24 Hour Public Sector General Strike Now – Socialist Party placard, photo Paul Mattsson
In a recent address to the Canadian parliament, David Cameron bluntly said: "Growth in Europe is stalled. Growth in America has stalled. The effects of the Japanese earthquake, high oil and food prices have created a drag on growth. We’re not quite staring down the barrel, but the pattern is clear".
Global trade has started to sink. Stock markets have fallen. Even the Chinese economy is slowing, with a contraction of manufacturing activity for the third successive month in September.
"Double-dip, here we come", an economist at Scotia Capital commented, although many working class and middle class people would deny there was ever any recovery when judged by their own experience.
"I have not been at a prior meeting at which matters have had more gravity", remarked Obama’s former chief economic advisor, Larry Summers, while attending his 20th annual IMF meeting on 23-25 September in Washington. Yet the G20 finance ministers were too divided at the meeting to agree on what to do.
Earlier this month, IMF leader Christine Lagarde warned governments in the US and Europe to take immediate "growth intensive measures" to ward off renewed recession. But it may be too late – some major economies could already be back in recession.
Photo Paul Mattsson
The danger is real of a 1937-style slide into a global economic slump unless governments and central banks rapidly implement measures to prevent or postpone it.
Futhermore, leading economists admit that even if recession is staved off, the prognosis is not one of good growth rates in Europe, the US or Japan; rather an ongoing ’stalling’ or sluggish growth for the foreseeable future.
This means continued high levels of unemployment – a catastrophe for a generation of young people – and even higher unemployment if renewed recession sets in.
Within this overall situation is the eurozone crisis, described during the IMF meetings as the "most serious risk now confronting the world economy" by US treasury secretary Tim Geithner.
Britain’s chancellor, George Osborne, dramatically argued that there are just "six weeks left" to save the eurozone.
However, European finance ministers tried in vain in Washington to formulate a new package of measures to rescue the eurozone. With the certainty of Greece defaulting at some stage on its mountain of debt, they are desperate to lessen the knock-on effect on banks and governments elsewhere. Fears have escalated of contagion spreading to heavy ’sovereign borrowers’ like Spain and Italy, considered ’too big to bail’, and on banks in France and Germany that are exposed to the debts of these countries as well as to Greek debt.
Italy has debts of €2.3 trillion, but the ’European financial stability facility’ (EFSF) contains just €440 billion. There are proposals to increase the EFSF funds to over €2 trillion.
This is nowhere near enough to prevent meltdown in the debt-ridden banks or wider finances of some of the larger European countries that could be the outcome of a worsening of the Greek crisis.
But incredibly, as if economies the world over haven’t been burnt enough by financial manipulations that mask reality, these proposals include making the facility’s funds appear to be four or five times larger by using leveraging devices – in particular by borrowing via the European Central Bank.
This would be a smokescreen for a route yet again towards making working class and middle class people pay for the economic crisis, through drawing on public money.
In addition, more public money may be injected into at-risk eurozone banks, as previous bailouts have not handed the banks a healthy enough ratio of cash assets relative to their debts. They could presently be ‘undercapitalised’ by as much as €500 billion (Financial Times, 26.9.11) This would be to try to prevent the money markets from suddenly cutting off funding to some banks – the scenario of 2007 when inter-bank lending dried up.
Also, a third measure is being considered, a further write-down of Greek debt beyond the 21% agreed in July. Barclays Capital has questioned this figure and estimated the loss to European banks as a result of the deal to be nearer 5% than 21% – so that particular package could be less significant than first thought and even less likely to prevent a default by Greece.
However, some governments have still to ratify the July deal – the German Bundestag votes on it this week. Moreover it is clear, even before that action is implemented, that it is inadequate.
"Rescuing the eurozone requires an action plan of a scale hard to fathom", has commented Wolfgang Munchau in the Financial Times (26.9.11).
European ministers have discussed writing off 50% of Greek debt, passing further losses to European banks and taxpayers. German workers, who would be expected to bear the greatest burden of this and other measures, are understandably mostly against it and are applying great pressure, restricting the room to manoeuvre of German prime minister Angela Merkel.
Workers both inside and outside the eurozone are being forced by their ruling classes to pay the price of the economic crisis. Greek workers have suffered a massive onslaught of austerity, British workers are facing unprecedented cuts in jobs and services, and so the list goes on across Europe and indeed the world.
But Wolfgang Munchau asked in the FT: "Do we really believe the Greek government can implement one austerity plan after another with a majority of five seats?" – and we can add: ’with massive workers’ opposition?’.
"The global economy appears to be rudderless", noted the economics editor of the Times. But the markets are not mysterious, supernatural phenomena to which there is no alternative. As many commentators in the media admit, this is a crisis of capitalism, a period in which the debt levels of households, banks and governments have impacted heavily on demand for goods, so there are fewer profitable outlets for manufacturers.
This is a drawn-out agony that working class people do not have to accept. There have already been major struggles, such as the eleven general strikes in Greece, and many more battles will come that can force governments back from their attacks.
Alongside this fight, the crying need for an alternative form of society will be increasingly recognised, a socialist one with public ownership and planning of financial institutions and the main parts of the economy, under full, genuinely democratic control.
NB: This article is a slightly longer version of the one printed in The Socialist