Who is paying for capitalism’s worst financial crisis and slump since the Great Depression? As Marxists could easily predict – it won’t be the top 1% of income earners and owners of capital. No, it will be ordinary working people and their families, who are in no way responsible for the trillions on investment value lost by the bankers and investors in the great housing bubble of 2002-7 in the US and Europe. The bill for these losses is now being presented to people through increased taxes, reduced public services and rising job losses, whether it is in the large G7 countries like US or the UK, or the smaller capitalist economies like Iceland, Greece or Latvia .
Rather than take over the big banks and finance houses and run them as public services to provide credit and mortgages to small businesses and households on reasonable terms, governments everywhere (whether pro-capitalist or ‘socialist’) have handed over around $11trn in credits, guarantees or new capital to the banks to bail them out. That’s about 20% of the world’s annual output. In return, governments have taken token or minority stakes in the shares of these finance houses, but leaving the operational control with the bankers and with every intention of selling back their shares as soon as possible.
But the bill must be paid by someone. The people of Iceland were told by their new ‘socialist’ government that they would have to pay back about €4 billion (almost 50% of Iceland’s 2009 GDP) to the British and Dutch governments that Iceland’s rapacious banks had lost through investing abroad and betting in credit markets. This would mean a vastly increased tax burden lasting for the next ten years. No wonder Iceland’s small population rebelled and demanded a referendum to reject the deal that the government made on their behalf. On 6 March, Icelanders will tell their government where to stick the agreement.
The Greek people also face a disastrous situation. Ironically, Greek banks did not get into very serious trouble like the British, Dutch or Icelandic ones did. But because the financial crisis spread across the globe and the Great Recession that followed was so deep and pervasive, Europe’s financial institutions are no longer willing to finance Greek public services, something the European Union has done for more than a decade because Greek capitalism itself is so weak and unproductive that it could not do it alone.
Successive Greek governments have tried to avoid slashing public sector jobs and wages because they feared the backlash from Greeks trying to preserve their living conditions. But now the jig is up. The centre-right Greek government was heavily defeated in a recent general election and the ‘socialist’ PASOK government came into office, only to find that the public sector now ran an annual deficit of spending over income of 15% of GDP and an outstanding debt of over 130% of GDP. In effect, the government was bust.
The other EU governments, led by the conservative German government, are now saying the Greeks will receive no more gifts. Instead, they must make huge cuts in public spending, raise taxes, sack employees, cut wages and raise the pensionable age. In effect, they are demanding that Greek families take a 25% cut in their living standards over the next five years.
On Wednesday, the EU Commission pronounces on whether the Greek ‘socialist’ government has done enough to control its burgeoning budget deficit and outstanding debt mountain with measures it announced earlier this month. And next Wednesday, the Ecofin group of finance ministers from the Eurozone meet to discuss whether Greece needs to do more. Everywhere, the big financial institutions are demanding action or they will refuse to buy any more Greek government bonds.
This is a countdown to the devil for Greeks. The Greek people have done nothing to deserve this and yet they must pay heavily for the failure of capitalism.
Michael Roberts Blog 