Businesses, Banks and States dragged into the vortex of Capital’s Crisis of Overproduction: the Greek case Pt. 2

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.