Businesses, Banks and States dragged into the vortex of Capital’s Crisis of Overproduction: the Greek case

The Years of Euphoria

In November 2009 the centre left party PASOK, having arrived in power, was astonished to discover the disastrous state of the finances left by the scandal-ridden New Democracy government. The deficit wasn’t around 6% of the GNP as the previous government had led them to believe, but around 12.7%! With a debt of 129% of the GNP, PASOK and with it the financial markets, that is to say the European and United banks, the insurance companies, the hedge Funds and so on, found they had a virtually bankrupt State on their hands. Naturally the latter proved reluctant to lend out any more money, even in the short term, despite Greece being in the European Union. The rates of interest started to rise, eventually exceeding 7% per annum!

Papandreu then called on his “European brothers” for help, and on the representatives of the French and German bourgeoisie in particular. Chancellor Merkel responded with a resounding ‘Nein’. And yet between 2000 and 2007 the French, German and U.S. banks had been clambering over each other to buy Greek government bonds and lend out money to the Greek private sector. These were the years of euphoria after the international crisis of 2001-2002 which, amongst other things, had seen the bankruptcy of the Argentine State and the consequent imposition on its creditors of a restructuring of the debt which included a hefty discount of 66%, hitting thousands of small “savers” especially hard.

The years 2002-2007 were not great for European and North American industry. Average annual growth was around 1% in the United States, 0.5% in France and 0.47% in Japan. As regards England and Italy’s growth, or rather shrinkage, it was -0.6% and -0.2% respectively. Only Germany did somewhat better at 2.3%.

Given this situation our capitalists have thrown themselves wholeheartedly into the practice of relocating to Asia, and to China in particular, and sub-contracting work to companies there, in order to lower the costs of production (which allows companies like Apple, which no longer produce anything directly, to achieve fabulous profits of up to 40%). They also indulge in frenetic speculation of every kind, whether on raw materials (oil, metals, agricultural products…), property (typical of every crisis), or on loans. Ever more complex and sophisticated financial “products” have been invented, like the famous sub-prime mortgages. Questions about the exact nature of the investment are no longer that important, the main thing is to lend the money out! Everything is fine as long as it is “invested”, never mind the risk. But such speculations, despite what the bourgeoisie would have us believe, don’t actually create any wealth; it’s a con in which wealth is transferred from one pocket to another. Speculation rests on the same principles as the mafia rackets. The latter use force to extract wealth from people by force, whereas speculators use the power of finance capital and the protection of the State to fleece the general population.

In this connection it is interesting to read what Chancellor Merkel has to say about sub-prime mortgages:

“we think the securitization operations that have developed in a very dynamic way over recent years have certainly contributed to the financing of the development of our economies but, at the same time, they have shifted banking risks onto many in the business sector. One notes, however, that the end holders of such risks are not today easily identifiable and that this ignorance is, in itself, a factor of instability” (Les Échos, 20 August 2007).

What this representative of the German big bourgeoisie calls “financing of the development of our economies” is nothing other than a further development of parasitism, expressing the highly parasitic character and advanced state of purification in which contemporary capitalism finds itself in its imperialist phase.

Harsh awakening

But to go back to Greece, those capable of reading the signs could see the Greek economy was heading for bankruptcy years ago. And we won’t do bankers, insurers and underwriters the injustice of claiming they were so incompetent they didn’t see it coming.

Greece balance of trade was constantly in deficit and had been getting steadily worse for years, passing from -19 billion dollars in 1999 to -66 billion in 2008. After that it reduced gradually, due to the country’s dramatic recession.

This trade deficit wasn’t offset by incoming capital or earnings from tourism. On the contrary the deficit in the balance of payments took a more and more catastrophic turn. From around 10 billion dollars in 2000, the deficit in the balance of payments has been continuously rising, hitting 51 billion in 2008. In relation to the Gross Domestic Product this corresponds to -7.73% in 2000 and -15% in 2008!

But the GDP, which is far from being a reliable measure of a country’s prosperity and economic development, then went up by an average annual rate of 4.2%, better than many other countries in Western Europe or in North America. In the resulting euphoric atmosphere, and due to the craving for profit that so torments the bourgeoisie, everybody was suddenly eager to lend to Greece, and not just to the State but to private companies as well. The bourgeoisie either couldn’t or refused to believe that a new crisis of over-production was on its way.

But at the end of 2008, as regular as clockwork, the crisis hit anyway. The alarm bells went off and the various States tried to bail out the financial system and support private enterprise, notably by investing in major infrastructure projects. Instead of “Less State – more private initiative” suddenly it was “State capitalism” again, which had never really gone away in any case.

The central banks turned on the credit tap by lowering interest rates, and the various States, already in debt, got even deeper in debt to salvage capitalism and avoid a recession combined with deflation like in 1929. Suddenly Europe, the United States and China were gulping down thousands of billions of dollars to avoid such a eventuality.

States such as Iceland, Ireland and Spain, which up to that point had not been that much in debt, suddenly found themselves on the verge of bankruptcy. Strangled by enormous loans to bail out the banks and to stimulate the economy, and by a steep drop in tax revenue due to the depth of the recession, they found themselves either actually or on the verge of bankruptcy.

Greece was already deeply in debt both in the public and private sector. What is more, the “rescue” of the Greek banks by the European Central Bank consisted in the latter taking the former’s best securities in exchange for ready cash. This operation brought about the situation in which the Greek banks find themselves today, with an enormous quantity of bonds of highly dubious value and a debt of around 106 billion euros to the ECB, a debt which they will never be able to repay.

That is what caused the explosion.

The Origin of the Crisis

Based on Eurostat data, we have plotted curves representing the level of public debt in the countries just mentioned as percentages of their Gross Domestic Product. Before the crisis Iceland, Ireland, Spain and Portugal all had low levels of indebtedness, less than 40%. Indeed Spain and Ireland had actually been engaged for many years in a process of debt reduction. Only Italy and Greece stood out from the crowd with a level of debt which was already high before the crisis at the end of 2008: 107% for Greece and 103% for Italy.

It can be seen that the curves bend sharply upwards at the beginning of the crisis.

Only Italy – which had been engaged in a process of reducing its budget deficit since 2000 – would manage to avoid losing control of its debt, but at the cost of stagnation and a steep drop in industrial production during the crisis. In fact Italy was already in recession by the start of the new century: in 2011 it registered a -18.2% compared to the figure for 2000.

The essential point to understand is that the financial crisis in Greece and other countries like Argentina, Iceland, Ireland, Portugal, Spain and Italy, is the product of capitalism’s global crisis; a crisis which didn’t originate in the sphere of circulation (specifically, in the financial sector, as the bourgeois economists believe) but in the realm of production: the origin of the crisis lies at the heart of capitalist accumulation, where value is produced, that is, in industrial and agricultural production, where the latter is of a capitalist nature!

The source of the crisis lies in the tendency of the rate of profit to fall, which translates into a decline in the rate of accumulation of the capital which is utilized in the production of commodities. This is what clearly emerges from the table below.

Normally a cycle of accumulation is circumscribed by two peaks, followed by a recession and then a revival, with the subsequent peak higher than the previous one. In the following table we have chosen as the starting year the first year after the Second World War in which the pre-war peak was surpassed. This wasn’t the same in every country. In some it was 1950, in others 1951 or 1953. The same goes for 1973, with some countries such as France and Italy reaching their peak in 1974. To simplify the table we have treated the years of departure and arrival as the same for all countries, but as far as any calculations are concerned, the correct years are as stated.

The countries are ranked according to how old their capitalisms are. The exception is the United States, which should have been placed after Germany but has been moved up the list to reflect the massive destructiveness of the Second World War, which “rejuvenated” the organic composition of Capital in German and France.

As can be seen, the younger the capital, the higher the rate of growth, and thus the increase in the accumulation of capital. Over time the rate of growth slows down and tends towards zero. The two periods, which exhibit very different increments, correspond to two phases of capitalist accumulation.

The first period, 1950-1973, is the one which followed the massive destruction of the Second World War; destruction which permitted world capitalism to overcome the depressions of 1929 and 1938 and initiate a new cycle of accumulation. This phase of accumulation, characterised by local crises of overproduction of low intensity and short duration, and mainly concentrated in the United States and Great Britain, was ended by the 1974-5 crisis.

From 1973 a period begins which is characterised by short periods (of around 7 to 10 years) of sluggish accumulation alternating with longer and deeper international crises of over production.

This sluggish accumulation of capital, followed by recessions, means the tax yield is no longer sufficient. This situation is further aggravated by measures adopted by the bourgeoisie in the realm of political economy. Indeed, in order to try and counterbalance the fall in the rate of profit and to get the bourgeoisie to invest, the States are actually reducing taxation on the big companies, imposing less taxes on capital, reducing the direct taxes on the big bourgeoisie and favouring them with various additional tax loopholes.

All of this, in conjunction with the crises of over-production, has produced a situation in which all States have been in debt since 1973, up to the astronomic levels they have reached today. At the same time these national debts contracted by the various States had absorbed a not inconsiderable part of overproduction. Indeed if it had been any otherwise capitalism would have already experienced another 1929 during this period.

But the State isn’t alone in getting into debt because of the crisis. Business is getting into debt, financial institutions are getting into debt, families are getting into debt, and often private debt is much, much higher than public debt.

The series of curves in the graph below show levels of debt in the United States. They were drawn up using Fed data.

The indebtedness of financial institutions isn’t shown. We have added an additional table showing the debt of the various countries as a percentage of their GDP for the year 2010. This table is drawn up using data from The Economist. We can see that countries most in debt that are not the ones most talked about. Japan’s total debt in 2010 was equivalent to 471% of its GDP! England’s was 466%, Spain’s 366%, etc, etc.

In Greece, same as elsewhere, the State, businesses, families and the financial institutions are all in debt. We don’t have a detailed breakdown of this debt as there is a lack of data about the financial institutions. We only have the total debt of non financial businesses and of families, which we have split in two equal parts although they are certainly different. However, we can see easily enough that Greece isn’t the country with the highest debt.

What differentiates nations like Greece, Iceland, Ireland and Spain from countries like Japan, the United Kingdom and France is that the latter are great imperialist States, even if they are in decline and not as powerful as they used to be.

Nevertheless, we can see straightaway that the situation in Spain, given its importance on the economic and international level, is serious: a debt equivalent to 366% of their GDP!
 

Who Actually Pays Taxes?

In order to explain the bankruptcy of the Greek State, many commentators have accused “the Greeks” of living beyond their means and of “not paying their taxes”. The president of the International Monetary Fund, Christine Lagarde, has urged “the Greeks” to pay their taxes. Of course as far as journalists and the bourgeoisie are concerned classes don’t even exist. They lump together the worker and the bourgeois despite the fact that the latter lives off the former, possesses the means of production and appropriates for itself the product of labour. The anti-Americans reason in the same way. They make no distinction between the big industrial and financial bourgeoisie which controls America’s political economy and the worker who slaves away for his wage and has no influence at all, either on political economy or on “his” country’s diplomacy.

According to the head of the tax inspectorate under the Papandreu government, Nicolas Lekkas, interviewed by Les Échos on 21/11/2011, tax evasion in Greece has gone up to around 40 to 50 billion euros per annum. This figure seems highly exaggerated when compared to the GDP of 230 billion. Other sources give a figure of between 10 and 15 billion per annum, still a staggering figure for such a small country.

In order to fight tax evasion the Greek government is negotiating a tax agreement with Switzerland based on ones already in place with Germany and Great Britain. In the agreement the Federations’s banking secrecy will be preserved in exchange for the collection by the Greek tax authorities of tax on capital deposited in Switzerland. Nicolas Lekkas declared, using data from the Central Bank, “no-one pays taxes in Greece; we have drawn up an initial list of 720 actual people who have sent more than a million euros abroad, and some of them up to 150 million euros”.

So who isn’t paying their taxes? In all the Western countries wage-earners certainly do. Not only do they not have millions to deposit in the Swiss banks, but the tax authorities are told exactly what they are earning by their employers (for instance, the PAYE system in England). It is the bourgeois who don’t pay their taxes: the industrial, financial and landowning bourgeoisie, the self-employed, etc, etc. For instance, according to the tax declarations of the doctors of the Kolonaki district, the wealthiest in Athens, they earn around the minimum wage! “In 2008 – writes Niels Kadritzke in the March 2010 issue of La Monde Diplomatique – members of the professions (doctors, lawyers, architects) declared an annual income of 10,493 euros, businessmen and financial traders declared on average 13,236 euros, whilst the average annual income of employees and pensioners was 16, 123 euros. As far as the tax man is concerned, the workers, employees and pensioners are the wealthy ones”.

So are there any countries where the bourgeoisie pays its taxes? In France, like every other country after the 1974-75 crisis, and accelerating after 2000, every successive government has continued to lower direct taxes on the higher incomes: from around 60% on the highest tax band down to 41%. To this has been added numerous tax loopholes, which take the rate of taxation on the big bourgeoisie down to a lot less than 41%. In the United States, which was one of the most egalitarian States along with Great Britain between 1945 and 1975, the highest tax bracket, which was 70% up until 1981, has now been lowered to 30%. And this abundant generosity hasn’t prevented yet more tax evasion, often with the complicity of the administration, which knows all about ‘looking the other way’. Thus tax evasion in the United States is said to be around 330 billion dollars a year, 97 Billion pounds in England, and 40 to 50 billion euros in France! Naturally in Italy as well those who pay the taxes are mainly workers, employees and pensioners. In 2010 they were responsible for 82% of the entire tax yield whilst self-employed workers, entrepreneurs, traders, landowners, etc, paid in a derisory 18%!

And the tax cuts and allowances don’t stop there. The monopolies formed by the big companies like Danone, Carrefour, Total, BP, Shell and so on, pay very little income tax and even less VAT. To them is offered a whole range of possibilities for paying less, ranging from the abundant tax havens up to the fiscal paradises controlled by four big international banks who are well established in all the big cities.

 “If the tax on corporations is officially 33.3 %, the reality is quite different. According to a study by the treasury board, the average rate – calculated from the net operating surplus – is 27.5 % for companies as a whole. But take into account the size of the company and everything changes: the rate of corporation taxation on small companies rises to 39.5 %, while for the major companies it falls to 18.6 %. But this is still only an average, and the differences get even bigger once one tackles the last decile, the CAC (-40). Same as it is with the very wealthy, the French tax system seems to be very accommodating with regard to the CAC (-40), allowing it to adjust at its leisure the exemption rules and affording it every opportunity to avoid paying the tax.
 “According to the report of the Finance Committee, the companies of the CAC (-40) have paid 13.5 billion euros of the corporation tax accumulated between 2007 and 2009. After deductions of benefits derived from various tax credits (postponement of previous deficits, employment support, etc), the balance drops to 10 billion euros over the three years. This figure is similar to that of earnings announcements. Over the same period, the companies of the CAC (-40) realized more than 230 billion euro in cumulative benefits” (“Mediapart”, 6 July 2010).

Therefore Greece isn’t the only country where the bourgeoisie doesn’t pay its taxes and where tax evasion takes place with the complicity of the State – the latter of course being merely the representative of the bourgeoisie’s interests – and the tragic situation Greece finds itself in cannot be summed up as a tax question. In all the major countries, the State, financial and non-financial businesses, and families are all deep in debt. And it is a process that has got worse and worse since the 1974-75 crisis with the debt reaching truly mind-boggling proportions today. The level of indebtedness of the British banks, for example, is already 200% of the GDP!

There are only two ways to solve this problem: the cancellation of all debt – which presupposes the communist Revolution – or a third world war.

The Liabilities of the Banks

In 2009 the Greek government announced a budget deficit of 6% of GDP. Considering that the French deficit over the same period was 7.5%, Greece seemed to be on a similar footing with other countries. However, as we later learnt from an article in the New York Times, Goldman Sachs, the Greek government’s consultant until 2009, had been helping to “cook the books”; indeed it was the practice of this bank to encourage its clients to bet on risky ‘securities’ in order to profit from their losses later on. When Papandreu became head of government in October 2009, he decided, faced with the enormity of the situation, to make the accounts public and ask Europe for help: the trade deficit now stood revealed as 12.7% of the GDP, with a debt was 298 billion euros, 112.5% of GDP!

The rest of the story is well known. Rates of interests shot up, reaching 7% on ten year loans and making any further borrowing on the financial market impossible. After much humming and hawing and rising tension between the German and the French governments, with the latter even threatening to leave the Eurozone if nothing was done, eventually intervention was seen as the only option, for if Greece was forced to freeze its payments, a veritable financial tsunami would be the result.

So what was the situation at that time? We have seen Greece had a budget deficit of 12.7% of its GDP and a private debt and public debt of around 284 billions and 300 billion euros. How exposed were the banks to Greece? We don’t have data for 2009, but the 10/5/11 issue of the French economic journal Les Echos gives us the following figures, in billions of dollars, for the 3^rd quarter of 2010:

The situation of the banks hasn’t necessarily worsened since 2009 because of the various interventions at State level, by the IMF and to a lesser extent by the European Central Bank. On the contrary, the situation for some banks has actually improved, as in the case of the German banks which foisted some of the Greek government bonds they held onto the ECB. However these figures must however be treated with caution, because the only people who really know what’s going on in the banks – still – are the bankers themselves. The recent discovery by the Spanish and European bourgeoisie of the real state of the financial institutions in Spain is another example. Apparently 80 billion euros will be needed to bail them out, whereas only a few months ago the Europe imposed ‘Stress Test’ had revealed nothing, in fact they had been declared in good health! It was the same with the Irish banks, which were declared solvent by a series of Stress Tests and then failed a few months later!
 

As to how reliable the information provided by the banks actually is, here is what a Mediapart journalist writes in their 16/6/11 number, reporting on declarations by the BNP and the Societé Generale on the extent of their financial involvement in the Greek State:“These figures don’t seem to correlate with the risks highlighted by Moody. They absolutely don’t correspond to the statistics published by the Bank of International Settlements, which estimates the French bank’s exposure as 15 billion euros. Are we supposed to deduce that 7 billion dollars of Government bonds are held by the minor banks? Unless the bonds have been removed from the banks’ balance sheets along with life assurance policies and other ‘safe’ financial products sold to their clients? Everywhere we find this opacity about how indebted the banks actually are, and that includes the ECB. According to some, the Greek risk for the Central European Bank amounts to 45 Billion euros. The Wall Street Journal estimates it to be 120 Billion. Who to believe? This situation translates into something very real. Despite the crisis, despite all the promises of further regulation and control, the European banking system remains a “Chinese box”. No-one, including the ECB, really seems to know what is inside it”.

In fact the banking system and the financial system in general has always been a “Chinese box” and it will remain so whatever the politicians promise. In any case, sticking with these figures and a few others provided by the press, it emerges that in mid 2011 the European banks supposedly held 162 Billion euros of Greek debt, including 52 billion in Government bonds; 85% of this debt is held by the French and German banks, a percentage which drops to 70% if Greek debt to all banks is taken into consideration, including those in the United States.

As we can see, the French banks were more deeply committed than the German ones and maybe more than these figures show. We can therefore understand Sarkozy’s nervousness. It should be noted that a few of the French banks, and it is surely the same for the German banks as well, control some Greek banks and therefore hold, albeit indirectly, a portion of the 50 billion worth of Greek Government bonds held by the banks in Greece.

In the end, compelled by events, Frau Merkel gave in, and agreed to a 110 Billion euro support package. But there are conditions and “the Greeks” will have to pay (the millionaire and the worker; the millionaire funding a few few soup kitchens and the workers with blood, sweat and tears, to pay off the debt and save the millionaire), about that all are agreed, the ECB and the French government. Indeed the latter has already turned a profit from its loans to Greece, as have the other governments. The French government lent 9 billion euros in 2011, which has already brought in around 300 million euros, and the interest in the first quarter of 2012 has already brought in 69 million into the State coffers.

The measures imposed on the Greek State can be divided into three parts.

1. Privatisation of public utilities. This is an opportunity for the French, German and English multinationals to plunder the crown jewels of the Greek economy: Athens Airport (Fraport AG has already declared its interest and said it would buy 55% of the shares), telecommunications (TLC, of which Deutsche Telekom could buy 40%) the postal service, the management of the ports of Athens and Salonika, the water companies, etc…
   
2. Ferocious frontal attack against the proletariat: raising of the pension age to 65 and lowering of pensions already in payment. Dismissal of 30,000 state employees with redundancy payments of 60% of their income and 15, 000 public sector jobs abolished. Abolition of national collective agreements and introduction of individual contracts. Reduction by 25% of the wage bill in the private sector and major reduction of the minimum wage by 22%, and by 32% for the under 25s. Privatisation of the public services with a significant reduction in subsidised services, and a rise in the price of electricity, gas, transport and health costs, etc…
3. Attacks against the petty bourgeoisie in the form of deregulation and liberalisation of 136 professions, from taxis to Art Centres. Liberalisation of the market leads ineluctably to the concentration of capital and therefore to the proletarianization of the petty bourgeoisie and to the formation of monopolies. For us Marxists this marks progress towards revolution, and yet doesn’t prevent us from denouncing the bestial methods used by capitalism to get rid of small production.

But very quickly, along with numerous bourgeois economists, the various governments came to realize that Greece would never be able to repay its debts. The problem became one of preventing the contagion from spreading to the other countries which were on the point of suspending debt repayments and preventing the collapse of the entire European banking system.

Two opposing positions on how to tackle it arose: the German government opted for a ‘restructuring’ of the Greek debt, that is to say, a reduction in the value of the bonds held by the banks, with these devalued bonds exchanged for other long term ones. The ECB, supported by the French government would strongly oppose this. Tucked away in its vaults the ECB has 47 billion worth of Greek bonds which it bought to alleviate the suffering of the banks. This acquisition of bonds on the secondary market – that is, the market where the various financial institutions resell titles previously purchased from borrowers – has been presented relief aid for the States in difficulty. Despite 47 billions worth of bonds being no small amount – acquired for 40 however – it is not the main reason for the ECB’s rigid opposition to any devaluation. What both the directors of the ECB and the French government fear is that a partial failure of the Greek State could prompt a crisis in countries like Italy and Spain, causing the rates of interest to rise and making it more and more difficult for these States to access the capital markets, with the knock on effect of part of the European banking system failing, bringing down with it the French and German banks with heavy loan commitments in these countries.

Here is what Martin Feldstein, Reagan’s ex counsellor on the economy and professor of economics at Harvard, had to say on the matter in Les Échos of 3/10/11, an article which we cite almost in its entirety, both because it is interesting and because it confirms our vision:

     “Faced with an apparently irresolvable situation, Greece only has one way out: declaring itself bankrupt. And by following this path, it should be able to devalue the most entrenched part of its debt by at least 50%. The current plan of reducing the value of the bonds held by the private sector by 20% is only one of the first steps towards this result.
     “By exiting from the euro, Greece could put a devalued currency back in circulation, stimulating demand and thus achieving a positive balance of trade. The markets know perfectly well that Greece, already insolvent, will go bankrupt sooner or later. Why are France and Germany trying to prevent or, more precisely, delay the inevitable? There are two obvious explanations.
     “Firstly, the banks and other financial institutions in Germany and France are highly exposed to the Greek public debt, both directly and through loans to banks in Greece and the Eurozone. By postponing the date of the default, the financial institutions in Germany and France are buying time to reinforce their capital base, to reduce their involvement with the Greek banks and hand over their Greek bonds to the European Central Bank.
     “The risk of the bankruptcy of the Greek State spreading its contagion to other States and destabilising their banking systems, in particular in Spain and Italy, is the second, even more important, reason why the French-German alliance is trying to postpone the event. A crisis in one of these major economies would have disastrous consequences for the banks and the other financial institutions in France and Germany. If Greece can avoid bankruptcy, the European political leaders can then show that the situation in Italy and Spain is salvageable.
     “But if in the weeks to come nothing is done to prevent Greece declaring itself bankrupt, the financial markets will certainly see bankruptcy in Italy and Spain as more likely. The rates of interest these States would then have to pay on the market would go sky high and their national debts would mount rapidly, rendering them effectively insolvent. By postponing Greece’s bankruptcy for a couple of years, the European political leaders hope to give Spain and Italy time to demonstrate the viability of their financial situation”.

Instead of confronting the problem, therefore, the European bourgeoisie is trying to buy time, hoping to reinforce and disengage their own banks in order to render them capable of dealing with Greece’s bankruptcy, and above all to prevent the contagion from spreading to Spain and Italy. And in so doing, they have probably aggravated the situation.

How to save the banks

The histogram which follows is interesting at a number of levels because it shows the amount owed to the banks of a number of States by the three debtor states currently on the point of having suspend their payments: Greece, Ireland and Portugal. If we’d added Spain we’d have even better idea of the full scale of the risk. These countries can no longer refinance themselves on the market and need to apply for assistance to the European Financial Stability Fund, the so-called ‘State Rescue’ fund.

According to the French online journal Mediapart, in a piece on January 1^st 2011, ‘at the end of 2009, the amount of credit the European banks extended to Ireland, Greece, Portugal and Spain came to no less than 14% of the EU’s GDP’. This is a considerable sum and explains why the European Central Bank (ECB) is worried. As the histogram makes apparent, in Europe it is the German, French and British banks which hold most debt.

Only a very small proportion of the funds in the banks, around 2% to 3%, is held in hard cash with the rest consisting of titles of various kinds i.e., bonds, shares, bills of exchange, etc, which in the end are actually nothing more than debts; money owed. After a crisis, as the businesses against which these titles were issued go bankrupt, as share values collapse, as households find themselves no longer able to honour their debts, and even worse when entire states go bankrupt, then the whole house of cards comes tumbling down.

The banks which are most exposed are the German and British banks, by respectively 249 and 243 billion dollars, followed by the United States banks, by 193 billion, the French banks, by 153 billion, and the Spanish, which has a bad debt of around 80 billion euros resulting from the bursting of the property bubble. Thus Spain is on the same slippery slope as Greece and Ireland, and certainly in a worse position than Portugal.

Another interesting element is that the widely discussed public debt is low in comparison with the total debt which includes also private debts. The total public debt held by the banks of Ireland, Greece and Portugal amounts to 92 billion dollars whereas the total debt is around 1022 billion dollars. Subtracting one from the other gives us a figure of about 930 billion dollars debt in the private sector, around ten times the public debt. Meanwhile public debt is for the most part held by insurance companies and pension funds.

Only a very small proportion of what the banks possess exists as cash, between 2 and 3% of their income, while the rest consists of titles of various types: bonds, shares, bills, all of them effectively debts of one kind or another. When, following a crisis, the enterprises which have issued these titles are obliged to go bankrupt, shares rapidly lose their value, families cannot honour their debts and, worst of all, States go bankrupt, the whole house of cards on which the capitalist system is based collapses. This is what happens during a crisis, especially when it lasts a long time and its impact is global.

Below is a series of curves which show private debt but not, unfortunately, the indebtedness of the financial institutions.

If we compare these curves with those of increases in Public debt (see Part 1, in previous Communist Left) one can immediately see the change of scale: the public debt graph stops at 180%, the private debt one at 350%. The most indebted States are Ireland, Portugal and Spain. The debt of Italy and Greece is about half that of the other three. The crisis has caused a major rise in private indebtedness in Ireland (the ratio rising from 189% in 2007 to 293% in 2010), whereas in the other countries there is no significant change, not since the recession anyway; since 2009 the debt tends to follow a horizontal line without actually going down. Greece is the exception as its private debt turns out to be less than the public debt: during the two years at the peak of the crisis, 2008 to 2009, they were about the same, but then the public debt literally exploded. Here are the figures:

What counts isn’t so much the relation between debt and GDP as the capacity to repay the debt. The Argentinean State declared itself bankrupt when its debt was only 30% of the GDP. Spain’s debt today is 70% of GDP and could reach 79% by the end of 2012. France’s debt, for example, is around 86% and will probably exceed 90% by the end of 2012. The capacity to repay is determined by the economic strength of a country, by its balance of trade and balance of payments and for the State by how well it can balance its budget. But for Greece, as for Spain, the budget deficit was considerable and remains such. Italy, on the other hand, has an enormous public debt, but a low budget deficit, 3.9% of GDP in 2011, as against, for example, a little over 5% in France.

Another factor to keep in mind, one which differentiates the public from the private sector, is that the latter sees a reduction in its debt during recessions due to companies going bankrupt and their compulsory liquidation with bank accounts frozen and goods sequestered to pay off creditors. Families who are unable to pay their debts can have their goods seized and automatic deductions made from their income, and still end up thrown out of their homes.

But you can’t adopt the same strategy when it is a State that is the debtor. If a State like Greece should declare it is suspending payments and reinstates its national currency, there wouldn’t only be a default on government securities, but private bills, when and if they were paid back, would,be paid back in national currency devalued by between 50 and 70%. This explains the fears of the European bourgeoisie which is caught up in the infernal machinery of crisis of European and global capitalism; a crisis which, originating in the crisis of overproduction, due to the tendency of the rate of profit to fall, is now hitting financial capital.

When, as in Europe, entire sectors of the banking system are frozen, the capitalist economy as a whole grinds to a halt because the accumulation of capital cannot happen without resort to the system of credit. Without credit production stops because no-one has sufficient means of payment, neither the capitalist, who must pay in advance for salaries and the acquisition of raw materials and often before having banked the proceeds from the sale of commodities produced during the previous cycle of production, nor the retailer, who has to acquire goods before selling them, and so on. One rapidly arrives at a situation of over-production, productions stops, and a paralysis of the entire system sets in.

Another important point to bear in mind is that the ECB and the French government are not the only ones who are totally opposed to any declaration by Greece of a default, even a partial one, on their debt. Even the Greek government is bitterly opposed because, as we have mentioned, the Greek banks are major lenders to the Greek State, to the tune of around 50 billion dollars. The Greek bourgeois prefers to starve the people and particularly the proletariat rather than witness the collapse of its financial system and with it the paralysis of its entire mode of production.

As the Greek debt rose from 300 to 350 billion euros at the end of 2011, a figure equivalent to 150% of the GDP, it finally became apparent to all that the situation was spiralling out of control. Under the pressure of events the ECB, the French government and the rulers of Greece had to bow to the evidence and accept the terms set by Chancellor Merkel.

In the form of agreements, without declaring the Greek State bankrupt, and without any apparent restrictions on private lenders, a reduction in the Greek debt was agreed upon which fitted in with the need of the European banks, mainly the French and German ones, to extract themselves from this mess. As good protestants the German bourgeoisie would present this discounting of debt as a punishment of those imprudent financiers who had been too quick to lend out their money.

The solution: socialising the debts

After months of negotiations between the governments, the ECB and the IMF, and then with the financial institutions which held the Greek State’s debt, a reduction of the Greek debt was finally agreed in February 2012. We don’t know the details about the bargaining process nor how the reduction was calculated, and indeed the information in the press is rather contradictory. Nevertheless, if we refer to Eurostat data and other more or less reliable sources, we can come up with a fairly accurate picture.

We know from Eurostat that at the beginning of 2012 the Greek public debt was 355 billion euros; of these the ECB held securities with a starting value of 47 billion euros. In addition, as has been repeatedly mentioned in the press, of the 110 billion promised by Europe, only 73 was taken up. So, if we subtract from the 355 billion the value of the securities held by the ECB (47 billion) and the sum advanced by the European Financial Stability Fund (73 billion), we come up with the figure of 235 billion euros worth of securities held by private organisations. On this sum has been applied a loss of value of 53.5%, of 126 billion and leaves us with a figure of 109 billion, or 107 billion according to the press, or at least this is the figure they have cited most often. The ECB, for its part, has ‘generously’ accepted to buy back the 47 billion of securities it holds for the price it paid, that is 40 billion euros, but it certainly doesn’t intend to accept less. Which brings the debt down to 220 billion.

The table below illustrates the debt is divided up between the various organisations before and after the intervention:

In the next table we show what we know about the composition of the private debt.

The ‘Other Greek organisations’ are mainly Pension Funds, which hold 21 billion dollars worth of securities. The ‘discounting’ operation hasn’t been entirely free of problems and two of the smaller Pension Funds refused to take part in the negotiations. The heading ‘Other’ includes insurance companies, Pension Funds of other States, the North American banks and Hedge Funds. One newspaper stated that European insurance companies hold around 20 billion euros of this part of the debt.

After all this financial juggling Greece ended up with a ‘reduced’ debt of 220 billion euros, but if the new loan of 130 billion conceded by Europe is added to that sum, we are back where we started with 220 + 130 = 350!

Greece after the restructuring operation finds itself in as much in debt as it was before. So what was the point of it all? The aim is actually quite clear: to transfer the risk from the Private to the public. If Greece defaults, the risk for the banks will be reduced and it will be the European States who will pick up the tab, which means, in the last analysis, the European proletariat will pay for it! That is what is meant by socialisation of the debt. This is what the ruling classes have done in Ireland and Spain, where they have transferred the debt, in all or in part, from the banks to the public domain. And it is why there has been the sudden drastic increase in the indebtedness of these States.

Here is the analysis of the liberal newspaper Les Echos, from an article on March 12 2012:

‘The successful debt cancellation operation between Athens and its private creditors will place public creditors in the front rank. “the Greek debt is passing from private hands into those of the public, that is, the IMF, the European Union, the European Financial Stability Fund (EFSF), and the European Central Bank”, explains Ioanniz Sokos from BNP Paranbas. According to him, the part of the debt held by the public sector will rise to 75% by the beginning of 2015 (when the new bail out plan ends), as opposed to today’s figure of 35% (just before the bonds were exchanged). The EFSF will by a long way be Athen’s major creditor, with an exposure of 167 billion euros. The new Greek State bonds issued to investors today will represent only 18% of the debt in 2015′.

It is abundantly clear that the aim of the deal has been to transfer the weight of the Greek debt, and thus the risk, onto the shoulders of the various States and thus in the last analysis onto the shoulders of the working class, to whom the bill will be presented in the case of bankruptcy.

Restructuring or pillage?

But that isn’t all. There is plenty else to be said about this deal. Firstly, in exchange for their old devalued bonds, the banks and other financial institutions have received 30 billions worth of short term bonds from the EFSF and the rest, that is, 77 billion (107 minus 30) in new Greek 30 year bonds, on which interest will be paid according to the following timescale: for the first three years creditors are to receive 2% interest, then, for the following five years, 3%, then 4.3% for the 22 years remaining. So, if all goes to plan, which is highly unlikely, the creditors stand to pocket:

77 B€ x 0.02 x 3 years = 4.62 B€
77 B€ x 0.03 x 5 years = 11.55 B€
77 B€ x 0.043 x 22 years = 72.84 B€
TOTAL = 89.01 B€

By the end of the 30 years the Greek State would have paid out 89 B€ in interest and also been obliged to pay back the initial 77 billion loan. It needs to be taken into consideration, as far as bonds are concerned, that during the term of a loan a debtor only pays back the interest, paying back the capital at the end. The interest is therefore calculated on the whole of the capital for the entire duration of the repayment period.

But the strangulation of the Greek State and the financial skulduggery doesn’t stop there. Let’s have a look at what the 130 billion of supplementary loans will actually be spent on: 5 billion to pay the outstanding interest and 30 billions to be paid directly to the EFSF, to reimburse the 30 billion worth of securities given in exchange for the old bonds. Therefore the 130 billion loan is in effect only 100 billion. What is more, 23 billion will be paid directly into the banks to recapitalize them, a figure which could rise to 50 billion. This means the Greek State is lumbered with a debt of 75 billion euros instead of the 50 billion it owed before the debt was restructured. This 75 billion is composed of the discount it still owes to the Greek banks, plus the 50 it now owes to the EFSF. This, therefore, leaves only 45 billion to carry the plan forward to 2015, at which point, thanks to this ‘strong medicine’, the patient will supposedly have been miraculously cured.

According to Eurostat data, after the 2009 crisis the Greek State steadily reduced its primary budget deficit, that is, the deficit before the interest is added, but despite this the interest still went up. The following table shows the figures for the Greek debt between 2007 and 2011.

The interest to be repaid has risen steadily from around 12 billion in 209 to 16 billion in 2011, whereas the primary deficit has fallen from 24 billion in 2009 to 3.7 billion in 2011. This means the total deficit, following the increase in the amount of interest owed, remains significant despite the fact the primary deficit has reduced to almost nothing. What is more, with the contraction of the GDP, due to the recession, the deficit as a percentage of the GDP could even go up.

It is interesting to know how the banks have been refinanced. In exchange for the 50 billion euros which the Greek State will be paying into the banks it will receive shares, and it will therefore become a shareholder of the banks it has recapitalized. But these shares will be ordinary shares, that is to say, the Greek State will have no say in the running of the Greek banks, despite having shouldered a massive debt on their behalf!

Our bourgeois Troika can always say that the State will receive interest on its shares; meanwhile it is actually the State which has contracted the debt of 50 million in order to breathe life into these famous banks, and clearly the Greek proletariat is expected to pick up the bill.

However, we must emphasize that the Greek government is in cahoots with all this convoluted swindling that is going on, and clearly the bailing out of the banks was the sine qua non for accepting the restructuring of the debt.

Squeezing the Greek proletariat and petit bourgeoisie to gain some time

To conclude our discussion on the restructuring of the Greek debt held by Europe, we will quote from a Les Echos interview on May 29 with Mitu Gulati, the professor of Law who laid the basis for the reduction of the Greek debt. Here is what he had to say on how it was put into effect:

‘Lee Buccheit and teams at Cleary Gottlieb and Lazard, who advised Athens on this operation, have done a remarkable job. It is however to be regretted that that it took so long to realise the Greek debt needed restructuring. The process should have got underway by the middle of 2010. I remain convinced that the markets probably realised by then that such an operation could have prevented a worsening of the crisis in the euro zone. What is more, it might have prevented the additional costs incurred by the governments of the euro zone and rendered the austerity measures required of Greece less severe. But the ECB was totally opposed to a restructuring of the debt, fearing contagion. With the benefit of hindsight, we can see that it was rather its refusal to act earlier that lay behind the contagion. Another aggravating factor was that the Greek government clearly had no control over the debt restructuring process.

In the normal course of things, when a country is facing a crisis as serious as this, first it decides to stop paying its creditors and then it engages in negotiations. In this way it becomes in the interest of the creditors to reach an agreement as rapidly as possible, so they can get paid.

In the case of Greece it was the opposite which occurred. Greece was engaged in negotiations while it continued to pay its creditors. It was therefore in the latter’s interest to draw out the discussions.

This has cost Athens 60 to 80 billion euros, funds which the Greek government could undoubtedly have put to better use.

Furthermore, the idea that the investors should participate ‘voluntarily’ in writing off debt – an idea defended for months by the European leaders – didn’t make any sense, because how could you be sure that a bank, having accepted this principle, would really bring it securities in exchange, when it could just as easily sell them off beforehand to a hedge fund?’.

Thus, Greece has been swindled out of no less than 60 to 80 billion euros, conned by the Troika! The so-called ‘aid’ from Europe and the IMF can be summed up as pillage, swindling and a brutal attack on the Greek proletariat and petty bourgeoisie. Europe is supporting Greece like a noose supports a hanged man.

But will these draconian measures improve Greece’s chances of somehow extricating itself? Not a chance! All that will result from these austerity measures is an aggravation of the recession, which in its turn will increase the deficit, reducing the most of the Greek people to poverty. The Troika’s plan is totally unrealistic, and they know it.

This is what some liberal economists think about it. In Les Échos (12/03/2013), Isabelle Couet writes:

‘It is very likely that Athens’s creditors will have to make a further outlay in a few years time. In this regard the publication of the GDP figures on Friday was an unhappy omen. In 2011 business activity contracted by 7.5% … whereas in its first report, the Troika(EU, IMF and ECB) forecast a contraction of only 2.6%. “The estimates of medium term growth are too optimistic” – concludes Jacques Cailloux of the Royal Bank of Scotland – “we predict growth of 2.5% from 2015, while the Troika is counting on 4%”. According to the economist another unrealistic hypothesis concerns the primary balance (the balance net of interest on the debt). “The scenario of an average primary surplus of 4.5% between 2014 and 2020 doesn’t hold up”. Without further aid, according to Jacques Cailloux, the level of debt in relation to the GDP will reach 160% by 2020’.

And here’s more from Jacques Cailloux, chief economist of the RBS, being interviewed in the 22/02/2012 edition of Les Échos:

‘The arguments advanced by the Troika concerning the trajectory of the sovereign Greek debt seem too optimistic to me. I would add to this that putting in place a veritable “Marshall Plan”, with, say, 100 billion euros of productive investment in the country, would have allowed the country to resolve its economic problems much quicker. In practice, the Eurogroup agreement just gains a bit of time and avoids the country defaulting in a disorganised manner’.

The interviewer then asks:

‘In your view, then, there is no guarantee that the Greek debt will be able to return to the level of 120% of GDP by 2020, as predicted in the agreement?’

‘That’s right – replies the economist – the Troika’s basic scenario is that the Greek GDP’s rate of growth between 2014 and 2019 will be around 3% per annum. To me this seems far too optimistic. Moreover, this basic scenario also anticipates achieving, over the same period, a primary budget surplus of over 4 points of GDP. A difficult performance to achieve in a period of budgetary austerity and structural readjustment. In addition, the government predicts it will lower its structural public expenditure by 10 % whereas, over the last three years, it has remained practically unchanged and represents today just over 42% of the country’s GDP’.

And there is this article by Jean Marc Vittori, also in Les Échos:

‘The Greek debt has been reduced by barely a quarter. it is still too much given the country’s means. Later on, more money will be needed to recapitalize the Greek banks, whereas privatisations will bring in much less than forecasted by the figures, which had already been revised downwards. Finally, in Greece there will be no growth in the short term. The commission’s experts predict it will return to growth in 2014, following a reduction in activity much more serious than predicted. The hypothesis of 3% growth in 2015 appears unrealistic. The Troika of public creditors (European Union, IMF and ECB) explain this clearly in their confidential report: there is a “fundamental tension” which remains unresolved between the reduction of the public deficit and an improvement in the country’s competitiveness, because such improvement comes by way of a lowering of wages and prices which will inevitably increase the weight of the debt in relation to the GDP.

Under these conditions, it is tempting to conclude that these bailouts, which never work, are useless. Nothing could be more wrong. The fact is that this long, painful and chaotic process earns Europe something of inestimable value: time. Time for the private lenders to adjust to the prospect of losing practically all the money they invested so imprudently in Greece; time for the banks to cushion the blow and spread the losses on their Greek loans from one three-month period to the next’.

While the real seriousness of the crisis is played down, the estimate of growth between 2014 and 2020,and the possibility of having a primary surplus with which to pay the debt, is played up. The entire operation simply doesn’t add up. Why then impose all this suffering on the Greek people – and above all on the Greek proletariat? The aim is simply to gain time and avoid a meltdown of the European financial system. But despite all these expedients it can’t be avoided in any case.

Rendering the proletariat submissive and exploitable at will

We can get a good idea of the depth of the recession in Greece by looking at the figures for industrial production. The curve in the diagram below, compiled o the basis of UNO data, shows the percentage increases in industrial production in Greece from the year 2000.

From these indices it emerges that industrial production, in relation to the maximum of 2007, was 13% lower in 2009, and 25% lower in 2011, and we can predict it will be 34% lower in 2012. This dramatic fall in industrial production is reflected in the GDP, even if, as we have explained elsewhere, the GDP doesn’t give an accurate measure of the real progress of a country’s economy because the declared values, and the way in which the GDP is calculated, are heavily slanted.

Greece isn’t the only one in this disastrous situation. Spain, Portugal and Ireland are all in the same boat. Compared to the 2007 maximum, Portugal saw its industrial production decline by 13% and after a brief rise in 2010 fall again by 13% in 2011. A projection of the trend gives – 15% for 2012. The situation in Spain is much more serious and is similar to that in Greece: in 2009 -22%, in 2011 – 23% and in 2012 surely -25%. In Ireland the situation at first sight seems better: in 2009 – 6.6%; in 2011 +0.6% and for 2012 the projection is 0.5%.

Moreover, in Spain, Ireland and Portugal, along with public debt which is bound to rise, despite all the tightening up, there is also a large private debt. In Spain the most recent figures we have, dating from 2010, indicate a rate of private indebtedness of 224% of the GDP. For Portugal we have the same figure. For Ireland the rate rises astronomically in 2010 to 293%! As for unemployment, it has reached 25% of the labour force in Spain and around 22% in Greece.

How would the European bourgeoisie like to resolve this catastrophic situation? By heightening the exploitation of the proletariat to increase its competitiveness. They want ‘the labour market’ to be more ‘flexible’, by allowing capitalists to sack workers more easily and generalising the practice of employing workers on time limited contracts. They want a system which will allow employers to take on workers quickly when they are required, and to sack them without formalities when that is no longer the case.

This is already the lot of a section of the proletariat, but the bourgeoisie and its lackeys now want to extend it if possible to all workers. It is, according to them, a question of ‘justice’. Greece, Portugal and Spain are to be used as laboratories where they can experiment with this policy. Over recent months there have been a host of articles in the press about ‘flexibility’ in the labour market; about the need to be less ‘rigid’, and so on and so forth. This is what the ECB and the various governments mean when proclaim that one of the main things required to re-launch the economy is a ‘restructuring’ of the labour market.

In order to confirm that it is indeed their intention we will quote from an article by a French economist who expresses exactly what the European leaders are thinking. The article is entitled ‘Employment: we need to act now’. It is written by Eric le Boucher and can be found on Slate.fr. In this article, after having talking about the need to develop education in order to have a qualified workforce, it moves on to discuss a ‘Dual market‘:

‘The second point bears on the labor market itself. In many European countries, particularly in the south, the labor market still makes too much of a distinction between stable and unstable jobs, which has the effect of ” aggravating the inequalities produced by the school system”, as four specialized economists on labor issues correctly point out in their book: La machine à trier: comment la France divise sa jeunesse.

This division into a “dual” labour market is unfair and inefficient. Since breaking a CDI is always complex from a legal point of view, businesses continue to call for the CDD as a way of dealing with fluctuations in their activity. [CDI, Contract of indefinite duration: a contract with no set time limit and which can be broken by the employer only under certain conditions as defined by Labour Legislation, such as due to professional misconduct, which must be demonstrated, or during staff lay offs, when redundancy payments have to be paid; CDD, Fixed-term contract: the exact opposite of the CDI. A contract of limited duration, from just a few hours to several months, after which the contract ceases automatically and the worker becomes unemployed].

Lots of people, including the young, “switch” from one short-term contract to another, signing up to agencies between jobs. The OECD notes: “In ten countries, the proportion of those in temporary jobs lies between 10 and 25 with a high proportion of young people and women. Before the crisis, in France and especially Spain, nearly 55% of employed young people (15-24 years) had a fixed-term contract or worked for a temporary employment agency”.

The use of the CDD has also inflated the unemployment figures and, incidentally, expenditure on unemployment insurance”, emphasize the four economists, who favorable a single contract of work.

The debt crisis, which deprives Governments of income and means they have to take stock of the amount of unemployment benefit they can allocate, makes it even more necessary for these educational and structural reforms of the labour market to go ahead’.

Bourgeois society can no longer afford to support the growing mass of the unemployed, and to stimulate the accumulation of capital it must increase the rate of profit in order to counter-balance the inevitable tendency of this same rate to fall. There is only way to achieve this: increasing the rate of surplus value by reducing wages and increasing the duration and intensity of work. The employing and sacking of workers has to be made easier and adapted to the company’s requirements, with national and sectoral agreements being replaced by agreements in the form of individual contracts at the company level.

Monti and Cameron’s call for growth in February 2012 is completely in line with these political and economic measures: Les Échos du 21/02/2012:

‘Ten days away from a new European summit of the heads of State and Government, certain countries intend to break the tempo set by the Franco-German twosome. The British Prime Minister, David Cameron, his Italian counterpart, Mario Monti, and ten other European leaders have sent a letter to the president of the EU, Herman Van Rompuy, and to the president of the Commission, Jose Manuel Barroso, to call for measures to strengthen growth in Europe. The recipes provided are rather liberal: reduction of State aid to the banks, drastic relaxation of the labour market or complete liberalisation of the energy sector by 2014. Paris and Berlin would have refused to join in the initiative’.

If Paris and Berlin didn’t want to join the duo, this is not due to a disagreement on the measures presented, but because in this basket of crabs that is the European union everything is down to who is strongest. Still quoting from Les Échos, of May 29, 2012, we can read:

‘Germany would like to propose to its partners that they reform the labour market, by relaxing the rules on dismissal and by promoting low skilled jobs by lowering the costs attached to them. Berlin wishes also to export its dual educational model, which promotes apprenticeships and thus protects the young from the mass unemployment observed in Spain, for example’.

This links in with the proposals made by the German Chancellor Angela Merkel for the revival of the economy.

This much is clear: since 1974 capitalism has been going through its fourth global recession and these bourgeois parasites are prepared to go to any lengths to save their economic system and their class privileges. Today it has no qualms about cynically reducing broad whole strata of the Irish, Portuguese, Spanish and Greek proletariat to poverty; tomorrow it will the turn of the Italian, French, English and German proletariat.

One way out: Revolution!

Numerous sacrifices are being asked of the proletariat of these countries in the name of a future recovery. But even if there is a recovery in the future, which seems highly unlikely, it will be of very short duration. The length of economic cycles vary from between seven to ten years and can sometimes be even shorter, only five years. The last cycle ended around 2007 and the present one is due to end around 2014 -2017, possibly earlier.

As we observed at the beginning of this article, the growth in industrial production between 2000 and 2007 was extremely weak, or even negative in the case of Great Britain and Italy. And today, after the modest recovery of 2010-2011, it is still far from the maximum reached in 2007 (2000 in Great Britain and Italy). Therefore we can expect the arrival of a new recession before there has ever been a real recovery.

Europe is now officially in recession again, and on the global scale we witness a significant slowing down in the process of capital accumulation, indicating that a new crisis of over-production is approaching, and a serous crisis of financial capital.

So what is the purpose of these sacrifices? The Spanish and Irish states, which took advantage of the previous cycle to lower their debt, now find themselves so deeply in debt again that they are on the verge of bankruptcy. The coming crisis, which will in all probability hit China, will be a terrible one; and this time the various States won’t be able to get out of it by taking out loans.

To save its mode of production the bourgeoisie expects blood, sweat and tears from the proletariat. But is it really in the interests of workers to sacrifice themselves, to live like dogs in order to prop up a system which is based on exploiting their wage labour?

Capitalism has carried out its historic role by socialising the forces of production, but that purpose has now been fulfilled. It is now a mode of production which is obsolete and reactionary and it is holding humanity back, brutalising it and destroying the very sources of its existence. Having arrived at the stage of imperialism it can only survive by unleashing periodic world wars,which lay the basis, after terrible massacres and destruction, for a new cycle of production of surplus value. And now, seventy years after the last imperialist world war, humanity is on the brink of a new global conflict; one which will be even more terrible and destructive and whose premonitory signs can already be detected in the wars constantly flaring up in the Middle and Far East.

The bourgeoisie, whose destiny is tied to this mode of production, has become not only a class which is reactionary, but one which is totally useless and parasitic. Salaried workers now make up the overwhelming majority of the population, although broad layers have become ‘middle-class’ due to their possession of reserves, which imbue them with a petty bourgeois outlook and render them hesitant and incapable of solidarity during workers’ struggles. It is this which underpins the stability of bourgeois society. But it is a situation which is rapidly changing, and the labour aristocracy will soon find its standard of living reduced to the level of the majority of proletarians.

It is the proletariat, which lives by selling its labour power and not on the back of others, which makes society as a whole function and which produces all of its wealth. It has nothing to lose but its chains and an entire world to win!

Proletarians! Comrades! The only alternative is revolution, INTERNATIONAL, PROLETARIAN, COMMUNIST REVOLUTION! All other solutions are doomed to failure.