The Greek Crisis

Europe on the brink of a precipice

Europe is standing on the edge of a precipice. This is the judgement, not just of the Marxists, but of the most serious strategists of Capital. Barely six weeks have passed since the latest Greek rescue package, and it is already unravelling. There is now a general crisis of confidence in the ranks of the bourgeoisie internationally. The panic, which is reflected in the wild gyrations of the stock exchanges, has spread rapidly from Europe to America. It is a kind of deadly contagion that has infected all the euro zone’s big countries.

There is now open speculation about the euro’s survival and even that of the European Union itself. The whole situation hangs in the balance. And all for what? Because Greece cannot pay its bills. But this was surely no surprise. Every serious person knew full well that the crisis of the Greek economy was so deep that all the rescue packages could do was to buy a little time.

The time is now up. Greece cannot pay its bills and that is that. So why all the fuss? How does it come about that the problems of a small country on the periphery of Europe can bring about a tragedy of such dimensions? One might call it a Greek tragedy, were it not for the fact that it is not at all confined to Greece. Its origins must be sought beyond the confines of Greece and its repercussions will also be felt far afield.

Why are the European leaders falling over themselves in a desperate attempt to restore confidence? Why is Jean-Claude Trichet, the president of the European Central Bank, demanding stricter budgetary rules? Why has Mario Draghi, head of the Bank of Italy and Trichet’’s successor at the ECB, called for binding limits not on just budgets but also on a host of other national economic policies?

At the roots of the nervousness in the markets are doubts about the stability of Europe’s banks. It is no accident that bank stocks were hit hardest in the recent crash. After the last crisis there was a black hole in the banks that governments have been attempting to fill by shovelling in billions of taxpayers’ money. The result has been close to zero. The banks are not lending, the capitalists are not investing, the economies are stagnant, unemployment is growing, and now they are on the brink of a new slump.

The problem is that to this very day nobody knows what the real debts of the banks are. Decades of deregulation and uncontrolled speculation in things like hedge funds, whose workings are very obscure, mean that the danger to the global financial system is systematically underestimated, like the bulk of an iceberg that cannot be seen because it is submerged.

What is known is that French and German banks are heavily exposed to Greece. This alone explains the tender concern with which the governments in Paris and Berlin view the Greek crisis. If (or rather, when) Greece defaults, it would be followed immediately by a crisis of the banking system in the two pivotal countries of the EU. That is why they cobbled together a “rescue fund”, the European Financial Stability Facility. But it is a case of too little and too late.

The crisis that began with the bankruptcy of banks has now moved on to express itself as the bankruptcy of whole nations. If Greece is allowed to collapse, other more important economies will follow. That is why the leaders of the Euro zone have called an emergency summit in Poland. Their previous plans are in ruins. The debt exchange that was agreed to in July is now dead in the water. They will have to throw it out and grant Greece some kind of debt relief to prevent a collapse that would have devastating effects throughout Europe.

Europe and America

Sooner or later the EU authorities must decide either to relieve Greece and Ireland of their austerity programmes, or else pull the plug, pushing them over the abyss of default. Despite all the brave talk about keeping Greece inside the Euro zone, in the end they will have to take the latter course. This will have the most serious consequences’ for Europe and the world economy.

If the EU and IMF decide that they cannot continue to throw good money after bad, and withhold their support, this would push Greece into the abyss. This would signify what the markets most fear: a disorderly debt default. The social, political, and economic consequences of such a step would be incalculable – and not only for Greece. This scenario would spell chaos on an epic scale.

But this prospect is provoking alarm in ruling circles in Europe. Economists are already talking about the breakup of the euro zone, leaving Portugal, Italy, Ireland, Greece, and Spain outside it. But if you say “A”, you must also say “B”, “C”, and “D”. Globalization means that every economy in Europe is linked to every other economy. So what happens in even a smaller economy such as Greece will inevitably affect all the others.

What would the consequences be for the rest of Europe – for Britain, France, yes, and Germany too? It would trigger a chain reaction of collapsed banks in those countries. French banks are heavily exposed to Greece, but so are German banks. British banks are rather less exposed to Greece, but heavily exposed to Ireland. Austrian banks are exposed to Italy, and so on.

The results would be catastrophic for Europe, and not only for Europe. An economic collapse in Europe would send a Tsunami racing across the Atlantic, putting pressure on the dollar and threatening to undermine the unstable financial set-up in the USA. When Greece goes, the question is immediately posed of the contagion spreading to other countries. Ireland, Portugal, Spain and Italy will fall like dominoes. Banks will collapse, starting with the Greek and Cypriot banks, and then proceeding to the UK and US financial system, both of which are unsound.

In order to prevent his from happening, some bourgeois economists are now discussing other possibilities: for example, a German “Marshall Plan” for Greece and southern Europe. The idea seems childishly simple: Germany received millions of dollars in Marshall Aid, which enabled it to rebuild its shattered economy after 1945. Why should Germany not do the same for southern Europe? This is what the Americans are demanding ever more insistently.

Sadly the historical parallel is misguided. In 1945 the USA enjoyed a total hegemony over its competitors. Its industry was intact, while Europe and Japan were devastated by the War. Two thirds of the world’’s gold was in Fort Knox. The dollar then was “as good as gold”. Above all, the world capitalist economy was entering into a phase of upswing that lasted almost three decades. None of these factors exist now.

Germany is the leading power in Europe but it does not possess the virtually unlimited economic reserves that the USA enjoyed in 1945. Its shoulders are broad, but not strong enough to bear the weight of the accumulated deficits of Greece, Ireland, Portugal, Spain, Italy and the rest. Most importantly, Europe and the world are not on the verge of a long period of upswing but, on the contrary, on the eve of a new recession and a prolonged period of economic difficulties and austerity.

Barack Obama accuses the eurozone that it is dragging the rest of the world into crisis again, conveniently overlooking the small matter of the huge US fiscal crisis and the inability of the Republicans and Democrats to agree on a serious plan for reducing the huge budget deficit.

The Americans are desperately calling on Germany to “do more” to pull Europe out of crisis. The Germans must cut taxes; they must boost the economy; they must send more money to Greece; they must lead a coordinated fiscal stimulus across northern Europe. Germany must do this and Germany must do that. But who are the Americans to tell the Germans what to do?

Yes, say the Europeans, but who pays for all this? To this question there can only be one answer: France and Germany, or more correctly, Germany, which is Europe’s banker of last resort. Those who have talked bib about a Marshall Plan for Greece are now politely requested to put their money where their mouths are. But this is easier said than done. It immediately raises political problems that cannot easily be overcome.


Twenty years ago, after the collapse of the USSR, the German ruling class had big ambitions. Their idea was that a unified Germany could dominate Europe, achieving by its economic muscle what Hitler failed to do by military means. Over the past two decades, France has been increasingly pushed into second place and Germany now rules the roost in Europe.

The idea of a closer European Union will appeal to those sections of the German ruling class that still entertain some illusions of grandeur. But the past 20 years have also convinced Germany that such ambitions can come with a very hefty price tag. This contradiction has been exposed by the recent debate on the possible creation of “Eurobonds”.

Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe in the European Parliament, is only one in a growing chorus of voices calling for the creation of Eurobonds. Germany’s finance minister, Wolfgang Schäuble, has suggested that Europe needs to move to full fiscal union.

The Greens and SPD in Germany already back Eurobonds. But they are facing an electoral backlash, not only against fiscal union but against bailouts in general. The French have expressed guarded support for the proposal. Even the British Conservative leaders have adopted a surprisingly positive attitude (itself an indication of the seriousness of the crisis), which is causing them problems with their rank and file.

On the one hand, this idea contains a certain logic. All history shows that it is impossible to achieve a firm and lasting monetary union without some kind of political union. But here we immediately run up against new contradictions. The creation of Eurobonds would require a degree of political consensus that is simply not there. Any movement in the direction of fiscal union will meet fierce resistance. It would also require a fundamental revision of the EU’’s founding treaties.

The experience of the farce over the proposed European Constitution shows that it is not easy to get people to vote more powers for Brussels either in national parliaments or in referenda. And the mood of euro-scepticism has become even stronger since then.

But the governments of Germany and other northern European are coming under pressure from increasingly restive public opinion, unwilling to pay the debts of foreign states. The Merkel government is unpopular and has just suffered a humiliating drubbing in recent elections.

For the time being, Merkel is making the right noises: Greece must stay in the Euro Zone; the Euro must stay; Germany will do this and Germany will do that. But the fact is that Germany, the most powerful economy in Europe, is showing signs of strain. Its economy is slowing down, as a result of the general stagnation of the world economy. Its politicians are showing signs of impatience at being continually asked to put their hands in their pockets.

So far the EU has bailed out the Greek economy, or at least provided some funds with which the beleaguered Papandreou government could pay the wages of its civil servants and the pensions of its old folk. But more money than this is required. It is like pouring money down a bottomless well. And in the end, one way or the other, Greece will still default.

All that they have done is to yet again create a breathing space for Greece. But this comes at a huge cost to the Greek people, who are presented with the bill. As always, it is not the bankers and speculators who are asked to pay but the poorest sections of society: the workers, the unemployed, the old and the sick.

The price of “stabilizing the finances” and “restructuring” their economy is a brutal slashing of living standards and an increase in unemployment. This will lead to a further fall in tax revenue and thus a further increase in the deficit in the public finances. In what way this madness is supposed to help Greece to pay its debts is a mystery compared to which the Eleusinian Mysteries of old were child’’s play.

Without economic growth, tax revenues will remain stagnant, and the capacity to service debts will continue to decline. But the world economic slowdown and the merciless pressure to reduce the deficit through austerity, has plunged Greece into a deep slump. Despite all the painful sacrifices of its people, the government of Athens continues to miss its fiscal targets.

Alarm at this prospect is compelling the politicians in Brussels to take emergency measures to prevent the immediate collapse of the Greek economy. They still possess a number of instruments they can use: a relaxation of the demands of the creditors, an agreement not to press too hard on Athens to meet unrealisable fiscal targets. This would be quite a logical thing to do, on the grounds that it is not possible to squeeze blood from a stone.

There can be no solution for the problems of Europe without economic growth. Economic, social and political stability, throughout Europe, depends on it, and not only in Greece. But there is no prospect of a recovery of growth in the near future.

Protectionist tendencies

The deafening chorus shows that Europe is not short of proposals. They have proposals by the bucket load. The problem is that none of these proposals can do anything to solve the euro zone’s immediate problems. They cannot pay Greece’s debts. They cannot stop the problem from spreading to other countries. They cannot restore the shattered confidence of investors.

In the most optimistic scenario, they may possibly (just possibly) do a little to ease some problems in the long run (but, as Keynes pointed out, in the long run we are all dead). But they will do nothing to resolve the present crisis, which is clearly getting out of hand.

The hopeless confusion of the economists is illustrated by the strange spectacle of Jeff Sachs, the man who unleashed neo-liberalism onto Eastern Europe, calling for a global version of the New Deal. The problem is that any such suggestion is anathema to the Republican dominated Congress, which is hell-bent on pursuing the opposite policies.

Neither free market economics nor Keynesian stimulus policies have worked, or can work. Governments and their economist advisers are in a state of despair. There is no more money for fiscal stimulus, but austerity policies only serve to depress demand still further, aggravating the slump.

The greatest fear is that a new recession will provoke a resurgence of protectionist tendencies and competitive devaluations, as happened in the 1930s. This would have catastrophic effects on world trade and pose a threat to globalization itself. All that has been achieved in the past 30 years can unravel and turn into its opposite.

The measures recently announced by the Swiss National Bank to push down the value of the Swiss franc is a warning of the way things are drifting in the direction of protectionist policies and competitive devaluations. It was this that turned the 1929-33 slump into the Great Depression of the 1930s. The same thing can happen again.

Danger of reaction?

We have pointed out repeatedly that all the attempts of the bourgeois to restore the economic equilibrium will destroy the social and political equilibrium. Greece is proof of this assertion. Already social and political stability have been destroyed. And the realization that all the sacrifices have been in vain will make the austerity utterly intolerable.

It is possible that the Greek ruling class will seek a solution to their problems by moving towards reaction as they did in 1967. But the Greek workers remember 1967 and the crimes of the Junta. Any move in that direction now would provoke civil war.

This is recognized by an American political analyst, Barry Eichengreen (Professor of Economics and Political Science at the University of California, Berkeley.) in a recent article, significantly entitled: “Europe on the Verge of a Political Breakdown”:“ In Greece itself, political and social stability are already tenuous. One poorly aimed rubber bullet might be all that is needed to turn the next street protest into an outright civil war.”

Barry Eichengreen is not alone. Paul Mason, the economics editor of BBC2’ s Newsnight writes:

“In the chancelleries of Europe, above all in Berlin, these are questions that are impossible to mention. There is a total mismatch between political expectation and what is imminent.

“It reminds me – as so much of 2011 reminds me – of 1848. Metternich sneering out of the window at the irrelevant mob, a few hours before his unceremonious overthrow, Guizot unable to breathe with shock as he resigns his ministry, Thiers, prime minister for one day, suffering a bout of 19th Century Tourette’s in his carriage, hounded by the masses…”

These lines show that the most intelligent bourgeois strategists are seriously alarmed by the developments in Greece. The problem is not so much that this could lead to civil war. The problem is that the Greek bourgeoisie would not be sure of winning such a war. The working class is undefeated. Behind them they feel the support of the mass of the Greek population – not just the workers and peasants, not just the students and intellectuals, but also the small shopkeepers and taxi drivers who are driven to revolutionary conclusions by the sudden collapse of their living standards.

The politicians in Brussels fear that Greece is becoming ungovernable. If it has not yet become so, it is thanks to the reformist leaders. The Pasok leadership is anxious to prove its “statesmanlike qualities” and its patriotism, that is, its devotion to the interests of the bankers and capitalists. It is willing to take upon its shoulders all the odium of the austerity programme, and even to sacrifice itself on the altar of Greek and European Capital, if necessary.

In November 2001 there was an uncontrolled default in Argentina, accompanied by a run on bank deposits. The banks closed their doors, there were mass protests in the streets and the president had to flee from the roof of his palace in a helicopter. Something similar might occur in Greece, where protesters have hung a banner on the railings of parliament showing a helicopter carrying off Prime Minister George Papandreou.

The government is deeply unpopular. But who could replace it? The right-wing opposition party does not want to take over the reins of government in conditions of acute crisis with an aroused working class. It is not the right wing that the bourgeoisie is obliged to lean on to save it but the leaders of Pasok. Politicians like Evangelos Venizelos and Elena Panaritis (the non-elected, Western-educated MP advising Papandreou) and Papandreou himself are the Saviours of the bourgeoisie: their only defence against the masses.

It is the same story all over Europe. Without the reformist leaders, capitalism could not last even for a week. For that very reason, talk about the danger of fascism and Bonapartism makes no sense at the present time. The ruling class all over Europe must base itself on these organizations. The bourgeoisie does not need the fascists at this moment in time. Any attempt to move in the direction of fascism or Bonapartism at this point would simply provoke the labour movement to action.

Of course, this can change. The present crisis can last for years or even decades. However, at a certain point, the ruling class will say: there are too many strikes, too many demonstrations, too much disorder; we need to restore Order! Then there could be a movement towards reaction. But even in such a case, the ruling class would have to proceed carefully, first testing the ground by moving towards parliamentary Bonapartism.

That is not the perspective now, either in Greece or any other country in Europe. On the contrary, the pendulum will swing to the left. The working class will have many opportunities to take power into its hands before the ruling class can turn to reaction. Of course, the movement of the working class is never in a straight line.

The civil servants’ union, ADEDY, warned that it was gearing up for action over the government’s plans to extend a “labour reserve” scheme that would put civil servants on a sharply reduced salary for 12 months before reviewing their status. This shows that there are still important reserves in the working class in Greece. New layers will move into struggle to replace those that are exhausted by many months of constant activity.

We must not adopt a superficial and impressionistic attitude to events like the events in Greece. The masses cannot stay on the streets indefinitely. There will inevitably be periods of lull, in which the workers will think deeply about what has happened, criticize, differentiate and draw conclusions. It is precisely in such periods that the ideas of Marxism can gain a powerful echo, on condition that we are patient, that we listen to what the masses are saying and put forward the correct slogans.

In the revolutionary events that are coming, the advanced workers and youth will learn. If we work correctly we can help them to draw revolutionary conclusions, and come to understand the need for Marxism and a revolutionary organization.

All over Europe the working class and the youth are taking the road of struggle. In Italy there have been a general strike and mass demonstrations against the austerity plan. Berlusconi’s programme is too little for the bosses but too much for the workers. Outside parliament one evening, riot police came under a barrage of fire, paint bombs and even a pig’’s heart, hurled by angry protesters.

Moody’’s have already warned of a possible downgrade of Italy’’s credit rating on June 17 and its decision is expected by Saturday. Incessantly, implacably, the crisis is spreading and new burdens are being placed on the shoulders of the working class in every country.

What is the duty of the Marxists in this situation? We do not aim to reach the masses with our propaganda. That is beyond our ability. We aim at the most advanced elements of the workers and youth. We do not put forward “easy” agitation slogans that merely tell the workers what they already know. The workers need to be told the truth. And the truth is that under capitalism the only future that awaits them is a future of permanent austerity, falling living standards, unemployment and poverty.

We must explain that only the expropriation of the bankers and capitalists and the replacement of capitalist anarchy by a democratic planned economy can provide a way out of the crisis. In particular, we must counter the nationalist poison of the Stalinists by advancing the slogan of the United Socialist States of Europe, the only real alternative to the bankrupt bosses’ EU. Our duty, to use Lenin’’s expression, is to patiently explain.

Alan Woods is a political theorist and political editor of In Defence of Marxism. Read other articles by Alan.