Crisis in the Euro Zone: The bourgeoisie has no alternative to austerity

Since 2008, and the beginning of the present phase of the crisis, growing austerity has developed everywhere. This policy was supposed to reduce the debts and relaunch growth. And then, like a rabbit out of a magician's hat, a new alternative was flourished which was supposed to cure all ills. It was called recovery. It is called for throughout the press, the television and radio. There's a real magic to it: growth could come back and generalised debt reduced. The debt could be “monetised”, i.e. paid off by printing money. What does this jargon of the bourgeois specialists mean? In reality, a few quite simple questions are posed: why this sudden turnaround by the great majority of the leaders of the euro zone? What is the reality of this policy? Has generalised austerity finished? Will the crisis continue to deepen or not in the near future ?

Austerity only generates recession

In Greece, Ireland, Italy, and most dramatically in recent weeks Spain, the population has been attacked on all sides during the last years. Workers at work, the unemployed, youth, the retired, each and everyone has seen their quality of life collapse. Hospitals, schools and all the public services have been butchered. The political justification of this economic war against all the exploited was clear. Listen to all the governments that were in power and they said ‘accept these sacrifices today: reduce state and public debt while lowering the cost of labour in order to easier sell the goods produced and thus growth will be re-launched’. Despite the struggles that developed in reaction to this policy,  which looks at the working class like a sheep to be mercilessly fleeced, austerity continued to accelerate. But, to the great confusion of the capitalist class, so did the crisis.

Since 2008, the GDP of the euro zone has remained around the same and close to 8900 billion euros. On the other hand total public and private debt has continued to accelerate and has now reached  8000 billion euros. It is incredible to see that all the wealth created through a year of labour practically corresponds to the existing debt and we are only talking about the official part which is recognised as such. Worse than this for the bourgeoisie is that the economy has now settled into recession. In 2012, Germany alone could show a small 0.5% growth. For the other countries of the zone the collapse is evident. In Greece and Spain activity is rapidly retreating and mass unemployment is an established fact. Debt is exploding and practically out of control in these countries – at the very moment when their GDP is collapsing. As to France, which is just managing to avoid the worst, it is now paying its state employees by borrowing money on what is called the financial markets.

So, the bourgeoisie is simply verifying a fact which has been evident for a long time: generalised austerity and the crisis of credit leads to recession and the deepening of debt. What to do then?

An apparently brilliant idea: recovery

The current debates within the bourgeoisie are basically still those that have been going on since 2008: how and when will we be able to repay the debt? It's then that an idea was presented as if it were new. In order to repay the debt, it will be necessary to create wealth. It was just a matter of  thinking about it. This idea which has existed at least since the economic crisis of the 1930s has come to the surface once again. We could ask why it wasn't thought of earlier, for example since 2008 when the bottomless pit of debt made its most spectacular appearance.

How do you revive growth? That’s the question which is haunting the bourgeois class. For some, it is necessary to make production in the euro zone more competitive and thus lower the cost of the goods produced. To put it bluntly, it is necessary to look to lowering wages in order to effectively compete with Chinese, Indian, or Brazilian production, or with the countries of central Europe for example, and thus prevent production being moved abroad. Claiming to revive activity through the sharper competitive edge thus obtained would be laughable if it didn’t involve such suffering for the working class.

For others, the states of the euro zone should directly take charge of the recovery of growth. Here the idea is the following: since banks close to bankruptcy cannot lend enough, either to businesses or individuals, it is the state which has to directly take command. From here would come road construction, high-speed rail lines, etc. The companies concerned would get to work, hire wage earners and participate thus in re-launching growth. The problem is the following: where does the extra money come from that must be invested for such a result? Once the funds are used from existing sources, which represent about 450 billion euros, there has to be recourse to further debts taken on by states already at risk of bankruptcy. At present, in the western countries,  in order to produce a euro of wealth, it is necessary to go into debt for 8 extra euros. In other words, a recovery plan implies this: a debt which increases eight times more quickly than the GDP. But goods produced are not goods sold. How much supplementary credit will it be necessary to distribute to bled-dry “consumers” so that they can buy these goods? This is absurd and unrealistic. The capital engaged has become too significant for the profit to be  made. Given that capitalism can no longer deal with its current levels of debt, how will it be able to do it in the scenario described here?  How does it prevent the public deficits exploding and the financial markets demanding exorbitant interest rates in order to continue lending to states? Behind all the ideological and media campaigns at present, this so-called recovery will have to make do with funds presently available and not yet utilised, which can only have a marginal affect on activity.

Monetisation and mutualisation of the debt is indispensable but ultimately unmanageable

The new president of France, Monsieur Hollande, has joined in with many other leaders in the euro zone, except Germany of course, in singing a new tune which is supposed to fill us with hope. The title of this song that he hopes will become popular is: monetisation and mutualisation of the debt. Which if nothing else is very poetic. Quite simply monetisation means the printing of money. The central bank is in charge of it and takes in exchange acknowledgements of the debts of the state or the banks, and in general that guarantees the obligations. Mutualisation means that all states of the euro zone take collective responsibility for the debt. The states that are in less difficulty pay for those in more difficulty.

When enough wealth is no longer created and such wealth no longer sold in order to prevent debt dragging the system into the abyss, the financial markets gradually turn away. A recovery without real effect and a still greater debt makes borrowers more and more rare and borrowing more and more dear. Then comes the time to tap the savings banks, the first stage of the monetisation of the debt to come. The state becomes a thief on a grand scale. The increase in taxes of all sorts and compulsory loans have their effect. This borrowing is evaluated as a percentage of taxes paid by everyone. It must be repaid after a certain period and that gives rise to interest payments. It is this that they are currently looking into in France as for the whole euro zone. A responsibility for the state to pay us back tomorrow with the money that it no longer possesses today! It is quite evident that faced with the vast ocean of the bottomless pit of debt all this can only be a droplet . This however feeds into the austerity that we are already suffering from.

But again the general alert is out. Greece and Spain are sounding the alarm. Only a few months after the Central European Bank injected 1000 billion around the banks, the whole public financial system is wavering.

For 2012 alone in the euro zone, and so as to be able to face up to the part of this debt whose payment is now due, it will be necessary to find between 1500 and 4000 billion euro. These figures have nothing to do with reality of course since the Bank of Spain alone is claiming 23 billion. The sums are enormous and out of capitalism's reach. There only remains a road full of pitfalls for capital in its attempts to avoid immediate bankruptcy. In mid-June, Greece holds new elections. If a party refusing the austerity of the euro zone comes to power in this country, the exit of Greece from the euro zone is a possibility. For the population in Greece this would mean a return to their original money and a devaluation of the drachma by about 50%. This country would sink into autarky and  misery. Which changes nothing much of the fate that awaits it. On the other hand, the bill for the banks and for the central bank of the euro zone will be pricey. In the accounts of the banks there are still many acknowledgements of Greek debt, close to 300 billion euros. But the fundamental question is not that. If the euro zone lets Greece come out of it through its impotence to keep it in, what will happen with Spain, Italy, etc?

The monetisation of the debt or the moment the bill is due

And now it’s Spain’s turn: all its banks in real bankruptcy and its regions all financially unmanageable. The mouthful is enormous, too big to swallow. The financial markets and all these institutions which get together the private money available in the world are not mistaken when they claim still more interest to borrow to this country. Presently, the rate over a ten-year state debt is approaching 7%. This rate is the maximum that the state can bear; above it, it can no longer borrow. Mario Rajoy, in a devious manner, appealed for help from the Central European Bank. The latter put up a deaf ear. The Spanish government then announced that it was going to try to finance its banks by going to the market. Soon after that Spain’s banks were given a very substantial lifeline of 100 billion euros. But all this is very odd. Banks in the world have to lend money to the insolvent Spanish state so that it can lend to its insolvent banks which, in exchange, will return with acknowledgements of insolvent debt. The absurdity is total. The impasse manifest.

Then, at one moment or another it will be necessary that at least part of the debt is monetised and mutualised. Paper money will have to be created that Germany will guarantee in part with the wealth that it produces. It is the Gross National Product of Germany that will authorise a certain degree of money creation. Germany impoverishes itself and slows down the general impoverishment of Europe. Why does it do this? Quite simply because it sells a great part of its goods in this zone.

Monetisation of the debt, a recognition of impotence

Monetising part of the debt shows in reality that capitalism can no longer develop, even on the basis of credit. This is the official moment when capitalism tells us: “I am going to create money that is progressively losing its value so that my debt will not explode immediately” I would like to invest it better, create wealth and sell, but I can no longer do so. The debt is too immense. It has me by the throat...  quick paper money, more paper money and some time is gained”.

Money, including credit, should represent the wealth produced and the production that will be sold at a profit. For decades, growth has been maintained with credits which they have said would be repaid one day. When? No-one knows. This deadline is always pushed away in time. The wealth produced in ten years is already destroyed in production and sale today. What remains except for debts and still more debts?

Monetisation is the triumph of fictitious capital to the detriment of real capital, that which contains within it real wealth. To create massive amounts of money in order to buy your own debt comes down to the destruction of capital. That provokes galloping inflation of prices, despite the recession. This path also leads to austerity. Because how can you survive if the price of goods is going up every day?

And if monetisation and mutualisation hadn't taken place?

Can capitalism accelerate its own descent into hell? And if Germany was to refuse monetisation thus paralysing the European Central Bank? No-one can totally dismiss such a possibility even if it would lead to a collective suicide. For some months, the German bourgeoisie has made some well-informed calculations in order to evaluate the costs of the break-up of or the financing of the euro zone. In both cases, in time, the bill is too much and unsupportable, but in the short term, what is the most  terrifying perspective?

In any case, Germany will demand austerity. For German capital austerity is the hope that through a reduction in the acceleration of public debt, the slate will be a little cleaner. In reality all this is only a tragic illusion which means that proletarians everywhere will face increasingly uncertain living conditions.

The impasse for capitalism at this point is so great that it wants to launch a recovery of the economy at the same time as increasing austerity; to embark upon massive money creation while also reducing debt. Capitalism is becoming mad. It is losing its direction. It no longer knows now how to go forward nor how to manoeuvre in order to avoid the dangerous reefs that surround it on all sides. The euro zone has never been in such a dangerous crisis. The months to come will be those of great economic tempests which will lead to still more devastating shipwrecks, demonstrating the generalised bankruptcy of  world capitalism.

Rossi 30/5/12