A CRISIS OF TITANIC PROPORTIONS: The European Union in Uncharted Waters.

The difficulty these days in writing a two-weekly column of political commentary on current events is that things are moving so fast that by the time the column is posted, the commentary and any opinion offered, may be out of date. At the time of writing (04.11.11) the global political elites are gathered in Cannes for the G.20. summit which was, just a few days ago, heralded under the laughably inappropriate slogan “New World; New Ideas”. If only!

Whatever wishful thinking may have prevailed in the citadels of Europe’s two economic “powerhouses”, Germany and France, it was soon dispelled when Greek prime minister Papandreou threw a mighty spanner in the works by announcing that he intended to put the latest austerity measures to be imposed on the country to a referendum. Shock and horror! The last thing the arbiters of Greece’s destiny want is to allow the Greek people to decide on such important matters. They are expected to grin (or grimace) and bear whatever is coming to them. It has long been apparent that decision-making in the EU does not involve consulting public opinion in the member states unless it is absolutely unavoidable. Even then, as the resounding Irish “No” vote on the Lisbon Treaty showed, voting the wrong way is unacceptable. A further referendum must be held in which the preparatory propaganda and the question must be framed in such a way as to guarantee the right outcome. Papandreou was leant upon very heavily by Sarkozy Merkel and members of his own cabinet and he duly abandoned the proposed referendum. On news of this, share prices recovered after the earlier panic which had produced sharp falls in the FTSE 100 and in bank shares. But such market volatility is likely to continue as the roller coaster of the European debt crisis continues on its precipitous course.

The further dose of austerity that the Greeks are forced to swallow in exchange for the latest 8 billion bailout, will only exacerbate the problem. The bailout will enable the government to pay the salaries of public sector workers but it will do nothing to stimulate economic recovery. It will make things worse because, as with every preceding bailout, the draconian austerity measures demanded in return result in slashing wages and pensions, decimating public services and privatizing state assets. Consumer spending will be depressed further as purchasing power is cut yet again. Inevitably the reaction of growing sections of the population is to take to the streets in protests that are already making the country ungovernable. It now looks as though Papandreou’s government will be forced to resign, to be replaced by a caretaker administration pending new elections. Whatever happens in the next few days, there is no prospect of any solution to the crisis that will begin to release the Greek people from their deepening misery. They seem to understand this perfectly well, for they have lost faith completely in the political elites of all parties. Should opposition leader Samaras replace Papandreou as leader of a “national unity government” he is no more likely to win popular support than his predecessor. As a “fiscal conservative” he also accepts the terms of the EU bailout and has absolutely nothing to offer the people. The same may be said for the other option being touted by some of the business elites, namely a “non-political” government, led by a technocrat.

It is now likely that Greece will be forced out of the eurozone.  There is little point in speculating about what the consequences of this might be for the country. The EU leaders are mainly concerned to ensure that the banks that lent to Greece and are now having to “take a haircut”, do not go under. It is possible that they have already written Greece off as insolvent. Given such a collapse, the Greek people will have to take their destiny into their own hands. Should it come to this it is to be hoped that they will seek a solution through the creation of a popularly based government of the left rather than allow ultra-nationalists to take power.

The real problem that looms like a nightmare for the EU leaders is Italy. While it may just be possible to deal with Greece without breaking the banks, Italy is an entirely different matter. The third largest economy in the eurozone, it is nevertheless steeped in debt. For years Italy has claimed the headlines because of the shenanigans of its ludicrous prime minister, multi-billionaire media tycoon Silvio Berlusconi, who only recently declared that he regarded his duties as prime minister as a part time job. His full time occupation was “bunga bunga” parties, and, in the words of his ex wife, “consorting with minors.” This is quite apart from legal proceedings against him for fraud and consorting with prostitutes. It now seems that his days in office are numbered, which, if true, will enable him to devote his time exclusively to his more enjoyable pursuits.

Heavily indebted eurozone countries begin to be judged according to the percentage interest rates on their governments’ bonds. Once the yield on such bonds edges closer to 7% they are deemed to be in serious trouble and in line for a bailout to prevent default. So far this has been the case with Greece, Ireland and Portugal – all small countries with small economies. Italy’s public debt stands at 1.9 trillion euros (120% of its GDP) and the yield on its bonds is above 6%. In short, the country is in deep trouble. But the funds that have recently been put together for such eventualities are quite inadequate to cope with a threatened default by an economy the size of Italy’s. The European Financial Stability Facility (EFSF) with funds of 400 billion euros would require a five-fold expansion to 2 trillion euros to be fit for purpose. Or, maybe it would require 3 trillion. No-one seems to know. Therefore another plan has been hatched to set up something called SPIV – the Special Purposes Instrument Vehicle, in an attempt to muster the funds necessary to fill the coffers of the ESFS. (For once the Daily Mail got it right with the observation that “This is one of life’s more perfectly formed little ironies. In response to a financial crisis caused by spivs selling opaque financial instruments, Europe’s leaders are actually creating an opaque financial instrument called SPIV to sort the whole thing out.”).

As the Greek crisis rumbles on with no signs of abating, the much larger Italian storm is brewing. The EU pressure on Italy is increasing relentlessly. Brussels is demanding the same austerity that has failed so dramatically in Greece. Like Greece, the Italian economy has muddled along with declining levels of productivity, large-scale tax evasion and widespread corruption at all levels. A blind eye could be turned to all this before the financial crash of 2008. But now the only remedy the G 20 and EU leaders have to prevent Italy becoming insolvent, is the one applied unsuccessfully to Greece. Essentially this is all about protecting the banks. Merkel is adamant that the European Central Bank will not be allowed to become the lender of last resort for the euro. A humiliated Berlusconi is obliged to agree to the IMF monitoring the austerity “reforms” demanded by the EU. He claims that he has “dreamed all my life of making these reforms to the economy, but it hasn’t been possible because of the socialists and communists.” It is certain that any attempts by the EU and IMF to solve Italy’s problems at the expense of the Italian working people will be met with the same resistance that has met such measures in Greece.

What may we conclude from all this? It is looking increasingly as though not only Greece but probably Italy also will default. The G 20 summit ended yesterday (03.11.) in disarray with no agreement about how to deal with the crisis enveloping the EU and preventing it from spreading to the global economy and tipping the world back into an even deeper recession. There is a distinct sense that the political elites are fiddling while Rome burns. Yet they cannot agree to a simple measure that could (without bringing down capitalism!) raise the funds necessary to return to economic growth without recourse to the draconian austerity measures that have so signally failed – namely, the Tobin tax – a small tax on all financial transactions. The British government is opposed to this just as they are opposed to introducing a new version of the Glass-Steagall banking act (introduced in the USA by Roosevelt in 1933 but repealed under pressure from the Banking lobby by Clinton in 1999) which separated retail from investment banking. The reason for this is obvious: they do not want to offend their friends and supporters in the City of London who have always lobbied so hard and so successfully against regulation of the financial sector. This, after everything that has happened since 2007.

The Occupy London encampment that has now entered its fourth week of occupation at St. Paul’s Cathedral, has succeeded in bringing the discussion about the nature of the present crisis to the attention of a wide public. The occupiers have raised vital questions about inequality and injustice, greed, excessive wealth, poverty and unemployment in Britain. They are camped close to the Stock Exchange, initially the intended site of their occupation. They have their sights on the banks and finance houses that were responsible for the crisis of 2008. The protesters have no intention of ending their occupation soon. They are aware that they are part of a world-wide movement and they are strengthened by their sense of solidarity with millions of others. They will not be deflected from their objectives by the misrepresentation, the cynicism and the disdain of their detractors. And it must be said that whatever their shortcomings, their clarity of vision, their humanity their determination contrasts strikingly with the confusion, incompetence and sclerotic immobility of the global political and financial elites who are supposed to be responsible for the future of world capitalism. A phrase about re-arranging deckchairs comes to mind.