11.04.2012
Expecting the unexpected
The euro crisis never went away. But resistance to austerity is certain to intensify, says Eddie Ford
For the last few weeks we have been led to believe that the euro zone crisis is all but over. Thanks to the second Greek bailout, the dishing out of €1 trillion in cheap loans to distressed banks by the European Central Bank and economic recovery in the United States, there was now a bright light at the end of the tunnel. Everyone could breathe a sigh of relief.
But this has proved to be a self-serving fantasy. As the May 6 Greek elections approach, there is a distinct possibility that the Greek people will elect a parliament that will reject the bailout terms imposed by the European Commission, the European Central Bank and International Monetary Fund troika. Raising the spectre again of a default. No wonder that some within the European Union bureaucracy wanted to indefinitely postpone the elections - you never get the right result. Meanwhile, the US jobs market has stalled and all the ECB’s Long Term Refinancing Operation (LTRO) did was slap a piece of sticking plaster on the euro zone’s open wound - which continued to fester. The crisis never went away.
Hence we discovered that there were just 120,000 new jobs in the US last month, a sharp drop from the 240,000 created in February. Confounding some economists who had been expecting that this would be the fourth month in a row where the figure was over 200,000. True, the unemployment rate - obtained by a separate survey of US households - actually went down by one tenth of a percentage point to 8.2%. But this is hardly a cause for celebration. Rather, this drop is at least partially the result Americans just giving up in despair and leaving the registered labour force altogether. And doing god knows what.
The disappointing jobs situation will undoubtedly increase the pressure on Ben Bernanke to pump more money into the economy and launch a new round of quantitative easing. He has repeatedly declared that no options are off the table and that the federal reserve would be “compelled” to act if the economy took a turn for the worse. However, the latest minutes from the federal open markets committee (which sets US interest rates) seemed to indicate that Bernanke and the committee were cooling on the idea of a further monetary stimulus - arguing that whilst the Fed is always waiting in the wings, “at some point we need to take the training wheels off and ride this bike ourselves”. Not much consolation for the unemployed or the nearly two million ‘homeowners’ threatened with foreclosure last year (from the start of the financial crisis in September 2008, there have been approximately 3.4 million completed foreclosures).
All good news, of course, for multi-millionaire Mitt Romney, especially now that Rick Santorium has dropped out of the presidential race, leaving Romney with no serious rivals - both Newt Gringrich and Ron Paul are obviously half-mad and, more importantly, cash-strapped. Yes, unemployment may have dropped fractionally for the time being, but it remains a thorn in the side of Barack Obama. It stood at 7.8% when he took office in January 2009, peaked at 10% nine months later and has now fallen to the lowest level in three years. But the fact remains that no president since Franklin Delano Roosevelt has won re-election with unemployment standing so high.
US economic stagnation is also extremely bad news for the euro zone - European Union leaders had been hoping that an American recovery would help drag them out of recession and crisis. That plan scuppered, they are locked into plan A, which promises more of the same - cuts, cuts, cuts.
Spanish storm
Now Spain finds itself at the centre of the storm, though watch this space. Mariano Rajoy’s Popular Party government is trying to force through a punishing series of austerity measures, the same sort of medicine that has brought Greece to the point of economic annihilation. Spain is already suffering from 24% unemployment, with some 50% of young people out of work. A horrendous act of social-economic warfare against the working class - near economic genocide. However, Rajoy - as instructed by European finance ministers - announced last week that there will a further round of €27 billion in cuts and tax hikes and at the weekend said the government would pass new laws to provide an additional €10 billion of cuts in health and education.
Not that the government in Madrid has met its own deficit target of 6%. It is finding it extremely difficult to cut back spending at a time when unemployment is going through the roof. More and more benefits have to be paid out, even if individual amounts are being cut. However, euro zone finance ministers - seized by a collective lunacy that throws logic to the wind - are demanding that the resulting 8.5% deficit has to be slashed to 5.3% this year and then to 3% the following year. An obviously problematic task as unemployment, inequality and poverty grows. More to the point, were these EU-dictated goals somehow achieved, it would only come at great cost - the ignition of a social explosion that could sweep the country.
Inevitably, given the ‘emergency’ austerity conditions, the Spanish economy is already projected to shrink by 1.7% this year. The total ‘fiscal adjustment’, to use the jargon beloved of EU bureaucrats, of more than €60 billion over two years (or almost €1,500 per Spaniard) is guaranteed to drive the country into even deeper recession - or a “contradictory dynamic”, as the Bank of Spain now likes to euphemistically call it. The upshot being that the suicidal socio-economic policies pursued by the EU and the Spanish governments mean that the country is caught in a classic vicious circle: as the economy contracts, the relative deficit rises.
Feeding into the crisis, worried eyes are now turning to Spain’s creaking banking system - which has done next to nothing to shed the toxic debts (ie, real estate assets) it accumulated when the housing bubble burst four years ago. The good times came to an abrupt end. Many loans to developers have simply been rolled over - hope the problem goes away - while many Spanish banks have had to accept properties and land in lieu of payment. Less than satisfactory.
Yet with house prices tumbling and building land often worthless, several of the smaller banks have had to be rescued with taxpayers’ money. In turn, this glut of toxic loans to developers still swishing around the banking system has forced a further round of ‘consolidation’, with the merger of CaixaBank and Banca Cívica creating the country’s biggest high street bank. The government has already instituted a reform that will require banks to come up with an estimated €50 billion ($65 billion) in provisions to cover real estate holdings, many of them grossly overvalued. A fall waiting to happen.
Confronted by the disastrous mess that is the Spanish financial system, concerns are rising that in the relatively near future Spain will be forced to request a ‘partial’ bailout from the European Financial Stability Facility - soon to be replaced by the European Stability Mechanism - in order to prop up the country’s distressed banks. In the opinion of Citigroup analysts, Spain is “likely to be pushed into a troika programme of some sort during 2012”.
Needless to say, this prospect has spooked the markets - already in a state of anxiety following Bernanke’s gloomy comments about the US economy and the latest batch of poor Chinese trade data, showing a 3.1% fall in exports to the EU and a slowdown in annual growth from 8.9% in the fourth quarter of 2011 to 8.4% in the first quarter of 2012. Not to mention alarming reports in the financial press that Italy’s economy is likely to contract this year by between 1.3% and 1.5% - far more than the original 0.4% prediction. All against the backdrop of rising unemployment across the euro zone as a whole, which hit a new high of 10.8% in February - with an estimated 17.1 million people now out of work. The euro area seems once more to have fallen into an uncontrollable spiral of debt and recession.
Hence on April 10 the financial markets placed Spain firmly in their target sights, as a panic sell-off of Spanish debt began - investors were demanding high premiums for holding Spanish (and Italian) bonds, as fears of a double-dip recession and possible bailout grew. Spanish 10-year bond yields (interest rate) hit a four-month high, reaching 5.99%, and shares in Madrid dropped by almost 3% to hit their lowest level since March 2009. In Italy, yields jumped to 5.7% - drifting dangerously towards the danger zone - and share prices slumped by 5% on rumours that the government was preparing to officially downgrade its growth forecasts. And after the share price of several Italian banks fell sharply, trading was quickly suspended. Take the heat out of the kitchen.
The euro came under pressure on the foreign exchange markets as the mood darkened on April 10, losing 0.2% against the dollar and more than 1% against the yen. By contrast, ‘safe haven’ assets such as gold and the US dollar - and government bonds in the US, Germany and Britain - were all in demand. For some, a killing was to be made. But for the rest the dominant feeling was of fear, that debt contagion was spreading to Italy - the ultimate nightmare. Europe’s third largest economy may be too big to fail, but it also too big to bail out. Far too big. Trying to cope with such a calamity would immediately empty the EFSF/ESM’s entire rescue funds - and still be utterly inadequate. If Italy were to buckle under the weight of debt, that would surely signal the end of the euro - thus almost certainly triggering a global slump.
Resistance
Meanwhile, working class resistance to the relentless attacks of the Eurocrats is mounting. In Italy, Mario Monti’s government is facing growing hostility to labour market ‘reforms’ - ie, proposals to make it easier for bosses to sack workers. In Greece, ferry workers began a 48-hour strike on April 10 - leaving numerous travellers stranded on a day that marked the start of the high season for the tourism sector.
Over the Easter break, protests against the austerity measures being introduced by the technocratic government of Lucas Papademos saw home-made fire-bombs used against government buildings. As for the May 6 elections, a poll published by Mega TV showed that almost 20% of voters had not yet decided who they will vote for. Of the 1,200 people interviewed, a only 32.4% said they supported one of the two main parties, Pasok and New Democracy. However, a greater number (34.2%) declared their support for the smaller parties - overwhelmingly leftwing in composition - that are implacably opposed to the austerity deal brokered by Pasok, ND and the troika.
Then we had the high-profile suicide of Dimitris Christoulas, a 77-year-old who was “deeply politicised but also enraged”. He shot himself in Syntagma Square in Athens because, as he explained in his one-page suicide note, it would be better to have a “decent end” than be forced to scavenge in the “rubbish to feed myself”. He also compared Greece’s coalition government to the puppet regime of Georgios Tsolakoglou under Nazi occupation during World War II and implored young people to rise up and “hang this country’s traitors” in Syntagma Square “just as the Italians hanged Mussolini in 1945”.
Many Greeks find themselves in the same precarious situation as Christoulas, especially the elderly - their pensions slashed by handsomely paid EU bureaucrats living in well-appointed apartments in Brussels, Strasbourg, Paris, etc. Of course, Christoulas is not the first and nor will he be the last Greek to take his own life during this crisis - whatever the exact motivation. The official suicide rate, which used to be Europe’s lowest, has doubled over the last three years.
Similarly in Ireland, three people a day are now committing suicide - and the Irish suicide helpline, Ilife, has revealed that it is struggling to cope with the one hundred or so calls a day it is receiving from people driven into penury by the government’s austerity regime. There are fears that as many as 1,000 people will take their own lives in Ireland in 2012. A clear sign of social despair.
However, on the other hand - as exemplified by the suicide of Dimitris Christoulas - it also a gesture, perhaps the ultimate one, of defiance against the ruling authorities and the social-economic order in general. But the main point to stress is that resistance, possibly taking unpredictable forms, will inevitably intensify - expect the unexpected. George Galloway’s stunning victory in Bradford West should remind us of that.