Monday, February 08, 2010
The speculators attack posted by Richard SeymourThe current speculative attack on the Euro is a very powerful vote against EU states that investors (capitalists) do no believe have moved swiftly enough to cut their budget deficits. The rules of the Stability and Growth Pact agreed among EU member states say that budget deficits must not exceed 3% of GDP. Those rules were designed to put a cap on public spending. They have provided the occasion for various EU governments to slash and burn welfare and public services, and they effectively insulate any government that wishes to do so from criticism - this is the cost of being a member of the EU, they say. Of course, the rules are subject to interpretation and haggling, and two of the most powerful EU states - namely France and Germany - were able to force through some get-out clauses when they went in to deep recession in the early 2000s and found themselves repreatedly breaching the 3% limit. Nevertheless, EU member states are now being pressured to get their own budgets back within that limit.
Greece has been the subject of investors' disapprobation lately, with a deficit of 12.5% (slightly lower than the UK, at 13%, and comparable to Ireland and Spain). The government has been instructed to look for ways to make big spending cuts to meet this EU target. And though it was elected on a promise not to cut wages, the spending cuts agreed at the EU include a 10% cut in wages. George Papandreou, defending this betrayal, was able to cite a speculative attack on government bonds, which drove up the yield (the interest repayable) to more than twice that of Germany - which means it costs the Greek government more than twice as much to fund its deficit. He said: "Greece is at the centre of an unprecedented speculative attack: we cannot be at the mercy of creditors. Despite our tragic mistakes, our fate is today defined by rating agencies that bear responsibility for the 'bubble' that led to the global crisis in the first place." So, the pressure being applied by this 'virtual parliament' of capitalists is being used to deflect criticism of the elected parliament of Greece while it does the exact opposite of what it was elected to do. This is Pasok's only answer to the trade unionists who will be undertaking mass strike action this week.
The effects of such policies are not difficult to establish. The Irish government, arguably the most enthusiastic neoliberal state in Europe, didn't hang about. Its response to the economic crisis was to impose several austerity budgets which depressed GDP by 5%. It has recently introduced a budget intent on reducing expenditure by 15bn euros over the next four years, reducing total state expenditure by a quarter. Unemployment has been driven up to 12.5%, and a wave of mortgage defaults has left thousands of families without homes. But if the word from the corporate press in Ireland is any guide, then big business loves it, and especially the Minister of Finance, Brian Lenihan, whose beatification is not far off. And this is what they intend for the rest of Europe. The pressure isn't stopping with Greece. A whole spate of southern European economies including Italy, Portual and Spain are coming under scrutiny, and all will be expected to attack working class consumption, suppress wages, slash the public sector and subsidise industry.
On one level, this is crazy. Of course there are budget deficits during a recession, especially one as deep as this. This is what you would expect as tax intakes drop. It is quite normal and rational for a government to build up a deficit during a recession, because it is supposed to act in a counter-cyclical fashion. On another level, it is hypocritical. This is not just because rules are being made to apply to southern European economies that do not apply to the union's more powerful constituents. As Joseph Stiglitz has pointed out, the ECB is happy to lend to banks, but not when it comes to member states. It's all stimulus where private finance-capital is concerned, but sour-faced austerity when public sector budgets are involved. But then, that is the point. The EU isn't attacking Greece, or neglecting Greece, as Stiglitz claims. Greek capital will do well out of this. It will benefit from suppressed wages, will probably make a tidy profit from sold public assets, and will enjoy the continued access to Balkan and Eastern European labour markets that membership of the EU brings. It's a not an attack on Greece. It's a class war.