Saturday, 24 April 2010

Beware Of Greeks In Need Of Gifts

Greece has gone bust!

It is now dependent upon the kindness of strangers to bail it out. Or not so much strangers, but those who should be its brethren within the large family of the Eurozone. In reality, that means Germany, in particular, but also France. Ironically, the bail-out package involves contributions from other Eurozone countries Portugal, Spain and Italy, which also comprise the so called PIGS (Portugal, Italy, Greece, Spain) whose economies are also on their uppers, and facing problems financing their own debts! Already, Manuel Barroso has commented that his own country, Portugal, is not much worse off than Greece in this regard.

What this demonstrates is the contradictions of modern imperialism as I set out in my blog imperialism & War. Capitalism develops through a process of combined and uneven development. That process is manifest even within a single economy, which is why in Britain we see rapid development in the South-East, and sluggish development in the North-east. Before the development of the nation state, these different regions would have separate economies, and measures developed according to their needs. But, the rapid development of Capitalism requires both a more extensive market for goods, and a more extensive Capital Market. It requires Capital to face similar conditions wherever it operates. That is precisely why the development of a single market goes hand in hand with the development of the nation state, and hand in hand with a single currency.

But, Capital is able, within a single currency area, operating within a single state, to use fiscal measures to offset the contradictions that arise from a single currency, and single interest rate policy conflicting with different rates of economic growth, different rates of inflation etc. In the US, the Federal Budget has taken on an increasing role in fulfilling this function, whereas originally it was each state that was supposed to regulate its own economy via fiscal policy. In Britain too, the fiscal powers of Local Government were severely constrained, whilst the intervention of the central state in providing local financing, in financing directly Education, Healthcare etc., and of directing economic development through the RDA's increased.

A global capitalist market requires a global state, and indeed Capital has moved to establish global state structures such as the WTO, World Bank, IMF and so on, and even through the UN. But, these structures are partial and can never truly fulfil the functions of a state, because they immediately come up against that process of combined and uneven development, and, in particular with the continuing interests and remnants of an Imperialistic system in which sections of Capital remained tied to domestic states, and where powerful nation states can continue to offer significant benefits to Capital that comes under its specific protection. Political structures do not necessarily simply develop to reflect economic realities, because in the real world human beings, and their own immediate self-interest intervene. In a world of economic giants like the US, European capital needed to expand beyond its own limited national borders and to create its own super state. But, Capitalism is not a conspiracy. although, this was in the interests of European Capitalists, SOME European Capitalists, some European citizens, did not necessarily see that it was to THEIR particular or immediate advantage. This is one reason why European integration has largely progressed by such a bureaucratic means.

Yet, the fact is now made clear that, without a European State apparatus, that can act as the "Executive Committee" of the ruling class, and thereby set common rules for all Capital throughout Europe, establish a level playing field, on environmental requirements, working conditions, benefits, pensions and so on, unless it can have, within its grasp, the kind of control of fiscal policy that nation states exercise, there can be no single market, or single currency. The current crisis is putting that necessity firmly on the agenda, at a time when the ability to win support for such a development is probably at its least likely. In reality, the cost of bailing out Greece, will be less for Germany, than was the cost to it of bailing out the East after reunification. That burden was undertaken at a time when it had been drained by the Second Slump of the late 70's and 1980's, and by the recession of the early 90's. Today, despite the last recession, Germany is in better condition to undertake that role. Without it, a collapse of Greece, threatens sending Europe into recession, and a collapse of the Euro. European Capital certainly cannot want that, but German people have different views about bailing out what they see as a spendthrift economy, especially given their own habit of saving.

The danger is that a bailout for Greece might prompt calls for similar bailouts for the other PIGS, whose economies are much larger. But, a collapse of Greece, its withdrawal from the Euro, would almost certainly have a cascade effect on the other PIG economies, and would stimulate a crisis of confidence in the Euro itself. The current bailout of Greece is almost certainly not enough, they will be back for more. But, it is not at all clear that such support cannot stem the flood. In 1976, Britain did not need to go to the IMF for help, but did so, because it enabled the Labour Government to throw responsibility for the cuts on to external agencies, and to frighten off opposition by hyping up the seriousness of the situation beyond what it was. The same may be true in Greece, a combination of carrot and stick to lessen the immediate effects in order to buy time, and spread the cuts out over a period.

Moreover, although the other PIG economies are much bigger than Greece, this does not at all mean that the scale of bailouts would have to be proportionally bigger. As bigger economies, they are able to shoulder themselves a bigger burden of debt, so any financing only has to be sufficient to enable them to get through the current situation. Given that growth is returning to the world economy - China grew by 12% in the last quarter! - the answer to this debt is clear. Moreover, as I said in relation to the question of British debt Paying for the Crisis the certainty of inflation resulting from the massive amount of money printing, will itself resolve the debt crisis by shifting the burden from debtors to creditors, as it has so frequently been the case in the past. In Britain, as I forecast, inflation has already started to rise, even whilst economic activity remains subdued. I suggested that it would be by the end of this year before inflation really picked up, and I would not be surprised to see it close to twice its current rate by that time, despite the assurances of the Bank of England that it will fall.

But, making any kind of prediction is becoming more difficult, due to the number of exogenous factors, that can so easily combine to bring about a crisis - the crisis caused by the volcanic eruption is just one example, what might happen if the Tories do cut spending early on is another.

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