Alan Woods continues his analysis of the crisis facing European capitalism and their institutions
France and Germany
French bourgeoisie did very well out of the EU, although it never
succeeded in winning ist goal of achieving political domination. The
inexorable rise of Germany has pushed it into second place. But the
general advance of European capitalism gave it a level of prosperity
that enabled it to grant important concessions to satisfy the powerful
and militant French working class.
All that has changed. The insistence with which Paris pressurized
Berlin to pay the Greeks indicated the precarious state of French
capitalism. The French banks are almost as exposed as those of Germany
to the Greek economy. A Greek default would bring the financial sector
of France to its knees, provoking a deep crisis. That is why the French
capitalists protested more loudly than anyone else at the hesitations
of Merkel. Finally, the Germans paid up, but now France is faced by a
Charles Maurice de Talleyrand said that speech was given to man to
disguise his thoughts. This is very applicable to the French President
Nicolas Sarkozy. He has pledged to cut France’s deficit to 3 per cent
of GDP by 2013. But so far, only small savings have been announced,
such as not replacing all retiring civil servants. But the main problem
facing the bourgeoisie is the unfortunate fact that people are living
too long, with the average French worker spending 24 years in
retirement, well above average for a developed nation. Thanks to the
militant tradition of the French workers, they have achieved a welfare
state far superior to Britain and many other countries in Europe.
The fact that the French have achieved something resembling a
civilized mode of existence is a source of deep resentment in London
and Washington, where it is held up as the worst example of the
“wasteful European model”. People are entitled to reasonable free
health care and pensions. What a scandal! The defenders of the
“Anglo-Saxon (i.e., barbarous) model” shake their heads in disbelief.
This is no way to improve efficiency and create wealth (for the
The French bourgeoisie is inclined to agree. They have gradually
succeeded in whittling away the gains of the past, such as the 30 hour
week. But there is a problem. The French workers have a very irritating
habit of going on strike and taking to the streets when they are
attacked. They have on several occasions forced governments to retreat
and even overthrown them. The government in Paris, well aware of the
militant traditions of the working class, has so far not made any major
commitments on spending cuts.
Nicolas Sarkozy is keen to push through a major “reform” that would
raise the retirement age, currently 60. But he is compelled to proceed
slowly, for fear of arousing the powerful French working class. His
tactic is to cut, but slowly, inch by inch, while all the time making
comforting noises about protecting social values, consensus and so on.
However, at a certain point this gradualism will break down. The
breaking point will probably be over the pensions issue. And the French
workers will be on the streets once again.
Germany itself will begin a spending squeeze from next year and is expected to cut at least €10bn every year until 2016.
Subsidies will be targeted, and there will be tax rises and
departmental spending cuts. These harsh measures are intended to set an
example to the rest of Europe. The excuse is that Germany has to comply
with rules on dealing with debt written into its constitution. But this
argument will have no effect on the powerful German trade unions, who
will not take long to follow the example of the Greek workers. In this
way, “contagion” applies not only to the financial markets but also to
the class struggle.
Iceland and Ireland
The inevitability of sharp and sudden changes in the situation is
shown by events in Iceland, a country that had enjoyed high living
standards and political stability. In January 2009 protests in the
capital Reykjavik brought thousands of people on to the streets in the
biggest demonstrations the country has ever seen. As Parliament
reconvened on 19 January, they were initially prevented from meeting,
as 2,000 demonstrators blocked the parliament building. There were
violent clashes between police and young demonstrators. As a result,
the coalition government between the Samfylkingin (Social
Democrats) and the Conservative Independence Party has broken up. The
government of Iceland was thus the first to fall as a consequence of
the present economic crisis. It will not be the last.
The class struggle is growing in Ireland, where, as in Iceland and
Spain, a period of rapid economic growth and feverish speculation has
ended in complete collapse. This is provoking a mood of anger. In
February 2009 some 200,000 workers and their families took to the
streets in Dublin, to demonstrate their opposition to the government’s
decision to impose a pension levy on 300,000 public sector workers.
There was a factory occupation of workers by Waterford Crystal.
On 6 November, 2009 tens of thousands of people have participated in
demonstrations in Dublin, Cork, Waterford, Galway, Sligo,
Limerick,Tullamore and Dundalk. A major union SIPTU voted massively to
join the public sector strikes on November 24th, when well over 250,000 Irish workers in the public sector were on strike. This is the shape of things to come.
Britain and Europe
Of the major European powers, Britain stayed out of the European
Union (the EEC as it was then called), with the delusion that it could
still maintain an important independent role in world affairs. This
foolish dream was soon reduced to ashes, and the British bourgeois was
forced to crawl on its knees to get into the EU. Even so, London was
subordinated to Washington (this is what is known humorously as “the
Special Relationship”) – a fact that did not pass unnoticed in Berlin,
and, above all, Paris.
The British capitalists did not join the Euro, and this now appears
as an act of supreme judgment. It allowed them to devalue the pound
sterling, giving British exports an advantage over the Euro countries.
This actually revealed the weakness of British capitalism, not
strength. Devaluation of the currency was the method traditionally used
by the weaker European economies to compete. By presenting the falling
value of the pound sterling as an act of supreme judgment, the British
bourgeoisie is merely advertising its own bankruptcy.
The British are not popular in Europe, where they are regarded with
suspicion, not without reason, because of their dependence on the USA.
When the Conservative leader Cameron went to Paris for talks with
Nicolas Sarkozy, he could not resist making a smug comment about the
euro, which visibly irritated the French President.
The following day, the British Prime Minister told Ms Merkel that
not only was Britain outside the euro, but that he would block German
proposals, tabled at meeting of finance minister on Friday, to give the
EU new economic powers to police the budgets of single-currency member
"Britain wants a strong and stable euro zone," he said. But he
immediately proceeded to throw a spanner in the machinery: "Britain is
not in the euro and is not going to be joining the euro. So Britain
would not agree to any arrangement or treaty that drew us further into
supporting the euro area. Any treaty – even one that just applied to
the euro area – needs unanimous agreement of all 27 member states,
including the UK, which of course has a veto."
This is what someone called the gentle art of winning friends and
influencing people. If the Germans did not express their indignation
openly at this arrogant stupidity, it was only because they expected
nothing else from the political representatives of the British ruling
class. In Europe a lot of the anger at the financial system is directed
towards London and New York, where most of the world’s currency traders
and debt investors are based.
Britain’s European partners, irritated by the British airs of
superiority and angry at the “unfair” advantage obtained by the
devaluation of sterling, have sharply reminded them of their
responsibility to Europe, and demanded that they participate, with
money on the table, to the rescue plan. Grumbling and cursing under
their breath, the British bourgeois are obliged to put their hand into
Cameron’s smug sense of superiority in the face of the Euro’s
difficulties is out of place. It reminds one of the attitudes of
another Conservative prime minister, Stanley Baldwin, who, in the
1930s, described Europe as a “madhouse”. Answering Baldwin, Trotsky
remarked that Britain was only the last ward in the European madhouse,
and the last ward was usually reserved for particularly violent
Britain will not escape the general ruin because it is not a member
of the Euro zone. The crisis in Europe will be expressed in falling
demand and therefore a shrinking market for Britain’s exports, most of
which are sold in Europe. The crisis in the euro zone (Britain’s
biggest export market) will undermine Britain’s recovery, which in any
case is very weak. Cameron was told in no uncertain terms that Germany
sees Britain (which has the EU’s highest budget deficit), as a prime
candidate for contagion if market panic over Greece, Portugal and Spain
The government in London is now a shaky coalition between the
Tories, in whose ranks the anti-European chauvinists are the majority,
and the pro-European Liberals. The Tory right wing is seething with
resentment at what they see as the excessive influence of the Liberals
in the government. The question of Europe is a very sore point, which
can later provide the spark that ignites a crisis in the coalition.
Fearing that the markets will begin to attack the pound, the Tories
have begun to slash public spending. The coalition Government declared
that the "years of plenty" for public spending were over yesterday, as
it admitted that its £6.2bn package of immediate savings was "only the
start" of a huge programme of cuts. But the markets are unimpressed.
The first wave of cuts amounts to only 1 per cent of total government
spending and a fraction of the £156bn deficit in the public finances.
The Institute for Fiscal Studies (IFS) warned of more pain to come.
It warned that these measures would cut borrowing by only £5bn this
year. "This is less than a tenth of the fiscal repair job that Alistair
Darling’s 2010 Budget forecast suggested will be needed over the next
few years," it said. The bosses want to see real cuts – not a manicure,
but the amputation of arms and legs. Investors are waiting to see if
the UK Government possesses the will and the ability to make the deep
cuts they consider necessary. And the markets decide.
For the time being the wave of panic that swept across the euro zone
countries has not spread directly to Britain, despite its huge deficit.
But this is only a temporary respite. At present, Britain is waiting on
the sidelines, watching cautiously as the euro agonizes. But the
markets could target the UK at any time. It is a measure of the
seriousness of the situation is that the new government expressed relief that increased tax receipts meant that the deficit was £7bn less than expected, and therefore “only” £156bn.
Britain will be affected by the crisis in the euro zone. Without
growth in Europe, there will be little demand there for Britain’s
exports, just at the time when the Conservative-Liberal coalition is
hoping for an export-led recovery. The euro is already weakening
against the pound, partially eroding the competitive achieved by the
depreciation of sterling.
The next period will see a far more serious attack on living
standards, which will provoke an overwhelming response from the trade
unions. In the 1970s Britain was notorious as the country in Europe
with the biggest strike movement. But ever since the Thatcher
government defeated the miners, the unions have been on the defensive.
Now all that will change. There will be strikes and demonstrations not
seen since the 1970s.
The mood of militancy will shake up the unions from top to bottom,
pushing out the old conservative leaders and replacing them with others
who are more responsive to the wishes of the rank and file. Given the
organic connection between the unions and the Labour Party, the latter
will be pushed to the left, as happened in the 1970s. The whole
situation in Britain and the rest of Europe will be transformed.
“Most Americans know that the U.S. economy is in bad shape, but what
most Americans don’t know is how truly desperate the financial
situation of the United States really is. The truth is that what we are
experiencing is not simply a "downturn" or a "recession". What we are
witnessing is the beginning of the end for the greatest economic
machine that the world has ever seen. Our greed and our debt are
literally eating our economy alive. Total government, corporate and
personal debt has now reached 360 percent of GDP, which is far higher
than it ever reached during the Great Depression era. We have nearly
totally dismantled our once colossal manufacturing base, we have
shipped millions upon millions of middle class jobs overseas, we have
lived far beyond our means for decades and we have created the biggest
debt bubble in the history of the world. A great day of financial
reckoning is fast approaching, and the vast majority of Americans are
totally oblivious.” (Global Research, 4 June, 2010)
When Obama rang Zaptero to urge him to carry out cuts, this was a de
facto recognition of the umbilical chord that connects the crisis in
Europe to the crisis in the USA itself. The above lines express the
fact that the American dream is a thing of the past. The present
generation of American youth will be the first since the Great
Depression that cannot look forward to better living standards than
Even before the economic collapse, the rich were getting ever richer
and the poor, poorer. Now an unbridgeable abyss is opening up between
rich and poor, between “haves” and “haves-not” in the “land of the
free”. The article quoted above listed fifty facts that underlined the
seriousness of the crisis facing the USA.
In 1950, the ratio of the average executive’s pay to the average
worker’s pay was about 30 to 1. Since the year 2000, that ratio has
soared to between 300 and 500 to one. Two-thirds of income increases in
the U.S. between 2002 and 2007 went to the wealthiest 1% of all
Americans. The bottom 40 percent of income earners in the United States
now collectively own less than 1 percent of the nation’s wealth.
More than 24% of all homes with mortgages in the United States had
defaulted as of the end of 2009. Defaults on apartment building
mortgages held by U.S. banks climbed to a record 4.6 percent in the
first quarter of 2010. That was almost twice the level of a year
earlier. Americans have seen the re-emergence of the tent cities and
soup kitchens not seen since the 1930s.
According to a new report based on U.S. Census Bureau data, at the
end of 2009 only 26 percent of American teenagers between the ages of
16 and 19 had jobs, which represents a record low since statistics
began to be kept in 1948.
As a result, a critical mood already exists, especially among the
youth in the USA. There is a questioning of the existing order and its
values, which was not there before. This mood will be strengthened and
generalized in the next period. Even the election of Obama reflected
this mood, insofar as it expressed a deep desire for a change – a
desire that has not been satisfied by Obama and the Democrats. Obama’s
approval ratings have already collapsed.
We see the outline of the future transformation of the American
trade unions in the election of Richard Trumka, the miners’ leader.
Trumka does not want to mobilize the workers, but is under pressure. In
the next period, the unions will be under tremendous pressure to put
words into practice, not just in the USA but in all countries. In the
USA the ground is being prepared for a break with the Democratic party
and a Campaign for a Mass Party of Labour.
Already there are the first signs of a political rebellion against
the Democrats. Less than two years ago North Carolina was one of the
centres of the grass-roots army that propelled Barack Obama to victory
in what was a conservative state. Now frustrated with the results,
former Obama supporters have linked up with labour organizers to gather
signatures to start a third party, North Carolina First.
The prime movers in this initiative is the SEANC and its parent
group, the Service Employees International Union, possibly the nation’s
most politically powerful trade union. They are funding the effort, and
immediately after it was announced, they hired more than 100 canvassers
who are rounding up the signatures needed to qualify as a third party
on the general election ballot.
"Our whole agenda is to turn that apple cart around and say, ‘No
more are we going to blindly support you because you’re a Democrat,’ "
said Dana S. Cope, executive director of the 55,000-member State
Employees Association of North Carolina (SEANC), which is leading the
effort. "We’re going to support you because you’re right on the issues
and if you’re not right on the issues, we’re going to remove you from
Chuck Stone, a longtime SEANC leader who is chairman of North
Carolina First, asked: "Does it really matter if you put a Democratic
label or a Republican label on them when they go up there and support
big companies and big insurance?"
These comments are highly significant because they show the early
beginnings of s shift in consciousness, the realization of the need to
establish a political party that does not represent “big companies and
big insurance” but the needs of ordinary working class people. This
reflects the same process that the British workers experienced a
hundred years ago, when they broke with the Liberals to form the Labour
Party. But what the British workers took generations to achieve, the
American working class can accomplish far more quickly.
Probably the movement for a third party in North Carolina will be
merely an episode. But it is an episode that anticipates what will
occur in the future. A Labour Party in the USA will attract to its
banner all the most oppressed and revolutionary layers of society:
African Americans, Latinos, the Native Americans, the women, the youth
etc. The same enthusiasm that we saw in Obama’s electoral campaign will
be reproduced on a higher plane and with even greater intensity. Very
quickly, an American Labour Party will pass from the timid reformist
policies advocated by the conservative union leaders to a very radical
Eastern Europe and Russia
Twenty years after the fall of Stalinism, the restoration of
capitalism in Eastern Europe and the former USSR has solved nothing.
For a while, on the basis of the world capitalist economic boom, the
new capitalist classes of the former Stalinist states could establish
something resembling stability.
The Asian crisis of 1998 caused shock waves, but on the basis of the
devaluation of the ruble, the Russian economy soon recovered and grew,
mainly on the strength of its huge oil and gas reserves. The economies
of Eastern Europe benefitted from their connection with the EU. They
exported their surplus workforce to Western Europe, which benefitted
from this pool of cheap labour. In turn, the remittances sent home by
the migrant workers provided an additional source of capital for
Now all that has turned into its opposite. The migrant workers have
returned home to swell the ranks of the unemployed. A number of
countries in Eastern Europe are faced with the specter of crisis and
bankruptcy. Like Greece, Latvia has suffered a fiscal crisis that saw
its debt rated as junk. In the fourth quarter of 2009 Latvia’s GDP
contracted by 18%, and it has fallen a further 10% in the first quarter
of 2010. Wages have fallen by an average of 8.8%, and unemployment has
reached more than 22%. This is a slump on the lines of the Great
Hungary is not far behind Latvia. In October 2008 Hungary was forced
to seek a $25bn rescue package from the International Monetary Fund and
the EU. Now Hungary faces a Greek-style financial crisis. The country’s
currency, the forint, dropped 6% against the dollar after comments of a
representative of the new government. The cost of insuring the
country’s debt jumped by one percentage point. This means that it will
be more expensive for the country to borrow money in the international
This leaves markets and economists fearful that Hungarians will
default on their home loans, sparking a banking crisis in the country.
This will affect the economies of Germany and particularly Austria.
Romania’s economy was severely hit by the recession, and shrank by
7.1 per cent in 2009. Unemployment jumped from 4.9% in January 2009 to
8.1% in January 2010.The government had to go to the IMF for help and
got a €20bn rescue loan, on condition that it carried out a savage
policy of cuts. This includes a reduction of public sector wages by 25%
and pensions and unemployment benefits by 15%, with the aim of reducing
the budget deficit to 6.8% of GDP. All government spending will be cut
by 20% and anywhere between 80,000 and 300,000 workers out of a total
of 1.4 million in the state sector will be sacked.
This has aroused the Romanian workers. On May 31 tens of thousands
of public sector workers went on strike against the government’s
austerity plan, which includes cuts in pay and pensions. According to a
poll by the Bureau of Social Research, half of the people think that
Romania is worse off today than under Ceausescu, with 56% saying that
under the “communist” regime ordinary people were treated with more
respect, and 60% of Romanians think that politicians are more corrupt
today than before 1989. A similar position undoubtedly exists in other
countries of Eastern Europe and above all in Russia itself.
In Russia, too, the economic crisis acted as a shock that is having
profound political and social effects. The recent movement of the
miners indicates that the Russian working class is beginning to recover
from the psychological effects of the collapse of the USSR and
capitalist restoration. These events show how quickly the Russian
workers can move once they enter the road of struggle. On the basis of
struggle, they will rediscover the old traditions and ideas of
Leninism, which have lain dormant for a long time, but have never
disappeared from the collective consciousness of the Russian
To Be Continued… click here to read Part Five