Greece - the people vs global capitalism

Events in Greece over the last 24 hours have resembled the plot from a political thriller – A Very British Coup perhaps. Under fire Greek Prime Minister Papendreou announced a referendum on whether to accept the bailout terms agreed at the recent EU summit. He apparently did so without consulting his Cabinet, and by lunchtime his finance minister was in hospital with a suspected heart attack, and a backbench MP resigned.

He also took the surprising step of replacing all of the military top brass – the heads of the defence staff, army, navy, and air force – all replaced and apparently without any warning to Cabinet or military. Obviously the Greek military has history – a CIA-backed junta ruled Greece from 1967-74 – but did Papendreou believe a coup was on the cards?

Certainly there are the siren calls for a government of national unity from opposition MPs (and the PASOK MP who resigned yesterday). The major opposition party is right wing, and the security establishment will have been rocked by the massive and occasionally violent protests and strikes in Greece which have intensified and grown in recent weeks.

Plus by calling for a referendum, he will have infuriated the EU and IMF – and therefore NATO (of which Greece is a member) – and so the Greek military and political right (supportive of the bailout terms) would have potentially had international support.

Twenty four hours after issuing the referendum call, the Cabinet has unanimously backed it, and it will take place in December according to rumours. With no further resignations, Papendreou seems likely to survive a confidence vote on Friday too.

While all this clandestine backroom activity may have been necessary to get the referendum (and avert a coup?) it was the very public protests that have won it. The marches, rallies, strikes, direct action and street-fighting against the government, banks and police have been a demonstration of the commitment of the Greek people to resist austerity.

Now the people have the final say in a referendum, which as Papendreou has said will effectively be on membership of the euro.

So what would a yes or no vote mean?

A yes vote would mean misery heaped upon misery for the Greek people. With a stagnant and contracting economy, high and rising unemployment (16% nationally, but 40% for young people – double the respective UK rates), jobs and services already slashed, taxes increased and wages cut or frozen.

The bailout demands an intensification of austerity to satisfy creditor nations and banks.

A no vote is more complex. It would mean defaulting on debts, an exit from the euro (so as not to further weaken the currency). It would mean reinstating a national currency (drachma mk2).

As Greece would still be an economic mess, this is no silver bullet. The Greek economy is heavily flawed and needs urgent investment. Tax evasion is rife and needs to be immediately addressed, but so does investment – in order to create jobs and bring unemployment down.

Greece would need a friendly nation to support it – to lend to it on a comparatively favourable long-term basis. Which nation could do this? That would depend on the nature of the government in place at the time. A possibility would be one of the BRICs least affected by Greek default, or by going to the Latin America via Mercosur or even ALBA for an extraordinary loan.

To avoid the money markets playing havoc with the new currency, and a descent into Weimar hyperinflation, there would have to be firm capital and export controls – which would in turn necessitate breach EU rules, and presumably necessitate exit from the union entirely. Bilateral arrangements, such as those achieved by other non-EU states should be possible but will take time.

Much of the above is necessarily speculative – we are entering unchartered waters – but one thing is clear the people of Greece have forced this referendum through considerable struggle. They now need to realise their power and create a vision that can unite what they are for too.

Their victory (albeit partial)* should also inspire anti-austerity struggles across Europe, particularly in Spain, Italy and Portugal.

*It is a victory to have forced their right to have a say, when the EU and IMF though they had done a deal to salvage banks and creditor nations at the Greek people’s expense. But the victory is partial because – without winning a no vote in the referendum and then, crucially, having a unifying vision that their movement can force into the political arena – it may only be kicking the can down the road. But for now, it is the Greek people doing the kicking.

Socialism or barbarism for eurozone

Andrew Fisher, LEAP co-ordinator, analyses the eurozone crisis

The eurozone crisis is complex, and the cause of the crisis varies from country to country. One could glibly (albeit accurately) argue that the crisis is capitalism, but that would not give an understanding of the different processes that have led us to where we are now.

There are however several common themes for many of the key crisis countries: the failure to collect tax revenues, deregulation of the finance sector, the bursting of the construction bubble, and the dismantling of social infrastructure as a solution (more palatably referred to as ‘austerity’). The latter of course is imposed to solve the crisis, but in fact exacerbates it.

In Ireland tax revenues were deliberately slashed by government policy to cut corporation tax, in Greece and Spain tax collection infrastructure is woeful. In Spain and Ireland a construction boom eventually outstripped demand – as it did in the US – with housing prices now up to 50% on average below their peak in many cities.

However, an overarching problem that played a part in causing the crisis and has hindered any solution is the structure of the eurozone: in which fiscal policy has been made in the interests of the larger economies to the detriment of those in the periphery, and by an unaccountable (or ‘independent’ as Gordon Brown would describe it) central bank.

The same dynamic is playing out now. Greece will inevitably have to default, and should have been allowed to immediately, to save its people from wave after wave of austerity measures.

The opposition to Greek default came from the creditor nations, who fear having to bail out their banks which loaned massive sums to Greece. The French-Belgian bank Dexia has already required assistance due to the ‘haircuts’ to its Greek debts.

The fear stalking the meeting of European Finance Ministers in mid-October was a domino effect across European banks. If Greece or Ireland or Spain or Portugal, or even Italy start defaulting on their debts, then banks could fail throughout the eurozone. Those banks in turn have debts with other banks, and we could be back to 2008/09 when much of the global banking system needed assistance.

There are two things that are clear. The first is that austerity is making the situation worse. By raising unemployment, suppressing wages and slashing benefits the risk of default on personal loans and mortgages increases – further destabilising banks. Likewise suppressed consumer demand is making life difficult for retail businesses, which in turn affects manufacturing –and because of the increased risk of personal and business debt defaults, banks are far more cautious about extending credit.

The Greek trade unions – taking strike action in mid-October – were absolutely right to describe their nation’s plight as a “death spiral”. There simply is no way out.

The second clear conclusion on EU policy is that a second round of mass bailouts will be necessary. This can either be in a controlled and co-ordinated way of managed debt default that writes off bad debts through public ownership or it will be an each country for itself panic in which nations like France and Germany go for a UK style bailout while the peripheral nations – unable to borrow on the international markets – watch their financial institutions fold. This will in turn create a tide that even the larger economies of Germany and France are unable to stem.

The reality encroaching on eurozone finance ministers is that their European Financial Stability Fund has nowhere near enough funds to actually cope with the scale of the bad debts. The markets know this, hence the downgrades of eurozone nations and banks.

The promises to make good on these debts cannot be paid, so defaults will be necessary. By acting swiftly this crisis could have been contained. Instead the situation has been aggravated by austerity and mounting interest rates, especially for nations and financial institutions deemed riskier.

The economic crisis of the 1930s was only resolved through rearmament, militarisation and horrific war. This crisis requires that we take into public ownership and control the finance and credit system. Without that we face each nation scrapping for its own skin and mass social upheaval as depression bites.

The irony of this is that the eurozone was allegedly designed to prevent such beggar-thy-neighbour behaviour. In fact the inherent instability of the eurozone, with a single interest rate and restricted deficit spending combined with neoliberal deregulatory policies, has actually caused precisely that.

In the words of a truly great European leader: it’s socialism or barbarism.

• This article first appeared in the November 2011 issue of Labour Briefing and was written before the European summit concluded in the early hours of 27 October

A good reading list

I spoke at a meeting of Croydon Trades Council last Thursday on the current economic situation, and a full write-up will follow of the debate and discussion around the origins of the debt and deficit, the attack on public sector pensions, tackling unemployment through investment in capital spending projects, and what to do about the banks and the stock markets.

But this is just a quick post with some of the books that came up in the debate from those in attendance:

• Injustice by Danny Dorling
  
• The Spirit Level by Richard Wilkinson & Kate Pickett
  
• The State and Local Government by Peter Latham
  
• There is an Alternative by PCS
• Treasure Islands by Nicholas Shaxson

It's an impressive and excellent contemporary reading list for anyone trying to understand our current situation.

What other contemporary books have you found useful? Let us know in the comments.

Miliband offers only hot air on energy

The report by Ofgem last week showed the profit margin for energy companies has risen to £125 per customer per year. It expressed concern at the rampant profiteering by energy companies. This is important - let's remember that every winter an extra 20-30,000 pensioners die due to cold-related illnesses. With prices having risen by 10-20% this will be a life or death issue for tens of thousands this winter.

The Ofgem report did not surprise us; in March 2011 we published our report 'Restoring the Public' and noted:

The unusually cold winters in the past two years, and large margins, have led to bumper profits for energy suppliers such as British Gas, whose profits rose by 24% in 2010. The regulator Ofgem has found that energy companies increased their net profit margin per customer by 38% last November, and is currently reviewing energy prices. However the case for a windfall levy now is not in conflict with future recommended reforms to regulation.

At that time we advocated a windfall tax on these excessive profits. It's clear though that seven months later, the energy companies remain unconstrained by regulation. Ofgem deliberately does not have the teeth to prevent excessive profiteering.

In retrospect our call for a one-off windfall tax, combined with the review of regulation, underestimated the problem. Let's face it: no review of regulation under the current government is likely to constrain business to benefit consumers.

Ed Miliband writing in the Sunday Mirror, continues his 'moral capitalism' theme from his Labour Party conference speech, stating "there is nothing to stop those power companies giving up those profits".

But there is! The very reason the companies profiteer is because their purpose is to maximise profits for their shareholders. Ed's plea is as asinine as Vince Cable repeatedly imploring the banks to lend more. The lesson is companies (as they are designed to do) will act in their own interest, not the public interest (unless the two happen to coincide - rare).

If Ed Miliband wants cheaper energy prices exhortations are not enough. Neither would be his other plan: "more competition". More companies will act exactly the same as the big five already do - because they will also want to maximise profits.

The only permanent solution is public ownership. If something is 'too important to fail' as the banks and energy companies are then they have to be run in the public interest - that means control.

If Ed Miliband is going to inspire voters to return to Labour he needs something that will electrify the electorate. His current gas is just hot air.

Rafael Nadal - shut up and pay your tax

As more and more of us slip into poverty as jobs and benefits are cut, spare a thought for Rafael Nadal - the snarly but dodgy-kneed ball-chaser is also rebelling against the government's policies.

Poor Rafael lamented yesterday:

"The tax regime from the UK is complicating a lot of things ... The problem is I can lose money if I go [to Queen's] to play for one week. It is really tough what is happening today in the UK with the tax"

Nadal earned just $27.5m in 2009 (Sports Illustrated). In tennis earnings alone this year he has made $6.3m according to tennis.com

Nadal takes issue with the UK tax law which means overseas athletes are taxed on their worldwide endorsement earnings for every day they spend in Britain. What this means is that if Nadal spends three weeks of every year in the UK, then he will be taxed that proportion (i.e. 21/365ths) of his global endorsements in the UK at 50%.

So if Nadal makes $20m in global advertising deals. He will be taxed 21/365ths of that at 50%, which would be $0.57m. By arguing against this tax, Nadal is pretending that playing in the UK does nothing to boost his value to advertisers. In other words the UK market is worth nothing - which is ironic considering every other London bus currently sports a picture of him in Armani pants or jeans.

According to the Independent, the tax has already caused athletes like Usain Bolt not to compete in the country. That false start, such a shame.

If my living was running after a tennis ball - something dogs do gleefully in parks for free - while getting paid $27m per year, I might be a little more circumspect about complaining at having a tiny fraction of my enormous wealth used to fund schools, hospitals, roads, etc.

p.s. you can contact him on Twitter at @RafaelNadal

Perhaps UK Uncut could send Rafa a message when he plays at the O2 later this year?

End the rule of the 1% as economy implodes

The force of the global economic implosion, which has seen unemployment skyrocket to a 17-year high in the UK, overwhelmed its first eurozone government last night. It is unlikely to be the last.

The Slovakian parliament voted to reject a stronger European Financial Stability Fund (EFSF) and hence a second rescue package for Greece. This was despite immense political pressure from the European Central Bank, the European Commission and the International Monetary Fund, as well as the US administration.

They all warned of the systemic nature of the worsening crisis and the direst of consequences for the world capitalist economy should Greece be allowed to fail. As a result of the vote, the coalition government of Slovak Prime Minister Iveta Radicova fell after a small party in her ruling coalition refused to back the plans.

The EFSF is the capitalist powers’ main weapon in dealing with the debt crisis that threatens the European common currency, the region's banks and the global financial system. But eurozone rules require all of the 17 member states to ratify the new plan and Slovakia was the last to vote after all the others had given their agreement.

Now the international lending agencies, responsible for holding the crumbling system together, have to stitch together a new interpretation of the rules allowing the package to be put into operation, whilst they wait to see if a more compliant government will emerge in Slovakia.

Just a few short weeks remain before the Greek government will run out of money and cease to be able to pay wages or pensions for the public sector employees who make up one fifth of the country’s workforce. But the price of the new, wholly inadequate deal would see further tax rises, jobs destroyed, wages cut and – to the banks’ horror – a write-down of the money they are owed by the Greek government by as much as 50%.

As those in the race to contain or deflect the impact of the deepening crisis struggle with its European expression, insolvency practitioners in the United States and elsewhere are gearing up for a busy time ahead.
Bankrupt book chain Borders, for instance, recently closed its doors after failing to find a buyer. Moody's credit rating agency says the number of troubled companies rose for the third month in a row in September, an ominous sign similar to the third quarter of 2007 when the economy slid into recession and the ensuing crash engulfed the world.

And in another blow for the New Green Dealers who are promoting an eco- friendly growth-oriented capitalist solution to climate change, recent failures included renewable energy companies Evergreen Solar and Solyndra. The latter collapsed in a politically-charged bankruptcy after taking a $535 million loan from the US federal government.

This time around China cannot come to the aid of the ailing system. As is now becoming clear, its huge injection of spending on infrastructure developments to ward off the impact of the global crisis on its domestic economy, has taken its toll internally.

A Reuters special report on China noted:

Local governments had amassed 10.7 trillion yuan in debt at the end of 2010. The government expects 2.5 to 3 trillion yuan of that will turn sour, while Standard and Chartered reckons as much as 8 to 9 trillion yuan will not be repaid – or about $1.2 trillion to $1.4 trillion. In other words, the potential debt defaults could be even larger than the $700 billion U.S. bail-out programme during the 2008 crisis.

Be warned. Any and every attempt at shoring up the defences of the capitalist system will involve an unimaginable, intolerable assault on the lives of billions of people. Almost a million young people are on the dole in Britain already, according to today’s figures.l

Saturday’s global occupation of city and town squares should become the focus for shaping a new social, economic and democratic political system founded upon the satisfaction of human needs. The 1% cannot be allowed to continue their rule over the 99%.

Gerry Gold
Economics editor
12 October 2011
reposted from
www.aworldtowin.net 

Unemployment - a price worth paying for the Tories

Unemployment figures out today show that 2.57 million people are unemployed, the highest since October 1994 - the last time the Tories were in power. But they have surpassed themselves on youth unemployment which hit a new record, in percentage and numerical terms, which is now well over 20% and 991,000.

But the picture is actually even worse than these headline figures suggest. In addition to the 2.57m unemployed are 580,000 workers in temporary jobs who want a permanent job and 1.27m workers in part-time jobs wanting full time work - meaning that there are over 4.4m people looking for more work. The number of people working part-time who want full-time work has increased by 300,000 in last two years.

The Tories are seeking to blame this on a combination of the last Labour government and the current eurozone crisis, but public sector employment is down 240,000 in past year as the Tories' deliberate policy of cutting public service jobs has taken hold - surging ahead of downwardly revised OBR predictions.

As the public sector disproportionately employs women, it is no surprise that the level of female unemployment is up 5.4% in the last year, and is now at a 23 year high.

The message is clear: unemployment is a price worth paying to implement the Tories' ideological crusade to roll back the state, under the cover of a deficit crisis.