According to some Greek protesters Ireland is not like Greece – one banner on a demonstration read, “This is not Ireland, we will fight”. Finance Minister, Brian Lenihan, says the same but from a different stand point. He keeps repeating that Ireland is not like Greece in the hope that such an economic collapse won’t happen here, precisely because he is afraid of a similar revolt of the Irish working class. Lenihan’s hopeful argument that the two countries are fundamentally different goes as follows – Greece cooked the books and lied about their financial and debt situation; its national debt is nearly 130% of Greek GDP; the Greek economy is declining and its debts are rising; there is resistance causing political and financial instability in Greece. In addition, Lenihan says Ireland is moving to improve competitiveness and tackle the problems in the banking system, unlike Greece.
Ireland didn’t cook the books? Recently, Ireland’s current budget deficit jumped from 11.5% to 14.3% of GDP, why? Because the EU insisted that the Irish government could no longer pretend that the cost of the bank bail out was not a burden on the states finances. When bank assets were first being transferred to NAMA at the start of April, it became clear that the banks had continuously lied about the extent of their bad debts, forcing the government to announce a massive increase in the cost of the bank bail out over night. What is all this except a cooking of books!
It’s true that the debt in Ireland, at around 85% of GDP, is significantly lower than Greece’s but its closing in fast, as in 2007, it was just 25%. In fact, Ireland’s 14.3% current budget deficit is worse than Greece’s.
If there were strong reasons to believe that growth in Ireland was likely to take off, thereby giving a basis to reduce the debt by creating new wealth, then perhaps it would be clear that Ireland is in a different position to Greece, but is that likely?
There seems to be a stabilisation of the economy, but at much lower level than before, with no real prospect of any return of Celtic Tiger growth to help avert the slide into indebtedness. In fact, the property market is continuing to decline and therefore, it’s likely that the crisis in the banks will get worse, meaning that this government will go into bigger debt to bail out the banks even more.
In that scenario, it is inevitable that they would impose new and deeper cuts. Like in Greece, at a certain point, cuts won’t be enough to calm the “financial markets” and the Irish economy could have the legs pulled from under it by the sharks and the speculators.
The cuts, rather than providing a platform to salvation, will further undermine the economy and threaten a downward decent into deeper debt and crisis. In fact, one of the reasons for the recent decline in the euro is the fear that the austerity measures across Europe could already be pushing Europe back into full recession.
The reason the EU came out with a new €750 billion deal in early May on top of the e110 billion for Greece, was precisely because they are scared stiff of collapses in Portugal, Spain and Ireland, which could potentially
mortally wound the euro as a currency.
“We have closed ranks to save the euro,” Christine Lagarde, French Finance Minister, recently said. They are hoping, having delayed desperately on assistance to Greece that this proactive commitment will ward off attacks on the euro. So far, their hopes have been in vain, as the euro has continued to decline.
The €750 billion package is another confidence trick – they are hoping that by stating what they would do in the event of the crisis getting worse that they won’t have to do it. But the debt and investment crisis that capitalism is suffering from cannot be just wished away, it is inevitable that there will be much more economic pain, the issue is who will pay.
They have said €500 billion will essentially come from the 16 Eurozone countries and €250 billion is from the IMF. The IMF involvement underlines that the US in particular is very concerned at the instability that Europe is causing the global economy, in the context that many economists are expecting a significant decline in China sooner rather than later and possibly new problems in the US when the affects of Obama’s stimulus packages fizzles out in the second quarter of this year.
“By establishing a €750 billion euro fund to bailout Greece and aid other struggling governments, Germany and other strong European states are chasing a dream – a single European currency and broader European unity – that may have no place in reality,” said Peter Morici, a professor at the University of Maryland.
It is clear that the euro is facing a fight for its survival. If the currency continues to decline sharply, that will place huge pressure on the EU and all the countries individually.
Clearly the EU will try to intervene with cash and loans to bolster weaker countries whose problems are undermining the euro. But will the likes of German capitalism just continue to put money in when it clearly isn’t convinced that the situation can be saved?
For the indebted countries, every decline in the euro significantly increases their debts and crisis. In Ireland, we need to be prepared that a new crisis can hit extremely suddenly. Further problems in Greece, bad economic news here, a downgrading by a ratings agency of Ireland’s debts – all could exacerbate the situation and leave Ireland facing the same insolvency collapse that faced Greece.
At the moment, the respective governments have chosen to hang together, but at a certain stage they may decide to hang separately and in so doing, completely undermine the whole EU project as we know it.
There are so many fault lines in the EU that it is impossible to tell where the next difficulty will come from. What’s clear is that this crisis is far from over. Minister Lenihan and the whole cabinet should get the Ouzo ready, there could well be some Greek style strikes and street parties after all. N
The EU Project – is it doomed?
By Paul Murphy
The eurozone is faced with a potential break up. Currently, the governments of the so-called peripheral economies are determined to remain within the eurozone, and are trying to enforce savage austerity packages to ensure they can. However, whether they will be able to carry through the attacks demanded by the IMF and German capitalism is clearly in question when confronted with the massive movements of the working class as seen in Greece.
If they are not able to carry through these attacks successfully, these countries will certainly default and may well be pushed out of the eurozone through a combination of pressure of speculators and German capitalism, which is unwilling to “bail-out” other European economies. A very different eurozone than that which currently operates is a possibility – the common currency area could be reduced to the core countries of European capitalism.
The future direction of the European Union itself has also been put into question. A decisive shift in power within the EU took place in the course of the crisis. During the boom years, governments and capitalist classes in the European countries were happy to give power to the European Commission. The Commission, more removed from pressure than national governments, was able to largely successfully implement strategic measures across Europe in the interests of big business. The posting of workers’ directive, for example, allowed migrant workers to be exploited across Europe.
However, as the crisis developed, key governments in Europe, in particular, Germany, have shown themselves unwilling to allow the Commission and central EU to make the key decisions in relation to the Greek crisis. Rather than Barosso and Trichet as the heads of the European Commission and the European Central Bank making the key decisions, Angela Merkel, the Chancellor of Germany, became the key figure.
Regular trips to Berlin by the key figures in the crisis symbolise the shift of power away from centralised institutions back towards national capitalist classes. The dreams of those who envisaged a “federal Europe” akin to the US have been dashed against the reality of the increasingly divergent interests of the European capitalist classes. Instead, while the EU will continue for the moment, it will increasingly be riven by tension between these national capitalist interests.
Greek workers show the way – the “PIGS” fight back!
By Danny Byrne, CWI
As TV screens were last week filled with the spectacle of Greek workers and youth attempting to storm parliament buildings in Athens, wherein MPs planned to vote on a draconian raft of vicious austerity measures, the developing fightback of the working class of the “PIGS” (Portugal, Ireland, Greece and Spain) stood at centre stage.
The deep impact of the international capitalist crisis on the economies of Spain, Greece and Portugal has led to a rapid decline in the living standards of the majority. Mass unemployment (which in Spain, stands at over 20% of the workforce), and declining living standards have quickly developed, alongside the multi-billion euro handouts doled out to the financial elite in these countries, whose reckless dictatorship over the economy led to the current situation.
With the explosion of the Greek debt crisis in the last weeks and months, the vultures of international capitalism, both in the countries effected and in the international institutions (EU and IMF) have closed in, demanding ferocious austerity, in the form of massive programmes of cuts and privatisations, to assuage the “gods” of the international finance markets an credit ratings agencies. The contagion which grew out of the Greek crisis saw ratings agency, Standard and Poors (S&P) downgrade the credit rating for the Portugese and Spanish economies, as well as consigning Greek government bonds to “junk” status. This had a disastrous effect on the European, as well and the Spanish and Portugese financial markets, and makes these countries’ national debt significantly more expensive.
“The next Greece?”
Speculation that Portugal could be “the next Greece” has emboldened the Socrates government there to bring forward its austerity package, which includes savage cuts to social welfare and unemployment benefits, the whole-scale privatisation of previously publicly-owned companies, in the transport and postal sectors etc, and tax increases which will hit the whole population.
The Zapatero government in Spain, which has come out all guns blazing against rumours that it would be next in line for an IMF “bailout” (to the tune of over €200 billion) has too announced the most devastating plan of attacks on the public services and living standards since the Franco era.
Last week, Zapatero made announcement of additional attacks, including an across-the-board public sector pay cut of 5%, and the abolition of a form of child benefit, in order to further assuage the markets.
Portugal has seen an eruption of workers’ struggle in response to the government’s plans. The month of April saw the highest number of days “lost” to strike action for 16 years, as workers in every sector took action. A general strike of the transport sector, threatened with privatisation, saw a shattering 95% participation. On May Day, over 100,000 took to the streets of Lisbon, in massive, angry demonstrations against the government’s and capitalism’s agenda in planning to slash living standards. Increasing pressure within the main trade union federation, the CGTP, has forced the question of further strike action, including that of a general strike onto the agenda.
In Spain, mounting anger has developed at the effects of the crisis, which was reflected in the massive demonstrations, totalling over 200,000 which forced the government to retreat on its proposal to raise the retirement age to 67. The struggle there has now entered a new phase, with unions responding to the announcement of the latest attacks with the calling of a public sector general strike for 8 June. This marks the moving of the working class onto the scene of struggle – an event which in the next period will surely shake the Zapatero government and Spanish capitalism.
For international workers’ resistance!
Greece, which has seen a tremendous fightback by the working class and youth, with numerous general strikes in the last weeks and months, represents the most advanced country in Europe, in terms of struggle, at this stage. The question posed over the next weeks and months, which will see further general strikes, will be that of an escalation of the fightback, and for a militant programme of sustained united action to force the government and bosses back.
Democratically elected committees of struggle, to discuss and co-ordinate the struggle, and fight for a political and economic alternative to capitalist crisis and attacks, should be formed in Greece, Spain and Portugal as the fightback develops.
The next period will also see the question of a European-wide struggle against the austerity agenda of capitalism across the continent posed. Joe Higgins’ initiative has led to a call for united protests and actions around the 21-26 June being made by a number of left MEPs, which could represent an important step in this direction.
The CWI is organised as Xekinima in Greece, where comrades participate in the left coalition SYRIZA and fight for its development as a mass fighting force capable of organising a mass struggle to change society. We are also currently building our forces in Spain and Portugal, in order to organise and offer a socialist programme in the struggles that develop and to point the way forward to the only viable solution to current abyss facing working people in Southern Europe and beyond – a democratic socialist Europe, in which the dictatorship of the capitalist market is broken and wealth and resources can be used to develop the lives and living standards of all.
What are the bond markets, rating agencies, hedge funds?
By Paul Murphy
The dictatorship of the market has been laid bare in the last number of months, as right-wing commentators and politicians, have breathlessly asked, at each successive attack on working people – “Will this be enough to satisfy the markets?” Yet, who or what are these markets, rating agencies and hedge funds which hold such great power?
Simply put, the bond markets are where most governments choose to borrow money. They issue bonds, which are then bought by investors (generally institutions or hedge funds) who are promised a return at a certain interest rate at a date in the future.
Credit rating agencies come into the picture as the private companies that “rate” how safe different investments are, which in turn affect how high interest rates have to be paid. The ratings they give go from AAA (prime) to D (in default). Their decision on how to rate countries has an enormous effect on those countries’ economies. For example, while Germany (which has an AAA rating) would pay currently pay about 0.8% interest on a 2 year loan, Greece (rated BBB-) would pay 12.7% interest. It is workers, pensioners and young people in Greece who are expected to pay the price. These same agencies gave basically worthless subprime debts AAA ratings before the bubble burst.
What is really interesting is asking who is it that is buying and selling these bonds on markets? The answer, to an important extent, is shadowy hedge funds. Incredibly, in terms of volume, between 40-50% of transactions in the major stock exchanges in New York and London relate to these hedge funds.
Hedge funds are highly speculative investment vehicles. The minimum investment in a hedge funds ranges from $500,000 to $3 million, meaning they are exclusively for very rich people or institutions, seeking to make money from movements in the markets. There are 9,000 of these hedge funds in operation worldwide, in control of billions of euro.
The top 25 fund managers earned $25.3 billion last year, a new record for the industry, and the average return of hedge funds in 2009 was 19%. This is mostly as a result of the hedge funds betting that the governments would bail out the banks. Therefore, when the bank stock prices bounced up, they benefited hugely, in effect, getting a portion of the bailouts for their massive profits.
The start of 2010 has seen the same story, with the hedgefund.net Industry report declaring, “Hedge fund performance in Q1 2010 was the best first quarter since 2006”. One can only surmise that gambling at the expense of Greek workers has been a major winner for these funds.