deutsch |  english |  español  |  français  |  italiano  |  nederlands  |  polski  |  português  |  svenska  |  türkçe  |  中文  |  عربي  |  русский

latest news

Sweden
Conservative collapse, extreme-right gains

17/09/2014: CWI success, defended four council seats

  Sweden

Scotland
Thousands mobilise to oppose Project Terror in Scotland

17/09/2014: "You will not take this opportunity away from us"

  Scotland

US
Inequality and fight-back in the world’s richest country

16/09/2014: Socialist Alternative articulates political strategy to break from Democratic Party and capitalism

  US

 Video
John McInally on Scottish Independence

16/09/2014: John McInally, PCS national vice-president (personal capacity), adresses the issue of Scottish independence at a meeting of the Trade Unionist and Socialist Coalition (TUSC)

  Video

Brazil
Will elections mark the end of the PT government?

15/09/2014: Space for Left alternative to win support

  Brazil

Asia-Pacific
Majority of Chinese expect war with Japan

13/09/2014: Warmongering governments ratchet-up national tensions in struggle for regional dominance

  Asia, Japan

Scotland
Defeat Project Terror with socialist policies

12/09/2014: Big business, politicians and media attack independence

  Scotland

US
building a movement to end poverty pay!

12/09/2014: Spreading and organising the movement for decent wages

  US

South Africa
Community protest over corruption widens

11/09/2014: Authorities deploy heavily armed response

  Africa, South Africa

Chile
The other ‘9/11’

11/09/2014: 1973 bloody coup against Popular Unity government

  Chile

Ukraine
Fragile ceasefire holds but country remains “a tinder box”

10/09/2014: Only united working class action can secure lasting peace

  Ukraine

Bosnia
Privatise to colonise

08/09/2014: How looting of the economy led to mass social protests

  Bosnia

West Africa
Ebola outbreak - a crisis of capitalism

08/09/2014: Profit drive obstructs treatment and prevention

  Africa

Scotland
10 days that can shake British capitalism to its foundations

08/09/2014: “In the past four weeks support for the union has drained away at an astonishing rate. The Yes campaign has not just invaded No territory; it has launched a blitzkrieg.”

  Scotland

Britain
Crisis brewing on all fronts

05/09/2014: The 2015 general election is a mere eight months away yet impossible to call. But what is clear is that none of the capitalist parties hold any real attraction for working class voters.

  Britain

Hong Kong
Occupy Central leader’s comments cast doubt over occupation plan

04/09/2014: After NPC ruling democracy activists are perplexed by Benny Tai Yiu-ting’s comments that the strategic part of struggle “should end”

  Hong Kong

 Iran
Support Behnam Ebrahimzadeh

04/09/2014: Support jailed labour activist’s demands against critical dentention conditions

  Iran, Solidarity

Scotland
Big swing to Yes leaves referendum vote on a knife edge

04/09/2014: Over 18,000 people have attended Hope Over Fear public meetings to hear socialist Tommy Sheridan.

  Scotland

Ukraine
Rebel forces gain territory

03/09/2014: International tensions escalate

  Ukraine

Beijing slams door shut on Hong Kong democracy

02/09/2014: Mass resistance against one-party dictatorship is the only way forward!

  Hong Kong

 Video
Revolution and counter-revolution in the world today

01/09/2014: Hannah Sell, deputy general secretary of the Socialist Party (CWI in England and Wales) speaking at recent summer camp

  Video

France
Economic stagnation and political instability

29/08/2014: Hollande removes ‘lefts’ from government

  France

Turkey
Erdoğan sworn in as country’s President

29/08/2014: Significant poll gains for the left coalition HDP

  Turkey

 Solidarity
Iranian mine workers on strike

26/08/2014: Demand the release of the arrested workers!

  Iran, Solidarity

Nigeria
Fees victory at Lagos State University!

26/08/2014: Vigilance required from LASU students and workers to ensure that victory is permanent

  Nigeria

ISIS
Capitalist slaughter in Iraq and Syria

25/08/2014: As ISIS (the Islamic State in Iraq and a-Shams) crossed the border between Syria and Iraq, it proclaimed this to be the “annihilation of the disgrace of Sykes-Picot” and the formation of an ‘Islamic state’ (IS).

  Iraq, Syria

US
Indict Michael Brown’s killer and spread the protests! The whole system is guilty!

22/08/2014: Text of a leaflet handed out by Socialist Alternative members in Ferguson and St. Louis

  US

 Women in World War One

20/08/2014: Protests, strikes and equality

  Women, World War 1

Pakistan
Not a “revolution” but an effort by power-hungry politicians to grab power

19/08/2014: Working class will bring the real revolution and change

  Pakistan

USA
Ferguson erupts in rage after police kill Michael Brown

18/08/2014: Spread the protests – unite against racism and inequality

  US

Iraq
Only united action can stop sectarian war

16/08/2014: Iraqis and Kurds must not trust imperialist ‘helpers’

  Iraq

Socialism and national rights

15/08/2014: Ukraine, Israel/Palestine and other countries

  Israel / Palestine, Ukraine

World economy

Riding the double-dipper

www.socialistworld.net, 27/06/2012
website of the committee for a workers' international, CWI

Capitalist leaders are in disarray as they strive and fail to get to grips with the eurozone crisis and its threat to the global economy

Lynn Walsh, from Socialism Today, magazine of the Socialist Party (CWI in England & Wales)

Capitalist leaders are in disarray as they strive and fail to get to grips with the eurozone crisis and its threat to the global economy. Neither the G20 summit in Mexico, nor crisis talks in Rome offered any solutions, as politicians and economists desperately try to hang on to the eurozone roller-coaster. LYNN WALSH reports.

Once again, the eurozone crisis dominated the G20 meeting of world capitalist leaders (Los Cabos, Mexico, 18-19 June). Yet again, the meeting concluded with a bland communiqué with no concrete measures to tackle either the eurozone crisis or the deepening global crisis. Barack Obama, facing presidential elections in November, desperately called on the eurozone leaders to resolve the debt crisis and temper austerity measures with ‘growth policies’. European leaders, on the other hand, noted that Obama has not been able to promote a further stimulus package in the US because of Republican opposition in the Congress. Moreover, they warned that the US’s own debt burden, with the threat of colossal spending cuts in 2013, could push the US – and the world economy – over the edge of the abyss.

Only three of the G7 countries (Canada, the US and Germany) have got back to their pre-crisis peak of production. Now US growth is petering out, while there is either stagnation or recession in the eurozone (with Germany now sliding into recession). In 2007-08, the housing mortgage crisis triggered a worldwide banking and financial crisis. Now the sovereign debt crisis holds both European governments and the major banks in the thrall of financial turmoil. Greece and Spain in particular are like time-bombs which could detonate a major explosion at any time.

Eurozone crisis

The Rome meeting (22 June) of the leaders of the eurozone’s big four economies (Germany, France, Italy and Spain) demonstrated that the eurozone crisis is no nearer to resolution. They announced a €130 billion ‘growth package’, but with very limited new money. They remained divided on the most acute issue, the continuing credit crisis.

Mario Monti, François Hollande and Mariano Rajoy called for the use of the eurozone’s bail-out funds to “stabilise financial markets”. They want to authorise the European Financial Stability Facility (EFSF), and later the European Stability Mechanism (ESM) to intervene directly to support shaky banks. They also propose that the rescue funds should be able to buy the debt of ‘virtuous’ countries to support their bonds (presumably ‘virtuous’ means any eurozone country except Greece). Angela Merkel, however, opposed these proposals, once again highlighting the contradiction within the eurozone between a common currency and the national interests of member states.

“There was an agreement among all of us”, claimed Spain’s prime minister, Rajoy, “to use any necessary mechanism to obtain financial stability in the eurozone”. Responding to Merkel’s call for accelerated steps towards a fiscal union, Hollande said there could be “no transfer of sovereignty without an improvement in solidarity”, continuing to advocate the need for mutualisation of eurozone debt, through eurobonds or some other mechanism. Solidarity, responded Merkel, was possible only with serious controls and collective oversight: “You cannot have guarantees without control”.

“It’s not that I do not want to provide help, but the treaties are set up in such a way that the governments are the partners”, Merkel said. In other words, the eurozone (or the European Union for that matter) is an inter-governmental organisation, not a federal state. Moreover, Germany has to finance around 30% of any eurozone intervention, and has so far contributed approximately €300 billion to the various bailouts. “Germany’s strength is not infinite, its powers are not unlimited”, protested Merkel in Rome.

At the G20 meeting in Mexico, Obama and Christine Lagarde, head of the International Monetary Fund, were calling on the eurozone leaders to take urgent action to resolve the crisis, which is increasingly becoming a drag on the world economy. But even the terms of the bailout of the Spanish banks have not yet been fully resolved. It was agreed for the eurozone to provide up to €100 billion to stabilise the Spanish banks. But there is no agreement on the procedure. Rajoy, Hollande and Monti are calling for the funds to go directly to the banks so they do not add to Spain’s sovereign debt (which would further undermine the country’s credit rating). Merkel, however, is insisting that the bail-out funds are channelled through the Spanish government. This explains why Spain’s borrowing costs remain well over 6% and have gone over 7% a number of times (compared, for instance, with 1.45% for France). Moreover, some eurozone leaders are insisting that the loans to Spain from the EFSF or the ESM will have ‘seniority’, in other words, in the event of default they will have priority as far as repayment is concerned. This leads investors in the bond market to regard Spanish debt as even more of a risk, as they are demoted when it comes to credit or repayment in the event of default.

Like the low-cost, long-term credit recently provided to European banks by the European Central Bank, bail-out funds for the Spanish banks are likely to have a very limited, short-lived effect on the crisis.

Up until quite recently, the ECB was actively intervening to soften the eurozone credit crunch. It was buying eurozone government bonds, which tended to keep borrowing costs lower than they would otherwise be. Since June 2010, when the ECB started this ‘securities market programme’, the bank has bought €210.5 billion of bonds. However, in recent weeks the bank stopped the SMP programme, despite the fact that Spain’s bonds yields soared.

The ECB also launched the Longer-Term Refinancing Operations (LTROs), allowing eurozone banks to borrow huge amounts from the ECB at low interest rates (and on the basis of a wide range of collateral). Among other things, this allowed banks to buy government bonds, a backdoor way of the ECB supporting eurozone governments. Early in June, however, the ECB changed its policy, refusing to buy any more government bonds. ECB officials indicated that they now regarded as the task of the EFSF and the ESM to buy eurozone government bonds.

The ECB’s change of policy reflects, among other things, the pressure of the German government and others who oppose providing unlimited credit to debtor countries (as creditor countries like Germany would have to pick up the bill).

The impasse of the eurozone is shown by the ESM, which is still not up and running. In effect, Hollande, Monti and others are proposing that (as the ECB does not act as a ‘bank of last resort’, backing the debts of major governments) the ESM would act as a bank, with powers to directly support floundering banks or provide additional bail-out funds to eurozone governments. Merkel opposes this. Moreover, the ESM has yet to be approved by the German parliament, and this may be delayed for some time by a challenge to its constitutional legality in the German constitutional court.

Merkel’s position reflects that of a section of the German capitalists, who are increasingly resentful at being called on to bail out the weaker economies (despite the advantages that Germany gained from being within the eurozone). Recent opinion polls show that 55% of German voters wish that Germany had kept the Deutschmark. This opposition to the eurozone will grow in the coming months.

In Rome, the big four announced a new €130 billion ‘growth fund’, which will be discussed by the European Council (Brussels, 28-29 June). €130 billion is about 1% of the eurozone gross domestic product, and might seem quite impressive at first sight. However, on closer inspection it appears to be quite a feeble package. “The €130 billion would appear to represent a sum that might be raised or redirected from existing funds, rather than any commitment to new money”. (John Hooper, Guardian, 23 June) There is the promise of EU-financed infrastructure projects, but no concrete details. The Financial Times (22 June) commented: “Nicholas Spiro, a sovereign risk analyst, said the ‘rehashed’ European growth compact was ‘another example of eurozone leaders desperately trying to paper over their differences while failing to address the issue which concerns investors the most: shoring up the sovereign debt markets of Spain and Italy’.” (Eurozone Rift Deepens Over Debt Crisis)

In an editorial (22 June) the Financial Times warned: “Clock ticking for the euro’s leaders”. Among other gloomy things for European capitalists, they point to Greek time-bomb: “Financial markets” (that is, big financial speculators) “took scant relief in the victory of one Greek party [New Democracy] that wants to renegotiate the country’s rescue deal over another [Syriza] that wants to reject it outright”.

The new prime minister, Antonis Samaras, leader of New Democracy, is now demanding that the implementation of austerity measures already agreed in return for two bail-out packages should be postponed for two years. It is estimated that this would require a further €20 billion in bail-out funds. On this, as on everything else, the eurozone leaders are divided. Hollande and others are in favour of giving Greece more time, while Merkel and others are opposed to any relaxation of the austerity measures. In reality, the only issue is timing: the debts piled on to Greece supposedly to provide a way out of its debt crisis, are unsustainable. Despite New Democracy’s narrow victory, there will be further explosive movements of the Greek working class and middle class against the barbaric austerity measures being imposed on the country.

If the big four cannot reach agreement on crucial issues, there is no chance of the European Council coming up with solutions. The election of Hollande in France has strengthened the demand for less austerity and greater promotion of growth, still implacably opposed by Merkel and her allies. This deadlock means prolonged stagnation or another downturn, which in turn means continuous political and economic crisis. Capitalist leaders fear the breakup of the eurozone, which would have incalculable repercussions in Europe and throughout the world economy. But the contradictory forces bottled up in the eurozone are working in the direction of partial breakup, if not total breakup somewhere down the line.

Gloomy global prospects

The outlook for global capitalism is indeed gloomy. Since April/May this year there have been growing indications of a new downturn in the world economy. There are a number of overlapping and interrelated elements of crisis:

The burden of debt: The high level of public and private debt and attempts to reduce debt (‘deleveraging’) is restricting the flow of credit and depressing consumer demand and investment. For the OECD area, government budget deficits averaged -2.1% during 1999-2008. In 2009 this shot up to -8.1% and is still currently -5.3%. The aggregate national debt for the OECD area has continued to increase, and is now 108.6% of GDP. Household debt (gross debt-to-disposable income) is also very high. For the euro area, for instance, the pre-boom level in 2000 was 85.3% but is now 107.9%. Company debt continues to be high. For non-financial companies (debt-to-GDP ratio) was 78.8% whereas it is now 96.8%. For financial corporations the debt ratio is even higher: it was 269.1% in 2000 and is now 381.7%. These figures are unsustainable on the basis of weak or completely stagnant growth, and carry the threat of increasing defaults in both the household and company sectors.

Mass unemployment: Unemployment remains catastrophically high. This is an effect of the downturn, but reinforces it through weakened consumer demand, reduced tax revenues, and increased costs of unemployment benefits.

In the EU (27 states) there are 24.6 million unemployed men and women, of whom 17.4 million are in the euro area (17). This is a jobless rate of 11% in the eurozone, 10% in the EU. In a number of countries the situation is much worse: in Spain the unemployment rate is 24.3%, in Greece 21.7%. Youth unemployment for both these countries is a catastrophic 50%.

Global unemployment is a devastating indictment of capitalism. According to the ILO there are now 200 million jobless people internationally (up from 175 million in 2000). There are 75 million young people unemployed, an increase of four million since 2007.

A joint ILO/OECD paper for the G20 summit in Mexico says “G20 countries would need to create 21 million jobs in 2012 in order to return to pre-crisis employment levels…” “If unemployment continues to grow at the current rate of 1.5%, it will be impossible to close the approximately 21 million jobs gap that has been accumulated across the G20 since the onset of the crisis in 2008”. (ILO press release, 16 May)

The ILO director general warned (30 May) in coded language of the threat of a social explosion due to mass, long-term unemployment, especially of the youth. “The austerity-only course to fiscal consolidation is leading to economic stagnation, job loss, reduced [social] protection, and huge human costs, undermining those social values which Europe pioneered. While trying to reduce the public debt, unsuccessfully by the way, a social debt is building up that will also have to be paid”.

Fiscal austerity: The policy of ‘fiscal consolidation’, aiming at the short-term reduction of budget deficits and accumulated national debt through spending cuts and tax increases – especially taxes like VAT which hit working-class consumers hardest – is depressing growth, especially in Europe. “Fiscal austerity responses to deal with rising public debts are further deterring economic growth, which in turn is making a return to debt sustainability all the more difficult”. (UN Update, World Economic Situation and Prospects, mid-2012)

The UN economists responsible for this report take a much more Keynesian view of the situation than most European leaders: “On the fiscal front, the current policies in developed economies, especially in Europe, are heading into the wrong direction, driving the economies further into crisis and increasing the risk of renewed global downturn. The severe fiscal austerity programmes implemented in many European countries, combined with mildly contractionary policies in others such as Germany and France, carry the risk of creating a vicious downward spiral, with enormous economic and social costs. Under current conditions, characterised by weak private sector activity and poor investor and consumer confidence, simultaneous fiscal retrenchment across Europe has become self-defeating as massive public expenditure cuts will further push up unemployment, with negative effects on growth and fiscal revenue”.

Bank crisis and continued credit squeeze: The banking crisis continues, with a recent sharp fall in bank lending. Following the 2008 financial sector crisis, the US banks were recapitalised (that is, their capital reserves were built up) through the government’s TARP programme, implemented in the dying days of the Bush regime and approved by Obama. This bailout provoked enormous public anger in the US, but largely stabilised the US banks. In Europe, on the other hand, the recapitalisation has been partial and patchy. The ECB has relieved many banks of a slice of their dodgy government bonds. Yet banks have been recently using cheap ECB credit (under the LTROs) to buy more risky government bonds. At the same time, under the new ‘Basel III’ banking rules, the banks are forced to build up bigger capital reserves than in the past. They have also become wary of lending either to business or to other banks, and this has led to a recent tightening of the credit squeeze.

According to a recent article in the International Herald Tribune (5 June), worldwide bank lending has plummeted: “International lending by global banks in the fourth quarter of last year fell by the largest amount since the collapse of Lehman Brothers in 2008, according to data released Monday by the Bank for International Settlements… In total, financial firms cut foreign lending by $799 billion in the last three months of 2011…” Around 80% of the reduction came from the so-called interbank market where institutions lend money to one another. “The pull back in credit, particularly amongst banks themselves, is the latest effort by financial institutions to reduce exposure to the global economic slowdown. It also raises concerns that the unwillingness of banks to lend money to each other may have an effect on the broader economy, as businesses are unable to obtain new financing”. The Basel III rules are aimed at making banks more resilient to future financial crisis, but in the short run they are compounding the immediate problems faced by the financial sector.

Big corporations hoard cash: While some companies (especially small and medium) are hit by the credit squeeze, big corporations internationally are hoarding cash rather than investing it in new productive capacity. In the UK, non-financial companies are estimated to be holding £731.4 billion of cash reserves. In the eurozone, cash hoards are estimated at around €2 trillion, while in the US non-financial companies hold more than $2 trillion in cash and other liquid assets. The big corporations evidently cannot find sufficient opportunities for profitable investment. This reflects a growing trend since the end of the post-war upswing (1950-73). (See: Corporate Cash Hoarders Stunt Growth, Socialism Today No.158, May 2012) Without investment by the major corporations, there will be no growth, the current stagnation will continue, and it will become increasingly difficult to reduce the burden of debt.

The price of oil and geopolitical risk: The price of oil soared to around $140 a barrel on the eve of the 2008 financial crash and then plummeted in 2009-10. However, despite the stagnation of the world economy, the oil price rose 40% to reach an all-time high average yearly price of $111 a barrel in 2011, and rose even more in early 2012 (to around $120p/b). This was due to a combination of continued demand from China, Brazil, etc, on the one hand, and supply restrictions on the other, particularly due to sanctions against Iran. Since then, demand has slackened, and Opec has increased its output. Analysts at Credit Suisse recently predicted that the oil price could decline to around $50 a barrel this year. The decline in oil price has already resulted in a reduction of inflation. Oil prices also have a big effect on food prices, because of transport and fertiliser costs, etc. Other commodity prices have also declined because of weakening demand from China, which will hit commodity producers like Brazil, Australia, Canada, etc. However, sanctions against Syria, continued sanctions against Iran, and the possibility of further upheaval in the Middle East could push up oil prices again, even during a downturn.

World trade: After recovering from a steep fall in 2009, world trade appeared to rebound in 2010. It grew in real terms at an average of 6.7% a year during 1999-2008, but plummeted to -10.7% in 2009. It recovered to 12.8% in 2010, but fell to 6% in 2011, and is only expected to grow by around 4% this year. The World Trade Organisation and other organisations are sounding alarms about creeping protectionism. In April, the WTO reported that since mid-October 2011, the G20 economies had added 124 new restrictive measures affecting about 1% of world imports. (Increase in Barriers to Trade, New York Times, 22 June) Global Trade Alert, an independent organisation, reports that “protectionist actions including tariff increases, export restrictions and skewed regulatory changes were much higher in 2010 and 2011 than previously thought, with many more in the pipeline”. (Protectionist Fears Highlighted, Financial Times, 14 June) “The world trading system”, comments Global Trade Alert, “did not settle down to low levels of protectionism after the spike in beggar-thy-neighbour policies in 2009”. In a period of economic stagnation, or downswing, trade restrictions will become more and more prevalent, reinforcing economic stagnation.

US recovery falters: The US is one of the few major economies to have surpassed its 2008 peak. The peak-to-trough fall was -5.1% and, at the beginning of this year, it was +1.2% above the previous peak. However, recovery has been very weak and uneven, particularly regarding unemployment. After growing 3% in 2010, growth fell to 1.7% in 2011 and is showing signs of petering out this year. Consumer spending, which accounts for around 70% of the US economy, has been hit by the enormous losses in household income suffered by millions of Americans. The Federal Reserve bank recently reported that “the median family’s net worth dropped 38.8% during the three-year period [2007-10]… the biggest drop in net worth since the survey started in 1989”. The average American still earns less than six years ago, even allowing for inflation. (American Suffered Record Decline in Wealth, Reuters, 11 June)

Recently, manufacturing activity has slowed down, particularly in capital goods, reflecting the decline in demand from Europe in particular, one of the US’s major markets. The weak US recovery, moreover, has been a ‘jobless’ recovery. There are officially 12.7 million unemployed workers in the US, with eight million part-time workers who really need full-time jobs. Growth in (non-farm) jobs averaged 226,000 in the first three months of 2012 but has slowed to 73,000 in the last two months. The dismal news of only 69,000 jobs being created in May was taken as a sign of renewed recession – and led to a dip in world stock exchanges.

China slows: The Chinese economy remained a locomotive of growth during the global downturn. Its average GDP growth during 2006-09 was 11.4% and remained at 10.4% during 2010. This was very largely due to the huge stimulus package implemented by the regime. It is estimated by Gary Shilling of Bloomberg that China’s stimulus package was the equivalent of 12% of GDP (compared with the US stimulus in 2009 of 6% of GDP). However, in the first quarter of this year, China’s growth fell to around 8% and is expected to slow even further this year. This partly reflects a tightening of credit by the regime last year to try to curb inflation, but it also reflects the beginnings of a sharp decline in the property bubble, and a decline in exports because of the slowing of the world economy. A slowdown in China would reduce its demand for commodities, leading to a general fall in commodity prices (already underway), which would especially hit commodity exporters such as Brazil, Australia, Canada, etc.

Chinese government officials admit that official statistics underestimate the slowdown in output. Figures, for instance, for electricity demand, which is a proxy for output growth, indicate an even sharper slowdown. The Chinese regime has loosened its credit policy and indicated that there will be new stimulus measures. However, it is doubtful, given the huge debts accumulated on the basis of the last stimulus package, that it will be on the same scale as before. Moreover, this downturn coincides with the changeover in the top party leadership (and follows the Bo Xilai scandal). Reduced growth carries the threat of more intense political conflict within China, which could in turn undermine growth even more. This would have a profound effect on the global economy.

European stagnation/crisis: The crisis in European capitalism has become a major factor in the trend towards global downturn this year. The EU countries are likely to tally zero growth this year, while the eurozone will experience negative growth (currently predicted by the UN at -0.3% but probably deeper). At the same time, the threat of a default by a major European country or the fracturing of the eurozone (for example, through a Greek default) has had a major effect on global financial markets. The decline in demand for the exports of major economies like the US and China has had a depressing effect on global output.

The limits of monetary policy: In the absence of further stimulus policies (Obama’s proposals have been blocked by the Republican-dominated Congress) capitalist governments have relied on monetary policy, with low, near-zero interest rates and huge injections of credit into the system. This has mainly been done through the policy of ‘quantitative easing’ (QE), the contemporary equivalent of printing money, and various other ‘unconventional’ monetary measures.

QE has been described as ‘monetary morphine’, a drug that eases the pain, becomes addictive, but fails to cure the underlying sickness. Ultra-expansionary monetary policy has failed to produce growth, but it has probably prevented the world economy from slipping into a major slump. However, the policy is subject to diminishing returns.

The US Federal Reserve led the way with over $2.6 trillion-worth of QE, through buying US government bonds and other financial assets (such as securitised mortgages). However, the Fed has come under increasing attack from Republican ‘inflation hawks’, who believe, contrary to current trends, that QE will lead to accelerated inflation. This is unlikely in the next period, given massive overcapacity in the global economy and the weakness of consumer and investment demand. Ben Bernanke, the head of the Fed, has hesitated to resort to more QE, preferring to rely on ‘Operation Twist’, the replacement of short-term US government bonds by long-term bonds, which is estimated to inject $267 billion into the economy through lowering interest rates. The continued slowdown of the economy and lower inflation, however, will almost certainly produce another round of QE in the US.

The Bank of England has implemented £325 billion of QE. As in the US, however, the bank has hesitated to introduce a new round. Instead, it has recently offered a package of cheap loans to banks (totalling £100bn) on condition they increase their lending to businesses. No doubt, there will be more QE to come.

The ECB has avoided the term quantitative easing, but nevertheless has implemented measures that are very similar: €2 trillion of government bond purchases and cheap loans to banks (under the LTROs). However, the ECB has recently stopped buying eurozone government bonds in an effort to force the eurozone leaders to activate the two rescue funds, the EFSF and the new ESM.

Expanding the money supply has been described as ‘pushing on a piece of string’. If businesses are not prepared to invest and consumers have no money to buy, a looser money supply will not produce growth. This is admitted by Paul Tucker, a deputy governor of the Bank of England, who recently said: “QE has miserably failed to generate the sort of growth in broad money that the bank has said it was targeting back in 2009”. The massive expansion of central banks’ balance sheets has failed to generate the sort of impact on broad money that could be expected. (Paul Tucker, On Why QE Isn’t Working, Financial Times, 13 June) Tucker advocates a broader monetary policy, which would include the Bank of England buying up financial assets (such as mortgages) that would pump money into businesses and households.

A period of depression

Without fully recovering from the 2007-09 slump, the world capitalist economy is sliding into a new downturn. This stagnation is symptomatic of a depression, not as deep or severe as the 1930s but, nevertheless, a period of weak investment and growth, mass unemployment and increased tension between capitalist rivals. The Financial Times columnist, Martin Wolf, describes it as a “contained depression”. (Panic Has Become All Too Rational, 5 June) “Worse”, he writes, “forces for another downswing are building, above all in the eurozone. Meanwhile policymakers are making huge errors”.

By this he means their insistence on savage austerity measures which stand in the way of recovery. Hollande’s modest proposals for a Keynesian-type stimulus package have been described as a ‘faux pas’ by the Financial Times. His suggestion of higher taxes on big business and the wealthy have been met with howls of anguish.

Capitalist leaders are in complete disarray. “What would happen”, Wolf asks, “if a country left the eurozone? Nobody knows. Might even Germany consider exit? Nobody knows. What is the long-run strategy for exit from the crises? Nobody knows. Given such uncertainty, panic is, alas, rational... Before now, I had never really understood how the 1930s could happen. Now I do”.



Europe

 video

Video: John McInally on Scottish Independence, 16/09/2014

 further videos

CWI - get involved


solidarity

tamil solidarity campaign kazakhstan

featured links

Paul Murphy, MEP

cwi links

Marxist.net, CWI marxist archive

cwi comment & analysis

world economic crisis

analysis and commentary


cwi publications

marxism in today's world che

Che Guevara: Símbolo de Lucha

Por Tony Saunois

A socialist world is possible, the history of the cwi with new introduction by Peter Planning green growth, a contribution to the debate on enviromental sustainability

NEWS

Scotland: Thousands mobilise to oppose Project Terror in Scotland
17/09/2014, Matt Dobson, Socialist Party Scotland (CWI Scotland):
"You will not take this opportunity away from us"

Video: John McInally on Scottish Independence
16/09/2014, Socialistworld.net:
John McInally, PCS national vice-president (personal capacity), adresses the issue of Scottish independence at a meeting of the Trade Unionist and Socialist Coalition (TUSC)

Belgium: First school student protest against cuts in education
15/09/2014, Jeroen Demuynck, PSL-LSP (CWI in Belgium):
Anger against austerity growing

Asia-Pacific: Majority of Chinese expect war with Japan
13/09/2014, Dikang, chinaworker.info:
Warmongering governments ratchet-up national tensions in struggle for regional dominance

Scotland: Defeat Project Terror with socialist policies
12/09/2014, Philip Stott, Socialist Party Scotland (CWI):
Big business, politicians and media attack independence

US: building a movement to end poverty pay!
12/09/2014, Geoff Jones, Socialist Party (CWI in England & Wales) and Ty Moore, Socialist Alternative (CWI in the US):
Spreading and organising the movement for decent wages

South Africa: Community protest over corruption widens
11/09/2014, WASP reporters:
Authorities deploy heavily armed response

Chile: The other ‘9/11’
11/09/2014, Tony Saunois, CWI (first published on socialistworld.net, September 2011):
1973 bloody coup against Popular Unity government

Sri Lanka:Veteran trade union leader dies
09/09/2014, United Socialist Party:

Bosnia: Privatise to colonise
08/09/2014, Sonja Grusch, Socialist Left Party (CWI Austria):
How looting of the economy led to mass social protests

West Africa: Ebola outbreak - a crisis of capitalism
08/09/2014, Peluola Adewale, Democratic Socialist Movement (CWI Nigeria):
Profit drive obstructs treatment and prevention

Hong Kong: Occupy Central leader’s comments cast doubt over occupation plan
04/09/2014, Reporters of Socialist Action (CWI Hong Kong):
After NPC ruling democracy activists are perplexed by Benny Tai Yiu-ting’s comments that the strategic part of struggle “should end”

Iran: Support Behnam Ebrahimzadeh
04/09/2014, Campaign in Support of Workers of Iran:
Support jailed labour activist’s demands against critical dentention conditions

Scotland: Big swing to Yes leaves referendum vote on a knife edge
04/09/2014, Matt Dobson, Socialist Party Scotland (CWI in Scotland):
Over 18,000 people have attended Hope Over Fear public meetings to hear socialist Tommy Sheridan.

Ukraine: Rebel forces gain territory
03/09/2014, Niall Mulholland, CWI:
International tensions escalate

Video: Revolution and counter-revolution in the world today
01/09/2014, Socialistworld.net:
Hannah Sell, deputy general secretary of the Socialist Party (CWI in England and Wales) speaking at recent summer camp

France: Economic stagnation and political instability
29/08/2014, Leila Massaoudi, Gauche Revolutionnaire (CWI in France):
Hollande removes ‘lefts’ from government

Turkey: Erdoğan sworn in as country’s President
29/08/2014, Coşku Mıhcı:
Significant poll gains for the left coalition HDP

Ireland: Greyhound lockout enters ninth week
28/08/2014, Paul Murphy, Socialist Party (CWI Ireland), Dublin:
A fight for all workers!

Solidarity: Iranian mine workers on strike
26/08/2014, Campaign in support of workers of Iran:
Demand the release of the arrested workers!

Nigeria: Fees victory at Lagos State University!
26/08/2014, Education Rights Campaign, Nigeria statement:
Vigilance required from LASU students and workers to ensure that victory is permanent

ISIS: Capitalist slaughter in Iraq and Syria
25/08/2014, Georg Maier, SLP (CWI in Austria):
As ISIS (the Islamic State in Iraq and a-Shams) crossed the border between Syria and Iraq, it proclaimed this to be the “annihilation of the disgrace of Sykes-Picot” and the formation of an ‘Islamic state’ (IS).

US: Indict Michael Brown’s killer and spread the protests! The whole system is guilty!
22/08/2014, Socialist Alternative (CWI in the US):
Text of a leaflet handed out by Socialist Alternative members in Ferguson and St. Louis

Women in World War One
20/08/2014, Jane James and Jim Horton, Socialist Party (CWI in England & Wales):
Protests, strikes and equality

Pakistan: Not a “revolution” but an effort by power-hungry politicians to grab power
19/08/2014, Socialist Movement Pakistan (CWI) statement:
Working class will bring the real revolution and change

USA: Ferguson erupts in rage after police kill Michael Brown
18/08/2014, Eljeer Hawkins, Socialist Alternative, Harlem, New York:
Spread the protests – unite against racism and inequality

CWI Comment and Analysis

ANALYSIS

Sweden: Conservative collapse, extreme-right gains
17/09/2014, Per Olsson, from Offensiv (newspaper of the Rättvisepartiet Socialisterna - CWI Sweden):
CWI success, defended four council seats

US: Inequality and fight-back in the world’s richest country
16/09/2014, Peter Taaffe, General Secretary, Socialist Party (CWI England & Wales):
Socialist Alternative articulates political strategy to break from Democratic Party and capitalism

Brazil: Will elections mark the end of the PT government?
15/09/2014, Andre Ferrari, LSR (CWI in Brazil):
Space for Left alternative to win support

Ukraine: Fragile ceasefire holds but country remains “a tinder box”
10/09/2014, Rob Jones, CWI, Moscow:
Only united working class action can secure lasting peace

Scotland: 10 days that can shake British capitalism to its foundations
08/09/2014, Philip Stott, Socialist Party Scotland (CWI in Scotland):
“In the past four weeks support for the union has drained away at an astonishing rate. The Yes campaign has not just invaded No territory; it has launched a blitzkrieg.”

Britain: Crisis brewing on all fronts
05/09/2014, Hannah Sell, deputy general secretary of the Socialist Party (CWI in England and Wales):
The 2015 general election is a mere eight months away yet impossible to call. But what is clear is that none of the capitalist parties hold any real attraction for working class voters.

Beijing slams door shut on Hong Kong democracy
02/09/2014, Statement by Socialist Action (CWI Hong Kong):
Mass resistance against one-party dictatorship is the only way forward!

Iraq: Only united action can stop sectarian war
16/08/2014, Robert Bechert, CWI:
Iraqis and Kurds must not trust imperialist ‘helpers’

Socialism and national rights
15/08/2014, From Socialism Today No.181, September 2014 by Peter Taaffe, General Secretary of Socialist Party (England and Wales), CWI Secretariat:
Ukraine, Israel/Palestine and other countries

Ukraine: Crisis deepens
09/08/2014, Clare Doyle, CWI Secretariat:
Military conflict escalates

CWI School: World capitalism fails working people
07/08/2014, Kevin Parslow, Socialist Party (CWI England & Wales):
System offers economic crisis, insecurity, poverty and wars

Israel/Palestine: After weeks of mass slaughter in Gaza, IDF forces ‘withdraw’
06/08/2014, Niall Mulholland, from articles in this week’s Socialist (paper of the Socialist Party, England & Wales):
What is the role of imperialism in the conflict?

CWI Summer School: European capitalism fails to recover
02/08/2014, Sarah Sachs-Eldridge, Socialist Party (CWI England & Wales):
Working class must organise for future struggles

Gaza in crisis
29/07/2014, Shahar Benhorin, Socialist Struggle Movement (CWI in Israel-Palestine):
Mass action needed to stop bloodshed

Trotsky: The first year of war
23/07/2014, Originally published in in special WWI edition of Socialism Today, magazine of the Socialist Party (CWI in England & Wales):
Article by LEON TROTSKY translated into English for first time

WW1: The Bolsheviks and the war
21/07/2014, Peter Taaffe, article originally published in special WWI edition of Socialism Today, magazine of the Socialist Party (CWI in England & Wales):
The horrors of the first world war, and the economic and social turmoil it created, led to mass upheaval. In Russia alone did this lead to a successful revolution…

1914: The capitulation of the Second International
19/07/2014, Robert Bechert (a longer version of an article published in the July/August 2014 issue of Socialism Today):
Before 1914, the Second International resolved to act to prevent war…

World War One: 100 years since the great slaughter
16/07/2014, Tony Saunois, article originally published in special WWI edition of Socialism Today, magazine of the Socialist Party (CWI in England & Wales):
Ten million killed and more than ten million seriously injured

Israel-Palestine:World outraged by Israeli State’s ferocious bombing of Gaza
15/07/2014, Judy Beishon, from The Socialist (weekly newspaper of the Socialist Party – CWI England & Wales):
Mass action needed to end the slaughter and blockade!

Can capitalism put all of us first?
05/07/2014, By Philip Stott:
A response to the “practical idealism” of the Common Weal

Argentina: Return to turmoil
01/07/2014, Danny Byrne, CWI:
Debt crisis is back – the class struggle and tasks for the Left

Review: ’Capital in the Twenty-First Century’
28/06/2014, Hannah Sell, Socialist Party (CWI England and Wales):
Thomas Piketty: The new Marx?

Iraq: Isis jihadists capture more territory
24/06/2014, Niall Mulholland, CWI:
Only organised, united working class can end war and social misery

Nigeria: 200 school girls abducted
18/06/2014, By Segun Sango, National Chairperson, Socialist Party of Nigeria (SPN), a party initiated by the DSM (CWI in Nigeria):
Why has Boko Haram insurgency grown?

Iraq: Oil war’s bloody legacy
17/06/2014, Judy Beishon, from The Socialist, weekly paper of the Socialist Party (CWI England & Wales):
Escalating sectarian conflict threatens to draw in surrounding countries