Capitalist splits, workers’ struggle – eurozone in crisis

The economic and social crisis that has exploded in Greece in recent months has exposed not only deep social contradictions within Greek society, but also fundamental problems facing capitalism across Europe. The chasm between the political establishment and the interests of working people in Greece is replicated across Europe. The result is growing working class movements resisting the attacks of the bosses, particularly in the so-called PIGS – Portugal, Italy/Ireland, Greece and Spain economies. Important splits have also opened up between the major European capitalist powers over how to deal with the developing crisis. These divisions threaten the continued existence of the eurozone and indicate that we are now seeing the beginning of the end of the euro as it is currently constituted.

Workers resist attacks across Europe

As the crisis unfolded in Greece, with Greece and the euro coming under attack from the “markets” (with groups of hedge funds deciding to bet against Greece – predicting that it would default on its debts), the key question became – who will pay for the economic crisis? While disagreeing about who would provide funds to Greece, the answer to this question from the European establishment was unified – the working class in Greece and across Europe. Spurred on by EU Commission dictats, the Greek government, preceded by the Irish government and followed by the Portuguese and Spanish governments, has implemented a vicious austerity programme.

This co-ordinated assault on workers’ living standards across Europe’s so-called PIGS economies has not been met by meek acceptance. Greek workers have been to the fore in the fightback. They responded en masse to the attacks of the PASOK government, whose austerity measures amount to €20 billion in cutbacks. These include wage cuts for public-sector workers of 7% and cuts in Christmas and summer bonuses, as well as attacks on pensions and indirect tax rises.

A series of general strikes have taken place, with the third and largest taking place on 11 March. Ninety per cent of public sector and large private sector workplaces were shut down. The enormous power of the working class was demonstrated as society was paralysed, with even smaller cities and towns shut down like the major cities. Given the huge anger of workers, further general strikes are likely in the coming weeks.

Portugal, another country in economic crisis has also implanted a “stability plan” aimed at reducing the budget deficit from 9.3% of GDP to below 3% by 2013. This plan involves huge cuts in public spending, cuts in public sector jobs, a cuts in pensions and privatisations. These amount to further harsh attacks in a country which already has one of the lowest standards of living in Europe, with 20% of people below the poverty line. March saw a strong reaction, with over 300,000 public servants engaged in a 24-hour national strike, with a participation rate of 80%.

Spain has also seen mass protests against the government’s attacks on the pension system. Over 200,000 protested in regional demonstrations across the country at the end of February. The PSOE government’s so-called “reforms” would see the retirement age increased from 65 to 67, as well as a change in how pension entitlements are calculated, which will result in a slashing of pensions. This counter-reform is part of a broader attack on public expenditure, which will see €50 billion cut from public spending. However, faced with massive opposition, the government has already been forced to drop its plans to increase the retirement age.

It is not only in the PIGS countries that workers have faced attacks on their living standards and responded by taking action. Three million workers and young people took to the streets of over 200 French cities in a national strike against the generalised attacks on their jobs, public services and living standards. Significantly, the protests were bigger and more militant and had an increased involvement of private sector workers than the previous demonstrations in January.

These growing movements across Europe represent a real threat to the ability of the bosses and governments across Europe to push through their agenda of attacks on living standards.

Major European powers divided

A combative working class is not the only danger that the European establishments now face. It is now widely accepted by more perceptive capitalist commentators, that the eurozone faces a real crisis as a result of the deepening divisions between the major capitalist powers and the fundamental contradictions within the euro area.

Greece, despite representing only 2.5% of the EU’s GDP, has precipitated this crisis because of the fact that is representative of the other PIGS countries that may well face similar crises and because it has laid bare the differences of interests and approach of the major European powers, crucially those of France and Germany.

The prospect of the Greek government being unable to borrow on the world’s markets opened up a divisive debate about whether and how funds should be given to Greece in that event. The reason why Greece could not simply be allowed to default from the point of view of most major European powers is because this could fatally undermine the euro, spreading panic that the other PIGS countries would also default, and harming major European economies.

While the key European bodies of the Commission and European Central Bank, together with France sought a “European” solution to the Greek problem, without International Monetary Fund (IMF) involvement, German leaders repeatedly ruled out the idea of a European bail out, instead emphasising that Greece was responsible for its own problems and would have to go to the IMF.

This disagreement reflects fundamentally different approaches to the eurozone project. While the European institutions were in favour of maintaining the euro and the European economies, even at the expense of “bailouts” from the major European economies, the German establishment retreated to a position of defending the interests of German capitalism.

Central contradiction within eurozone

This debate marks the re-emergence of the central contradiction within the eurozone – the fact that it is a monetary union without political union. That means that one monetary policy (interest rates, common currency, common money supply) exists across the eurozone, but without a common fiscal (tax rates, government spending etc) or political policy. This is a recipe for huge imbalances within the eurozone, whereby different countries have economies of vastly different strength, yet tied together within one common currency.

This is now seen in the contrast between the Greek and German economy. While the German economy is one of the world’s biggest exporters, with exports making up over 40% of GDP and a forecast current account surplus of $187 billion this year, the Greek economy is extremely weak, with a national debt of 112% of GDP deficit and exports only accounting for 20% of GDP. As a result, within the same currency zone, Germany can borrow on the world’s bond markets for less than 3.5%, while Greece has to pay more than double that.

This contradicts of a growing convergence between the stronger and weaker economies, as envisaged by the eurozone advocates, there has been an increasing divergence. If the Greek economy did not share a common currency with Germany, the government could devalue its currency to increase its exports and competitiveness relative to Germany. However, trapped within the euro, that option is ruled out, leaving the option of brutal “internal devaluation”, as is being pursued in Ireland – attempting to drive down wages and prices through attacks on the working class.

It was always inevitable that the eurozone would face this crisis and could not remain at the stage of monetary union without political union. In essence, the debate answered the question of whether it would move forward in the direction of political and fiscal unity, with other European capitalist classes taking responsibility for Greek debts and imposing government policies on Greece, or moving backwards, towards a break up of the eurozone. The economic crisis will push the eurozone backwards towards breakup.

“Deal” represents fudge

Following this wrangling, a deal between France and Germany and agreed by all eurozone countries was announced with much fanfare on the evening of Thursday 25 March.
However, this fundamentally represents a fudge on some issues and a victory for the German establishment on others. The key features are an outline of a “bailout” of up to €30 billion for Greece, however, this loan would be given at “market rates”, which would be extortionate given that the loan would only be called upon in the case of Greece being unable to get funding on the open market! Crucially for Germany, it contains IMF involvement, with one third of the loan being provided by the IMF. However, the really telling part, which robs this deal of any real status, is the fact that every eurozone country retains a right to veto any possible loan. In effect, this means that it is no deal whatsoever.

Sinking separately

The debate and eventual deal illustrated that the basis for “solidarity” between the European capitalist powers does not exist – for the simple reason that they remain separate capitalist powers with separate interests that have come to the fore in the economic crisis. It spells the beginning of the end of the euro.

How and over what timeframe this will unfold is not clear. The crisis that a break-up of the euro could cause for major European economies is a prospect that can delay, but not prevent, the disintegration.

The most likely variant is possibly the break-up of the eurozone from the outside in, with weaker economies opting to leave the zone, leaving a much reduced “Northern European” based euro. The Greek dilemma is likely to be replicated in other PIGS economies. While leaving the euro is not an immediately attractive option (because their debts would still be denominated in euros and would be more burdensome), if a real bail-out remains blocked by the German establishment, then the prospect of one or many of these countries leaving the euro will become real.

Alternatively, the option of Germany leaving the eurozone is now increasingly being spoken of. Forty percent of Germans now think that it would be better off outside of the eurozone. As the strongest economy, Germany’s exit would deal a massive, probably fatal, blow to the euro.
The economic crisis has seen the dramatic resurgence of the fundamental contradictions of capitalism within Europe. The increasing economic nationalism between the European capitalist classes is likely to continue as much of Europe remains mired in slow economic growth. Increasingly, militant working class movements resisting the attacks are likely to increase the tensions within the eurozone as governments are forced to grant concessions that go against the wishes of the European capitalist classes. These twin phenomena of splits between the capitalist clases and rising movements from below are a recipe for a tumultuous period in the months and years ahead.