Monday, November 14, 2011

Today's links

1--Greece and the dictatorship of finance, WSWS

Excerpt: In recent months the four other highly indebted countries in the euro zone—Ireland, Portugal, Italy and Spain—have either gone through, or are on the verge of, a change in government. On each occasion the initiative came from the representatives of finance capital and big business. The most important prerequisite in the selection of each new government is its ability to implement unpopular economic measures while resisting any concessions to public pressure.

Sooner rather than later other European countries will be the victims of the same process. In France, the Fillon government has just announced a new austerity program of over €65 billion. And export-oriented Germany is more dependent than any other country on the rest of Europe.

The situation is reminiscent of Germany in the 1930s. Then, German Chancellor Heinrich Brüning, a centrist politician, sought to impose the impact of the international financial and economic crisis on the population with drastic austerity measures. He ruled through emergency measures, relied on the powers of the president and the parliamentary support of social democracy, and suppressed opposition to his austerity policies with brutal police operations. Brüning paved the way for the rise of the Nazis and their subsequent takeover of power.

The development in Greece is heading in the same direction. This follows inexorably from the logic of the “government of national unity.” Declaring its austerity program to be an expression of supreme national interests, the government will denounce all resistance as treason to be forcibly suppressed. The military will be encouraged to take over the reins of power, as it did in 1967. The sudden dismissal of the senior military leadership by outgoing Prime Minister George Papandreou is a warning in this regard.

The emergence of dictatorship in Greece and throughout Europe can be prevented. The ruling elites are divided and weak, and opposition is growing to their attacks. But this resistance at present lacks a clear perspective, while the ruling elites are quite conscious of their interests and have sophisticated means of paralyzing and suppressing resistance.....

Social and democratic rights can be defended only on the basis of breaking with all of these organizations. Strikes and protests, while important, are not enough. The struggle against dictatorship and austerity requires a socialist perspective and the building of a new party. The ruling elites cannot be swayed by pressure from the streets. They have too much to lose. They are determined to defend their privileges and wealth in a capitalist system which has plunged the world into crisis.

The European debt crisis is not due to a lack of money. According to Handelsblatt, wealthy Greek individuals have stashed an estimated €560 billion in foreign accounts—almost twice as much as the entire Greek national debt. And the US investment bank Merrill Lynch has estimated that in 2007 no less than three million millionaires resided in Europe, with total assets of €7.5 trillion.

This enormous sum of capital seeks new sources of interest and profit. To use a phrase of Karl Marx, “Capital is dead labor, which, vampire-like, lives only by sucking living labor.” The financial markets demand their daily toll. Increasing amounts of surplus value produced by workers flow into banks, hedge funds and other financial institutions, which themselves produce nothing of value.

Herein lies the importance of the debt crisis. It serves as a mechanism to intensify the exploitation of the working class, decimate government social spending, slash wages and re-establish the types of exploitation which prevailed in the initial stages of capitalism.

A progressive resolution of the crisis is possible only on the basis of transforming existing property relations. The banks, large corporations and major private fortunes must be expropriated, subjected to democratic control and devoted to serving society as a whole. Social needs must take precedence over the drive for profit.

Such measures require a revolutionary movement of the working class. They will meet with the fierce resistance of all the established parties, which are intimately tied to the interests of the financial markets and big business. Supporting the main bourgeois parties will be the trade unions and their pseudo-socialist allies.

A socialist perspective can be realized in the economically and socially closely knit continent of Europe only through the close international collaboration of the working class. The aim must be to build the United Socialist States of Europe. The alternative, as in the 1930s, is the balkanization of the continent and a slide into dictatorship and war.

2--Favorite of European banks appointed to head Greek government, WSWS

Excerpt: Former European Central Bank vice president Lucas Papademos was appointed to head the Greek coalition government on Thursday, following concerted pressure this week from financial markets, the International Monetary Fund (IMF) and leading European institutions.

On Tuesday and Wednesday international finance markets had indicated their displeasure with Greek procrastination over the appointment of a new head of government with a wave of selling. Following the announcement that Papademos would be taking over as new prime minister, President Karolos Papoulias immediately sought to appease the markets. He issued a statement Thursday in which he pledged that the priority of the new administration would be to faithfully implement Greece’s loan agreements with the eurozone and IMF.

From the standpoint of international finance, Papademos has impeccable credentials for his new job. From the mid-1980s until the mid-1990s Papademos worked as chief economist at the Bank of Greece before taking over as head of the bank in 1994. He retained this post until 2002, overseeing the country’s preparations for membership in the eurozone.

Papademos then left the Bank of Greece to take up the post of vice president of the European Central Bank until 2010. For the past year he has worked as an adviser to the government of George Papandreou. He was educated in the United States and briefly served as senior economist at the Federal Reserve Bank of Boston....

What is apparent from the events of the past several days is that the selection of Papademos was a pre-condition for Greece’s eligibility for immediate financial aid and access to a new €130 billion rescue package from the European Union and the IMF.

Papademos’s appointment was predictably welcomed by both Greek and international business and finance organisations. On Thursday the Athens stock market index was up 3.17 percent, with Greek banks gaining 10.2 percent....

Despite the brief recovery on the Greek stock markets, the economic situation in the country continues to worsen. On Thursday the latest unemployment figures, which drastically underestimate the real extent of the country’s jobs crisis, hit a new record high, rising to 18.4 percent. The number of unemployed reached 907,953 in August, a 10.7 percent increase from the previous month. The unemployment rate for youth between the ages of 15 and 24 has soared to 43.5 percent, twice its level three years ago....

Having installed a technocrat in Greece, financial circles are now insisting that the Italian banker and former EU competition commissioner Mario Monti be installed as new head of government in Italy as quickly as possible. Following the announcement from Italian premier Silvio Berlusconi on Wednesday that he will resign, but not immediately, markets pushed up the interest rates on Italian government bonds to well over 7 percent.

The dominant sections of the ruling class in Europe are intent on imposing so-called “non-political” technocrats. Papademos and Monti have been selected precisely because they are regarded as figures who are committed to carrying out the dictates of the banks, are distant from domestic political circles, and are sufficiently contemptuous of democratic procedures. Nevertheless, their appointment will do nothing to dampen the deepening crisis, which, according to recent reports, is increasingly spiralling out of control....

The extent to which the debate has moved on in the past few weeks is indicated by the latest column by the financial commentator Noriel Roubini. Writing in the Financial Times, Roubini concludes that the financial woes of Italy cannot be resolved even with a massive infusion of European capital to reduce its public debt.

In order to tackle its “large current account deficit, lack of external competitiveness and a worsening plunge in gross domestic product and economic activity ... Italy may, like other periphery countries, need to exit the monetary union and go back to a national currency.” Such a step Roubini is forced to admit would trigger “an effective break-up of the eurozone.”

Meanwhile, French, German and European officials were forced on Thursday to officially deny that there are active discussions over expelling some countries from the eurozone, as reported Wednesday.

3--Italian Prime Minister Berlusconi announces his resignation, WSWS

Excerpt: This month’s G20 summit in Cannes put Italy under the guardianship of the International Monetary Fund (IMF). The Italian government must deliver a report on the implementation of austerity measures to the IMF every three months.

With the representatives of the international financial markets and Italian big business intent on pushing for massive austerity measures and a rapid change of government, the official Italian opposition sought to prevent any popular mobilization. It is concerned that the political instability associated with a change of government could facilitate the direct intervention of the masses into political events. It is seeking to avoid such a development at all costs...

The Democrats want to avoid early elections because they fear political convulsions and estimate that they have only a slim chance of electoral success. They unconditionally support the dictates of the IMF and the EU and have nothing to offer voters apart from austerity. On Tuesday evening, Bersani explicitly expressed in parliament his willingness to take "his share of responsibility for the country."...

... politicians, who call themselves “left,” agree on the necessity of austerity measures and unprecedented attacks on workers dictated by the financial markets. The last thing they want is a political struggle that could mobilize the working class.

4-- Europe’s Growth Forecast Is Lowered, NY Times

Excerpt: Europe’s economic outlook received a fresh dose of gloom Thursday, when the European Commission warned that the Continent’s economies were stalled and faced the risk of a double-dip recession.
“The recovery in the European Union has now come to a standstill, and there is a risk of a new recession,” Olli Rehn, the European commissioner for economic and monetary affairs, told reporters in Brussels.

“This forecast is in fact the last wake-up call,” he added.

...Even Germany, the economic engine of Europe, is now expected to record just 0.8 percent growth in 2012 — more than a percentage point lower than the European Commission predicted in its spring forecast. And none of the euro zone’s other three biggest economies — France, Italy and Spain — are projected to achieve 1 percent growth in 2012.

5--The Recession Has a Lot to Due With Europe's Sovereign Debt Crisis, Dean Baker, CEPR

Excerpt: The NYT outlined the origins of Europe's sovereign debt crisis in a front page piece. The article leaves out a very important part of the story.

The prolonged downturn has substantially worsened the crisis. High unemployment and slow or negative growth has reduced tax collections and increased transfer payments, making deficits much larger than would otherwise be the case. This could be countered if the European Central Bank (ECB) had pursued more aggressive monetary expansion.

Also, the demands of the ECB that heavily indebted countries adopt harsh austerity programs has slowed growth both in the countries adopted these programs and across Europe. For these reasons, the ECB should be cited as one of the main causes of the crisis.

6--Legends of the Fail, Paul Krugman, NY Times via Economist's View

Excerpt: ...Not long ago, European leaders were insisting that Greece could and should stay on the euro while paying its debts in full. Now, with Italy falling off a cliff, it’s hard to see how the euro can survive at all.

But what’s the meaning of the eurodebacle? As always happens when disaster strikes, there’s a rush by ideologues to claim that the disaster vindicates their views. So it’s time to start debunking. ...

I’ve been hearing two claims, both false: that Europe’s woes reflect the failure of welfare states..., and that Europe’s crisis makes the case for immediate fiscal austerity in the United States.

The assertion that Europe’s crisis proves that the welfare state doesn’t work comes from many Republicans. ... The idea, presumably, is that the crisis countries are in trouble because they’re groaning under the burden of high government spending. But .. the nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer... Meanwhile, before the crisis ... spending on welfare-state programs ... was lower, as a percentage of national income, in all of the nations now in trouble than in Germany... Oh, and Canada ... has weathered the crisis better than we have.

The euro crisis, then, says nothing about the sustainability of the welfare state. But does it make the case for belt-tightening in a depressed economy?

You hear that claim all the time. America, we’re told, had better slash spending right away or we’ll end up like Greece or Italy. Again, however, the facts tell a different story.

First, if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. ...

What has happened, it turns out, is that by going on the euro, Spain and Italy ... have to borrow in someone else’s currency, with all the loss of flexibility that implies. ... America, which borrows in dollars, doesn’t have that problem.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried...

The moral of the story, then, is to beware of ideologues who are trying to hijack the European crisis on behalf of their agendas. If we listen to those ideologues, all we’ll end up doing is making our own problems — which are different from Europe’s, but arguably just as severe — even worse.

7--Trigger Happy: Why Deficit Cuts Should Be Triggered Only When Unemployment Drops to 5 Percent, Robert Reich's blog

Excerpt: On planet Washington, where reducing the federal budget deficit continues to be more important than creating jobs, everyone is talking about “triggers” that automatically go into effect if certain other things don’t happen.

Yet no one is talking about the most obvious trigger of all — no budget cuts until the official level of unemployment falls to 5 percent, its level before the Great Recession.

The biggest trigger on the minds of Washington insiders is $1.2 trillion across-the-board cuts that will automatically occur if Congress’s supercommittee doesn’t come up with at least $1.2 trillion of cuts on its own that Congress agrees to by December 23.

That automatic trigger seems likelier by the day because at this point the odds of an agreement are roughly zero.

Here’s the truly insane thing: The triggered cuts start in 2013, a little over a year from now.

Yet no one in their right mind believes unemployment will be lower than 8 percent by then.

The cuts will come on top of the expiration of extended unemployment benefits, the end of a payroll tax cut, and continuing reductions in state and local budgets — all when American consumers (whose spending is 70 percent of the economy) will still be reeling from declining jobs and wages and plunging home prices. Even if Europe’s debt crisis doesn’t by then threaten a global financial meltdown, this rush toward austerity couldn’t come at a worse time.

In other words, what will really be triggered is a deeper recession and higher unemployment.

Democrats on the supercommittee are acting as if they haven’t met an unemployed person. They’re proposing $2.3 trillion in deficit reductions — half from spending cuts (including $350 billion from Medicare), half from tax increases. To make the tax increases palatable to Republicans, Democrats want to give Congress a chance to find the new revenues by overhauling the tax code. If that effort fails, automatic tax increases would be triggered. The top tax rate won’t rise (another bow to Republicans) but top earners’ itemized deductions will be limited.

Oh, and by the way, under the Democrats’ proposal, spending cuts and tax increases, triggered or not, would start in 2013.

The President (remember him?) is still hawking his $450 billion jobs bill, but he’s having a hard time being heard above the deficit-reduction din — in large part because he himself is simultaneously calling for deficit reduction, and most people outside Washington can’t make sense of how we do both.

The public is confused because they don’t get it’s a matter of sequencing. We need to do more spending now in order to bring back jobs and growth, then do less spending in the future — after the economy is once again generating jobs and growth.

That’s why it make more sense for Democrats to propose a deficit reduction plan that goes into effect only when jobs are back. The trigger should be the rate of unemployment — and a 5 percent rate would signal we’re back on track.

8--Europe’s Banks Found Safety of Bonds a Costly Illusion, NY Times

Excerpt: As the bets that European banks made on United States mortgage investments went bust a few years ago, bankers piled into what they saw as a safe refuge: bonds issued by countries in Europe’s seemingly ironclad monetary union.

Now, the political and financial crisis engulfing the Continent has turned much of that European sovereign debt into the latest distressed asset, sending tremors through global financial markets not seen since the demise of the investment bank Lehman Brothers more than three years ago....

Société Générale, Commerzbank and other banks cannot get rid of the shaky debt fast enough. In the last several months, they have booked billions of euros in losses from unloading it, although their exposure remains substantial. Including the effect of hedges, European banks had a net exposure of about $120 billion to Greek government borrowings and private debt at the end of June, according to the Bank for International Settlements. Even more worrisome, analysts say, is the banks’ exposure of $643 billion to Spain and $837 billion to Italy....

Regulators are requiring European banks to raise 106 billion euros in new capital by next summer to protect themselves against further losses.

Banks insist the risks are manageable. But the big fear is that they do not have enough capital to cover potential losses from the euro zone. That kind of crisis of confidence drove MF Global, the large New York brokerage firm, into bankruptcy last week after its $6.3 billion bet on European debt alarmed investors.

While the markets are now being brutally efficient in telegraphing the differing debt risks among European countries, they failed in that function for a long time, just as they failed to reflect the risks of subprime mortgage loans as a real estate bubble formed in the United States.

For most of the last decade, bond yields among Germany, Greece, Portugal, Ireland, Italy and Spain traveled in a tight pack. That meant investors buying and selling those bonds acted as if the countries were almost equally safe simply because they were members of the euro zone, despite shaky finances in Greece, real estate bubbles in Ireland and Spain and high debt in Italy....

When the subprime crisis started to buffet Wall Street in 2007, banks sought shelter by turning even more to European sovereign debt, especially countries with the best returns. The B.I.S. data show that bank lending to the governments of Portugal, Ireland, Italy, Greece and Spain, largely through bond purchases, rose faster than usual, by 24.2 percent, to $827 billion, between the second quarter of 2007 and the third quarter of 2009, when the crisis in Greece first started to taint European sovereign debt.

Banks across the world joined in this lending binge as they chased higher yields....

As the subprime crisis peaked on Wall Street, banks sharply increased their underwriting of European sovereign debt. In 2007, the world’s big banks made $113.9 million in underwriting fees; by 2009, that number had more than doubled to $273 million...

“Sovereign debt has lost its apparent risk-free status,” Hervé Hannoun, deputy director general of the Bank for International Settlements, said in a recent speech in which he called for an end to “the fiction.”

To restore confidence, he concluded, the world needs to move “from denial to recognition.”

9--At Fed, louder calls for action on economy, Wa Post

Excerpt: Federal Reserve officials who advocate new action to try to strengthen the economy are becoming more vocal in their push, taking their arguments to the public and making them more forcefully within the Fed policy committee...

A flurry of speeches in recent weeks led some people in the financial markets to conclude that the central bank is in a hair-trigger stance, on the verge of some new action, such as buying hundreds of billions of dollars of mortgage-related securities in a bid to bring down mortgage rates. One Fed policymaker took the unusual step of dissenting in favor of more aggressive action at last week’s meeting....

Fed officials would be more comfortable with a new wave of monetary activism if they could explain it as part of a broader strategy, such as explicitly aiming to reduce unemployment to a certain level. But at the central bank’s policy meeting last week, there was no agreement on what that overarching communications strategy might be.

If the economy shows signs of dipping back into recession — perhaps because of spillovers from the widening European debt crisis — all bets are off. There is evidence that Fed bond purchases benefit the economy more when they are made during a time of financial market dysfunction.

10--Greece turns to Iranian oil as default fears deter trade, reuters

Excerpt: Greece is relying on Iran for most of its oil as traders pull the plug on supplies and banks refuse to provide financing for fear that Athens will default on its debt.

Traders said Greece has turned to Iran as the supplier of last resort despite rising pressure from Washington and Brussels to stifle trade as part of a campaign against Tehran's nuclear program.

The near paralysis of oil dealings with Greece, which has four refineries, shows how trade in Europe could stall due to a breakdown in trust caused by the euro zone debt crisis, which is threatening to spread to further countries.

"Companies like us cannot deal with them. There is too much risk. Maybe independent traders are more geared up for that," said a trader with a major international oil company.

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