Cyprus standing on the edge of the abyss

Socialist policies needed to resolve crisis in the interests of majority By Niall Mulholland, CWI Niall Mulholland, who recently visited Cyprus, looks at the disastrous consequences of the Anastasiades government’s bailout deal with the Troika, and the alternatives put forward by the Left. The weather in Cyprus at this time of year is warm, with a refreshing breeze blowing over the island. The same pleasant balance cannot be said about the economy, which is in meltdown. Cypriot society is in a state of shock after weeks of economic and political turmoil. Cypriot banks faced collapse after a steep fall in the value of Greek government bonds, many of which were bought by the Cypriot banks. This was linked to the savage bail-out package imposed on Greece by the Troika. In March, the Cypriot government, led by President Nicos Anastasiades, agreed to a 10 billion euro bail-out package with the Troika (the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF), after the Bank of Cyprus and Laiki became insolvent. In return, Cyprus was told it must raise 5.8bn euros. The agreement saw bank depositors with more than 100,000 euros face big levies, hitting many small businesses. The country’s second largest bank, Laiki Bank, was closed down and its 9 billion worth of debts taken on by the Bank of Cyprus. After a two-week closure, banks reopened on 28 March but with strict controls on the amount people can withdraw each day. But as if this was not bad enough, the already stunned and angry Greek Cypriots were later told that the bailout had ballooned from 17 billion euro to 23 billion. Cyprus has to find 6 billion more than the 7 billion mooted when the preliminary agreement was reached on 25 March. President Anastasiades’ right wing government had already decided to impose swingeing austerity measures, bank closures, property taxes, privatisations of the three most profitable semi-state sector companies (electricity, telecommunications, and ports) and many sector job losses. They are even considering selling part of the gold supplies of the Central Bank, worth 400 million euro. “Returning Cyprus to the Stone Age” Adding to the country’s woes, is the long running crisis at Cyprus Airlines which is near bankrupt. The government is threatening to close it entirely or to make a deal with unions that would see a halving of the 1,030 workforce and the number of planes cut from 11 to 6. Cyprus Airline’s bleak future, along with the country’s economic turmoil, has ‘numbed’ summer tourist bookings, which is a crucial part of the economy. Political scandal surrounds the government. Anastasiades has been forced to strenuously deny that he knew a legislative bill was being prepared for the deeply unpopular ‘haircut’ of all bank depositors prior to the European Group meeting in March. Popular anger is aroused by reports that insider information enabled the rich to take out millions of euro from bank deposits before 15 March. Officially the Cypriot economy is due to fall by 8.7% this year and by 3.9% in 2014. But many economists believe there will be a 10% fall in 2013, and a plummet of anything between 15-25% by the end of next year. “Returning Cyprus to the Stone Age”, is how one commentator dramatically described the next months. Certainly people are finding their standard of living increasingly precarious. The government was recently forced to provide an emergency 3 million euro to small famers, whose livestock were starving due to the sudden bank credit restrictions. More people are switching from cars to (poor) public transport to save money. On weekends, instead of heading for the cooler mountains, families are now opting for the cheaper alternative of strolling along Nicosia’s ‘old town’, where they linger for hours over a single coffee or soft drink. Even sporting events are hit hard by the economic crisis. One of the main football clubs, Omonia, is in financial crisis and facing a sudden withdrawal of sponsorship. The government tries to dampen popular opposition to austerity by claiming the measures will not be as harsh as previously planned because some privatisations will be pushed back to 2018, there will less cuts in education and the repayment of the bail-out loans will start after 10 years and will take 12 more years (in total, Cyprus will, in effect, be under the control of Troika for the next 22 years). But this is cold comfort to the working class and middle classes who face years of austerity, job losses or emigration. Unemployment is already sitting at 14%. ‘Social markets’ (modern soup kitchens) are springing up everywhere. Working people also expect that, like Greece, the Troika will be in Nicosia every few months, demanding a new wave of cuts in return for bailout conditions. ‘Worst since 1974’ The newspapers are full of despair. It is generally felt that the crisis is the worst since the 1974 Turkish army invasion. There is understandable widespread outrage amongst Greek Cypriots at the bailout conditions and a perception that, once again, small Cyprus is, de facto, under neo-colonial rule; this time from the Berlin government, in the interests of German capital and for electoral gain. But sometimes this outrage in Cyprus takes a potentially divisive, nationalist direction. Marios Leonida Evriviades, a professor of international relations at Panteion University in Athens, wrote about the “econcide” (destruction of an economy) and “Cratocide” (destruction of a state) imposed by Chancellor Merkel’s government in Berlin, and compared it to the Nazis’s annexation of Czechoslovakia in 1938. He went on to talk of “Nazi-sympathizing Turkey” confiscating private property in 1942. The trade unions and Left needs to ensure they lead mass struggles against austerity or there is a danger that nationalist forces and even the far right will gain the initiative. This needs to include deepening relations with working people in North Cyprus, who have suffered their own austerity cuts for years, as well developing common struggle with the working people in other countries of southern Europe that are hit by the Troika’s austerity policies. Otherwise the two right wing administrations may try to whip up nationalism on either side of the Green Line, diverting the class interests of the whole island’s working people. So far, apart from organising some protests during the March crisis, the unions have given no real lead to working people. The right wing unions are in talks with the government about ‘managing’ the crisis. The Left unions, linked to AKEL (Greek Cypriot communist party), rhetorically oppose cuts but do not call for any firm action. Members of New Internationalist Left (CWI Cyprus) participate in a broad campaign against austerity initiated mainly by forces affiliated to AKEL, the ‘Movement Against Privatisation and Austerity’, but criticise its lack of a fighting programme to effectively oppose austerity and for a real alternative. One leading figure in the campaign claims that there is “no need for a programme – we are a movement”. But the economic crisis is deep and will only get worse. A radical alternative must therefore be posed. If the unions and Left fails to resist effectively, other populist, nationalist ‘anti-austerity’ campaigns can make headway. Ominously, Cypriot fascists, who are trying to emulate their cousins in Golden Dawn, in Greece, are now handing out anti-austerity leaflets in parts of Nicosia where they previously did not venture. These people can be a grave threat to immigrants and the Left. They must be resolutely opposed by a united workers’ movement that campaigns against the poison of racism and ultra-nationalism and for jobs, with a living wage, for all. Referendum call AKEL has called for a referendum, to allow the people to accept or reject the bailout deal. This was also taken up by the small Green party and an independent candidate in presidential elections held at the start of 2013. While the demand for a referendum gained an echo amongst some workers and youth who were furious at Troika-imposed austerity, it appears to have declined in recent weeks. AKEL and the former presidential candidate, Lilikas, both now put their hopes in the parliament rejecting the memorandum. However there are groups still collecting signatures in an attempt to force a referendum. There is little possibility that the present government will opt for political suicide by calling a referendum on the bail-out deal. In truth, AKEL’s campaign for a referendum is largely token and used by the party leadership to avoid other issues. In government until recently, AKEL cultivated a friendly relationship towards big business, the banks and the Russian oligarchs who spirited billions into Cypriot banks, preparing the ground for economic bust. In recent weeks, heightened government propaganda warning that there is no ‘Plan B’ and that leaving the euro and returning to the Cypriot pound currency would see the country “go back centuries”, is used to try to counter the popular call for a euro-exit. Nevertheless the issue remains live and can gather more force once austerity starts to bite deeply AKEL will unveil next week its proposals on how to leave the euro. Economists regularly appear on TV discussing a euro-exit. The influential Greek Cypriot Archbishop also raised the prospect of Cyprus leaving the euro-zone. This is in marked contrast to other euro-crisis countries, like Greece and Ireland, where although there is huge opposition to austerity most workers are fearful of leaping into the ‘unknown’ of euro-exit. Cyprus, however, only joined the euro-zone in 2008, at the start of the currency’s crisis. Cypriots therefore associate euro membership with seemingly endless financial turmoil, extreme austerity and looming slump. Euro-exit? But the New Internationalist Left warns that, on the basis of the continuation of the capitalist system, breaking from the euro and a return to the Cyprus pound will not mean refuge from austerity and stagnation. Certainly exiting would allow devaluation of the Cyprus currency but the boost to exports would be limited, given Cyprus’s lack of materials to sell abroad (the much-vaunted discovery of oil and gas supplies off Cyprus’s shores are years away from possible exploitation and the industry will be dominated by multi-national companies in the interests of their major shareholders). Currency devaluation would also result in a rise in import costs and therefore a hike in the cost of living. This ‘imported inflation’, along with likely government attempts to deal with paying off national debts by printing money, would cut into people’s savings. Apart from the New Internationalist Left, none of the rest of the Left puts forward a clear, class-based analysis to the crisis or a socialist programme for change. Inevitably various ideas are temporarily fashionable at this early stage of the economic crisis and impending class confrontations. Some look to a ‘co-operatives’ based economy as an alternative, for example. Unlike Greece, which, in effect, has suffered 28 years of austerity, many Cypriots are unprepared for the very hard landing ahead after years of economic boom. But looming class battles will radicalise more and more Cypriots in the next months and years. In anticipation of coming struggles, the New Internationalist Left puts forward a socialist alternative. This includes repudiating the debt, nationalisation of the banks under democratic public control and management, opposing privatisations, breaking with the bosses’ euro, and for the public ownership of the key industries and major utilities, to enable the economy to be democratically planned to serve the needs of the majority, not the profits of bankers and the speculator minority. All this immediately raises the prospect of Cyprus being forced out of the eurozone and even the EU. A workers’ government needs to plan to deal with exit from the euro and for a return to a national currency (the pound) while countering any illusions that this could provide a solution on the basis of capitalism. Adopting a new currency must be incorporated as part of a socialist programme. The struggle for the socialist transformation of society is just as relevant for Greece, Portugal, Spain and other euro-crisis countries, and beyond. A socialist federation of European states, founded on an equal and voluntary basis, is the only way to fully realise genuine co-operation amongst the working people of Europe and the utilising of the rich resources of the economy for the benefit of the great majority. This is particularly the case for small Cyprus. A new powerful Left needs to be built in Cyprus, with the aim of forming a government based on the needs of working people. The situation facing Cypriot society is desperate and set to get much worse. Only a bold, socialist, internationalist programme can resolve the crisis in the interests of the majority.

Bob diamond gone but this is about more than one bad apple

As Bob Diamonds resignation news still filters through and the cheering from liberal quarters continues I am acutely aware that this is just one man, yes one man who was powerful don’t get me wrong and a very wealthy one at that but he was by no means the sole problem from our banking crisis or the global financial crisis in capitalism. Bob Diamond was just one apple in a rotten apple cart the whole system is corrupt and systemically bankrupt.

It’s the system of capitalism today which should be under the spot light not Bob Diamond. By focusing on one individual we miss the picture.

As Marxists we don’t just look at one still photo we look at the motion picture of the coming in to being and fading away and the causes behind these changes.

The pressure from other shareholders on Bob Diamond was very telling this had a quantitative change when their share price plummeted on Monday something had to happen to stem this decline. Bob our good friend was the one to be sacrificed. But those liberal types and some very naive characters in our movement think this is it a reason to celebrate. I don’t. I think Bob is the symptom not the cause. Bankers are just one part of this crisis no doubt it was their wreck less gambling which got us into this position but it wouldn’t have been possible without deregulation of the banking sector over decades by Tory and labour governments alike.

An enquire which many bourgeois commentators are calling for even Ed Milibland is calling for one jumping on the popularise opportunist band wagon only a guy like Ed can even Ed can’t miss this open goal to score political points. But his so called enquire would not look too favourably on his labour party either they were in power for many of these deals and over saw the biggest economic crash since the late 20’s.

What we need is a large scale nationalisation of all of the banks. Bringing into full proper public ownership under workers democratic control. With measures to see about compensating those who the banks have faded and paying compensation to investors on basis of need. Which at present looks like very few. Some very rich individuals have made a quick buck out of the financial sector in this country and around the world. It’s time that wealth was in the hands of the many not just the few.

Capitalism is rotten here Bob Diamond too but do not let one man deter us from tackling the bigger beast and removing this corrupt system from our lives and freeing millions of people from the grip of the millionaires.

Eurozone endgame

The following is taken from the October edition of Socialism Today issue 152


After a year and a half, the Greek debt crisis is far from resolved. In fact, with Greece on the verge of a social explosion, a default and exit from the euro appears almost inevitable. The eurozone is threatened by an interlocking sovereign debt and banking crisis, compounded by near-zero growth. Capitalist leaders are in complete disarray. Competing national interests are a barrier to cooperative measures. LYNN WALSH analyses the latest twists and turns of the eurozone crisis.

ON 21 JULY, the eurozone leaders proclaimed at their summit that they had agreed on a package to stabilise the Greek debt crisis. This, they claimed, would avert the threat of a Greek default and precipitous exit from the euro. There would be a further €109 billion (following the 2010 €110bn package), while the role of the European Financial Stability Facility (EFSF – with proposed €440bn funds) would be extended to allow intervention to support governments and banks. There would, moreover, be a bond exchange that would involve a 21% ‘haircut’ for the holders of Greek bonds.

This package, however, was more a promise of future salvation than an immediate, practical solution. The whole deal is dependent on the approval of the 17 eurozone governments or parliaments, and this is not likely to happen until the end of September or the beginning of October. The 20% ‘haircut’ for Greek bonds will provide very minimal debt relief for the Greek government – Greek government bonds are already trading at less than 50% of their nominal value on the secondary bond markets. If the bond exchange goes through (it requires the agreement of 90% of the bondholders) it will be a good deal for the banks and a raw deal for the Greek people. In fact, it would require a ‘haircut’ of at least 50-60% to make any real difference to the debt mountain weighing down the Greek economy.

There is no guarantee whatsoever that all 17 governments will agree on an increase in the funds available to the EFSF or to increased powers of intervention. The eurozone leaders are reportedly arguing in tense, behind the scenes negotiations about where the EFSF funds will come from. Some leaders are proposing that they would mainly come from the European Central Bank (ECB). This would be, in effect, another form of ‘quantitative easing’, printing money in order to bail out governments and banks through the EFSF. This is strongly opposed both from within the ECB and by a number of governments, such as Germany and Netherlands, who see it as a road to escalating inflation. Regarding the €109 billion loans package, the government of Finland is demanding collateral (security) for its share of the loan. Other governments, such as Slovakia and Austria, are likely to make similar demands. These governments are demanding that a slice of government revenue or physical assets, such as land or buildings, should be allocated to them as security. This is reminiscent of the demands for reparations made on Germany after the first world war.

The wrangle over this new package demonstrates once again the way national interests stand in the way of common agreement. The 17-strong eurozone is an alliance of national states, not a confederation with a unified governing body.

Soon after the July summit, moreover, there were precipitous falls in the shares of major French banks, reflecting fears about the repercussions of a Greek default. At the same time, European banks were finding it increasingly difficult to borrow dollars from US banks to finance their current business. The ECB, which under Jean-Claude Trichet had been extremely reluctant to intervene, was forced to step in to offer unlimited dollar loans to eurozone banks. The ECB also started buying the bonds of the Italian and Spanish governments in order to prevent a precipitous rise in the borrowing costs of Italy and Spain.

Meanwhile, growth in all the major eurozone economies slowed to near zero, indicating a renewal of the recession that began at the end of 2007. The British economy also slipped into stagnation. This renewed slowdown is partly the result of fears about a sovereign debt meltdown and banking crisis, but more especially the result of austerity measures that have cut demand and reinforced the spiral of weak demand, falling investment, and rising unemployment. This in turn reduces government tax revenues, and actually leads to bigger deficits.

Piling the pressure on Greece

AT THE EUROZONE summit on 17 September, the troika – the European Council, International Monetary Fund (IMF) and ECB – who police the austerity measures imposed on Greece, postponed payment of the latest €8 billion loan due under the 2010 package on the grounds that Greece has not carried out sufficient cuts in state employment, spending, etc. Georgios Papandreou, the Greek prime minister, duly scurried back to Athens in order to carry out the troika’s orders.

The package of additional austerity measures includes a property tax, together with more public-sector job losses – on top of the plan to sack around 150,000 civil servants (20% of the total) by 2014 – and draconian wage cuts. If implemented, the accumulated measures will mean an economic and social catastrophe. The troika is "holding a knife to the throat of the Greek government", as one Greek minister put it, partly to enforce deeper and more rapid cuts and partly as a warning to other governments like Portugal and Ireland to keep to their austerity packages. This is a very dangerous game, however, and could detonate a political explosion in Greece, propelling the country towards default and exit from the euro.

Economically, there is no way these measures will provide a way out of the ever deepening slump. In fact, further austerity measures will only push the Greek economy even deeper into slump, pushing up the outstanding debt and making it even harder for Greece to pay it off. After falling 4.5% last year, GDP will fall by at least 5% this year (second-quarter growth was 7.3% down over last year). Unemployment is officially 16%, but more realistically is over 20% nationally (with over 900,000 unemployed). The northern region of western Macedonia, where an estimated 20% of small businesses have shut down during the recession, has an official unemployment rate of 22%. Health, education and other public services are collapsing. There is a process of social disintegration.

Angela Merkel and other eurozone leaders have repeatedly denied that they are seeking to provoke a default on Greece’s debt or force Greece out of the eurozone. Other leaders, however, appear to contradict this line. For instance, Wolfgang Schäuble, the German finance minister, has threatened that if Greece does not meet the conditions set by the troika, payments will stop (regardless of the fact that Greece urgently needs cash to pay its bills and refinance debts in October). "Then Greece has to see how it gets access to financial markets without help from the eurozone", said Schäuble. "That’s Greece’s problem".

The Netherlands prime minister, Mark Rutte, went even further: "Countries which are not prepared to be placed under administratorship can choose to use the possibility to leave the eurozone". (International Herald Tribune, 9 September)

It may be that some of the eurozone leaders are bluffing, and their statements are intended to maximise the austerity measures implemented in Greece. However, they are playing an extremely dangerous game. Christine Lagarde, the head of the IMF, has recently warned about the rise of social tensions as a result of austerity measures. Massive strikes, demonstrations and other protests have continued unabated in Greece – and, at a certain point, will result in a social explosion.

Debt default and eurozone exit

PUSHING FOR EVEN greater austerity measures, eurozone leaders are ignoring the reality that Greece’s debts are absolutely unsustainable. While political leaders are repeatedly stating their determination to defend the eurozone and avoid a breakup, strategists closer to the investment banks and other financial institutions are quite clear that, sooner or later, there will be a Greek default. That would mean a Greek exit from the eurozone.

For instance, Nouriel Roubini, who has a far more realistic view than most commentators, argues that Greece will never resolve its debt problem within the straitjacket of the euro. In order to stimulate economic growth, the precondition of debt reduction, Greece would have to be able to devalue its currency in order to boost exports. Clearly, this would mean abandoning the euro and returning to the drachma. The drachma would undoubtedly sharply fall in value against the euro. This would enormously increase the foreign debt, in drachma values, of the Greek government, banks and businesses. In reality, Greece would (like Argentina in 2001) have to write off a significant part of these debts by revaluing the debt in drachma terms. Greece would undoubtedly become a pariah on financial markets, unable for a time to borrow from European and international banks. As in Argentina (comments Roubini), the situation would mean ‘bank holidays’ (denying or limiting savers access to their accounts) and capital controls to prevent a flight of capital out of the country.

Roubini argues that an orderly default and exit from the euro, although inevitably imposing extreme hardships on the Greek working class for a period, would be preferable to the "slow disorderly implosion of the Greek economy and society". He argues that there should be international, coordinated action to recapitalise the banks and other financial institutions suffering losses on their Greek loans. Moreover, international banks should step in to recapitalise the Greek banks, which would also suffer massive losses on Greek government bonds.

In theory, an approach along these lines, based on a coordinated, international intervention to mitigate the problem of unsustainable debt in Greece, would be preferable to blundering into an explosive collapse of the Greek economy and all the uncontrolled repercussions this would have in Europe and beyond. However, the capitalist markets do not function in an ‘orderly’ way, and recent events demonstrate the complete lack of policy coordination between the leaders of the advanced capitalist countries.

Default on the country’s debt and exit from the eurozone would not, in themselves, provide a solution for the working class of Greece. As in Argentina 1999-2002, the Greek ruling class would attempt to throw the burden of crisis onto working people. In time, the return to the drachma and devaluation would boost exports and possibly see a return to growth. In the short term, however, this would be on the basis of low wages, shortages of food, fuel and other essentials, and a degradation of public services.

To protect the interests of the working class it would be necessary to nationalise the banks and cancel the debt held by foreign big business and financial institutions, while protecting the savings of working people. It would also be necessary to take over the commanding heights of the economy (with minimum compensation on the basis of need) to ensure the supply of essential goods and services. Priority should be given to reconstructing public services such as health, education, etc. Control of the economy should be through bodies of democratically elected representatives from the trade unions, community organisations, and the wider public. On a capitalist basis there is no easy way out.
Eurozone banking crisis

THE EUROZONE SOVEREIGN debt crisis is interlinked with a Europe-wide banking crisis. In 2008, eurozone governments intervened to bail out a number of shaky banks. But they did not carry out the kind of large-scale recapitalisation of banks that took place in the US under the Troubled Asset Relief Programme. Only eight eurozone banks out of 91 failed the recent ‘stress tests’, a theoretical test to determine whether banks can withstand another financial crisis. The big investors and speculators, however, are not convinced that all the banks are healthy. In fact there was recently a leaked IMF report which said that eurozone banks need €273.2 billion of additional capital. Lagarde commented that the eurozone crisis was entering "a dangerous new phase" and called for part of the EFSF funds to be used to recapitalise banks. This provoked strong opposition, some from political leaders who object to EFSF funds being used to prop up banks, and some from the banks themselves which deny that they are in trouble.

Nevertheless, there are clear indications of a new crisis building up in the eurozone banking sector. For a start, banks are refusing to lend to one another, preferring to park their cash in the ECB, even if this earns them a lower interest rate. A more startling recent development is the fact that Siemens, the giant German engineering firm, has deposited almost half its cash reserves (€6bn) with the ECB, rather than with commercial banks. Eurozone banks have also had difficulty in securing dollar loans from US banks, vital funding to conduct their US and global business. The ECB was forced to step in and offer eurozone banks unlimited dollar funds on the basis of three-month loans (though this will cost the banks more than loans from the commercial money markets, which have begun to dry up).

In mid-August the focus turned to the French banks. A rumour circulated that Société Générale was in trouble, and there was a massive fall in its share price (with a 50-60% fall between June and September). Société Générale shares were worth €52.7 in February, while by early September they had fallen to €21.19. Société Générale holds €2 billion of Greek bonds, while BNP Paribas holds €4 billion and Crédit Agricole holds €800 million. Big investors and speculators fear that a Greek government default on its debts would precipitate a deep crisis for these three major French banks, which play a key role in the French economy. French government ministers assert that the fears about these banks are ‘irrational’. Any short-term liquidity problem (ie a shortage of funds to cover current business) would be covered by intervention by the ECB. They deny that there is a basic solvency problem, asserting that these banks have enough capital reserves to survive a Greek default and other shocks. French ministers have furiously rejected the idea that they are discussing plans to nationalise these banks. This is reminiscent of the position of Gordon Brown and Alistair Darling at the time of the Northern Rock bank crisis in 2007/08.

Lagarde, however, let the cat out of the bag. When she was previously French finance minister, she claimed there was no problem with the French banks. Since taking over as head of the IMF, however, she has called for a recapitalisation of the major French banks and other banks in trouble using the EFSF funds. There has been a furious reaction against this. On the one hand, any such bailout would confirm that these banks have a solvency problem, and could actually exacerbate their situation. On the other, existing shareholders are up in arms because a government bailout (which would involve the government buying shares in the banks) would effectively dilute the value of shares of existing shareholders.

Eurozone leaders’ disarray

UNDER THE IMPACT of the economic crisis there has been a sharpening of national tensions within the eurozone. There are also divisions within the leadership of the German government, the key power in the eurozone. Merkel has faced growing opposition from leaders of the Bavarian Christian Social Union (CSU) and the Free Democratic Party (FDP), the Christian Democrats’ coalition partners. These leaders have been playing the euro-sceptic card, reflecting the growing opposition in Germany to bailing out Greece and other so-called peripheral states.

The lack of decisive action at eurozone summits shows that the eurozone leaders are in complete disarray. Each time they proclaim everything will be fine, Greece will not be allowed to default or be pushed out of the eurozone. The big investors in financial markets, however, do not take these reassurances seriously. Most of the strategists who speak for investment banks, etc, now believe that a Greek default is inevitable and will result in an exit from the eurozone.

The leadership of the ECB is also divided. While buying Greek, Portuguese and Irish government bonds in order to keep down interest rates for their respective governments, Trichet and other ECB leaders repeatedly stated that they were against large-scale intervention to support other eurozone governments. However, the speculation against bonds of the Italian and Spanish governments, which was forcing up their interest rates at the beginning of September, forced the ECB to intervene with large-scale purchases of these bonds. This provoked the resignation of the German representative, Jürgen Stark. There is now an intense battle between those ECB leaders who believe that an even bigger intervention is required. They argue that unlimited support for the bonds of threatened governments would stave off a sovereign debt crisis. However, other ECB leaders are still intransigently opposed to this kind of intervention. They believe that the ECB’s role should be strictly limited to monetary policy, ie setting interest rates and regulating the money supply.

There is also a growing difference between capitalist leaders over economic policy. The prevailing policy, upheld by Merkel and other eurozone leaders, is that ‘fiscal consolidation’ is imperative to reduce deficits. This means severe austerity policies. However, this has produced a new downturn in the European economy and, as Timothy Geithner, the US Treasury secretary, has warned, now threatens the whole global economy. The fall in government spending and massive cuts in public-sector jobs have set in motion a downward spiral: declining consumer spending, weak investment, higher unemployment, and a decline in tax revenues that can result in even bigger deficits.

The ultimate stress test

A WARNING WAS recently sounded by Lagarde. While advocating continued austerity for countries like Greece, she is – without naming names – calling on the major European economies to adopt short-term stimulus measures, while maintaining the aim of fiscal consolidation in the longer run. She warned: "A vicious circle [of weak growth and weak government balance sheets] is gaining momentum in Europe and the US". "Political dysfunction" was feeding policy indecision in a "dangerous new phase of the crisis". "Social strains", she warned, "are evident in many parts of the world, not just in the countries undergoing severe [fiscal] adjustment". (IMF, 15 September)

Since then, the IMF has published its latest economic outlook. This forecasts global growth for 2011 to be 4%, but warns that, unless there is concerted action to revamp economic policies, there is a strong possibility of growth falling below 2%. In the US and Europe, growth will certainly be under 2% and is likely to be virtually stagnant, while there is zero growth in Japan. But, as the Wall Street Journal comments (21 September): "It is unlikely that either the IMF or the G20 will manage to produce a cooperative plan of action this weekend, given the sharp political discord within the US and Europe".

However, it may be too late for the major capitalist economies to avoid a prolonged stagnation or a further downturn. The ruthless pressure on Greece to intensify the austerity measures can detonate an explosion in that country, which in turn would detonate a meltdown of the eurozone. It is hard to imagine that Greece could default on its debt and remain in the eurozone. That would undermine the credibility of the whole eurozone. In any case, the only way Greek capitalism could escape from its crisis would be through readopting the drachma and devaluation. And if Greece takes this path, why should others stick with the pain of eurozone austerity measures?

On the basis of the relatively strong growth of the world economy since 2000, the eurozone appeared to become a success. But the growth was based on huge volumes of debt, which are now at the heart of the current crisis. Since the financial meltdown and economic recession of 2007-09, the eurozone is being subjected to a severe stress test – from which it will not emerge intact. At a certain point it will break up; but how long the process will take and through what permutations it will twist and turn cannot be predicted. The eurozone has entered its endgame, only the moves and timescale are uncertain

Worse off wednesday

As we progress through April we will start to feel the affects of what this tory government are doing with the economy. Today the 6th of April has been dubbed "worse off wednesday" due to so many loosing out and feeling worse off as a result.
Among the changes to come into effect on Wednesday are a 1% rise in employees' National Insurance contributions - a measure first announced by Labour in December 2009 but which the government decided not to reverse.

Other changes coming into force include a £1,000 rise in the threshold at which people start paying income tax to £7,475, which means about 500,000 people will no longer pay tax on their earnings, according to the Institute of Fiscal Studies.

There is also a freeze on the inheritance tax threshold, an extra 5% on stamp duty for homes worth more than £1m and restrictions on tax relief on pension contributions for those on more than £150,000 a year.


All thse tax changes will most likely leave working class people far worse off than before as they see a pay freeze and in most cases a loss of their job that they rely on so much to get by.

The rising cost of living will also compound the misery for many across the UK today. With the price of petrol and oil to fill up your car rocketing even higher despite what pittance of tax the tories took off it at the budget the other week.

The Low Incomes Tax Reform Group said those earning more than £40,000 would be hit most by the rise in national insurance but those on less than £20,000 would not be affected.

The Child Poverty Action Group said it was a bad day for low-income working families.

"If you have a new child tomorrow - a second child - you could be about £1,500 a year worse off than somebody who claimed yesterday," chief executive Alison Garnham said.

She cited a combination of factors including the loss of the baby element of tax credits, health in pregnancy grants, the Surestart maternity grant, and the increased rate at which tax credits were withdrawn after earning £6,000.


Ministers say that delaying any tax and benefit changes would only force the government to make bigger cuts later, affecting the poorest in society.

Chief Secretary to the Treasury Danny Alexander said they were seeking to concentrate help on "the most in need" and that the top 10% of households would suffer the most as they do not gain from the rise in personal allowances and would pay the most increased NI contributions.




ALl this adds up to a very grim day for the poorest in society and as usual it is us at the bottom, the working class who are having to pick up the tab for the rich and the bankers mistakes at the top.

Not one polititain today has come out today and highlighted the real root of this problem or associated why we are where we are today and that is capitalism . The capitalist system is broke and needs repairing, not in my view it needs over throwing but that's for another post no doubt but this rotten unfair system is why we are where we are.

One of the many contradictions with capitalism is in its drive for more and more profit it often makes a surplus and much more than it actually needs leading to a state of over production. This is what happened in 2008 where mortgages and loans and government borrowing kept going up and up and up and in the end people were defaulting on their repayments having no eralistic way of paying these back this included the banks who crashed to the floor along with the whole of the capitalist system.

Not one polititian today has come out to raise this point at all that it is a systematic problem with the system we live under why we are where we are that the rich are getting richer and the poor as usual under capitalism are getting poorer. Which brings me back to worse off wednesday.

As April rolls into may and may into june we will start to feel the pinch of the public sector cuts. People havent seen anything yet. I dont wish to scare people but this is going to be a very tough year for many. Many will be made homeless and many will loose their job, These are the facts.

So while labour hypocritically blast the tories on these cuts and tax changes it was they who threatened us with cuts going further than Thatcher ever did. So lets not take any economic lessons from them as you can bet your bottom dollar they would be cutting just as much if just over a longer period. It would be no less painful on those who did not cause this mess though.

So when we feel our incomes going down, our notices beign handed to us and we cant afford to eat as much as we did lets just rmemeber the real problem here and that is capitalism which for everyones sake must be terminated and whole of society must be changed. Only under socialism, true socialism not labours dressed up version which they claim they can cut fairly which is a joke quite frankly but real socialism where the economic power is not in the hands of a few but the many will we start to see a fairer all round society.

What has socialism got to do with the cuts ?

In the special edition of the socialist a paper by the socialist party for the 26th march TUC demo ther eis a excellent article relating socialism to the cuts and how socialism can help us to a better world. i've reproduced it underneath. You can join the party at www.socialistparty.org.uk

What has socialism got to do with fighting the cuts?

Socialist Party members sell The Socialist, photo Paul Mattsson

Each week members of the Socialist Party sell copies of the Socialist newspaper at workplaces, colleges, stations, town centres and working class estates all over England and Wales, as well as at protests and meetings. Sellers are often questioned about socialist ideas. Here Tom Pearse records such a discussion.

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Socialist seller (S): Fight the cuts - no ifs, no buts, fight all cuts!

Potential buyer (B): Ok, I'm against the cuts but what is the alternative? The government says there is a massive public sector deficit and, if we don't cut it, then it will grow to unacceptable levels. Then the country will go bankrupt.
S: Well, the first thing I'd say is that we, the working people, who are the majority in this country, didn't create this deficit. The rich and their system of capitalism, particularly the bankers, are mainly responsible for this deficit. The previous government stepped in and bailed them out to the tune of about £80 billion directly, with up to £1 trillion in loan guarantees etc.

Also, because of the crisis of capitalism - which again we didn't create - over 2.5 million people in Britain don't have a job - including a million young people between the ages of 16 and 24.

It's the largesse handed out to the bankers and the increased cost to the state in unemployment and other benefits which accounts for most of the deficit.

B: Yes, yes - but this deficit exists. How are we going to pay for it? How can we ultimately eliminate it?
S: Did you know that the total deficit could be wiped out if the rich paid taxes like ordinary people do? Tax avoidance by the rich, according to the PCS civil service union, comes to £120 billion a year, which is almost equal to the total government budget deficit, £143 billion, to be eliminated over four years.

But the Con-Dems are using this situation to pursue a scorched earth policy against all the historical achievements of working class people, the NHS, pay and conditions etc.

This represents an attempt to turn back the wheel of history to the 1930s and in some senses to the 19th century. Working class people are being made to pay for rescuing capitalism in a severe crisis.

B: But if we try to make the rich pay for the deficit, won't they just take their money out of the country?
S: Yes, they might attempt that. But then they would be openly acting selfishly by seeking to flout the democratic wishes of the majority of the British people. We would therefore have every right to introduce measures to prevent them from doing so.

B: But isn't that to attack the principle of private property?
S: When socialists talk about 'private property' we're not talking about the personal possessions of ordinary people - houses, cars, fridges, etc. The private property of the rich and the super-rich comes through the super-exploitation of us, working class people.

They would argue that their profit, which is what Karl Marx called "the unpaid labour of the working class", is necessary in order to keep the system going. We should never forget that profit is achieved by exploitation - sometimes ruthlessly so in China and elsewhere today - of the labour power of the working class.

B: Don't we need rich people to create jobs and anyway, doesn't competition drive invention?
S: There is a grain of truth in the arguments of the bosses. In the past, by investing this surplus - profits if you like - in industry, they played a role in developing society, providing jobs and increased wealth for a time.

But for the last 20 to 30 years investment in factories, in what we would call the 'means of production' - the organisation of labour, science and technique - and the actual making of real things, has dropped dramatically.

Instead they sought to boost their profits in a massive orgy of 'financialisation', the building up of the financial sector at the expense of real production and the creation of jobs. This created a massive financial bubble which has now burst, resulting in the present devastating crisis.

This is a real indictment of the failure of capitalism. The International Monetary Fund has calculated that during this economic crisis, in 2008 alone, the total loss in assets devalued worldwide came to $50 trillion - roughly equal to the value of one year's global output of goods and services! This wealth is being destroyed because capitalism is a system based on production for profit for the few and not the social need of the many.

B: OK, the capitalists failed. But you still haven't said how you would stop them from avoiding any attacks on their wealth.

Selling The Socialist in Waltham Forest, photo Alison Hill

S: If they tried to continue with evasion, if they tried to take their loot out of the country, then a radical socialist government should introduce state controls of all capital coming in and out of the country.

This would be accompanied by the 'opening of the books'. The accounts of all companies should be inspected by mass committees of workers and consumers. This would be a form of workers' control, which is vital as a means of revealing the real wealth and how it is to be controlled for the benefit of the majority.

B: How can you do this in an open and free economy?
S: By nationalising the banks and finance houses.

B: Didn't the British government try this at the beginning of the financial crisis when they took big stakes in the banks?
S: Up to a point yes. But it was not complete nationalisation. And it certainly wasn't carried out in a way that was beneficial to the majority of the people of this country. New Labour left control in the hands of big business managers.

Even when the banks are nominally under our control - that is the state - they are run by and in the interests of the capitalists. Look at the tops of the majority-nationalised RBS bank - they are paying out millions in bonuses to themselves!

Instead we want real democratic nationalisation, conducted in a socialist manner through workers' control and management. This would involve the workers in the banking and financial sector, together with representatives of workers in general and government representatives, as well as depositors and other users, controlling and managing the banks on behalf of the people as a whole, providing cheap loans, mortgages, etc.

B: Won't big business take fright and sabotage any efforts to rein them in?
S: It is entirely possible that this could happen or be threatened. In the past, when minimal measures were taken against them, the capitalists threatened a strike of capital. When the Labour government in the 1970s - led by Harold Wilson as prime minister - introduced a tax on capital, big business, with the help of the newspapers, conducted a ferocious struggle which resulted in 174 amendments to the bill, and effectively nullified the proposed tax increases against the rich.

B. Well there we go. You can't do anything.
S: Now, I didn't say that. If we, the Socialist Party, have majority support, we could do a great deal to counter the undemocratic defiance by a handful of capitalists, seeking to thwart the wishes of the majority.

Harold Wilson and the Labour government, because they would not go outside the framework of capitalism, bent the knee to the bosses' pressure and capitulated. We would have called their bluff and proposed to Parliament a bill to take over these big companies who were threatening to defy and blackmail the elected representatives of the people.

B: But again, would that not mean violating the age-old principles of private property?
S: To invoke this alleged 'principle' is a smokescreen to mask the colossal and undemocratic concentration of power in the hands of a handful of the rich.

A few figures to illustrate this: of the hundred largest economies in the world 52 are corporations and 48 are countries; the top 500 companies control 70% of world trade; the top 200 companies' combined sales are equal to 28% of world GDP but employ only 0.82% of the world's workforce.

In the US, 2% of companies account for almost 75% of business activity. Here in Britain, the Socialist Party points out that 150 companies control 70-75% of the wealth of this country.

In other words a handful of billionaires control what are, in effect, monopoly concerns, which determine what will and will not be produced. They control who will and who will not work, which party they would like to see elected in which government to best represent their interests.

We do not live in a real democracy. Capitalist democracy is where everybody, at least in theory, can say what they like so long as big business, a handful of monopoly companies, can decide what takes place in practice.

B: But how can you break the power of the rich and the big monopolies?
S: That's a very good question. We will propose that these companies be taken over - nationalised by a socialist government which would then organise a democratic socialist plan of production. This plan would be drawn up through the involvement of working class people, representatives of the middle class, such as small shopkeepers, small businesses etc, the users and customers of industry, etc.

B: Two questions spring to mind. Wouldn't nationalisation be, in effect, 'expropriation' of the assets of people who, through diligent work, have built up this wealth over generations?
Secondly, if you take over industry, don't you also 'nationalise' the savings of many, not necessarily wealthy, people who invested in stocks and shares - for instance trade union members who have their pensions invested on the stock exchange?

S: Firstly this wealth and power of big business has been built up, as we showed earlier, by the exploitation of the labour power of the working class.

In the past there was some justification for this - despite the horrors of capitalism in the Industrial Revolution, the slave trade, etc. This was because it built up industry and was therefore ultimately laying the basis for abolishing shortages and boosting living standards.

But capitalism is a system which cannot fully utilise the full potential of the productive forces, as has been shown by the series of crises throughout its history and particularly the present crisis. Karl Marx pointed out that when it begins to hold back production, to destroy wealth, capitalism betrays its "historical mission", which was to develop production.

When it begins to hold back production it becomes obsolete. This does not mean, however, that capitalism will 'automatically' disappear. It needs to be 'helped' off the stage of history by the actions of the working class and the labour movement. So we need a new social system - one that involves a state acting for the majority and not the privileged minority - which is democratic at every level both in the running of industry and society.

But we, that is the working class and the labour movement, are not impervious to the interests of the small investors. Even to the big investors we will be more generous than they are to the poor, those on benefits, etc. Compensation will be paid on the basis of proven need to all whose assets are being taken over by a democratic socialist workers' state.

B: And the ordinary people?
S: It goes without saying that, of course, trade union members and their pensions will be safeguarded; in fact, pensions will be rapidly increased from the current miserable level which the coalition government intends to cut further. All workers - as well as the unemployed, those on low wages, pensioners etc - will enormously benefit from a socialist planned economy.

B: How can you possibly guarantee that, by waving some kind of magical 'socialist' wand, things will improve in the way you describe?
S: There will be no hocus-pocus; there is no mystery in how a socialist planned economy would be organised and will be superior to outmoded capitalism.

Capitalism is a system which cannot utilise the full productive potential of its own system. The output of the world economy is back to the levels of 1989.

But in the 17 countries forming the eurozone, joblessness among the young now officially stands at over 20% (although it's much higher in many areas) alongside closed factories.

In Ireland we have the phenomena of empty 'ghost estates' while millions throughout the world lack basic shelter. One billion people on the planet go to bed hungry every night, an increase of 150 million compared to 15 years ago.

A planned economy would use all the resources which now lie idle, as well as cutting out the colossal waste from unnecessary advertising, duplication of production, etc.

Instead of the measly growth rate of capitalist economies at present - with Britain not really growing at all - a socialist planned economy could rapidly increase production on an environmentally sustainable basis and generate huge extra resources in Europe and the world.

It would increase the participation of the workforce in running society, including production, as well as consumers - through cutting the working day without any loss in pay. This would not lead to a decrease in production but give an enormous boost to it. In schools, in housing, in education, instead of the current cuts, there would be a big expansion. Undreamed of plenty is possible on the basis of socialism.

B: But didn't 'socialism' fail in Russia? Instead of democracy there was dictatorship by people like Stalin.
S: The Russian revolution, in the period immediately after 1917, when the October revolution took place, established the most democratic state in history. It proceeded to take into public ownership the land, industry and finance.

For the first time the majority - that is the working class and the poor peasantry - were in power. They ruled through a system of workers' and peasants' councils.

There were no privileges for the representatives of the people, who lived on the average wage, were subject to recall, etc. These councils, for the first time in history, raised the working class to power and allowed them to rule.

The Russian revolution was seen as just the beginning of the European and the world revolution. Unfortunately, despite favourable opportunities, this did not transpire because of the betrayal of the workers' leaders in the social democratic parties (like the Labour Party in Britain) in the West at that stage. Therefore Russia was isolated and, on the basis of scarcity, a low cultural level and a privileged elite, the bureaucracy began to emerge, personified by Stalin.

This bureaucratic caste betrayed the ideals of the Russian revolution - although the planned economy was still maintained and therefore the system which remained was still relatively progressive compared to capitalism - and gradually established a one-party totalitarian regime.

B: What guarantee is there that your British version of socialism will not go the same way?
S: This will not happen in a socialist Britain. I know this is a bold assertion but it's based on a sober assessment of the different conditions between Britain today and Russia at the time of the revolution. We live in an advanced industrial country, with a high level of culture, access to computers, the social media, etc. We have a powerful and educated working class with its own organisations, the trade unions.

Once working people here carry through such a big social change they will not allow a repetition of Stalinism, for power and privilege to be concentrated in a few hands.

B: But won't those in power just get greedy?
S: Yes, there is always a danger of a bureaucratic layer seeking to control everything. Look at the trade unions today. There are leaderships sometimes on salaries several times that of trade union members. There are leaderships who fear the active participation of the members, particularly militant fighters like members of the Socialist Party fighting to transform the unions so that they reflect the real will of working people.

The only way to check this bureaucracy is through democracy. Trade union and other officials should be elected subject to recall. Such will be the advantages of socialism, particularly implemented democratically, that there would be no possibility of going back to capitalism. This would be as absurd and as utopian as anybody today hoping to return to feudalism, to the hardship of the middle ages.

B: But do you think that the capitalists will just allow you to go ahead and expropriate them without resistance?
S: We will have a democratic majority and under the rules of democracy a minority should abide by the will of the majority. Of course the rights of minorities would be protected. Not just the working class but the intermediate layers of society can be won to socialist system.

Once the mass of working people come together in struggle, a huge social movement, all of those layers of society who are subject to attack by the system, gravitate to the workers' side. This was shown, after all, in the revolutions in Egypt, Tunisia and throughout the Middle East.

The Con-Dems are attacking the police by proposing to cut their numbers. Even servicemen, on returning from Afghanistan, could be thrown on the dole. Many then can be open to the idea of fighting the cuts. But also this can open up for them the vista of a new society where all the talents can be used.

Nevertheless we are realistic. History has shown that it is not the left, it is not the working class movement, which resorts to force to attain its ends. We are absolutely opposed to the methods of terrorism. But we're not pacifists; we will defend all democratic rights from any forceful attempt to take them away. We fight with democratic means for a democratic majority. But the ruling class does not always abide by even its own 'rules' when its vital interests are threatened.

B: Ok, you've made the case for a socialist Britain. But what kind of set-up will you have in relations with Europe and the world?
S: We don't believe in socialism in one country. Russia shows that there is no possibility of any one country moving towards socialism by itself. Leon Trotsky, the great socialist theoretician of the workers' movement, continually argued against this idea and he was proved right.

The development of the productive forces has completely outgrown the narrow limits of the nation state. The failed attempt of the capitalists in Europe to come together through the European Union is one expression of this.

If Egypt can detonate and assist the movement in Wisconsin, in the belly of the beast, the US itself, imagine if Britain was to go socialist. It would begin to transform the world. The same would apply in any country in Europe, or for that matter the relatively developed countries in Latin America or Asia.