Posted by John, May 10th, 2010 - under Uncategorised.

Tags: Banks, Capitalism, Crisis, Europe, European Union, Greece

European Finance Ministers have put together a $1 trillion rescue package for Greece and the next possible dominoes in European capitalism’s fall – Spain, Portugal, Italy and Ireland. Italy’s public debt, at 115% of GDP, for example, is the same level as Greece’s.

This rescue package is for German and French banks to whom these countries are heavily indebted. The banks’ exposure to Greece is about $150 billion of which half is owed to French banks. Multiply that by a factor of twenty and you get some idea of the level of indebtedness once the other debt ridden countries are included.

With the inconclusive British election results – it’s called democracy – the markets have begun to turn an eye towards the UK which, with public debt at 68 percent of GDP is actually higher than Spain’s.

This is also about saving the euro.

The deal gives about $600 billion in guarantees to the banks. If any country defaults European governments (including those indebted countries) will meet the debts. In effect this means Germany and to a lesser extent France are promising to repay debts if their Euro zone partners default.

While the German economy is strong, it doesn’t have the capacity to support the struggling Euro nations. The danger is that in the next few months it will be dragged down the hole that the threat of sovereign default has created.

At the moment no money has changed hands because guarantees are only promises. Even if Greece ‘stabilises’ other countries are on the hit list of the lenders and their interest rates will have to increase the levels they cannot afford, unless of course their governments massively attack social services and wages in their own countries.

The package is an attempt to provide ‘certainty’ to lenders and investors. What it does in the slightly longer term is threaten Germany.

The announcement includes $300 billion from the IMF, which comes with strict austerity conditions attached as does a $100 billion quick release European stabilisation fund.

The results of austerity programs are clear to see from Greece. What is happening there is a portent for the rest of Europe.

Average incomes have fallen 20 percent this year alone. Pensions have been cut and the pension age increased.

New plans include spending cuts of 36 billion euros in the next three years. This is 11 percent of the country’s gross domestic product.

The ‘Socialist’ Government will freeze public sector wages for 3 years and take away their Easter and Christmas bonuses (about two months pay) with more cuts in benefits looming. The Greek consumption tax is going to increase to 23 percent.

Angry Greek workers have responded with 3 general strikes in the last months.

On 5 May hundreds of thousands of Greek workers struck, stopping the country. 100,000 workers demonstrated across Greece against the austerity measures which will destroy their lives.

How has all this come about? The demands of workers after the second world war and then the long boom coming out of the permanent arms economy provided a carrot and stick to the bourgeoisie to improve workers’ living standards.

The steady decline of profit rates in the industrialised West since the 70s however has seen that compact break down. The rise of neoliberalism has been as a tool for attacking workers’ living standards to increase the share of national product going to capital at the expense of labour.

Other countries, often fearful of an industrial backlash, borrowed to keep living standards at levels workers become accustomed to. Now the chickens are coming home to roost.

30 years of the neoliberal experiment hasn’t worked as the seemingly inexorable decline and stagnation of profit rates continues, based on more and more investment in capital at the expense of labour.

The latest financial turmoil reflects that underlying crisis of profitability and reinforces it. The bankers do not have any faith in major European economies and the major European states, as lenders of last resort, together with the IMF, have stepped in. But what happens when the last resort becomes the last post?

The battle in Greece is set to be replayed across Europe as the financial crisis worsens and spreads and the bankers demand more and more attacks on the living standards of European workers to prop up profit rates.

The victory of Greek workers over the cuts would be an historic win and set an example for the rest of Europe. It could even open up the possibility of a new world based on democracy and production being organised to satisfy human need.