What does the bail-out of Greece mean for international capital? Hillel Ticktin, editor of the Critique journal, spoke to Yassamine Mather…
The BBC and Financial Times have commented that the Greek bail-out amounts to a short-term fix to buy time. The bulk of the package includes guarantees which they hope will ensure the euro will not collapse. The government debt of Greece alone amounts to over €250 billion or some 125% of its GDP, and what they have done is to convince the markets that the line will be held.
In February German chancellor Angela Merkel refused to intervene. If she had continued with that refusal, the situation would have become untenable. The sovereign debt crisis then got to the point where it could threaten Greece, Portugal, Spain, possibly Italy, Ireland and ultimately even Britain. The slide towards that was obvious right from the beginning. Most bourgeois commentators were saying that it would never be allowed to slide to that level, but it did. For that reason the Social Democrats in Germany criticised Angela Merkel.
The press in Britain was appalling. It tried to imply that the Social Democrats were some kind of extreme nationalists, who hated the Greeks and thought they were just lazy. But if you listen to what the Social Democrats were actually saying, it was not that at all. It is interesting that the British press were deliberately trying to foster anti-Greek and anti-German attitudes. The upshot of this has been that the euro zone powers let the Greek situation slide up to the point where there was no alternative: the euro and ultimately the capitalist system itself were under threat, so obviously there had to be a bail-out.
The second point is: what is the market? You constantly hear this nonsense, about how you cannot buck the market – but the market is not some inhuman, cosmic system that nobody can do anything about. It is just a section of the capitalist class deciding what to do with their money. Obviously if they think that Greece is going bankrupt, then they are going to withdraw their capital if possible. That is a completely rational approach and the idea that there is some sort of impersonal agency involved is nonsense.
It is also true that you can actually influence the people who control investment – they are really the same people who are influencing governments. In fact it is not thousands of individual capitalists either, it is a relatively small number of banks, funds and so on, which are moving money in and out. It is perfectly possible to consider where they are going and come to a deal with them.
Why was Latvia bailed out so easily last year, while there was reluctance to act on Greece? Latvia was a total basket case. It was, and in a sense still is, in tremendous trouble economically. That largely arose from the simple fact that the population of Latvia was able to borrow money in foreign currency at low interest rates, particularly from Sweden, Austria and to a degree Italy. With the downturn they could not repay. If the Latvians devalued the currency, it would become even more difficult for them to repay. This was a problem for the Swedish and Austrian banks. Latvia systematically refused to devalue because it wanted to join the euro and wanted to show its economy to be capable of undergoing the transition. The country was really teetering, as Greece is now, on the brink of total bankruptcy.
In February 2009 the International Monetary Fund got the relevant banks together and insisted there should be a bail-out. €78 billion was put aside for the Baltic countries, particularly Latvia. The way it is described in the Financial Times is that it was the banks were almost forced to do that. It was done secretly and reported afterwards. With Greece, however, it was all in the open.
What was really going on? The answer is that Merkel wanted to use Greece as a test case for dealing with the working class. She wanted to see cuts introduced in order to defeat the working class. There is no other way to understand it – if that was not the case, then why wait so long? Merkel did not act immediately, because the ruling class in Germany – and, it appears, important sections of the world’s ruling class – wanted to go for austerity, for control. You can see that happening in Britain by default, as it were, as a direct result of this ultimate bail-out. The condition which the Germans imposed was that of austerity throughout. France has now accepted this too. The euro zone, as a direct result of this package, has signed up to the German austerity policy. It will now experience a low or negative growth rate. Consequently for Britain the chances of being able to export more to the euro zone are considerably reduced.
The possibility of Britain going the way of Greece is unlikely. As part of the deal announced by the EU the United States provided dollars to various countries and there is either a tacit or an explicit deal between the United States and Britain. It would be highly dangerous for the capitalist class to simply demand a whole series of cuts in Britain, which is still an imperialist power, despite being called a small country. This would lead to the working class beginning to act, which would be an ominous example for the world from the capitalists’ point of view.
The other aspect is that it is difficult to see a financial crisis arising in Britain, with money leaving the country and so forth. The bonds held are a long-term debt – investors sometimes have to wait 12 years or more before stocks pay out. Secondly, a large part of the debt is held in Britain itself, so it is not a balance of payments issue. On top of which there are still huge funds coming into Britain, partly because of this crisis. The Greek bourgeoisie is putting its money into Britain and British housing, hence, in part, the rising prices in London.
In the case of the other countries, it is different. In Ireland, austerity measures have not worked. Its huge budgetary gap remains and this will not change if all they rely on is austerity. If you cut the standard of living of the population and therefore production goes down, tax returns will also go down and so the gap increases. That is obvious and will happen in every country which simply goes for austerity, which is the point which has been made in relation to Greece. It is simply not enough to continue cutting. It does not work and will not work in Greece either, which is why they need to do something else.
In relation to Spain and Portugal, the problems involved are not just those of a fiscal deficit. As with Greece, it is also a balance of payments problem. One of the problems is that such countries are ‘uncompetitive on the international market’, as they put it. What they mean is that wages have been going up. In other words, the bourgeoisie has not been sufficiently strong to suppress the working class and has had to make concessions. Consequently wages have been rising in relative terms and the products of such countries have become uncompetitive on the world market or within the euro (previously they could devalue, but now they cannot).
They can borrow and the euro zone sector will effectively fund them for a time, but that cannot continue for ever. This is obvious in the case of Spain, but Italy’s economy is even bigger and has been in trouble for a long time. Its debt is over 100% of GDP and has been like that for years. Italy has managed to hold out up to now and in part that is because of its very rightwing government. A leftwing government would not be trusted and there would be immediate trouble. Italy may not be in trouble immediately, but it will be. In the long run the question is then whether the euro zone could hold up at all. That is not at all clear.
The exclusive focus on the deficit is a totally crazy policy. You cannot simply cut public services and raise taxes and expect to end the deficit. There has to be growth – this has been pointed out time and again by Keynesian economists. The only way to get rid of the deficit is through a sufficiently rapid growth and allowing inflation to come into play. That is what happened in the past.
It is not just Lord Skidelsky pointing this out. The Financial Times itself and a number of commentators, such as Sam Brittan, who after all, is in no sense social democratic, have said the same. Brittan wrote back in autumn 2009 that it is crazy to cut, which is true. So one has to ask what is going on. Why are they cutting in the euro zone and why are they cutting here? Why is the Republican Party so firmly against expansion, but insisting on severe cuts?
It looks as though they are either taking the opportunity to try and defeat the working class – an attempt that is clearly happening in Greece. Or they are doing it as a defensive measure – afraid that in the present circumstances there is going to be a rise in working class activity. That is what it looks like. The other possibility some people put forward is that they are just stupid: having adopted monetarism or the ideology of Thatcherism, they really believe in it. They really think that the only way to maintain control is to screw the economy down – therefore they have to cut the fiscal deficit. In other words it is pure ideology – in fact not even ideology, which needs a point of contact with reality. If they are really not thinking of a direct contest with the working class, one can only say that they are mad.
But can they defeat the working class? Well, they are not doing so in Greece quite obviously. Are they likely to beat the working class anywhere? It is highly unlikely. The usual way that they control the working class is through a mixture of repression and concessions, but here there are no concessions – just straight repression. So they are not going to win: I cannot see it. Even most people on the side of the bourgeoisie would probably say they could not win in the end.
So are they trying to commit suicide? On the one hand, they have bailed out Greece, which from the point of the system looks all right; on the other hand, they are imposing austerity everywhere. So where on earth will that lead, apart from downhill? It may be awful for the left in the coming period, with wages going down and unemployment rising, etc. People’s personal circumstances could be considerably worse. But if you look at what is likely to happen politically, people are going to move to the left. They are already doing so and are bound to move further to the left – logically there is no other way to go.
As I have written in Critique, one has to analyse the downturn from three angles. There are the periodical upturns and downturns; there is the strategy of the ruling class; and then there is the crisis of the capitalist system itself.
Firstly, the upturns and downturns, which have gone on for over 300 years. There is a certain automaticity about it, whereby companies sell off or destroy their stocks, reduce their ability to produce, dismiss workers and so raise their profits. We are not in the 19th century, in spite of the stupid rhetoric about small and medium-sized companies. The companies which dominate the economy are large – monopolies, oligopolies or whatever else you want to call them: simply large, dominant firms. Quite obviously their profits will rise; they have risen, sometimes by enormous amounts. Logically it is what you would expect to happen.
So there is something of an upturn depending on the country, but the upturn is relatively weak, because the capitalist class cannot see much of a future, as things stand. Obviously if unemployment is high and wages are static or declining, demand is going to be low, which is what they expected.
But behind it all they are still stuck with exactly the same reason why the crisis occurred: that is to say, an enormous surplus of capital. It has existed now for decades, getting bigger, bigger and still bigger. At the time the crash occurred in 1970 it was somewhere in the region of $18 trillion just being held as liquid assets; that is on top of the $110 trillion being held by hedge funds, pension funds, insurance companies, private equity and so on. So the enormous amount of money in the system dwarfs entirely the crisis of Greece. The banks hold more than all the countries’ deficits combined, so these crises could be dealt with easily in theory. The problem remains the huge level of surplus capital looking for investment. The banks are only offering half a percent interest, which is a joke – if you are lucky you may get two percent. In Britain that is below the rate of inflation, so in real terms you lose your money. But there is no obvious place to invest.
Why is this the case? The answer goes back to the strategy that has been adopted – the strategy of finance capital. This means deliberate disinvestment from industry, switching to the holding of money as money, which is then used for investment in order to get quick returns. There is no interest in investing for the long term. To a degree the money went to the third world – originally to south-east Asia – and that was not successful. Then there was the dot-com boom, but that collapsed; then derivatives, which also collapsed. There is nowhere for that capital to go – except back into industry.
There is a certain move for going back to industry: Mandelson has been pushing that in Britain. He had the crazy idea of linking universities to industry. It was the profitability of everything that counted, so universities had to become profitable and science would be subjected to that. This idea will no doubt be taken up by the Tories – albeit perhaps not in such a crass way – but it cannot work, of course.
The point is that there is a clear tendency to realise that there must be a move back to industry. There has already been a limited amount of investment in China; another example is that of General Electric in the United States, whose latest report notes that investment in finance capital has not been doing too well, and more or less concludes that the company will have to go back to industry. You can expect a certain shove in that direction.
The strategy of finance capital has now failed, along with its political arm – economic liberalism. It continues like a zombie, but as a policy it has failed. The capitalists will have to find something else – but they are muddled and do not know where they are going.
A switch to industry, however, would not provide returns immediately. They would not come for five, 10, or even 20 years. That is why it not easy to switch from finance capital to industrial capital, just like that. The only way it would happen is if the state begins the process. It is being discussed in the United States, but you have to be utopian to believe that Obama will go all the way through with it. In the US there is talk of big investments in the railways and a high-speed rail link. (According to Scientific American most of what is being considered is just an inferior version of what exists in Britain. Although it would provide some sort of outlet for investment, it is peculiar that the most advanced and dominant country in the world wants to invest in backward technology.)
But it is not clear to me that even this will happen, given where the situation is in the US. The Republicans are opposed to state intervention, and even if some such investment was let through, it would not be enough to start the process. The capitalist class is not prepared to reflate. That would mean full employment, and the working class would start to exercise its power and demand control. This unwillingness to reflate means that any industrial expansion will be limited and they are stuck with finance capital – which is unable to achieve sufficient returns.
From this point of view capital is in a difficult situation. I do not want to say that capitalism’s situation is terminal, however desirable that would be. It will not end automatically. It is in decline, but that will only be terminal when the objective and subjective elements come together. The subjective elements are not yet there.
What can be done?
The predatory, parasitic and inhuman strategy that relies on finance capital has come to a dead end – but we have now come to a point where capitalism cannot solve its own problems. The only alternative rests with the working class. It needs its own political strategy pursued by its own parties. The social democratic and so-called socialist parties will either get absorbed into other parties, disintegrate or become even more openly pro-capitalist, if that is possible. There is no alternative but to move left.