Click here to read Part One

The Eurozone

The eurozone countries in particular are caught in a vice. After the binge comes the hang-over. The Common Market was set up to develop a European-wide market as a means of overcoming the narrow constraints of the nation state. It was an indication that the productive forces had completely outgrown these national barriers. In the boom years, such European integration was possible, even going so far as to establish a common currency. This went much further than we expected. But this imposes enormous constraints on national economies which come under pressure in periods of economic crisis, in much the same way as the countries adhering to the Gold Standard in the 1930s. In the past, weak countries could attempt to escape from their problems by devaluating their currency and becoming more competitive, which the British capitalists are attempting to do. This is now ruled out for the eurozone. The European Treaty and the European Central Bank will not permit such recklessness. The national interests of each capitalist class come into conflict with the interests of the EU as a whole. Their problems, especially a fiscal deficit, must now be resolved internally through savage cuts and tax rises.

Each country is at the mercy of the international debt markets and the speculators. The weakest are the most vulnerable. Greece, Spain, Portugal and Ireland are especially targeted given their colossal fiscal deficits. This has led to a crisis of the eurozone with the weaker members threatening to undermine the whole union. The fear of contagion is widespread.

“There appears to be an accelerated and impending sense of doom about the status of the euro”, stated Andrew Wilkinson, senior analyst at Interactive Brokers. “The single currency is sitting on the edge of a precipice.”

Of course, the European capitalists will do all in their power to prevent such a catastrophe, despite the extra burden this imposes on them. This has opened up a clash between the separate states, who fear for their national interests. The Germans are the least cooperative, but have been under pressure from the French and Italians bourgeoisie. After months of squabbling, they have managed to come to a paper agreement to assist the Greek government get over their immediate fiscal crisis.

Crisis In Greece

The Greek crisis was spiralling out of control following a downgrade of the country's credit rating that pushed government borrowing costs to a 10-year high. The EU was forced to intervene with a deal to provide loans of £26.5bn below market rates. The German Chancellor Merkel was a very reluctant partner. First of all there could be no “bail-out”, then the IMF needed to be kept at arms length, then the Greeks needed to pay higher interest rates. The Germans finally agreed to the package, with the unprecedented involvement of the IMF. They still need to get parliamentary approval before the deal could be implemented. But this will be a formality as a default in Greece would wreck the eurozone, precipitating crises in Portugal, Spain, Ireland and others. They would either have to hang separately or hang together. The markets must be appeased at all costs. However, German elections in May threaten to undermine Merkel’s majority in the Bundesrat, the upper house, as many Germans are opposed to any such bail-out.

In an attempt to calm nerves and paper over the divisions, Jean-Claude Trichet, president of the European Central Bank, made it clear that bail-outs were not universal. “There is a high stakes poker game going on and Mr Trichet played his hand the best he could,” said Julian Callow, European economist at Barclays Capital.

Despite the deal, the Greek economy continues to spiral down. The continuing crisis saw output fall by 2.9% in January and more than 10% compared to a year ago. The economy will be further squeezed with the high costs of servicing debt and the cuts that are planned. The other European economies still remain in the doldrums. The biggest economies, including Germany, France, Italy and Spain were either flat or suffered modest falls in output. Although industrial production has risen, it still remains about 15% below pre-crisis levels. However, in the coming months the picture looks uncertain with stimulus measures, such as car scrappage schemes, being withdrawn.

The Financial Times recently asked some uncomfortable questions. “Is the Greek austerity plan realistic? Will Greece be able to pull through? What happens if Portugal gets into difficulty? What about Spain? What about Italy?” These are unanswered questions, but the implication is clear. The Greek crisis is not an isolated case, it is part of a wider European crisis that is far from resolved.

Attacks on living standards have already begun. In March, the Greek government had increased VAT and indirect taxes on fuel and tobacco. Public sector workers have faced the brunt of these cuts. A seven percent cut in wages and a 10% cut in allowances imposed by the PASOK government will mean real hardship, and this is only the beginning. The EU leaders, including the IMF, are demanding that the Greek government take further austerity measures to tackle the budget deficit. The country will need to pay back some 22bn euros by the end of May, forcing it to raise further borrowing at high interest rates. “We will not let the country sink”, stated George Papandreou, the prime minister. “Yes, we have to take more measures.”

This declaration of war against the workers of Greece and Europe generally has not gone unchallenged. Such austerity plans have provoked protests across the eurozone, not least in Greece, which has seen a series of general strikes embracing private and public sector unions. “We demand from the government and Brussels that people and their needs are put above markets and profits,” said Stathis Anestis, a member of the executive committee of GSEE, the umbrella union of private sector workers.

Europe

In Spain, workers have protested against the government’s proposal to increase the retirement age from 65 from 67, raising VAT rates and imposing other cuts. As in Greece, the government is looking to reduce its massive budget deficit of 11.2% of GDP at the expense of the working class. “Reform” of the labour market is also being proposed to bring about greater flexibility of labour and allowing employers to sack workers more easily. This at a time when unemployment stands officially at nearly 20%, double the average rate of the eurozone. Rodriguez Zapatero, the Socialist Party prime minister, stated bluntly that Spain will introduce its economic austerity plan to cut its budget deficit “whatever the cost”, and “if we have to make more cuts or demand more austerity, then we will do so.”

In neighbouring Portugal, public sector workers staged a one-day general strike in March in protest at the wage freeze being imposed by the Socialist government, again an attempt to cut its budget deficit. Jose Socrates, the prime minister, said the austerity plan proposed would be “bold and decisive”.

“Similar conflicts pitching the requirements of international creditors against the demands of workers’ representatives are breaking out elsewhere in the eurozone”, commented the Financial Times.

In Ireland, workers have also taken to the streets in protest at cuts in public sector pay. The government has slashed public spending through wage cuts and welfare payments, and is looking for a further 3bn euro cut in next year’s budget. The plan, agreed with the European Commission, is to return the deficit to below the 3% limit set for members of the eurozone by 2014. Despite this, the budget deficit is expected to rise from 11.3% of the GDP to 12%, as growth rates remain low.

Public sector unions are threatening to step up their industrial action and have rejected the terms of a deal where the government in the Irish Republic ruled out further pay cuts and compulsory redundancies, on the basis of savings from public services.

Other countries will not be far behind, including Britain. Whoever wins the May 6th UK general election, the question will be poised sharply of reducing the historically high budget deficit. As in the rest of Europe, workers in Britain will be forced to struggle against the coming austerity measures. Already, George Osborne, the shadow Chancellor, has made it clear that if the Tories win, “Within months we will be the most unpopular government since the war”.

The epoch of austerity

The epoch of austerity facing the working class, the likes of which we have not seen since the inter-war period, marks the beginning of an entirely new period. The period of reforms, which has largely characterised the previous 60 years, is now at an end. We are now in a period, which could possibly last for decades if the working class do not take power into their hands, of counter-reforms and brutal attacks. The ruling class will always find a way out of even the deepest crisis at the expense of the working class. It will sharpen the class struggle and serve to harden the working class, especially the youth. Millions who have never before been involved in struggle will be forced to defend themselves. They will learn from this bitter experience that their problems can never be solved under capitalism. They will begin to draw political and even revolutionary conclusions.

“Such shake-ups are of very great revolutionary importance”, explained Trotsky. “They shake off their conservativeness. They force them to seek an account of what is happening, what is the perspective. And every such shake-up pushes some stratum of the workers onto the revolutionary road.”

On the basis of capitalism lies a nightmare for working people. Conditions determine consciousness, as Marx explained. On the basis of events, consciousness will be brought into line with the objective situation in an explosive fashion. The titanic events that lie ahead will propel the working class in the direction of changing society. On this basis, a mass left wing will develop especially in the traditional organisations of the working class. In order to prevent the set-backs of the past, it is vital that we build the forces of Marxism and connect them with these left currents. With a correct programme and leadership, the rotten capitalist system can be swept way and the basis laid for the socialist transformation of society in Britain and internationally.

Click here to read Part One