transaction tax. It is estimated that 35% of the revenues from a financial transactions tax would be paid by London-based banks. Cameron was concerned that such a tax could mean a switch to other financial centres like New York or Switzerland to avoid it.
Following Cameron’s veto, the 17 nation-states that use the euro as their common currency plus the other nine EU members that still retain their own currencies decided to accept the Merkel plan through an “intergovernmental agreement” rather than EU treaty amendments.
Merkel plan
Under this plan, EU governments (with the exception of the UK) agreed that each of them must run an annual “structural deficit” of no more than 0.5% of GDP and achieve overall balanced budgets. A structural deficit is as supposedly calculated by taking out that part of government spending that changes with the booms and busts of the capitalist business cycle. So it is supposed to measure the “underlying” difference between a capitalist government’s revenues and spending.
Government deficits are financed by borrowing from private banks, and continued borrowing leads to an accumulation of debt. The ability to pay off this debt is measured by a country’s debt relative to its GDP. If a country’s debt-to-GDP ratio gets too high, private investors will worry that the government will either default on this debt, or will deflate its value away by engineering a high inflation rate.
Under the Merkel plan, any EU government that fails to meet the “structural deficit” target will be automatically subject to a fine equivalent to 0.2% of annual GDP unless a “qualified majority” (87%) of EU member-states agree to let it off. Also, under the Merkel plan, EU governments agreed that if their public sector debt ratios were above 60% of GDP, they must take steps to reduce it to that level over the next 20 years. For Germany, with a debt-to-GDP ratio of 87%, that amounts to an annual reduction in debt of 1.3% of GDP each year. But for Italy, with a debt-to-GDP ratio of 120%, it means, in addition to running a balanced budget, finding an extra 3% of GDP or €80 billion each year until 2032.
For the Greek government, it means (even after the default of 50% on its debt owned by private banks) paying off around an extra 4% of GDP – €16 billion – a year until 2032. This is in addition to having to find the funds to meet its interest payments to Greek government bondholders, which will amount to €12.75 billion next year. Under the Merkel plan, in 2012 alone the Greek government would have to devote two-thirds of its revenue (excluding income from asset sales) to its bondholders!
Sydney Morning Herald reported on November 19 that while the Greek government had earlier hoped to raise €5 billion this year from privatisation sales, finance minister Evangelos Venizelos said he was able to raise only €1.8 billion by December 31.
As for the wider eurozone debt crisis, the December EU summit decided only that the European Stability Mechanism that will replace the emergency €440 billion European Financial Stability Facility in July 2012 (instead of June 2013) as a permanent rescue funding program for heavily indebted eurozone governments is to be capped at €500 billion. By comparison, the total eurozone government debt exceeds €9.5 trillion!
The adoption of the Merkel austerity pact by the 17 eurozone governments will, if anything, make the debt crisis worse. By requiring eurozone governments to cut spending, it will push these countries toward a new recession, thus boosting the heavily indebted countries’ government debt-to-GDP.
Merkel was quoted in the December 5 Financial Times as saying that her fiscal austerity plan was aimed to “show that Europe is a ‘safe place to invest’”. This reflects the neoliberal policy that all developed capitalist governments have pursued since the early 1980s, with the exception of the “Keynesian moment” of 2008 (when these governments briefly turned to massive deficit spending to bail out insolvent banks and to avoid a slide into economic depression).
Misreading root of crisis
Merkel clearly believes that the root of the current crisis is that some European governments have “overspent”. In fact, the countries with the worst debt crises have big deficits and debts as a consequence of the economic crisis – the 2008-09 Great Recession and the accompanying Global Financial Crisis – rather than as a consequence of big deficits.
As Martin Wolf pointed out in the December 6 Financial Times, on the “Maastricht” criterion of budget deficits of less than 3% of GDP, all the crisis-hit countries were doing fine before the Great Recession, except Greece (on revised figures, though not on the figures cited at the time). Before 2007, the four “worst” governments for deficits after Greece were Italy, France, Austria and Germany! “After the [economic] crisis, the picture changed, with huge (and unexpected) deteriorations in the fiscal positions of Ireland, Portugal and Spain (though not Italy). In all, however, fiscal deficits were useless as indicators of looming crises”, Wolf noted. And relying on the criterion of public debt, “Ireland and Spain had vastly better public debt positions than Germany”.
“If the most powerful country in the eurozone refuses to recognise the nature of the crisis”, Wolf correctly observed, “the eurozone has no chance of either remedying it or preventing a recurrence”.
S&P downgrade
In a further heightening of the crisis, the US-based Standard & Poor’s debt rating agency slashed the credit ratings of a number of eurozone countries, including France, Italy and Spain, on January 13. The downgrading of sovereign debt, especially that of France, will intensify the debt crisis of many European countries, increasing their borrowing costs and further undermining confidence in their solvency. Since France is one of the major underwriters of the European bailout fund, its creditworthiness will now be in doubt. In its statement announcing the credit downgrades, S&P said it would soon be issuing credit evaluations of international financial organisations, including the EFSF.
Explaining the downgrade decision, S&P wrote that it expected growing popular anger across the eurozone at government austerity measures that have already plunged millions into unemployment and poverty. “We believe there is a risk that reform fatigue could be mounting, especially in those countries that have experienced deep recessions and where growth prospects remain bleak.” It warned that “lower levels of predictability exist in policy orientation”.
The EU and the IMF have demanded and harsher austerity measures from Greece – a 20% cut in the minimum wage of €750 per month, a 15% cut in supplementary pensions and 15,000 civil service redundancies this year – in exchange for approval of the second aid package. Unions and employers’ associations are opposed to the cuts in private-sector wages, warning it would deepen Greece’s recession, already in its fourth year. According to the Greek Chamber of Commerce, 20% of all Greek businesses closed in 2010-11, and another 15% are near bankruptcy. The official unemployment rate stands at 18.8%, with 46.6% of young people jobless.
In a further heightening of the eurozone debt crisis, the US-based Standard & Poor’s debt rating agency slashed the credit ratings of a number of eurozone countries, including France, Italy and Spain on January 13. The downgrading of sovereign debt, especially that of France, will intensify the debt crisis of many European countries, increasing their borrowing costs and further undermining confidence in their solvency. Since France is one of the major underwriters of the European bailout fund, its creditworthiness will now be in doubt. In its statement announcing the credit downgrades, S&P said it would soon be issuing credit evaluations of international financial organisations, including the EFSF.
Explaining the downgrade decision, S&P wrote that it expected growing popular anger across the eurozone at government austerity measures that have already plunged millions into unemployment and poverty. “We believe there is a risk that reform fatigue could be mounting, especially in those countries that have experienced deep recessions and where growth prospects remain bleak.” It warned that “lower levels of predictability exist in policy orientation”.
US jobs figures
In February US President Barrack Obama Obama hailed the January Labor Department employment report, calling it “good news” and claiming that the US economy was “growing stronger”. The report showed a modest growth in non-farm payrolls of 243,000 jobs, with an upward revision of previous estimates for 2011 of 180,000. The official unemployment rate was reduced from 8.5% in December to 8.3% in January, the lowest official level since February 2009.
However, according to the Washington-based Economic Policy Institute, if the 2.8 million “marginally attached” workers – those wanting a job but discouraged from actively looking for one – were counted by the government as part of the labour force, January’s unemployment rate would actually be 9.9% instead of 8.3%.
Furthermore, as the New York Times economics writer Floyd Norris pointed out, the Labor Department actually estimated that the economy lost 2.6 million jobs in January. It arrived at the “seasonally adjusted” estimate of a net payroll gain of 243,000 by factoring in the normal loss of temporary holiday season jobs.
In his January State of the Union address, Obama touted the revival of US auto industry profits and a modest growth of jobs in the industry as a model for the entire US economy. With characteristic cynicism, he failed to mention that this rebound is due to the 50% cut in wages for all newly hired workers imposed on General Motors and Chrysler in 2009 by his Auto Task Force. According to the Labor Department report, average hourly earnings for private-sector employees rose by 1.9% over the past 12 months, well below the 3% rise in the consumer price index, resulting in a further lowering of workers’ average real wages.
Greek debt deal
Greece’s unelected “technocratic” Prime Minister Lucas Papademos, the former governor of the Bank of Greece and former European Central Bank vice-president, has been desperately trying to make the three parties supporting his government – the centre-left PASOK, the centre-right New Democracy and the far-right LAOS – agree to the further round of brutal austerity measures demanded by the EU and the IMF.
A leaked German government document obtained by the London Financial Times and made public on January 27 talked about Greece transferring “national budgetary sovereignty” to a EU-appointed commissioner. In fact, the German bankers and European capitalists in general have been dictating the terms of the Greek budget for some time, through the mechanism of the terms of the debt bailout. They even removed the elected PASOK government when they thought it could not be trusted to implement their diktats. The leaked document shows that now they want to cut out the middle man and take direct control of Greece’s budgetary policy.
On February 13 the Greek parliament voted to approve the new austerity measures demanded by the EU and the IMF. Associated Press reported that the cuts “include axing one in five civil service jobs over the next three years and slashing the minimum wage by more than a fifth”. It added that “Eurozone finance ministers are to meet on Wednesday [February 15] to discuss the issue – German Finance Ministry spokeswoman Marianne Kothe said that the ministers will not make a final decision on the second aid package for Greece on Wednesday. She said the bond swap agreement [with the private holders of Greek government debt] must be finalized first, and the ministers will focus on all steps and measures ‘necessary for the second Greek package’. Before signing off on the bailout, the eurozone ministers also want Greek political leaders to commit in writing to uphold the austerity plan even after the general election in April”; Greek government spokesperson Pantelis Kapsis said that the written guarantees are needed by the time the eurozone finance ministers meet.
AP reported: “In the vote on the new bill, there was nevertheless strong dissent over the austerity package among the majority Socialists and rival Conservatives who make up Greece’s interim coalition government. The parties disciplined the dissenters in their ranks, with the Socialists and Conservatives expelling 22 and 21 lawmakers respectively, reducing their majority in the 300-member parliament from 236 to 193.”
Social explosion
The leader of Greece’s far-right LAOS party has correctly warned that the new round of austerity measures demanded by the EU and the IMF could provoke “economic collapse and a social explosion of a kind that Europe has not seen for decades”. This did not stop the LAOS leader, along with the other parties in the coalition government, agreeing to the demanded cuts in public sector jobs.
An indication of what such a social explosion might involve was the announcement on February 5 by the health workers at the general hospital in Kilkis, an industrial town of 56,000 inhabitants in northern Greece, that they had occupied the hospital and placed it under workers’ control. The hospital workers issued a declaration: “All decisions will be made by a workers general assembly”. It went on to state that if their demands are not met “they will turn to the local and wider community for support in every possible way to save the hospital, defend free public health care, to overthrow the government and every neoliberal policy”.
The hospital workers declared: “We place our special interests inside a general framework of political and economic demands that are posed by a huge portion of the Greek people that today is under the most brutal capitalist attack; demands that in order to be fruitful must be promoted until they end in cooperation with the middle and lower classes of our society. The only way to achieve this is to question, in action, not only the political legitimacy, but also the legality of the arbitrary authoritarian and anti-popular power and hierarchy which is moving towards totalitarianism with an accelerating pace.
“The workers at the general hospital of Kilkis answer to this totalitarianism with democracy. We occupy the public hospital and put it under our direct and absolute control. The [general hospital] of Kilkis will henceforth be self-governed and the only legitimate means of administrative decision making will be the general assembly of its workers.”
The statement called on “workers from other hospitals to make similar decisions” and for “employees in other fields of the public and private sector and the participants in labour and progressive organisations to act likewise, in order to help our mobilisation take the form of a universal labour and popular resistance and uprising, until our final victory against the economic and political elite that today oppresses our country and the whole world”.
Direct Action – March 20, 2012