Bourgeoisie fears spread of political contagion

Despite the bailout, Greece remains the weakest link, argues Savas Michael-Matsas of the EEK (Workers Revolutionary Party)

It is well established, following Edgar Allan Poe and his short story Purloined letter, that the best place to hide a secret is the most exposed one. Today’s Greece undoubtedly is the most exposed place in the world to hide the purloined letter containing her majesty’s secret confession: the announcement of the bankruptcy of the entire European Union project.

Neither the flood of propaganda by the mainstream media nor the racist obscenities spread in northern and western Europe about the Greeks as ‘lazy and congenital crooks’ can convince anybody that the never-ending saga of the Greek debt crisis - still unresolved despite the latest bailout - represents just a ‘national exception’. If that was so, why has the future of a relatively tiny economy representing only 2.7% of the entire European GDP hovered like a phantom over all the metropolitan centres of global capitalism and preoccupied so intensively - and unfruitfully - one EU conference after another over the last two years?

The high degree of interconnectedness developed under the conditions of finance capital’s globalisation has become, after its implosion in 2007-08, the nemesis of the global system itself. “The strength of a chain depends on the strength of its weakest link,” said an official of Goldman Sachs in an interview to a Greek newspaper[1] in relation to the financial and banking crisis in Europe - and Greece is the weakest link in the international and European chain. For this reason the Greek tragedy was soon followed by the similar fate of Ireland and Portugal, with similar bailouts under similar draconian austerity terms, and then by the far more dangerous sovereign debt crisis of Spain and above all Italy. Furthermore, the downgrading of the creditworthiness of a large number of EU countries, including the loss of the triple A position of France, has demonstrated that it is no longer just the periphery, but the very core of the EU, the French-German axis of the European economy, that is under threat.

From the other side of the Atlantic, the US authorities and US banks overexposed to Europe have not been able to hide their growing worries. It was no longer taboo for state officials, financiers or mainstream analysts to speak openly not only of a Greek default, but of the break-up of the entire euro zone, provoking a global financial meltdown and accelerating an already deepening global great recession. In such an apocalyptic view, a Greek default would play the catastrophic role of a Lehman Brothers II.

Bailout split

During the long debates leading to the last crucial episode in the protracted Greek debt saga, the second bailout of Greece, German finance minister Wolfgang Schäuble and his co-thinkers in Germany, Netherlands and Finland opposed the apocalyptic scenario and promoted the case for a Greek default. They claimed that the EU is now much better equipped to face major repercussions and contagion risks, thanks to the workings of the European Financial Stability Fund (EFSF) and the forthcoming European Stability Mechanism (ESM). Apparently the firewall has been further strengthened by the European Central Bank’s policy of providing low-cost liquidity to banks through the Longer Term Refinancing Operation (LTRO). In the memorable words of Herr Schäuble, to provide another “rescue package” for Greece would be “to throw billions of euros into a bottomless pit”.

The Schäuble line was strongly opposed by a bloc of EU member-states that have lost their triple A credit rating, stressing the enormous dangers of either a “disorderly” or “orderly” Greek default: the peripheral EU countries, and above all Sarkozy’s France and Monti’s Italy, would be prime candidates to fall victim to a contagion tsunami after a Greek bankruptcy. Even Germany’s chancellor, Angela Merkel, was forced to distance herself from her finance minister’s position - revealing that the deep split among the European ruling classes extends into the German bourgeoisie itself.[2]

In a sense the two opposing lines were both partially right and equally wrong. The deal finally reached, after an agonising process, proves it. It involved a €130 billion package to bail out Greece, linked to an agreed PSI (Private Sector Involvement) of the private bondholders - a 53% ‘haircut’ of the nominal value of Greek state bonds.[3] It is tied to a horrendous package of social cannibalism in the shape of new ‘austerity’ measures to be imposed on a society already devastated by the memorandum linked to the first bailout in May 2010.

The previous memorandum was a catastrophe in social terms (more than a third of Greeks are now surviving under the poverty line, and half of the youth is unemployed) and a miserable failure in economic terms. In 2010 the debt stood at 120% of GDP, and in 2011 has increased to an unsustainable 169%. The goal of the new bailout is to shrink the magnitude of the debt to 120.5% by 2020 - slightly up from the level where it was at the starting point in 2010.

Schäuble, from his side, is right to speak, with his usual Teutonic elegance, about billions of euros thrown into a “bottomless pit”. The entire second Greek “rescue plan” is totally unrealistic - according to the figures produced by the International Monetary Fund debt sustainability analysis, the level of Greek debt in 2020 would be at least 160%.

The impossible goal of 120.5% has a precondition, according to the memorandum: a constant increase in annual primary surplus (after the payment of debt obligations) within the Greek economy, starting from 2013. How could that be possible in view of the introduction of the most savage recessionary measures - a 22% cut in all wages, a 20% reduction in pensions, a cut of 15,000 jobs in the public sector up to April 2012 and a total of 150,000 civil servants jobs gone by the end of 2014, closure of more hospitals, schools and universities, etc - in an economy where the recession hit seven percent in 2011 and another six percent fall is expected in 2012?

From the other side, the opponents of Schäuble’s line are right to insist on the horrifying consequences of a Greek collapse for a euro zone crushed by an unbearable mountain of debt, with an extremely fragile banking system and an economy in contraction. The total resources of the EFSF and ESM combined - between €750 billion and €1 trillion - would be unable to contain the consequent inescapable contagion spreading to Italy, which has a national debt of €1.9 trillion and is propped up by Spanish toxic bonds, as well as to a crumbling Spain, which is propped up by Portuguese toxic bonds, while Portugal itself has already asked for a haircut on its sovereign debt and to be bailed out again.

Insofar as the ECB’s LTRO is concerned, it represents a kind of quantitative easing in disguise - “a useful fiction”, to use the words of James Mackintosh[4]: producing some very short-term results obtained by printing money and providing liquidity, but insufficient to deal with a generalised insolvency problem, in conditions where Europe’s banks remain among the world’s riskier assets and the debt crisis is exacerbating by the recession in the euro zone.

The central problem is not lack of liquidity, but an historic crisis of overproduction of capital: “The enormous pile-up of money which remains uninvested is doing so because there is no place to invest with a reasonable hope of return,” Hillel Ticktin rightly stresses.[5]

Both positions - Schäuble’s and his opponents’ - were short-term attempts to win time, and did not provide any real solution to the crisis. As a matter of fact, the divisions and bitter infighting among the ruling classes of Europe, including the split in Berlin, the most powerful centre of the EU, reflect the lack of any coherent long-term strategy to solve the systemic crisis: a strategic void, expression itself of an historical impasse in which capitalism in decline is irretrievably trapped in Europe.

Decline of the nation-state

Greece’s obvious but undeclared bankruptcy and the failure of the EU to deal with it or even to control the implications of a default, despite numerous summits, interminable deliberations and two bailouts, are a manifestation of the historic incapacity of the European bourgeoisie to overcome the crisis of the nation-state and unify, economically and politically, the continent.

In an early period of the imperialist epoch, when the universal development of modern productive forces was already starting to suffocate within the straitjacket of national borders, Briand expressed the need of the ruling classes by raising the goal of a “United States of Europe” on the basis of capitalism. A century later, either by the barbaric means of two world wars or by 60 peaceful post-war years of attempts by the western European governments to integrate the European capitalist economy, the goal has proved to be beyond reach.

After the collapse of the Soviet Union and the end of the cold war, the European Union project, based on a common Euro-currency established by agreement between German and French imperialisms in the Maastricht Treaty, had as its aim an integrated capitalist Europe under the French-German condominium - a powerful competitor for world hegemony in the post-cold war chaotic world.

Twenty years later, despite the extension of the EU to incorporate 27 member-states and a common currency in the euro zone, the whole project is breaking into pieces. The future of the euro itself and of the euro zone is rather bleak, and all the old national imperialist antagonisms and nationalisms that have so often transformed Europe into a hell are returning, with German nationalism one more time playing the fatal role of the protagonist.

Germany is too small to play a global role, but at the same time is more powerful than any other European country - although not all European countries put together. Twice an historically constrained German imperialism has tried to establish a German Europe to provide Lebensraum - a living space for its capitalist development - by military means and failed. Now, as the most powerful economic engine of Europe, it is trying again to establish a German European Union, subject to iron fiscal discipline imposed by Berlin through Brussels, and ejecting from the EU or reducing into the status of protectorate over-indebted peripheral countries like Greece. It will fail again, as this can only fuel all the centrifugal forces that are breaking apart the euro zone, while Germany’s actual Lebensraum has permitted its export-led economy to accumulate enormous surpluses thanks to the deficits and encouraged indebtedness of the now demonised European south.

The policies of German Ordoliberalismus have now been imposed all over Europe. After World War II, ordoliberalism was introduced in Germany, but within an international Keynesian framework of capitalist expansion, not in conditions of global recession, as today. It cannot but be catastrophic for Europe - and suicidal, in the last instance, for Germany itself.

The second bailout of Greece represents, as Wolfgang Münchau has written, its transformation into “the euro zone’s first colony”.[6] It is true that the terms of the new package are of a colonial type, eliminating any trace of economic sovereignty. An escrow account has been created for the deposit of loaned sums so that the lenders can be paid at any moment, thus bypassing Athens. The proposal by Schäuble to appoint a fiscal Kommissar on the Greek government with the power of veto over economic policy decisions - a provocative proposal that produced an indignant response in Greece and internationally - was withdrawn, only to be accepted and extended into a task force of EU commissars surveying the finances of all Greek ministries. A special article will be included in the Greek constitution making mandatory all payments to foreign lenders. The pusillanimous Greek bourgeoisie and all bourgeois parties of the country accepted these terms of total submission.

As other countries with sovereign debt crises, such as Portugal, Spain and Ireland, fail to meet the targets set by Brussels and Berlin, similar commissars are preparing to take charge of their finances. It is quite understandable that furious national reactions have been ignited everywhere within the imperialist European ‘Union’.

To speak of “euro zone’s colonies”, as does Münchau, is to use a good metaphor, which is just that - a metaphor with all its limitations. The euro zone is not an empire, even less a German empire under a unified, imperial political power. It is a union of dominant, antagonistic European imperialisms, which has now proved to be temporary, disintegrating and passing away. “Europe’s ‘proud empire’,” the title of an article by Andrew Roberts remarks, “is entering a cul de sac of history.” And the article concludes: “… Europe’s fire has gone out”.[7]

To remain in the iron cage of the EU is unviable. But neither is a return to the national state and national currencies in today’s conditions of advanced capitalist globalisation any solution. A nationalist turn inwards would be a blessing for the growing far right and a recipe for economic and political disaster.

Greece and the other over-indebted countries in the EU cannot take any steps out of the current impasse without cancelling foreign debt owed to the international usurers without compensation. But such a first step has its own necessary logic: it cannot be taken without a break from the EU and the euro zone, and it has to be linked immediately to a series of other absolutely necessary measures: nationalisation of the banks and all strategic key sectors of the economy under workers’ control, a reorganisation of the entire economy on a new socialist basis. The political precondition for such a revolutionary change is the overthrow of the capitalist government and repressive state apparatus by the action of the masses themselves, organised in their own, independent organs of struggle, which will become the organs of a new power - workers’ power. The consolidation of the power of the working class and its work of reorganising the ruined economy is possible only through the extension of the social revolution all over Europe and internationally.

The historical material basis for this epochal change in Europe is much more mature than in 1917. The interconnectedness of the social economic processes determines - not in a linear way, but displaying unevenness and contradictions - the combined international character of the coming European social revolution. Revolutionary developments can spread all over the continent much more rapidly than in the past. The key question is once again the timely subjective preparation and organisation of the revolutionary vanguard within a combat party of the working class, armed with an international perspective and programme - a party of the permanent revolution.

The fundamental, driving contradiction is between the universal development of the productive forces on the one side and, on the other, a declining capitalism, the barriers of capitalist relations and its necessary basis, the nation-state. The working class should not buy into either the social democratic fallacy of a ‘reformed, democratised’ EU or into nationalist isolation and exclusiveness. The only road forward is the common struggle of all European workers and impoverished masses for a socialist revolution to destroy the imperialist EU and build a United Socialist States of Europe.

Decline of parliamentary democracy

It is noteworthy that the new, vicious, anti-working class, anti-popular memorandum of the EU, ECB and IMF, imposed by the EU in November 201, was signed by a non-elected Greek government under the technocrat, banker and former vice-chairman of the ECB, Lucas Papademos. At the same time, the same forces imposed on Italy a non-elected ‘government of technocrats’ under Mario Monti. Both events mark not the triumph of technocracy, but the death agony of parliamentary democracy.

The political framework most suited to the needs of capitalism is a liberal bourgeois parliamentary democracy. Purely technocratic rule is a fiction: even the Monti government, composed exclusively by technocrats, needs the support of the centre-right Popolo della Libertà and the centre-left Partito Democratico, although this parliamentary majority no longer reflects the current social political reality or the will of the voters.

In Greece, ‘technocratic rule’ has proved inevitably to be a farce: the government of the technocrat, Papademos, stands or falls on the support in parliament of the discredited bourgeois parties of the ‘socialist’ Pasok and the rightwing New Democracy - polls repeatedly show that these two parties currently enjoy the support of a rapidly shrinking minority, now less than 30% of voting intentions. In other words, fictitious technocratic rule relies on a fictitious parliament that is totally discredited, hated and openly challenged by a huge majority of the people now rebelling against its savage measures.

It is not an accident that the movement of the Greek indignados that occupied Syntagma Square and elsewhere in the capital and all over the country in 2011 overwhelmingly demanded not parliamentary, but “direct democracy” - democracy from below. Despite the vagueness of the call, it represents both a critique of the actually existing bourgeois parliamentary democracy and a still abstract demand for the democracy of the self-organised, popular masses. It is not yet a call for a seizure of power by the working class. It finds itself at the crossroads: either the mainly petty bourgeois forces demanding direct democracy will be won for the struggle for workers’ power or they will return to the cage built for them by the bourgeois politicians: the parliamentary fraud.

Greece shows, at that level too, the road to be followed by all other European countries, which also face, to one degree or another, a deep crisis of bourgeois rule. It is the decline of capitalism - globally and particularly in the continent that was its birthplace - a decline which manifests itself explosively in the current world crisis, which is the driving force of the decline of parliamentary bourgeois democracy.

Parliament is reduced to a rubber stamp for decisions taken behind closed doors by EU bureaucrats, IMF directors, bankers, finance investors, and their subservient political personnel. All the dearly acquired democratic gains and social rights of the working class (collective bargaining is formally abolished in Greece by the second memorandum) are being destroyed. State repression is escalating to levels not previously seen, as social despair and mass anger become uncontrollable and explode in occupations of public buildings and squares, street fights, riots and popular revolts, from Athens to Madrid, Rome, Lisbon and London.

The question of democracy and of its relation to the struggle for socialism is posed again in a form even sharper than in the 1930s. The experiences and bitter theoretical and practical lessons of that period, incorporated first of all in the struggle between Stalinism and Trotskyism, have the most urgent strategic actuality.

Sectarian dismissal of the relative differences between democratic and openly dictatorial forms of bourgeois rule, in the name of an abstract propagandist appeal for a socialist future, would be disastrous and should be opposed. But, on the other hand, any subordination of the political independence and activity of the working class to blocs with bourgeois liberal and petty bourgeois democratic forces, in the name of the defence of bourgeois democracy and “European liberal democratic values”, as we often hear these days, would be suicidal. It could lead to a tragic-farcical repetition of the popular fronts of the 1930s that paralysed the revolutionary masses, betrayed the Spanish revolution and precipitated the victory of fascism and the descent into the abyss of world war.

The defence of freedom has to be advanced by revolutionary means, in a united front of the working class and all the deprived people against capital’s rule, in a struggle for workers’ power and socialism.

Towards a European spring

When Schäuble again, this living embodiment of Ordoliberalism, proposed to postpone indefinitely elections in Greece until the terms of the new bailout had been fully implemented, he not only showed his cynical disdain for parliamentary or any other democratic decision-making; he also expressed his deep fear that the rebellion of the masses is far more powerful than the extremely weak bourgeois political system of the country, which despite state brutality could be wiped out.

In the polls, a strong and growing majority of the people are turning to the parties of the left to resist the memorandum and the EU-ECB-IMF troika. In the streets, above all, non-stop mass mobilisation of workers and from the rapidly impoverished popular strata, despite the obstacles placed in its way by the trade union bureaucracies, the reformists, the Stalinists and the centrists, represent a growing threat to bourgeois rule. General strikes, mass rallies, occupations - particularly of Syntagma Square in front of parliament, but also of ministries and other public buildings - popular assemblies, formed as rallying points of deliberation and struggle in every popular and working class neighbourhood, make clear that “those below cannot be ruled as before and those above cannot rule as before”, according to Lenin’s famous definition of an emerging revolutionary situation.

The German finance minister may no be longer afraid of the risk of economic contagion caused by a Greek default. But he is terrified, nevertheless, of the risk of political contagion following a revolutionary explosion in Greece. It could set alight the whole continent, initiating, as the Tunisian and Egyptian rebels did in the Middle East last year, a spring of revolutions, this time in Europe.

As in the 1848 European spring of the peoples, our battle cry should be: Revolution in permanence!


1. Vima January 15.

2. G Wiesmanm and Q Peel, ‘Berlin split on Greek bailout’ Financial Times February 17.

3. P Spiegel and A Beattie, ‘Euro zone looks to pare back €170 billion cost of second Greek rescue package’ Financial Times February 20.

4. See ‘The short view’ Financial Times February 17.

5. H Ticktin, ‘Critique notes’ Critique February 2012, p8.

6. W Münchau, ‘Greece will have to default if it wants democracy’ Financial Times February 20.

7. ‘Europe’s “proud empire” is entering a cul de sac of history’ Financial Times February 17.