Fight Racism! Fight Imperialism! 224 December 2011/January 2012

The sovereign debt crisis in the eurozone is spinning out of control. Having spread from the weaker eurozone countries to Italy and Spain, the euro crisis is now hitting the stronger core economies of the eurozone, threatening to drive the global economy into recession. Meanwhile continuing stalemate in the US Congress has prevented any resolution of its debt crisis. Divisions are developing not only between the major imperialist powers but also within the ruling class in every major country. At a fractious and totally unproductive G20 summit in early November, British Prime Minister David Cameron warned: ‘Every day the eurozone crisis continues and every day it is not resolved is a day that has a chilling effect on the rest of the world economy, including the British economy.’ He implied that there was worse to come with this being only ‘a stage of the global crisis’. DAVID YAFFE reports.

Political divisions within the eurozone to manage the debt crisis remain unresolved.1 The spreading of the crisis to Italy and Spain has exposed the limitations of the measures undertaken and agreed so far to deal with Greece, Ireland and Portugal. France and Germany are still divided on what must be done. These divisions among the European imperialists rest on disputes over how best to protect their own investments and limit the inescapable losses to their international financial institutions. They also have to respond to the political interests and divisions within their own countries. Yet they have little option but to overcome these divisions in their own ranks and between the main eurozone nations if European imperialism is to sustain its global challenge.

Time is not on their side. In mid-November yields on Spanish and Italian bonds reached unsustainable levels, beyond those that earlier had forced Ireland and Portugal to seek EU/IMF bail-outs. The premiums which France and Austria pay over Germany’s rate to borrow have risen to record euro-era levels, calling into question their AAA top credit ratings. France has around €300bn of Italian debt as well as the largest exposure to Greek debt. On 23 November a €6bn German bond sale ended in failure when the bond auction managed to raise only two-thirds of the amount targeted. This suggests that the eurozone debt crisis could be spreading to Germany, the eurozone’s largest economy and fundamental to the survival of the eurozone and European Union.

The eurozone crisis threatens to generate global instability by sucking liquidity out of financial markets worldwide. Crisis-hit banks in Europe have begun retreating into beggar-thy-neighbour lending policies, echoing the protectionist policies that affected Europe during the 1930s depression. Commerzbank, Germany’s second largest bank, is refusing any loans that do not help Germany or Poland. Its chief financial officer said: ‘we have to focus on supporting the German economy as other banks pull out’. Lloyds Banking Group admitted it had pulled back its exposure to the eurozone. The four largest UK banks have cut interbank loan volumes by 24% in the three months to the end of September – the sharpest reduction being to Greek and Spanish banks. HSBC cut its exposure most steeply with a 40% decline in loans to the region. City analysts have said that political and financial pressures would force European banks to retreat to domestic markets. Stuart Gulliver, CEO of HSBC, pointed out that Asia could suffer if European banks came under further pressure in what is being called a ‘mini-crunch’. European banks were responsible for 21% of the $2,560bn of international loans outstanding in Asia, excluding Japan, in the second quarter of 2011. At the height of the financial crisis in 2008 inter-bank lending almost ceased as trust between the banks evaporated.

‘More Europe, not less’

These developments will eventually force the protagonists to agree a more credible solution which can minimally contain the frenzied market pressures. In the meantime the dominant European countries will tighten their grip on those countries needing credit and aid, ruthlessly plundering their resources and wealth, and driving their populations into increasing poverty through imposed austerity programmes.

Underlying this process will be deeper European integration and moves towards fiscal and political union. The German and French ruling classes have made this unambiguously clear. Responding to the collapse in investor confidence in Italy, the eurozone’s third largest economy, the German Chancellor, Angela Merkel, said, at a conference in Berlin in early November, that the situation in Europe had become ‘unpleasant’ and the EU would not survive unless it could meet the challenge of the debt crisis that had intensified in recent weeks. What this required was acceleration in plans for deeper integration of the eurozone. ‘It is time for a breakthrough to a new Europe’. That will mean, she said, ‘more Europe, not less Europe’ calling for changes in the EU Treaty to make this possible. A few days later, European Commission President, Jose Manuel Barroso, issued a new call for the EU ‘to unite or face irrelevance’ in the face of the mounting economic crisis in Italy. There is talk of one or more countries leaving the eurozone and it is said that France and Germany have had intense consultations on the issue over the last months.

A major spat between Cameron and French President Nicolas Sarkozy took place at the inconclusive European Summit on the 22/23 October, after Cameron demanded an extra summit later in the week to resolve the disputes. Sarkozy responded sharply – ‘You don’t like the euro so why do you want to be in our meetings’ (Financial Times 25 October 2011). Sarkozy wants unfettered euro area cooperation while Cameron backs eurozone integration, as long as it does not involve Britain or affect Britain’s financial interests. Speaking later at the University of Strasbourg on 8 November, Sarkozy advocated a two-speed Europe made up of deeper integrated eurozone countries with a looser group outside.

Merkel, representing the interests of the dominant European capital, wants European fiscal union, which requires closer co-ordination and direct supervision of national economic and budgetary policies in the eurozone. Debt and deficit limits would be enforceable in the European Court of Justice and a European Commission minister with powers to demand changes in national budgets would impose automatic penalties if the countries do not fall into line (Financial Times 25 November 2011). Barroso demanded similar intrusive European Commission powers as part of a proposal from the Commission on 23 November for joint eurozone ‘stability’ bonds to replace, guarantee or cover national debt issuance. Merkel so far rejects such collectivisation of debt in the form of eurobonds, at least before fiscal union is in place.

The imposition of technocratic governments on Greece and Italy, led by the unelected prime ministers Lucas Papademos and Mario Monti, to implement drastic austerity programmes and structural reforms, shows the shape of things to come. Both prime ministers have solid neo-liberal and banking credentials. Papademos was Vice President of the European Central Bank 2002-2010 and former Governor of the Bank of Greece at the time Goldman Sachs was masking Greece’s debt so it could enter the eurozone. Monti was an international advisor to Goldman Sachs for six years and former European Competition Commissioner 1995-2004. Both countries have had to agree to IMF monitoring of their austerity programmes. Democratic accountability is desirable but necessarily expendable as the dominant European capital tightens it grip.

Rescuing the eurozone

The weekend of 22/23 October saw an EU summit intended to finalise a broad package agreed by Germany and France to deal with the eurozone sovereign debt crisis. It soon became clear that it would not be possible to complete an agreement that weekend as insufficient progress had been made with the negotiations to ensure it would be accepted by Merkel’s coalition in the Bundestag – Germany’s parliament. A further summit was called for later in the week – Wednesday 26 October. Broad outlines of this package were announced on 27 October with many of the specific details still to be clarified. The package included:

1. A 50% write down of Greece’s private sector debt to reduce its debt to 120% of GDP by 2020 as part of a new €130bn bail-out fund replacing the package of 21 July 2011.2

2. European banks to have a minimum capital buffer of 9% forcing them to find an extra €106bn by June 2012.

3. A fourfold increase to at least €1 trillion of the European Financial Stability Facility rescue fund designed to prevent the debt crisis spreading throughout the eurozone.

4. Italy to pledge to make structural reforms (ensure its austerity package was enacted) to insulate it from speculative attack.

The full details of this package are still being worked out. The initial market response to the package was positive with rising bank shares driving up stockmarkets. But this didn’t last long and the speculative attacks on the eurozone bond markets soon returned.

Greek Prime Minister George Papandreou then caused turmoil again in the markets by deciding on 31 October that first the Greek people had to vote for their own oppression by accepting the austerity package and so he called for a referendum. He was soon put right on this and shown who was calling the shots when he was summoned to a meeting with Sarkozy and Merkel before the G20 summit on 4/5 November. The €8bn Greek aid due from the May 2010 bail-out package, necessary for the Greek government to pay salaries and pensions and still not delivered, was once again suspended. A few days later the referendum was called off, Papandreou stepped down as Prime Minister and called for a government of national unity to force the austerity measures through. He said his country could not risk a ‘no’ vote on 4 December – the proposed date of the referendum.  Greece’s economy is expected to contract 5.5% this year and 2.8% in 2012.

Strikes, riots and demonstrations have become daily features of Greek political life. Wildcat strikes have prevented officials from finalising next year’s budget figures demanded by the EU-IMF before they will release the payments necessary to keep the government functioning. Striking civil servants blocked access to Greece’s statistical agency in Athens. Rubbish is piled up in the streets and ministers were locked out of their offices. The finance minister, Evangelos Venizelos, was prevented from entering his office. A two-day general strike on 19 and 20 October called by the unions to protest at the parliamentary debate and vote on the latest austerity measures exploded into violence and anger. One trade unionist died after being tear-gassed. As one of the 100,000 strong protesters gathered in Syntagma Square outside parliament put it: ‘The message we want to send both abroad and here at home is that we are not going to accept these policies lying down.’ The secretary general of the civil service union concurred: ‘Our European friends should know that our prime minister will go to the EU summit naked, because the promises he will make will have no backing in this country. The measures will be impossible to implement.’ (The Guardian 21 October 2011).

The battle over the property tax, expected to raise €2bn for the Greek government, continues.3 It has to be collected through electricity bills as tax workers refuse to collect it. Pressure from the militant ‘I won’t pay’ campaign forced the government to suspend plans to disconnect customers who refused to pay. Despite this Nikos Fotopoulos, the leader of Genop, the union of employees of the National Electric Power Corporation, said the union would not back down until the tax was got rid of. On 24 November he was one of 15 people arrested during a demonstration that blocked access to the Power Corporation. Genop responded by calling a two-day strike (The Guardian 25 November 2011).

The resistance in Greece is far more advanced than in other eurozone countries bailed-out by the EU-IMF. Portugal will not meet its fiscal targets agreed with the EU and IMF as part of its €78bn package unless it accepts further austerity measures. The economy is expected to contract 1.9% this year and a further 3% in 2012 – the worst recession since democracy was restored in 1974.  Unemployment will reach a record 13.4% next year. Public sector pay will be cut by 20% in 2012 compared with 2010. Social unrest in Portugal so far has remained relatively low key. 50,000 demonstrated in Lisbon and Porto in mid-October as part of a global day of protest. However, 24 November saw the biggest general strike for 20 years. Public sector workers led a nationwide walkout that paralysed transport in the capital, Lisbon. ‘The strike is general; the attack is global!’ chanted demonstrators.

Meanwhile Italy has become the focus of alarm. The G20 summit ended with little progress being made and disagreements over details of the package agreed at the EU summit. However Berlusconi was forced to agree to step down in favour of a new technocratic government to drive through the austerity measures to force down Italy’s public deficit. Thousands of demonstrators have taken to the streets to protest against this ‘bankers’ government’.

Britain defends the City

On 21 November Cameron admitted that controlling Britain’s debt was ‘proving harder than expected’. He told the CBI conference that: ‘High levels of public and private debt are proving to be a drag on growth, which in turn makes it more difficult to deal with those debts.’ He now concedes what has been obvious for some time that eliminating the current structural deficit by 2014-15 is almost certainly impossible and even unlikely in the following year. According to the consultancy McKinsey, UK debt, at around 460% of GDP, is larger than that of any other country in Europe except Greece if household, business and bank debt are added to government borrowing. Nevertheless, as the government has made clear, there will be no let-up in the austerity measures. Low borrowing costs, corporate and banking interests have to be the government’s priority.

In all its dealings with the EU, the government has been centrally concerned with the impact of the package to rescue the eurozone on the City of London and Britain’s financial services sector. Typical is Britain’s response to the EU proposal of a financial transactions tax of 0.01% on bonds, securities and derivatives traded between financial institutions – the so-called Tobin tax. The chancellor George Osborne has called the tax ‘a bullet aimed at the heart of London’. Cameron complained that the City was a ‘key national interest’ under constant attack through Brussels directives’. The LibDem coalition business minister Vince Cable called the German position ‘completely unjustified’ and said it would simply divert revenues from Britain to the EU. The Labour Party, which has consistently befriended the City, shares this view. Shadow Chancellor Ed Balls said we must not throw the City ‘baby out with the bathwater’ and that the transactions tax risked ‘real damage to the City’.

In mid-November allies of Merkel claimed that she would not allow Britain to ‘get away’ with its refusal to back a European financial transaction tax. Volker Kauder, the parliamentary leader of Merkel’s party the CDU, said: ‘Britain has a responsibility to make Europe a success … Only going after their own benefit and refusing to contribute is not a message we’re letting the British get away with.’ He also claimed that Europe was embracing Merkel’s solution to the crisis by focusing on tougher financial discipline for indebted countries. In quite undiplomatic language he put the British government in its place when he said: ‘Now all of a sudden, Europe is speaking German’ (The Guardian 16 and 17 November 2011). This battle is set to run and run.

The crisis in Britain will intensify. Millions face a fall in living standards, growing unemployment, more oppressive conditions in the workplace and the loss of public services as the ruling class sustains the interests of the City of London, the financial arm of British imperialism. Resistance will inevitably emerge against this attack. On 30 November millions of public sector workers will take strike action against the attacks on their pensions. A one-day protest is not enough, unless it becomes a springboard for a massive resistance movement at every level. The ruling class will be ruthless. Greece shows the severity of the attack that will take place and also the determination and levels of organisation needed to resist.

26 November 2011

1 See David Yaffe ‘Capitalism fractures: no end to the global economic crisis’, FRFI 223 October/November 2011. See:

2 See James Martin ‘Euro crisis imperialists in conflict’, FRFI 222 August/September 2011, for a discussion of the 21 July package, at

3 See ‘Capitalism fractures’ op cit.