The deeper the crisis, the more they attack our living standards
“Christine Lagarde, head of the International Monetary Fund, said the economic situation was entering a ‘dangerous place’. Earlier, the president of the World Bank, Robert Zoellick, said the world’s economy was ‘in a danger zone’. The comments came after the Federal Reserve warned that the US economy faced ‘significant downside risks’.”
Last week, this grim chorus from three of the most powerful economic organs in the world sent the markets into yet another tailspin, compounding a summer already punctuated by volatile market swings. The FTSE-100 quickly posted its biggest one-day-drop (in percentage terms) in more than 2 years. Ever since we have been treated to a rollercoaster ride as the markets react to the latest drama in the long-running Euro-crisis. Markets have posted big quarterly falls, with the FTSE ending September with its biggest quarterly loss in 9 years.
The world economy crumbles
Accompanying these warnings was a series of credit downgrades for banks across the US. This included Bank of America (the biggest bank in the US) but also Citigroup, another powerful player in the international banking sector. The anaemic growth the US has managed to squeeze out of its ailing economy has done nothing to reduce stubbornly high unemployment, which remains stuck at over 9%. The economic situation was exacerbated even further over the summer by the drama over the Congressional dead-lock over the debt-ceiling - the legal limit on what the Federal Government can borrow. In the end, the US state decided to pay its bills, but still had its credit worthiness downgraded - essentially the worst of both worlds.
In Britain, debate continues over whether the Coalition government should halt its deficit reduction programme and consider a new stimulus to the economy. The IMF is also beginning to question whether the spending cuts should be delayed. Here, too, growth remains anaemic (0.7% over the last year) and unemployment stubbornly high (7.9%). But the UK is also experiencing inflation (5.2% RPI) in an environment of zero pay rises and sluggish demand, raising fears of stagflation.
Even in China - recently cast in the role of riding to the rescue by purchasing European debt - things are taking a turn for the worse. China’s massive stimulus programme managed to prevent the economy entering recession, but has resulted in inflationary pressures and a huge construction boom. As the government moves to bring down inflation, the massive debt exposure of many local government bodies is coming into focus. Communist party economists are already talking about the Chinese version of “sub-prime”.
But it is Europe that is the current source of fear for the capitalists. The spectre of the Greek state defaulting on its debts would have serious implications for banks across the Eurozone, risking a re-run of the credit market seizure that nearly brought down the world economy in 2008. To make matters worse, the failure of the European powers to halt a Greek debacle would throw into doubt their ability to rescue other economies facing serious difficulties, especially Ireland and Portugal, resulting in enormous pressure on those two countries. Nor are Spain and Italy immune to serious concerns about their capacity to weather the coming storm. The fear is of a domino effect that could quickly spread across the Eurozone, threatening not only individual countries but the entire single-currency project. Were such a scenario to unfold, it would mean unprecedented catastrophe for a world economy already on its knees.
It was to try to prevent this that central banks acted in unison earlier this month to offer “unlimited dollars” to European banks. This was followed quickly by “Operation Twist”, a new bond-buying scheme by the Federal Reserve, and talk of a new round of quantitative easing from the Bank of England.
When these measures failed to calm the markets, talk immediately switched to reinforcing the European Financial Stability Facility. There was much hysteria in the media about whether the Germans would vote to bail out the Greeks again. In fact, there is no new money for the EFSF - it is simply the confirmation of a previous bail-out already agreed by governments back in July.
The ripples of the crisis are being felt far outside the Western economies: emerging markets (including China) are facing a new credit crunch, with corporate bond issuance (companies selling bonds in return for funds to invest) in Asia, Latin America and Eastern Europe falling by around 75% in the last three months.
As September draws to a close, it is impossible to say whether the ruling class has managed to bring even a temporary stabilisation to the current situation. Even if they achieve this, the roots of the crisis remain unresolved and will continue to shake the foundations of a thoroughly decadent social system.
What we can be certain of is that the new measures, like all the policies that have been resorted to since the onset of the “credit crunch”, will not stop the crisis; they are designed to make the working class pay the price a piece at a time. Wages are brought down by inflation and increased taxes, or by open pay cuts as faced by electricians in Britain today; state services are cut, threatening hundreds of thousands of jobs.
For the working class, there is no escape from the crisis, only the necessity to defend ourselves, to struggle. In Egypt, where workers in several sectors have taken strike action (see page 5); in Spain, with the movement of the Indignados; in Britain with the electricians’ struggle, we see workers starting to develop their struggles. These struggles are vital experiences that hold the promise for the future – that the working class will find the only way out of this intractable crisis through an intractable struggle to end this crisis-ridden, dead-end system once and for all.
. “Rash of bank downgrades as IMF demands rapid action over debt”, Guardian, 21/9/11, - http://www.guardian.co.uk/business/2011/sep/21/imf-debt-crisis
. “China Faces Subprime Credit Bubble Crisis”, Daily Telegraph, 17/9/11 - http://www.telegraph.co.uk/finance/china-business/8770945/China-faces-subprime-credit-bubble-crisis.html
. “Debt crunch threatens China and emerging markets”, Daily Telegraph, 28/11/11 - http://www.telegraph.co.uk/finance/financialcrisis/8795416/Debt-crunch-threatens-China-and-emerging-markets.html