Sunday, 19 August 2012

Going over the edge Euro style

With what has seemed a relatively quiet summer on the whole for European markets the turn from the august holidays back into September is sure to raise questions about the long term sustainability of the Euro and certain countries to remain inside the Euro for much longer. With Spain and Greece teetering on the edge. The newly formed Greek government need to find 13 odd billion euros in cuts and savings to remain in the Euro I personally cannot see how they will be able to do that so the question is what will fall first the Greek economy or the Greek government under huge pressure from Berlin and at home with mass opposition now to austerity any further attempts to force austerity in the direction of the Greek working class could see this very weak government fall very quickly indeed. The question will then turn to then what with Greece ultimately likely now to leave the Euro how will this affect the rest of the Euro zone. No one knows it would seem it is all much unknown. Capitalist leads cannot see how the Euro can be sustained but they equally can’t imagine how it can break up. But I am increasingly becoming convinced it will now. The global economic crisis now 5 years in this month looks to be stubbornly stagnating world economies most have not recovered their output since 2008. With only three of the G7 countries (Canada, the US and Germany) have got back to their pre-crisis peak of production. Now US growth is petering out, while there is either stagnation or recession in the euro zone (with Germany now sliding into recession). In 2007-08, the housing mortgage crisis triggered a worldwide banking and financial crisis. Now the sovereign debt crisis holds both European governments and the major banks in the thrall of financial turmoil. Greece and Spain in particular are like time-bombs which could detonate a major explosion at any time. The new prime minister of Greece, Antonis Samaras, leader of New Democracy, is now demanding that the implementation of austerity measures already agreed in return for two bail-out packages should be postponed for two years. It is estimated that this would require a further €20 billion in bail-out funds. On this, as on everything else, the euro zone leaders are divided. Hollande and others are in favour of giving Greece more time, while Merkel and others are opposed to any relaxation of the austerity measures. In reality, the only issue is timing: the debts piled on to Greece supposedly to provide a way out of its debt crisis, are unsustainable. Despite New Democracy’s narrow victory, there will be further explosive movements of the Greek working class and middle class against the barbaric austerity measures being imposed on the country. It is clear that the giving Greece more time to pay off its debt will not ultimately solve the situation it is becoming clearer to European capitalists that Greece simply cannot continue within the Euro and pressure is mounting for it to be forced out. Forced out, default either way I cannot see it continuing with the Euro for too much longer now. Capitalist leaders fear the break-up of the euro zone, which would have incalculable repercussions in Europe and throughout the world economy. But the contradictory forces bottled up in the euro zone are working in the direction of partial break-up, if not total break-up somewhere down the line. The outlook for global capitalism is indeed gloomy. Since April/May this year there have been growing indications of a new downturn in the world economy. There are a number of overlapping and interrelated elements of crisis: The burden of debt: The high level of public and private debt and attempts to reduce debt (‘deleveraging’) is restricting the flow of credit and depressing consumer demand and investment. For the OECD area, government budget deficits averaged -2.1% during 1999-2008. In 2009 this shot up to -8.1% and is still currently -5.3%. The aggregate national debt for the OECD area has continued to increase, and is now 108.6% of GDP. Household debt (gross debt-to-disposable income) is also very high. For the euro area, for instance, the pre-boom level in 2000 was 85.3% but is now 107.9%. Company debt continues to be high. For non-financial companies (debt-to-GDP ratio) was 78.8% whereas it is now 96.8%. For financial corporations the debt ratio is even higher: it was 269.1% in 2000 and is now 381.7%. These figures are unsustainable on the basis of weak or completely stagnant growth, and carry the threat of increasing defaults in both the household and company sectors. Mass unemployment: Unemployment remains catastrophically high. This is an effect of the downturn, but reinforces it through weakened consumer demand, reduced tax revenues, and increased costs of unemployment benefits. In the EU (27 states) there are 24.6 million unemployed men and women, of whom 17.4 million are in the euro area (17). This is a jobless rate of 11% in the euro zone, 10% in the EU. In a number of countries the situation is much worse: in Spain the unemployment rate is 24.3%, in Greece 21.7%. Youth unemployment for both these countries is a catastrophic 50%. Global unemployment is a devastating indictment of capitalism. According to the ILO there are now 200 million jobless people internationally (up from 175 million in 2000). There are 75 million young people unemployed, an increase of four million since 2007. A joint ILO/OECD paper for the G20 summit in Mexico says “G20 countries would need to create 21 million jobs in 2012 in order to return to pre-crisis employment levels…” “If unemployment continues to grow at the current rate of 1.5%, it will be impossible to close the approximately 21 million jobs gap that has been accumulated across the G20 since the onset of the crisis in 2008”. (ILO press release, 16 May) The ILO director general warned (30 May) in coded language of the threat of a social explosion due to mass, long-term unemployment, especially of the youth. “The austerity-only course to fiscal consolidation is leading to economic stagnation, job loss, reduced [social] protection, and huge human costs, undermining those social values which Europe pioneered. While trying to reduce the public debt, unsuccessfully by the way, a social debt is building up that will also have to be paid”. Big corporations hoard cash: While some companies (especially small and medium) are hit by the credit squeeze, big corporations internationally are hoarding cash rather than investing it in new productive capacity. In the UK, non-financial companies are estimated to be holding £731.4 billion of cash reserves. In the euro zone, cash hoards are estimated at around €2 trillion, while in the US non-financial companies hold more than $2 trillion in cash and other liquid assets. The big corporations evidently cannot find sufficient opportunities for profitable investment. Its time for an alternative. A socialist alternative. Working people around the globe create the wealth for the 1% its time we owned that wealth and it was used to benefit the many not just the few. With extracts taken from Lynn Walsh’s excellent article in Socialism today “riding the double dipper”

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