For the professional and small business class – what Marx called the petite-bourgeoisie – debt is the mechanism that provides a standard of living that establishes a common bond and identity with the very rich. Jumbo mortgages, expensive car loans, small business loans, and lines of credit support membership in the clubs, associations, and parties of the wealthy, while greasing the track of access to business and social contacts.
But in the stratosphere of economic life – with the very rich and monopoly corporations – debt plays an entirely different role. At this rarified level of economic life, debt is an important – very important - tool for the accumulation of wealth. Apart from collecting the interest on the debt of everyone else, the very rich use the easy access to “other people’s money” to finance mergers and acquisitions, leverage investment opportunities, and influence and exploit the direction of economic events.
Economic textbooks celebrate the access to borrowed funds as the spigot for entrepreneurial initiative and bootstrap risk-taking, but this is merely a doctrinaire distortion of debt’s actual role. Even in the heralded dot.com boom and the popularization of venture capital as the debt-driven fuel for innovation and business creation, borrowed money was funneled into financial speculation and acquisition more than productive activity. The collapse of NASDAQ stocks saw the destruction of enormous reservoirs of unreal wealth – not unreal because it was fictitious, but unreal because it was obligations against future economic activity that would never be realized. That is to say, it was, broadly speaking, financial debt.
As economic data demonstrates and the current crisis underscores, debt-reinforced financial speculation plays a larger role in the capitalist economy than at any time in the past. In the US, in particular, financial activity nearly dominated the economy before the crash, accounting for over forty per cent of profits. Much of this explosion of activity was both speculative and debt-driven. Despite much inflamed rhetoric about taming it, the truth is that financial speculation marches on unabated: half of US corporate profits were derived from the financial sector in the last quarter.
In the fall of 2009, the media spotlight fell upon the fiscal health of Greece, a mid-level economy in the European Union. The newly elected social-democratic PASOK government revealed that the former conservative government had substantially understated the budget deficit. While tongues wagged, this revelation only exposed what everyone knew but never spoke. With only a few exceptions, every EU government ran budget deficits far beyond the EU guidelines. Moreover, in the face of an enormous world-wide economic downturn, deficit spending was the order of the day, urged by every responsible economist. The revised budget deficit as a percentage of GDP, while exceeding most EU countries, was less than Ireland’s and not that much greater than Spain’s and the UK’s. Total debt as percentage of GDP was also – roughly on the level of Italy – but not that much more than some other countries. In fact, Japan’s debt/GDP level is nearly double Greece’s. The next big fiscal challenge facing Greece was to be the redemption of 8.5 billion euros of Greek bonds on May 19, 2010, seven months after the budget announcement. Nonetheless, Greece became the poster child for fiscal irresponsibility. And a ferocious attack was launched on Greece from many quarters.
Like locusts, financial speculators descended upon Greece. Default insurance on Greek bonds rose from $120,000 on $10 million in September, 2009 to $425,000 in February, 2010 and over $900,000 on April 27. The yield spread between German 10 year bonds and their Greek counterparts grew from 1.3 in September, 2009 to 4 points in February, 2010, peaking at 5.17 on April 22 – a fateful day when trading in Greek bonds virtually stopped. In a rather tepid defense of speculative traders, The Wall Street Journal conceded that in November, “A wide array of financial firms now launched aggressive bearish bets against Greek bonds and the euro, too – some seeking to profit and some just to protect themselves.” Interestingly, the Journal notes that others seeking to protect themselves simply sold off their holdings in Greek bonds at that time, a move that softened the market for Greek bonds and assuredly increased the value of the “bearish bets”. Big players in credit default swaps in “late 2009 and early 2010 included Goldman Sachs Group Inc., Barclays, Spain’s Banco Santander and France’s Credit Agricole SA.” Unmentioned in the Journal apology for speculators was the pregnant fact that investors in credit default swaps (“bearish bets”) need have nothing to protect and only profits to gain, a now established modus operandi of the ubiquitous Goldman Sachs. As for the euro, speculators decidedly moved markets, betting against it. The same Journal article reported that “By February 9, Chicago Mercantile Exchange contracts betting on a decline in the euro against the dollar outnumbered positive bets by a record of over 54,000, according to CFTC [Commodity Futures Trading Commission] data.” It was no wonder that an exasperated Greek Prime Minister, George Papandreou, blamed “traders and speculators” for Greece’s woes.
With speculative capitalism, manipulation trumps perception and reality. The Bank for International Settlements (BIS) is the keeper of sovereign debt statistics, responsible for supplying data to all institutions – including the International Monetary Fund – regarding the debt of all countries. A curious thing happened this spring: “Then, on April 22, BIS released its fourth-quarter report. In the latest count European bank exposure to Greece dropped by tens of billions of dollars, led by Swiss banks’ exposure that plummeted 95% to $3.7 billion”, according to The Wall Street Journal (4-25-10). Remember, April 22 was the critical day when Greek bond trading nearly came to a halt. With nearly one-third of total Greek debt disappearing overnight, one would think that markets would have reacted; none did. With European banks miraculously reduced in exposure to Greece’s woes, one would look for some good news in euro currency trading; none appeared. “’We don’t fully understand the marked reduction in Swiss bank exposure to Greece’ Citigroup chief economist Willem Buiter, a former Bank of England official, wrote in 70-page report published this week on Europe’s sovereign-debt problems”, offered The Wall Street Journal.
The point here is not that the Greek debt was bogus – likely it was simply distributed differently than the BIS reported – but that perception had no effect on the debt or currency markets. The speculative attack on Greece continued relentlessly.
The speculative onslaught was expressed in other ways. As The New York Times reported on May 9, 2010: “The crisis, by contrast [to other debt-induced crises], seemed to ricochet from country to country in seconds as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market plunged nearly 1,000 points.” Despite the Times calculated attempt to bring the victims – the outraged Greek citizenry – into the explanation, the speed and scope of the financial onslaught underline the role of financial speculation. In Greece, the Acropolis still stood, but the financial world was in shambles despite an announced bailout of $146 billion the week before. Seemingly, nothing could satisfy the speculators – the same voracious beasts that brought the US economy to its knees in 2008 – once they had tasted blood.
The European Response
What began as a scold over $236 billion of Greek debt and a budget deficit of under $30 billion in the fall of 2009 morphed into a $955 billion euro-zone wide bailout package in May of 2010. How could a small cut in the Euro-body develop into a gaping, life-threatening wound half a year later?
Earlier in the global crisis, I wrote of the danger of “centrifugal forces” in the European Union undercutting any effort to construct a common solution to the crisis. Indeed, I projected “that these centrifugal forces… threaten to disrupt it [the EU], if not break it apart.” By that claim, I meant that the differently scaled economies of the constituent states with different levels of development, with different national and cultural values, with different standards of living, with different approaches to the market, etc. would prove to be an obstacle to a common program. In short, European integration was both mythical and incomplete. It was these “centrifugal forces” that made the EU, beginning with the contrived Greek crisis, easy prey for the speculative wolves.
In the US, when the banking system sagged and threatened to collapse under the weight of rampant financial speculation, the government anointed the largest institutions as “too big to fail” and supported this anointment with massive infusions of federal funds. This commitment effectively drove the speculative wolves from the door. At the same time, political forces and the labor movement in the US missed a golden opportunity to cage the speculators and socialize the financial sector. It must be remembered that sufficient public funds were made available to effectively buy the financial giants when they were on their knees. The opportunity is gone and these banks and speculators are now barking at the European door along with their global counterparts.
Much of the blame for the European fiasco is placed on the shoulders of the German government and its “Germany first” nationalism that delayed any effective response to the speculative attack. With the largest, most advanced and most thoroughly neo-liberalized economy in the EU, the German foot-dragging on a bailout demonstrated the “centrifugal forces” that challenge a united Union.
In the end, after toying with more modest bailout proposals that might have stemmed or, at least, slowed the tide of speculative assault, the EU was forced to offer a massive backstop to the attacks, signaling a determination to meet the bets regardless of the speculative ante. In this six month casino power play, no one in the popular or financial press challenged a financial system that could so utterly threaten global economic stability; instead tiny Greece was blame for its irresponsible and profligate economic policies.
The Political Ploy
Capitalism is anathema to cooperation. The very nature of capitalist social and economic relations based upon competition and self-enrichment foreclose the possibility of common action in the economic sphere. On the other hand, capitalists eagerly work politically to achieve common ends. They unfailingly pool their resources, direct the corporate media, and craft a common plan in pursuit of political advantage. These facts, more than any others, are the foundation for the Marxist theory of a ruling class. And nothing demonstrated this political solidarity – ruling class solidarity – more clearly than capitalism’s world-wide response to the Greek debt farce. Without exception, world leaders and their corporate mouth-pieces called for debt reduction through social austerity; the capitalist class saw an opportunity to benefit from the financial debacle and it seized it. The thrust of this call was to reduce public sector spending for human needs, not spending on the military, security services, corporate subsidies, or public-private partnerships, but salaries, pensions and social welfare. New revenues were to be generated through regressive taxes that would place even greater burden on working people, while leaving corporations and the very rich only modestly discomfited.
The promise of a financial bailout and the shabby decadence of social democracy, led the Greek PASOK government to surrender with only a whimper to the savage cuts demanded by the EU and the IMF: public sector salaries are to be cut, along with benefits. The retirement age will be dramatically increased and regressive consumption taxes will be imposed. Work rules will be changed to the benefit of employers and privatization will be sought. In short, the social democratic government agreed to dismantle the social democratic safety net that Greek and European workers fought so hard to establish. Even the IMF estimates that Greek unemployment will reach 15% next year. A former advisor to the IMF, quoted in The Wall Street Journal, said that “The scope of these conditions is brutal.”
With the capitulation of the Greek government, pressure shifted to other EU governments, including those with relatively modest vulnerability to speculative encroachment. Ireland has projected cuts of 5-15% for public sector workers, nearly$1 billion in welfare benefits, and a reduction in child-benefit payments; Spain has announced 65 billion euros in cuts including a five per cent cut in public sector wages; and Portugal projects public sector wage cuts and a value added consumer tax increase. The Sarkozy government in France has announced plans to raise the retirement age from its current minimum of 60 years to 62 or 63 and the newly elected coalition government in the UK plans to make drastic cuts totaling $8.65 billion even before a new budget is offered in the coming months.
In the private clubs and corporate board rooms these “preemptive” moves are cause for celebration. From the shadows of a speculation-induced crisis remotely involving Greece, elites are witnessing the collapse of the European safety net and the immiseration of the European working class with the quiet acquiescence of Social Democratic Parties.
Ironies abound. The rush to extreme austerity in Europe will dampen any hope of economic recovery; growth will be stifled and unemployment will jump with the loss of billions of euros in consumer purchasing power. The austerity programs will necessarily result in a self-induced economic downturn. Even more ironic, the US Treasury Secretary, Timothy Geithner, and other US officials are arguing forcefully that the Europeans should not abandon the course of economic stimulation, a course completely at odds with the new-found commitment to fiscal austerity and reduced public spending. US officials fear, correctly, that a deeper downturn in Europe will scotch any chance of a US recovery.
While lobbying in Europe, Geithner is urging Germany to back away from its unilateral ban on financial market speculation. Irony of ironies, Germany tacitly recognizes the devastation caused by financial speculation: “Certain transactions that threaten the stability of financial markets should be forbidden”, according to the deputy German finance minister. This amounts to a confession that the debt crisis wracking the EU was induced by financial bets not tethered to productive investment. And Geithner’s role in opposing this ban is to protect the financial behemoths that dominate the US economy. Such are the contradictions of capitalism for all to see.
A Line in the Sand
It is no exaggeration to say that the most intense and determined opposition to this capitalist ambush has come from the Greek Communist Party (KKE) and its All Workers Militant Front (PAME), a workers’ umbrella organization that unites Greece’s most militant unions and unionists. The Greek Party, since the demise of the Soviet Union, has served as the unifying center for Marxist-Leninists throughout the world and a significant force in electoral politics and revolutionary activism in Greece. Throughout the current economic crisis, the KKE has acted to defend the gains of Greek working people while calling for radical structural reforms to seize the opportunity afforded by a wounded capitalism. Unlike the maneuvering and temporizing of much of the left and Communist-lite Parties, the KKE has foregone Facebook militancy for demonstration and confrontation in the streets. Unlike the blurry all-class approach of many organizations, the KKE and PAME have struck a posture of working class partisanship with an unabashed goal of socialism. With the current violent assault on European living standards, the KKE was well-prepared to organize massive strikes and demonstrations to meet the attacks. By cajoling and shaming the more backward social democratic unions, KKE and PAME have brought hundreds of thousands of Greeks into angry and determined resistance.
As Aleka Papariga, the dynamic General Secretary of KKE said recently at a press conference:
It is a tragedy for the people to lose their rights, to see their wages being cut down despite the long lasting struggles in the previous years, despite the sacrifices that led even to blood shed. But above all it is a disgrace -and we do not believe that this will happen- these barbarous measures to pass without the people’s resistance, without the people’s counterattack and even more so to give the impression that the people consent to these measures.
On May 12, 2010, she affirmed:
Our strategy is to stop the barbaric measures being imposed as much as we possibly can under today’s conditions, to prevent them from being legitimized in people’s consciousness, for working people to disassociate from PASOK and ND and their policies, for the movement to regroup and move forward on a course of counter-attack in order to overturn today’s balance of forces, for people’s power. We are not indifferent and neutral observers but since the political balance of forces does not permit us effective intervention in favor of the people, we put priority on the movement, outside of the Parliament…
For this reason joining forces with KKE is necessary, regardless of whether working people agree with KKE on everything, or if they have questions or different viewpoints on socialism.
It is this boldness with a commitment to principled unity that separates the KKE approach from the more tepid left organizations in the EU and the US.
It has been said that early in his Presidency, Bill Clinton was told that he could not pursue a particular policy course because the bond markets would respond unfavorably. It is time for this shackle to be broken. Few have the courage to tackle this logic, but the Greek working class does under the leadership of Communists. We should all rejoice.
Further, the KKE sees success in this struggle as furthering Greek independence from the oppressive constraints of regional and international watchdogs and towards people’s power and socialism.
The example of Greece has shown the way for worker militancy in Portugal, Spain, and France. Demonstrations and strikes have been organized and called to meet the coming onslaught on working class standards of living in those countries.
We, too, in the US and other capitalist countries, should follow the Greek example. Currently, the Obama administration has a stealth plan under the innocuous name of the National Commission on Fiscal Responsibility and Reform designed to eviscerate Social Security, Medicare, and Medicaid after the November, 2010 elections. We must not only fight this but demand a strengthening of these three pillars of working class living standards.
We must go beyond a policy of awarding tax credits, encouraging contractor profiteering, and subsidizing low wage jobs to solve the unemployment crisis; we must fight for legislation establishing a shorter work week at the same pay to create the space for good paying, sustainable jobs.
We must re-establish the antiwar movement with a strong anti-imperialist voice to halt US, NATO, and Israeli aggression against countries entitled to their own peaceful course. Consider attending the inaugural United National Peace Conference in Albany, NY, July 23-25 (www.nationalpeaceconference.org).
And let us not forget our Greek comrades. I urge everyone to approach your union local, labor council, community group, movement chapter, and political organization to send messages of thanks and solidarity to the KKE (email@example.com) and PAME (firstname.lastname@example.org).