The developing downturn, accelerated by the mounting government debt that is engulfing Greece, Italy, Ireland, Spain, and threatening France, John Mauldin writes in his weekly Frontline newsletter, poses the likelihood of an economic crisis of biblical proportions, from which the recovery would be long and brutal.
These developments pose devastating consequences as the propertied rulers press to foist the maximum burden on the backs of working people to pay for the crisis of their system.
The Greek government is now paying close to 7 percent interest on new bonds it is selling in order to continue paying interest and principal on outstanding debt, which stands at 166 percent of its gross domestic product. Italys debt of $2.2 trillion represents 120 percent of its GDP, pushing the interest it pays bondholders to similar heights.
Many of the continents biggest banks are on the verge of insolvency, largely as a result of massive speculation in government bonds. European bank refinancing needs exceed $541 billion next year.
For the heavily indebted nations, says Mauldin, no amount of austerity will work until their labor costs drop that is, until they significantly deepen the exploitation of workersand their trade deficits are brought into alignment.
But the eurozone project, bringing nations with very different levels of development and productivity under a common currency, served to exacerbate trade imbalances. The eurozone gave Germany, above all, growing export markets, while providing a mountain of cheap credit to Greece, Italy and other weaker economies, allowing themfor a timeto develop faster than their own resources would have allowed.
The capitalist rulers in Europe acted on the ahistorical assumption that this unsustainable trend would continue indefinitely.
Underlying these developments is the worldwide drop in capitalist production and trade. For decades the propertied rulers have faced declining profitability in the direct exploitation of productive labor, how all wealth is created under capitalism. Their declining rates of profit flowed from increasing competition for markets, low-cost labor and raw materialsa problem endemic to the natural workings of capitalism, not the result of errors or misjudgments by banks, corporate bosses or their governments.
Capitalists the world over turned from investment in expanding plants and production, and instead put their capital in search of higher profit levels in ever more complicated forms of speculative debt, especially in derivatives.
These massive investments in speculative paper were nothing more than legitimate ponzi schemes, whose bubbles of debt grew with no actual creation of wealth by workers underlying them, what capitalists call leverage.
Against this backdrop, a sharp debate is raging among bourgeois political leaders across Europe, whose positions reflect their different economic positions and relations with each other.
If heavily indebted governments cut spending to continue paying ever higher interest, their economies contract, leading to depression conditions. If they go bankrupt, their credit and banking systems collapse and government funds immediately dry up. Either way, workers go to the wall.
Bank ousts Greek, Italian prime ministers
The directors of the European Central Bank, backed by German Chancellor Angela Merkel, along with French President Nicolas Sarkozy, forced the ouster of the elected prime ministers in Greece and Italy, replacing them with so-called technocratic regimes they hope will carry out deeper assaults on working people.
Capital around the world is increasingly fleeing the European bond market, in what the economic press calls a buyers strike. France, whose economy is stagnant and whose banks are wobbling, finds its bonds facing demands for higher interest rates from prospective buyers.
The difference in interest paid by the French government on its debt, $2.3 trillion and rising, and that of Germany has widened sharply, leading to differences between the two on economic policy.
Many European governments, including now Paris, are calling for devaluation of the euro to devalue the debt, which is what the governments of Greece or Italy would probably be doing if they had their own national currency to manipulateanother form of kicking the can down the road, with its own ruinous consequences for working people.
German capital opposes devaluation of the euro, because it could ease the pressure on its deeply indebted neighbors to carry through assaults on the working class and because as the major capital exporter within Europe it would be drained.
None of the proposals being advanced to deal with the European crisis will resolve it, but are exercises in brinksmanship, whose proponents hope that some time can be bought before the whole European Union is torn apart, based on an unfounded optimism that somehow a way out can be found.
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