Spanish Socialists Teach Corbyn A Lesson

To shouts of “Larga vida a la lucha de clases” (Long Live The Class Struggle), tens of thousands of Spanish workers came out last night to celebrate the victory of the Spanish Socialist Party, in the most important elections since the fall of the Franco regime, in the 1970's. In doing so, Pedro Sánchez, and the Spanish Socialist Party also taught Jeremy Corbyn a lesson on how to deal with right-wing nationalists. Spoiler alert – its not by adopting nationalist ideas yourself. 

For the last few years, the bourgeois media has been full of stories about the rise of right-wing populism across Europe. The worst place for such stories has been in Britain, where the historic reactionary nationalism and xenophobia of its Tory Party, and that sizeable portion of the population that backs it, has meant that there has always been a large market for papers such as the Daily Express, Daily Mail, The Sun, and so on, to pander to, as they struggle for circulation, so as to stay in business. With a 24 hour news cycle, and News Channels that have obliterated the line between news and entertainment/celebrity, the emphasis is on ratings, and so the need to turn every event into a drama, and to court those whose controversial activities, can ensure viewers. 

Some years ago, the BBC justified inviting Nick Griffin on to Question Time, on the basis that it would expose his ideas. But, it only exposed them to those who already knew that his ideas were grotesque. For all of the racists, and xenophobes who supported Griffin and the BNP, it was simply an opportunity to hear him promote them to a wider audience, just as the supporters of Tommy Robinson hope to do, or indeed as the supporters of political Islam seek to do. For the supporters of Griffin, it was just confirmation that the “liberal elite” tried to stitch him up. But, the real reason that the BBC invited Griffin on to Question Time, just as the reason they invite, repeatedly Farage, Suzanne Evans, Claire Fox, and Brendan O'Neill on to their programmes, despite the fact these people represent nothing and no one, is the fact that they know that their controversial statements will get them viewers, and responses. 

The truth is that the British media, in particular, is lazy and decadent. Anyone who is actually well-informed about politics, knows that the British media, with all of its very highly paid journalists and TV presenters, is not. Moreover, as a media that, in large part, is a Tory media that simply and lazily repeats established tropes, it is easier for it to just carry on in that way, rather than to actually engage in any serious investigation, and analysis of its own. Hence we have the “Paper Reviews” where the same old talking heads are simply recirculated, reinforcing the same old cliches. 

Talking up the rise of far-right populists across Europe has been part of that narrative. Particularly in Britain, it has been part of that narrative about the potential for the EU itself to fall apart. And, of course, across Europe, the far right has been advancing, just as it has with Trump in the US, with Bolsanaro in Brazil, with Putin in Russia, Erdogan in Turkey, and so on. But, who has it been advancing against? The truth of the advance of the far-right, as the election in Spain yesterday showed, is that it is an advance at the expense of the not so far right! In other words, the far right's advance, is simply a mirror image of an advance of the left. Both are the inevitable consequence, as I wrote several years ago, of the collapse of the political centre.  The idea that there could ever be a collapse of the political centre that only benefits the left, is naive wishful thinking.  The idea that when such sharp class divisions manifest themselves the answer can be some cuddly consensus and unity, is itself a reflection of the same old centre-ground, liberal sentimentality.  In such conditions, unity only comes when one side - progress or reaction - crushes the other.  It is a unity imposed by the victor. 

But, much to the chagrin of those reactionary nationalists, and those in the media for whom the collapse of the EU would be nothing more than a bonanza for ratings and circulation, similar to their relishing of a good war, the advance of the far right has never managed to go beyond being a fringe activity. Every time there is an election, even with the proportional representation systems, used in Europe, the far right have failed to win, other than in a few places such as Hungary. Even in Italy, where the right-wing Northern League/Five Star Movement managed to form a ruling coalition, they have had to constrain many of their policies, including removing any commitment to leaving the EU. 

A lot is made of UKIP, then under Farage, winning the most seats in the last European Parliament elections, but that is nothing more than an example of fringe parties being able to mobilise fanatical supporters in low turnouts. The fact is that UKIP were never able to get their candidates elected as MP's, other than where they simply crossed the aisle from being Tory MP's. Farage himself was never able to get elected to parliament. 

In the Spanish elections, the Socialists emphasised the importance of the election, in defeating the right-wing nationalists of Vox, who are a throw-back to Franco. The socialists made clear that the election was a struggle between progress and reaction, between the future and the past, and they won. They won by emphasising their nature as an internationalist, pro-EU party, of progressive social-democracy. In his victory speech, Pedro Sanchez made a point of emphasising that the Socialist Party victory was also a victory for the EU. 

Of course, socialists will have disagreements with the social-democratic programme that the Spanish Socialists fought the election on, as we would with any social-democratic programme, including that of Corbyn and the Labour Party. That is because we are socialists not social-democrats. A progressive social-democratic agenda is at best part of what used to be termed the “Minimum Programme”, of socialists. We would, for similar reasons, have differences in relation to our attitude to the EU itself, though it has to be said that the programme of the European Socialists group in the European Parliament offers a more progressive way forward than is currently offered by the stance of Corbyn's Labour Party, even though, technically, the Labour Party is signed up to that programme. 

The point is, however, that whereas Corbyn and the Stalinists that advise him have been appeasing and facilitating right-wing nationalists, by themselves adopting a reactionary nationalist stance over Brexit, a stance which has, in turn, seen Corbyn entering into class collaborationist talks with the Tories, to try to save their reactionary Brexit agenda; has seen Labour disgracefully adopting reactionary positions in support of ending free movement, and the imposition of immigration controls; and has appeased bigoted views on all these issues, thereby legitimising the very same arguments put forward by Farage and his Brexit Party, which then not surprisingly has rallied a large degree of support around it, from ex- Tory voters, the Spanish Socialists adopted an internationalist stance, a pro-EU stance, and a stance of militantly opposing the right-wing nationalist agenda of Vox, and won. 

Not only did the Spanish socialists win, but they increased their share of the vote, where all of the media were talking about them losing seats, and the potential for Vox to be the kingmakers, claiming seats in a Spanish centre-right government. Vox did win seats. But, they only won 24 seats, whereas the media had been talking about them winning 36 or 38 seats. The 24 seats won by Vox, did not even compensate for the 69 seats lost by the centre-right People's Party, from whom Vox took most of its votes. By contrast, the Socialists increased their share of the vote, by 6.1% points, in a poll that was itself 9.3% points larger than in 2016. The Socialists took nearly 29% of the vote, and increased their number of seats by 38. 

Listen to the Tory media in Britain, and you would almost think that Vox had won the election, rather than that it actually gained only two-thirds of the seats they had been forecast to win. In fact, Vox is only the fifth largest party in the election, with just 10.3%. It is behind the Socialists on 28.7%, the PP on 16.7% (whose vote halved), Ciudadanos on 15.9%, and Podemos on 14.3%. In reality, the far-right in the elections were smashed. Its not that this 10% of the poll is something that did not exist before, it is simply a transfer of an already existing reactionary core vote that previously voted for the PP, and has now been separated out by Vox, just as UKIP acted to do that with all of the reactionaries, racists and xenophobes that have traditionally voted Tory. 

The lines of the great battle between two great class camps are being drawn more clearly. They are being drawn on the question of internationalism v nationalism. Spain was a skirmish won for progress against reaction. It is not yet victory in the war itself, but it shows the way forward.

Spain Cannot Be Free If It Holds Catalunya In Chains

The decision to establish an independent Catalunya is has the potential to be far more catastrophic than Brexit, or to establish an independent Scotland. Britain will suffer catastrophically in economic terms, if Brexit goes ahead, and an independent Scotland would suffer even more catastrophically, in that regard if it separates from Britain. But, England is not threatening to forcibly prevent Scottish independence if the Scots vote for it, and nor is the EU threatening to forcibly prevent Brexit. Catalunya not only will suffer economic catastrophe by separating from Spain, but the fact that the Spanish state is threatening to use force to prevent, even a legal democratic vote taking place, has imposed direct rule over the region, and logically must then back that up by force, threatens plunging the country into civil war.

For socialists, the primary task is to promote the greatest possible unity of the working-class. A look at the divisions that arose in Scotland, or that have arisen over Brexit indicate the potential for the working-class, even within a given country or region, to be highly divided, when the political discourse is overwhelmed by some particularly single issue. A look at the divisions that are opened up by elections in countries where vertical cleavages dominate the polity, for example, ethnic and religious divisions, illustrates the point. Such a division where a particular country or region is led to feel that it must separate, and where that desire is frustrated by the use of force is almost inevitably going to lead to a heightening of those divisions, and the resort to violence to resolve them.

These divisions have a dynamic of their own. The more, for example, Catalunya is denied the right to even express its will via a democratic process, let alone that its will be suppressed by force, the more Catalans will see that as an expression of oppression, and the more they will see that oppression as their primary concern that drives Catalan workers towards making common cause with Catalan bosses.  That can be seen in Scotland, where the Scottish working class has been divided by the question of nationalism, with a part of it being pulled over to the Tartan Tories of the SNP, who with their traditional middle-class nationalist support, thereby were able to obtain a majority in elections.

It is because socialists seek to build the greatest unity of workers across borders that they must stand out against such a dynamic. It is why they argue that the socialists in Spain, for example, should emphasise the right of Catalunya to separate, whilst socialists in Catalunya should emphasise the importance of remaining within Spain. Socialists could never recommend that the Catalan workers pushed their demands for independence to a point where it led to a civil war with Spain, in which not only would the Spanish and Catalan workers be turned into enemies of each other, but in which thousands of them would be likely to die. The demand for self-determination is merely a bourgeois-democratic right, which can never be placed higher than our ultimate goal, which is the building of a united working-class struggle for socialism.

But, a primary responsibility here lies with the Spanish workers. It is the Spanish state that is the opponent of the implementation of even that basic bourgeois democratic right. Unlike even the British Tory government of David Cameron, which facilitated the Scottish independence referendum, the Spanish state has prevented even a legal independence referendum taking place in Catalunya, and then in typical Catch 22 fashion, uses that as a justification for denying the legitimacy of the referendum that was held, and thereby of denying permission for separation. The argument by the Spanish state, and its media mouthpieces that Catalunya needs to undertake the process legally by changing the Spanish Constitution, to allow such a vote is farcical.

What is even more farcical, is that, as with the Scottish referendum, if Spain were to facilitate such a referendum, it would probably vote against independence. The actions of the Spanish state, in violently attacking even elderly voters, in imposing direct rule in Catalunya, in threatening to imprison the Catalunyan government representatives and so on, are almost guaranteed to win additional support for the separatist cause in Catalunya, and to drive an even deeper wedge between people in Catalunya, and between Catalunya and the rest of Spain, especially given the history of Catalunya itself, and its memories of the Franco era, and especially given the family ties between current Spanish government politicians, and the Franco regime.

The responsibility of Spanish socialists, therefore is to demand that the Spanish state stops its oppressive actions against Catalunya. They should demand that if the objection is that the referendum was not legal, then the government should facilitate such a legal vote. It should mean enabling new unfettered elections in Catalunya. Spain itself can never be free, whilst it holds Catalunya in chains.

But, the experience has wider lessons. The EU has a central role to play, but it has so far failed to take up that challenge. It once again illustrates the need for the EU to establish itself as a centralised federal state. The Catalans like the Scots have made clear that they have no desire to leave the EU. Some EU representatives have begun to send out messages that with Britain leaving the EU, they would be favourable to an independent Scotland remaining in the EU. That would mitigate some of the economic damage that independence from Britain would impose on Scotland, and would at least facilitate the Scottish working-class maintaining and building its links with the EU working-class. It makes sense for the EU to make a similar offer to Northern Ireland and Gibraltar. But, in the case of Catalunya, the EU has been adamant that it would not recognise an independent Catalunya. Why? 

The obvious solution for many of these problems, is for the EU to recognise and to embrace regional governments within Europe, in the context of a federal European state structure. The answer is not a further empowerment of the old nation state, as represented by Brexit or Scottish independence, but it being superseded by a new EU state, and the development of appropriate structures at a regional level within it.

Defend Catalunya

If I were a Catalan, I would vote against independence for all the same reasons I have set out previously for opposing Scottish independence.  But, for all those same reasons, the Catalans had a basic democratic right to hold a vote on the issue that socialists should uphold.  And they should uphold that right against the attempts of the Spanish state to prevent it.  The methods used by the Spanish state are more like a throwback to the era of Franco, and are likely to encourage even more Catalans, into the arms of the separatists.

Socialists should demand that the Spanish state stop its intimidation, and we should also demand that the EU uphold its own bourgeois democratic norms in that regard.  If the Catalans vote for independence then they should be free to implement that decision.  Of course, that does not mean that socialists in Catalunya should themselves take ownership of that divisive decision, any more than socialists in Britain should take ownership of the reactionary vote for Brexit.  We oppose any attempt to prevent the implementation of such decisions by force, but that does not mean that we deny ourselves the basic democratic right to disagree with the decisions that have been made, and to campaign vigorously for them to be overturned, any less than we would do that when an election gives a result that we did not want.

The EU has a significant opportunity here.  EU observers were apparently shocked at what they saw being meted out by the Spanish state.  They should also be shocked at the activities of some other EU member states in Hungary, and elsewhere.  Its time for EU politicians to step up to the plate and put into practice the fine words that stand behind the EU's constitution, and that are supposed to be upheld by the European Court of Justice.

If the EU acted as a real state then issues such as Catalan independence or Scottish independence would be trivial.  They would be reduced to mere administrative issues, of drawing theoretical lines on borders of internal EU states on a map, in much the same way that periodically local government reviews in Britain draw the lines for each Metropolitan, City, and County area in different locations.  The EU should respond to this upsurge in separatism and nationalism, by showing that what is actually required is greater integration of the EU itself, which can provide a peaceful and democratic resolution to these local disputes.  After all, neither the Scots, the Northern Irish, the Gibraltarians, nor the Catalans want to separate themselves from the EU itself!

Spanish Elections - Life Reflecting Fiction

In the Spanish Elections, at the weekend, the conservative government, became the last in a line of governments that have imposed austerity to lose substantial support. The classic example of that has been Greece, where a series of governments imposed austerity, and lost. Resulting in the creation of a new term “depasokification”. In Britain, a right-wing majority of 80 seats, held by the Liberal-Tories, was slashed to a 12 seat majority in 2015, and the obliteration of the Liberals as a political force. Then there has been the defeat of conservatives in Portugal. In fact, this situation, including the success now of the Left in Spain, mirrors the scenario depicted in my new novel – 2017.

Commentators on both right and left, have been arguing for some time now that the fact of Syriza being forced into a compromise, in Greece, had undermined the movement to the left, and had thereby undermined Podemos. In fact, the Spanish elections, following on from the Portuguese elections show this not to be the case. It would undoubtedly have been better had Syriza been able to hold out for longer, in Greece, but the fact remains that the potential is growing for a social-democratic alternative to austerity to be built across the EU. But, it should be understood that what Syriza, Podemos and others offer is, indeed just a social-democratic solution, rather than a revolutionary, socialist solution to these problems.

What, in fact we have, is merely appearance and reality being brought into alignment. Nominally social democratic politicians failed to act as social democrats, and so made themselves irrelevant.  It is a process I discuss in the novel. A central theme to the political scenario depicted in the book is that of a collapse of the political centre, and an explanation of this collapse based upon the underlying economic realities.

If we look at that political centre, it has been based, for the last thirty years, on a set of economic conditions, whose existence is now at an end. Those economic conditions can basically be summed up in one word – debt. Wages were low, profits were high and rising, the supply of loanable money-capital way exceeded the demand for it, so interest rates continually fell, and this facilitated both a build up of private household debt, to compensate for stagnant wage growth, and also acted to stoke asset price bubbles in stock, bond and property markets. In turn, these bubbles, and the possibility of huge, rapid capital gains, from such speculation, far outweighed the potential returns that could be obtained from productive investment of additional capital. That was especially the case when central banks back-stopped those asset price bubbles, and when the governments intervened to inflate property bubbles, whenever they were in the process of bursting.

The combination of these factors, increased the power of the owners of fictitious capital, which in turn influenced the policies adopted by governments. In essence, we have had parties that are nominally social-democratic, and which historically have been social-democratic, but whose elected politicians have failed to act as social-democrats. Instead they have operated as conservatives, serving the interests of the owners of fictitious capital rather than the interests of large-scale, socialised productive-capital.

As Marx and Engels point out, from around the end of the 19^th century, in the older, developed capitalist economies, capitalists in large part removed themselves from their social function in production. They became merely money-capitalists, who loaned money-capital to socialised capital. They became mere coupon clippers, living off the interest paid to them as dividends, interest, and rent. But, as Marx sets out, there are objective limits in which this can operate. As he points out, the more capital simply takes this form of money lending capital, relative to productive-capital, the lower the rate of interest becomes, until it reaches a level, whereby the income received from it, is no longer sufficient to provide the required income for at least some of the coupon clippers.

Take someone with £1 million of money-capital available to lend. At 5% interest, they obtain £50,000 per annum in interest, which may be enough to live on. If the rate of interest falls to 1%, however, their income falls to £10,000, which is not enough to live on. They may then have to look to use this capital in a different way. For example, if they believe that they could start a small business with this capital, they may expect to obtain an average rate of profit of 10%. It then becomes worthwhile using their capital actively in production.

So, Marx points out that at a certain point, some of these smaller money-capitalists will convert themselves back into productive-capitalists. It will only be the very large money-capitalists who will obtain sufficient income, at very low yields. What has distorted this situation over the last two decades or so, has been that the potential capital gain to be obtained from speculation has taken the place of a reliance upon yield for income, and this has been guaranteed by the policy of quantitative easing undertaken by central banks.

The political centre, for the last three decades has been able to pursue the polices it has, because, during that time, it was possible to sustain economies upon the basis of inflating these asset price bubbles, and thereby to sustain consumption levels on the basis of extending private household debt. That possibility has now ended. It is signified by the ending of QE in the US, at the end of last year, and by the raising of official interest rates this month.

The buyers of shares, bonds and so on have been referred to as investors, but in reality, they are only speculators. The majority of the bonds and shares that they have bought, have not been new shares and bonds, issued to finance additional investment in productive-capital. What they have bought have largely been existing bonds and shares, so that all that happens is that the prices of these bonds and shares rises, which gives the appearance of rapidly rising amounts of wealth. The fall in the yield on these paper assets is the other side of this, because with no additional productive investment undertaken, no additional profit is generated out of which the interest is paid.

The same is true in relation to property. All of the speculation in property has gone into buying existing property, rather than the building of additional property. The consequence is that property and land prices rise, but no additional income is generated, so the rental yield falls.

There is another consequence of this. The money printing has caused a hyper inflation of these paper assets. But, in doing so it has also caused the value of labour-power to rise, whilst this has not been reflected in higher wages. The consequence of the hyper inflation of the property market – which has risen by 2000% between 1980 and 2000 – is that increasing numbers of people cannot afford to buy a house, or to move up from their existing house to a better one. So the proportion of people in home ownership has fallen. Even for those who can afford to buy, the massive rise in house prices represents a huge increase in their cost of living, a fact that will be even more apparent as interest rates rise.

The recent increase in the Fed Funds rate, for example, is being presented as only a quarter percentage rise. But, this is false. It is a rise of a quarter of a percentage point, but the actual increase is from 0.25% to 0.50%, which is a doubling of the rate, or a 100% increase. Imagine that the interest rate on your £200,000 mortgage is 5%. That is £10,000 p.a. in interest. If the rate goes from 5% to 10%, then the amount of interest you pay does not rise by 5%, but by 100%! It goes from £10,000 p.a. to £20,000 p.a. This is also a feature of the very low rates of interest that currently exist. Even a tiny absolute rise in the rate represents a large proportional rise in the rate of interest, and consequent large rise in the repayments of borrowers.

That has a corresponding effect on the rents that people are being forced to pay, which is why there has been such a significant rise in Housing Benefit, because wages have not risen to cover these massively increased costs of workers' shelter.

The same is true with pensions. The massive rise in the prices of shares and bonds has undermined workers' pension provision. Suppose you pay £100 per month into a pension plan. It buys 100 shares per month, that go into your pension pot. If each share produces £0.10 in dividends, this income is then available to pay out your future pension. However, if the price of shares rises 20 fold, as it has done in the last 30 years, your £100 a month contribution will only buy 5 sharers per month to go into your pension pot. Because, nothing here has actually increased the volume of profits to be produced, there is no reason why each share will not still produce only £0.10 in dividends. So, now instead of your pension pot producing £10 per month of income, it now produces only £0.50!

In order to be buying 100 shares per month, so as to generate the same level of income in dividends, the worker would need to have been paying in £2000 per month into their pension, which would have required higher wages. But, over the preceding period, wages have not risen to compensate for the rise in the costs of shelter, or pension provision. This represents a huge distortion, which history, and Marx’s theory, tells us will be rectified at some point. Either wages must rise massively – which seems unlikely – or else these costs will have to be reduced significantly, which means that property prices, and the prices of bonds, and shares will have to fall massively. In other words, large amounts of existing debt will effectively have to be written off. That will represent a huge loss of wealth and power for the largest owners of this fictitious capital.

But, it is on that material reality, and on those social forces, that the political centre has rested, both within the conservative parties, and within the social-democratic parties, whose politicians have been pursuing conservative rather than social-democratic ideals. The option of bailing out fictitious capital by the state, to prop up these asset price bubbles, and for the state to cover the cost of that, by imposing austerity upon the rest of the economy, has run its course. Greece has been the most classic example of that. It is not just that voters get tired of the austerity, but that the policy itself can no longer work. The debt itself has to be written off, on a massive scale, rather like happened with all of the unsustainable Third World debt, in previous times.

Those governments that attempt to simply apply those policies, in the face of changed economic realities will fail, and in the process, as happened with New Democracy and Pasok, the parties that remain tied by them, will be destroyed too. If we look in Britain, the reality of this collapse of the political centre is seen, by the fact that the government majority of around 80, was slashed to a majority of just 12 in the 2015 election. It was further signified, by the fact that the physical representative of that political centre, the Liberal Democrats, were obliterated. It is an indication of the extent to which the political centre cannot comprehend its own demise that its advice to both the left of Labour, and the right of the Tories is to imitate the policies and perspective of those very same Liberal Democrats!

Greek and Spanish Lessons For The Left

The demonstrations of a couple of hundred thousand people against the Cuts yesterday was a cheering event. The working class needs such events. They are a sign that at least sections of the class are still willing to fight. By bringing together large numbers of people in one place, they are a visible symbol of that, and of the workers' most important strengths – their numbers, and their solidarity. They fulfil the same kind of function as a Manager's pep talk before an important football match. Just how important a role they play in that regard can be seen by the effect they have on those taking part, compared to what a cold, rational analysis would lead them to conclude. For example, suppose 300,000 people took part yesterday. There are more than 600 Parliamentary Constituencies in the UK, but call it 600. That means that on average each Constituency sent 500 people. But, the average Constituency has 65,000 voters, and many more people than that in total. On the basis of a cold rational analysis, then the demonstrations were tiny and meaningless. Yet, from the standpoint of those taking part, from the standpoint of raising morale they are far from that. A good manager, even if they believe the team has little chance of winning, still has to give a good pep talk before the match. But, we shouldn't confuse a good pep talk with actually winning the match.

But, Marxists in developing their tactics and strategy, in deciding what demands to raise at specific times do have to be aware of that difference. A football team has to play on a Saturday afternoon, and even a terrible performance is not a matter of life and death. The same is not true in the class war, as in any other kind of war. Workers lives and livelihoods are at stake. It is irresponsible adventurism to send workers into a battle knowing that their forces are wholly inadequate to win. It is the same kind of squandering of workers' lives that First World War generals like Haig were guilty of. The calls on the demonstration, and echoed in a number of papers of the sects, for a General Strike are of that order.

Back in the 1970's and 80's, organisations like the Militant, today's Socialist Party, repeatedly called for a General Strike to bring down the Government. But, then like today, all that they could offer workers as the fruits of such a momentous event, was merely the replacement of the Tories with Labour, the replacement of one Capitalist Government, with another, even if less reactionary, Capitalist Government. That is light minded in the extreme. A General Strike by the working class is no insignificant matter. Even in 1974, when the Miners had effectively brought the country to a halt, Ted Heath framed the situation as it was - “Who Rules?” That is what a General Strike is about, which class rules. Reducing it to the trivial issue of which Capitalist Government should serve the interests of Capital is an insult to the working class, and their struggle. Moreover, without a revolutionary leadership of the working class, a General Strike will never go beyond such a question.

In his autobiography, Nye Bevan wrote about the 1926 General Strike. He writes about the meetings that the TUC leaders had with the Government. The Government said to them “Well gentlemen, you have won. The question is are you prepared to run the country instead?” Bevan reports that at the point, the TUC leaders knew they had lost, because they were not prepared to take over. No one seriously believes that any of the TUC leaders, today, even the most left wing sounding, would be proclaiming All Power To The Soviets, as the consequence of even a successful General Strike.

Moreover, if the General Strike is reduced to being a 24 hour General Strike, what really is its point. It is nothing more than a protest. Certainly such a strike would have the merit of not placing the question of which class rules at a time, when it is clear that the workers are not ready for such a fight, but then what would be its significance? It would fulfil only the same kind of role that yesterday's protest marches fulfilled, one of raising morale. But, that is a double edged sword. Although, yesterday's marches in reality mobilised relatively, insignificant numbers of workers, from the standpoint of those taking part, they mobilised absolutely large numbers of people. But, if a General Strike was able to only gain the support of the same kinds of numbers of people – and it would, in practice probably be less – then it would be a dismal failure. It would be obvious that the vast majority of workers had not taken part. Rather than raising morale, it would be a thoroughly demoralising event for workers.

In the 1920's, Trotsky made precisely this point in relation to similar calls for General Strikes by the German Communist Party. The German Communist Party had missed the revolutionary opportunity when it arose in 1923, and then attempted to catch up under conditions when the workers had moved on to the defensive.

But, it is quite clear that any General Strike called by the TUC would be precisely of that nature. It would gain the support of very few workers. Firstly, there simply is not the level of class consciousness within the working-class to make such a strike successful, but even if there were, why would workers support simply a 24 hour protest strike. If workers are struggling for a pay rise, then Marxists know that 24 hour protest strikes by Trade Union bureaucrats are simply a means of dissipating anger, and demobilising any struggle. They have no chance of persuading employers to concede, and sap the willingness of workers to fight, for that very reason. Only an all out strike to win has any chance of gaining victory.

But, as stated earlier, if the workers did engage in an all out General Strike, which is essentially an insurrectionary act, why on Earth would they settle for putting Ed Miliband in Downing Street, rather than Cameron?

But, the implications are much more serious than this. If we look at Greece, there have been such 24 and 48 hour General Strikes repeatedly for the last two and a half years in response to the austerity measures. Not only have they failed to bring those measures to a halt, but in some ways they have done the Government's work for them. During every such strike, the Government saves money in wages, and the provision of services. Moreover, the very fact that they have taken place with such regularity without any effect is itself demobilising and demoralising. That can be seen in the actual political developments in Greece.

Large sections of the Left hold to the bizarre notion that economic crisis is beneficial for the struggle for Socialism, because it provokes the workers into resistance. Its true, that there are times, when after a prolonged period of economic boom, that has promoted workers strength and organisation, a sharp crisis can provoke resistance by workers that is capable of defeating the employers offensive, and flowing over into a revolutionary struggle. But, as Trotsky described in many of his writings, in general, periods of economic crisis are very bad for the workers struggle for Socialism. They create the very conditions of high unemployment and uncertainty that weakens workers ability to resist, increases the competition and atomisation amongst them, and erodes their organisations. The main forces that benefit during such periods are not those of progress and socialism, but those of reaction. That is why the main beneficiaries of the economic crisis of the 1930's was not the left, but was the fascists in Italy, Germany, Spain and elsewhere.

We see the same thing again today in Greece. Paul Mason's accounts of the rise of Golden Dawn in Greece, and their increasing fusion with elements of the Greek State - Alarm At Police Collusion With Far Right – should be a powerful antidote to the catastrophists on the left who continually proclaim the “Death Agony of Capitalism” in the hope that their hoped for economic crisis will magically bring the workers to power, in a way that the frantic activities and propaganda of the sects has failed to mobilise them to do. In the last two years, the consequences of the economic crisis in Greece, has been to destroy PASOK, which even in Social Democratic terms, was rather an oddity. But, its destruction has not benefited the revolutionary Left. Despite the most terrible austerity, the Left sects in Greece have not been able to increase their support in the working class any more than their UK equivalents. Syriza has filled the place of PASOK, but Syriza, whose core comes from Greek Euro-Stalinism, is merely a left reformist outfit. Yet, even they in all of this crisis, and despite the repeated General Strikes, and large scale protests, were still unable to beat the right-wing New Democracy in the last elections.

Now, according to the latest polls, the fascists of Golden Dawn – I can't help thinking about Alan Rickman citing Asian Dawn, who he'd read about in Newsweek, from Die Hard – are in third place, and their share of the vote continues to rise. According to latest reports, they are now winning over sections of people who were supporting the Left. That is not surprising. Mussolini had previously been a member of the Italian Communist Party, who was infected with Nationalism and Statism. Many of the German Stalinists, whose politics, like that of Stalinism and Left Reformism is also based on Nationalism and Statism, reflected in their calls for things like nationalisation, and their veneration of the power of the State, also went over to the Nazis, when it was clear that their star was clearly in the ascendant. As in Germany in the 1920's and 30's, the other parties, including the Stalinists have attempted to respond to the nationalist demagogy of Golden Dawn, by adopting it themselves. The consequence, as with Germany then, is to legitimise and strengthen that ideology in the minds of the masses.

But, more importantly, and as was seen in Germany with the Nazis, what is important is not who scores a few more points in the opinion polls, or even a few more seats in the Greek Parliament. What is important is who controls the streets. That has been seen time and again. It was true of the Bolsheviks in 1917-18. It was true of Mussolini in the 1920's, of Hitler in 1933, of Khomeini in 1979, and it is true today of the jihadists in Libya. It is quite clear that in that respect Golden Dawn are already winning, and they are winning, because the Left has no real solutions for the workers problems. In that respect, another of Paul Mason's reports holds out more hope.

On the one hand, Paul has reported from Spain, on the potential for a similar development to that in Greece - Unrest drags Spain towards buried unpleasant truths . For the first time since the death of Franco, there is discussion about the Civil War. Francoists have begun to show their faces again, and sections of the military have again talked about preventing any secession by Catalonia. On the other hand, Paul has reported on the action s of ordinary Spanish workers who have placed their faith not in the State, nor in dead-end economistic struggles, and the politics of protest, but in their own direct self-activity. In some senses that has been seen in both Greece and Spain. That is in the sense that in order to survive the austerity, workers have relied on their own extended family networks for support. That in itself is a kind of working-class solidarity even if it is a restricted for of it. It also means that workers are able to retain a sense of dignity and independence that Welfarism denies them. But, Paul has also reported on other forms of self-activity by workers in Spain that go beyond that.

As he shows - From networked protest to 'non-capitalism' – based on his own visits to Spain, and on the work of Manuel Castells, “Farm workers union members dig abandoned land they have occupied during the crisis. Castells' survey shows large numbers of people in Spain have engaged in co-operative or non-profit work since the crisis.” In other words, rather than relying on some promise of jam tomorrow by reformist politicians, rather than being derailed by maximalist calls for Revolution as the only answer, or simply allowing themselves to fall into a passive victim mentality encouraged by Welfarism, workers throughout Spain have become to take collective responsibility for their lives, and their future. It is the kind of self-activity that Marx and Engels proposed. Spain, of course, has a history of such actions. It is home, in the Basque country, to the Mondragon Co-operatives, which continues to grow, and employ more and more workers in a wider and wider range of industries across Europe, as well as Spain, and which has now formed a strategic partnership with the Steel Workers Union in the US.

But, of course, for the reasons that Marx and Engels described, although workers have to develop such Co-operative alternatives to Capitalism, because they both provide the workers with their own bulwark and source of economic and social power, and because they provide the most powerful example, in practice of how the future society will be organised, they are not a solution in themselves. Capital will never simply allow Co-operatives to grow to replace it, any more than they will simply allow a Workers State to live in peaceful co-existence with it. Workers have to build these powerful Co-operative organisations, and they have to build the socialistic social and political relations that logically flow from them, as an alternative to bourgeois social and political relations. An inevitable consequence of that is that workers alongside such activity have to build their mass Workers Party, as part of a struggle for political power, a struggle to smash the existing Capitalist State, which will be used against them, and to build their own Proletarian State organisations in opposition to it.

If workers are not to be isolated in such a strategy, then it is clear that workers cannot in these struggles within their own national boundaries. Workers need to build their own Co-operative enterprises across Europe, that by their very existence begin to break down national borders, in a way that the bureaucratic EU never can.

But, by the same token, and because Marxists do not see economic crisis as in any way desirable for the workers struggle, neither are we indifferent to the kinds of economic policies pursued by Governments either. Marxists, are not Keynesians. We do not believe that Capitalism can be turned into a crisis free system, by clever state policies. But, that does not mean we are politically indifferent as to whether that State undertakes Keynesian stimulative measures as opposed to Austrian measures of a Balanced Budget! Those who oppose calls for Keynesian stimulus at the moment, because it does not conform to the “purist” notions they hold about only Socialism being the solution are the same as those criticised by Marx - Political Indifferentism – here. Of course Marxists believe that many reforms are not the solution to the workers problems, and we have a duty to say so, even as we support the workers as they advance their struggle for them. But, only an inveterate sectarian would outright oppose the struggle for such limited solutions by the workers, precisely because as Marx says,

“It cannot be denied that if the apostles of political indifferentism were to express themselves with such clarity, the working class would make short shrift of them and would resent being insulted by these doctrinaire bourgeois and displaced gentlemen, who are so stupid or so naive as to attempt to deny to the working class any real means of struggle. For all arms with which to fight must be drawn from society as it is and the fatal conditions of this struggle have the misfortune of not being easily adapted to the idealistic fantasies which these doctors in social science have exalted as divinities, under the names of Freedom, Autonomy, Anarchy. However the working-class movement is today so powerful that these philanthropic sectarians dare not repeat for the economic struggle those great truths which they used incessantly to proclaim on the subject of the political struggle. They are simply too cowardly to apply them any longer to strikes, combinations, single-craft unions, laws on the labour of women and children, on the limitation of the working day etc., etc.”

Marx and Engels in their debates with Weston and others described at length the reasons why strikes and other economic struggles by workers were a dead-end, why ultimately Trade Union struggles would lose, and could only ever achieve wages and conditions for workers that competition between Capitalists would itself have brought. That in no way meant that they were indifferent as to whether workers fought back through those Trades Unions, and via strikes! They believed that Capital and its State would never allow workers to simply develop their Co-operatives until they replaced Capitalism. But, they still argued passionately that workers had to build those Co-operatives. Marx in Capital describes the way the capitalists avoided the laws set down in the Factory Acts, that did not mean he was opposed to workers struggling for those acts. Keynesian intervention cannot resolve the contradictions of Capitalism, but at specific times, it can cut short recessions, and that is in the workers interests. So why would workers not demand it is implemented as an alternative to Cuts.

And, in fact, some sections of the Left, have a totally illogical attitude in this respect. In an article in this week's Weekly Worker - Keynes The Great Saviour & His leftwinger Converts - Jack Conrad has written just such a piece. It tries to deny that Keynesianism played any role in the Long Wave Post War Boom. Ernest Mandel, in his book “The Second Slump” has demonstrated that such an argument is not sustainable. Jack argues,

“Marxists - authentic Marxists, that is - would first and foremost look to the horrendous destruction of capital in Europe and Japan during World War II and after that the replacement of British by American hegemony. That surely explains the 25 years of economic growth, not the “technical tricks” of Keynes.”

Marxists – authentic Marxists that is, of course – would not claim that Keynesianism was responsible for the Boom, but that is not the same thing as saying it played no part! But, the argument that the Boom was due to the reasons Jack sets out is rather bizarre, not to say contradicted by the facts. The most obvious question to ask is, if that is the case, why then was the massive, possibly even more massive in proportional terms, destruction of Capital, that accompanied the First World War, and was, if anything the moment when the US really replaced Britain as top dog, not followed by a similar prolonged boom? In fact, it was followed not by a Boom, but the prolonged Long Wave downturn of the 1920's and 1930's!! Secondly, that downturn was already showing signs of ending by the late 1930's. At that time, even in Britain, the new dynamic industries that provided the basis of the Post War Long Wave Boom – automobiles, consumer electronics, pharmaceuticals, and petro-chemicals – had begun to develop and provide workers with stable, well paid jobs in parts of the Midlands and South-East, and in these newly developing areas, new building techniques were being used to develop suburban areas, where these workers for the first-time began to become owner occupiers.

Its actually not clear that there was significant Capital destruction in Britain during the War. There was certainly a lot of old housing destroyed in Britain and Germany, but that is not really the same. The country that grew most after WWII, and which had grown most prior to WWII, was the US, which not only suffered no attacks on its mainland, and no destruction of its Capital Stock, but which during the War had been able to grow its economy, and its Capital Stock by a significant degree.

But, even were that not the case, the rapid economic growth that occurred in the post war period went way beyond any possible destruction of capital that might have occurred, as the boom saw a massive expansion of fixed capital, a large increase in the number of workers employed, and a massive rise in living standards.

But, this denial of the role of Keynesianism in the post war period is just the basis for arguing against demands for Keynesian stimulus now. Yet in reality, the Weekly Worker DO argue for Keynesianism. As Jack describes, Keynesian stimulus works by the State spending more money than it takes in in tax. It uses this deficit to stimulate demand in the economy. But, the reality is that the UK like most other economies at the moment – apart from dynamic economies like China, India and so on – IS running a deficit, and quite a large one at that. In other words, the current Government IS using Keynesian demand management. So too, actully did the thatcher Government during the 1980's. What is really at issue at the moment is, therefore, not whether the State should use Keynesian Demand management, but how much of it should be used. What should be the balance of how the State intervenes in the economy to provide stimulus, Keynesian fiscal stimulus, or Friedmanite, Monetarist stimulus.

But, if we look at the Weekly Workers actual positions when it comes down to it, the Weekly Worker is quite clear that it opposes the current austerity policies being pursued in Britain and other European countries. In another article in this week's WW - Economic Crisis Rewarded For Services Rendered – Eddie Ford writes,

“the Eurocrats almost seem hell-bent on destabilising the imperialist system with their plainly suicidal austerity politics and irrational voodoo economics.”

It is quite clear from this and many more WW articles that when it comes down to it, they are opposed to these austerity measures, they are opposed to the State reducing the amount of Keynesian fiscal stimulus it is providing to the economy. In other words, they too are in favour of more rather than less Keynesianism!

Phew

At exactly this time last year I was in Lorca in Spain looking at houses to buy. Watching BBC News coverage last night of the worst Earthquake in Spain for 50 years, I realised what a close call that had been. I could easily have been walking around the town at the time of day. Sometimes you realise how much chance there is in life.

In 2001, my eldest son had gone to study at University in the US, on an exchange. He'd been thinking of going to New York in September, and would have been going around the Twin Towers had he gone. Fortunately, he never made the trip.

The last time we'd been in Spain looking at buying a house was in October 2008. We'd just been looking at some houses, and I'd thought of going back the next day to haggle over prices with the builder. When we got back to the villa we were staying in the news was full of the fall out from the Credit Crunch, so we decided to just enjoy the rest of our holiday instead.

Last year, having looked around we decided that prices in Spain were still way too high. As the Euro crisis broke last year that was proved to be correct, and that crisis still hasn't by any means ended. Its no wonder there are still 1.5 million unsold houses in Spain. There again, it makes you wonder whether any price is low enough to compensate for living in an earthquake zone.

Telling The Truth About Lying

Recently, I've written a few posts about why Capitalism needs to lie to the majority of citizens. On a day when it was reported that Spain's debt ridden Government would be seeking more than 30 billion Euros, to refinance its struggling Cajas, the small regional banks who finance the Spanish property market, and their were rumours that the EFSF, the European bail-out fund, was to issue Bonds in its own name to raise money, and was also to buy the Bonds of struggling peripheral economies, that point was made cystal clear by a contributor to CNBC's European Closing Bell.

Ralph Silva, of Tower Group said that it would benecessary to undertake new stress tests on the European Banks.

If these tests were done properly, he said, then 25% of Banks tested would fail. It was necessary to get a proper picture, in order to know what was needed to sort things out. However, he said openly, it was actually necessary to lie about the results of those tests, for now, because if the truth of how bad the situation is was made general knowledge then, he said, "There was no future"!

Today, CNBC also provided information about the more hidden consequences of the crisis. Ireland is losing One thousand people a week to emigration as a result of the crisis. Until, recently thousands of Irish people and others were flocking to Ireland's Celtic Tiger economy. Now it is transformed from a Tiger to a Pig economy.

Euro Debt

This week has been the first week of the new year that Eurozone economies have gone to the Bond Markets. They seem to have dodged a bullet for now.

Earlier in the week, Portugal, thought to be the next country in the sights of the markets for a bail-out, managed to find buyers for its Bonds, and on its Ten Year Bond maturing in 2020, it managed to sell it with a slightly reduced Yield, 6.716 percent from 6.806 percent in the previous sale in November. The October 2014 bond yielded 5.396 percent, up from 4.041 percent in October's auction.

But, in the weeks preceding these auctions, the ECB had been intervening considerably in an attempt to ensure that the Portuguese debt auction was succesful. One reason for that was the fact, that a much larger Spanish and Italian auction was due just days later. The Portuguese auction was quite small compared with the funding that Spain and Italy need to raise.

The ECB has been buying Bonds in the market for some time, and we do not know how much of the success of the Portuguese auction was due to the ECB buying the debt, by one means or another. But, given the level of intervention to ensure its success, the slightly reduced yield on the ten year from 6.8 to 6.7, is hardly stellar. Moreover, the increase in yield from 4 to almost 5.5% on the 2014 Bond represents an increase of more than 25%!

Its thought that any rate over 7% is crucial, because over this level interest charges become so significant as to make it almost impossible to finance debt out of income. It had been feared that the Yield might have gone over 7%, but even at 6.7%, the interest burden on Portugal is considerable given that it has been hardly growing for the last decade, and the austerity measures introduced by the Government, far from improving that situation are sending its economy back into recession.

In fact, Portugal's problems contrast with those of Spain. Portugal did not run up a massive deficit as other countries did. Its problems arise not from accumulated debt, but from a stagnant economy, unable to cover the debt it does have. Although, Spain, as a much larger economy than Portugal, has some advantages, and its economy grew rapidly over the last ten years or so, in some ways its problems are greater. A large part of the growth it enjoyed was based on a bubble in its property market, which sparked a boom in its construction industry. The property market is no longer bubbling up, and with 1 million empty houses, its cosntruction industry come to a grinding halt, and is one reason that Spain's unemployment rate is at depression levels of 20%, and youth unemployment of 40%.

In an interview with CNBC, Spanish Finance Minister,Elena Salgado, said,

" “We are confident on them because as you know we have gone through a big strong restructuring process, we have gone from forty-five savings banks to seventeen and of course we have gone through a stress test, very tough stress tests I have to say,”,

but, of course, these are the same stress tests that irish Banks passed last year, the same Irish Banks that have now essentially collapsed, and been taken over by the Irish State. She went on,

“Transparency is going to increase because at the end of this month all savings banks are going to say what assets they have,”

“I think you have always to consider the level of our non-performing loans in Spain is very low. The mortgages are paid differently than in other countries, you respond not only with the house but with all the properties you have so this is one of the reasons of course that the level of non-performing loans is very low,"

But, this is reminiscent to the delusions that were perpetrated with the sub-prime crisis. The reality is that although the property bubble has ended in Spain, and there have been some reductions in prices, those reductions do not in anyway reflect the dire state of the economy or the property market. In fact, there is an incentive for the Banks and other finance houses to perpetuate fictional valuations of the property on their books, so long as they can use it to provide a pretence of economic strength, and thereby to continue drawing money from the ECB's funding arrangements. But, sooner or later, the dam will burst on that, and the pretence will collapse. When it does, there will be a rush to get rid of that 1 million empty properties at almost any price, and the assets on the Spanish Banks' books will no longer look very safe. That may not affect the big Spanish Banks like Santander, which operate on a global basis, and have very profitable operations in Latin America, but many of those small cajas that have provided the loans for the property bubble, and which the Spanish government is trying to shore up with mergers and other measures, will be seen to need massive recapitalisation.

That is likely to be on a scale much greater than the recapitalisation of the Irish Banks, and the question is, at a time when the Spanish State is itself facing increasing questions about how it can sustain its own sovereign debt, where will that recapitalisation come from? Its possible that the big Spanish Banks might step in, but the experience of the Finanical Meltdown, shows how easy it is for even solid banks to land themselves in big trouble by taking on the unknown debts of others.

In the meantime, the actions of the European political leaders resemble the moving of deckchairs on the Titanic, as they continue to combine attempts to deny the severity of the crisis with continued wrangling and attempts to obtain political advantage as the price of agreeing to any measure that might actually provide a longer-term solution.

Another Domino Falls

Ireland has eventually faced reality and formally asked for financial support from the IMF and EU. It was only a matter of time. It looks like they will get 15 Billion Euros to go to the State, and 80 billion Euros to go to bailing out the banks, or around 100 billion Euros in total. Most of this will probably come from the 750 billion Euro EFSF set up in the Spring, when the sovereign debt crisis erupted around Greece. Ireland is now the second domino to fall, and the hope of the EU is that this will provide a firebreak to prevent the next domino in the chain Portugal from falling. It seems a vain hope.

As I pointed out a couple of years ago when the Financial Meltdown began Where We're Going,

“The problem that could arise given the scale is that the same causes of breakdown of trust and relations between Banks, which led to the Crunch could simply be transferred to the relations between States now acting as banks. We have already seen that to some extent. It was seen over the actions of the Dutch, Belgian and Luxembourg governments over Fortis. It was seen in the scramble for advantage when Ireland stepped in to guarantee all Bank deposits, threatening a stampede out of deposits in other EU countries. Most classically, it has been seen in the conflict between Britain and Iceland over deposits in Icelandic banks, and which was reminiscent of the 1970’s Cod War. It is certainly the case that some of these banks such as UBS of Switzerland have Balance Sheets bigger than the GDP of their host nations.”

We now have a zero-sum game in much of the global economy. Traders rarely make single bets. They usually work on the basis of what are called "paired trades". That is if the risk/reward ration for one thing has improved whereas for something else it has worsened, then they buy the former, and "pair" this trade by selling the latter. In that way, gains are maximised, and losses minimised. When Northern Rock was nationalised, it became one of the safest places to put your money, because all of its deposits were now guaranteed by the State. When Greece was bailed out, and its need to go to the Capital Markets pushed down the road, by its bail-out, the focus was shifted to the next country that lacked that facility – Ireland. Capital began to flow out of Ireland to the extent of 23 billion Euros, and was likely to increase. Depending on the nature of that settlement, pressure will be relieved from Ireland and be transferred to Portugal. It seems likely that this same procedure will be played out again, and then next in line will be Spain. If I were a Bond Trader, then as soon as it became obvious that Ireland was to be bailed-out last week, I would have been selling Portuguese debt across the yield curve, and possibly Irish Debt at the Longer end, and buying Irish debt at the short end of the curve i.e. Bonds due to mature in the next couple of years. The reason is simple. With the bail-out, Ireland will have no need to go to the market for the next couple of years. That alone means the Supply of short-dated Irish Bonds will fall, and the price will rise accordingly. Moreover, the bail-out means that there is no possibility of default on those short-dated bonds, meaning the risk has disappeared, and with it the risk premium on them. By contrast, Portuguese Bonds have become relatively more risky at all maturities. If the EU has to cover the lending to Greece, and Ireland through the EFSF, by borrowing istelf, then this debt coming to market at some point, will be very secure, and if I were a Bond Trader I might want to keep some reserves to pick up that debt. Finally, having seen that if the Bonds of a country are trashed enough the EU will come in to bail-out that country, thereby removing the growing risk that bondholders were feeling - particularly after Merkel's comments - then there is a massive incentive for Bond Markets to trash the next country in line, in order to force the EU to come in, and back-stop that risk.

I would expect that next week we will start to see already that the spread on Irish Bonds will narrow, and on Portuguese Bonds they will widen.
But, none of this provides any real solution, in fact, it compounds it. We have had 750 billion set aside in the EFSF, we have had a large chunk of that set aside for Greece, now we have another 100 billion set aside for Ireland, the figure for Portugal is likely to be a similar amount. The trouble is, a hundred billion here, and another hundred billion there, before you know it, you're talking about serious money! And that serious money is being drained from one pot only to temporarily fill another. The real solution is not to rob Peter to pay Paul, but to create more value in total. The trouble is that creating more value in the context of an economy needs an approach that is rather more sophisticated than the attempt to apply the principles of running an household budget that the Tories and the Right-Wing Populists want to use.

There are two basic things required. Firstly, the debts have to be monetised. In other words, the EU, just as with the UK and the US (the US has already been doing this with QE), has to print money to pay the creditors. Households can't do that without risking being sent to gaol for forgery, or passing a false instrument. But, printing money itself is not a solution. Paper Money itself is not Value, it is only a representative of Value contained in the Money Commodity – usually Gold - which itself can only circulate as value within the economy to the extent that it can exchange with equivalents. That is, real value is created by increasing the quantity and value of commodities circulating in the economy, more cars, TV's, machines and so on. In a Capitalist economy that only happens when the Capitalists believe they can make profits from doing so, a basic condition for which is that there is adequate demand for those commodities. The only point of the money printing is to work towards this latter requirement. By clearing the debts in the short term, it provides the basis for Money and Credit to circulate in the economy. But, that will only happen if people are confident to spend on consumer goods, which in turn creates confidence for firms to invest. At the moment that is unlikely because Governments like the Tories or their equivalents such as the Tea Party in the US, have scared the shit out of people with their narrative about how bad the situation is, how imminently devastating the deficit is, and how much pain people will have to suffer with Cuts and job losses as a response. The exact opposite is required, and without it, the consequences could be far worse than the picture the Liberal-Tories have been painting.

The fiscal stimulus that the last Labour Government had implemented was beginning to have the desired effect. Unemployment had not risen as much as the pundits were predicting, people were not being thrown out of their houses, and so on. Growth in the economy had started to increase, and as a result the deficit was actually lower than had been anticipated as taxes were higher and welfare payments lower. The same effect could be seen from the fiscal stimulus introduced in the US, in Brazil, in China, and elsewhere. What was actually required was a continuation of that fiscal underpinning of the economy to allow it to gain strength. Then the measures could be put in place to ensure that fiscal responsibility was restored under the more benign conditions of economic growth, and further measures could be introduced to encourage investment in those areas which offer the greatest potential for future development and competition.

What is standing in the way of that is right-wing ideological dogma. As I quoted recently a right-wing commentator in the US summed it up when he was discussing the demands of US Big Business for socialised Healthcare, and the resistance such a rational solution faced:

“The bigger hurdle may be stereotypes. Business's sensible drive to get Uncle Sam to take on more of the health burden will run into the nihilistic (but potent) "big government" rhetoric of the GOP--plus the party's delusion that we can keep federal taxes at 17% to 18% of GDP as the boomers retire. If Republican pols want to help Republican CEOs solve their biggest problems, this caricature of a political philosophy will have to give way to something more grown-up.”

Matt Miller in Fortune

The problem is that popular opinion is rather like an oil tanker, it does not turn on a sixpence. Years of neo-liberal propaganda have conditioned people into the belief that the State is bad, that there has to be balanced budgets and so on. Politicians such as those Miller is referring to, who have to get elected, cannot simply come out and change course if they want to get elected. The example of what has happened to Obama, is a clear illustration of what happens when they do.

As a consequence the domino's are likely to continue to fall, and each one will create a more deafening thud as it lands than did the last.

Is Ireland About To Go Bust?

The Irish Government, this afternoon, announced a tightening of its already draconian fiscal retrenchment. Having already proposed cutting Euros 3 billion from next year's budget, as part of a Euro 15 billion fiscal tightening, it now intends to double this figure to Euros 6 billion out of 2011's Budget, significantly front-loading the cuts.

As part of today's Budget statement, it announced that it sees GDP falling by 2% in 2010, but sees growth of 1.75% in 2011. Although this figure is lower than previous estimates, it is still highly questionable. Ireland and the UK's economies are closely linked with considerable trade between the two. Ironically, both the UK and irish Governments place an emphasis on exports as a means of providing growth, yet both governments are in a process of retrenchment that is likely to place severe limits on any potential growth from trade between the two economies. In the case of Ireland,it is likely to suffer a double whammy, because in addition to suffering its own knock-on effects from a reduction in UK growth following on from the UK Government's austerity measures, it is also going to suffer from a rapidly rising Euro, which is rising as the other side to a significant dollar weakness stemming from QEII in the US, and which saw Gold rise today by more than $40 an ounce!

The Euro is also rising because it is becoming clear that the ECB is pressing on relentlessly with its exit strategy from the monetary easing it introduced as a consequence of the Credit Crunch, and in response to the sovereign debt crisis that hit the PIIG economies in the Spring. Jean Claude Trichet, who is a fan of Austrian economics has an ideological bent towards the idea of monetary stringency. For some months now, the ECB has not been entering the Bond markets to buy up Government debt, which it began to do in the Spring. That is no doubt one reason that the Bond yields on PIIG economy debt has once more risen to those crisis levels.

At the ECB press conference this afternoon, one journalist from the FT asked Trichet, if the fact that the spread between yields on Irish debt and German Bunds was now as wide as that in the Spring between Greek Bonds and German Bunds, meant that Ireland would now have to be bailed out, in the same way that Greece had been. Trichet failed to answer referring questioners to the fact that the Irish Government would be making a Budget statement later in the day. He did, however, say that the Euros 15 billion of cuts already proposed by Ireland would not be sufficient to deal with its crisis! For now Ireland can get by. It does not need to go back to the international Bond Markets to raise money until next Spring. But, it is becoming clear that with the current - and rising - interest rates it is being asked to pay to raise money, it will not be able to raise money on international markets. It will be forced to either raise money through the EU facility, or else by going to the IMF. There seems little point in waiting until Spring to see if that situation changes rather than addressing this problem now. That is all the more the case given that it is not just ireland facing this problem. There is still a strong likelihood that Greece will have to restructure its debt - meaning it will effectively default on some debts coming due, and have to ask lenders to agree to roll over the payment date - and yields on the debt of Portugal are also rising. For now the pressure on Spain has reduced, but with more than 20% adult unemployment, and 40% youth unemployment, with an economy that was dependent on an inflated property market and construction that has collapsed, the resolution of other matters means that attention is now likely to turn back on peripheral EU economies like Spain. The more lenders fear one or more of these economies may default or restructure their debt, the more such a consequence is likely to show up the Bank Stress Tests as being a sham, the more slowing economic growth, and the pressures arising from a strong Euro, increase the likelihood of further bad debts being racked up by banks, the more those lenders will look to increase the risk premiums demanded, or else will begin to withdraw their funds from those dodgy economies, and look for safe havens in the Bonds of economies such as Germany and the US, increasing the yield spread even further, or will look to other safe haven assets such as Gold - one reason why it rose $40 today, and is forecast by some Gold traders to reach $2,000 (up 50%)in the next 6 months or so.

Ireland was one of the Tories poster children only a few months ago. They touted it as an example of the beneficial effects of cutting hard and fast. They don't mention it today. Its become like the mad relative kept in the attic. But, Ireland does provide an example of where the Liberal-Tory policies lead. They lead necessarily to an undermining of the economy, and the potential for growth. In so doing they undermine the very basis of resolving a debt crisis by sensible means, and instead lead to a self-reinforcing spiral of decline, whereby declining tax take and increasing expenditure raise the deficit, and cause concern in international Capital markets, and which in turn once that route has been started down becomes impossible to get out of, because a reversal of policy is seen as policy weakness and indecision. It is illiterate economics.