Stop the destruction of social gains: march separately, strike together!

In every country in Europe, working people are hit by drastic and very similar austerity measures and plans inflicted by the various bourgeois governments, writes Balazs Nagy, from the Workers International. Obviously people in other continents are not exempt from effects of the deep crisis of capitalism either, but it takes on its most significant and vicious dimensions here in Europe. This is the cradle of capitalism and therefore of the workers’ movement which, with the support of all working people, succeeded in the past in winning significant rights and advantages in more than a century of bitter, stubborn struggle. Whatever the  soothing words from those in government and their legions of propagandists, this crisis is far from over. The resolute frontal attacks on the gains and rights workers have won will increase in number and ferocity. It is therefore highly important to know what they really represent and where they come from.

Thirty (not so) glorious years
These bourgeois attacks did not just start with the present crisis. In fact the material, social, political and cultural rights working people enjoy are incompatible with capitalism-imperialism, particularly in its current senile state of decrepitude. They were never freely given, but all of them were taken from the system by force in heroic struggles by working people over many years, not just during and after World War II, but also well before then.  But it was at that point that the balance of forces, internationally and within almost every country, swung clearly in favour of the working class. Terrified by the underlying support for the powerful revolutionary wave in Europe, the destitute bourgeoisie was only able to defuse the revolution through ready assistance from the general staffs of parties that called themselves socialist and communist. But willy-nilly, they had to pay a price for this. That was how the series of measures and reforms started which culminated in what became known as “welfare states” or “social market economy” (in Germany) and the so-called “thirty glorious years”. But the rot had already set in right from the word go…

Read more here http://workersinternational.org/?p=10

 

Crisis hits but profits are rising!

Economist Michael Burke examines the distribution of national income between wages and profits. In Greece & Ireland, profits are rising even with economic contraction. This highlights the content of ‘austerity’ policies- driving up profits by driving down wages.In countries like Britain, where the economy is stagnating not yet contracting, the ‘austerity’ policy is also designed to drive up profits at the expense of wages. It may also have the same effect on eonomic activity, driving it lower while increasing profits.

“In a previous article I examined the profit rate in the Irish economy which is rising even though the economy continues to contract. Yet at the same time Ireland’s level of investment is falling. Corporate incomes – profits – are rising even though total economic activity is falling. Arithmetically, this can only occur by reducing the income of labour – wages are falling both in absolute terms and as a proportion of total economic activity. It happens that the Irish Department of Finance set this out with some clarity. This is indeed is the thrust of the entire ‘austerity’ policy – a transfer of incomes from labour to capital across the industrialised economies of Europe, as well as in the US and Japan.

Who Is Paying for the Crisis?

The table below shows the Gross Value Added (GVA) of selected economies, and how this is divided between the compensation of employees and the gross operating surplus of the corporate sector. GVA is a measure of all the value created in an economy. It is the same as GDP except that it excludes the impact of taxes and subsidies. With some important qualifications the Compensation of Employees (CoE) is akin to labour’s share of that value added, while the Gross Operating Surplus (GOS) is akin to the level of profits in each economy. This provides an approximate measure of economic activity and its distribution as income: Value-Wages-Profits. In the table blow the profit rate is calculated as the share of GOS in Gross Value Added.

Table 1. GVA, Compensation of Employees, Gross Operating Surplus and the Profit Rate, €bn in 2010 (unless otherwise stated)

11 11 13 Table 1

The general tendency has been that the crisis-hit countries have the highest profit rates. This was an important factor in the build-up to the crisis. In nearly all countries the crisis was characterised by reduced investment by the corporate sector, which remains thedriving force behind the economic crisis. In these higher profit countries the fall in investment had a greater impact on aggregate demand as the corporate sector takes a bigger share of GVA. In turn, the fall in investment had a bigger negative impact on household incomes, especially through rising unemployment.

Profits and deficits

The profit rates should also be seen in relation to the public sector deficits that have caused so much turmoil. In all cases the public sector deficits are a fraction of the level of profits. In Greece the 2010 deficit was €25bn, in Italy it was €70bn, in Ireland it was €19bn (excluding an extraordinary bank bailout), and so on. The deficits could easily be covered in their entirety simply by extracting a fraction of the profit level from the corporate sector in each country. The same is true of Britain, where the profit level in 2010 was £475bn compared to a deficit of £137bn. (The British profit level is depressed and consequently the profit rate is lower because of the slump in the financial sector – a factor which also applies to a lesser degree in the US and even to France).

Who can pay for the crisis?

There are effectively three destinations for profits. These are investment, which raises future prosperity, or dividends for shareholders which are not invested or huge executive compensation and bonuses, both of which do not. The table below shows the level of profits, the level of public sector borrowing and the level of gross fixed capital formation (investment). In the last column the difference is shown between the level of profits and the level of public borrowing and investment combined.

Table 2. Gross Operating Surplus, Public Sector Borrowing and Investment, €bn in 2010 (unless otherwise stated)

11 11 13 Table 2

Table 2 shows that in all cases the current level of both the public sector borrowing and the current level of investment can be funded by the level of profits in each country and in the Euro Area. In most cases there is scope to fund both the deficit and significantly increase the level of investment. But the opposite has been happening.

The struggle over distribution of national income

In most recessions capital’s share of income falls. This is not because wages rise, but because profits fall at a faster rate than the fall in output. What then usually occurs is a struggle by capital to regain its lost share of income. It does this by cutting wages and benefits, by increasing unemployment and by reducing its tax burden – financed by reducing social welfare benefits. This is the content of ‘austerity’ measures.

Figure 1 below shows how this has operated in the Euro Area as a whole. Between 2008 and 2009 GVA in the Euro Area fell by €254. Confirming the idea that profits fall at a faster rate than output, Euro Area profits (GOS) fell by €227bn. Profits fell by over 6%, twice as fast as the fall in output. Wages (CoE) fell by €17bn.

Figure 1

11 11 13 Figure 1

However, this natural tendency for profits to fall at a greater pace than the fall in output is interrupted and diverted by a series of interventions, including rising unemployment, wages and benefit cuts as itemised above. In the period 2009 to 2010 Euro Area GVA rose by €188bn. Of this increase in output €139bn went to profits and just €53bn accrued to wages.

Because of inflation the real level of both wages and profits has fallen sharply – all these data are in nominal terms and do not take account of inflation. The ‘austerity’ offensive to increase the profit share has partly been successful, but the wage share of national income has not undergone any strategic reversal.

This is contrasted with Greece. Greek nominal GVA did not fall in 2009 at all as the Greek recession was shallower than most. GVA fell in 2010 by €6bn. This is shown in chart 2. The massive offensive against Greek workers and the poor means that the natural tendency for profits to fall faster than output has not operated. The level of wages fell by €4.4bn and profits fell by just €1.8bn. The wage share of national income has suffered a reversal.

Figure 2

11 11 13 Figure 2

Readers will be interested to know where Britain stands in relation to these examples, one of them the extreme case of Greece (and previously, Ireland). In 2009 British GVA fell by £38bn, shown in Chart 3 below. This was exceeded by the fall in profits, down £43bn and wages rose by £5bn. The entirety of policy since has been to reverse those trends. GVA rose in 2010 by €40bn. (It should again be stressed that these are nominal data, in real terms output is still over 4% below its peak and real wages have fallen).

Figure 3
11 11 13 Figure 3As a result of initial ‘austerity’ measures, £18bn of the increase in output has been claimed for profits. But it is widely understood that the real offensive in Britain only began in the new Financial Year, which began in April this year. What is being attempted is a decisive reversal of the wages’ share of national income.

Conclusion

Countries like Greece are experiencing a qualitatively sharper crisis than the European average. There is a high correlation between the likelihood of economies falling into this type of extreme crisis and their exceptionally high level of pre-crisis profits. Because the income of the corporate sector is a much greater factor in the economy, their investment strike hass a proportionately greater impact on total output and/or government finances.

Profits remain exceptionally high, so much so that they could finance the deficit while simultaneously increasing the level of investment.

Under normal working of a market economy the tendency is for profits to fall faster than output. The entire ‘austerity’ policy is to prevent this tendency from operating, and to reverse it by reducing wages even faster than the decline in output. In the Euro Area, to date this has only been achieved in Ireland and Greece.

In Britain, it’s too early to say whether a similar ‘austerity’ drive will achieve the same disastrous results. But it is clearly the aim of government policy to drive up profits even while the economy is stagnating. This can only be achieved by driving down wages.”

This article was previously published in the Socialist Economic Bulletin

Exit or voice? A European strategy of rupture

The course of the economic crisis that erupted in late 2007 can be simply summarized as follows, writes Michel Husson: during the two decades preceding the crisis, capitalism has been reproducing itself by accumulating a mountain of debt.

To avoid the collapse of the system, states have taken over some of these
debts, in transferring from the private to the public sector. The project of
the ruling classes is now to present the bill to citizens through budget cuts,
increases of the most unfair taxes and frozen wages. In a nutshell, the majority
of the population – as workers and pensioners – must sacrifice through
austerity to ensure the realization of the fictitious profits accumulated over
many years.
THE WORM IS IN THE FRUIT
In Europe, the effort to build an economic integrated area via the European
Union (EU) with a single currency in the form of the euro, but without
a matching budgetary capacity, was not a coherent project. A truncated
monetary union became an economic framework to generate heterogeneity
and divergence in the countries of Europe. Countries with above average
inflation and below average productivity lose competitiveness, and are
encouraged to base their growth on overindebtedness; while countries with
below average inflation and above average productivity gain competitiveness
and sustain structural surpluses.
In retrospect, the choice of the euro (with its launch in 1999) had no
obvious advantage over a common currency system – a convertible euro
for relations with the rest of the world, and adjustable currencies inside
the zone. The euro was designed as an instrument of budgetary and above
all wage discipline (following on the EU’s Growth and Stability Pact): the
use of devaluation is no longer possible, and the wage becomes the only
adjustment variable for addressing competitiveness and external imbalances.
In practice, the Economic and Monetary Union also worked through
overindebtedness and, at least initially, the decline of the euro against the
dollar. These expedients eventually had to run out. Things started to go offtrack
with the German policy of wage deflation through the 2000s which has
led to an increase of Germany’s market share in Europe. Although the euro
area was broadly in balance with the rest of the world, the gap has widened
between the German surpluses and the deficits of most other countries in
Europe. As a result, the growth rates inside the euro zone have tended to
diverge, right from the first introduction of the euro.
This market configuration inside Europe has proven, not surprisingly,
unsustainable. The crisis has sharply accelerated the process of fragmentation
and financial speculation and it has exposed the tensions inherent within
neoliberal Europe. The crisis has deepened the polarization of the euro
area. On the one hand, Germany, the Netherlands and Austria enjoy trade
surpluses and their fiscal deficits have remained moderate. On the other,
the famous ‘PIGS’ comprised of Portugal, Italy, Greece and Spain (Ireland
being partly another case) are in a reverse situation: high trade deficits and
fiscal deficits above average and rapidly climbing. Although the depth of
the economic crisis has led to an increase in fiscal deficits everywhere, it has
been much less in the first group of countries.
The sovereign debt crisis has accelerated the move toward austerity
which was, in any case, already the neoliberal policy of adjustment and the
planned policy response as the economic crisis stabilized. Speculation against
Greece, then Ireland and Portugal, has been possible because no systematic
measures have been taken to regulate banks in the wake of the crisis. The
pooled management of the debt on a European scale, through the European
Financial Stabilisation Mechanism and the European Financial Stability
Facility, remained partial and always came late in the day. The central banks
themselves have provided ammunition for this speculation by lending to
banks, at a very low interest rate, money which the banks in turn lent to
governments at the higher rates paid on sovereign debt, neatly pocketing
the difference.
As sovereign debt takes over from private debt, the financial crisis moves
into the public sector. The bailouts of the peripheral European countries
under attack from financial capital are, in fact, the bailouts of European
banks (concentrated in Germany, France and Britain, with US banks also
implicated) that hold much of their debt. Speculative attacks are used as an
argument in favour of moving quickly to drastic austerity plans, as in the
cases of Greece and the Iberian countries. This strategy is a nonsense that
can only lead to another recession, including in Germany, whose exports to
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emerging markets outside Western Europe might not offset its losses internal
to European markets.
European governments and the European Commission have had one
overriding goal: to return as quickly as possible to ‘business as usual’. This
goal is, however, out of reach, precisely because everything that had helped
manage the contradictions of the flawed form of European integration, such
as peripheral Europe indebtedness and internal European trade imbalances,
has been rendered unusable by the crisis. These elements of the analysis
of the current European economic conjuncture are now quite widely
shared. However, they lead to quite opposite predictions and orientations,
particularly on the Left: the bursting of the euro area, or overhaul of the
pan-European political project.
FOR A REFOUNDATION OF EUROPE
The main objective of any Left alternative for Europe must be the optimal
satisfaction of social needs. The starting point is, therefore, the distribution
of wealth. From the capitalist point of view, the way out of the crisis
requires a restoration of profitability through additional pressure on wages
and employment. But that approach does not take into account the real
causes of the crisis. It is the decline of wage share which has fed the financial
bubble. And the neoliberal fiscal counter-reforms have deepened deficits,
even before the erruption of the crisis.
The political equation for the Left is simple: we will not emerge from the
crisis on top without a radical change in income distribution. This question
comes before economic growth. Certainly, higher growth in itself could
lead to more employment and higher wages, although such a growth-fixated
strategy needs to be assessed from an ecological point of view. In any case,
we cannot rely on growth if, at the same time, income distribution becomes
increasingly unequal.
We must therefore squeeze inequalities from both sides: by an increase
in the payroll for workers and by a tax reform. The upgrading of the wage
share could follow the rule of three thirds: one third for direct wages, one third
for socialized wages (or welfare) and one third to create jobs by reducing
working hours. This rise of wages would be at the expense of dividends,
which have neither economic justification nor social utility. The fiscal
deficit should be gradually reduced, not by cuts, but by a re-fiscalization of
all forms of income (bringing them back into public finances), which have
gradually been exempted from taxes. The immediate cost of the crisis should
be borne by those responsible: this means that the debt should be in large
part cancelled and the banks nationalized and socialized.
the only factor. It is, therefore, a fundamental error to suggest that an exit
from the euro would spontaneously improve the balance of power in favour
of workers. It is enough to consider the British example: the pound keeps
Britain out of the European Monetary Union and the euro, but that has not
protected the British people from an austerity plan which is among the most
brutal in Europe.
Supporters of the exit from the euro advance another argument: it would
be an immediate measure, and relatively easy to take, while the strategy of a
refoundation of the European project would be out of reach. This argument
misses the very possibility of a national strategy that does not presuppose a
simultaneous rupture in all European countries.
FOR A STRATEGY OF RUPTURE AND EXTENSION
As often put, the dilemma seems to be between a risky adventure of ‘exit’ from
the euro and a utopian European harmonization giving ‘voice’ to workers’
struggles. The central political issue for socialists is to get out of this false
choice. The main distinction here is between ends and means. The objective
of a programme of social transformation is to guarantee to all citizens a
decent life in all its dimensions – employment, health, retirement, housing,
and so on.5 These can be achieved by a change in the primary distribution
of income between profits and wages and by tax reform. But advancing the
struggles for these goals implies the questioning of dominant social interests,
their privileges and their power. This confrontation takes place primarily
within a national framework. But the resistance of the dominant classes and
their possible retaliatory measures exceed the national framework.
The only viable strategy is to rely on the legitimacy of progressive
solutions that arise from their highly cooperative nature. All neoliberal
recommendations are ultimately based on the search for competitiveness,
such as reducing wages, trimming social contributions, and cutting taxes to
win market share. As European growth levels will continue to be weak in
the period that has opened up with the crisis in Europe, the only way for
any individual country to create jobs will be by competing for them with
neighbouring countries, especially since the largest part of foreign trade of
European countries is within Europe. This is true even for Germany as the
second largest world exporter: it cannot rely only on emerging countries.
The neoliberal way out of the crisis is inherently non-cooperative: you can
only win against the others, and this is the ultimate cause of the deepening
crisis of European integration.
In contrast, progressive solutions are cooperative; they will work even
better if they are generalized to a larger number of countries. For example,
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if all European countries reduced working time and charged taxes on capital
income, such coordination would avoid the backlash that the same policy
would undergo if adopted in only one country. It is incumbent, therefore,
that a government of the radical left follow a strategy of extension:
(1) ‘good’ measures are implemented unilaterally as, for example, with the
taxation of financial transactions;
(2) accompanying plans for protection such as capital controls are
adopted;
(3) the political risk of breaking European Union rules to implement these
radical, initially nationally-based, policies is accepted and challenged;
(4) the proposition is made to amend these rules by extending them on a
European scale to allow these measures to be adopted by member states,
for example, in the extension of a European tax on financial transactions;
and
(5) the political showdown with the EU and other European states is not
avoided and thus the threat of exit from the euro is not excluded as a
viable option.
This strategic scheme acknowledges that the making of a ‘good’ Europe
cannot be the precondition to the implementation of a ‘good’ policy. The
retaliation measures must be neutralized through counter-measures which
effectively involve resort to a protectionist policy arsenal if needed. But the
strategy is not protectionism in the usual sense: this protectionism defends an
experience of social transformation emerging from the people and not the
interests of the capitalists of a given country in their competition with other
capitalists. It is, therefore, a ‘protectionism for extension’, whose very logic is to
disappear once the ‘good’ measures have been generalized across Europe.
The rupture with European rules is not based on a petition of principle,
but rather on the fairness and legitimacy of measures that correspond to the
interests of the majority and are equally proposed to neighbouring countries.
This strategic challenge for change can then rely on social mobilization
in other countries and hence build a relation of forces that can influence
EU institutions. The recent experience of the neoliberal rescue plans
implemented by the ECB and the European Commission has shown that it
is quite possible to bypass a number of the provisions of the EU Treaties.
For this strategy of rupture, exit from the euro is not a prerequisite. It
is rather a weapon to use in the ‘last resort’. The immediate break should
proceed on two points which would allow real room for manoeuvre: the
nationalization of banks and the restructuring of debt.

					

The postman always rings twice: the euro crisis inside the global crisis

A new article from Professor Riccardo Bellofiore, professor of monetary economics and history of economic thought at the University of Bergamo, Italy.

1. Europe is in the middle of an economic and social storm. In the meantime, the world economy goes towards a recession that is none other than the prosecution of the deep structural crisis of capitalism. The institutional design of the euro is marked by many contradictions. It is however the global crisis that started the European crisis. The European crisis does anything but retroact on the world dynamics. In this context, the eurozone risks to implode[1]. The Greek crisis has been transmitted to Ireland and Portugal – i.e., the periphery of the Continent – and then, as expected, it has eventually hit the Spain. At that point, suddenly, the crisis centered on Italy, with spillovers in France and even Germany: an acceleration that has been quite unexpected. Germany is sharply awakening from the illusion of a decoupling from European demand. This illusion is, indeed, the only reason that can justify its suicidal policy since 2010, from which however it had progressively to recede.

The green shoots of a recovery have withered away very quickly, and the bounce after the crisis was overestimated. China – the only country that, since the beginning of 2009 has implemented a true Keynesian government spending policy – may derail. Its growth relies too much on infrastructural investment; and many stress that a huge real-estate bubble is developing. Older industrialised countries pretend to teach China that it could not permanently rely on under-consumption. Here another illusion emerges: that an increase in wages would automatically transform in imports. If we turn to Latin America, we see that also its growth is ridden by internal contradictions, which may end up in a slowing down of GDP growth: because of policies against rising inflation; because of a too big increase in the exchange rate; and because that area is too much reliant on the price dynamics of raw materials. The idea that the United States could move to the side of net-exporters, with only Latin America providing the buyer of last-resort, is clearly a wild dream. The awaited ‘light at the end of the tunnel’ is none other than a high-speed train that is coming towards us.

2. The euro was born with an original sin. Even left-wing parties chose not to see it, though it was quite evident from the start. Thus, they agreed to introduce a single currency that, in its own DNA, was going to determine a recessionary drift, deep differences in the competitiveness of each country, a wage squeeze, an increasing social inequality, the dismantling of trade unions and a permanent industrial restructuring. This has in fact been anticipated in 1992-93, with arguments which hold to this day, both by Jean-Luc Gaffard[2] and by Paul Krugman[3].

Within the structurally heterogeneous European area, in which there are radical variances both in the productive power of labour and in (material and immaterial) infrastructures, a nominal convergence cannot but give way to a progressive deepening of the real divergences. The in-built and on-going tendency to self-dissolution of the monetary union could be counteracted only through a common fiscal policy, governing the resource redistribution within the euro-zone internal regional areas. European authorities should also implement industrial and structural policies explicitly targeted to overcome the real divergences among countries. By contrast, the European Union budget (compared to GDP) is ludicrously low: as Vittorio Valli observed a few years ago, it is equal to a tenth of what is necessary[4].

How was such a fragile construction able to take off at the end of the 1990s? The answer is in the (temporary) success of the made in USA ‘new’ capitalism. This capitalism has been able to integrate China and the rest of Asia, and to provide demand to neo-mercantilist Europe, while Latin America and Russia were facing ups and downs. Germany overcome the re-unification shock, and pushed forward a radical restructuring of the labour market and the labour process again. With its ‘satellites’, Germany benefited from the brisker capitalist development in the ‘periphery’. The real-estate bubble spread also in some European countries. Because of that, Ireland and Spain (not to speak of England) had remarkable GDP growth: this is why their public budgets were so ‘virtuous’. In a world of lower and lower interest rates, the government deficits of Greece and Portugal, as well as the management of the Italian government debt, provided financial placements for German and French banks.

The multi-speed dynamics of Europe is well known by now. Its core is the growth of Germany with its ‘satellites’. Net exports are the driving force, with the resulting profits invested abroad. It’s a Luxemburg-Kalecki model. However, within the ‘new capitalism’ investments are increasingly driven by ‘toxic’ finance. Indeed, in Europe the treasury-bonds of the ‘periphery’ played a similar role than subprime loans in the United States.

Germany, like its ‘satellites’ and the rest of Northern Europe, has a historical need for exporting in the rest of Europe, where it realizes the largest part of its profits. Trade deficits in Southern Europe facilitate Germany also for a second reason: they hold down the nominal revaluation of euro (compared to what would happen with either the Deutsche mark or also an euro restricted to the net exporters). The ‘single currency’ gives rise also – thanks to both the increase in the productive power of labour and the wage repression, the one and the other leading to competitive deflation – to a real devaluation that benefits the stronger area. After the 1990s, even in the last decade, the net neo-mercantilist position of Europe kept on ‘closing’ thanks to the American engine. Europe’s net exports towards the United States, however, became more and more unable to offset the growing structural deficit with China, and to mend the effects of instability in Russia and Latin America.

In that phase, trade imbalances were not a great problem. For a while, financial and trade imbalances, mounting exponentially, seemed to magically make the economies more and more ‘resilient’. The concern about government finance did not look so pressing. Rather, in the same instances where growth was not driven by real-estate bubbles, the very government deficits offset the recessional tendency initiated by Germany. Actually, the ‘tragedy’ (or ‘farce’) of the sovereign debt should not be played even today. Deficit and debt ratios of the euro area are definitely lower than those of United States and Japan – not mentioning the United Kingdom. As Krugman[5] reminded us, if one make a list of countries in which government finance has been a serious trouble before the crisis, then the list add to only one: Greece.

3. Demand and the (low) growth for Europe, as well as the current sovereign debt crisis, came wholly from outside. It is not a replay of the 1992 collapse of the European Monetary System, as some Italian left economists feared in 2008. As I countered at the time, if only the economic analysis of the Left would have escaped obsolete readings, such as the tendential fall in the rate of profit, or would have resisted the under-consumption temptation (according to which the global crisis was the crisis of a world of low wages), it could have seen in advance that it was the collapse of the ‘privatized Keynesianism’[6]  which would have actually brought Europe into deep trouble. The problem is neither that ECB follows to the letter its ‘monetarist’ prescriptions, nor that European institutions are inactive, another legend on the Left. The point is rather that when they intervene in support of the economy, or they come to back up the public debt against speculation, or they eventually accept to change some of the institutional architecture of the single currency, they do this reactively, in the wake of the crisis.

The idea that European authorities will be forced, ‘out of necessity’, to create an institution giving financial support to countries in crisis, or will eventually implement some kind of fiscal redistribution on a continental scale, is not wrong in itself. The point is that they are too little, too late. The paradox is that, if they condoned Greece’s debt, the costs for Europe would have been negligible. The same is valid if you add Ireland, and then Portugal. Even in this case, a cancellation of the debt would have been much less destructive than the dynamics set in motion to avoid default, without rescheduling and reducing the debt to be repaid. But when the crisis hit Spain, and then Italy, the crisis changed its nature. The leap from quantitative became qualitative. In this situation, one either learns to swim or drowns.

It is useless to blame ‘markets’ or ‘rating agencies’. They are absolutely right, at present. They just register the dramatic absence of a political direction which could assure some way out. It is this political ineffectiveness that pushes up interest rate spreads, and that exposes one country after another to the risk of default (according to a mechanism well described by Paul de Grauwe[7]). The economic policies of European countries, because of their deflationary nature, pull down the rate of growth, while the rest of the world either comes to a stop or slows down. It is not a surprise that the sustainability of public debt worsens. It is a sort of ‘paradox of thrift’ applied to public finance. The peculiar form of ‘independence’ of the European Central Bank is a further complication. There is no political sovereignty over money in the single currency area. The ECB is neither a true lender of last resort nor it has the will to finance government deficits.

4. The crisis in Europe is not due to Greece. Nor is it the result of the government indebtedness of a given country (both in absolute terms and compared to GDP). As Jan Toporowski[8] argued, what matters is the willingness (or not) of the central bank, here the ECB, to re-finance government deficits. Even with a hypothetical euro limited to Germany and its satellites, the ‘sovereign debt’ crisis could burst anyway. For instance, it could in Belgium, whose debt to GDP ratio is close to 100%. Excluding default, a way out could be inflation, a second growth, a third a mix of the two. Both inflation and growth increase the denominator in the deficit (or debt) to nominal GDP ratio.

Inflation is currently considered as a curse. But the number of the critics of inflation will be lower and lower as the crisis proceeds. It is some years that authoritative voices, such as Kenneth Rogoff[9], have supported it, even giving a percentage, between 6%-8%. At present inflation is not an option on the table. It is the Great Recession itself that stops it. Most firms and households do not ask for credit, and loans are refuted to those who ask – because banks and financial institutions are reluctant to lend to the ‘real’ economy. We are living in a two-speed economy. Monetary stimuli make financial bubbles start again, but these bubbles do not make the real economy grow anymore. On the contrary: the burst of the bubbles brings back to the recession, and is capable of making it worse. Furthermore, one can picture what inflation means for the working classes in the absence of income indexation.

One could ask whether an exit option from the eurozone would be desirable. It is not possible to exclude that the evolution of the situation could lead to the dissolution of the single currency. Nonetheless, at present, this is a counsel of despair. An advice like this came from the left last year with regards to Greece, then to Ireland. The positive example usually put forward is Argentina in 1992. However, as again Toporowski observed, the main problem with Argentina was the banking crisis, and, second, the fact that its debt was denominated in a foreign currency. By contrast, in the Greek case, the banking crisis follows the crisis of the government debt, and it is denominated in an internal currency – or better, a currency that should be internal: the fact that it is not, in practice, it is a despicable political choice. The getting out of euro would dramatically increase the external debt burden, as it would go along with a huge devaluation. In addition, the feasibility of such a choice requires a condition that is absent in Greece, i.e. significant continuous series of government primary surpluses. Otherwise, the concurrent impossibility to satisfy the internal debt may likely lead to the insolvency of the domestic banking system. The worsening of the structural foundations of competitiveness, which has been going on for decades, makes an improvement of the trade balance something which may be very slow, or not existent at all. A spectacular reduction in the real wage should be added to the picture. It is very difficult to consider all this as a ‘leftist’ solution of the crisis.

5. Was there an alternative to the construction of the single currency in the form of the euro? And on which basis? About twenty years ago, in Les dangers d’une monnaie unique, Jean-Luc Gaffard, an economist who was for sure not Marxist, asserted that one should consider the so-called ‘paradox of productivity’. It deals with the need for a prior financing to allow the displacement of resources that will give way to a new output. The outcome of  real investments, private or public, cannot but be subsequent: and it would not be possible without that financial condition which, in turn, entails a higher bank credit and also a higher inflation (including the change in relative prices).

From this (Wicksellian and Schumpeterian) point of view, the real convergence of the European economies would have required policies which are the opposite of those defined in the Maastricht Treaty: creation of money in support of private innovation; and a temporary but substantial increase in government deficits financed by new money – deficits which may be labelled ‘productive’. At the beginning, this policy entails higher inflation and an increase in the debt to GDP ratio. But the price increase and the fiscal ‘imbalance’ will be reabsorbed as long as the policy is effective.

Notice that the introduction of the euro was not the only possible form of the monetary unification. An alternative has been suggested by Suzanne de Brunhoff[10], in the wake of Keynes’ plan at the Bretton Woods Conference. It is about the introduction of a ‘common currency’, instead of a ‘single currency’ circulating among the public. The former is just a reserve currency that would be used in the clearing mechanism among central banks of the member states, within a system of fixed (but adjustable) exchange rates. These latter would be changed in case of significant trade deficits of some countries, with the symmetrical commitment of net exporters to reduce their surpluses. This is what the EMS and also the Bretton Woods agreement failed to consider, inscribing in their DNA a deflationary drift.

The clearing of the European real ‘imbalances’ requires, yesterday as today, an intervention that concerns not only reflation on the demand side, and/or a re-coupling of the wage to productivity. A strong intervention on the supply side and in the productive structure, along with financial stabilization, is indeed needed.

It is useless to make a review of the acrobatic solutions to the crisis proposed by European authorities in the last few months; and the same is valid for the alternative proposals. The former, as Wolfgang Münchau[11] rightly observed, are dead, because of this summer turmoil. The latter are too weak, far away of the heart of the matter. Even those who assert that some of the debt is illegitimate and it should not be paid, or those who press for cancellation of the debt, are not wrong. But at present it is very unlikely that their position can gain sufficient strength in this radical shape.

The so-called European Financial Stability Facility (EFSF) has been introduced late, and it has been poorly supported. What was lacking is the will to cut interest rates and to reschedule the debt: in order to extend the period of repayment and to make the creditors bear some losses. We are now besides this stage: the EFSF, in its current configuration, cannot cope with Spain and Italy. If it ever tried to do that, it would seriously worsen the very fiscal balance of the States which contribute to its financing, including the France and Germany. Finally, it is true that the ECB has decided to implement plans for the purchase of government securities, but only on the secondary market. It is still not a structural and permanent intervention, within a coherent setting for the management of European public debt.

Without a fiscal union, whose institution is utopian in the short-run, it remains only the eurobond solution, as a common guarantee for all the public debts of the Eurozone countries. However, apart from the formal (legal and political, besides technical) difficulty linked to its quick introduction (something which could be speeded up by a worsening of the crisis), the question is: eurobonds to do what? As Yanis Varoufakis[12] observed, it is necessary to consider eurobonds as something more than a credible instrument to reach a low-cost public debt financing for the countries in trouble. They have to be regarded also as the foundation for a coordinated expansion of expenditure and investments on a European scale. It amounts, in fact, to a proposal for a renewed, and innovative, New Deal that could directly lifts the structural ties to growth, by improving the quality of the output and by increasing the productive power of labour.

6. Some insights towards a real alternative to the current mess may come from the structural Keynesianism of those who are, at the same time, critical of capitalism and the realized Keynesianisms of the past. I shall refer her to some recent analyses by Alain Parguez[13], and to some less recent contributions by Hyman P. Minsky[14].

There is no economic development without debt. More recent decades confirmed that ex post government deficits are the condition for the net creation of income in the private sector. However, as Parguez teaches us, we have not to forget that there are ‘bad’ deficits and ‘good’ deficits. ‘Bad’ deficits – like those, first, of Monetarism, and then of ‘privatized Keynesianism’ – are the non-planned result of the tendency to stagnation, of shock therapies, of deflationary policies, of the unsustainability of toxic finance, and so on. By contrast, ‘good’ deficits are planned ex ante deficits. Their aim is to build-up, and improve, a stock of productive resources. They are a means for the production of wealth and not of (surplus)value: a long-run investment in tangible (infrastructures, ‘green’ conversion, alternative forms of transport, etc.) and intangible (health, education, research, etc.) goods. A gender-balance and a nature-friendly approach becomes internal and crucial to this policy. The same welfare has to be transformed: from the privilege given to money transfers towards a direct intervention on the use-value side, as part of a wider planning.

Obviously, a deficit spending of this kind immediately raises the government debt to GDP ratio – but the subsequent growth in the denominator will make this increase only temporary. Such an intervention may have positive ‘capitalist’ effects, i.e. the effects which mesmerize Post-Keynesian economists. It would support the real economy from the demand side, it would stabilize the financial sector by providing ‘sound’ financial assets, and it would increase the productive power labour. This is the reason why this intervention can – and must – be part of a ‘minimum programme’ of a class Left. It is clear, however, that this entails not a stable model of a new capitalism, but rather an ‘imbalance’: an uneven terrain where the issue of an overcoming of capitalism has to be finally dealt with.

7. Here some of Minsky’s conclusions in his John Maynard Keynes (1975) turns out to be very enlightening. Of course, Minsky is not a ‘revolutionary’ thinker in any standard way. Nonetheless, his perspective is that of a ‘socialization of investment’, coupled with a ‘socialization of employment’ and a ‘socialization of banking’. Nothing strange, you may say. Did not Keynes himself advance the thesis that capitalism needed a thorough ‘socialization of investment’?

Not quite. The General Theory, Minsky writes, is to be read as a product of the ‘red’ 1930s. Keynes himself underlines its conservative implications, versus socialism. Once full employment is achieved – thanks mainly to high private investments supported by economic policy (including an expansion in money supply to reduce the rate of interest) and the resulting positive expectations – there is no reason to argue against the market allocation of resources. This Keynes has never been enough, and it is not enough today. The really-existing Keynesianism during the so-called Golden age is criticized by Minsky from the bottom up. It was a system in which taxation and transfers govern consumption, monetary policy rules investments, government spending is either waste or military expenditure, rent-positions and finance are nurtured. He calls this a strategy of high profits, high investment, leading to an artificial consumption, and putting at risk the biological and social environment. A ‘socialism for the rich’.

This is Minsky. We have to come back to the first square, he insists: to 1933. We have to think for the first time a Keynesian New Deal, dealing with the fundamental questions: ‘for whom is the game played?’; ‘what kind of product do we want?’. Minsky favours a society in which the real structure of consumption is determined by government investments, which are the driving force behind autonomous demand, which gives way to a different supply side. He explicitly reclaims a ‘socialization of the towering heights’, consumption as a ‘common’ dimension, capital controls, the regulation of finance, banks as public utilities, and so on. Minsky, like Parguez, asks for the State to be the provider for a ‘direct’ creation of employment.

The Great Recession, as the final crisis of Neoliberalism as we knew it, and the European collapse, as the deadlock of Neomercantilism, are putting again on the agenda the issues of how, and what, and how much to produce.

Translated by Marco Passarella, this article will shortly be published in Transform!

[1] It was not very difficult to see that in advance. Cf. Riccardo Bellofiore and Joseph Halevi: “Could Be Raining. The European Crisis After the Great Recession”, International Journal of Political Economy, vol. 39, no. 4, Winter 2010–11, pp. 5–30.

[2] “Les dangers d’une monnaie unique”, Le Monde diplomatique, settembre 1992.

[3] “Lessons of Massachusetts for EMU”, în Torres Francisco, Francesco Giavazzi (eds.), The Transition to Economic and Monetary Union, Cambridge University Press, Cambridge.

[4] Vittorio Valli, “Una politica di sviluppo per l’Europa”, in Rive Gauche. Critica della politica economica, Sergio Cesaratto and Riccardo Realfonzo (eds), manifestolibri, Roma 2005

[5] http://krugman.blogs.nytimes.com/2011/08/25/fiscalization-watch/

[6] The definining features of this ‘new’ capitalism have been put forward quite clearly already before its crisis in Riccardo Bellofiore and Joseph Halevi, “Tendenze del capitalismo contemporaneo, destrutturazione  del lavoro e limiti del «keynesismo»”, in Rive Gauche. Critica della politica economica, Sergio Cesaratto and Riccardo Realfonzo (eds.), manifestolibri, Roma 2005 (there is a German version: “Was ist neu am ‘neuen Kapitalismus’. Der Wandel von Wirtschaftspolitik und Arbeitsbeziehung aus der Perspektive von Marx und Kalecki”, in Keynes als alternative(r)? Argumente für eine gerechtere wirtschaft?, Günter Krause (ed.), Karl Dietz Verlag, Berlin, 2007; an English versioni is going to be published in the near future as “Deconstructing Labor. What is ‘new’ in contemporary capitalism and economic policies: a Marxian-Kaleckian perspective”, in Employment, Growth and Development, C. Gnos, L.P. Rochon, D. Tropeano (eds.), Elgar, Cheltenham, 2011. The picture of this financial and privatised Keynesian is developed in all other papers of ours thereof. Our reading was, and is, opposed to the distributional/underconsumptionist vulgata which is plaguing every corner of heterodox economics, and which grounds the economics proposal of the alternative Left. Privatised Keynesianism is a notion which has been independently employed by Colin Crouch, in many papers. Cfr. “Privatised Keynesianism: an unacknowledged policy regime”, British Journal of Politics and International Relations, 11: 382–399.

[7] “Only the ECB can halt eurozone contagion”, Financial Times, August 3, 2011.

[8] “Not a very Greek tragedy” Re-public June 2010, http://www.re-public.gr/en/?p=2400

[9] “The bullets yet to be fired to stop the crisis”, Financial Times, August 8, 2011.

[10] See her contribution in François Chesnais, Suzanne de Brunhoff, et al, La mondialisation financière: genèse, coût et enjeux, Syros, Paris 1997.

[11] “Even a joint bond might not save the euro”, Financial Times, Aug 28, 2011.

[12] Cf. the second version of his “Modest Proposal”, with Stuart Holland:

http://varoufakis.files.wordpress.com/2011/04/ceb1-modest-proposal-2-2-6th-april-20111.pdf

[13] “The true rules of a good management of public finance”, March 2010, mimeo

[14] Cf. chapters 8 and 9 of his 1975 John Maynard Keynes, reissued in 2008 by McGraw Hill Professional. More on Minksy’s thought (and his interpretation of money manager capitalism) in my introduction to the reprint of the Italian translation: Keynes e l’instabilità del capitalismo, Bollati Boringhieri, second edition, Torino 2008

Democratic lessons on public debt from developing countries

Decades of bitter experience of financial crises have produced several lessons, argues economist Costas Lapavitsas. One is that engagement with multilateral organisations, principally the IMF, is to be avoided.

Public debt has become a focal point of the current economic crisis, serving to justify policies that cut public expenditure, push wages downwards and raise unemployment. But public debt also poses fundamental issues of democracy. What do working people – the “hard-working families” who are the favourite of UK politicians – know about its causes and composition? The answer is probably next to nothing. On what grounds are they then called upon to make severe sacrifices presumably to put public debt under control?

Elections are not an answer even when a government has been elected on an explicit debt ticket as, for instance, the UK Conservative party was. Electoral platforms offer little more than general, and often ideological, arguments about the implications of debt. The reality is that public debt is a multilayered magnitude that remains largely obscure to voters.

Further issues of democracy are posed by the social repercussions of public debt. The holders of public bonds lay claim on part of the annual product of a country collected by the state through taxes. In effect, public debt acts as a mechanism for the transfer of income and wealth among entire social classes and nations. It seems fundamental, therefore, that those who are called upon to bear the burden of servicing it should have an active say in its management. Public debt is far too important to be left in the hands of unelected technocrats and even politicians who are transparently ignorant of its nature.

But is there a way of translating into actual practice the democratic right of knowledge and active participation in the handling of public debt? An answer can be gleaned from the recent experience of developing countries.

The current crisis is the third great financial upheaval to have hit the world economy since the start of financial liberalisation in the 1970s. The first, in the 1980s, devastated Latin America and the then Eastern bloc. The second, in the 1990s, battered the Asian “tigers”, but also Russia, Argentina and Turkey. The disaster that commenced in 2007, on the other hand, has affected the core of the global financial and economic system, mainly the EU, the US and the UK.

All three crises have been associated with the so-called financialisation of capitalism, and hence exhibit common patterns. Stricken countries have often faced strong growth of domestic credit, but also heavy borrowing from abroad. Domestic and foreign credit frequently went to real-estate speculation, financial transactions and consumption, rather than production. When the inevitable crisis burst out, borrowers were left with vast debts, domestic and foreign, private and public. Multilateral organisations then arrived, imposing austerity, protecting the interests of lenders, and shifting the costs of debt on to society at large. The result was years of falling incomes and high unemployment.

Decades of bitter experience have produced several lessons, three of which merit mentioning. First, engagement with multilateral organisations, principally the International Monetary Fund (IMF), is to be avoided. Stabilisation policies lead to stagnation, and for sustainable growth it is best to keep the IMF at a distance. Second, the international machinery to deal with debt favours lenders, typically large banks and other bondholders. Effective debt relief requires sovereign intervention by borrowers to achieve substantial cancellation of debt. Even more, it calls for international co-operation among borrowers.

Third, protecting the interests of borrowers works best when broad layers of people are involved on a democratic basis. An important innovation has been the formation of independent debt audit commissions – often drawing on popular movements – that have demanded open access to information. An audit commission could examine public debt for its legality, legitimacy, odiousness and social sustainability, providing grounds for its cancellation.

Social and political conditions are different in developed compared with developing countries, needless to say. But the democratic right independently to examine public debt with the aim of advocating radical policies for its management, including cancellation, is the same. There are signs that this lesson from developing countries is increasingly appreciated across Europe, starting in Greece but also in Ireland, Portugal, France and elsewhere. Let us hope that working people in developed countries will find the strength to deploy the weapon of democratic audit commissions in confronting public debt.

Costas Lapavitsas is Professor in Economics at the School of Oriental and African Studies, Univeristy of London. He will be speaking at the Europe Against Austerity Conference. This article was first published on The Guardian’s Poverty Matters Blog.

Beware! The Right is exploiting the economic crisis

“Are we now to be held liable for entire countries? Already, we’ve had to pay up for the bank rescue.” Many people cannot understand why Greece, Ireland, and Portugal should be provided with aid, explains German economist and Die LInke MP, Michael Schlecht .

“Who else on Earth are we still to rescue?” asks the tabloid Bild, jumping on the bandwagon and detaling minutely the cost to Germany. Already, Germany is guaranteeing €200 billion and, from 2013 on, is to contribute another €22 billion to the next eurozone safety net.

In Finland, the right populists have managed to increase their seats more than six times by raising the slogan “We are not prepared to pay up for others’ mistakes.” And in France, Front National leader Marine Le Pen, preparing for her 2012 presidential election campaign, comes forward with even more aggressive slogans. Already now opinion polls show her as winner of the first ballot. Also in many other countries right-wing populists exploit the debt crisis in Europe for their propaganda.

In Germany, too, a new rightwing populist force may emerge. After all, representatives of this political turn of mind are already in parliament in the ranks of the Christian Democratic/Christian Social Union and the Free Democratic Party.

It is they who offer the fiercest resistance to further aid for Greece. Such aid, if provided at all, is to be combined with massive infringements of the country’s sovereignty, they say. CSU politician Hans Michelbach has called for an ‘agency’ which is to be largely sustained by the IMF and the EU and to have a major say on Greece’s internal affairs. According to him, “the Athens government should transfer all state enterprises and interests to this agency which then will handle the sales.”

This inevitably evokes memories of the Treuhand Privatization Agency which organized the liquidation and plundering of the GDR. Such a practice, however, would massively increase the resistance of the Greek people. This prospect nourishes hopes that such far-reaching attacks will be repelled.

Nevertheless, hardliners in the German ruling coalition have threatened to withdraw their support in parliament from any further aid, be it for Greece or in the shape of the European Safety Mechanism to be effective as from 2013. Thus whether a majority will come about now for Greece and in autumn for the ESM is still uncertain.

This poses the risk of an exacerbation of the crisis. Chancellor Angela Merkel’s strategy for solving the euro crisis has failed though she keeps stressing that Germany is the main profiteer of the euro and that everything has to be done for defending the euro and European integration.

In fact, the dangers precisely to the German export economy are tremendous. In case the threat of a break-up of the euro zone would materialize, the resultant national currency would be immediately upgraded by 30 to 40 per cent. Approximately one third of working hours are performed in the export industry and more than ten million jobs are depending on exports. Any upward revaluation would endanger millions of jobs.

Michael Schlecht MP is Chief Economist of the DIE LINKE Group in the German Bundestag and Spokesman for Trade Union Affairs in the Executive Board of DIE LINKE

Blame the parents (again)

David Cameron blames the family for the riots. In this, he is at one with most politicians and pundits are blaming the family for the riots, argues Lindsey German. Not the Royal family, of course. Not their families, you understand. Their children don’t riot or steal or behave badly. But our families.

Conveniently, that means the authorities can’t be to blame. Their policies, their opinions, their inactivity in the face of worsening inequality, cannot be challenged because it’s all our fault.

To do anything else, to show a glimmer of understanding of what is really wrong with society, would be to deny the policies which successive governments have followed now for three decades. So they devise a simple equation: marriage is at an all time low, divorce at an all time high, the number of children born outside marriage is also at record levels. So the problem must be the lack of a strong nuclear family,

Now it’s true that everyone lives in families. It’s true also that many families today are single parent families. Some as a result of divorce others because they didn’t get married in the first place. One third of all marriages in Britain ends in divorce and first time marriages are at an all time low.

But society doesn’t begin and end at the family. All sorts of other factors influence and affect what sort of family we live in. So the blame the family argument, whatever you think about it, is illogical – not least because it ignores any other common factors facing the communities involved in the riots.

Let’s look at a few of them.

Work: Women work outside the home on an unprecedented scale – not necessarily because they want to but because you need two incomes to maintain a family whereas one income sufficed a generation or two ago. We work some of the longest hours in Europe and in a quarter of all families with young children one parent works evenings.

Unemployment: Youth unemployment rates are high in most of the areas which saw rioting, and there is little prospect of finding well paid work.

Poverty and inequality: The gap between rich and poor is at its highest for 200 years in London, with the richest 10 percent there having wealth worth 273 times that of the bottom 10 percent, according to Professor Danny Dorling at Sheffield University. Inequality has grown in recent years.

Education: Many young working class children see education as their only route out of poverty. But their schools are denied resources and subject to a narrow curriculum (unlike in the private sector); their Education Maintenance Allowance is being cut, which will make it harder for poor children to stay in post 16 education; and tuition fees at universities will treble next year. Oxford, Cambridge and other elite universities have few black and Asian, or indeed working class, students.

Racism: Black and Asian kids are 7 times more likely than whites to be stopped and searched by police.

Housing: The right to buy council houses, the growth of a new class of private landlords, property speculation and rising prices have all led to a chronic housing shortage in London. Most young working class people have no chance of getting on the lowest rung of the housing ladder, nor of getting council housing.

Consumerism: For the past two decades we have been told that we define ourselves by what we consume. The happy family is a consuming family, and that the expensive brands are what we all aspire to. Yet real wages are falling and living standards are declining, so most of the consumer goods are denied to many.

Are we seriously saying that none of these factors had any bearing on what happened over the past weeks?

If you are on an estate like the Pembury in Hackney, just next door to where I live, then you are likely to be poor, you are likely to be in overcrowded housing without gardens or amenities for children, and your children will face a future with little hope for jobs and education. There may be no room for children to do their homework, and they may not receive proper meals. It is just two miles from the City of London, where bankers spend more in a night’s drinking in a champagne bar than these people live on in a month. It is around the same distance to the new Olympic park where resources go into stadiums, expensive shopping centres and luxury housing all out of the reach of local people.

So families are affected by income and life chances and by class. To be told by Eton educated David Cameron that you need to take more responsibility for your family is galling indeed. Most of the cabinet ministers hand over responsibility for their children to nannies, housekeepers and boarding schools. If they work long hours, there will be a myriad of services available to them to carry out the roles they would otherwise have done in the family. They can afford private health care, a range of personal services, and extra tuition for their children to ensure that they don’t fall out of an increasingly competitive education system.

Boris Johnson, the London mayor, talked of a sense of entitlement felt by young people who had rioted. The exact opposite is true. It is the Johnsons and Camerons who have a sense of entitlement. They believe that their background and education give them the right to anything that they want, and to deny so much to the poorest in society. They believe that the rich are entitled to become richer, while the poor have to accept devastating cuts in their incomes. While those on disability benefit are subject to pressures to find work at any price, Johnson advocates a tax cut for the very richest.

Many young working class kids, on the other hand, feel that society has little to offer them and does not value them. No wonder that some of them in the way that they did this week, by trying to grab some of the consumer goods usually beyond their reach.

This article was first published on Huffington Post

 

Merkel steamrolls Europe

The debate about an economic government for Europe has at long last put the central problem of the continent on the table argues German economist Michael Schlecht. And  the problem is clearly the imbalance in foreign economic relations!

Changing her long-standing negative attitude, Angela Merkel now jointly with Nicolas Sarkozy wants a European economic government – to synchronize national economies and remove imbalances in foreign economic relations. These, however, first of all consist of a disequilibrium between Germany and most European states, especially the southern ones.

Germany’s foreign trade surplus accumulated since 2000 amounts to €1.4 trillion large part of this stemming from the eurozone. The central reason behind this development is the stagnation of wages in Germany which in real terms have not increased since 2000. This is due to the Agenda 2010 labour legislation which has led to a marked deterioration in the living situation in the country. Internationally, it works as a battle axe in the hands of exporters. At the same time the internal economic development has been constricted curbing the sales prospects of foreign enterprises in the German market. Here the unit labour cost increased by six per cent as compared to 30 per cent in other eurozone countries.

Inversely, Germany’s foreign trade surplus has plunged other countries into an ever rising indebtedness of private households, enterprises, banks, and ultimately the respective state. This is the central source of the crisis. The finance and bank crisis with its own dynamics is creating serious problems as does the resultant debt crisis of the states. Yet the problems of the European economy will not be solved unless the imbalances in foreign economic relations are removed.

A European economic government ought to see to it that Germany corrects its course keeps the development of wages and social benefits in pace with other European countries.

But this is exactly what Angela Merkel does not want. She intends to use a prospective European economic government for forcing upon the other countries the “German road” and German hegemony. She intends to export the Agenda 2010! She wants to reduce wages and social benefits in Greece, Portugal, and other countries. Already, she has partially succeeded in doing so. As to Greece, she deliberately blocked aid until the hard-pressed Greek government had to bow to the German dictate. Now a prospective European economic government is to serve her for making Europe more German. Countries which have automatically adjusted the development of wages to inflation are to drop this social safety mechanism. Merkel wants statutory retirement age to be raised to 67 everywhere. And, finally, she intends to export the German debt brake to all of Europe.

All this is done according to the motto “German values shall cure the world”! Once it was German tanks, today Merkel is steamrolling the continent.

Michael Schlecht MP, is Chief Economist of the DIE LINKE Group in the Bundestag, Spokesman for Trade Union Affairs in the Executive Board of DIE LINKE

The violence of the alienated

Commentary following the outbreak of violence in Tottenham this weekend has already fallen into the tropes familiar to those with experience of other outbreaks of anger from local communities such as those that occurred during the 2001 Northern Disturbances, say Ratna Lachman and Neil Cooper.

The focus of press coverage and political reaction – both Labour and Conservative – has been to condemn the weekend’s events as ‘organised violence’ and ‘wanton thuggery’ perpetrated by ‘criminal elements’ who exploited anarchy on the streets to engage in an orgy of looting. However, whilst no one would wish to condone looting, burning and attacks on the police, it is also the case that focusing on the easy targets – the so-called ‘feral youths’ with their hoodies and face masks – avoids the harder questions the riots raise about the culpability of government policy.

David Cameron and the Coalition came to power with two big ideas. One was that the budget deficit had to be addressed by massive cuts in public expenditure – effectively leaving the single mother, the unemployed and the vulnerable to pick up the tab for the activities of feral bankers and city traders. The Chancellor, George Osborne, speaking from his theme park holiday in the US  valiantly informed us that following the downgrading of America’s triple A credit rating and steep rises in interest rates on Italian and Spanish bonds, the UK was right not to ‘buck the markets’ by holding firm to its programme of deep public spending cuts.

The second big idea was the Big Society – where an army of volunteers and do-gooders would miraculously step into the vacuum left by the state, fostering new bonds of community harmony and re-making social safety nets slashed by the Osborne axe.  However, the London Riots have exposed the emptiness of both big ideas by highlighting that the ‘markets’ in community trust, confidence and solidarity – even more so than the financial markets – just can’t be bucked.

The rioters in Tottenham have acted like a flash mob version of the international credit rating agency, Standard and Poors, effectively downgrading the government’s ‘social’ credit rating. No doubt the obligatory condemnations of violence will also be accompanied by ritualistic commitments to learn the lessons for policing and for social policy – but we have been here so many times before with successive governments that the British State is starting to look like a bad debtor when it comes to social welfare – endlessly promising to reform but continuously defaulting.

A decade ago the family of Stephen Lawrence wanted to know why they were denied justice following the murder of their son. Following Thursday’s shooting of a young Black man, allegedly by the police, the parents and family of Mark Duggan were asking the same questions. They deserved to know what led to their son’s death, as did Mark’s friends and members of the wider community. The failure of the police to treat them with the minimum standards of humanity that anyone – Black or White – ought to have been entitled to, raises serious questions about police conduct in this instance.

As the disorder spreads to other London boroughs, residents of Bradford, Oldham and Burnley are probably reliving the divisive legacy of the Northern disturbances which strained community relationships and created a breach between the police and Asian communities who metaphorically sold their shares in the police as public confidence dipped.  If we are to draw any lessons from Bradford’s 2001 Disturbances then it must be that an effective policy response will not be found through recourse to simplistic rhetoric – whether it be about parallel and segregated communities in 2001 or about the increasing gun and knife ‘criminality’ among African-Caribbean youth in 2011 – but by sustained engagement with multiple and complex social problems.

The violence in Tottenham certainly included opportunists looking to make a quick profit at someone else’s expense and – to the extent that it involved local people – might be described as a form of irrational behaviour which only succeeded in inflicting millions in damage to the local environment and left many without businesses and homes.  Of course much the same could be said for the City traders during the financial crisis – the only difference being that the Tottenham rioters will no doubt be banged up whilst the delinquents in the City still receive their bonuses and knighthoods, despite the fact that the vandalism they perpetrated on the British economy was nationwide and cost hundreds of billions.

But acknowledging that the riots were spontaneous and conducted by rebels without a cause does not mean we should also discount the idea that the event was also a political and economic protest – not the kind of protests we have witnessed during the Arab spring, with their clearly articulated grievances and political goals but the violence of the alienated and the angry who no longer feel they have a voice that is heard in the public discourse between politicians, bankers and the ratings agencies.

Tottenham is a stark reminder of the legacy of inequality that lies at the core of the African-Caribbean experience in Britain. The reality is that the community suffers high levels of deprivation; they consistently under-perform in education; they are over-represented in the criminal justice system; they suffer some of the worst health outcomes; they are disproportionately targeted in police stop and search statistics and the disproportionate deaths of Black men in police custody speak of systemic and structural barriers that have to be addressed. The facts are stark:

Unemployment among Black groups has risen 13% since March 2008, compared with 8% among White people. Today, half of young black people are unemployed. In Tottenham itself there are 54 people chasing each registered employment vacancy.

Only 39.4% of Black Caribbeans achieved A*−C grade GCSEs. 8% of all Black university students attend Russell Group universities compared to 24% of all White students. In 2009 only one Black Caribbean student was accepted to study on a course at Oxford University. Black Caribbean pupils are three times more likely to be permanently excluded than the school population as a whole.

Although minority ethnic groups make up 11% of the population in England and Wales, 25% of the prison population is now from a minority ethnic background. 3 out of 4 young Black men, aged between 15 and 34, have records on the DNA database and Black men were 8 times more likely to be stopped and searched than white men.

Moreover, the savage public sector cuts made to appease the markets has led to a slash and burn policy of youth provision by local authorities across the country leaving local areas with no meaningful infrastructure where the necessary intervention work to heal divides can take place. With London experiencing a 10% increase in gun and knife crime, already there were warnings of a summer of discontent as street workers and youth outreach workers are made redundant. As youth centres close their doors and programmes of summer youth activities are lost many of the young people without the luxury of paid summer holidays have little else to do but ‘hang out.’ For example, in the borough of Haringey, which includes Tottenham, spending cuts have already led to the closure of eight out of thirteen youth clubs.
These trends are being mirrored across the country – as young people’s stake in society narrows ironically local neighbourhoods have become the battleground over which they seek to exert power and control. No amount of casual volunteerism by community do-gooders of Cameron’s Big Society could have prevented what happened in Tottenham and the other London boroughs. It is hard to see how the National Citizen’s Service can replace the sustained, long-term interventions that youth work offers. What we are witnessing is the primacy of Conservative market-driven ideology over the needs of society. Youth work is a skill and we are losing it at our peril.

Of course, this does not mean that politicians will heed this lesson. Indeed, one consequence of the game of craven deference to the financial markets is that politicians get higher marks for talking tough about the need for cuts to public spending and social welfare. Conversely, tough talk on the need to address the deficit in the life chances of Black youth is likely to get short shrift from the growing band of politicians who believe that we live in a post-racial Britain.

As the full significance of recent events unfold, the worst that politicians can do is demonise the African-Caribbean community as they did with the Muslim community in the aftermath of 2001. Denouncing multi-culturalism may win the Prime Minister international plaudits and praise from the Far Right for standing up for British values but those young people who spilled out onto the London boroughs over the weekend are fourth generation British citizens – they don’t belong to a remote ‘Them’ – they are part of the collective WE.

The only difference is that being from Tottenham and from a BME community they are doubly deprived –  not so much an example of protest from David Milliband’s squeezed middle as from the ‘squeezed squeezed’. If Britain is going to be truly cohesive then this government cannot continue to remain blithely insouciant about the devastating legacy of its own actions. For example, its relentless attack on equal rights legislation at the behest of lobbyists who characterise it as a bureaucratic encumbrance is a symbolic slap in the face for minority communities who face persistent systemic and structural discrimination and institutional racism.

Whether the riots spread over the summer is hard to predict, but what is predictable is that without youth workers on the ground, society no longer has the tools to undertake the critical work of healing divides, re-engaging young people and restoring the breakdown in trust and confidence between young people and the police. It is a matter of deep irony that when the English Defence League came to Leeds and Bradford, the council deployed statutory and voluntary sector youth workers to work alongside young people to prevent a repeat of the 2001 disturbances. If similar riots were to break out or the Far Right were to return to our region we no longer have the tools in our armoury to contain the potential outbreak of violence on our streets.
We have a government that is obsessively monitoring every twist and turn of the international bond markets but which has embarked on cuts in social welfare and social provision guaranteed to destroy the community bonds that underpin effective societies – and economies. The rioters in Tottenham have just sent out their own message from the ‘social market index’ trading in public trust and confidence: between them, swingeing public sector cuts and Big Society tokenism have all meant the government has already defaulted on its obligations to the people of Britain. The big question is whether the government will be able to hear this message over the chatter between Wall Street and the City and – even if it does – whether it is capable of abandoning its ideological fixation with zombie neo-liberalism and, instead, invest in fostering the bonds of community. If it fails to do so then the hot money must surely be on the further growth of the already massive deficit in social harmony – and the consequent emergence of the Big Bad Society.

This article was originally published under the title, ‘The Big Broken Society: Reflections on the Tottenham and Northern Riots’, for JUST West Yorkshire, Promoting racial justice, civil liberties and human rights.

Penniless US is never short of money for endless war

When iPhone company Apple has more in the bank than the US federal government, Lindsey German asks how Obama pays for his war in Afghanistan, costing $2bn a week, the occupation of Iraq, the drone warfare in Pakistan and the new war in Libya?

Technology company Apple has more cash in the bank — $75.9bnbn — than the US government, which has just £73.8bn.

The figures underline why the US debt crisis has been making such headlines in recent weeks. That crisis appears to have been resolved – at least temporarily – at the expense of the poorest and most vulnerable in US society, who will find their welfare cut, their job prospects worsened and their circumstances even more straitened following a deal which was inspired – if that’s the right word – by the right-wing Tea Party movement.

As ever, there is one area of spending which is exempted from these cuts: the US addiction to war and militarism. So while the US government is on the verge of bankruptcy, it can still afford $2bn a week for the war in Afghanistan, where the air-conditioning alone for US troops is costing $20bn a year.

A study by the Eisenhower Research Project calculates the cost of the wars launched under the “war on terror” since 2001 could total $4 trillion, when future medical care and disability for war veterans is included. How is this possible? Through debt. America’s wars are financed almost entirely by borrowing. And interest has to be paid on all the war-related debt. $185bn in interest has already been paid. But between now and 2020 interest payment alone could reach $1 trillion.

Wars waged on borrowed money have been launched in an air of abandon with ever escalating spending and a belief that air strikes and troop surges can solve any of the political problems caused by US and British foreign policy over the past years.

Ending the wars would at a stroke transform the economic situation, but is not on the Tea Party agenda, which has its sights firmly on tax breaks for the rich.

It all shows how closely the economic, political and military are linked in this globalised world. Just as the living standards of the ever richer top earners are regarded as sacrosanct, so too is the military spending and the whole apparatus that goes with it. The corporations and elites need the back up of military might to enforce their rule round the globe.

Here in Britain war spending is a fraction of that in the US but it is just as sacrosanct. This, as in the US, flies in the face of public opinion. A Yougov poll carried out last year (11.2.2010) showed that 68% of respondents thought that British financial support for US wars was too high; only 5% percent thought it wasn’t. On nuclear weapons, 36% thought that too much was spent on nuclear deterrents as opposed to 13% who thought the government didn’t spend enough.

So cuts in wars and weapons expenditure would be popular as well as releasing enormous sums to spend on housing or health. Britain is spending $5bn a year on the war in Afghanistan, added to which we now have Libya, where the costs are anticipated to top £1bn if the war lasts till the Autumn. Add these sums to the £2.2bn the government spends each year on the Trident nuclear missisle system. The accumulated war costs between now and the likely date of the next general election in four years time will be approaching £30bn, which is around half of the total debt the government is aiming to reduce by implementing the deepest cuts in public services since before the Second World War.

No wonder the government is so vague about these costs. In June treasury minister Danny Alexander said the costs of the Libya war would run into ‘hundreds of millions’, just three months after the chancellor George Osborne told us it would only be “tens of millions”.

While the sick and disabled are subject to tests which try to get them off benefits and into work, while hospital waiting lists grow longer and there is a shortage of schools in many areas, the financial vagueness is used to deflect attention from the one area of public spending that is safe from cuts – the endless sums spent on fighting wars that most people in Britain do not support.

Lindsey German is Convenor of the Stop the War Coalition (UK). She is helping to organise one of the Conference workshops on this theme.