European Crisis at Heart

[Workers-Control-Over-Prod]

The central cause for the recession and in part depression in the European currency union is economic nationalism and liberal Capitalism. The German national bourgeoisie has stagnated workers real wages since the late 80's and early 90's in light of only 14% of german workers being union members and the existing unions being extorted with East German low wage labor. 30% of Greek Workers were union members at the introduction of the Euro zone in 2001 and have fought for higher wages (in concession to more work hours), northern European and German banks gave large credits to southern European consumers for them to buy the "productive" i.e. low-wage cheaper goods from the low wage northern countries; increasing Greek and southern European consumer spending hence bidding up prices more, inflation.
It is not that Greek workers do not work enough are "lazy", in fact they work the most hours in Europe next to Austrian workers, it is that the rate of exploitation, i.e. their "productivity" is not high enough. See add-on.


Greek workers actually put in longer hours than anyone else in Europe — 42.2 per week, compared to just 35.6 in Germany

The fact that German (northern European) workers get to enjoy a higher rate of exploitation than their Greek (southern European) colleagues is just that, an empirical fact blatantly demonstrated with the following inflation rates. Compare:

Greece along the 4% inflation rate with Germany below the 2% inflation rate

http://www.tradingeconomics.com/chart.png?s=gkcpnewy&d1=20000101&d2=20120831
http://www.tradingeconomics.com/chart.png?s=grbc20yy&d1=20000101&d2=20120831

Portugal around the 3% inflation rate to Netherlands slightly above the 1% inflation rate

http://www.tradingeconomics.com/chart.png?s=plcpyoy&d1=20020101&d2=20120831
http://www.tradingeconomics.com/chart.png?s=necpiyoy&d1=20020101&d2=20120831

Spain around the 3% inflation rate to France under the 2% inflation rate

http://www.tradingeconomics.com/chart.png?s=spipcyoy&d1=20020101&d2=20120831
http://www.tradingeconomics.com/chart.png?s=frcpiyoy&d1=20000101&d2=20120831

And these large national macro economic antagonisms within the currency union went on for a decade! Creating lower prices in the countries with lower inflation rates, higher prices in the higher inflation rate countries and making capital invest into the more profitable markets. The result:
http://alphanow.thomsonreuters2.netdna-cdn.com/wp-content/gallery/spain-in-charts/chart2.jpg

[Paul Cockshott]

THE STABILITY PACT
The key measures to solve the Euro crisis according to the treaty recently adopted by most of the EU are to establish a balanced budget or a budget surplus for the state sector.

BEARING IN MIND that the need for governments to maintain sound and sustainable public finances and to prevent a general government deficit becoming excessive is of essential importance to safeguard the stability of the euro area as a whole, and accordingly, requires the introduction of specific rules, including a "balanced budget rule" and an automatic mechanism to take corrective action; 1 ;
The Contracting Parties shall apply the rules set out in this paragraph in addition and without prejudice to their obligations under European Union law: (a) the budgetary position of the general government of a Contracting Party shall be balanced or in surplus; 2
The drafters of this treaty imagine that it is possible, by an act of international law to impose a unilateral constraint on one item in a mutually dependent complex of relations. The surplus or deficit position of the government sector in the Eurozone depends upon the net positions of all other sectors.
In Table 1 we reproduce in summary form the latest data on the surplus deficit positions of all financial sectors in the Eurozone. All sectors other than the state sector run a surplus - ie, they are building up their financial assets. The change proposed by the treaty is drastic. It proposes in effect to wipe out all net financial transactions between the sectors by changing the net borrowing position of the general government sector from a quarterly deficit of €122 billion to a deficit of 0 or even a net surplus.

Table 1:
Sectoral balances for the Eurozone, 2012 Q1, extracted from the online database of the ECB on 4 Aug 2012. .

Non_________households Financial____Govt____Rest of World
financial_______________ Companies
Companies

48 __________ 22 ________ 39 ____ -122 ____ 13 €billion

But the implication of this would be that the net savings of the household sector, the compnay sector and the rest of the world would have to be reduced to 0, effectively eliminating out all net financial transactions as they exist today.
In the abstract this is possible. If by some means the savings of the household sector could be completely eliminated, if the whole company sector could be made to run at a break even position with no net financial surplus, and if the Eurozone's trade deficit with the rest of the world could be wiped out, then the government sector could run a balanced budget.
At the level of accounting it is possible, but is such a measure compatible with the continuation of a functioning capitalist economy?
Suppose the governments attempt to achieve this by austerity measures - essentially cutting public expenditure. How does this affect each of the other sectors?
HOUSEHOLD SECTOR

The 'household sector', is an amalgum of different social classes. It includes households from the propertied classes who are wealthy enough to have a substantial financial surplus, but it includes far more households who have little or no savings and are more likely to be net debtors. The neo-liberal government austerity measures in the EU today primarily target those on low incomes who have no financial surplus. As such they only have a slight impact on the fiancial surplus of the household sector.
In principle, austerity measures that would reduce the financial surplus of the household sector: for instance steep increases in income tax on higher incomes or a progressive tax on large houses and landed property. The Stafford Cripps austerity policies in the late 1940s were effective in this way. Since such policies - top rates of income tax above 90% are not being followed, the prospect of eliminating the financial surplus of the personal sector is negligable.
NON FINANCIAL COMPANIES

In principle it would be possible, for a while at least, for non commercial companies as a whole to run without a financial surplus, or even with a financial deficit, if they were carrying out a large programme of credit financed capital investment. But this scenario is not very likely. Investment by non financial companies tends to be self financing taken accross the sector as a whole. Investment by one company may require external funding, but its purchases boost the profits of suppliers, which means that the sector as a whole tends to self finance.
Firms will only voluntarily seek external finance to expand if they anticipate a high rate of profit on investment, which implies among other things a rapidly expanding market for their products. It is hard to see how this expanding market can be anticipated during a period in which austerity measures are curtailing consumer demand. Beyond that, we have argued earlier that the rate of profit in Europe has only been held up since the 1980s by a reduction in the accumulation rate. An increased investment rate would thus be self curtailing.
Involuntary deficits by industrial and commercial firms are of course possible in the short run when faced with a slump in demand. But their response to this is likely to be to quickly cut costs by shedding labour, so even involuntary deficits induced by austerity would be short lived. Attempting to force industrial and commercial companies as a whole to run at break even point, which the treaty implies, would mean, given the spread of rates of return within the sector, putting a significant fraction of them on the path to bankruptcy. This again is not sustainable.
FINANCIAL COMPANIES

Table 1 shows that on an annual basis financial companies in the Euro-zone are running a surplus of some €160 Billion and that they are thus responsible for 1 3 of the total deficit of the general government sector.
There is almost nothing that the individual nation state governments can do to eliminate this surplus with the framework of the Euro-zone. Indeed the whole thrust of economic policy in the capitalist world since the banking crisis broke out in 2008 has been to protect the interests of financial companies. They could of course levy heavy taxes on financial firms, but this is greatly complicated by the location of the firms. The countries in the Euro-zone whose governments are in the worst financial position are not necessarily the ones whose financial firms are running the biggest surpluses.
A general reduction of interest rates would cut the surplus of the financial sector, but that, under Euro system, is outwith the power of the nation states. Only the ECB could systematically force down interest rates by buying up national and local governent bonds. This would reduce the cost of re-financing and over time would, to an extent, reduce the financial surplus of the private banking sector.
The whole structure of the treaties governing the ECB has been designed by the Financial sector to prevent the ECB from acting in this way.
REST OF THE WORLD

The surplus of the rest of the world with the Euro-zone might be reduced and even eliminated by neo-liberal austerity measures. A sufficiently strong recession in the Euro-zone might cut imports sufficiently to eliminate the trade deficit of the zone with the rest of the world. But this of course would only succeed to the extent that the rest of the world itself did not slip deeper into recession.
One effective tool that national governments have traditionally been able to exercise is now out of reach for the Eurozone. They can no longer devalue to bring their trade back into balance. The ECB again could force a devaluation were it to act as the Bank of China used to, and systematically buy up large quantities of dollar securities. But the national governments can not instruct it to do so.
CONCLUSION ON THE STABILITY PACT
The structure set up under monetary union effectively makes it impossible for national governments to meet the obligations that they have undertaken in the pact. Any serious attempt to impose balanced budgets by austerity measures will be ineffective in its professed aim, and would as a side effect engender a downward spiral of bankruptcies, rising unemployment and deepening economic ruin.

[Workers-Control-Over-Prod]

This crisis is unbelievably heavy. An expansion of the contraction recession into northern European economies within the next couple months is almost certain if Greece leaves, and then Spain etc. which would strip German capital of its devalued export currency, not to mention markets that would crash. Either way, the reactionary bourgeoisie is in Power in nearly all of the west, and it seems the american ruling class has set it in its head to further lower wages. Austerity is the way that the capitalists want to go, this raises questions: will workers not again use their democratic rights of protest, strike etc. to fight this, and, assuming they will, will the reactionary bourgeoisie once again hire thugs and see it necessary to establish a fascist state to its survival as a class?

[Lynx]

Unions are more militant in some European countries than they are in North America. Nevertheless, mainstream economics is saying that austerity is necessary and most of your political parties believe this. Even the ones that call themselves 'socialist'.
The last crash led to fascism in Europe and the New Deal in the US. Who knows what will happen this time!

[Paul Cockshott]

It is urgently necessary to put forward an alternative economic strategy for Europe from the standpoint of the political economy of the workers rather than the political economy of the propertied classes.

[Workers-Control-Over-Prod]

It is urgently necessary to put forward an alternative economic strategy for Europe from the standpoint of the political economy of the workers rather than the political economy of the propertied classes.

Yes, but how do you think the bourgeoisie will act now? Do you not think that if workers organize into radical parties and unions that they will fear for their class survival and hire fascist thugs and support fascist parties to destroy democratic rights?

[Paul Cockshott]

Well possibly, but the one thing that is certain is that without an alternative economic policy it is not possible to constitute a political challenge capable of defeating the right in open politics. If they are defeated politically, if they loose electoral support, they may resort to other means, but if we dont defeat them politically they do not need to resort to those means.

[ckaihatsu]

Yes, but how do you think the bourgeoisie will act now? Do you not think that if workers organize into radical parties and unions that they will fear for their class survival and hire fascist thugs and support fascist parties to destroy democratic rights?


The crisis is currently being displaced onto the Middle East through pan-imperialism and geopolitical intrigues. It begs the importance of a common *political* struggle to oppose the war machine that keeps an artificial momentum going through military Keynesianism.

[midas1123]

I read about these somewhere. Which specific countries do you think are specified here like in the middle east?

I say it's gonna get worst next year but I'm hoping the opposite. Try here zetia 10mg (https://www.rx247.net/zetia.html)

[Workers-Control-Over-Prod]

I read about these somewhere. Which specific countries do you think are specified here like in the middle east?

I say it's gonna get worst next year but I'm hoping the opposite.

A World Depression is inevitable. To quote Richard Duncan, a bourgeois economist and contributor to the conservative magazine 'The Economist', we might have "three to five more years" until we have a depression which will last " a couple decades".

[Workers-Control-Over-Prod]

Just read that consumer consumption has decreased by 20% in the last four years in germany!

[TheRedAnarchist23]

this raises questions: will workers not again use their democratic rights of protest, strike etc. to fight this

They are already fighting. Almost every week there is a peacefull demonstration in my country. Every time there is a serious one, with many people, you see black flags, which are many more than the red flags.
All of the country is united under one cause: To make the government fall.

[Workers-Control-Over-Prod]

They are already fighting. Almost every week there is a peacefull demonstration in my country. Every time there is a serious one, with many people, you see black flags, which are many more than the red flags.
All of the country is united under one cause: To make the government fall.

By "democratic rights" i did not just mean mass protests, but building a workers political opposition...