The political economy of Covid-19

Governments around the world are attempting to prop up a failing capitalist system by — surprise! — throwing money at wealthy individuals and corporations, especially in the financial industry. In other words, in this time of unprecedented crisis and economic difficulty, it’s business as usual.

We were here not much more than a decade ago, although the rise in unemployment has been more dramatic than during the economic collapse of 2008. That global economic crisis was a long time coming but was inevitable for anyone willing to pay attention. During the 1990s stock-market bubble, traders repeatedly said the dramatic price rises could not last, but as long as the consensus view was that the long bull market would continue they were not going to step off the ride. When the bubble did burst, new forms of speculation kept the financial industry’s party going for several more years. Credit was the lubricant for the later round, both inflating a real estate bubble and enabling consumer spending to continue in the face of declining wages, until the speculation became unsustainable.

No more bubbles to inflate, governments representing the world’s four largest economies alone committed US$16.3 trillion in 2008 and 2009 on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus. Those commitments included $11 trillion for the U.S. (where money thrown at capitalists far exceeded the $700 billion in the Troubled Assets Relief Program), $4 trillion for the European Union, $750 billion for Japan and $600 billion for China. Smaller economies did that too. The Reserve Bank of Australia shoveled A$1.8 billion (US$1.5 billion at the then exchange rate) at financiers to shore up its banking system. The Reserve Bank of India did the same, handing out 60 billion rupees (US$1.3 billion).

Cherry blossoms in Washington (photo by Sarah H. from USA)

All that was simply to deal with the immediate crisis of 2008. As stagnation continued, many of the world’s most prominent central banks decided to throw new gigantic sums of money at the financial industry. Specifically, through programs known by the technical name of “quantitative easing.” What that is are central banks buying in massive amounts bonds issued by their own governments, corporate bonds and/or mortgage-backed securities. For all the talk of the world’s governments taking “unprecedented” measures to deal with the dramatic economic crash triggered by the Covid-19 pandemic, most of the money being committed is in the form of new quantitative easing.

An economic song and dance

The supposed purpose of quantitative-easing programs is to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interest rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because of the resulting distortion in demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

By any standard, we are indeed talking about massive amounts of money. Just on “quantitative easing” alone, the Federal Reserve, European Central Bank, Bank of England and Bank of Japan spent approximately US$9.36 trillion, or, if you prefer, €8.3 trillion, in the years following the 2008 collapse. Here’s a breakdown:

  • The Federal Reserve spent $4.1 trillion in three QE programs that ended in November 2014.
  • The European Central Bank spent €2.6 trillion on its QE programs, which only concluded at the end of 2018.
  • The Bank of England spent £375 billion on its QE program.
  • The Bank of Japan has spent north of ¥200 trillion; precise figures are not available. Japan’s QE has been so large and long-lasting that the Bank of Japan now owns assets valued at more than the entire country’s economy.

Think of all the social needs that could have been fixed for such sums. For example, the British think tank Policy Exchange estimated in 2015 that Britain’s needs for investment in transportation, communication and water infrastructure to be a minimum of £170 billion. That is less than half of what the Bank of England spent on its quantitative-easing scheme. The U.S. could have wiped out all student debt, fixed all the schools, rebuilt aging water and sewer systems, cleaned up contaminated industrial sites and repaired dams — all for $700 billion less than what was spent on quantitative easing.

Given this recent history — by no means an aberration in the history of these capitalist governments — it is no surprise that relief for the economic crash caused by Covid-19 has been largely directed at corporate boardrooms and the bank accounts of the wealthy.

Stimulus packages to deal with pandemic, but who gets stimulated?

The Federal Reserve, like most central banks, is “independent” of the rest of government. The reason given is to avoid “political interference,” but in reality so the elites of financial institutions can continue to do whatever they want without consequence. But as is customary, the Federal Reserve doesn’t act in a vacuum; Congress and the White House are also doing what they can to shovel gigantic sums of money at financiers and industrialists.

So far, Congress has passed two stimulus packages that were signed into law, one in late March and the second in April. A third has been passed by the House of Representatives, but the Senate has shown no inclination to take it up and there is reason to doubt House Democrats are actually serious about this last effort.

The first stimulus is the CARES (Coronavirus Aid, Relief, and Economic Security) Act, worth $2 trillion, which was signed into law on March 27. This is the act that resulted in United Statesians receiving one-time $1,200 checks from the federal government. Considering that the average monthly rent in most cities of the United States is more than that, those checks are tokens that serve to obscure where most of the money went. It wasn’t to households left without work.

The Federal Reserve (photo by Stefan Fussan)

A second stimulus bill was passed and signed into law on April 24 and is worth another $500 billion. Most of the money in this second stimulus bill was earmarked for the Paycheck Protection Program (PPP), a loan program in the CARES Act intended for small businesses that may be forgiven if firms use them to keep workers on payroll; the PPP had run out of money in two weeks. Democrats said they wanted money in this round to go to state governments struggling with suddenly shrinking tax revenue but, as is their custom, immediately capitulated when Republicans said no.

The CARES Act included $250 billion to bolster unemployment insurance, $500 billion in aid for industry and state governments, other monies going directly to specific industries and $350 billion for the PPP. Sounds nice, yes? Appearances and reality, however, diverge.

Before the second, supplemental stimulus package was passed, it had already become apparent that much of the stimulus money was going to Big Business. And that was not all, as yet more tax cuts for large corporations were included in the CARES Act. According to Democracy Now, “A congressional committee reports tax provisions in the coronavirus stimulus passed by Congress last month will overwhelmingly benefit the wealthiest Americans. Four out of five tax filers benefiting from the $70 billion temporary tax loophole are millionaires or billionaires. They’ll receive an average windfall of $1.6 million — dwarfing the $1,200 payments for working Americans.”

Manipulation of Paycheck Protection Program

Meanwhile, much of the PPP money didn’t go to mom-and-pop businesses forced to close due to the Covid-19 pandemic. At least 75 publicly traded companies received funds from the PPP, which is supposed to help small businesses. The Associated Press reports:

“The Paycheck Protection Program was supposed to infuse small businesses, which typically have less access to quick cash and credit, with $349 billion in emergency loans that could help keep workers on the job and bills paid on time. But at least 75 companies that received the aid were publicly traded, the AP found, and some had market values well over $100 million. And 25% of the companies had warned investors months ago — while the economy was humming along — that their ability to remain viable was in question. By combing through thousands of regulatory filings, the AP identified the 75 companies as recipients of a combined $300 million in low-interest, taxpayer-backed loans. Eight companies, or their subsidiaries, received the maximum $10 million possible, including a California software company that settled a Securities and Exchange Commission investigation late last year into accounting errors that overstated its revenue.”

Even the Big Business cheerleaders at the CNBC business news cable channel reported that “Hundreds of millions of dollars of Paycheck Protection Program emergency funding have been claimed by large, publicly traded companies, new research published by Morgan Stanley shows.” This report estimated that at least $243.4 million of the total $349 billion handed out in the PPP as of April 21 — by which time the PPP had already run out of money — went to publicly traded companies.

The above figures might be an underestimate; a later Washington Post report said “hundreds” of publicly traded companies have received a composite of more than $1 billion in PPP funding, although some of that money has been returned under public pressure. Eighty percent of applicants were left with nothing after funding ran out.

Published reports differ in determining the number of inappropriate recipients of PPP money because there is little accountability. One reason for that, beyond the usual wanting to shield favored donors from public scrutiny, might be that several members of Congress have themselves received PPP money. The Trump administration is refusing to provide information; it would not be a surprise to find there is something to hide there as well. Politico reports that “at least four members of Congress have reaped benefits,” and the actual total might be higher. “It’s a bipartisan group of lawmakers who have acknowledged close ties to companies that have received loans from the program — businesses that are either run by their families or employ their spouse as a senior executive,” Politico reports, naming two Democrats (Susie Lee of Nevada and Debbie Mucarsel Powell of Florida) and two Republicans (Roger Williams of Texas and Vicky Hartzler of Missouri).

Tax breaks for the one percent slipped into stimulus

One tax break inserted into the second stimulus bill only applies to companies with revenue of $25 million and another provision lets people in households earning at least $500,000 a year deduct even more of their business losses from stock market profits, The New York Times reports. These deductions will enable the recipients to reduce what they owe in capital gains taxes. Victor Fleischer, a tax law professor at the University of California, Irvine, told the Times, “Many of the tax benefits in the stimulus are ‘just shoveling money to rich people.’ ”

And given the grifters who occupy the White House, it will come as no surprise that there are special benefits for the owners of real estate. One of the goodies stuffed into the stimulus packages will allow people who own their businesses through partnerships or other similar structures to use all of the losses they claim on paper to offset taxes they might otherwise owe from other income, such as stock market profits, eliminating a cap on how much of those losses could be used. These partnerships can be very profitable, but as long as they show a loss on paper the owners can offset taxes. Jesse Drucker of The New York Times, in an interview on National Public Radio’s Fresh Air program, estimates this tax break for the wealthy will cost the government $135 billion — essentially all of which will go to the top one percent.

The Rideau Canal in Ottawa (photo by John Talbot)

This massive tax break is not specifically written for the real estate industry, but that is the industry that is likely to benefit the most as corporate real estate operations are often structured in these ways. Mr. Drucker said:

“In real estate, you can actually have, in the real world, what is quite a profitable business that generates losses on tax returns because real estate developers get to write down the value of their buildings. That turns into a deduction. And the result is that people like Jared Kushner and Donald Trump — to the degree that we have had some insight into their taxes over the last few years, we have seen that they have reported big losses on their tax returns. In many cases, it’s almost certainly the result of some of these favorable provisions that let them write down the value of their buildings. So the point is that any tax law change you make that gives people the ability to make maximum use of their losses is something that could very easily benefit real estate investors because they have so many losses. And in the case of Jared Kushner and Donald Trump, we don’t have to speculate on that. We know that in previous years, they have reported big losses, which would put them in a position to benefit from this.”

Not even the most elementary provisions to put some limits on where the money is going were inserted into these stimulus bills. For example, although there is a clause prohibiting the use of the money for stock buybacks and extra executive pay, it’s followed by another clause allowing Treasury Secretary Steve Mnuchin (the foreclosure king) to waive the prohibition. Nor are there measures to demand that corporate recipients even pay tax. Reuters reports that the PPP has given “millions of dollars in American taxpayer money to a number of firms that have avoided paying U.S. tax.” Twelve companies provided with $104 million in loans use offshore havens to cut their tax bills, seven of which paid no taxes.

Federal Reserve offers trillions of dollars

The Federal Reserve’s contribution to the wealthy goes far beyond the two stimulus bills. By the end of March, the Fed had already committed more than $3 trillion in loans and asset purchases in the wake of a rapidly collapsing economy. This included fresh commitments to a recently announced new quantitative-easing program in which the Fed had pledged to spend $700 billion to buy Treasury and mortgage-backed bonds in addition to multiple loan programs. Although most of this will come from printing money, $450 billion of this came from the $2 trillion CARES Act stimulus passed by Congress.

Following its March 23 announcement, the Fed announced another round of measures on April 9, this time committing $2.3 trillion in new loans and credits for business and local governments. The centerpiece of this round is the “Main Street Lending Program,” which makes it sound like these loans will be earmarked for small businesses, but loans will be offered to corporations with as many as 10,000 workers and revenues of up to $2.5 billion. Not exactly what we have in mind when we think of “Main Street.” The set of measures could inject $6 trillion into the financial system, but that money, if actually spent, seems mostly destined for the pockets of speculators.

With state and local governments dangerously short on revenue due to the economic crisis, and thus putting social programs in jeopardy, what does the White House want to do? The only “solution” demanded by Donald Trump is to cut the payroll tax, the source of money for Social Security. The president claims he wants a “temporary” payroll tax cut, but that has to be seen not only in light of his complete inability to say anything truthful but his and his administration’s stated desire to cut Social Security. Cutting the funding for the retirement program is a good way to undercut it, which has long been the wish of Wall Street. Even if there weren’t nefarious reasons at work, would a temporary payroll tax cut provide a jolt to the economy? Definitely no, says the Center on Budget and Policy Priorities in a May 12 commentary.

“President Trump has said he will not support any additional relief or stimulus measures in response to the human and economic crisis caused by the Covid-19 pandemic unless they include a temporary payroll tax cut,” the Center said. Stimulus packages are only effective “if they quickly deliver resources to people and businesses that most need it and so are most likely to spend rather than save any extra dollars they receive.” But the Trump plan would fail to help either. The Center said:

“Cutting the employee share of payroll taxes gives the most help (in dollar terms) to higher earners, who are less likely to need the help or to spend most or all of the extra money. Compounding the weaknesses of this approach, it does less for those with lower earnings and nothing at all for people who have lost jobs. And cutting employer payroll taxes is an ineffective way to shore up business hiring and investment. Business’ main problem now is lack of customers for their products — both because of social distancing measures and because many customers’ incomes have fallen dramatically as unemployment has risen. Businesses will not hire (or retain) more workers or invest in more equipment than they need to produce the goods and services they can actually sell.”

Already there are signs that the windfall large businesses have received from the Trump administration have been slipped into bank accounts, not into investment. Economist Jack Rasmus has calculated that the loss of income for the tens of millions of United Statesians plunged into unemployment has cost them a composite $1.3 billion in lost wages. Ridiculing the orthodox economic “theory” that the problem with recessions are “sticky wages” — in other words, wages don’t fall fast enough or far enough during downturns — Professor Rasmus notes that businesses are not investing in the wake of the wage reductions. He writes:

“They’re hoarding the $1.74 trillion in Congressional loans and grants bailouts. And hoarding the $650 billion in business tax cuts also in the bailout legislation thus far (which one hears very little about in the media, I might add). … [T]he short term cash deposits by business in just institutional money funds (only one source) has risen from $2.3 trillion before March 1, 2020 to $3.3T today. That’s a $1T rise in cash deposits by businesses, just in institutional money funds. More is being deposited in commercial banks. The long run average of business deposits in commercial banks has been around 5% (6% under Obama and 4.6% under Trump 2016-19) to 15.8% since March 1. Businesses and investors are hoarding their cash and stuffing it in their short term accounts in banks, funds, and who knows where else, on and offshore.”

Much of that hoard of cash is likely destined for stock buybacks, dividends, speculation, buying companies and boosting lobbying efforts down the road. U.S. corporations spent more than $1.1 trillion on buying back stock in 2018 and although the pace slacked a bit in 2019, more than $700 billion went toward buybacks. Stock buybacks are completely unproductive spending — they are simply corporations buying their own stock, giving those who sell a premium to the trading price and boosting profits for remaining shareholders because the profits will be shared among fewer people. Speculators love them.

Britain, EU and Canada: Lots for financiers, crumbs for working people

Capitalism is a global system, and thus using a crisis to benefit the wealthy and powerful is hardly limited to the United States, even if it is the center of the global capitalist system and thus at the forefront of propping up its winners. Tax Watch UK, which describes itself as an “investigative think tank,” discovered that among the recipients of loans under the Bank of England’s Covid Corporate Financing Facility are 13 companies with links to tax havens or that “have seen controversy regarding their financial affairs.” Those 13 companies received £4.8 billion, or almost 30 percent of the total. Tax Watch UK reports that among these is Baker Hughes, a subsidiary of General Electric, “which is embroiled in a £1 billion tax dispute over unpaid taxes going back to 2004.”

The British government, headed by the mendacious Boris Johnson, hasn’t been shy about handing out money to business. The Bank of England has committed £200 billion to quantitative easing (bond buying), £330 billion in loan guarantees for business and an unspecified amount for “short-term liquidity” for the government, among other measures. Separately, Whitehall has committed tens of billions of pounds to three separate loan programs, property tax holidays, direct grants for small firms, grants for “innovation” and other items. For working people? A total of £14.7 billion of additional funding to the National Health Service and £7 billion for increased payments under the Universal Credit scheme and other benefits. Overall, quite one-sided toward capital.

City of London expanding (Photo by Will Fox)

Similar to the United States and United Kingdom, the bulk of money committed by the European Union to shore up the economy during the Covid-19 pandemic is for quantitative easing. The EU has committed to pouring €1.35 trillion into buying private- and public-sector securities by June 2021 under its Pandemic Emergency Purchase Program.

The EU will also offer a €540 billion addition to its European Stability Mechanism, an International Monetary Fund-style loan program under which money is loaned to governments under condition that recipients implement severe austerity. (This is the program under which the EU paid off the Greek government’s debt to European banks, meaning that Greece instead owed its debts to EU institutions rather than the banks, doing nothing to lower the debt level but forcing Athens to administer punishing austerity that left Greeks destitute.) And on top of the above, the EU has thrown in another €200 billion for businesses. For working people, nothing more than relative crumbs: €37 billion “to support public investment for hospitals, [small businesses], labor markets, and stressed regions” and €100 billion to protect workers and jobs. Once again, quite one-sided in favor of capital.

Back across the Atlantic, Canada has announced multiple programs, including quantitative easing. The Bank of Canada has implemented several QE programs for buying corporate bonds, federal and provincial government bonds, mortgage bonds and commercial paper (short-term debt issued by corporations), as well as programs to provide credit and “support the stability of the Canadian financial system.” The Bank of Canada is not forthcoming about the total cost of these programs; it has committed to spending C$5.5 billion per week, with no cutoff date, on just two programs, the purchases of federal government bonds and mortgage bonds. A measure of what has been spent so far is indicated in the central bank’s balance sheet, which reveals that total assets held by it increased from $120 billion on March 11 to $498 billion on June 11. So that’s $378 billion with more to come.

What is Canada spending on working people? $116 billion for “direct aid to households and firms” and $4 billion for the health system. So a lot less, and even some of this much smaller amount will be going to businesses.

Although more direct aid for working people is being included this time around — given the crisis of neoliberalism and that the massive subsidies to the same financiers responsible for the crash of the economy in 2008 haven’t been forgotten, political leaders had no choice but to sweeten the pot a little — the overwhelming majority of the money dispensed is going to the financial industry and to large corporations. Again it must be asked: How much more useful would it have been to use this money for practical needs and direct payments to people instead of propping up a bloated and wasteful financial system? More directly, how long can the peoples of the world continue to believe that a system in crisis so frequently and requires such massive bailouts works?

Fear takes root in Syriza

Fear is a powerful human emotion. Fear of the unknown surely played a significant part in Syriza’s humiliating climbdown and surrender of what national sovereignty had remained to Greece.

Fear is a powerful emotion if consenting to become a colony, agreeing to sell off your country and further immiserating millions is a preferable option to taking back your independence.

Perhaps the signal that was not given due consideration was Prime Minister Alexis Tsipras’ statement on July 10 that “we have no mandate to leave the euro.” The Syriza-led government also had no mandate for the continuation, much less the intensification, of austerity. Five and a half months into an administration that could have been used to prepare Greece for a different path instead marked time in futile negotiations, allowing the country’s economic crisis to develop to the point where the troika could dictate any terms it wanted.

And make no mistake: There is glee in corporate boardrooms, trading floors, banks and the government ministries that serve them that a Leftist government has committed itself to the harshest austerity terms.

Fira at Santorini Island, Greece (photo by Yoo Chung)

Fira at Santorini Island, Greece (photo by Yoo Chung)

A good example of this comes from the late 1990s, when dissident Kim Dae-jong won election as president of South Korea as the first candidate of the Left to win office, only to immediately impose an austerity program imposed by the International Monetary Fund. President Kim’s candidacy had been opposed by the U.S. government, which had supported a series of military dictators, but likely was pleased in the end that he won since it demoralized his supporters and provided a priceless propaganda prop for the idea that there is no alternative to neoliberalism.

Although the agreement imposed on Greece by the troika — the European Central Bank, the European Commission and the International Monetary Fund — is indeed a coup, as the instantly popular Twitter hashtag proclaims, it shouldn’t be looked at simplistically as a German diktat. That is not because smaller countries like Finland and Slovakia aligned themselves with Germany in the manner of schoolyard kids standing next to the playground bully so as to not be the next target, but because the German government is acting as the European enforcement wing of international capital.

The upside down world of money over people

It is a neoliberal world indeed when entire countries are bled dry to safeguard bankers’ profits and doing so is presented as the highest moral duty. The human face might have been German Finance Minister Wolfgang Schäuble in the role of Dr. Evil, but the minister is no more than a physical embodiment of powerful social and economic forces. Forces of human creation but not necessarily in human control.

So let us not over-simplify and place all blame at the feet of Syriza by declaring the party “opportunists” or whatever word of opprobrium one wishes. Nor should there be illusions that walking away from the euro, canceling the debt and the resulting cutoff from financial markets would be an easy road to take, even if, in the long term, it is the road that should have been traveled. Socialism in one country is not possible in one small country. Socialism in a single big country would be extremely difficult, if the entire might of the capitalist world were arrayed against it.

There are no Greek solutions for Greece, there are only European or international solutions.

Nonetheless, somebody has to go first. Finding allies is indispensable for any Greek turn from the eurozone to have a chance at success. It does not appear that Syriza looked beyond the European Union for allies. In an interview with the New Statesman, former Greek Finance Minister Yanis Varoufakis, when asked if the government attempted to work with the governments of other indebted eurozone countries, gave this answer:

“The answer is no, and the reason is very simple: from the very beginning those particular countries made it abundantly clear that they were the most energetic enemies of our government, from the very beginning. And the reason of course was their greatest nightmare was our success: were we to succeed in negotiating a better deal for Greece, that would of course obliterate them politically, they would have to answer to their own people why they didn’t negotiate like we were doing.”

Fear of offending the more powerful and internalizing the “moral” hectoring they deliver at every opportunity. Guaranteeing bank profits is somehow more “moral” than the health and well-being of entire countries. Social Democrats have absorbed this ideology as thoroughly as conservatives.

In the same interview, Mr. Varoufakis, recounting that his counterparts, the other eurozone financial ministers, refused to negotiate or even engage intellectually with him from the start, was asked why the government kept talking until the summer. His reply:

“Well one doesn’t have an alternative. Our government was elected with a mandate to negotiate. So our first mandate was to create the space and time to have a negotiation and reach another agreement. That was our mandate — our mandate was to negotiate, it was not to come to blows with our creditors. … The negotiations took ages, because the other side was refusing to negotiate. They insisted on a ‘comprehensive agreement,’ which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything. But we went along with that.”

Eurozone membership or an end to austerity

Yes, Syriza was elected with a mandate to negotiate; that follows from Greek majority popular opinion that the country should remain within the eurozone. But there was also a mandate that austerity be brought to an end. Syriza proved unable to resolve this contradiction: Greece can end austerity or be in the eurozone, but not both at the same time.

What we do make of Prime Minister Tsipras declaration, “An end of the blackmail,” issued in late June at the time of his decision to call a referendum on austerity. In his statement, referencing the troika negotiators, he said:

“They asked the Greek government to accept a proposal that accumulates a new unsustainable burden on the Greek people and undermines the recovery of the Greek economy and society, a proposal that not only perpetuates the state of uncertainty but accentuates social inequalities even more.”

The vote went ahead, against direct orders by European governments, and Greeks voted 61 percent to 39 against the terms offered. A week later, the Tsipras government agreed to terms that were worse — the harshest austerity yet imposed. So much for democracy. And make no mistake, this deal is consistent with the “structural adjustment” that the IMF has imposed across the global South.

Prime Minister Tsipras’ final set of concessions in exchange for a fresh bailout was an undiluted structural adjustment. Included in the Greek “reform” package were:

  • Allowing greater wage inequality and a fall in wages as a percentage of gross domestic product through 2019.
  • Raising the pension age to 67 and increasing the health care contribution of pensioners by 50 percent.
  • Gutting labor laws through a “review [of] the whole range of existing labour market arrangements, taking into account best practices elsewhere in Europe.” In other words, loosening worker protections.
  • An “irreversible” privatization of the electricity provider.
  • Privatization of the country’s ports, airports and much else.

The nearly immediate answer was “No, still not enough.”

The prime minister said the popular referendum would strength his negotiating hand. So in the end, what concession did he extract? The fund that will supervise the fire sale of Greek assets, in which the rules will be set by the troika, will be managed from Greece instead of the tax haven Luxembourg.

Hurray.

The Greek government has committed itself to sell off state assets worth €50 billion, with half the total to be used to recapitalize Greek banks and the half to pay down Greek debts. Not one euro toward social welfare!

Resistance continues

Although the government appears to have the approval of Greece’s corporate parties, including New Democracy and Pasok, it does not have the support of all of Syriza. The latter’s Left Platform calls for a “radical reform” of the banking system, the complete halt of austerity policies, an exit from the euro and a writedown of most of Greece’s debt. Outside of Syriza, Antarsya calls for the nationalization of the banks and an exit from the eurozone. A general strike has been called for July 15. And there is no shortage of ideas on alternatives to austerity.

The online news site Greek Reporter summarizes the Left Platform’s expectations of the benefits should its program be adopted:

“An exit from the Eurozone would generate further benefits according to the proposal. Namely, the restoration of financial liquidity, a sustainable growth program based on private investment, the rebuilding of the internal economy to reduce dependence on imports, an increase in exports, independence from the European Central Bank, its policies and restrictions and finally the utilization of unused resources to create rapid growth so as to protect against the first difficult months following the Grexit. The document also concedes that an exit from the Eurozone should have been prepared by SYRIZA but was not.”

Instead, the prime minister says he is choosing a bad choice over a catastrophic choice. Those are the only two choices that the European Union, a project in which rule by finance replaces democracy, can offer.

As assuredly as with nature, politics hates a vacuum. If the Left is not going to offer an alternative to the tightening hegemony of the most powerful industrialists and financiers — the “market” is nothing more than their interests — then the gates to the authoritarian Right, even fascism, are thrown wide open. In a separate interview, Mr. Varoufakis gave this warning:

“In parliament I have to sit looking at the right hand side of the auditorium, where 10 Nazis sit, representing Golden Dawn. If our party, Syriza, that has cultivated so much hope in Greece … if we betray this hope and bow our heads to this new form of postmodern occupation, then I cannot see any other possible outcome than the further strengthening of Golden Dawn. They will inherit the mantle of the anti-austerity drive, tragically. The project of a European democracy, of a united European democratic union, has just suffered a major catastrophe.”

Europe’s capitalists, who established the European Union as a mechanism to tighten their control over the continent and force U.S.-style policies on their societies beyond popular control, won’t be ruffled by that conclusion. But will the world’s working people be?

The straitjacket of austerity tightens on Syriza

The contradiction of putting an end to austerity and remaining within the eurozone has manifested itself in full force for Greece. At this early stage, it is alarmist to argue that Syriza has “sold out” nor is it realistic to proclaim that Syriza has achieved “victory” in its negotiations.

How Syriza uses the four months until the extended bailout program expires in June, and what Greece’s governing party will do once this period ends, will begin to reveal to what extent Greece can put an end to austerity and Syriza can make good on implementing the program that carried it to victory in January’s elections. That is surely the minimum amount of time necessary to begin to make any judgment on Syriza as it is tightly boxed in by circumstances not of its making.

Athens (photo by A. Savin)

Athens (photo by A. Savin)

It is difficult to avoid the belief that New Democracy intended to hand Syriza a poisoned chalice. Although corporate-media commentary at the time almost uniformly suggested that New Democracy, Greece’s main Right-wing party, was taking a reasonable gamble that it could successfully get its candidate elected as president by parliament, attempting this seemed more an act of suicide. The party had moved up the presidential election, and its failure to seat its candidate automatically triggered early parliamentary elections. There was no reasonable chance of its presidential candidate winning, and little chance of it retaining its parliamentary majority once fresh general elections were triggered.

Parties ordinarily don’t intentionally bring down their own government. But with a series of large debt repayments due in 2015 from February to July, the difficulty of making those payments and the rising anger of the Greek people at their immiseration, going into opposition and ducking responsibility for their own policies must have seemed tempting.

Tightening the financial screws

Syriza has no easy task, nor have Europe’s dominant institutions made it any easier. A week after Syriza took power, the European Central Bank said it would cease accepting Greek government bonds or government-guaranteed debts as collateral for loans to Greek banks. This effectively cut off the main source of financing for Greek banks. The ECB, in its supervisory capacity, also prohibited Greek banks from further loaning money to the Greek government, cutting off another source of funding.

This sudden action of the European Central Bank constitutes a “noose around Greece’s neck,” writes Ellen Brown in her Web of Debt blog:

“The ECB will not accept Greek bonds as collateral for the central bank liquidity all banks need, until the new Syriza government accepts the very stringent austerity program imposed by the troika (the [European] Commission, ECB and IMF). That means selling off public assets (including ports, airports, electric and petroleum companies), slashing salaries and pensions, drastically increasing taxes and dismantling social services, while creating special funds to save the banking system. …

Not just Greek banks but all banks are reliant on central bank liquidity, because they are all technically insolvent. They all lend money they don’t have. They rely on being able to borrow from other banks, the money market, or the central bank as needed to balance their books. The central bank (which has the power to print money) is the ultimate backstop in this sleight of hand. If that source of liquidity dries up, the banks go down.”

The result of this power play was a cash-flow problem for the government and Greek banks. It also triggered an exodus of capital out of the country, Mark Weisbrot writes:

“This move was clearly made in bad faith, since there was no bureaucratic or other reason to do this; it was more than three weeks before the deadline for the decision. Predictably, the cut off spurred a huge outflow of capital from the Greek banking system, destabilizing the economy and sending financial markets plummeting. … The European authorities appeared to be hoping that a ‘shock and awe’ assault on the Greek economy would force the new government to immediately capitulate.”

With an estimated €20 billion of bank deposits believed to have been taken out of the country from December through late February, and the impossibility of paying off debt while continuing to have enough money to run the government, Syriza’s room for maneuver rapidly shrank.

Bailouts for banks, not people

What is crucial is to understand that the “troika” bailed out large multi-national banks, in particular German and French banks, and are now asking Greek working people to pay for it.

Through 2009, Greek debt was mostly held by European banks; French and German banks alone held more than 40 percent of Greek debt. The €227 billion of loans from the European Union and International Monetary Fund that have since gone to Greece were used to pay large financial institutions elsewhere. By one estimate, only €15 billion has gone to state operations; none after 2012. The Greek government has been a pass-through, taking the loans given it and promptly sending it to financiers.

There are more payments coming soon. Greece is due to pay €450 million to the IMF on April 9 and €7 billion to the IMF and European Central Bank in July, among other deadlines. Because Syriza remains committed to retaining the euro as Greece’s currency, reflecting majority Greek opinion, it remains committed to paying off its debt, which can only be accomplished through cutting government services and spending. This is the pitiless logic of austerity.

Unlike the previous New Democracy and Pasok governments, Syriza has not completely surrendered. Last month, two bills were passed in parliament that subsidize electricity, food and housing. Prime Minister Alexis Tsipras has called the extended-bailout measures an “interim agreement” and that the government will not ask for a third bailout when the program ends in June. He also vows that making Greece’s wealthy pay taxes will be a centerpiece of reform.

Nonetheless, Syriza has made major concessions, agreeing in February to continued supervision by the troika and that it would refrain from any “unilateral action.” It also failed to get any reduction in its debt, and must pass an inspection by the troika in late April before it receives any of the money agreed in February, when the bailout extension was signed. Syriza was required to submit a list of reforms that must be approved. It did so on March 27; negotiations are continuing but the list was met with initial disapproval for not giving the troika everything it wants.

Among those reforms are a series of tax measures estimated to raise an additional €3.7 billion in revenue for the government, including cracking down on tax avoidance by the wealthy and on smuggling. But there is also another major concession, allowing the privatization of Greece’s most important port, at Piraeus, to go ahead despite promises to halt all privatizations. That is estimated to raise another €1.5 billion. A Chinese state-run shipping company seeks to buy a two-thirds stake.

Still insisting red lines will not be crossed

Syriza continues to declare that it will prioritize working people over debt repayment. The international economic affairs minister, Euclid Tsakalotos, told The Guardian:

“Our top priority remains payment of salaries and pensions. If they demand a 30% cut in pensions, for example, they do not want a compromise.”

The austerity that has been imposed has resulted in a contraction in gross domestic product of 25 percent, unemployment above 25 percent, a fall in real wages of 30 percent and a reduction in industrial output of 35 percent. And the size of the foreign debt has risen!

There is no way out of this without renouncing at least some of the debt, and doing so means leaving the eurozone and re-adopting its old national currency, the drachma. There should be no illusions that doing so will be free of pain. Left to the tender mercies of speculators, the drachma could conceivably lose 75 to 80 percent of its value in a short period of time. Assuming that a re-instituted drachma is initially valued at one euro, this would mean that imported goods will cost the equivalent of three or four euros instead of one, a drastic inflation.

Such a drastic currency devaluation would presumably spur a big increase in local production, because Greeks would need to produce internally to make up for being able to buy far less products from outside the country. It would also give a boost to exports, because Greek goods would now be cheap. This is the “Argentina option,” so called because Argentina followed this path in the early 2000s, almost immediately improving its economy. But the Argentine government did nothing that touched capitalist relations, and of late the country has suffered from mounting difficulties.

Is leaving the eurozone necessarily the question?

Thus there are Left, even Marxist, economists who do not believe Greece should leave the eurozone but rather go ahead with nationalizations and other measures anyway. So the debate over euro versus drachma does not fall along clear-cut lines. For example, a prominent economist elected to parliament on the Syriza ticket, Costas Lapavitsas, argues that Keynesian measures are what are possible in the immediate moment but that Greece must drop the euro. Another prominent economist, Michael Roberts, argues for an immediate Marxist-inspired program but that Greece should retain the euro.

Professor Lapavitsas argues that, although getting rid of capitalism is what is needed in the long term, for now getting rid of austerity is what is necessary and that is impossible within the framework of the eurozone. He believes that a negotiated exit from the euro would be the best solution. This would include a 50 percent debt write-off and that the devaluation of the drachma be limited to 20 percent through an agreement with the E.U. to tie its value to the euro; that is, the drachma would not be traded freely as currencies customarily do.

Capital controls and immediate nationalization of banks would be necessary as part of this proposed program. Rationing would be inevitable for a time, but Professor Lapavitsas argues that rationing already exists “through the wallet” as millions of Greeks can not afford even basic necessities. Crucially, he says that all this would be carried out with workers’ control (a factor missing in Argentina); bank employee unions should have a role in running the nationalized banks. Unused productive capacity would soon kick-start the economy, he said:

“What you’ve got to appreciate, though, is this: devaluation would not work simply, or mostly, through exports. It would work through the domestic market, more than exports. At the moment, there are vast unused resources in Greece. … There are vast unused resources across the country! Small and medium enterprises will come to life immediately if there was a devaluation. There is enough small-scale capital to do that. The revival of the economy, the return of demand and production, will be very rapid, and it will take place primarily through that. … I have — and econometric studies I’ve seen confirm it — little doubt that small and medium enterprises will allow a return of Greece to a reasonable productive state within a very short period of time, a couple of years.”

Professor Roberts, on the other hand, argues that it is “extremely unlikely” that the drachma would depreciate by only 20 percent, and that a larger devaluation and rising prices would offset any gains from cheaper exports. He wrote:

“Greek capitalism is no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won’t be able to export enough to stop the Greek economy dropping (further) into an abyss and taking its people with it. [A Greek exit] also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.”

Bank nationalization and a public takeover of strategic industries should be at the center of any Greek plan to raise investment and growth, Professor Roberts argues. Although in favor of Keynesian prescriptions such as progressive taxation and labor rights, these measures should be geared toward a larger project of replacing capitalism, not to try to make capitalism work, in or out of the eurozone. But he acknowledged that should his program be adopted, Greece might be expelled from the euro anyway.

There are no guarantees. Professor Lapavitsas’ belief that a drachma devaluation can be held to 20 percent seems overly optimistic and Professor Roberts’ belief that Greek must leave the European Union (and thus have trade cut off) were it to drop the euro seems overly pessimistic. Whatever direction Greece takes, however, it can’t travel as far as it needs to on its own. An economy drastically remodeled on a democratic basis is the only solution in the long term, but such a country would face severe pressure from capitalist governments seeking to destroy it.

Greece must create links with countries attempting to move past capitalism, such as those in Latin America, and must be joined by other European countries traveling the same path. Greece can’t be a socialist island in a global sea of capitalism. There are only international solutions, not Greek solutions, to Greece’s problems. The capitalist alternative is to continue to be immiserated for the sake of private profit, the same fate as the overwhelming majority of humanity.

We have no money so central banks give more money to banks

It’s unanimous! The European Central Bank confirms that the only possible solution to falling wages and depressed spending is to throw more money at the banks and inflate another stock-market bubble.

The ECB thus joins the world’s other most important central banks in the hope that “quantitative easing” — a form of “trickle-down” economics — will somehow work despite having never achieved anything other than the inflation of asset bubbles, a benefit primarily to the one percent. Then again, perhaps that might explain it.

Mario Draghi, the president of the ECB, last week committed €1.1 trillion to buying eurozone government bonds and, to a lesser degree, asset-backed securities and pools of mortgage loans known as “covered bonds.” Starting in March, the ECB will buy €60 billion of assets a month, with a commitment to continue this program until September 2016. The ECB’s stated goal is to boost inflation and prevent deflation, while also driving down the value of the euro.

The European Central Bank joins the Federal Reserve, the Bank of England and the Bank of Japan in flooding the financial system with money, and joins all those central banks and the Swiss National Bank in attempting to drive down the value of its currency. One problem is that all currencies can’t decline against one another, any more than all countries can simultaneously produce trade surpluses. At the moment, it is the euro that is declining in value, which theoretically will give a boost to exports from eurozone countries, but as eurozone countries conduct most of their trade with one another, the boost from a weakened euro will not necessary be significant.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

But with declining wages, fewer people have enough to spend, and the super-wealthy already have more money than they can possibly use for productive investment. Nonetheless, the “market” has decreed that more austerity for working people and more speculation by the one percent is the magic elixir that will finally fix the economy.

Fix it for whom? Let’s start to answer that question by noting the supposed purpose of quantitative-easing programs: to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interests rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because a central bank buying bonds in bulk significantly increases demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

Trillions for asset buying sprees

We are not talking about small change here. In three rounds of quantitative easing, the Federal Reserve spent about $4.1 trillion. The Bank of England has spent £375 billion. The Bank of Japan, after boosting its QE program last October, will now spend ¥80 trillion (about US$680 billion) per year. This after 18 months of quantitative easing failed to revive the economy, as with an earlier QE program that ran from 2001 to 2006. In just the past 18 months, the Bank of Japan’s QE spending was ¥75 trillion ($640 billion).

Imagine what could have been done with these enormous sums of money had they been used for directly creating jobs, or simply by giving it directly to working people, who would have gone out and spent it. Or by putting the money to productive use, such as rebuilding crumbling infrastructure.

Instead, what is planned is more austerity — that is, more punishment. The other component of the European Central Bank’s January 22 announcement is that favorite term, “structural adjustment.” A euphemism used by the World Bank and International Monetary Fund when ordering an end to job security and social safety nets as a condition for granting loans to developing countries, this is now being applied to the global North. Near the end of his remarks announcing the quantitative easing, ECB President Draghi said:

“[I]n order to increase investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms needs to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively as this will not only increase the future sustainable growth of the euro area, but will also raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery.”

Labor “reforms” are necessary to “improve the business environment.” In plain language, that means more austerity in an effort to boost corporate profits. In the question-and-answer session after the announcement, President Draghi gave revealing answers to two different questions: “For investment you need confidence, and for confidence you need structural reforms” and “it would be a big mistake if countries were to consider that the presence of this programme might be an incentive to fiscal expansion. … This programme should increase the lending capacity of the banks.”

Firing workers and pushing wages lower will make capitalists feel better? Perhaps, but if there isn’t demand for their products, they still aren’t going to invest.

If consumers have no money, they aren’t buying

The ECB wishes to believe that further reducing job security and social safety nets will provide capitalists with the magic “confidence” that will prompt them to invest. But there is already plenty of industrial capacity sitting idle — E.U. manufacturing capacity utilization is only 80 percent while the E.U.-wide unemployment rate is 10 percent. The youth unemployment rate is 21.9 percent. More austerity isn’t going to reverse these effects of austerity.

The Bank of Japan boosted its quantitative easing program in October 2014 because it had not pulled the Japanese economy out of stagnation. Gross domestic product contracted in the second and third quarters of 2014. (Fourth-quarter statistics have yet to be reported.) Japanese wages have declined in the past year while profits have increased. Household spending in Japan had fallen for six consecutive months at the time of the Bank of Japan’s announcement, in part due to an increase in sales tax pushed through by Prime Minister Shinzo Abe.

The Federal Reserve’s quantitative easing has served to prop up a stock market that continues to rise despite ongoing stagnation. The standard measure of stock market valuation, the price/earnings ratio, remains high by historical standards. (This ratio is a company’s market value per share divided by earnings per share, or to put it another way, how many dollars a buyer pays for one dollar of profit.) The composite P/E ratio for the broadest measure of U.S. stocks, the S&P 500 Index, is 19.7. The rare times in history that ratio has risen above 20 has been followed by a crash.

Japan’s stock market has also risen during its quantitative easing; its benchmark Nikkei 225 Index has doubled since November 2012.

Trillions of dollars has been poured into programs that do little more than produce stock-market bubbles; more trillions have been poured directly into banks and other financial institutions for bailouts. The European Central Bank says more of the same, and European workers will continue to pay for it. The markets demand this, it is said. Capitalist markets, however, are nothing more than the aggregate interests of the largest industrialists and financiers — when we let “markets” make social decisions, that really means a dictatorship of big business and big banks. And supporting those banks is very expensive.

Will a Syriza victory be the first blow against austerity?

Is the first step toward the unraveling of European austerity about to begin, courtesy of Greek voters? The future direction of the European Union certainly won’t turn merely on the results of Greece’s January 25 parliamentary election, nor will the world slip off its axis if the expected Syriza victory materializes.

Nonetheless, the first blow has to be struck some time, by somebody. If Syriza does take office and if it can hold firm against the withering pressure that it will immediately be subjected to, an alternative to financial industry diktats could provide an example elsewhere in the E.U., particularly within the eurozone. That example can not be taken up too soon, given the many economic weapons likely to be deployed against a Syriza-led Greece. (Perhaps in Spain, where Podemos, the party organized a year ago by the Indignados movement, already is a near three-way dead heat with Spain’s biggest parties, Popular and Socialist, according to recent polling.) There is no Greek solution to Greece’s economic collapse, only a European solution.

View of Vikos Gorge, Greece (photo by Skamnelis)

View of Vikos Gorge, Greece (photo by Skamnelis)

As the Greek parliament was in the process of failing to elect a new president last month, thereby triggering automatic parliamentary elections, Syriza issued this statement about the New Democracy/Pasok coalition government that had continued to impose punishing austerity:

“The only option left to them is the policy of fear and terrorization of the society, the creation of false dilemmas and fake polarization. This option is triggered by the fact that the government as well as the dominant economic and media system and forces inside and outside the country are very well aware that they have a lot to lose.”

Such fear-mongering won’t only come from the Greek establishment. European governments have alternated between ordering Greek voters to vote for pro-austerity parties and to insisting that both a Greek exit from the eurozone and any changes to Greece’s debt obligations are unthinkable. These have not only come from German Finance Minister Wolfgang Schäuble, as would be expected, but from French President François Hollande, continuing his journey to becoming Paris’ Monsieur 1%.

Certainly the financiers who hold decisive power over the undemocratic institutions of the European Union, nor their representatives such as Finance Minister Schäuble, can be expected to welcome the basic self-description of Syriza’s intentions:

“Syriza insists strongly on its position that it will abolish the memoranda signed with the Troika of lenders when it assumes office and will re-negotiate the loans. At the same time it will promote a programme of social and economical reconstruction, aiming at development that promotes human needs and well-being and respects nature. … Syriza is fighting for the re-foundation of Europe away from artificial divisions and cold-war alliances such as NATO. As for the E.U., Syriza denounces the dominant extreme neoliberal and euro-atlantic policies and believes that they must and can be transformed radically in the direction of a democratic, social, peaceful, ecological and feminist Europe, open to a socialist and democratic future.”

Putting forth a program of reforms

Syriza — the Coalition of the Radical Left — re-constituted itself as a single party at its first congress in July 2013. Nearly 500 organizations were represented at the congress, which elected Alexis Tsipras as party president and a 201-member central committee. Close to 20 groups comprised Syriza prior to this congress (when it was formally a coalition), most of which remain as part of the party while a few became “allied groups.” The party includes Trotskyist, Maoist, Eurocommunist and other non-orthodox communist Leftist groups, but that does not mean it intends to implement a revolutionary program.

The “Thessaloniki Program,” announced last September by Mr. Tsipras in the Greek city of that name, promises that Syriza will:

  • Re-negotiate the national debt and a “haircut” on the foreign debt.
  • Impose higher taxation on the rich.
  • Raise salaries for some low-paid employees.
  • Abolish a recently enacted property tax.
  • Provide more money for the municipalities and the local authorities.
  • Create 300,000 new jobs.
  • Re-open public radio and television, which were summarily shut by the outgoing government.
  • Establish a new national development bank.
  • Restore Greece’s previous monthly minimum wage of €751.

Ilias Milonas, a member of the Left Platform grouping within Syriza writing on The Socialist Network web site, in pointing out that the Thessaloniki Program consists of reforms that fall short of effecting a necessary structural change, said:

“In the Syriza leadership’s programme also absent is the most crucial matter of the nationalisation of the banks, a policy that was decided on at the last congress of Syriza – almost all the banks in Greece have been privatised in recent years. We believe that there is not one programme that can be implemented without the nationalisation of the banking system along with and the rest of the economic system. In contrast, the leadership’s proposal for the establishment of a New Development Bank with a budget of one billion Euros is like planting a tree in the Sahara in the hope of greening the desert. Indeed, all they propose for the banks is a vague form of “social control.”

Even within Germany, the Left Party advocates a nationalization of banks, so Syriza doing so would not be outlandish (especially as public control of banking and the elimination of speculation are prerequisites for a democratic economy). And a restoration of the previous Greek minimum wage of €751 a month is not living in luxury — at current exchange rates, that’s US$893 or £589. Nobody is living well on that.

The program, Mr. Tsipras said, is to cost about €13.5 billion. The Greek newspaper To Vima reports that, of that total, about €2 billion would go toward addressing the humanitarian crisis, €6.5 billion would be used in measures to help restore the economy (with an estimated €3 billion toward benefits), and €5 billion would be invested in restoring employment. This cost is six percent of the total of the loans by the troika (the European Commission, European Central Bank and International Monetary Fund).

Debt relief for Germany

These reforms — which would do nothing to challenge the prevailing power relations and amount to a program of Keynesian initiatives — are nonetheless presented as the crazy schemes of dreamers. “Every new government needs to fulfil the contractual agreements of its predecessors. … But if Greece goes in another direction then that’s going to be a difficult situation,” Finance Minister Schäuble said, as reported by Reuters. Well, no need for any more elections, then.

Most of all, it would be some sort of moral outrage, scream European leaders and echoed by the corporate media on both sides of the Atlantic. Conveniently overlooked is the huge debt forgiveness given to Germany after World War II, which surely helped the Federal Republic recover. Germany’s pre-war debt amounted to 22.6 billion marks, including interest, and its postwar debt was estimated at 16.2 billion marks, according to the Committee for the Abolition of Third World Debt. Yet the U.S., the U.K. and France agreed in 1953 to forgive nearly two-thirds of that total, and allowed Germany to negotiate payment schedules in cases of financial difficulty. On top of that, the allies voluntarily reduced the amount of goods they would export into the Federal Republic so that it could reduce its trade deficit and give a boost to its internal manufacturers.

Syriza argues, not unreasonably, that what was done for Germany in 1953 should be done for Greece today. And, although debt writedowns and aid programs such as the Marshall Plan went toward raising living standards of Germans, the €227 billion of loans that have gone to Greece benefits large financial institutions elsewhere, none more so than German and French banks. By one estimate, only €15 billion has gone to state operations; none after 2012. The Greek government has been a pass-through, taking the loans given it and promptly sending it the financiers who own the debt. At the end of 2008, more than 50 percent of the debt was owed to banks in Germany, France and Italy alone.

The troika has not been propping up the Greek government, it has been propping up Europe’s banks and financial houses.

That derives from the neoliberal concept is that people exist to serve markets rather than markets existing to serve people. Entire countries have been harnessed to the dictates of “markets.” This has long been the pattern imposed by the global North on the South through institutions like the IMF; now the stronger countries of the North are imposing it on their weaker neighbors. Taxpayers in those stronger countries are on the hook, also, as some of their taxes go toward the bailout funds, for which bailed-out countries are merely a conduit to pass the money to financiers, often from their own country.

If it looks like a depression, talks like a depression …

What has Greece received from the troika’s loans? Greek gross domestic product has contracted by 25 percent, unemployment is above 25 percent, real wages have fallen by 30 percent and industrial output has declined by 35 percent. The country’s foreign debt has actually risen, to 175 percent of GDP from approximately 130 percent in 2009. This is what the International Monetary Fund hailed as “progress” two years ago!

Just as “the market” dictates a race to the bottom for labor, the harshest terms that can be imposed are mandated for debtors, always wrapped in a hypocritical, sanctimonious “morality.” German Chancellor Angela Merkel is not stubborn nor obsessed with Weimar-era inflation, as she is sometimes portrayed; she is simply reminding other national political leaders that economic harmonization will conform to the tightest policy among them and Germany so happens to have that tightest policy. This is the will of the “market” to which they chained themselves.

None of the eurozone’s national leaders are reducible to “puppets,” but their perceived national interests are distorted by whatever consensus their industrialist and financiers arrive at. Big industrialists and financiers dominate their societies through control of the mass media and a range of other institutions to the point that their preferred policies become, through repetition, the dominant ideas across society and the ideas adopted by the political leaders who become dependent on them. Their aggregate interests constitute the “market.”

Greece can not be a socialist island in a capitalist Europe, nor can any other country; that understanding is reflected in Syriza’s program. What might a different Europe look like? Various non-orthodox economists have proposed programs, some envisioning Greece remaining in the eurozone and some envisioning Greece dropping the euro and returning to the drachma. What these programs have in common is a vision of a European-wide economic restructuring.

To summarize some of these ideas: The E.U. should be leveraged to internationalize the resistance of working people; full employment demanded as an explicit goal; banks should become publicly owned and democratically controlled so that capital is directed toward socially useful investment instead of speculation; a highly progressive taxation system should be coordinated at the E.U. level; wages raised to account for improved productivity that has, for three decades, gone to capitalists; governments should default at least some of their debts to banks; bank deposits should be guaranteed; and there should be more investment in education to enhance future productivity.

Impossible? In a capitalist Europe, yes. But in a better world, these kinds of ideas would simply be common sense. Why shouldn’t they be?

Spying? Who cares? Profits are at stake!

Actions do speak louder than words, and thus the start of European Union-United States trade talks as previously scheduled would seem to hold more weight than European political leaders’ displays of public anger at the extent of the spying against them.

Resignation to their subordinate status, the extent of their own spying networks and the knowledge that considerable dirty work is necessary to remain a leading capitalist country are among the contradictory factors at work here. So, too, is a willingness by European leaders to rely on the U.S. to perform much of the dirty work, while European big business needs to sell to U.S. consumers. Business is business at the end of the day. Or at the (hoped) end of the scandal.

With the stream of new revelations showing no signs of stopping, the end of the scandal does not appear anywhere in sight. Nor does the spectacle of contradictory behavior by European countries, most dramatically exemplified by France.

Navy communicationsOn the one hand, the French government declared revelations that the U.S. has spied on E.U. offices and computer networks “completely unacceptable” and demanded a delay in the start of the E.U.-U.S. trade talks, intended to form a “Transatlantic Trade and Investment Partnership.” Yet France not only meekly agreed to the trade talks beginning on time but acceded to U.S. arm-twisting that it close its air space to the plane carrying Bolivian President Evo Morales on the mere suspicion that whistleblower Edward Snowden was aboard.

How much of the complaints from France, Germany and elsewhere in Europe are posturing and how much is genuine anger is an open question, but perhaps ultimately irrelevant. Le Monde has revealed that the France intelligence agency DGSE spies on the French public’s phone calls, e-mails and Internet activity in a manner similar to that of the U.S. National Security Agency (NSA). And Mr. Snowden has revealed that German spy agencies are “in bed together” with U.S. spy agencies.

The chief of Germany’s foreign intelligence agency has confirmed that his agency works closely with the NSA, Der Spiegel reports, with the U.S. agency using several German locations to engage in data collection. The arrangement is justified by the “fight against terrorism,” the favorite all-purpose excuse to trample constitutional norms and privacy concerns, both of which tend to be taken more seriously among Europeans than United Statesians. In its report, Der Spiegel asked:

“Is it really conceivable that the German government knows nothing of what the NSA is doing on its own doorstep? Last month Interior Minister [Hans-Peter] Friedrich said in a parliamentary debate on the NSA snooping: ‘Germany has fortunately been spared big attacks in recent years. We owe that in part to the information provided by our American friends.’ Sentences like that reveal a pragmatic view of the US surveillance apparatus: What the NSA gets up to in detail is secondary — what counts is what its snooping reveals. And that information, intelligence officials admit, is indispensable.”

The German government sees itself as dependent on the U.S., and that counts for more than public displays of anger that culminated in a German minister condemning revelations of U.S. spying on Germany as “methods used by enemies during the Cold War.” Whatever momentary anger her government may have felt, Chancellor Angela Merkel has not wavered in her support for the Transatlantic Trade and Investment Partnership (TTIP) talks. Germany’s economy, after all, is dependent on exports — increasingly so during the past decade as German workers have absorbed a decade of wage cuts — and German manufacturers are likely salivating at the thought of increased exports to North America.

You can be angry, but you’re still subordinate

After all the displays of anger and assertions of sovereignty, European government showed themselves not only subordinate to the U.S. but to their own industrialists and financiers. The U.S. government is similarly a captive of its own big business interests — that is what right-wing calls to “starve” government are about. It was all smiles on July 8 as the TTIP talks began, on schedule, with embarrassing discussions of spying relegated to a “parallel” track, separate from what really counts, the main negotiations to dismantle regulations.

Both newly seated U.S. Trade Representative Michael Froman and European Trade Commissioner Karel De Gucht made the ritualistic grand claims of the benefits that will fall from the sky if the TTIP is implemented, and business groups competed with themselves to issue the highest “estimates” of the increase in wealth. The Centre for Economic Policy Research in London, for example, claimed the TTIP would stuff pockets with more than US$100 billion a year from added growth.

Similar pie in the sky promises were made for the North American Free Trade Agreement and many other trade deals, so, dear reader, all is forgiven if you are skeptical about such claims. “Free trade” agreements elevate corporations and investors to equal status with governments on paper, and above governments in reality because disputes between businesses and governments are sent to unaccountable tribunals controlled by organizations like the World Bank and in which the judges are frequently lawyers who specialize in representing corporations in disputes with governments.

Ambassador Froman, the new U.S. trade representative installed by the Obama administration, will not represent any change in direction. The American Enterprise Institute, a leading lobbyist for multi-national corporations, gave its seal of approval:

“No white smoke floated up from the White House when the president announced that he had chosen deputy security adviser Michael Froman as the new US Trade Representative; but there was a huge, collective sigh of relief from all elements of the US business and trade policy communities. … Michael Froman is an excellent choice. He is close to the president, was deeply involved in passage of the Bush [free-trade agreements] with [South] Korea, Colombia, and Panama.”

Ambassador Froman’s neoliberal credentials are assuredly in order. He worked as chief of staff to former Treasury Secretary Robert Rubin, who played a leading role in the Clinton administration’s deregulation of the financial industry, and before that was a managing partner at Citigroup. He seems to have done well at Citigroup, receiving more than $7.4 million from the company from January 2008 to when he joined the White House early in 2009, including a year-end bonus of $2.25 million.

Full speed ahead! The U.S. Chamber of Commerce — a hard-line organization that has never seen a regulation it likes or a tax that is justified — had already called for a speedy agreement before any pesky elections get in the way. Eurochambres had declared that it sought “the highest possible standards of protection for investors” — thinly disguised code for an elimination of rules and regulations. As Systemic Disorder has previously noted, the Trans-Pacific Partnership, intended to go beyond NAFTA and formally codify the maximization of corporate profits as the central principle of governments, is the model for the TTIP, and it is unlikely that it is a coincidence that the two giant trade pacts are being negotiated simultaneously.

Some country has to be the top dog

The growth of spying operations and the shrinking of democratic spaces that accompanies bilateral and multilateral trade agreements progress hand-in-hand. The capitalist system has always required a center to hold it together. Capitalism has had a succession of dominant centers; each successive center has been bigger to be able to cope with increasingly complex tasks.

When London succeeded Amsterdam as the financial center, the financial center became located within a country with a powerful military, not only a large merchant fleet as Amsterdam’s United Provinces possessed. When New York succeeded London, the country at the center became continental in size, possessing a military that can be projected around the world, further intensifying the links between financial and military power that had solidified during Britain’s rise to dominance.

The projection of, and willingness to apply, force is crucial to the maintenance and expansion of the capitalist system. That force nowadays may be more often financial and commercial rather than military, but the military and intelligence services are in reserve. From the dozens of coups in Latin America to the forcible installation of regimes willing to do U.S. bidding in Iran and Iraq decades apart to propping up dictatorships around the world, the common thread has been using power to gain advantage for U.S. multi-national corporations. “Free trade” agreements are another methodology to the same goal.

All of the world’s advanced capitalist countries are a part of this system. They acquiesce in it however much they sometimes chafe at their subordinate status (in relation to the U.S.); their willingness to enter into trade pacts binds them to the dominant power. No single country is large enough or possesses a big enough military to challenge U.S. domination; today, only a unified Europe could challenge U.S. hegemony. European capitalists desire the ability to challenge the United States for economic supremacy, but cannot do so without the combined clout of a united continent.

The E.U., in its current capitalist form, is a logical step for business leaders who desire greater commercial power on a global basis: It creates a “free trade” zone complete with suppression of social accountability while giving muscle to a currency that has the potential of challenging the U.S. dollar as the world’s pre-eminent currency.

Thus the proposed TTIP is in the interest of industrialists and financiers on both sides of the Atlantic Ocean at the same time that its approval would spell disaster for working people — more concentration of power in the biggest corporations; less ability for citizens to influence government policy; and weaker labor, safety and environmental regulations. Concentration of power and shriveling of democracy can’t be accomplished without a stifling of dissent, which in turn requires, inter alia, more spying and less accountability by spying agencies.

There are common interests at the same time that spying is also deployed to gain competitive advantages for favored corporations; the latter is exemplified by U.S. bugging of E.U. offices. Those shared interests in maintaining the system, however much the advanced capitalist countries may compete, tend toward cooperative relations. Thus although countries like France and Spain demonstrate their subordinate status in humiliating fashion by closing their air spaces under U.S. orders, the blocking of President Morales’ plane is not reducible to only that subordination; European governments have shared interests in maintaining the system. That force is what maintains it speaks for itself.

Cyprus pensioners told to pay for crisis. Who will pay tomorrow?

Either bankers are so confident of their power that they increasingly can’t be bothered to disguise it, or we have to stretch the definition of “democracy” so far that the word loses any sense of meaning. This week’s news that the newly elected government of Cyprus was ordered to make its savings depositors pay for a bailout of Russian oligarchs and real estate speculators is stunning even by the standards of the global economic slump.

None of the previous eurozone bailouts had gone so far as to directly confiscate the savings of ordinary depositors. Not even in Ireland, where former Prime Minister Brian Cowen had huffed and puffed that Ireland would not surrender its sovereignty — which he demonstrated by insisting that Ireland’s ultra-low corporate tax rate not be touched. It wasn’t. European bankers had no issue with that, granting him that one concession while imposing cuts to wages, lowering the minimum wage, drastically raising water rates, raising university tuition and reducing health care services.

The intensity of Ireland’s austerity derives from the decision by the former prime minister to cover all potential losses by Ireland’s major banks, no matter how reckless their speculative lending had become. In other words, the Irish government paid off the bad loans made by its bankers and guaranteed speculators in the banks’ bonds would suffer no losses, and passed the bill onto its citizens. This represented an extraordinary warping of the idea that bank deposits, up to a certain level, are guaranteed. Other countries have had various versions of this austerity imposed on them. But now the European Union and its bankers are attempting austerity from a different angle: Partial confiscation of all savings, even if “guaranteed.”

No, that doesn’t mean that the normal austerity terms aren’t being imposed by the European Central Bank, the eurozone’s finance ministers and the International Monetary Fund. For weeks, rumors had circulated that, this time, that there would be a sharing of the cost of a bailout as Cyprus inched closer to a bailout. In the ordinary sense of this concept, that would mean that bondholders and the banks themselves would shoulder some of the burden. Not surprisingly, there had been pushback against this idea with financiers complaining that making them take responsibility for their own speculation would be disruptive to financial markets.

Finance ministers want pensioners to pay for crisis

Plan B was is to make working people and pensioners who have their life savings in banks and had nothing whatsoever to do with the latest eurozone crisis instead shoulder the burden. The Cypriot government was told point-blank to confiscate a portion of depositors’ savings or all money would be cut off, which would cause an immediate collapse of its two primary banks. No matter that deposits up to €100,000 are guaranteed. To avoid a bank run, Cypriot banks are closed for at least three days so that Cypriot parliamentarians can be hectored by eurozone finance ministers to do their duty.

The Cypriot parliament said no in its March 19 vote, but “no” votes in other countries have been reversed under pressure, so this drama has not yet run its course.

Cyprus needs €17 billion to bail out its banks, but European Union and International Monetary Fund officials are loaning only €10 billion, insisting that the remainder come from a deposit tax and other internal measures, including privatizing utilities. And why do Cypriot banks need all this money? Because they over-extended themselves on loans to real estate developers and others, the same story as in so many other countries. They also absorbed losses when Greek government bonds they owned were devalued in the wake of Greece’s ongoing crisis. An added complication is that about 40 percent of Cyprus’ total deposits are by foreigners, mostly Russians, causing extra challenges.

Cypriot banks are widely seen as money-laundering havens for Russian oligarchs, and a straight bailout of the banks would appear to many eyes as a bailout of money launderers. That in itself would not look good. In addition, German Chancellor Angela Merkel faces re-election later this year and, given repeated assertions by German right-wingers that Germany is bailing out slothful Mediterraneans, is loath to leave herself exposed to more such charges.

Imposing a “deposit tax” only on deposits greater than the government guarantee would be one way out of this political dilemma, but that would leave Russia angry. Not only does Russian President Vladimir Putin seek to protect his country’s oligarchs, but Russia has previously granted Cyprus a loan on which the Cypriot government hopes to re-negotiate easier terms. As it is, Russia strongly protested the proposed confiscation that would have affected everyone.

The Cypriot government is caught between multiple rocks and hard places — subordinate to Germany, the northern European Union countries that ally with Germany on financial issues, Russia, the European Central Bank and the International Monetary Fund. It is also subordinate to financial markets, a nice term that really means international financiers and speculators. Countries far bigger than Cyprus are subordinate to financial markets, and even large countries like Germany are not independent of market forces.

Cypriot banks hold assets estimated at eight times the country’s gross domestic product — Cyprus, like Ireland and Iceland, which had similarly bloated banks, can’t sustain a financial sector swollen to such a dangerous size. Cypriot banks offered interest rates far above rates found elsewhere, which attracted foreign depositors but also signaled significant risk. Banks that do not ask questions of people who deposit huge sums of money are not closely regulated. The downside of that risk has materialized, but rather than impose the cost, financiers and the government ministers who represent them prefer to say “never mind” to the deposit insurance counted on by working people and pensioners banking their life savings.

A crisis of financial domination, not national characteristics

The social risk here, in a broader sense, is that the Cypriot crisis will be seen through nationalist lenses. To accuse “slothful Mediterraneans” or “arrogant Germans” is to be blind to the larger structural forces at work, which pay no attention to national borders. Financiers last year imposed new unelected governments on Greece and Italy so that their preferred policies be carried out. If they can topple one government, they can topple other governments; the pious declarations that Cyprus’ confiscation of savers would be a unique event that won’t be repeated rings hollow given those precedents.

Austerity comes in many forms and no country’s workers are exempt — the German manufacturing “miracle” in fact has a down-to-earth cause — a decade of wage cuts for German workers. Germany is ever more dependent on exports as its domestic ability to consume slowly declines due to the steady drop of wage cuts. When those export markets begin to dry up, German workers will not be able to pick up the slack and German manufacturers and financiers will impose stronger austerity on German workers to buoy profits.

For now, German workers are relatively privileged, a difference exploited to foster divisions. Austerity has been much harsher in the eurozone’s Mediterranean countries and Ireland. Thus far, we have seen only the beginnings of any political fightback, in the form of strong electoral showings by Syriza (the Coalition of the Radical Left) in Greece and the 5 Star Movement in Italy. For the most part, Europeans have continued to alternate among their local dominant parties.

Frequent massive demonstrations demonstrate widespread anger — that is important, as the route to reversing austerity and the system that imposes it lies in mass action. It is a healthy sign of cross-border solidarity that demonstrators in front of the Cypriot parliament carried signs saying (in Italian and Spanish) “today me, tomorrow you.”

But anger without organization ultimately dissipates like steam released from an engine. Such organization has to translate, in part, to challenging political power, which in turn is intimately linked (and subordinate) to economic power. Austerity does not fall out of the sky; it is an expression of power to benefit those in power. Capitalists, including financiers, can remove governments and confiscate savings. What’s next? The return of debtors’ prisons? Mandatory unpaid labor to boost profits? Those might sound far-fetched, but unchecked power has a way of moving toward limitless power. Organizing to reverse this is simply self-defense.