CWI Comment and Analysis: The world economic crisis and political perspectives for Europe

The following is a draft CWI Thesis that will be presented to a meeting of the Committee for a Workers’ International (CWI) European Bureau taking place next week.

CWI Comment and Analysis

The world economic crisis and political perspectives for Europe

For 30 years, but particularly since 1989 and the collapse of Stalinism, neo-liberal capitalism – summed up in the so-called ‘Washington Consensus’ – has held sway throughout world capitalism. Indeed, the capitalists and their ideologues, as well as the majority of trade union and ‘labour’ leaders, fell in behind the idea that deregulated capitalism was the best, the most efficient system possible for distributing goods and services to the peoples of the world. However, the current devastating economic crisis has brought this seemingly mighty ideological edifice crashing to the ground. Capitalist economists and politicians are falling over one another to explain that their system is either already or is about to teeter over into a ‘depression’ or at least into a “great recession” (Strauss-Kahn, head of the International Monetary Fund).

Speed and depth of crisis

This crisis has yet to run its full course but has already led to an unprecedented destruction of wealth and resources throughout the world. One capitalist commentator in Britain, Hamish McRae, economics editor of The Independent newspaper in London, has written that one third of world gross domestic product (GDP) has been destroyed by the crisis. He also forecasts that it will take 10 years to overcome the destruction of wealth already experienced. The Asian Development Bank (ADB) went further when pointing out: “Falls in the value of financial assets worldwide could have reached more than $50,000 billion equivalent to a year’s global economic output.” This is probably an underestimate of the damage unleashed by this crisis, as it does not seem to take into account the effects of the crash on the ‘real economy’. The World Bank has also stated that “developing countries faced a financing gap of $270bn – $700bn a year as capital flows dried up. Only a quarter of vulnerable countries were able to cushion the blow of the economic downturn.” The ADB estimates capital losses last year to Asia, excluding Japan, at $9,625bn or 109% of GDP, compared with the global average of 80-85% of GDP. For Latin America the estimate of losses for 2008 is $2,119bn or 57% of the continent’s GDP. Schumpeter, the well-known capitalist economic guru, once characterised capitalism as a process of “creative destruction”. There has been much “destruction”, as these figures indicate, and very little “creativity” on the horizon for the mass of the working class and the poor throughout the planet. On top of this, the International Labour Organisation estimates anything between 30 and 50 million workers will be made unemployed or cast into the grey whirlpool of “underemployment” in the next year. Additionally, 90 million is the figure forecast for the increase in the numbers of poor as a result of this crisis. Little wonder then that Martin Wolf in the Financial Times has written that the cost of the crises so far is equivalent to a “war”.

These figures indicate the epic character of this crisis, which has thrown the bourgeoisie and its spokespersons into a panicky tailspin. Their mood borders on semi-demoralisation. This was summed up in a series of articles in the Financial Times, which has increasingly assumed the character of an ‘internal bulletin’ for world, not just British, capitalism. These mapped out perspectives, in so far as they could, for the world bourgeoisie in the next period. Their conclusions? “Not only is the financial system plagued with losses of a scale that nobody foresaw but the pillars of faith on which this new financial capitalism was built have all but collapsed. That has left everyone from finance minister to central banker to small investor or pension holder bereft of an intellectual compass, dazed and confused.” The head of Merrill Lynch’s Moscow operations went further: “Our world is broken – and I honestly don’t know what is going to replace it. The compass by which we steered as Americans has gone…The last time I ever saw anything like this, in terms of the sense of disorientation and loss, was among my friends [in Russia] when the Soviet Union broke up.” The collapse in Russia, the social counter-revolution, following 1989 was the greatest contraction of the productive forces in history in one country, exceeding even that of the US between 1929 and 1933.

So disorientated are the strategists of capital that they have even sought solace in the works of Marx and even the formerly excoriated Lenin. The latter’s famous dictum that capitalism can always find a way out was approvingly quoted by an ideologue of capitalism in the Financial Times! This commentator forgot to add that Lenin added that this was only possible through unbearable, immense suffering of the working class, “on the bones” of the working class and its organisations, as Trotsky wrote. Undoubtedly, if the working class does not seek a way out through socialist revolution, capitalism can always re-establish itself, albeit through an unstable equilibrium. But as Trotsky remarked at the beginning of the 1930s, the situation objectively – in terms of the depth and speed of the crisis – throughout the world can already be termed, “with a certain degree of justification”, as pre-revolutionary. This is on condition that this is defined as covering an era comprising several years of ‘partial ebbs and tides’ which can elapse between a pre-revolutionary and a directly revolutionary situation.

In other words, as the CWI has argued, this crisis will assume a drawn-out character; it is not just one crisis but a series of crises. It has already introduced extreme instability in currencies, a massive piling up of state debt – ‘generational theft’, as right-wing Republican presidential candidate McCain described it – and huge problems for capitalism that can only be ultimately resolved by a direct assault on the living standards of the working class. However, the previous period of neo-liberal capitalism which developed over three decades determined in the first instance the processes not just in the economy but in politics and the consciousness of the working class. Everything which guaranteed capitalism’s success is now turning into its opposite. Globalisation has ushered in a period of ‘de-globalisation’. The massive expansion of world trade, with a lowering of tariff barriers and a certain overcoming of the national state itself fuelled the boom. Now in a new economic setting this has turned into protectionism and an incredible collapse in world trade on the back of a contraction of the world economy, estimated, or underestimated, by the IMF, to be anything between 0.5% and 2% this year. This alone means that this crisis is worse than any since the 1930s. Only in the aftermath of the 1973-75 crisis were we able to see that this crisis did not result in an actual drop in world production but a big slowdown in the rate of growth. Despite all the pleading of the IMF and the pledges that were made at the last G20 summit or those that will be piously uttered in April, protectionism is inevitable. The capitalist “leaders speak globally [but] think national”, was one economic ‘expert’s’ commentary on the upcoming G20 meeting. It may not be on the scale of that following the Smoot-Hawley Act that raised tariffs on over 20,000 items in the US alone but is already considerable. Led by Britain, European governments have competed against one another to bail out their own bank depositors, to introduce subsidies for ailing industries, for instance the car industry. This has already had a catastrophic effect on those most reliant on world trade – particularly in manufacturing industry – such as Japan, Germany, China and the industrialised countries of Asia.

Can stimulus packages work?

How long can this crisis last and can the Obama regime with its stimulus packages ride to the rescue of world capitalism? World capitalism and its most serious representatives, so far as perspectives are concerned, openly confess their bewilderment, uncertainty and lack of foresight over what is likely to happen on the economic front. Therefore, the most conscious element in the workers’ movement, the Marxists, cannot give definitive answers. The stimulus packages of various world capitalist governments are estimated at about 2% of world GDP. In Europe, at the moment, it is 0.85%, with a further 2.1% available in extended credit lines and other guarantees. In the US, the stimulus package passed by Congress was worth $787 billion (5.6% of GDP) and mortgage relief and guarantees to Fannie Mae and Freddie Mac total an extra $275 billion. These will contribute to a projected budget deficit figure of $1.75 trillion or 12.3% of GDP! In Britain, one of the biggest stimulus packages apart from China as a percentage of GDP – the latest ‘quantitative easing’ of the Bank of England – will amount, if it is implemented, to 5% of GDP, a total of £150 billion. This is a sign of the desperation of capitalism, their ideologues and their parties to avoid or mitigate the effects of this crash.

The financial system – particularly the banks – is in ruin throughout the whole of world capitalism. Undoubtedly, its first and most visible expression was to strike at the ‘Anglo-Saxon’ model of capitalism, particularly the US and Britain. In these countries the process of ‘financialisation’ was taken furthest, with the most calamitous consequences now located there. The banks in Britain and the US – if not elsewhere throughout the capitalist world – are technically insolvent at the present time. They are, in effect, ‘zombie banks’. This is despite the fact that majority control in most of the banking sector in Britain is exercised by the state as it also is, in effect, in the US. Yet both Brown and Obama are both resistant to the idea of ending the banks’ ‘zombiedom’, as Paul Krugman, the Keynesian capitalist economist put it. This is for the reasons we have sketched out previously. Full nationalisation will represent an open confession of bankruptcy of ‘private enterprise’. Yet even right-wing stalwarts of the system, such as James Baker, Treasury Secretary to the first George Bush, and former economic guru Alan Greenspan, now favour ‘temporary nationalisation’. Even the Keynesians see nationalisation as a ‘short-term measure’, regrettable but unavoidable, necessary to bail out the system, much as the Swedish government did on a smaller scale in the early 1990s. So eager are they to press this solution on the Obama regime that Keynesians like Krugman seek to abandon the term ‘nationalisation’ and to describe it as ‘pre-privatisation’, first a state takeover then hand it back to the financial criminals who ruined it in the first place. Despite all their hesitations, as the crisis deepens – with 600,000 a month for three months added to the unemployment rolls in the US, the worst figures since 1945 – the pressure for a state takeover of the financial system could become irresistible for the capitalists. At the same time, we have to emphasise the need for democratic and socialist control and management in state takeovers, as we explained in the article on the transitional programme in Socialism Today and on the CWI website.

Can Obama’s measures – and those of Brown and other capitalist governments – succeed in their aim of first of all cushioning world capitalism and then laying the basis for a revival? The priming of the state pump is designed to avoid a deflationary trap, what Keynes described as the “paradox of thrift”. Interest rates are close to or effectively zero, which leads to the banks’ reluctance to lend, to borrowers not to borrow and depositors reluctant to deposit. The problem for capitalism in crisis is not so much credit – there is in effect a ‘credit strike’ by the banks – but a lack of ‘demand’, as many pro-capitalist economists point out. What is this but a manifestation of the phenomenon of ‘overproduction’ – an absurdity in pre-capitalist epochs, as Marx stressed. The ruling classes of Europe, Germany and Japan, in the first instance, attacked the ‘Anglo-Saxon model’ of financialisation as responsible for the crisis – believing they were immune from the downturn. But, in reality, the crisis of overproduction we presently experience was inevitable irrespective of the financial crisis. The deadly combination of the financial crisis and the crisis in the ‘real economy’ has served only to reinforce, prolong and deepen this organic crisis of capitalism. Overproduction of capital, of the working class, and now increasingly of the middle class, is manifested in this crisis. It is unlikely that the measures of capitalist governments to ‘stimulate’ the economy will fully succeed. It is not excluded, in fact it is likely, that Obama will be able to put a certain cushion under the US economy; likewise Brown in Britain. We have to add the caveat that the present situation is unique in its scale, depth and speed. The measures taken or proposed are unprecedented, even when judged by the yardstick of the 1930s. Never in history – not even in the 1930s – have the capitalists sought to desperately head off the crisis in the way they are attempting at present.

Effects on China

China is not capable, as we have argued in advance, of offering a lifeline for world capitalism. The relationship between the US and China on the economic level has been a variant of ‘Mutually Assured Destruction’ (MAD), which was used in the past to describe the military relationship between capitalism and Stalinism. The receipt of dollar assets as payment for Chinese exports to the US – the equivalent of $1,600 for every Chinese citizen – plugged the US’s balance of trade and guaranteed a market for Chinese goods. China now, however, according to the Independent in London, is “facing its worst financial crisis in a century”. At the same time the Chinese economy, according to the IMF will grow at well below the 8% projected by the Chinese authorities. Thousands of businesses have collapsed and direct foreign investment is falling, despite “government assurances that barriers for overseas cash are coming down” (International Herald Tribune). The amount of US capital put to work in China in January and February fell by a half. At the same time China is using this crisis to invest abroad, taking over industries, particularly in Africa and other parts of the neo-colonial world.

Faced with its goods being shut out of the US and elsewhere, the regime has looked towards the development of the internal market. To this end is proposed a stimulus programme of at least $580 billion, the “biggest fiscal stimulus programme the world has ever seen” (The Independent). But this is on paper; it is not clear how much of what is promised is merely recycling ‘old money’ and what is new. Nevertheless there is a certain scope – perhaps more scope because of the role of the state – to call on its financial reserves and introduce quite a large infrastructure investment programme. While not ‘saving’ world capitalism could have a certain effect in softening the downturn in China. This is made more likely because of the role of the state sector, which is still considerable. It is much greater than any comparable country even in Asia where the state still exercises a certain control, such as in South Korea, etc.

The question of the proportions of the economy which remains in the state or in the ‘private sector’ is still an issue for discussion and debate, including amongst bourgeois commentators. For instance, in a sharply-written book based “on reams of newly uncovered financial data”, Ya Shin Wang, one of the earliest critics of China’s ‘economic miracle’, argues that over the past 10 years the country has actually become “less capitalist and less economically free”. Indeed he argues: “In the early 1980s, the government essentially strangled emerging private entrepreneurs, who had to compete both with macro-state owned enterprises and giant multinationals.” This is still a controversial issue within our ranks but what is indisputable is that the state has begun to assert itself – under the immediate whip of this crisis, both internally and externally, while the private sector is dormant. The government and the privileged elites upon which it rests are attempting to prevent an outburst of popular anger at the rise in unemployment, the enormous and growing disparities in wealth, etc, with a mixture of ‘co-opting’ particularly the urban middle class, and crackdowns. This is not likely to succeed, especially in the medium and long term. But we will have to chart the development of the Chinese economy and the social and political situation as it develops, as our comrades have done.

Anger of working class

Such is the plunge in the US economy that even Obama’s initial stratospheric standing in the opinion polls has begun to change. Within a matter of months of taking office, his standing on the economy, his popularity, is less than George W. Bush at the same period in the latter’s term of office! This is an indication of the extreme volatility that marks out this crisis. It makes it difficult for the capitalists and therefore for us to forecast accurately the likely march of events and the social and political effects of the crisis. In many countries, despite its severity, the crisis appears to be part of a ‘phoney war’. When the ‘bombs’ start dropping, through a precipitous rise in unemployment, it will be a different matter. The capitalists have consciously sought to blunt the resistance of the working class by cutting wages and implementing short-time working rather than wholesale closure of factories, workplaces and industries. There is also the consciousness of the working class inherited from the previous period; many believe the present crisis and their travails is a ‘blip’, will be over soon and we can return to ‘normality’. However, the crisis has already provoked reflex actions on the part of the working class, particularly when the capitalist class have sought to attack past gains, as in Ireland, France, Italy and, on a smaller scale, other European countries like Belgium. It was the attempt to undermine health benefits, particularly of the old, that provoked mass demonstrations in Ireland at the end of last year, which has now been followed by an immense demonstration in February in Dublin and the threat of a general strike in March, although the trade union leaders are doing their best to derail this movement. We witnessed the same phenomenon in France with a colossal strike in January and on 19 March, with over 3 million taking part in demonstrations. Sarkozy, from jeering that France seemed to be ‘immune’ from strikes, is in the first few months of this year once more speaking of the threat of another ‘1968’. The occupation by the Sorbonne students could be a portent of what is to come, as is the general strike in Guadeloupe and Martinique and its effects on French Guiana.

There is also generalised bitter class hostility to those who are seen to be the main authors of the present crisis, the bankers and financiers. This has been enormously aggravated by the incredible arrogance of the banks and insurance companies such as AIG, which has been bailed out by the US government to the tune of $170bn and yet still intended to pay out $175m in bonuses! The uprising against AIG and the banks helped to provoke Obama into accepting a 90% tax on “retention bonuses” where the banks are receiving state aid. This in turn provided the banks into denouncing a “McCarthyite witch-hunt” and the smell of the ‘tumbrils’ and the ‘French revolution’! This is a reflection of the class polarisation which has already developed and a foretaste of a generalised feeling of opposition to the capitalist system, and not just a part of it, which will take shape in the next period. A layer of young people and workers are already drawing socialist and revolutionary conclusions, and are moving towards the CWI. Another layer is watching the CWI and its national sections, with some waiting to see if our prognosis is borne out or not! On the basis of events and our work, many of those can and will join our ranks.

Former Stalinist states collapse

This will also be the case in the former Stalinist states of Russia and Eastern Europe. Paradoxically, the economic implosion is greater here than almost anywhere but mass consciousness still lags behind more than elsewhere. “Gangster capitalism” has failed but “real democratic capitalism” has yet to be tried, reason many, even workers. These rosy illusions will be shattered by the tumultuous events that impend, not just in this region but elsewhere. The rise of mass workers’ parties and particularly powerful Marxist forces in Western Europe, the US, Japan and the neo-colonial world will exercise a decisive influence in changing the outlook of workers and preparing the way for growth of our forces in this region.

At the same time, there have been spontaneous outbursts of anger on the streets of Eastern Europe and Russia. We have seen demonstrations in Latvia, Vladivostok in Russia and elsewhere which presage an even greater mass movement given the catastrophic worsening of the position of the economies of Eastern Europe and Russia itself. A number of countries are on the ‘edge of the cliff’ in Eastern Europe: Hungary, Romania, Ukraine and others as well as Russia itself. Unemployment in Russia, for instance, is expected to virtually double from 6.3% to 12% this year. This is on top of the fact that half a million Russians are owed unpaid wages and inflation is still in the teens. The European and worldwide collapse of the automobile market will strike back with particular sharpness against the countries of Eastern Europe and Russia itself. The relocation of car factories by the car multinationals in the region was with an eye to abundant cheap labour, consequently higher profits and the export of cars to the countries of Western Europe, Japan and the US. Now that the market has collapsed, so will whole regions dependent upon car production. The Russian domestic industry will also be affected. For instance, Togliatti in the Volga has 60% of the population involved in Lada production, whose sales have collapsed. The majority of the population in the city will therefore be unemployed. One Moscow commentator says that the current crisis will be much worse than 1998 and “the situation is worse than at the beginning of the 1990s”. To top it all, the Forbes Rich List has shown that the number of Russian billionaires has fallen from 87 last year to 32 now. Little wonder that the former Soviet leader Gorbachev – who was himself the gateman for the introduction of capitalism to Russia – now declares that the “best of socialism and capitalism” is the way forward. In effect, this was his original programme when he came to power in 1985 for a ‘reformed’ Stalinism. Eastern Europe and Russia will provide some of the worst examples of ‘basket cases’ for capitalism in the next period.

The repercussions of the collapse of a series of regimes in Eastern Europe, such as Hungary, are serious. Its possible effects on the banks of key countries of Western Europe are severe. For instance Austria threatens to experience a similar collapse as 1931 if, as is possible, the countries of the Baltic and Eastern Europe go ‘belly up’ in this crisis. Austria’s banks are highly ‘leveraged’ – with massive outstanding debts – as also is the Swedish banking system. Austrian and Italian banks are the most exposed. Austrian bank loans to eastern European countries are now almost equivalent to 70% of Austria’s GDP. This means that both Italy and Austria are not in a position to afford any bail-outs of their own banks and are desperately pleading for an EU ‘package’ to bail them out. In fact, Europe is more exposed than even the US to a ‘sub-prime crisis’. The situation in Russia is the same. Thirteen countries that were once part of the ‘Soviet Union’ by 2008 had accumulated a collective debt to foreign banks in foreign currencies of more than $1 trillion. Some of this, a miserly amount, went into investment but most of it, as in the US, went into consumption or real estate. The International Herald Tribune expressed the concern of the European ruling class: “The debt crisis in eastern Europe is much more than an economic problem. The wrench and decline in the standard of living caused by this crisis is provoking social unrest. American sub-prime borrowers who have had their homes foreclosed are not – at least not yet – rioting in the streets. Workers in Eastern Europe are. The roots of democracy in the region are not deep and the spectre of right-wing nationalism remains a threat.”

This graphically underlines how the integration of capitalism – on a level unprecedented even in comparison to the pre-First World War period – means that the crisis in one sector or region can detonate a series of economic collapses in others. We saw this in the 1930s with the bankruptcy and defaulting or near-default of the debts of many countries in Europe and in the neo-colonial world, particularly Latin America, resulting from the fall-out from the slump. Something similar is likely in this period. GDP in Latvia shrank by 4.6% last year and is expected to drop a further 12% in 2009! Unemployment has exceeded 10% which presages a period of “instability” which will “certainly create room for a populist leader” (Financial Times). This is code for the parties of the far right which have begun to grow in Hungary, Latvia and other Eastern European countries. These countries together with Ireland, Spain, Greece and Portugal will probably face the sharpest downturns in the next period.

European capitalism in crisis

One estimate is that the Irish economy could contract by 20% over a few years which will produce social and political convulsions on a much bigger scale even than in Ireland’s tumultuous past. Moreover, the euro, which acted as a shield at the beginning of the crisis to economically exposed countries like Ireland will become a huge straitjacket. No ‘readjustment’ through currency devaluation is possible so long as they remain within the eurozone. Italy’s exchange rate, for instance, taking into account inflation, is estimated to be one third higher than required by the serious economic position facing the country. Staggering figures have emerged to show the economic implosion which Italy has experienced in the past period. It is bloated by a massive bureaucracy, with expenditure on ‘political representation’ now the equivalent to the total of France, Germany Britain and Spain! Under this weight and due to its lack of competiveness with its nearest rivals, the Italian economy is sinking into the mire. Spending on education, which has consistently fallen since 1990, accounts for a mere 4.6% of GDP (Denmark is 8.4%). Incredibly, only half the population has any kind of post-compulsory schooling, nearly 20 percentage points below the European average. The number of hospital beds per inhabitants has dwindled by a third under the ‘new republic’ and is now about half that in Germany or France. The colossal clogging up of the legal system has resulted in two septuagenarian pensioners bringing a case against the social security institute being told they could get an audience on their case in the year 2020! Unemployment, which was a staggering 12% in the mid-1990s, has dropped by 6% today ‘officially’. But most of this – half of the new posts in 2006 – involve short-term contracts and are ‘precarious’ in any case.

Italy, Spain and effect on eurozone

On the basis of capitalism Italy, like Japan, is a dying enterprise. Not so long ago, during the ‘second republic’, Italy enjoyed the second highest GDP per capita of the big EU states measured in purchasing power parity after Germany – a standard of living in real terms above that of France and Britain. Today, it is well below the EU average, which is in turn now down because of the relative poverty of the eastern European states, and is “close to being overtaken by Greece”. Part of the responsibility for this state of affairs rests, of course, on the shoulders of the ‘left’, particularly the ex-communist party leaders first in the DS (Democrats of the Left) and latterly in the PRC (Party of Communist Refoundation). This situation, however, is preparing massive explosions in Italy and a revival of the radical and revolutionary tradition of the past. Our small forces, working in difficult conditions, of a huge weakening of the left, are well placed to play a role in the renaissance of genuine Marxism and socialism in Italy.

Spain has seen a colossal increase in unemployment – 3.3 million workers out of work. The budget deficit is at least 6.5% of GDP and the economy will plunge by 3% this year. House building – which accounted directly for 7.5% of GDP in 2006 – is grinding to a halt. Little wonder that one think tank has commented: “This is the perfect framework, together with the financial crisis, for a depression.” The standing of top Spanish football clubs, renowned throughout Europe and the world, has also been profoundly affected. For instance, David Villa, scorer of Spain’s first goal in a recent victory over England, is a member of the Valencia team. His salary has been delayed ‘indefinitely’ by the heavily indebted club!

Demonstrations of workers have broken out; union leaders have organised parades but there has been no decisive action taken to stop the downward spiral. One pro-capitalist commentator declared in the Financial Times: “The Spanish economy won’t start to grow at 3% for about seven years. Spaniards will lose half their wealth. It’s horrible.”

Spain, at one stage, was using half of Europe’s cement in a massively overextended building boom. That boom has now collapsed around the ears of Spanish capitalism with one million empty houses and unemployment stands at 14% and threatens to go to 20% in the next period. These figures conjure up spectres in the near future similar to those that led to the Spanish Civil War. Marx described the collapse of Spain as “slow and inglorious decay”. That was when Spain was amongst the backward, second tier nations of Europe. ‘Modern’ Spain has developed at an economically pell-mell speed during the boom and threatens an equally speedy collapse in the next period. The country, as with some of the other countries of Southern Europe, is on the verge of a catastrophe and it is vital that the CWI should seek to assist the development of genuine Marxist and revolutionary forces that will emerge in this country.

The eurozone could collapse, because of the ‘opt-out’ from its poorest, most beleaguered members. But the initiative for the shattering of the eurozone could come from the ‘richest’, Germany in particular, which is reluctant to bail out the poorest nations and could refuse to pay for the maintenance of the eurozone. Ireland’s property building ‘hot-spot’ of Europe collapsed in a matter of months. The political repercussions in each country will vary depending on what has gone before. In Ireland, the Fianna Fáil/Greens government faces collapse at any time. The resurgence of opposition parties, particularly the Labour Party in Southern Ireland, indicates a major political shift in consciousness. Genuine socialist and Marxist forces in Southern Ireland, such as the Socialist Party (CWI), will emerge stronger in the next period.

Far right and immigration

Also the right, the far right in particular, is on the march, as commented earlier. This is the case in those countries with significant Roma minorities in Eastern Europe. For instance, Jobbik, a far-right Hungarian party that has targeted this minority, has won 8.5% of the vote in local elections last year. Hostility to ‘immigrants’ and other minorities is rising throughout the region and in Europe, as a whole. The danger of racism and the far right is evident in more developed countries as well. Spain’s African residents and street hawkers demonstrated twice in February, in Madrid, against racism and police raids. It emerged subsequently that the police had been given weekly quotas for arrests of ‘illegal immigrants’. In the poor south of Spain, particularly in Andalusia, thousands of other immigrants without food or shelter flooded into towns at the start of the winter, “hunting in vain for olive harvesting work that had already been taken by Spanish job seekers”. Consequently, we are already seeing at least the outline of the formation of ‘shanty towns’, hitherto the preserve of the neo-colonial world and which the US experienced to some extent in the 1930s. Even in Britain, sacked migrant workers from Eastern Europe, particularly Poland, have begun to inhabit the outskirts of towns, in the beginning of what could become ‘shanty towns’. The same despair at the deterioration of the social conditions has begun to manifest itself in Spain. The collapse of small businesses led, in one instance, to one building company owner ruined by the crisis staging five bank hold-ups! Another threatened to set fire to himself unless loans owed by the local council were paid. Similar desperation was evident in other countries in ‘terroristic’ incidents sometimes involving individual workers or a small group collectively. For instance, in early March, a Turkish worker held a gun to his own head in a dramatic gesture against the deteriorating economic situation outside the Turkish prime minister’s office.

French workers take action

A more conscious movement of workers is significantly evident in the occupation or threat to do so in France, Scotland, Ireland and could become the pattern in other countries as the economic situation deteriorates. The Economist comments in its 19 March edition on the situation in France:

“Serge Foucher, the head of Sony in France, was taken hostage on March 12th by factory workers seeking better severance terms. They shut him in a meeting room and barricaded the plant with huge tree trunks. Released the next day, Mr Foucher seemed to take things in his stride. ‘I am happy to be free and to see the light of day again,’ he said.

“Business people in France are not amused. They note that the authorities did not ask the police to free Mr Foucher. Instead, the local deputy prefect accompanied him into further talks with the workers, who got what they wanted: a better redundancy deal. It all confirms France’s general lack of sympathy for business, complains one executive.

“Taking executives hostage is a well-established tactic in France, which has a history of confrontational labour relations. But it seems to be becoming more common. In January 2008 the British boss of an ice-cream factory was held hostage overnight after announcing plans to fire over half of its workers (on that occasion, the police did intervene). In February 2008 the head of a car-parts factory was seized after workers realised that he was planning to move the operation to Slovakia. Ten days later, workers at a tyre factory owned by Michelin locked in two senior executives in protest at plans to shut the plant.”

It fears the example that could be set:

“Workers in other countries take bosses captive on occasion, but France is the only nation where it happens often. Might the practice spread? ‘Because of the state of the world economy, it would not surprise me if bosses were held hostage by workers more frequently,’ says David Partner, a kidnap and ransom expert at Miller Insurance, an insurance broker affiliated with Lloyd’s of London.

“Sit-ins are already becoming more common. In December workers occupied a window factory in Chicago for five days to secure severance pay that they were owed. In February workers from Waterford Wedgwood in Ireland marched on the offices of Deloitte, an accountancy firm, and refused to leave until they got a meeting with the company’s receiver. In America, says Gary Chaison, professor of industrial relations at Clark University in Massachusetts, workers are likely to become more militant, because of a sense of injustice over pay. ‘I could easily see executive hostage-taking happening here within a few months,’ he says.”

The Spanish ‘socialist’ prime minister, Zapatero, managed to largely maintain his party’s support in recent regional elections despite the dire economic situation. This is partly because of the fear of the Popular party (PP) with its roots still in the Franco period and a lingering hope on the part of the masses that this crisis is ‘temporary’. Additionally, the family structure – as in other Southern European countries, such as Greece – acts more as a safety net in hard times than is the case in Northern Europe. To some extent, this cushions some people against the worst effects of an economic crisis but there is a limit to this. Once it is borne in on the working class about the lasting character of the crisis, the militant traditions of the Spanish working class – which appear on the surface to have lain dormant in the past period – will be revived. It is urgent that genuine Marxism finds a road to the best workers and youth in Spain in the explosive situation opening up. The same applies to Portugal.

Greece the ‘weakest link’

Greece is still the weakest link in the chain of European capitalism at this stage. The Greek CWI have spelt out very clearly in articles on the CWI website the main processes in the country, including the general strikes, the mood amongst the working class and the youth. Despite the lull in the movement currently – which is inevitable after such an exertion of energy and without any seeming immediate results such as the forced resignation of the government – the underlying objective situation still contains important elements of a pre-revolutionary situation. Moreover, the present hiatus is highly unstable and an outbreak of social unrest is entirely possible. Greece, with a 14% budget deficit, could face being ‘marked down’ by the ratings agencies for government debt. This could in turn provoke ‘national bankruptcy’, which will be followed by further brutal cuts in the Greek workers’ social gains, wages and conditions. This will provoke further flair ups.

Crisis in Ireland

Ireland is not far behind Greece; indeed, over time it faces a potentially worse position because it started from a much higher economic level. Enjoying one of the highest living standards in the EU – one estimate said it was the highest – the speed of Ireland’s descent is, in one sense, on a par with Iceland, with which it has been compared: “Reykjavik on the Liffey”. The 9% annual growth rate of the past will become a distant memory with the economy expected to contract by 6.5% this year alone. This in turn has compelled the Fianna Fáil government to launch ferocious attacks on living standards, with the state recently imposing a 7.5% pay cut on public sector workers. This provoked the February mass demonstration, the biggest for 30 years in Ireland. Pressure has mounted for a similar turnout on 30 March but the official trade union body, the Irish Congress of Trade Unions, has decided to only ballot trade unionists who have not been paid the National Wage Agreement. Our party has correctly demanded that all trade unionists be called out on 30 March, as the whole of the working class faces a catastrophe with unemployment skyrocketing to probably half a million. A strike by low-paid civil servants and the occupation at Waterford Glass are indications of the increased discontent of the Irish working class. Genuine socialism can grow dramatically in this potentially explosive situation, especially amongst the working class.

Even the pro-market Irish Labour Party, in the doldrums for decades, has now experienced a revival, as the working masses cast around for an alternative to the discredited Fianna Fáil and Fine Gael parties. The ex-workers’ parties – and the Irish Labour Party is included in this category – offer little room for the workers to move in and radicalise them. But where some of these parties have not been associated recently with governments in power, it is not excluded that they can enjoy not just electoral growth but also a certain influx of new workers and young people looking for struggle. Marxists do not have a fetish on any issue, least of all perspectives for parties that claim to stand within the framework of the labour movement. It is not excluded that the Irish Labour Party could experience a growth in membership, which Marxists would seek to influence. At the same time, the industrial struggle is of crucial importance in the short term, with a scenario looming in Ireland in the next few years similar to that which confronted the Irish working class in the immediate pre-First World War period. That period saw momentous class battles, culminating in the 1913 Dublin Lockout. The general strikes or partial general strikes in Ireland are a harbinger of this. Equally, the electoral plane is vital, as the Irish government of Fianna Fáil could suddenly collapse under the weight of its own contradictions and with the stench of corruption surrounding it. A new and very important chapter can open up for Marxism in Ireland in the period we are entering.

General strike in France

Similar opportunities loom in other European countries, not least in France. The January 2009, general strike followed by the massive display of working-class power in March, with up to three million people demonstrating, transformed the political and social situation in France. Seventy-eight percent of the French people considered the March general strike as “justified”. One poster declared: “The French have given license to the union movement to articulate their opposition to Nicholas Sarkozy.” A business leader has warned that France faces a “class war” that could undermine Sarkozy’s reform efforts. The head of the polling agency Publicis declared: “People are really angry.” He went on to say that the government “fanned the discontent”. At the same time, the Financial Times declared: “It is far from clear that the social tension (manifested in the strikes and occupations) will coalesce into a coherent political movement capable of paralysing Mr Sarkozy’s government.” That they can have such confidence is entirely down to the prevarication of the trade union leaders who are prepared to dissipate this movement.

Bosses demand ‘sacrifices’

The bourgeois throughout Europe will pursue a policy towards the working class of ‘divide and rule’. In Ireland, its media is conducting a ferocious campaign in seeking to pit private-sector workers against ‘privileged’ state-sector employees. These ‘greedy’ workers are living at the expense – with inflated pensions and wages allegedly – of the poor, the old and those in the private sector. A similar campaign has been targeted at civil servants and local government workers in Britain, which could assume a particularly pointed character in the run-up to and after the next general election. In the vanguard of this campaign on a European level is the European Central Bank. It has called for a “crackdown on wages and public spending”. Its convoluted logic holds that “pay restraint will help prevent unemployment scarring a large proportion of people of working age … Governments should pursue courageous policies of spending restraint especially in the case of public wages.” The answer to these distinctly ‘anti-Keynesian’ policies was given by German workers who “took strike action … this week in pursuit of higher wages – arguing higher incomes were needed to boost Europe’s economy” (Financial Times). Such are the absurdities of capitalism that its European representatives in a scenario of “depressed demand” admitted on all sides, support “anti-demand” measures. But, of course, this is the logic of capitalism whose starting and finishing point is to maximise profits and the share accruing to the ruling class. Profits have already contracted in this crisis; dividends – the amount paid out to coupon clippers who live off the backs of working-class people – are the lowest paid out since 1938. There is also a growth of ‘overcapacity’ in industry. This is another indication of the generalised crisis of capitalism.

At the same time, it is not just public-sector workers who are called on to make a ‘sacrifice’; huge swathes of workers in the private sector, particularly in the auto industry, have experienced savage cutbacks in wages of 10, 15 or even 20%. For auto workers at Toyota, in Britain, who have just accepted a “10% wage cut”, this means an annual reduced income of £2,000! Therefore, the possibility of a combined struggle of both public and private sector workers has never been greater, as all sections of the working class face cuts in living standards, an erosion of past conditions, a lengthening of hours in those industries which still are viable, attacks on healthcare and pensions, etc. This is a process that affects the poorest countries of Europe as well as those which until recently were in the ‘rich’ bracket.

Germany and Northern Europe

Germany, the powerhouse of Europe, as we commented earlier, rather than facing a sunny economic prospect, mapped out by the Merkel government, now faces another sudden economic implosion. Forced to introduce its own ‘stimulus package’ – after months of stubborn resistance – the Merkel government still warns of mounting public debt and excessive liquidity. An economic ‘expert’ declared: “The central banks in the US and the UK are now literally printing money. This creates an inflationary potential that is difficult to stop.” The capitalists collectively, in the main, have decided that a mild bout of ‘inflation’ is the only way to escape the deflationary trap which is engulfing world capitalism at the present time. With memories of the hyperinflation of the Weimar republic – particularly 1923 – the German ruling class fears going down this road. But the alternative to this on a capitalist basis is a huge rise in unemployment, which is on the way in Germany.

The other powers of Europe are also being drawn into the downward economic whirlpool. In Belgium, workers face short-time working and significant cuts in pay. The Netherlands will also be drawn in as will Scandinavia. Sweden faces probably the greatest social and economic challenge, probably greater than the 1990s, in the next period. The country is ‘fashionable’ at the present time in capitalist economic circles, because of the experience of the early 1990s. That solution is now seen as a model for policies that could be taken up by bigger countries in the present crisis. Nouriel Roubini, the ‘Dr Doom’ of world capitalism, has declared along with many others: “We are all Swedes now.” Nationalisation of at least some failing industries, such as the banks, is the path to go down, he says. Yet Swedish capitalism only nationalised two banks in that period: Nordbanken, which was already state-controlled, and Götabanken. Moreover, as Paul Krugman has pointed out, nationalisation is not just a Swedish phenomenon but is as “American as apple pie”. Two small banks a week – with little publicity – are in effect nationalised in the US. What attracts the ruling class to the alleged ‘Swedish model’? The nationalisation was temporary – although it lasted a lot longer than a few months (for years, in fact) – and the government, as with the British government today, pursued an ‘arms-length’ relationship with them. The Swedish crisis however, severe as it was at the time, evolved just before the beginning of the 1990s economic upswing.

Effect of crisis on EU

No such rosy scenario now looms for world capitalism, including European capitalism. The crisis, far from ‘bottoming out’, can go deeper and be more prolonged than even the most ‘pessimistic’ capitalist commentator imagines. Philip Stevens, the political editor of the Financial Times (London) declared recently that Britain “has no money”. This is an exaggeration for, as the government has demonstrated, already it can resort to the printing presses – albeit of an electronic character today – in order to seek to prime the pump. But it does show the underlying uncertainty and confusion of the leading commentators of capitalism. The US has followed in Brown’s footsteps with a significant injection of cash. This cannot solve the crisis but may build a cushion which, together with other measures, could soften the impact. But the colossal piling up of state debt means an inevitable collision between the classes in the future. The combined budget deficit of the eurozone’s four biggest countries – Germany, France, Italy and Spain – will hit 6.4% of GDP in 2010, which in turn is up from 5.8% this year and was just 2% in 2008! Their public debt is forecast to climb to nearly 83% of GDP from 79% this year and 71% in 2008. The capitalists will attempt to claw this back either through tax increases – already mapped out by the Brown government for the future – or in direct assaults on employment, social benefits, etc. The EU will, in turn, be torn apart by these developments. Already the crisis has seen the revenge of the nation state, which both capitalist commentators and those on the Left like the USFI had prophesised had been buried by ‘EU integration’. Like criminals chained to a cart, the capitalists were forced to collaborate but the 27 members of the EU will not hesitate to strike blows on one another in order to protect their ‘national’ interests. Sarkozy’s blatant featherbedding of the domestic car industry is tamely accepted by the EU commission with a minimum of grumbles. The collapse of the euro – a distinct possibility depending on how severe and deep and long is this crisis – would reinforce these divisions.

Opportunities for the Left

In opposing European capitalism, we do not fall back on narrow nationalism but counterpose a workers and a socialist alternative. To this end, the participation of a number of CWI sections in the forthcoming EU elections is important. In Sweden, Belgium, Ireland and particularly Britain we have opportunities to present our programme, if not to get a significant vote. In Britain, however, the electoral alliance with the rail union, the RMT, and the Communist Party of Britain (CPB), despite the weaknesses outlined in a an article posted last week on, is nevertheless a significant step forward. Already in press conferences and comment, Bob Crow, the General Secretary of the RMT, stressed the idea of a “workers’ Europe” in opposition to the capitalist EU. Undoubtedly, this significant advance towards an independent voice of the working class – despite the shrill objections of most ultra-left groups – has the possibility of registering a workers’ opposition to the EU. It is also a rallying point against the far-right British National Party, which is within striking distance of winning seats in the European parliament. Last week’s article outlines our reasons as to why we think – despite many hesitations – we consider this a step forward. There is no guarantee of success, particularly in the electoral struggle, the lowest level of the class struggle. But despite the huge obstacles, this electoral alliance has the possibility of registering with the best workers and young people. Moreover, it could start to lay the basis for a new mass workers’ party in Britain, which is posed by the whole situation.

The development of new mass workers’ parties is still crucial for Europe and, for that matter, on a world scale. It is not necessary to elaborate out once more here the reasons for this. The emergence of die Linke (the Left Party) in Germany, of SYRIZA in Greece and now the New Anti-capitalist Party (Nouveau parti anticapitaliste – NPA) in France is not at all accidental. The leader of the NPA, Olivier Besancenot, is already considered the most significant political figure after Sarkozy. Moreover, according to a recent poll, Besancenot, described as the “Trotskyist leader of the extreme left” is now as ‘credible’ as the president. Despite the weakness of the NPA, both in programme and structure, it nevertheless represents a significant step forward and is supported in general by the CWI and by our French section, in particular. It is not at all clear, however, whether the NPA will grow in terms of numbers, attracting new layers or implanting itself in the working class. Electorally it has also yet to be tested. But, given the explosive social situation in France – even Ségolène Royal, the defeated Socialist Party presidential candidate, recently declared “Don’t forget the French revolution” – and the lack of a viable electoral alternative on the left, the NPA could step into the vacuum and pick up significant support. This, however, would not guarantee its success. The question of programme, of intervention in industrial and social struggles, is vital in order for it to find a significant and lasting echo amongst new layers undoubtedly looking for an alternative.

A vital issue for the NPA is the programme of the party, particularly the question of a governmental alternative to Sarkozy. Because there is no mass workers’ party in France and the NPA has yet to be tested, we cannot specifically designate parties to form this governmental alternative. When the Socialist Party and the French Communist Party were bourgeois-workers’ parties, we could advance the slogan of a ‘socialist-communist government’. This, by the way, is only a variant of the approach of the Bolsheviks in 1917. Against the bourgeois coalition, the Bolsheviks proposed ‘All power to the soviets’, when the Mensheviks and Social Revolutionaries had a majority within the soviets (workers’ councils). This was a call for a Menshevik-Social Revolutionary government, excluding the bourgeois parties, and based upon the soviets, with the Bolsheviks in the position of a ‘loyal opposition’. In practice, the Kerensky coalition government was overthrown in the October 1917 socialist revolution, when the Bolsheviks took power.

The question of governmental alternatives assumes a different character today, more of an algebraic form, because of the absence of such mass workers’ parties. But in the struggle against the Sarkozy government, workers will be looking towards some kind of government in opposition to that of Sarkozy. Alongside the abolition of the presidency, the Senate and for a unicameral assembly, we should raise the question of a ‘workers’ government’. What forces occupy such a position depends upon the struggle. This is an answer we give to workers who ask who will be in this ‘workers’ government’.

The formulation of transitional demands, agitation and propaganda assumes great importance in this period. Marxists will aim to intervene in new struggles and, where we have significant forces, to give a lead to the struggles that are opening up. In Britain, we launched the ‘Youth Fight for Jobs’ campaign. But also, on a European level, other youth movements can develop, including school student strikes. The severity of the crisis, which affects most severely the youth, together with the attacks on education, which will effectively deny openings that existed for previous generations in the higher education sphere, pose the question of a fight-back for school students in particular. This could lead to the development of school students’ strikes on the pattern of Germany, in the recent period, and what happened under our leadership in 1985 and in Spain in 1986.

The perspectives for the CWI in England and Wales are particularly relevant, in the next period. British capitalism is amongst the most exposed to the crisis, almost on a level now with the situation opening up in southern Europe. The Brown government hangs by a thread and could collapse at any moment. The perspective of Brown is undoubtedly to try and ‘manufacture’ a short-term ‘boom’, particularly through quantitative easing, and hope

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March 2009