Angela Merkel wins 3rd term in Germany where does Europe go now?

After a 3rd successive win for Angela Merkel In the German elections over the weekend much of Europe will be waking up with different feelings. Certainly the Northern European states will be much relieved although this result was never really in any doubt in all honesty. Yet for Southern Europe this election win may be greeted with fear and worry as to what Germany and Europe as a block does next. It was clear that many of the big economic decisions have been put off until after this big election so we will see in the coming months and years where Germany sea’s things going and how it reacts to really dire situations in the likes of Portugal, Spain, Italy and most pressing no doubt will be Greece. Angela Merkel who won her 3rd general election on Sunday received popular backing due to Germany's prosperity of late and ever since the great recession anyway have stormed ahead in the global race in terms of capitalist development. Her conservatives took about 42% of the vote, the polls said. TV projections said that might almost be enough for a historic absolute majority. Otherwise Mrs Merkel might have to seek a grand coalition with the Social Democrats - estimated to have won 26%. Her preferred liberal partners appear not to have made it into parliament. This is an amazing result for Angela Merkel, currently Germany's - and Europe's - pre-eminent politician. It was clear that she would win this election, but no-one really predicted that she could get so close to an absolute majority. The final results are not yet in, but it may still be that she needs a coalition partner. The obvious solution is a grand coalition with the centre-left Social Democrats. The party improved its share of the vote in second place, but still did not do as well as it wanted. But there are divisions within the SPD about going into coalition again as a junior partner. In 2009 they were punished by the electorate for doing that in 2005. Now the same thing has happened to the liberal Free Democrats, who have been in coalition with Mrs Merkel for the last four years, but appear to have been kicked out of parliament altogether. Exit polls for ARD public television put the liberal Free Democrats (FDP) on 4.7%, which if confirmed would be a disaster for the junior coalition partner, leaving it with no national representation in parliament. Party chairman Philip Roesler called it "the bitterest, saddest hour of the Free Democratic Party". The FDP was beaten by the Green Party (8%) and the former communist Left Party (8.5%), and even, according to exit polls, the new Alternative fuer Deutschland, which advocates withdrawal from the euro currency and took 4.9%, just short of the parliamentary threshold. There was some speculation on German television that Mrs Merkel's Christian Democrats (CDU) and their Bavarian sister CSU might even win enough seats for an absolute majority - the first in half a century - if both the FDP and AfD fail to make it into parliament. The ARD channel's projection had her group winning 297 seats against 301 for the other three parties, while ZDF had her dead even with the other three. The turnout in this election is interesting Turnout, projected at about 72%, was higher than at the last federal election - which had the worst on record. So clearly the Christian democrat’s wre catching on to a wave of support out there for now. How long this will last all depends on the economy in my view. Quoting Marxist economist Michael Roberts from his blog at http://wp.me/pLequ-2mg "Germany is the largest and most important capitalist economy in Europe, if not yet the most important European imperialist power (there it vies with the UK and France). It is the main creditor and funder of the Eurozone member states. So what does this election campaign and result tell us about the future of German capitalism and the strategy being adopted by its political leaders? On the surface, all looks good for the economic health of Germany as there appears to be very little difference on policy between the CDU and the SPD. You would find it hard to push a sheet of paper between them on major policy issues for Germany. So it seems likely that a Grand Coalition between the CDU-CSU and SPD will be formed with two-thirds of the seats in parliament and German capitalism looks set fair for the status quo for another four years. However that is too simple a calculation. There are new economic and political pressures for German capitalism that will make it more unstable than before. The first thing is that there has been a long-term trend in German (and other Euro) politics: namely, the fragmentation of electoral votes from two or three parties into several. That’s a recipe for instability and paralysis, as we have seen in Greece, Italy, Belgium, and the Netherlands etc. This election has slightly reversed that trend with the two main parties polling about 56% compared to 50% last time, but that is no better than in 2005. Some 16% of votes will not be represented in parliament due to the 5% hurdle -- more than ever before. The turnout may be slightly better than in the recession year 2009 at 73%, but it's well down from the 1990s. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-turnout.png&sa=D&sntz=1&usg=AFQjCNF41yoervmoJG4NpkLHvT9WvnBImg And then there is the joker in the pack: the eurosceptic Alternative fur Deutschland party (AfD), a party made up of academics and other petty-bourgeois elements, strongly opposed to ‘handouts’ to the 'free-spending' peripheral Euro states and demanding a return to the D-mark. The AfD polled 4.9%, just not quite enough to gain representation. But by polling close to the 5% threshold, that will stir up new currents beneath the surface of serenity in German politics, especially leading up to the Euro elections next May. Despite the Euro debt crisis and the 'contingent' costs to the pockets of the German taxpayers from the bailout payments to the distressed Eurozone states, the German ruling class is still convinced that the euro is worth having over the D-mark. That is because German capitalism has gained most from the trade and capital integration of the single currency. The best indicator of that is to look at what has happened to German capital's rate of profit. The European Commission AMECO database provides a measure of the net return on capital invested for many countries including Germany. There are several technical issues with this measure, but I think it gives a relatively good guide to trends (partly because it is supported by alternative data from the Extended Penn World Tables that I have used before to measure country rates of profit). The AMECO measure shows that Germany's rate of profit fell consistently from the early 1960s to the early 1980s slump (down 30%) - much like the rest of the major capitalist economies in that period. Then there was a recovery (some 33% up - using Penn measures) with a short fall during the recession of the early 1990s and then stagnation during the 1990s as West Germany digested the integration of East Germany into its capitalist economy. The real take-off in German profitability began with the formation of the Eurozone in 1999, generating two-thirds of the entire rise from the early 1980s to 2007. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-net-return-on-capital.png&sa=D&sntz=1&usg=AFQjCNFr1RYT5b1fFsbk9DjyM4nw0ektBg German capitalism benefited hugely from expanding into the Eurozone with goods exports and capital investment until the Great Recession hit in 2008, while other Euro partners lost ground. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fchange-in-rate-of-profit-under-emu.png&sa=D&sntz=1&usg=AFQjCNEi79xb4yKwJAHaMooXHtdv4Knd_A Once the east was integrated, Germany's manufacturing export base grew just as much as the new force in world manufacturing, China, did. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-exports.gif&sa=D&sntz=1&usg=AFQjCNGAvNAoRfD_k0eH_TtrCblJ_qivOQ But the fall in profitability during the Great Recession was considerable and AMECO forecasts do not suggest a significant recovery in profitability since. Indeed profitability will be below the level of 2005 from now on. So things may be more difficult from hereon. It is interesting to consider the reason for the rise in the German rate of profit using Marxist categories. The rise in the rate of profit from the early 1980s to 2007 can be broken down into a rise in the rate of surplus value of 38%, but only a small rise of 5% in the organic composition of capital. This is consistent with Marx's law of profitability in that the rate of profit rises when the increase in the rate of surplus value outstrips the increase in the organic composition of capital. It seems that the ability to extract more surplus value out of the German working class while keeping the cost of constant capital from rising much was the story of German capitalism. In other words, constant capital did not rise due to innovations and investment in new technology while surplus value did, due to the expansion of the workforce using imported labour from Turkey and elsewhere at first - and then expansion directly into Europe later. The real jump in the rate of profit began with the start of the Eurozone. In this period, the organic composition of capital was flat while the rate of surplus value rose 17%. German capital was able to exploit cheap labour within EMU but also in Eastern Europe to keep costs down. The export of plant and capital to Spain, Poland, Italy, and Greece, Hungary etc (without obstacle and in one currency) allowed German industry to dominate Europe and even parts of the rest of the world. Most important, the fear of the export of jobs to other parts of Europe enabled German capitalists to impose significant curbs on the ability of German labour to raise their wages and conditions. The large rise in the German rate of profit was accompanied by a sharp increase in the rate of surplus value or exploitation, particularly from 2003 onwards. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-rosv-rop.png&sa=D&sntz=1&usg=AFQjCNGU4KUz6jCJ9U2ZVKbQ20LUCZ3JRg What happened from 2003 to enable German capitalism to exploit its workers so much more? In 2003-2005 the SPD-led government implemented a number of wide-ranging labour market 'reforms', the so-called Hartz reforms. The first three parts of the reform package, Hartz I-III, were mainly concerned with creating new types of employment opportunities (Hartz I), introducing additional wage subsidies (Hartz II), and restructuring the Federal Employment Agency (Hartz III). The final part, Hartz IV, was implemented in 2005 and resulted in a significant cut in the unemployment benefits for the long-term unemployed. Between 2005 and 2008 the unemployment rate fell from almost 11% to 7.5%, barely increased during the Great Recession and then continued its downward trend reaching 5.5% at the end of 2012, although it is still higher than in the golden age of expansion in the 1960s. German unemployment rate (%) http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-unemployment-rate.png&sa=D&sntz=1&usg=AFQjCNEzSZ2AGskTJV1lGgToukvTSEclCA A wonderful success then? Not for labour. About one quarter of the German workforce now receive a “low income” wage, using a common definition of one that is less than two-thirds of the median, which is a higher proportion than all 17 European countries, except Lithuania. A recent Institute for Employment Research (IAB) study found wage inequality in Germany has increased since the 1990s, particularly at the bottom end of the income spectrum. The number of temporary workers in Germany has almost trebled over the past 10 years to about 822,000, according to the Federal Employment Agency. This is something we have seen across Europe - the dual labour system in Spain being the prime example. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-employment.gif&sa=D&sntz=1&usg=AFQjCNEKIaU2Vl7a73hveITTmsI8dpuOBQ So the reduced share of unemployed in the German workforce was achieved at the expense of the real incomes of those in work. Fear of low benefits if you became unemployed, along with the threat of moving businesses abroad into the rest of the Eurozone or Eastern Europe, combined to force German workers to accept very low wage increases while German capitalists reaped big profit expansion. German real wages fell during the Eurozone era and are now below the level of 1999, while German real GDP per capita has risen nearly 30%. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-real-wages.png&sa=D&sntz=1&usg=AFQjCNEuj6PZ5zLg8Qai43vI23Pt9lKwrQ No wonder German capitalism has been so 'competitive' in European and world markets. The Hartz reforms may be regarded as a success by German capital and mainstream economists. But they have always been very unpopular among the German public. In this election, no major party has dared to run on a platform that openly endorses the Hartz reforms. Indeed, several parties tried to win votes by promising to roll back the Hartz reforms, including the SPD which initiated the reforms in 2003-2005 under Chancellor Gerhard Schroeder. Of course, this is not to deny that the German working class is better off than its peers in the rest of the Eurozone and this explains why German voters, who have voted, did so, by and large, for parties that wishes to preserve the status quo. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-household-income.png&sa=D&sntz=1&usg=AFQjCNGraKVZK-v3oaAV2UWeMV23CR-Y8A The German ruling class and the leadership of the two main parties are generally agreed that the Eurozone must be kept intact as it is, despite the cost of the debt crises in the peripheral EMU states. After all, German capitalism has gained hugely from the Eurozone, as I have shown. Greece should not probably have been allowed in, as Merkel and others have said on several occasions, but now it is in, it is too risky to kick Greece out as it sets a dangerous precedent. And the cost of yet another Greek bailout in the next year is small. But there are are some differences between the CDU and the SPD over the Eurozone. The CDU does not want any integration of debt and debt payments within the Eurozone through things like a euro redemption fund or Eurozone bonds, while the SPD does. The CDU does not want German capital taking on any contingent liability of the future or existing debt of the likes of Italy or Spain; even if it never happens that they cannot service it. Even so, a Grand Coalition will agree eventually to ease the terms of repayment of the bailout recipients - indeed it will probably put repayment back for likes of Greece to the indefinite future. Remember that the US allowed the UK to repay what they owed the US after the Second World War for ages - it was only fully paid off in 2005! However, the Grand Coalition will be set with difficulties from its beginning. It will be under the pressure from the right, the eurosceptics and the small business FDP to refuse any further bailouts and apply severe austerity to the peripheral EMU states and France. The SPD will be under pressure from the left to break with the coalition to reverse the Hartz reforms, spend more and avoid nuclear energy or leave the coalition. German capitalism may have been a 'success story' over the last 25 years since the integration of East Germany. But its long-term prospects do not look so good from here. It has a declining and ageing workforce (this will be the last election in which the majority of voters were under the age of 55) and less areas for exploitation of new labour outside Germany, while competition from the likes of China and Asia will mount. And the costs of maintaining the Eurozone will grow. All these are issues for the strategists of German capital now that there will be a new coalition in power. http://www.google.com/url?q=http%3A%2F%2Fthenextrecession.files.wordpress.com%2F2013%2F09%2Fgerman-demographics.gif&sa=D&sntz=1&usg=AFQjCNEmoxSciJdR3jOOFQD3wYAd46iHeQ The German electorate may have voted for the status quo again in this election, but the relatively low turnout and the low share of the vote for the main parties show that there is growing disillusionment with the 'success' of German capitalism that has given just a few crumbs for the working class off the table of bounty for German capital income. And the burden on the working class in paying for the further ambitions of German capitalism is set to rise. "

world in crisis, central banks not providing the anser

Increasing concerns and contradictions Per-Åke Westerlund, from Offensiv, newspaper of Rättvisepartiet Socialisterna (CWI Sweden) The severe downturn in 2008-09 made the world economy into an experimental workshop. But neither extreme austerity or trillions to the banks has led to a solid recovery. Now there is growing concern among politicians and economists. At the center of concern is the crisis in Europe. In early 2012, both Italy and Spain were close to sovereign defaults, which in turn would have made the whole euro project collapsing. EU’s leading politicians and institutions were scared into taking extreme measures. The European Central Bank, ECB, promised "unlimited access" to capital for both states and banks. Since then, the ECB lent 360 billion euros to Spanish banks and 260 billion into Italian. A large part have been used to buy their respective state bonds. The interest rate gap - how much more it costs for Spain or Italy to borrow than Germany - have fallen from 6-7 percentage to 2-3 percent. The ECB’s generosity is matched by other central banks. The U.S. Federal Reserve is in its fourth round of Quantitative Easing which means that the Fed buys government debt notes for $ 85 billion each month. Japan’s new right-wing government has now embarked on a "quantitative and qualitative" monetary policy in double pace compared to Fed. In two years, the central bank (Bank of Japan, BOJ) will use equivalent to a quarter of Japan’s GDP - the third largest economy - to purchase government bonds, equities and real estate. Central Banks But now there is increasing concern that central banks’ intervention is not the solution, but rather deepens the crisis. "Some of the leading figures in central banking concede they were flying blind when steering their economies," reported the Financial Times (18 April), from the International Monetary Fund’s (IMF) spring meeting. Lorenzo Samgh of the the ECB’s executive board: "We do’nt fully understand what is happening in advanced economies." The head of the Bank of England, Mervyn King, said that no one can be sure that the expansionary monetary policy is correct and wondered if they are “running the risk of reigniting the problems that led to the financial crisis in the first palce?”. Central bank intervention has eased the immediate crisis for the most vulnerable banks and states. But they do not kick start economies - investments in the advanced capitalist countries is still at a record low. However, the new policy opened for sharper conflicts between nation states. The Japanese currency, the yen, has fallen by 25 percent since last year. It has benefited the Japanese export industry, at the expense of for example German and South Korean industry. The IMF’s semi-annual reports from April (Global Financial Stability Report and World Economic Outlook) notes that central banks’ actions have achieved “a broad market rally” but also created new risks. Capital now flows back from the richer countries to developing countries, creating potential instability. The Fed boss Ben Bernanke recently warned that banks’ speculation may increase. IMF But especially worried is the IMF for what happens when easing ends. There is no equivalent in history to learn from. "Continued improvements will require further balance sheet repair in the financial sector and a smooth unwinding of public and private debt overhangs. If progress in addressing these medium-term challenges falters, risks could reappear. The global financial crisis could morph into a more chronic phase marked by a deterioration of financial conditions and recurring bouts of financial instability", writes the IMF. The conditions raised here - balance sheet repair and unwindling of debts - have so far failed, which points towards a more chronic crisis. The second leg of the crisis policy - the extreme austerity measures - have had worse immediate effects. 19.2 million are now unemployed in the euro zone, of which six million in Spain alone. In Greece, youth unemployment is 59.1 percent. The New York Times reported in an article on Greek school children who faint and are searching for food in the bins. The Portuguese Prime Minister Pedro Passos Caolho - a strong proponent of the infamous Troika (IMF, EU and ECB) austerity - promised in 2011 that "two terrible years" would be followed by recovery. But as a result of the extreme austerity, in 2013 Portugal "faces a much deeper and longer recession than the government or international lenders had foreseen" (Financial Times). The IMF estimated in April that the risk of recession (the economy contracts) in the euro zone was 50 percent. Since then, the ECB president Draghi warned that even France is dragged deeper into the crisis. The EU has given Spain and France two additional years to meet the rule that budget deficits should not exceed three percent of GDP. Under new rules they would otherwise been fined. In a large survey among capitalists and finance investors in Europe, made by the credit rating company Fitch, a large majority believe this year’s calm in Europe is transient. "Fitch warns in a statement that it [2013] can once again become a summer marked by the euro crisis, just as in 2011 and 2012, since there is a strong contradiction between the recent stock market rally and euro zone recession and rising unemployment." (From Swedish daily, Dagens Industri). No capitalist solution None of the capitalist institutions have a solution. Many warn that austerity has gone too far, but stil emphasise the need for a balanced budget for the "medium term". How quickly the Cyprus crisis threatened to spread shows that EU countries need a banking union, writes the IMF in its report. And before the ECB’s "limitless" capital flow eased the crisis, leading EU politicians like Germany’s Angela Merkel and European Commission President Barrosso put forward the EU needed a much tighter budget policy and synchronisation. But national interests and conflicts makes especielly German politicians hesitating. The risk, in their view, is that Germany then definitely become the guarantor of banks across Europe. In parallel with the growing contradictions within the EU member states there is a sharp increase of distrust against the EU itself. In Spain today 72 percent are critical of the EU, against 23 per cent before the crisis. Germany the increase is from 36 to 59 percent. The crisis has been exploited to push through many of the counter-reforms the capitalists dreamed of. Worse pensions in Italy, easier to fire workers in Spain, pay cuts of 50 per cent in Greece and so on. Now the capitalists increase their pressure on French President Hollande go the same way. He has already abolished the capital gains tax and promised to reduce the cost of unemployment insurance, pensions and municipalities. At the same time, the political pressure from below is increasing. In a French opinion poll, 70 percent believes a "social explosion" is possible in the coming months. The IMF in April again lowered its forecast for world economic growth this year to 3.3 percent (though 3.5 in October). World trade is expected to only increase by 3.6 percent this year after 2.5 percent last year. The index of large corporate purchasing managers in both the EU and Japan is still below 50, indicating that the economy is not growing. But even the index for China is just over 50. China China’s economy - the world’s second-largest, estimated to overtake the U.S. before 2020 - is now slowing sharply. The large stimulus package in 2009, which held up growth through massive investment, is now hitting back with full force. Debts of municipalities and provinces is estimated at between 20 and 40 percent of the country’s GDP. In the first quarter of this year these debts increased twice as fast as in the same period in 2012. The IMF and politicians in the West are talking about how consumption in China must increase and investment must go down. But lowering the investment share of GDP from the current 50 percent to 30 percent in a position when economic growth will be 6 percent instead of the previous 10 percent "would cause a depression, all on its own", concludes economics columnist Martin Wolf of the Financial Times. Demand would collapse, with considerable effects on the world economy. Governments and capitalist classes now places greater pressure on other states. The U.S. wants to see greater demand in Germany and Europe, while European politicians requires that the deficits in the U.S. and Japan are reduced. The budget deficit in Japan this year is near 10 percent of GDP for the fifth consecutive year. Public debt is expected to be 255 percent of GDP in 2018. The U.S. deficit is five per cent of GDP and the debt is 110 percent. Growth in the US is expected this year to be the highest of the developed capitalist countries, 1.2 percent. But the forecast is uncertain since the automatic cuts, the sequester, will have effect in the latter half of the year. With the failures of "unorthodox methods" more and more people will realise that there is no solution within the framework of the capitalist system. The resistance from workers and poor will grow, like for example the general strike in Portugal in early March, which was the largest since the revolution in 1974. The task for socialists is to build new workers’ parties with a clear socialist answer to the crisis.

Why Marxists warn and fight against imperialism

I’m currently reading Lenin’s excellent work on Imperialism the highest form of capitalism. What a fantastic piece I must say to someone still getting to grips with Marxism and learning about the world and how it really works this piece has been a really top read.

Imperialism is as Lenin quite rightly points out is the heights form of capitalism it is born out of monopoly capitalism which arises as a contradiction to the so called free market. It’s the domination of capital on an international scale breaking out of its national confines to invade and plunder foreign markets in pursuit of greater profits and to see off the competition as much like capitalism does on the national scale.

Imperialism. Imperialism is the epoch of finance capital and of monopolies, which introduce everywhere the striving for domination, not for freedom. Whatever the political system, the result of these tendencies is everywhere reaction and an extreme intensification of antagonisms in this field. Particularly intensified become the yoke of national oppression and the striving for annexations, i.e., the violation of national independence (for annexation is nothing but the violation of the right of nations to self-determination).
This piece which Lenin wrote highlights the role imperialism plays on the world stage and the view which Marxists take towards it. The current state of imperialism is a very interesting thing from what I can understand American and British imperialism would appear to be in decline with the rise of German and Chinese imperialism on the rise in its influence and market share. Germany has done well off the back of the Euro one of the few countries powering ahead still in the world although this cannot last it is for now holding great sway over much of Europe and beyond in some cases. China due to its huge growth in the last period has enabled it to enter new markets in Africa and other parts of Asia Taiwan Malaysia etc. It is the so called strength of eastern imperialism including China which capitalists worldwide hope will pull their system out of this deep crisis it is unlikely to do so as China itself is now slowing and cooling off its growth nod a repeat of the 2008 pumping of the economy by a estimated 12 % of GDP in China is simply not possible any longer. This is a desperate stage for capitalism where it goes from here they have no idea the thinkers part of this system. Hense I think imperialism in the US and the UK for example has taken a beaten of late. The fact that Egypt and Tunisia which were both backed by Imperialism for many years have seen their regimes crumble at the force of the working class is proof that imperialism is not indestructible and immune to crisis’s and defeat. The imperialist backed invasion of Iraq by Western troops in 2003 to remove Sadam Hussein now looks a shattered idea as the idea that only imperialist forces can bring down a dictator has been blown wide out of the water.

The mass’s when they unite and bring dictators to their knees such as in Egypt although not a fully developed situation there now with the SCAF still holding the power there shows that workers and the mass’s are finding their voices and their power which has laid dormant for years is now finally being realised again.

The fight against imperialism has to be international much like the struggle for socialism. A national struggle will always be supported by other workers around the world as we all face the same oppression but a global effort to replace capitalism is what is needed more. Ending capitalism will bring an end to imperialism and exploitation. Growing ideas and building the ideas of Marxism around the globe is key to understanding imperialism. Reading Lenin and Trotsky on the matter is very helpful too I’m still learning and always will be learning. Understanding the way capitalism works and doesn’t work is key to bein a Marxist but applying it to the class strugglea and a programme for winning workers to the ideas to change society is far more important though. This is what the socialist party does day to day and will continue to do to realise a better more equal society for the 99%.

Lost in Euroland

This latest article posted on www.socialistworld.net is anotehr in the line of top in depth analysis of what is going on inside the Eurozone and the organisation of a deepening economic crisis by the week.

Robert Bechert, CWI

As the eurozone crisis develops, its political and institutional leaders are becoming increasingly desperate as they look for a way out. The latest postponement, amid increasing friction between the French and German governments, of a decision on the eurozone’s next steps is an indication of the crisis’s seriousness. Here, in an analysis written for Socialism Today (November 2011 issue), monthly magazine of the Socialist Party (CWI England and Wales), Robert Bechert examines both the crisis and the test it poses for the left.

"The Euro should not exist (like this)"
"Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change." (UBS Investment Research, 6 September, 2011)

This blunt statement, at the start of a widely circulated report by a leading Swiss bank, brutally summed up the fundamental character of the ongoing crisis in the eurozone. Despite a series of emergency meetings and agreement of rescue plans this crisis continued to deepen, threatening not only the European economy but also to dramatically worsen the already deteriorating world economic situation, and help trigger a dreaded “double-dip” recession. That was the reason US Treasury Secretary Geithner attended an EU finance ministers meeting in mid-September. European governments faced a potentially massive crisis with no easy way out, as long as capitalism remains.

Desperate attempts are being made to patch up a “solution”, although how long any deal will last is a different question. Within 24 hours of a plan surfacing at the mid-October G20 finance ministers meeting Angela Merkel’s spokesperson was warning against “dreams currently doing the rounds” that everything will be solved at the following week’s EU summit, and then a decision was formally postponed to October 26 at the earliest. At the G20 meeting one minister warned of a “world of pain” if no solution was found, something which millions are already starting to suffer as the crisis hits them.


Angela Merkel, German Chancellor

The widely perceived helplessness of the governments and EU institutions, the fact that repeatedly they are seen to be lagging behind events and incapable of putting forward a solution has only added to the spreading popular fears of what lies ahead.

This is not an abstract crisis. The eurozone disarray is adding to the misery facing many workers and youth across Europe. Living standards are falling as inflation is rising, alongside increasing unemployment in many countries. Cuts in services and wages are widespread. In Greece, currently the worse hit country, the vast bulk of the population is plunging downward into a deep economic and social crisis and facing a huge drop in living standards. The London Financial Times estimated that “planned tax increases and spending cuts for 2011 are equivalent to about 14 per cent of average Greek take-home income – or 5,600 euro for every household ... (measured on) a per-head basis, the total 2011 austerity package is worth 2,200 euro” (18 October, 2011).

Europe is on the edge, facing the possibility of a sudden crisis, especially a banking and financial meltdown that could paralyse much of the ‘real’ economy.

A wake-up call
As popular fears grew, governments in and outside of the eurozone rapidly became aware of potentially devastating impact that an event, like a sudden Greek default, could have. ‘Contagion’ would spread throughout the international financial system. After looking over the abyss of what a new banking crisis and/or a country leaving the euro would mean, the main eurozone countries drew back and agreed to make another attempt to defuse the situation.

In recent weeks warning signs were flashing. Rumours flew around about the condition of the banks. Many are facing a critical situation which is why the European Central Bank (ECB) has again taken steps to prop some up. While the early October collapse and subsequent nationalisation of the Belgian-French Dexia bank took the headlines for a few days, it was hardly mentioned that simultaneously two smaller banks, Max in Denmark and Proton in Greece, were also nationalised.

At the same time as UBS published its views on the Euro, the chief executive of Bosch, the world’s largest auto parts supplier, warned that the eurozone has entered “an extremely critical situation”. While the German owned Bosch had full order books now “in 2008-09 we experienced how fast these orders can melt away” (Financial Times, London, website 7 September, 2011).

The worsening world economic prospects are deepening the European crisis, not just in the eurozone but also in Britain. As Wolfgang Münchau wrote “The most disturbing aspect of the eurozone right now is that every crisis resolution strategy depends upon a moderately strong economy recovery” (Financial Times, London, 5 September 2011)



Wolfgang Münchau

The CWI had warned before the euro’s launch that it would not lead to unity, but would breakdown as result of clashes between the rival national capitalisms and, in the absence of a workers’ alternative, strengthen nationalism. (See box)

In fact, the euro has created a Frankenstein monster. The Greek crisis has brutally revealed this truth. At one time markets expected a Greek “managed default” and there were voices inside the stronger eurozone countries that Greece should be thrown out. The German transport minister Peter Ramsauer told Die Zeit in mid-September it would “not be the end of the world” if Greece were kicked out of the single currency. But the growing realisation that this meant the prospect of massive collateral damage across the international banking system has forced other governments to act.

For now discussion of forcing weaker countries, like Greece, to leave or the possibility of stronger countries, like Germany, deciding to quit the euro has stopped, although this can reappear in the future. The failure of Belgian-French owned Dexia was a wake-up call. One reason for Dexia’s collapse was its exposure to Greek government debt estimated at 39% of its equity capital. But this was not unique amongst banks, this summer the comparable figure at Germany’s second biggest bank, Commerzbank, was 27% (Wall Street Journal, 31 August, 2011). Dexia’s collapse was a warning that it would be extremely expensive to maintain a financial firewall around Greece should it suddenly default.

A more drastic haircut?
With spreading fears of both the “health” of banks and impact of a Greek collapse, banks once again turned to the ECB as a “safe” place to invest, rather than lend to other banks, and for short-term funding. But it is not just a question of Greece triggering a crisis, unexploded financial bombs litter the European landscape. The European Bank for Reconstruction and Development has just cut back the forecasts it made in July for 2012 economic growth in central and eastern Europe - in Hungary from 2.8% to 0.5%. Not only does this bode ill for Hungarians but also it threatens Austria’s banks, which are heavily exposed to Hungary.

The new drive to attempt to stem the crisis was behind the pressure in October to force Greece’s creditors to accept more of a “haircut”, a reduction in the amount of their loans they will actually get back. In July’s rescue deal an average 21% was agreed in July. At that time the French government, fearing the impact on its own banks, rejected a 40% cut, however by mid-October figures of 40% to 60% were being discussed such was the seriousness of the situation. This, governments hope, would avoid a formal default and allowed a managed restructuring that would prevent a sudden crisis. But even with this figure it would not be the rich who really paid, the banks would attempt to offload the cost onto taxpayers and customers.

Nevertheless banks resisted any increased losses. German banks, in particular, were bitterly complaining. Andreas Schmitz, head of BdB (German banking federation) warned that politicians should not declare “war” against banks (Bild.de website, October 15, 2011). The next day Schmitz accurately summed up the current reality of the crisis when he said that the October 15 anti-bank protests were “a diversion from the fundamental problem: that we can no longer finance our welfare states”. (Financial Times, London, website, October 16, 2011). Of course when Schmitz spoke of “we” he meant the capitalist system and its ruling classes.



Andreas Schmitz

Really, a poker game is going on as the different countries and financial institutions struggle over the size of the “haircut”, the roles of the ECB and EFSF (European financial stability facility), how the EFSF will be funded, the role of funding from outside the EU and other issues. Relations between the French and German governments have become strained. While there is enormous pressure to reach an agreement, even if there are doubts as to how long it will last, the risk of “accident” causing a disaster is ever present.

Dangerous to leave
Fearing the consequences of a break-up of the current eurozone or an abrupt Greek default the stronger EU powers are debating possible new structures to tighten controls over economically weaker countries as a price to provide financial support.

While “Eurobonds” would appear to be a logical capitalist solution for the ruling classes to attempt, they would run up against the growing popular opposition in all countries to the idea of underwriting other countries’ banking debts. This is not simply as a result of nationalist campaigns against, for example, Greece. Falling living standards in most countries and the bitter understanding since 2007/8 that much of the bailouts will actually end up in the hands of the banks and finance markets also fuel the opposition.

In answer to this opposition to financing other countries’ debts there are proposals to set up new structures to impose controls on eurozone countries. How effect they would be is another question. In 2003 the euro’s original Stability and Growth Pact (SGP) was ignored because the two largest powers, France and Germany, broke its conditions. In an attempt to escape political pressures for flexibility, the Dutch Finance Minister Jager, while supporting the German economics minister Rösler’s idea of a European Stability Council that could impose sanctions, said that its decisions should be made by “academics and experts – but no politicians” (Spiegel Online, 22 August 2011).



Jan Kees de Jager, Dutch Finance Minister

However such measures will only back fire, already in Germany there is resentment at what is referred to as the EU moving towards a “transfer union”, meaning a permanent movement of funds from the richer to the poor EU countries, although in reality much of these payments end up back in the banks of the richer countries.

The tensions inherent within the eurozone will increase, especially in this period when there is no immediate prospect of sustained economic growth.

Events this year have posed the question about the eurozone’s future, whether all the present members will remain? As the UBS report (see box) shows there would be substantial economic and political costs and dangers involved in leaving the zone. This is the Frankenstein factor, the eurozone countries have created a system which is imposing huge costs on some economies and strangling others, but which is very dangerous to leave.

However, while these costs can delay such a break, tensions could mount that will force a brutal shakeup. This is why, despite the massive overheads, there are discussions both about the possibility and methods of break-up of the current eurozone, both “weaker” countries leaving or of Germany pulling out. In Germany there is a kind of undercover debate within the ruling class because, while leaving the euro would remove the need for it paying towards the weaker eurozone countries, this would, at a stroke, cut its “home” market from 332 million to just under 82 million. At the same time German exports would be undermined by a new currency that would probably initially soar in value.

A living struggle
Alongside the mounting euro crisis and national difficulties, there is rising anger amongst workers, youth and the middle class as the effects of the crisis bite deeper. This is the reason for the unpopularity of most European governments, the mass demonstrations and strikes in a series of countries.

A new stormy period has begun and sharper struggles will develop. While determined struggle, the threat of resistance or a very serious economic or social situation crisis can force governments to make temporary concessions, generally the ruling classes will be forced by the crisis of their system to, at best, hold down living standards. That is the meaning of Andreas Schmitz’s statement and the reason why ruling classes will be forced to attempt to push attacks through.

Faced with serious opposition, governments will tend to move to use more authoritarian methods. These will vary according to the situation in each country, but in the worse case scenario the ruling classes will even look to dictatorial measures.



Today, Greece is facing a social and economic disaster and its ruling class is not confident of what will happen. This is the background to the report last May in the German mass-circulation newspaper Bild, that the CIA were speaking of a possible coup in Greece in the event of severe unrest developing. This is unlikely in the near future, but in a situation of continuing turmoil such an attempt cannot be ruled out. The Greek military have done this before, the last time they staged a coup was in 1967 and they ruled for 7 years. But a new coup, in a time of deep crisis, would not automatically be a repeat of the last colonels’ regime.

Such a development is not inevitable, but depends on the character and policy of the opposition movements, particularly what the workers’ movement does.

In some sense it is a race between the left and the right as to who will lead the opposition to the eurozone’s polices. Already in a number of countries, it has been right populists who have, in the absence or weakness of the left parties, made electoral gains by combining taking up some social issues with nationalist based anti-EU and anti-migrant slogans. In Greece overwhelming opposition to the cuts and the country’s downward spiral has created a potentially revolutionary situation but, so far, there is no mass based genuinely socialist force that can give concrete direction to the movement.

Unfortunately the response of the official leadership workers’ movement has been limited, with most of the pro-capitalist trade union leaders only organising any action when they have been pushed from below. Even when actions are organised the trade union leaders try to restrict them to symbolic actions and strive to avoid them becoming a step in a serious struggle.

European left
There is a reluctance within the trade unions and in many left parties to challenging the EU or euro itself, something sometimes justified by pointing to the EU’s right wing nationalist opponents. Rather than explaining that the EU is not a step towards socialist internationalism but a club of capitalist nations run in the interests of big business and the big powers, the largest grouping of European left parties, the European Left Party (ELP), talks of a “refoundation” of the EU without mentioning any break with capitalism and, by implication, supports the continuation of the euro.

The UBS report warns of the wider possible consequences of a massive crisis and eurozone breakup. There would not only be huge disruption but the growth of national tensions and conflicts. UBS is not alone in warning of the “some form of authoritarian or military government, or civil war”. In mid-September the Polish Finance Minister warned the European Parliament, in a “personal” comment, of the dangers of new wars in Europe. Later he was asked to explain this and he said that while war is not likely “within a four-year legislative time frame ... Not in the months ahead, but maybe over a 10-year time frame, this could place us in a context that is almost unimaginable at the moment.”

While not immediately posed, future conflicts between states cannot be ruled out if the working class is not able to impose its own socialist solution to the crisis. But the EU, a complete capitalist institution that is effectively run by the major powers, is not a vehicle for either socialist change or democratic socialist planning.

The ELP, whose strongest parties are DIE LINKE (Left party) in Germany, the Parti Communiste (PCF) in France, Left Bloc in Portugal and Izquierda Unida (United Left) in Spain, puts forward a number of individual policies that socialists support, although often these are vague, loose formulations. However it does not link these together into an overall anti-capitalist, socialist programme.

This approach was seen in DIE LINKE’s three demands on what the German government to argue at the October 15/16 G20 finance ministers’ meeting. They were worldwide strict regulation of “Finance Casinos”, a tax on financial transactions and a coordinated conjunctural programme. However, these proposals cannot be fully implemented under capitalism and, while DIE LINKE also mentioned its call for public ownership of the banks, its approach was one of simply demanding measures that could be taken within capitalism.

Naturally Socialists argue for individual demands that can immediately improve the conditions of working people and the poor. But such campaigns have to be accompanied by an explanation that such demands can only provide temporary improvement and that, especially in this time of crisis, a socialist transformation of society is required. Without this explanation they are attempts to run this system in a ‘better’, ‘fairer’ way, efforts that will ultimately fail.

The speculators’ grip
A key factor in the development of this crisis has been the massive pressure from the financial markets. Since the break-up of the post Second World War Bretton Woods currency system and the deregulation of finance there has been a huge explosion of the finance markets, alongside a similar growth of all forms of speculation in commodities, property and spread betting on anything that moved, or didn’t. The figures are simply mind-blowing and are hard to grasp. In the EU finance transactions were, in 2010, 115 times the EU’s 12,300bn euro GDP (Austrian Institute of Economic Research, Financial Times, London, 18 August, 2011). All the political leaders bow to these markets, often their official statements are directed simply to the markets.



Naturally the question of how to break the grip of this speculative market’s grip over nearly all aspects of life is a burning issue. It cannot be ruled out that different capitalist nations, or groups of nations, may attempt to isolate themselves or place some controls on these markets, in effect states clipping the speculators’ wings in the wider interests of the capitalism as a whole. But this would be no long term solution. For example an attempt to go back to a system of fixed exchange rates would not, in the medium or longer term, prevent currency crises or forced devaluations.

There is now growing support for a tax on financial transactions (a ‘Robin Hood’ or ‘Tobin’ tax). This is now the official policy of the EU’s Commission, seen by them as a useful political gesture and a way of raising funds. But while socialists would not oppose such a tax it would leave untouched the basic power of the huge financial and trading institutions that runs these markets.

Similarly simply leaving the euro would not solve the problems of Greece or other countries. Socialists opposed the introduction of the euro and today support breaking its grip and that of “Troika” of the EU, ECB and IMF that are effectively dictating what the Greek government should do. The key question in Greece is breaking with the capitalist system, without this living standards will fall for some time whether or not it stays with the euro.

A socialist task
Socialists would not oppose leaving the euro but would firm link it to a socialist, not state capitalist, policy of bank nationalisation. In a single country breaking from capitalism a state monopoly of foreign trade and exchange controls would be necessary as a defence from the international markets until similar movements spread to other countries. These steps, as part of a policy to bring the commanding heights of the economy into democratically run public control and ownership, would allow a start to be made in planning the use of economic resources for the benefit of all. Without such a socialist policy the results of leaving the euro would be along the lines spelled out in the UBS report, namely a cut in living standards.

Much of the population opposition to the EU is based upon the way it is run, the privileges of its bureaucratic elite and the way it is run it the interests of the big countries and companies. Socialists however, while fighting nationalist oppression and EU diktats, do not oppose the EU or the euro from a narrow, nationalist standpoint. The unification of the whole of Europe would be an enormous step forward. But this cannot be achieved on a capitalist basis. The existing EU institutions, like the EC, the ECB and so on, are clearly agencies of the capitalist ruling class, incapable of surmounting capitalist limitations.

The task facing socialists is to argue for a socialist internationalist alternative, a voluntary socialist confederation of European states, to the pro-business EU. Without this there is the danger that opposition will take a nationalist direction.

This divisive turning point in EU has opened up new period of sharper struggles, will provide an opportunity to rebuild the workers’ and socialist movement, but not as an end in itself but in order to build the forces that can fundamentally change society, end the chaos and instability of capitalism and really make poverty, fear a thing of the past.

Europe in turmoil – A socialist analysis
June 18, 2005
The current crisis is a vindication of the analysis of the Committee for a Workers’ International (CWI) that the European capitalist classes are unable to unify Europe to construct a capitalist ‘United States of Europe’, as even some Marxists outside the ranks of the CWI believed.


The EU ‘project’ for greater economic and political integration was rooted in the pressure on the European capitalists from competition from US imperialism and, more recently, from China. This drove them towards increased collaboration and led to illusions that this would result in a politically unified Europe. This trend, along with the process of globalisation of the economy and growth of multi-national and trans-national corporations, illustrated how the productive forces have outgrown the limitations of the national state and to a certain extent have even outgrown continents. The big companies increasingly look towards the world market rather than simply their national or regional base.


Yet, at the same time, this process has its limits and comes up against the insurmountable barriers of the separate nation states and the national interests of the capitalists. In the aftermath of the referendum these factors have reasserted themselves, exposing clearly a clash of interests. Some thought that the process of EU integration and EMU represented the point of “take off” for a unified capitalist Europe.


The CWI consistently argued that this was not the case. Our analysis explained that although the process of integration of the EU went a long way, further than even we originally anticipated, at a certain stage a recoil would take place. This would result in renewed national antagonisms and conflicts between the various national states. This process of unravelling would worsen in the event of a serious economic crisis, recession or slump.


The end of the euro?


The introduction of EMU and the euro was a political and economic gamble by the capitalists, pushed through in the teeth of some opposition from their own side, during the triumphalist wave which followed collapse of the Berlin Wall. Initially the Bundesbank opposed the introduction of the euro but was compelled to accept it in the light of the political pressure of the capitalist politicians who supported its introduction. The stability pact was introduced as a ‘safety net’, which was intended to prevent governments resorting to “profligate spending”.


Yet, the whole idea of the euro was tailored to a situation of continued growth of the European economies, with no real account taken of what would happen in the event of a slowdown, stagnation or recession. The mood expressed in the referendums and recent workers’ struggles also reflects dissatisfaction that the economic growth, jobs or higher living standards promised with the introduction of the euro have materialised.


The ruling classes attempted to impose an economic union in the absence of an existing political union. As we explained at the time, this has never succeeded in the past. Without a political union, moving towards the establishment of a unified nation state, an economic union or currency could not survive indefinitely.


When the “project” was on track the capitalists ignored the lessons of history. Now faced with today’s crisis, newspapers like the London Financial Times belatedly can warn that such contradictions cannot be reconciled indefinitely.


In an article which seriously questions the sustainability of the euro, Wolfgang Münchau pointed out: “All large-country monetary unions that did not turn into political unions eventually collapsed. The Latin Monetary Union of 1861-1920 collapsed partly because of a lack of fiscal discipline among its members – Italy, France, Belgium, Switzerland and Greece. A monetary union set up in 1873 between Sweden – which included Norway at the time – and Denmark failed as political circumstances changed. By contrast, Germany’s Zollverein, the 19th century customs union that developed into a monetary union, succeeded precisely because of the country’s political unification in 1871.” (Financial Times, London, 8 June 2005).


There is a vast difference between a federal state, such as the US, which can distribute funds to local state governments in a relatively easy fashion on the basis of an agreement and the EU. The distribution of resources or funds cannot be done in the same way, in a Europe composed of different nation states, as the current struggle over the EU budget shows.


The current EU crisis has revealed that the monetary union, rather than leading to a political union, has resulted in a political fracture between the national states. Partly, this is what lies behind the current spat over the EU budget, which was triggered by Chirac’s challenge to Britain’s rebate. This is a dangerous ploy, from the point of view of the French ruling class, because it has allowed Blair to raise the whole issue of the Common Agricultural Policy (CAP) in retaliation. France currently receives over 20% of farm subsidies from the CAP, which is a purely political decision to maintain support for the French bourgeoisie and Chirac amongst French farmers.


Chirac is attempting to use these issues to turn the underlying class vote of the referendum into a nationalistic conflict over the EU budget. Blair, dressed in the political gown of Thatcher, is also attempting to present himself as the nationalistic defender of Britain over the EU rebate. The German Chancellor, Gerhard Schröder, is aligning with Chirac, while his opponent in the forthcoming elections, Angela Merkel, from Christian Democratic Union (CDU), tends to support Blair. While some compromise on the budget is eventually likely this conflict illustrates the new increased national tensions and contradictions which are set to emerge in the coming months and years.


While an immediate collapse of the euro or the EU is not the most likely short term perspective, the sharp increase in political and economic tensions between the representatives of the various ruling classes will intensify. The conflict of interests is now driving the capitalists of Europe towards the establishment of a looser federation of national states which is contrary to the dominant tendency of the recent period.


However, the onset of a deep economic recession or slump or world financial crisis will sharpen these conflicts further and could provoke a relatively rapid collapse of the euro. The withdrawal of Britain from the ERM in 1992, on ‘Black Wednesday’ shows how diverging national economic conditions can drive the capitalist class of a country to break from a currency or monetary agreement. Although there are differences, and it will not be repeated in exactly the same way, the euro can break up, with one or more country withdrawing or even being expelled from it.


Even before the French and Dutch referendums, the question of the sustainability of the euro in the face of diverse growth and inflation rates was beginning to be discussed amongst capitalist’s strategists. At one private meeting, on May 25, involving the German Finance Minister, Hans Eichel, and Axel Weber, President of the Bundesbank, a representative from Morgan Stanley (an investment bank) Joachim Fels, expressed concern about the sustainability of the euro. According to the Financial Times even the extreme pro-EU lobby group, ‘Centre for European Policy Studies’ published a report in early June that raised the prospect of a collapse in the euro. (8 June, 2005).

(Extract from a 2005 CWI statement written at the time of an earlier crisis after a draft EU constitution was rejected in referendums in France and the Netherlands)

Extracts from UBS study “Euro break-up – the consequences”:
The economic cost for a “weak” country leaving the euro
The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak euro country leaving the Euro would incur a cost of around 9,500 to 11,500 euros per person in the exiting country during the first year. That cost would then probably amount to 3,000 to 4,000 euros per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.

The economic cost for a “stronger” country leaving the euro
Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around R6,000 to 8,000 euros for every German adult and child in the first year, and a range of 3,500 to 4,500 euros per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over 1,000 euros per person, in a single hit.

The political cost
The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war.