Despite the G20’s attempts at confidence-boosting rhetoric, the interdependent components of the global economy remain locked in a deadly embrace, wrestling with each other as they plummet to the ground.
Ever more desperate attempts to resuscitate the fantastic but failed world of credit and debt dilute the value of currencies and further worsen the health of the global corporations as demand falls for the goods they produce, sending their share prices down.
In Britain, all talk of a “recovery” later this year has disappeared and next week’s Budget is in fact a crisis measure as public finances spiral out of control. European steel production is close to collapse and a trade war with China is looming over its dumping strategy.
The Irish government is the first to admit in practice that neither additional government borrowing, nor expanding the supply of money can help its country withstand the impact of the global crisis of dwindling production and consumption. It won’t be the last.
In measures designed to forestall the looming threat of state bankruptcy, its emergency second budget looks like the flailing autotomised arms of a threatened octopus, when a limb is severed by the endangered creature.
In a so far maverick response to the shock forecast that economic activity in the Republic is forecast to shrink by 8% this year, a dramatic worsening of last year’s 3% contraction, finance minister Brian Lenihan warned of "a serious decline in national living standards: the sharpest fall on record.”
Taxes will rise, though not on corporate profits, and spending on services will be slashed. In the public sector pay will be hard hit affecting a large part of the population.
Nevertheless, with already the worst government deficit in Europe, and the entire financial sector in a state of collapse, a new Irish agency will be provided with funds to buy up the banks’ property and land-based bad debt. The catch here is that no-one knows what its real value is, nor what the price should be.
Elsewhere in Europe, rather than taking the route of printing money to add to the trillions already given or promised to the banks, Germany and France have been giving away vouchers in a new-for-old car scrapping scheme.
Demand for Germany’s €2,500 vouchers has been hugely successful. Far more people have applied than expected, and concern is rising about the public anger that will erupt when the money runs out. Angela Merkel’s surprised government has added a further €3.5bn taking the total available to €5bn.
Sales of brand new small cars have soared, but there’s a catch here too – it doesn’t seem to have increased consumption overall. The second hand market has collapsed completely and what spending there is, is transferring from other products like TVs and sofas.
As the crisis enters historically uncharted territory, governments are exhausting all the weapons they can use in their attempts to rescue the capitalist way of life. The Irish pioneers have opened the doors to a new phase.
Joseph Schumpeter, an economist high priest of capitalist business cycles, and an opponent of Keynes, described the process in his famous book, Capitalism, Socialism and Democracy, when he wrote: “This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.”
A World to Win