After talk of the so called "credit crunch" gave way to optimistic
comments about the "green shoots" in the economy, events in Greece
caught the bourgeois commentators unaware. Now the world economy has
once again been plunged into chaos and uncertainty as the governments
of Europe try to contain the fall-out from the near-default of Greece
and it is the workers who will be presented with the bill.
“To the toiling masses of Europe it is becoming ever clearer that
the bourgeoisie is incapable of solving the basic problems of restoring
Europe’s economic life.” (Trotsky, On the United states of Europe, 1923)
The stock markets of the world are in turmoil. The falls on the
stock exchanges are a warning that the economic revival is in danger.
The extreme volatility of the market over the past fortnight reflects a
fundamental lack of confidence. All the lights are now flashing red.
immediate cause of the panic is the crisis of the euro. This is ironic.
Not long ago they were talking about the euro as a rival to the U.S.
dollar as a global reserve currency. Now the convulsions of the euro
are driving the world’s stock markets down and raising fears that the
world is about to fall back into slump.
The once prosperous euro zone is now teetering on the edge of a
terminal crisis. The markets believe that the weaker euro zone
countries will not be able to take the necessary action to reduce their
deficits. The fears over the Greek debt problems have rapidly turned
into fears over Portugal and Spain. Only by injecting huge funds from
an emergency fund can the European bourgeoisie shore up the shaky
The global financial crisis of 2008 was related to sub-prime
mortgages, but now the crisis is related to what one might call
sub-prime government debt. In the past, the bonds of European countries
were considered to carry virtually zero risk. But now sovereign default
in one of the world’s core economic areas has become a serious threat.
The Economist put it like this: 2008 will be remembered as the year when the banks defaulted; 2010 will be remembered as the year when governments defaulted.
Europe’s troubles can lead to a general crisis of world capitalism. On Monday May 24, Washington Post
carried a very interesting headline: “One false move in Europe could
set off global chain reaction”. That adequately sums up the situation.
The situation is so fragile that any small incident: a missed budget
projection by the Spanish government, the failure of Greece to hit a
deficit-reduction target, a drop in Ireland’s economic output – could
set off a chain reaction that could lead to a global slump.
The conclusion of the article is striking: “the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals”.
This is most revealing. It shows the extremely fragile and unstable
nature of the economic recovery, which finds its reflection in the
extreme nervousness of global markets. Almost anything can cause a
sudden collapse of “confidence”. Credit markets worldwide could suffer
gridlock, throwing the world economy back into recession. The euro
crisis is only the tip of a very large iceberg, and as with a real
iceberg, the part you see is frightening enough, but the hidden part is
what is really deadly.
In a distorted way, the nervousness of the markets is a reflection
of the growing awareness of the bourgeois that the economic crisis will
lead to a sharp revival of the class struggle everywhere. The question
is simply stated: will governments be able to force the workers to
accept huge cuts in the public sector budgets in the interests of
saving capitalism? The spectacle of workers taking to the streets in
Greece, Portugal and Spain has already given them an answer that they
did not want to hear.
The crisis in Greece is only the accident through which necessity
reveals itself. In Greece, the chain of European capitalism has broken
at its weakest link. But there are several other very weak links. Even
if they find a temporary solution to the problems of Greece, the fear
that the contagion will spread to Portugal, Spain, Ireland and Italy.
And Britain, though not part of the Euro Zone, will not be far behind.
Effects of globalization
At bottom the crisis is a manifestation of the fact that the
productive forces on a world scale are coming into contradiction with
the narrow limits of private ownership and the nation state. Like the
Sorcerer’s Apprentice, the bourgeoisie has conjured up forces it cannot
In a sense, the bourgeoisie is the victim of its success. The
capitalists attempted to overcome the limitations of the nation state
by increased exploitation of the world market. After the collapse of
the USSR, two billion people joined the capitalist world market. The
entry of China, Russia, Eastern Europe, and the increased participation
of India, provided them with vast new sources of markets, investments
and raw materials.
However, dialectically, everything is turning into its opposite. The process has reached its limit. Globalization now manifests itself as a global crisis of capitalism.
The factors that previously served to push the world economy up are now
combining to push it onto a vicious downward spiral. We saw something
similar in 1997 and 1998 when the East Asian financial crisis spread
rapidly through Thailand, Indonesia, South Korea and other nations. Now
Europe is facing the same prospect.
It may be argued that Greece, Spain, Portugal and Ireland represent
only about four percent of world economic activity. But once the
dominoes start to fall, the effect can pass rapidly from Greece to
Portugal and Spain, then to Ireland and Italy, then Britain. Confidence
in the euro would collapse, causing chaos in world money markets that
would end in a new crisis in Wall Street. In the words of Cornell
University economist Eswar Prasad: "the debt crisis and its ripple
effects are bad news for all corners of the world".
The Washington Post continues:
“Inside the euro zone, banks are intimately linked, with a web of
investments and cross-country bond holdings that could be a main vector
for financial ‘contagion,’ with a default in one country weakening
Europe in crisis
crisis is pushing Europe, and its nation states, into dangerous and
uncharted waters. There were growing fears about the exposure of banks
to European governments and private borrowers. If nothing was done,
European governments would have been faced by the same fate that was
suffered by Lehman Brothers. Greece could be on an inexorable path
By May 7th, yields on the weaker euro-area countries’ government
bonds rose sharply, as the markets showed their muscle. There is a real
threat that foreign financing for these countries would cease
altogether. The bond markets’ nervousness indicates that the investors
are quite prepared to see whole nation states go under. They are firm
believers on the old Chinese proverb: “What do you do when you see a
man falling? – Give him a shove!”
It is true that all euro-area countries have an interest in avoiding
a default. If Greece goes under, the markets’ attention would
immediately pounce on Portugal, Spain, Ireland and Italy. Confidence in
the euro would plunge. Yet the German bourgeois do not like the idea of
paying the debts of “profligate” countries.
On May 2nd euro-zone governments and the IMF set out the terms of a
€110 billion ($145 billion) rescue for Greece. That was far more than
had previously been promised but it was not enough to settle investors’
nerves. Stockmarkets in Europe and America slumped on May 4th and fell
again the next day. Greek bonds continued to trade at the level of junk
Caught on the horns of a dilemma, the European bourgeoisie did not
know what to do. The policymakers have been accused of doing too
little, too late. But in reality, whatever they did would be wrong. In
the end Germany and the European Union were forced to act to save the
euro zone. In the early hours of May 10th finance ministers, meeting in
Brussels, agreed on an emergency plan to prop up the euro zone. The
main element is a “stabilization fund”, worth up to €500 billion ($635
billion). Of this, €60 billion is to be financed by the sale of EU
The fund is to be supplemented by up to €250 billion more from the
IMF. In addition, the European Central Bank (ECB) said it would
purchase government bonds to restore calm to “dysfunctional” markets.
It will offer banks unlimited loans at a fixed interest rate. Yet again
the governments are handing out billions to the banks to prevent a
collapse. But in the first place, there is no guarantee that there will
not be such a collapse, and in the second, who will pay the bill for
these huge sums?
The financial markets’ initial reaction was naturally euphoric. How
could the sharks not be euphoric at the prospect of further billions of
taxpayers’ money being shoveled down their greedy gullets? Germany’s
stock market closed more than 5% higher on May 10th. France’s main
index went up by almost 10%: big French banks are heavily exposed to
Greece, so they also stand to benefit handsomely.
However, this euphoria soon gave way to a more somber view. The
market knows that the whole thing has been hastily cobbled together,
and there is no guarantee that it will work for long. The package,
despite its impressive scale, only buys time for Greece and other
vulnerable troubled governments to cut their budget deficits and to
improve their lost export competitiveness. If that is not done, there
will be an even worse crisis in the euro zone in a few months.
appearance of European unity was in reality an illusion. Behind the
façade of unity and solidarity, all the nation states jealously guarded
control over their national interests and their national banking
systems. These divisions have been cruelly exposed by the present
The parsimonious spirit that lies behind all the talk of an
“international rescue” is shown by the long delays in approving the
plan, which even then was further delayed by failure to agree on
details such as the interest rate to be charged for access to funds.
And immediately after the deal was signed, the conflicts between the
national governments began.
Germany is insisting that the money will be raised and controlled by
governments, not bureaucrats in Brussels. They do not want huge amounts
of money being handed out without close monitoring. In other words, the
money will be given to Greece with the strictest monitoring and
control. Britain said it will not sign up to it.
Jean-Claude Trichet, the central bank’s president, was accused of
“caving in to political pressure to help out spendthrift governments”.
Axel Weber, the head of the Bundesbank, Germany’s central bank, who may
succeed Mr Trichet when he steps down next year, openly criticized the
ECB’s conduct in the pages of Börsen-Zeitung, a German
financial newspaper. In his defence, M. Trichet maintains that the
central bank was “fiercely and totally independent”, a statement that
not many people believe these days.
A speech made by Merkel during a rowdy session of the German federal
parliament made matters worse. She said that "the current crisis facing
the euro is the biggest test Europe has faced in decades," and: “If the
euro fails, then Europe fails". The already panicky markets plunged
Germany took a unilateral decision to ban the short selling of EU
government debt and banks. The move was taken because of the German
Chancellor’s increasing desperation ahead of last Friday’s vote on the
euro bailout. The opposition MPs and increasingly her own coalition
members are becoming increasingly angry. Merkel had to do something to
prove that Germany was not simply writing a multi-billion euro cheque
from the taxpayer to bail out Greece and others. She was trying to show
that Germany was taking steps to defend itself.
This was no more than a mild attempt to control speculation. It has
no chance of success. But the markets want complete freedom to pursue
their predatory activities. The move wiped billions of euros off the
value of shares and drove the single currency down to a four year low.
It infuriated Germany’s European partners, who had not been consulted.
There were unprecedented public recriminations from Christine Lagarde,
the French finance minister. There were naturally loud protests from
London (both Labour and Tories were agreed), reflecting the completely
parasitic character of British capitalism’s reliance on finance capital.
Hypocrisy of German capitalists
The underlying sickness of European capitalism is reflected by the
feverish movements of the stock exchanges. The financial world is being
shaken by rumors of the possible collapse of the euro zone. All the
official denials have not helped to calm the jittery nerves the
markets. In this mood of panic, the bourgeois seek to find someone to
blame. The Germans blame the Greeks. The Greeks blame the speculators.
The French blame the Germans.
Increasingly, the finger is being pointed at Berlin. Germany, which was the engine of growth for the whole EU, its banker and de facto
leader, is now the target of all the pent-up anger and frustration of
its partners. Why are the Germans so stingy? Why did Merkel not do more
to help Greece earlier? At a recent meeting of European leaders it is
said that President Sarkozy threatened to leave the euro zone if Berlin
did not help Greece
The criticisms of her neighbours do not go down well in with Berlin.
The prostitute press in Germany and other countries are trying to
portray the situation as “Europe helping lazy Greek workers.” That is a
lie. This crisis was not brought about by the workers of Greece or any
other country. It was created by the voracious and reckless actions of
the bankers and capitalists of both Greece and the rest of Europe. And
the present “rescue plan” is a plan to rescue, not Greek workers, but
the bankers of Germany, France and other countries who own most of the
debts of Greek capitalism.
The public displays of moral outrage in Germany reek of hypocrisy.
German capitalism benefited more than any other from the introduction
of the Euro. The German capitalists enjoyed a privileged position in
the years of boom. Their exports invaded every market, taking advantage
of the fact that weaker economies like Greece, Spain and Portugal,
could no longer devalue the currency to protect their national market.
German banks were happy to make profits out of lending to Greece, Spain
and Eastern Europe. They made a lot of money then, but they are not
prepared to accept losses now.
The problem is that, in the end, somebody has to pay the bills.
Merkel managed to push through the euro zone-wide bail-out mechanism on
May 21. But opposition among German voters is growing and it is
spreading to Merkel’s coalition partners and political allies. “Once again, we’re Europe’s fools” was how Bild,
the influential German newspaper, greeted news of the euro rescue plan.
In the latest polls, 47 percent of Germans are in favor of returning to
the deutschmark. In a crucial state-level election May 9 Merkel’s
governing coalition was heavily defeated. This is a sign of mounting
dissatisfaction with her Christian Democratic Union and its coalition
ally, the Free Democratic Party.
The weaker members of the rich man’s club, known as the “Club Med”
economies, currently have a 3 trillion euro mountain of debt and their
ability to service it is in doubt. The “markets” are nervous about
this. That is to say, the bankers are nervous, because they fear that
they may not get their pound of flesh. That means, in the first place,
the German bankers. Exposure of German banks to Club Med debt
may be as much as 500 billion euros. Thus, despite all the huffing and
puffing in Berlin, what is being discussed here is not aid to Greece, but aid to the German bankers and their European partners in crime.
From the point of view of German capitalism it was a case of “damned
if you do, and damned if you don’t.” If they provided Greece (and other
weak euro zone economies) with money, they would have trouble at home,
and anyway there is no guarantee it will succeed. If they refused, a
Greek default would have a domino effect throughout Europe and on a
world scale, which would pull Germany down with everyone else.
Therefore, Merkel was forced to swallow hard and approve a huge bailout.
At some point, Germany may conclude that further bailouts are just
throwing money into a bottomless pit. At that point, Germany may decide
to cut its losses. Germany may decide that the ECB should ignore its
rules and purchase the debt of the weak euro zone governments by the
simple device of printing money (“quantitative easing”). The euro zone,
including Germany, would be paying for it this with the weakening of
the euro and higher inflation.
The Germans complain a lot, but they overlook the fact that the euro
zone provided Germany with considerable economic benefits. Since the
euro was adopted, unit labor costs in Club Med have increased relative
to Germany’s by approximately 25 percent, further improving Germany’s
competitive advantage. Its neighbors are unable to undercut German
exports with currency depreciation, and German exports have benefited.
The result has been a massive €110 billion (2007) current account
surplus for Germany towards the rest of the Euro-zone. That means that
Germany exports €110 billion more to the Euro-zone than it imports,
which is paid for by massive lending from German banks. For German
capitalists this was of tremendous benefit in the short-run but in the
long-run it is completely unsustainable.
In order to revive the deutschmark, Germany would have to reinstate
the Bundesbank, withdraw its reserves from the ECB, print its own
currency and then re-denominate the country’s assets and liabilities in
deutschmarks. This would be difficult, but not impossible. The other
members of the euro zone would face far greater difficulties if they
wished to return to their old currencies.
However, since German banks own much of the debt issued by Club Med,
the losses caused to Germany by a break with the euro zone would be far
greater than remaining within the euro zone and financially supporting
it, at least for the time being.
Greece – the sick man of Europe
Greece joined the Euro in 2001. At that time German capitalism was
puffed up with its own importance following reunification. The moving
of its political centre to Berlin in the heart of Europe symbolized its
unlimited ambition to become the Master of Europe. Under these
conditions the Imperial Master graciously accepted the accession of
Greece as a further step towards consolidation of German domination of
the Balkans, which began with the German-inspired intrigue to break up
However, Greek capitalism is the weakest of several weak links in
European capitalism. The Greek bourgeoisie – one of the most corrupt
and reactionary in Europe – thought that it was being very clever when
it joined the European rich man’s club. Like the frog in Aesop’s fable,
it blew itself up to an enormous size, and then it exploded.
Even in 2001, the real weakness of Greek capitalism ought to have
been clear to a blind man. It was graphically expressed in the huge
deficits in the current account, budget and public debt. As long as the
boom continued, Karamanlis could comfortably maintain himself in power
for four-and-a-half years. He easily won two elections. The Greek
economy appeared to be healthy, with growth averaging over 4% a year up
The tourists were streaming in, construction was booming as a result
of the 2004 Olympics. Greek ship-owners were making record profits from
China’s export boom; Russian oligarchs were buying expensive land on
Aegean Islands. There were subsidies from the European Union. Last but
not least, Greek membership of the Euro seemed a guarantee of future
the global economic crisis cruelly exposed the underlying weakness of
Greek capitalism. As a direct result of the adoption of the euro, the
Greek economy has lost competitiveness. Many Greeks are underemployed.
This affects the youth in particular, with a sharp rise in youth
unemployment and a reduction of openings in education. The unemployment
rate for young graduates in Greece is 21%, compared with 8% for the
population as a whole.
The growing mood of discontent that was seething beneath the surface
was shown by the violent youth protests after Alexandros Grigoropoulos,
a 15-year-old schoolboy, was shot dead by a policeman in December 2008.
The murder triggered five nights of riots. The protests quickly spilled
into the main streets of Athens, and thence across the country. There
were violent clashes with riot police and tear-gas filled Syntagma
Square. Groups of youths burned cars, broke shop windows decorated for
Christmas and tossed in petrol bombs.
These demonstrations were on an unprecedented scale, resembling an
uprising of the youth. Demonstrators attacked police stations and
public offices in a dozen cities, causing damage estimated at more than
€100m ($130m). Hundreds of school students battled with police after
the teenager’s funeral. Others threw stones at policemen on guard
outside parliament, shouting “let parliament burn”. This was already a
warning to the ruling class. It showed the pent-up anger of Greece’s
youth, which was only an extreme expression of a general discontent in
Throughout history, every revolution has been anticipated by a
movement of the youth – particularly the students, who are a sensitive
barometer that reflects the buildup of contradictions and tensions in
society. This was the case in Russia in 1901 and in Spain in 1930. In
both cases, the demonstrations of the student youth were a warning of
the revolutions of 1905 and 1931.
protests caused paralysis of the authorities. The right wing government
of Costas Karamanlis, terrified of provoking an even bigger movement,
was unable to impose a curfew or order mass arrests. The memory of the
military dictatorship in the 1970s was too fresh in people’s minds.
Attempts to arrive at a consensus between political leaders on how to
quell the unrest quickly broke down. On December 10th there was a
24-hour strike by public-sector unions, despite Karamanlis’s appeal for
it to be cancelled.
These events caused alarm among the international strategists of Capital. On 11th December The Economist commented:
“There is something weird and frightening about the sight of a
modestly prosperous European country—assumed by most outsiders to have
recovered from its rocky history of coups and civil strife—that is
suddenly gripped by an urban uprising that the authorities cannot
The events of December 2008 led inexorably to the fall of the
Karamanlis government. George Papandreou, the Pasok leader, called for
a general election. “Effectively there is no government…we claim
power,” he said. The Pasok gained in popularity as the support for the
New Democracy melted away in a welter of financial scandals.
The Pasok government
The general election on October 4th 2009 resulted in a
landslide victory for the Panhellenic Socialist Movement (Pasok) that
surprised both the political observers and the Pasok leaders. This was
a clear reflection of growing popular discontent. 43.9% of voters
backing the party, giving it 160 seats in the 300-member parliament.
The centre-right New Democracy party was shattered. It won only 33.5%
and 91 seats—its worst-ever showing at the polls.
This was the biggest victory for Pasok since it first came to power
in 1981. It goes against the trend Europe in the recent elections where
social democratic parties have been defeated. It was a clear vote for
change. The Communist Party (KKE) took 7.5% and 21 seats, while Syriza,
a left-wing coalition that arose from a split from the CP, took 4.6%
and 13 seats. Laos, a far-right party, increased its share of the vote
to 5.6% and won 15 seats – at the cost of the ND.
Unlike his father, Andreas Papandreou, and like Blair in Britain,
George Papandreou has worked to pull the party to the right. Brought up
in Sweden, and educated in the USA, he enjoys friendly relations with
Obama. Initially he promised stimulus of up to €3 billion ($4.4
billion) to accelerate economic recovery and above-inflation increases
in wages and benefits for public-sector workers. He also promised real
rises in wages and pensions to encourage Greeks to spend again. He
talked of exporting renewable energy, harvested on sunny mountainsides
and windy Aegean Islands, and persuading Greek software developers
abroad to set up companies at home, and so on and so forth.
But these reformist dreams immediately evaporated like a drop of hot
water on a hot stove. They came into conflict with the harsh reality of
economic crisis, collapsing tax revenues and a soaring budget deficit.
The Karamanlis government admitted that Greece had manipulated its
figures to qualify for the euro in 2001. Papandreou admitted that this
year’s budget deficit was not 6.7% but 12.7%.
is true that the Greek capitalists, with the mentality of a petty
haggler in the marketplace who wishes to sell rotten fish by placing
fresh ones on the top, tried to get round the problem by the simple
expedient of falsifying the statistics to conceal the facts – something
they are, incidentally, not alone in practicing. But sooner or later
the facts become known. The source of the problem, however, was not in
Athens and its faulty accounting.
The problem is precisely with the mechanism of the “free market
economy”, which operates with the same rationality as a herd of
antelopes in the veldt. As long as the market was heading upwards, they
did not pay any attention to the niceties of economic and financial
soundness. But once the markets head downwards panic sets in and a
stampede begins. Now that the stampeded has begun, nothing can stop it.
The speculators rush blindly from one market to another in search of a
safe haven. In the process, they trample the crops, demolish houses and
kill anyone who stands in their path.
The markets decide
There was an old saying: man proposes and God disposes. Nowadays it
would be more correct to say: Man proposes but the Market disposes.
With a budget deficit almost 13% and a public debt of 125% of GDP,
international investors were not impressed with Papandreou’s promises,
and sent him a little message to convey their opinion. Spreads on Greek
government bonds over German Bunds began to widen, and have continued
to widen ever since. This is the financial equivalent of laying hold of
a man’s genitals and exerting a gentle squeeze.
Papandreou wants social peace with fiscal austerity. But the two
things are incompatible. Papandreou wants to avoid direct confrontation
with the trade unions, but he has only two alternatives: either he
defends the interests of the workers or those of the capitalists. And
he has made his choice. Papandreou is compelled to cut living standards
in order to placate the almighty Market, just as Agamemnon was obliged
to sacrifice his daughter Iphigenia in order to placate the Gods of
Olympus. However, Agamemnon ended up very badly as a result of his
actions, and his successor will not end up any better as a result of
The Greek premier is trying to hide behind the IMF and the anonymous
“international speculators” that have brought Greece to its knees. But
for the millions of Greek workers who are faced with savage cuts in
their living standards, these arguments do not excuse the actions of
the Pasok leaders. The Greek workers hate the speculators, the IMF and
the bourgeois leaders of the EU. But they cannot forgive a government
that, while calling itself socialist, has so readily bent the knee to
the IMF and Brussels.
Immediately, Papandreou found himself ground between two millstones.
The prime minister’s promises of fiscal austerity have not convinced
the markets. For every step back the reformist leaders take, the
bourgeois will demand ten more. The Economist remarked: “By
Greek standards Mr Papandreou has been courageous, but he should have
been braver still. Ireland set the pace on December 9th by producing a
budget that sharply cut public-sector wages.” And it added: “Hard
times, unfortunately, demand harsh measures.” Here is the real voice of
the bourgeois: stony-faced, hard hearted, and completely impervious to
human suffering. All must be sacrificed on the altar of Capital!
The austerity measures approved by the Athens government were too
little for the bourgeoisie, but too much for the workers. The Greek
workers, following their marvelous revolutionary traditions,
immediately reacted with mass street demonstrations. Feeling themselves
betrayed by the government they hoped would defend jobs and living
standards, the workers of Greece have taken to the streets. For months,
Athens and other cities have been rocked by mass protest
demonstrations. One bourgeois commentator in Britain described the
situation in the following terms: “Greek workers against European
bankers.” That puts it very well.
Marx wrote that France was the country where the class struggle was
always fought to the finish. The same can be said of Greece. The
memories of the Civil War and the bitter divisions between Left and
Right, and later of the Junta and the Polytechnic uprising of 1974 are
burned on the consciousness of the masses. The divisions between the
classes constitute a fault line running through Greek society that can
explode at any time.
The question can be put very simply: the bourgeoisie cannot afford
to maintain the concessions that were forced from them in the past. But
the working class cannot tolerate any further attacks on their living
standards and conditions. The workers of Europe will not stand with
their arms folded while the conquests of the last fifty years are
systematically destroyed. The developments in Greece therefore show
what will happen in every country in Europe as the crisis unfolds.
Part two will follow next week.