In response to the article: ‘What are ‘the markets’ anyway?’ published in the Socialist issue 1209 we received an email from Cathy in Nottingham asking:
“Could we have an article which explains how the markets, or propaganda about the reaction of the markets has been or would be, used to put pressure on left-socialist governments… and specifically how our programme would deal with this.”
Nick Hart, Socialist Party national committee member and author of the original article, writes to address Cathy’s points, explaining the role of capitalism’s global financial institutions and exploring the experience of the Greek working class, which went head-to-head with these institutions in the early 2010s.
“IMF forecasts UK recession”; “Britons need to accept they’re poorer, Bank of England chief economist says”; “Moody’s lowers UK outlook to negative”.
Scrolling through the news or switching on the TV or radio, announcements from representatives of bodies like the International Monetary Fund (IMF), Bank of England or credit rating agencies like Moody’s can seem like so much background noise from an interchangeable parade of smartly dressed talking heads.
But who are these people? Who put them there? And what for?
Rather than simply being neutral bodies operating in the background of the financial system, these ‘institutions’ of global capitalism play a part in protecting the interests of big business by policing the actions of individual capitalist governments and guiding the financial markets.
On top of this, they also play a propaganda role in their messages aimed at you and me via the capitalist media – ‘don’t ask for a pay rise’, ‘don’t expect more money for public services or a decent pension’!
That’s why, as Cathy describes in her email, it’s important for us to discuss what steps an incoming socialist government would need to take to overcome attempts to undermine it from the IMF, ratings agencies, and the bond- and currency-trading vultures.
The IMF, World Trade Organisation (WTO) and the World Bank are bodies sponsored collectively by the world’s capitalist governments. Officially, their remit is to ensure the steady and stable functioning of the capitalist system worldwide, and promote economic growth.
But a key feature of capitalism is competition. Competition between individual capitalists vying for a market to sell their goods, and competition between capitalist states acting in the dominant interests of their own capitalist classes.
The IMF and World Bank were established in 1944 as part of the Breton Woods agreement. As World War Two was drawing to a close, US capitalism was seeking to cement its role as the principal world capitalist power. Both institutions are dominated by the political influence of US capitalism. In the case of the IMF, each member country pays, based on the size of its economy, and receives voting powers on its committees in proportion to this. As the largest capitalist economy over the last 80 years, the US has been the dominant voice in the IMF since its establishment.
Most notoriously, the IMF acts as a lender of last resort for national governments unable to meet repayments on their existing debts, or running low on the foreign currency reserves needed for essential imports. However, these loans come at a heavy price.
IMF officials will in return demand ‘structural adjustment programmes’ – code for austerity measures, including the sell-off of state assets, cuts to public services, pensions and benefits, and removal of food and fuel subsidies.
As well as ensuring that the working class and small farmers shoulder the burden of paying off their government’s debts to international finance markets, through privatisation and deregulation these policies also pave the way for the exploitation of the economy, public services and natural resources by multinational companies (especially those based in the US and the other main IMF powerbrokers).
The IMF is infamous for the role it has played alongside home-grown capitalist governments in impoverishing working-class people, including in Argentina, Indonesia, Pakistan, and elsewhere in the neo-colonial world.
But this has rarely been forced through without mass resistance. In Greece during the 2010s, resistance to IMF-approved austerity took the form of a whole series of general strikes, and political upheavals, including the rise and eventual coming to power of a left-wing Syriza government in 2015. The working class of Greece went head-to-head with the capitalist markets and Syriza had its political programme tested.
In the wake of the 2008 banking crisis, the Europe-wide recession particularly hit the economies of Greece, Ireland, Portugal and Spain, with already-low tax income dropping off and government debt ballooning.
These countries’ membership of the euro, and the rules associated with the common currency, restricted the room for manoeuvre for the governing capitalist parties. Measures available to nations with a sovereign currency, such as creating more money to buy back government debt, were ruled out.
Euro membership also imposed strict rules on things such as the size of the deficit between government income and spending, and the ratio of debt to overall economic output.
Greece came under attack by the financial markets as major banks and investment funds around the world enthusiastically bought up Greek government debt in the form of bonds as the global economic crisis was developing in 2010. The credit rating agencies, for-profit companies that publicly assess the ability of governments and other large borrowers to pay back their debts, began downgrading the status of Greek government bonds to ‘junk’.
This created a doom loop. The cost of further government borrowing shot up due to bond traders demanding higher interest payments (yields). No doubt those large investment companies that held Greek bonds, as well as shares in the rating agencies scoring them, had no complaints!
The Greek government, at that time headed by the former workers’ party PASOK, came close to being unable to make its debt repayments.
In 2010 and 2011 it agreed to a pair of rescue packages with the ‘Troika’ – composed of the IMF, the European Central Bank (ECB), and the European Commission acting on behalf of the European Union (EU).
Styled as ‘bailouts’ in the media, these amounted to two loans of €107 billion and €130 billion each, plus an agreement that private holders of Greek government bonds would take a ‘haircut’ and write off half the value of their outstanding debt. In return, the Troika demanded sweeping austerity measures totalling over €50 billion.
These included massive cuts to the wages of public sector workers and pensions, a 22% cut to the minimum wage, over 150,000 public sector job cuts, and increased income and sales taxes for even the poorest workers. At the same time, over €50 billion of state assets and two-thirds of state-owned companies were sold off, creating an opportunity for both Greek and international capitalists to buy former public property at knockdown prices.
However, the Greek working class didn’t take this lying down. Over 40 days of general strike action were called between 2010 and 2015, accompanied by mass demonstrations of up to 500,000 workers and the occupation of city squares.
Significantly, these struggles gained political expression through the rise of Syriza, a self-described ‘coalition of the radical left’. At the start of the crisis, it was a minor party, polling 5% in the 2009 parliamentary elections.
In just three years, during which a coalition of the ex-workers’ party PASOK and traditional capitalist party New Democracy governed, Syriza rose to be the second largest party in 2012. The imposition of deep cuts as part of the Troika-approved ‘economic adjustment programme’ continued apace, as did strikes and protests throughout Greece. By January 2015 it rose to be the largest party and was able to form a government, promising to reverse many of the previous five years’ austerity and a repudiation of the debt.
Led by prime minister Alexis Tsipras and finance minister Yannis Varoufakis, operating alongside a host of careerists fleeing the rapidly disintegrating PASOK, the Syriza leadership already planned to abandon its election programme.
Varoufakis gave a preview of what his approach in government would be when, in a 2013 speech discussing how to deal with the crisis gripping Greece and the eurozone, he declared: “If this means that it is we, the suitably erratic Marxists, who must try to save European capitalism from itself, so be it”.
The initial thinking of Syriza in negotiations with the Troika was that, by presenting an easing of austerity as being in the best interests of capitalist stability in the long run, they could secure further loans, this time without the strings of further cuts to public spending.
Any such hopes were quickly dashed when German finance minister Wolfgang Schäuble, who unofficially directed negotiations on behalf of the Troika, told Varoufakis: “We can’t possibly allow an election to change anything”!
By June 2015, the real prospect of the Greek government defaulting on its debts was present, and with it expulsion from the euro.
The Troika used this as a threat against Syriza’s leadership, who were desperate to remain in the Euro at all costs. However, the most militant layers of the Greek working class came to correctly see a break from the straitjacket of the single currency as an opportunity to write off the public debt and cancel the austerity plans laid out in the Troika ‘memorandums’.
On the mass demonstrations urging Tsipras and his advisers to reject further austerity in return for a bailout, Syriza’s previous slogan of “no more sacrifices for the euro” became a much-chanted phrase.
As co-thinkers of the Socialist Party argued at the time among the workers’ movement in Greece, a return to the previous independent Greek currency, the drachma, wouldn’t have been enough in and of itself. Within the context of Greece attempting to operate as a normal capitalist economy, the drachma would have been subject to devaluation by international currency markets, sparking rapid inflation in the cost of imported goods, and wiping out the value of what savings ordinary Greeks had left.
What was clearly needed was a break from capitalism as a whole. As well as a repudiation of the debt, this would have required controls on large movements of capital to stem the flow of hundreds of millions of euros out of Greece that took place following the election in 2015.
This could have been coupled with a state monopoly on foreign trade to guarantee the import of essential goods and their supply to ordinary consumers at an affordable price. With shipping forming a large part of the Greek economy, a socialist government could have gained leverage with the nationalisation of the port infrastructure and shipping firms under democratic workers’ control, along with impounding of their cargo, to make up for years of tax dodging by their owners.
Similarly, nationalisation of the banks and their foreign currency reserves, along with large food producers and other big players in the Greek economy, would have been the best safeguard against economic sabotage by the money markets and governments of the remaining EU countries.
With the real material and human resources of the country secured, Greek workers could then have been able to begin to plan democratically how to use these for the benefit of the masses, rather than enriching their native oligarchs and international bondholders. A taste of this was given with the ‘work-in’ occupations that took place in hospitals, the state TV broadcaster, and other workplaces during the height of the anti-austerity movement.
With an appeal to workers in other European countries and around the world, also victims of austerity, to take similar steps themselves, Greece could have been the beginning of a second revolutionary wave following the ripple effect of the Arab Spring a few years before.
Despite Tsipras and many other leading members of Syriza having at one time described themselves as ‘Marxists’ and ‘communists’, when given the chance they were unwilling to provide leadership to a mass movement that could have ended capitalism in Greece.
But the Greek working class continued to demonstrate its determination to fight the Troika to the end, and the energy that could have been used in a mass movement to face down the institutions of international capitalism.
Facing a financial cliff edge and a dead end in negotiations with the Troika, Syriza called a referendum for 5 July 2015 on whether to accept the latest austerity package in return for a third bailout, or reject it and face ejection from the eurozone. Expecting to use it to buy time and extract some concessions from the Troika before a narrow vote in favour of accepting whatever deal was on the table, Tsipras and his advisers were taken by surprise when the Greek masses voted 61% in favour of rejecting it!
In the process, city streets and squares were filled with workers holding placards and chanting “Oxi” – “No!”
Just four days after the referendum, completely ignoring its decisive result, the Syriza cabinet voted to accept the Troika’s new memorandum. Despite Varoufakis later being a dissenting voice, they had fulfilled his mission of saving European capitalism from itself. And what for?
The next austerity package, this time voted through by a government of the ‘radical left’, raised the retirement age to 67, increased pension and national insurance contributions made by workers, and raised VAT. And all in the hope that Greece might finally finish paying off its loans to the IMF and ECB by 2060!
As a result of the austerity measures implemented by PASOK, ND and Syriza governments in turn, 20,000 Greeks became homeless, and unemployment peaked at 27% between 2008-2016.
The rise in inflation and interest rates along with a breakdown in the ‘rules’ that have governed capitalism during the last 30 years threatens to expose the cracks in the system and spark a new economic downturn around the world. The spotlight will once again fall on the IMF and other institutions and their role in managing crises to the benefit of the capitalist class, with the burden placed on workers.
The workers’ movement needs to have its response ready – in the form of working-class political organisations with a socialist programme to break the dictatorship of the markets and their institutions once and for all.
For more on a socialist programme to take on the EU, including ‘the currency question’ see ‘Lexit is not enough’, Socialism Today issue 225 available online at socialismtoday.org