#87 - Greece, Ireland, Spain and maybe... Britain: Failing states in a bankrupt system

March 2010


With the threat of bankruptcy no longer hanging only over the heads of isolated banks, but over the heads of countries, like Greece, the world seems to be sliding into another economic crisis. Or to be more accurate, it seems to be sliding into yet another stage of the same crisis - but one which is potentially even more dangerous than the previous ones.

How has this new phase of the crisis developed and how far can it go? Is it some sort of a poisonous secretion of the euro, as so many British politicians and commentators imply, or is it an integral part of the general crisis which threatens Britain just as it threatens any other country? And what does all this tell us about the underlying capitalist system and its own bankruptcy? Above all, what consequences can this new phase of the crisis have for the working class, in the light of what has already happened in this respect? And what are the weapons that the working class can use in order to defend its class interests, but also the interests of society as a whole?

These are some of the issues that we intend to discuss in this forum.

A self-feeding crisis

The present crisis has already gone through a variety of re-incarnations - each closely interlinked with the previous ones and each potentially more lethal and far-reaching.

From its starting point - the implosion of a housing bubble in the US, Britain and a few other countries, back in mid-2007 - the crisis went on to take the form of a credit crunch. In a world which was awash with money, lending suddenly dried up. Having taken such enormous risks in their gamble on housing, the banks were now terrified to take any risk at all. The economy was deprived of the flow of cash which is vital to fund investment and trade, since the real owners of wealth have long been unwilling to risk their own money. As a result, what is usually described as the real economy - that is, the industries producing material goods and services to meet the needs of the population - slumped. But because the fictitious returns of financial services and other fools' gold-producing industries were concealing this slump, for months governments were able to deny that the economy was in recession.

However, the grossly inflated financial sphere and its parasitic, speculative existence, depended even more on the unlimited availability of cheap credit than the real economy itself. Banks were hit not just by the credit crunch - of which they were both the instigators and the victims - they also suffered from unknown, but mounting losses as yesterday's paper wealth was turning into worthless unrecoverable debt. There was a series of warning shots. Some small and medium banks went to the wall: like Northern Rock in Britain, but there were others in the US, as well as in the least robust economies of Eastern Europe. Finally, the chickens came home to roost in September 2008. By then, already, several US financial giants, which were on the brink of bankruptcy, had been rescued at the last minute by the authorities. And on 15 September 2008, Lehman Brothers, Wall Street's 4th largest investment bank, filed for bankruptcy. This time, there were neither firefighters nor safety nets to cushion the bankruptcy - which caused heavy losses for just about every major bank across the world. The credit crunch had now produced a full-blown, worldwide banking crisis, leading to the de facto nationalisation of a large part of the banking system's losses across the rich countries.

Despite the almost immediate massive rescue operation mounted by the governments of the richest countries to bail out their respective bankers, it did not take long before the ripples of this banking crisis affected other parts of the economy. By March 2009, throughout the world, stock markets had fallen by 45 to 55% or more, from their 2007 peak. This was another blow for the real economy, since, due the credit crunch, issuing shares had become its only means of raising fresh capital. As a result, the recession, although still carefully hidden from sight by the politicians' magic wand, went from bad to even worse.

Lies and crystal balls

By mid-2009, the world's governments began to talk up the prospect of a quick recovery. They were lying, of course. They just wanted to make the bitter pill of the austerity measures they were planning against the working class majority of the population more palatable, by trying to show that their exorbitantly expensive bailout of the banking system had achieved something, at least.

This slight of hand was obvious. But it did not prevent most economic experts from obediently following suit. In order to back the new official line, they proceeded to look in their conjurer's hat for some gimmick that would show that the end of the tunnel was finally in sight. Eventually they found something which did the trick - something known as the PMI, or Purchasing Managers' Index.

This index is supposed to show how the economy is evolving. But in reality, to put it simply, it is merely the result of a sort of regular referendum carried out among a sample of business managers, on the question: "do you consider that economic conditions are improving"? If the proportion of "yes" is over 50%, the accepted wisdom is that the economy is expanding.

This is a bit like trying to measure the state of health of the general public by asking a random sample of people in the street whether they think their health is improving. But what would they know about the illnesses they may be incubating? Not to mention those who, for one reason or another, would rather not go anywhere near a doctor anyway!

In fact, no-one bothers to question what is actually meant by "improving economic conditions" in this case. If this referendum was carried out among workers, there would be no possible doubt. Their response would reflect the state of job security, wages and working conditions. And this, in and of itself, would indicate in which direction the real economy was going.

But when it comes to business managers, what does it mean? That they expect production to expand, or investment to increase, or new jobs to be created? Or, more likely, that they just expect profits to increase - which may very well happen as a result of job and wage cuts and/or cuts in production, for instance, by focusing on the most profitable range of goods! The truth, therefore, is that this index tells us absolutely nothing of any use.

Yet, this PMI has been treated as if it was some sort of a scientific measure of the state of the economy and the best indicator available to gauge the evolution of the crisis. The fact that the eyes of economic experts and financial market operators remain riveted, week after week, on the evolution of such a subjective indicator shows, in and of itself, just how blind they are when it comes to steering this irrational system in a safer direction.

"W-shape" pain warnings

At the very same time as these optimistic sound bites were becoming mainstream talk, a small number of economists were stubbornly placing unwelcome warnings in the media, which were most annoying to the Browns of this world.

Not that most of these "doom-and-gloom merchants", as they were frequently referred to by mainstream commentators, were particularly bothered by the politicians' lies. Their concern was certainly not that all the hot air about a "recovery" was really meant to hide the hardship imposed on the working class by the bosses' offensive against jobs and wages. No, what they were primarily concerned about was the preservation of capitalism itself, and what they were warning against, was the sorcerer's apprentice attitude of governments, which, thinking that they had successfully saved their masters in the banking system from the abyss, now believed that they could end the red alert and declare that everything was back to normal.

One of those pro-capitalist "doom-and-gloom merchants", was Nouriel Roubini, an American economist. His opinion in this respect was probably worth taking into account, since he had been one of the very few among his peers to have made strenuous warnings for many years before 2007, against the risks that the colossal inflation of the financial bubble represented for the world economy. On 23 August 2009, in a Financial Times article entitled "The risk of a double-dip recession is rising, Roubini explained the reasons for his warning.

First, there was an objective reason: the fact that unemployment was still rising, something which remains just as true today, including in Britain, despite the rosy jobless figures presented by Brown this March - which only serve to conceal the facts: that the number of workers in employment keeps going down while the number of those who have become inactive due to having given up looking for a job keeps increasing.

Second, said Roubini, the crisis was not just due to a shortage of credit. It was just as much due to the issue of indebtedness, which was still unresolved. Indeed, as he pointed out,"the losses of the financial institutions have been socialised and put on government balance sheets. But this did not mean that companies had any particular reason to reduce their own debt burden.

More importantly, added Roubini, the enormous deficits built up by governments as a result of their bailouts of the financial sector, raised the prospect of another deeper recession, regardless of the way these deficits were dealt with. Governments, he wrote, "are damned if they do and damned if they don't. Cutting their deficits would deepen the recession, by reducing spending. But if they did not cut their deficits, they would be "punished by bond vigilantes - i.e. speculators - who would push up the cost of borrowing, thereby reducing spending as well. Either way, things were bound to get rather worse than better, with the crisis going through what he described as a "W-shaped recession"caused by public debt - meaning that any temporary respite in the state of the economy was likely to be followed by another, possibly deeper slump into recession.

Obviously, Roubini's analysis of the situation was entirely within the framework of the capitalist market, its imperatives and its rules. At no time do people like him envisage that there could be other means of unravelling the chaos of the capitalist crisis. But this is another story that will be dealt with later. What matters here, is that the politicians were hailing the coming "recovery", at a time when some of their own experts were refusing to fall for this nonsense and warning that there was worse to come. And, as we know now, these experts have been vindicated. So much so that, seven months later, on 19 March, a member of the Bank of England's Monetary Committee was quoted by the BBC admitting that "there is some risk of a double-dip. Indeed it seems that the "recovery" has suddenly gone with the wind.

Not so "public" debt

More or less at the same time as Roubini's article came out with its warning about the threat of ballooning government debt, calculations made by the International Monetary Fund showed that, by 2010, the debt of the world's 10 richest countries would be equivalent to 106% of the annual value of their domestic production (GDP) - compared to 76% in 2007. The difference was quite simply the cost of bailing out the bankers and big shareholders. In Britain's case, this means that the annual repayment of the government's debt, which was already equivalent to the annual expenditure on housing and the environment in 2009, is bound to soar very quickly. In fact, at £43 billion, debt repayment is the 4th largest sub-heading in Darling's 2010 pre-election budget - which is certainly more optimistic than not in this respect.

But, at this point, it is worth taking a closer look at what is called "public debt" and "budget deficit". The way these figures are calculated is very similar to the way GDP is estimated. So, first, we will make a detour via the calculation of GDP.

Imagine that you take some pears, a handful of dried peas and a few rotten apples. Having added them all up, you then claim that the result is a certain number of cherries. This is, in a nutshell, how GDP is calculated. It includes the value of socially useful products and services, such as clothes, medicines, food, meals and hair-cuts. Added in is the value of totally useless production, such as junk mail and other so-called advertising products. For good measure, the value of products which represent an outright danger to society, such as the infinite variety of weapons produced in a country like Britain, is added in. Finally, the whole brew is sprinkled with such things as capital gains from housing speculation and other similar paper values. And the result is then portrayed as the wealth produced in society over the year.

Except that, of course, only a fraction of this wealth has been of any use to the population and an even smaller fraction has actually benefited the working-class majority which has produced most of this wealth. So that using GDP as a measure of the wealth of the population is absurd - but nevertheless per capita GDP is still the main indicator in use!

The calculation of the government's "public debt" works in a similar way. It is only "public" in name. Even before the crisis, a large part of this deficit was due to expenditure which never translated into any benefit to the public - such as the Defence budget, the government's costly interventions in the bloody occupations of Iraq and Afghanistan, the expenses paid to MPs or the endless subsidies to the capitalist class.

For instance, it has been worked out that since Labour came into office, in 1997, the successive cuts in corporation tax - the tax paid by companies on their profits - from 33% to 31%, 30% and finally 28%, amounts to a subsidy of £50bn to the capitalist class. Assuming this amount was included in the "public debt" as it was being pocketed by the bosses, taking interest into account, it would make up an accumulated debt close to £100bn by now. This may not sound like an awful lot, considering the cost of the financial bailout. But compared to the 2009 budget, it is still a fairly large sum, somewhere in between the Education budget and the Health budget.

But there is actually more to this "public debt" than meets the eye. Because, in reality, it is vastly understated. For a variety of reasons, to which we will return later, governments prefer to reduce the apparent volume of their real debt. To this end, they have invented all sorts of devices. In Britain's case, as well as in a growing number of other countries, the main devices used are the famous PFIs, PPP's and other similar mechanisms, allegedly designed to get the private sector to provide the funding involved in public infrastructure investment and take the risks attached to such investment. At least this is the theory.

However, as we know, one of the functions of these accounting tricks is to allow a growing subcontracting industry to make a fat living out of these public-private contracts, since they provide them with a generous guaranteed income for decades to come.

But these devices also have another function. Instead of allocating the total cost of, say a new hospital, as expenditure on the health budget, the private partner takes responsibility for this expenditure, thanks to a bank loan which is easy to get, since it is effectively guaranteed by the government. Then, the government pays back the investment out of its budget over the next 20 or 30 years, not as a loan repayment, but as part of the normal day-to-day expenditure of the NHS, in the form of a service bought from the private contractor. Eventually, at the end of the contract period, the hospital is supposed to be returned to the NHS without further payment. In other words, this is nothing but an expensive long-term loan contracted by the government. But since the loan is formally contracted by the private partner, it never appears in the government's accounts as a debt.

With this sleight of hand, politicians - especially since Labour came into office - have been able to conceal many dozens of billions of pounds worth of borrowing. Of course, this comes at a high price, since the private partners get their cut in the process - and it is a big one, since they must generate enough profit to keep their shareholders happy. But then, isn't that the aim of the game as well - to use public funds in order to provide new sources of profit for the capitalist class?

The extent of this swindle is difficult to measure. Estimates produced in 2009 by the GMB, on the basis of official figures, put the cost of repayment for existing PFI contracts at £250bn, for a capital value of only £64bn. Most of this additional cost is hidden from the official "public debt", but should actually be part of it.

So not only has this "public debt" little to do with the public, but in fact, it is primarily a measure of the indebtedness of the capitalist class itself - due to expenditure made by the state, on the capitalists' behalf, using taxpayers' money - or, to put it differently, a measure of the bosses' parasitism on the state.

Another debt bubble

In the course of the crisis, the parasitism of the capitalist class on the state reached a record level. And this is reflected in the ballooning public debt across the world, especially in the rich countries.

The real level of the additional debt incurred as a result of the crisis is actually impossible to measure. This is partly due to the fact that politicians have done everything they could to conceal their handouts to big business from public opinion behind a thick veil of secrecy, under the pretext of protecting the economy! As if the main danger to the economy was the public and not the greed of the beneficiaries of these handouts! In Britain this paranoia has even developed to the point where, since the new Banking Act introduced in 2009, the Bank of England is empowered by law to bail out a bank without its customers or the taxpayer, knowing anything about it!

But another reason why the cost of the financial bailout is impossible to measure is that it will depend to a large extent on the future developments in the crisis itself. Even without new bailout measures, the cost of the measures which have already been taken may increase massively should the crisis deepen further.

We will use the example of Britain as an illustration of this. So far, Darling has been clinging to his earlier claim that the cost of the banking bailout would not be more than 4% of GDP. But another estimate produced in 2009 by the IMF already talked about 9.3%. However, the sums no longer add up, assuming they ever did.

The first bailout programme, which began shortly after the collapse of Northern Rock, saw the Bank of England exchanging some of the banks' dodgy assets for cash. The assumption was that, later, these assets would recover their original value. But whether they will is an open question. Then came the second bank bailout triggered by the cataclysmic impact of the collapse of Lehman Brothers in the City. Once again the Bank of England resumed its cash-for-junk programme, while the government took a majority stake in RBS, Lloyds and HBOS at an apparently "modest" cost of £46bn. However, just as in the case of the junk assets bought by the Bank of England, there is a hidden potential cost in these three banking bailouts: the guarantee that the government has provided these banks on part of their loans, for a total of over £500bn. Should the debtors go bust, the government would have to cover the resulting losses up to that amount.

To all this should be added the cost of the "quantitative easing" programme launched by the Bank of England last March, after the collapse of the stock market. On the face of it, this programme seemed to be just another version of the previous cash-for-junk programme. In reality it was different: this time, the Bank of England manufactured £200bn worth of new money in order to provide the banks with cash. And since the wealth produced in society is not likely to increase by the same amount in the near future, either these brand new pounds will have to be made up by equivalent borrowing, or else the exchange rate of the pound will have to go down in proportion, meaning another cut it the population's standard of living.

All told, depending on future developments in the crisis, the real cost of the bailout, could be anywhere between £130bn and £1,300bn, which added to the official public debt of 59% of GDP and the hidden debt related to PFI, which is around 15% of GDP, would bring the total somewhere between 83% and 164% of GDP! Not just a huge amount but a very imprecise one!

Finance's multi-barrelled parasitism

As was said before, the "public" debt is a measure of the parasitism of capitalism on the state, and even more so today, as a result of the financial bailout. But financial institutions manage to thrive on the public debt in many other ways as well.

We saw this, for instance, with the stock markets, where there was a sharp rise in share prices after these bottomed out in March 2009. The speculative activity which drove this price hike was primarily funded by the cash injected into the financial system by governments across the world.

The same is true for the bond market. To finance their borrowing needs, and therefore their public debt, governments sell so-called state bonds at regular intervals. Large companies also use this way of raising funds on financial markets, in which case their bonds are described as corporate bonds. All these bonds are traded on a daily basis in a specialised market, called the bond market.

When share markets collapsed in March 2009, thereby depriving big companies of their main source of fresh funds, all governments took measures to inject new life into the bond market in order to provide companies with an alternative source of funding. This was the main purpose of Darling's "quantitative easing" in Britain. By buying large volumes of bonds against new money, the Bank of England increased the demand for bonds, which had been low for months, thereby giving a sudden boost to bond prices. This made bonds more attractive for market operators, all the more so as the "quantitative easing" programme gave an implicit guarantee that bonds would always find a buyer of last resort, thereby turning them into a safe investment.

As a result, for all the noise made by the bosses about their difficulties in finding credit, big companies found it much easier to raise money on the bond market. In fact, the volume of new corporate bonds issued in 2009 was the largest on record. And since each time a company makes a new bond issue, it has to hire the services of a bank, which gets a cut out of the funds raised, the big banks made a killing out of Darling's "quantitative easing" - which explains the huge profits they registered in 2009.

To return to the funding of public debt, we should recall how a bond works. When it is first issued, a bond has a given face value (say £100). But unlike a share which pays a variable dividend to its owner, a bond provides a fixed income: a regular payment proportional to its face value at a predefined interest rate, for a predefined lifetime. So, for instance, a 20-year 5% bond with a face value of £100, pays an annual income of £5 for 20 years, after which time the initial £100 is refunded to the bond's owner.

There is, however, an additional twist: since, after being first issued, bonds are bought and sold on a market, their prices fluctuate according to supply and demand, and, by the same token, according to the speculators' whims. And this has consequences for the apparent interest rate paid by a bond. For instance, if the market price of the £100 bond mentioned before falls to £50, its annual income will still be £5, resulting in an interest rate of 10% for whoever bought it. However, if the price of the bond doubles to £200, the interest rate it pays will be cut by half, down to 2.5%. Of course, speculators are mostly concerned with bond prices. But those who buy bonds for their income, like pension funds and insurance companies, are primarily concerned with the apparent interest rate they pay.

For a government in need of fresh funds, a fall in the market price of its bonds may have catastrophic consequences. Because the more this price falls, the more the bonds' apparent interest rate increases and the higher this government must set the interest rates for the new bonds it wants to sell to lenders. Conversely, the weaker a government's finances appear to be, in particular due to a high level of indebtedness, the more speculators are likely to gamble on a fall in the price of its bonds - and the more this price is likely to fall, under the pressure of this speculation. By falling prey to the "bond vigilantes" mentioned earlier by Nouriel Roubini, heavily indebted governments can only get into worse indebtedness.

In this area as in many others, the market so often hailed by capitalist wisdom as a "regulator", actually operates as an "amplifier" of existing imbalances! This is precisely what happened to Greece since the beginning of this year and what may happen, for the same reasons, to other heavily-indebted governments in the industrialised world in the months to come.

But this is also where the parasitism of the financial institutions shows all its destructive ability - much, in fact, as it did by paving the way for the gigantic speculative bubble which led to the present crisis. Because the same banks, insurance companies and other financial institutions, whose bailouts have inflated public indebtedness, are also among the main creditors of the states, therefore cashing in on the interest they pay on their debt, year in and year out. Worse even, the very same banks are also the main driving force behind the speculative activity taking place on the bond market. Never mind if, by betting on a fall in the price of Greece's state bonds for the sake of short-term speculative pickings, the banks end up pushing the Greek government to the verge of bankruptcy and forcing the Greek population to face an intolerable austerity programme!

From diversions and fudges...

Greece is not actually the first case of a state threatened with bankruptcy, either directly by the crisis itself or by financial speculation born out of the crisis.

The first victims went largely unnoticed in Britain. Worst hit were Eastern European countries, like Latvia, one of the smallest members of the European Union, with just over 2 million inhabitants, which fell victim to the collapse in trade. By the end of 2008 it was forced to seek a rescue package from the EU, which did not stop its economy from collapsing even further in 2009, with an 18% drop in production over the year. Hungary, although significantly larger, was badly hit by the retreat of foreign investment, on which a large part of its production and service industries depends, but also by a speculative run on the national currency, in October 2008. Thereafter, the government had to seek a joint bailout package from the EU, the IMF and the World Bank.

Next, closer to Britain, came the first signs of bankruptcy in Ireland and in Iceland. Both these countries had in common their very great dependency on the financial industry - which was actually the origin of the "Celtic Tiger" legend, in the case of Ireland. Because of this, both were immediately and fatally wounded by the chain reaction initiated by the collapse of Lehman Brothers.

By contrast, Greece's debt problems, although they began in 2009, were not caused by the immediate impact of the crisis. Rather, they were the result of a speculative build-up against Greek government bonds, by financial operators who are betting on their downfall. As the market price of the country's bonds fell, their apparent interest rate increased, forcing the government to pay a much higher interest rate on its new borrowing.

Politicians and commentators have made a series of attempts at explaining away what was happening to Greece, so as to deny the decisive role played by the big banks in Greece's problems. However, these attempts are at best a diversion and at worst an outright lie.

One popular "explanation", at least among a certain section of the British media, is to blame the eurozone, for acting as a straightjacket around Greece - in particular by preventing its government from devaluing its currency. One assertion which is certainly not credible is that Greece's membership of the eurozone has caused its demise. Neither Iceland, nor Latvia, nor Hungary were part of the eurozone, but this did not prevent them from collapsing under the weight of the crisis. As to claiming that currency devaluation is the miracle remedy that can cure everything, it amounts to saying that, in order to satisfy the "markets" (i.e. the speculators), the Greek population should accept that its consumption and purchasing power should be drastically reduced at the stroke of a pen! What sort of remedy is that?

Contrary to the nonsense that excessive centralisation in the eurozone has caused Greece's predicament, it is rather the opposite. Let us remember that the EU was formed by the European capitalist classes in order to create a large enough "internal" market for their respective large companies, so that they would be in a better position to compete with their US rivals within their huge domestic market. Thus borders were open to the circulation of goods, services, funds and people within the EU. However, the imperatives imposed on the European capitalist classes by their competition with the US did not change anything to the rivalries which existed between themselves. So that when the next step aimed at consolidating this "internal" market by cementing it with a common currency presented itself, some of the would-be participants started having cold feet - Britain in particular, under pressure from the City, withdrew from this joint venture.

Nevertheless, eventually, the eurozone took off the ground. However, like the EU itself, it remained handicapped by the rivalries between its participants and subjected to the domination of its stronger members - Germany and France. This meant that every important decision, particularly those concerning the euro, had to be taken unanimously by the main rivals-come-partners in the eurozone. It also meant that, whereas operating a common currency efficiently would have required a common policy covering all aspects of the economy and, therefore, common executive bodies with powers to make decisions on behalf of all member countries, the eurozone remained a sort of octopus, with over two dozen more or less muscular tentacles, each fighting against the others for its own corner, but with no brain capable of imposing some sort of discipline over all of them.

So not only is the Greek crisis not due to the "over-centralisation" of the eurozone. Rather it is being made worse than it should by the fact that, because the eurozone is not centralised enough, it cannot operate as a single entity and, as a result, it cannot get all the benefits of having a common currency.

In passing, it is worth noting that those who blame the Greek crisis on the "heavy-handed" centralisation of the eurozone, did not think it was worth denouncing Gordon Brown's "heavy-handed" policy with regard to Iceland or Ireland. Yet, Brown himself and the predatory policy of British capital spelt disaster in both countries. In the case of Iceland, it was Brown who decided unilaterally that the Icelandic population should refund fully all Icesave account holders and even resorted to anti-terrorist legislation to get his way! As for Ireland, which has long been used by Britain's financial services, as a tax haven and as a bridge to the eurozone, when was Brown's help ever extended to this quasi-satellite of Canary Wharf? Never. The Irish population was left to foot the bill on its own, while British finance firms simply terminated their "presence" in Ireland - or should we say their parasitising of Ireland?

... To cover-ups and outright lies

Another "explanation" of Greece's predicament was put forward, among others, by the French government and the billionaire speculator Georges Soros. It consists in demonising a particular kind of financial instrument called "credit default swaps" (or CDS for short) and blaming them for the demise of the Greek state bonds. As a result, calls have been issued to impose limitations on CDS or even ban them altogether - as if the speculation on Greek bonds could have been prevented simply by banning these CDS!

These CDS are, in fact, insurance contracts against credit incidents related to a particular bond, company or state. They are mostly used to protect investors buying corporate bonds or third-world countries' state bonds. But they have, rarely, been used to cover risks attached to the debt of industrialised countries, which was considered "safe". So the volume of CDSs covering Greek bonds was very small and there was normally very little trade in these CDSs. As a result, it took only a handful of speculators betting against Greek bonds on the CDS market to make it look as if these bonds were going to fall through the floor. And at a time when every bond trader was on edge, this may have had a disproportionate impact on the bond market itself. But even if CDS trading on Greek bonds had been banned, it would not have stopped the very high level of gambling against these bonds on the bond market - where the biggest players by very far are Europe's largest banks!

Blaming these CDSs for Greece's predicament is quite similar to what we have heard in past crises. Ironically, although Soros is part of the anti-CDS cohort today, it was the same "logic" which was used when the pound was forced to devalue, in 1992, by blaming Soros and his speculative fund (a "hedge fund" as it is called in the industry). Blaming the "unacceptable face" of capitalism represented by Soros and his highly speculative practices was a convenient way to avoid exposing the role played by Britain's very respectable big banks which had chosen to bet big time on a fall of the pound, and made enormous profits out of it! Not that Soros had no responsibility in this fall, of course, but his weight on the market was certainly not comparable to that of the biggest banking players. The same could be said of the way in which "short-sellers" were blamed for the fall in share prices after the collapse of Lehman Brothers. As if the big banks themselves, were not likely to go on a fire-sale on behalf of their rich clients in the cataclysmic climate of the time!

In short, the demonising of CDSs in the Greek crisis is a sleight of hand aimed at claiming that speculation and the chaos it creates are only caused by "bad apples" such as the CDS. Whereas, in fact, they are built into the very workings of the capitalist market and their main beneficiaries are the very same big banks which have been bailed out on public funds.

Finally, the most widely found "explanation" for the Greek crisis consists in blaming the Greek government for its "profligate policy" of indulging workers with wage levels which are supposedly disproportionate to their productivity, thereby causing its "huge budget deficit", etc.. How convenient! The next thing we will be told, is that the Greek working class has got what it deserved and that it, not their bosses nor the capitalist system, should be blamed for the country's predicament! It is rather ironical that the British media should peddle such lies, goven that Brown's budget deficit is actually comparable to that of Greece and, his overall debt may well prove to be much larger in proportion to GDP, as was shown earlier!

Iceland under the City's hammer

What are the consequences of the bankruptcy or near-bankruptcy of the states for the population of the countries worst hit by the crisis?

Iceland is not an EU member state. But this has not prevented it from almost being a de facto "province" of Europe, and now a probably extremely unwilling honorary member of the group of weaker EU economies which have come to be known by the acronym of the PIIGS - Portugal, Ireland, maybe Italy, Greece and Spain, all of which have been under threat of bankruptcy as a result of the crisis.

The economy of Iceland collapsed with its 3 largest banks in 2008, thrusting this tiny country with only 315,000 inhabitants into the limelight. Its so-called "financial services" had given it the artificial position of number 5 in the league table of per capita nominal GDP in 2007. But in 2009 it slipped down to number 19 and its GDP has shrunk 18% since then. Unemployment has gone up almost 3-fold, from 2.3% in 2007 to 7.2% in 2009.

The country's inhabitants have all been affected drastically. The local currency, the krona, has halved in value and the cost of living has soared. At the same time wages have actually been cut. There has been a 30% cut in "disposable income". And wards are closing in Iceland's reputedly high quality public NHS. Many workers have already lost their jobs.

On one Icelandic news forum there is the picture of a house which looks as if a bomb hit it - but in fact the repossessed owner tried to destroy it before the bank repossessed it. For Icelanders themselves, there is a huge personal debt crisis as a result of the failure of the 3 Icelandic banks. Due to rising interest rates, people can no longer afford to pay off their mortgages or their loans. According to "Creditinfo Iceland", 20,000 households cannot afford their mortgage repayments and within 12 months this will increase by 7,500 (which will come to 8.7% of the population) - if no action is taken to help them. As a result a householders campaign has been calling "payment strikes" for periods of 2 weeks at a time against the creditors.

As for the consequences of the measures which were initially put in place to force the Icelandic state - and therefore its population to take on the private bankers' debt (paid out of a loan from Britain and the Netherlands) - as Martin Wolf of the Financial Timesput it: "Most Icelanders had never heard about the Icesave internet bank until it hit the country like a financial tsunami, an unwelcome addition to the meltdown of its economy. The amount demanded by the British and Dutch governments from Icelandic taxpayers to pay for Icesave amounts to 50 per cent of Iceland's gross domestic product (..), all because of the bankruptcy of a privately owned bank, Landsbanki. The interest on top of this is an eye-watering annual rate of 5.55 per cent. A year's interest equals the running cost of the Icelandic healthcare system for six months.(!!) No wonder, in their referendum on 5 March, 93% of voters said no to the repayment deal which would have created such a debt burden for the economy!

In the meantime, of course, the Icelandic government has nationalised the banks, taken over mortgage debts and repossessed homes to let them to the families who defaulted. It remains to be seen what will be repaid to Britain and the Netherlands in the future by the Icelandic state and its population. One can only hope that the pictures of a few red flags in the demonstrations outside the parliament in Reykjavik in recent weeks, represent a new revolutionary and internationalist communist current!

The Irish working class under attack

Like Iceland, Ireland was one of the first countries in Europe to blow. And it blew so fast and hard that one commentator from Ireland's Economic and Social Research Institute (ESRI), found that the example of Zimbabwe sprang to mind as a comparison - "you're talking about the biggest contraction in an industrialised country since the Great Depression... It is possible that people like Zimbabwe [sic] have a bigger contraction, but you know you're in trouble when you're saying at least we're not Zimbabwe" He may be exaggerating, but after all the hype about the wonders of the Celtic Tiger and the contrast with today, it is understandable. According to the ESRI review, GDP will have fallen by 11.6%, a drop, indeed, not seen since the Great Depression of the 1930s.

That said, the affluence of the "Tiger years" was hardly felt by everyone! As the placards of marching protesters last year declared, short and sharp: "We never felt the boom, but now we feel the bust". Of course, Ireland's boom was the same kind of mirage as experienced by the majority of the populations of the Third world Asian "Tiger" economies in the 1980s - it was fed by inward foreign investment and a property boom - and while it provided low-paid employment for workers, it provided profits and dividends only for the capitalist class.

Official unemployment in Ireland shot up to 13.3% this year - but there are pockets where the situation is much more dire, like in Limerick where one in 3 young men are out of work.

This is causing an exodus from the country of especially young people, which is unprecedented since the Depression. Over 60,000 Irish citizens have emigrated to Australia, Canada and New Zealand; another 22,786 under 35 took up work visas. In the US, where current restrictions make it difficult to live and work legitimately, there are more than 50,000 "undocumented" Irish immigrants - and now Obama is apparently under pressure to grant them amnesty.

In County Mayo, on the beautiful west coast, houses are standing half-built. Unemployment is going up almost 10% a month! In Athlone, a rural estate valued at £28m in 2006 was worth £540,000 in March this year. Generally, though, new house prices have fallen by one third since their peak in 2007.

As a young Irish software engineer responded to an on-line survey on the hardship being experienced in the so-called PIGS:

"In 2008 when I left college you could walk into the job of your choice or literally take your pick. I joined a small software engineering firm but about a year later rumours started circulating about the company. The pay was late one month and at the end of November 2009 we were told the bad news - we were given our marching orders. I had to cut down on my spending straight away. I signed on the day after I lost my job but I had to wait 14 weeks for any social welfare. (..) I have thought about emigrating to Australia but it's not like when people moved to America 30 years ago. There's no guarantee of a job over there. I now live on 194 euros (£175) a week in benefits but I still have to pay off a student loan, which is about 250 euros (£225) a month. In fact I missed a payment last month."

So to deal with the situation, what did Fianna Fail Finance Minister, Brian Lenihan do? In fact he announced a budget last December containing measures which would explicitly transfer the whole burden of the crisis onto the Irish working class, the poor and unemployed - in other words, those who are already paying for it.

The centrepiece of this budget is the driving down of the wages of public servants, with the aim of dragging down wages in general. The rationale for this mad policy being, that if foreign investors are to be attracted back to the Republic, it has to be able to undercut low-wage-paying rivals in Eastern Europe, now also part of the EU. So, from 1st January this year, all public sector workers got a graduated wage cut - 5% off earnings under £26,000, 7.5% off the next £35,000 and 10% off the next £49,000.

Next, the growing number of young unemployed were targeted. Unemployment benefit for those aged 20 and 21 was cut by more than half - from £183 to £90/w. 22-24 year-olds got a smaller cut to £135/w and older unemployed got a reduction of £14/w! If these benefit levels still sound high compared to the dole in Britain of £65/w one should keep in mind that no housing benefits are paid and cost of living is significantly higher.

Overall, all welfare payments were cut by an average 4.1%. The link between pensions and earnings was ended and instead pensions are to be linked to the cost of living index (as in Britain). Prescription charges were increased by 50% on every item.

The capitalist class was let completely off the hook, apart from a very modest, single-rate domicile levy of £180,000 a year being imposed on those with incomes over £900,000 or with more than £4.5m capital located in Ireland - a tax that the very rich will not even notice! Nor was there any increase in company tax - the Republic's other main "selling argument" to attract foreign investment.

The response of the Irish workers against these austerity measures - which had first mentioned in a supplementary announcement last March, just when Dell computers and Waterford Crystal, among many others, were cutting thousands of jobs - was a huge and unprecedented demonstration of over 120,000 in Dublin, followed by regional marches and protests all around the country in the following months in response to local cuts. After the December 2009 austerity budget, the main union, SIPTU (Services, Industrial, Professional and Technical union) and the Irish TUC announced a 6-week campaign of strikes to fight the public sector pay cuts. There was a general strike on 24th February and another on the 11th March. But dates for any further collective action remain to be announced, although 24-hr strike dates have been announced in several hospitals for 7-9th April. But even if the workers remain willing to fight, the union leaders have shown more interest so far in having endless talks with the government than in organising a proper counter-offensive against its attacks.

Greece: anger in the streets

Among the PIIGS, Greece is considered the closest to bankruptcy with a £272bn debt. The budget deficit in Greece increased to 12.7% in 2009. In a pledge to cut this to 2.8% by 2012, the new Pasok (Pan-Hellenic Socialist Movement) government, elected last October also pledged that it would notexpect the working class to pay for it.

But after the world economic summit in Davos, last December, Pasok prime minister Papandreou changed his tune. He promised to push through measures to curb "wastefulness" - including cutting the wages of public servants.

In fact, the consequences of the crisis in Greece only really hit the headlines in December last year, when the resistance against the government's austerity measures by farmers and workers began to cause disruption. At the time, farmers blockaded highways and border crossings with their tractors for 3 weeks, demanding that their subsidies be increased.

The social situation in Greece, dubbed the poorest country of the "old Europe" is very bad. Youth unemployment is as high as 25%. Last November the total national unemployment rate went up to 10.6% - or 3% more than 2008, with over half-a-million people. But already in 2008, before the crisis had really hit the economy, Greece was among the five European countries with the highest rates of poverty - with 20% of the population living below the EU threshold (Spain 20%, Latvia 26%, Romania 23% and Bulgaria 21%). Greece had also a high rate of in-work poverty at 14% compared with Spain at 11% and Britain at 9%.

At the end of January this year, anti government protesters - among them civil servants whose jobs and wages are threatened, had pitched their tents outside the parliament building in Athens because Papandreou was talking about cutting their wages.

On the 4th February customs and tax officials staged the first official 48-hr strike against the government's proposed austerity programme, closing down ports and border crossings. The following week, on the 10th February ADEDY, the civil servants' union held a general strike and march on Parliament with banners proclaiming: "the PIGS fight back and many protesters sported big, scary, pig masks.. The following day saw further strikes and demonstrations led by the PAME - the All Workers' Militant Front, a Communist Party-led confederation covering both public and private sector workers.

On the 23rd February, again, PAME militants blocked the entrance to the Athens Stock Exchange in the build-up to a general strike the next day, when more than 30,000 took to the streets to demonstrate under banners declaring "people and their needs above markets". This was just the day after the credit agency Fitch had downgraded Greece's 4 largest banks. Protesters threw rocks, red paint and bottles near the parliament building and police fired tear gas and made several arrests.

But the final straw was yet to come. On 3 March, Papandreou unveiled an even more radical austerity package, designed to persuade the EU monitoring team that Greece was worthy of a bail-out, because it was tackling what European bosses call - yes, you guessed it, "a bloated public sector"!

So the measures proposed now include: further cuts in civil servants' pay which will mean a 5.5% drop in real income; a 30% cut in overtime payments; a 2% increase in VAT (from 19% to 21%) as well as higher taxes on alcohol, tobacco, cars and... yachts; a 2-year increase of retirement age to 63 by 2015 and a freeze of state pensions.

Papandreou now says he will go ahead with these measures despite the political cost, warning of a "national catastrophe" if the measures are not adopted. He tells workers whom he promised would not pay for the crisis :"We are in a race against time to keep our economy alive... the country is in a state of war." Of course everyone knows who should be the object of a war, in fact that it should be a simple "class war", because of years of corruption and tax avoidance by the rich - in particular the biggest fish of all, the shipping companies which do not pay a penny in corporation tax!

Greece never had a private credit boom - no housing bubble, and housing construction had been falling since 2003. In fact, tax avoidance and corruption are held to be one of the main causes of Greece's indebtedness - and not just tax avoidance by the very rich, but also by well-off professionals like doctors and lawyers. But it is the poorest that the Pasok government chooses to target!

The latest austerity measures against the working class, approved on 5th March were met with an immediate rally in protest by thousands of workers from the ADADY and GSEE trade union federations which represent over 20% of the workforce as well as a 4-hour work stoppage which halted transport and brought Athens to a standstill. A third 24-hour general strike was planned for 16th March.

Spain next in line?

In Spain, the recession has hit just as deeply, even if it has not, like most other countries in the "big League", had to rescue its banks. The hole in its public finances was rather caused by a fall in state revenues - and possibly its increased military expenditure in Afghanistan.

The social situation in Spain has been deteriorating for some time, in fact. Rather than a sharp increase in unemployment, the lack of decent jobs has been a growing problem for several years - and by the end of 2009 unemployment affected 18.8% (today it is up to 19.5%) of the workforce according to official statistics.

One of the main effects of the crisis in Spain, like in Ireland, has been the pricking of the property bubble. Prices have crashed, and now 1.5bn houses appear unsaleable. 4m people are unemployed and this figure is expected to rise to 5m and remain there for a decade. There is already no breadwinner in over 1m households.

The Guardiannewspaper gave the following recent insight into Spain's social situation: "Jesús Muñoz left school two years ago, but has never worked. 'Things are bad. Most young people here are unemployed,' he said. In a country with 40% youth unemployment, he is far from unique. Muñoz comes from Villacañas, a small industrial town in La Mancha where (..) factories line the road into town. Some are closed, with signs advertising unused machinery for sale. The others make doors for homes. But an exploded property bubble has left Spain with more than 1m unsold new houses and construction has ground to a halt. Factory car parks are half-empty, as most have laid off large numbers of workers. Villacañas was once a place where you could leave school at 16 and immediately find a well-paid factory job. But no-one expects the door trade to pick up for many years. Spanish builders started more than 760,000 new homes in 2006, but only 201,000 in 2008. Those who leave school at 16, as a third of Spaniards currently do, face a gloomy future."

Having developed a deficit which was 11.4% of GDP over 2009 and wanting to show to the financial markets how willing she was to get the country's deficit down, finance minister, Elena Salgado, announced a plan which is supposed to bring it down to 3% by 2013.

Retirement age will be increased from 65 to 67 over the 3 years, public spending will be cut, civil service recruitment will be nearly frozen and some of the labour laws about which business leaders have been complaining for years will be revoked. 20% of the spending cuts are to be borne by the autonomous regions and local authorities, so that means local services will undoubtedly suffer.

Unlike what happened in Ireland, Spain's Socialist Party government did rule out cuts in social security payments and education spending. Which is why the so-called experts are sceptical about Salgado's plan. And of course, if Zapatero does not prove himself willing in front of international creditors, the ability of Spain to be able to borrow money on the capital markets in the future will be put into question. Never mind that its already weak fiscal position has been made worse by the speculation on its bonds in the same way that Greece has been affected, although not on the same scale. The markets are still, according to the Financial Times, "baying for blood". What outrages the FT however, is the "vigorous" opposition to Zapatero's austerity measures "by trade unionists and other core supporters of the Socialist party" This includes opposition to the government's attempts to cut the cost of making workers redundant by reforming labour laws - that is, removing workers' rights.

The FT may be right to worry about "trade unionists", because even if their leadership is much like the union bureaucracy everywhere - that is, primarily concerned with preserving its cosy relationship with the bosses - the working class mobilised very impressively on 23th February throughout the country to protest against any reduction in their rights or increase in pension age.

Down with this decrepit system!

The similarities between the attacks faced by the working class in Ireland, Iceland, Greece and Spain - and, in fact, in Britain - are striking. And this is hardly surprising since these attacks are the expression of the same decrepit system of exploitation, of the same worldwide parasitism of finance capital over society.

It is no accident either, if Brown and Cameron are now involved, in the run-up to the general election, in a beauty contest aimed at convincing the capitalist class that their party is better equipped than its rival to make workers pay for the crisis - under the pretext of reducing Britain's "public deficit". Beyond all the politicians' boasts about the "strength" of the British economy and the "world class" position of the City, the truth is that, in this crisis, the parasitism of British capital has already cost proportionally more than in most other countries.

Just how far this crisis will go is impossible to say. But the developments of the past two years show that, as time passes, the capitalist system keeps revealing more hidden powder kegs which explode one after the other, each sparking the next one. Even the so-called remedies designed to contain the crisis only end up amplifying its devastation.

Just as Greece's state bonds have become the prey of speculators, so has the euro. Having weakened Greece's public finances, the blood hounds seem to be hoping now to make far richer pickings by destabilising a whole continent. Should they be successful, the eurozone could be threatened with implosion. But the impact would extend far beyond the borders of the eurozone. It would inevitably cause a chain reaction which would engulf all the economies closely dependent on the eurozone, including Britain among many others, and would probably deal a catastrophic blow to the world's monetary system as a whole.

But, by the same token, the "bond vigilantes" could just as well turn their guns on British government bonds which, according to a recent assessment by Bill Cross, the CEO of Pimco, one the world's largest bond traders, "rests on a bed of nitroglycerine. Any idea that the British economy may remain somehow protected from the present worldwide storm is a dangerous illusion.

So, yes the workers who have been and are demonstrating and striking in the streets of Athens, Dublin, Madrid or Reykjavík, are right to express their opposition to the attacks of the capitalist class and their anger at a system which is only capable of generating such catastrophic chaos across society. And the British working class should prepare itself to do the same, sooner rather than later. There is no reason to allow the capitalists and their trustees in government to make workers pay for their budget deficit or their public debt. The parasitism of the capitalist class has done enough damage as it is, already. It is time to put a stop to it and to revive an old demand of the working class movement for the cancellation of all government debt.

Let the capitalists, their banks and their multinationals foot the bill of the crisis they have caused. And let us convince ourselves that as long as the profit system remains in the driving seat, there will be no respite in the class war that the capitalists are waging against us today. Real change will only take place if and when the working population takes full control of the workings of society, once and for all.