European Union, banks ramp up pressure on Greece’s Syriza government

By Stéphane Hugues
April 17, 2015
Worls Socialist Web Site

 

Greece’s Syriza government is responding to increasing pressure from the European Union (EU) and the banks by looting Greece’s financial reserves and preparing further austerity measures against the working class.

On Wednesday, the US credit rating agency Standard and Poor’s again downgraded the Greek government’s credit rating to junk status, from B- to CCC+, citing the government’s “unsustainable commitments.” The only ways Athens could meet its commitments was by “deep economic reform or further relief,” it said.

Greece’s statistical authority said the 2014 deficit was 3.5 percent of Greece’s GDP, considerably higher than the 0.8 percent forecast. This deficit was due to the cost of servicing Greece’s crippling public debt, without which it would have had a budget surplus of 0.4 percent of GDP.

Standard and Poor’s said Greece’s economic outlook depended on it reaching a political settlement with its creditors: “In our view, these conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the almost three-month-old Greek government and its official creditors.”

Syriza’s response is to intensify its attacks on the working class to pay off the EU and the banks. In recent weeks, it has been forcing state organizations and companies to lend it money to pay the debt installments. It has forced state pension funds to lend pension money and taken funds from hospitals earmarked to pay for patients’ medication, effectively turning itself into a collection agency for the EU at the expense of the Greek population.

Now, it has found a new way to open up all of the cash reserves of all state organizations. According to a 1951 law, the government can oblige all state institutions with cash reserves to place them in the Bank of Greece, the country’s central bank—giving the government access to funds of up to €3 billion to pay off its creditors. With Athens facing over €300 billion in debts that it has to repay, however, this is clearly only a stopgap measure.

Greek Minister of State Alekos Flambouraris said Wednesday that Athens can now afford delays of “a week or ten days” in reaching an agreement, so long as an agreement is eventually struck.

Syriza’s reactionary policies are exposing the illusions it promoted in the run-up to the January elections that it would be able to negotiate an end to austerity with the EU. Only a few weeks after taking office, however, Syriza’s leader, Greek Prime Minister Tsipras, totally betrayed its electoral program, accepting EU demands not only to continue to pay back the debt but to deepen attacks on the population.

However, the EU led by Germany were not content with a statement from Syriza indicating its general agreement with EU austerity policy. They are demanding detailed plans for more austerity measures, specifying exactly what Syriza intends to cut and how many hundreds of billions of euros it will extract from the Greek workers. Since then, negotiations have dragged on behind closed doors, as Syriza and the EU attempt to resolve their differences and attack the workers.

EU officials are also pushing for an agreement on deeper austerity, though German Finance Minister Wolfgang Schaeuble specified a longer time line for a deal than Flambouraris. He told Bloomberg News, “Greece has until the end of June to come to an agreement.”

He poured cold water on expectations that the EU will reach a settlement with Syriza when all 19 finance ministers of the euro zone countries, including Greece’s Yanis Varoufakis, meet on April 24 in the Latvian capital, Riga.

Schaeuble, who has been leading the EU offensive, is touring the United States amid what are evidently high-level talks in foreign policy circles over Greece, the euro zone, and the NATO military alliance. “No one has a clue how we can reach agreement on an ambitious program,” Schaeuble told the Council on Foreign Relations in New York. He added that the new Greek government had “destroyed” all the economic achievements of the last years.

He said a deal was not only unlikely in Riga but also in the coming weeks and suggested that the euro zone could handle a Greek default, even though it would prefer to avoid it, noting that the markets had “priced in” all possible outcomes to the Greek drama. He blithely asserted that there is no risk of financial panic spreading to other euro zone states from a Greek default.

In a further sign that German authorities are considering the possibility of a Greek default, the German weekly Die Zeit reported that Berlin is working on a plan allowing Greece to receive financing from the European Central Bank even if it missed payments to creditors.

“The plan under discussion is aimed at allowing the ECB to continue financing of Greece in the event of bankruptcy,” the Zeit article said. “In addition, Greek banks would be restructured, allowing them to continue to take part in central bank operations even after a state bankruptcy.”

The divergences between the different EU governments are all, in the final analysis, about how the working class is to be looted. Were the Greek state to be placed in bankruptcy, its creditors would insist on new, savage cuts to Greek social spending and state budgets, beyond even what six years of austerity since 2009 has inflicted on the Greek working class.

As Syriza carries out more and more new austerity cuts, these will produce social explosions in a working class that has already suffered so many privations.

Yesterday, 4,000 gold miners demonstrated against losing their jobs in front of the Ministry of Productive Reconstruction, Environment and Energy in Athens. The Greek government’s expressed intention is to stop work at the Hellas Gold mining operation in Skouries in northern Greece, over environmental concerns.

Syriza is stepping up pledges and threats to use police action in face of social protests. It is currently threatening to forcibly smash an occupation of the Athens University rectorate by an anarchist group. Deputy Citizen Protection Minister Yiannis Panousis has already stated: “We are in the last hours of the seizure of the Senate.” He claimed he had got the “green light” from Prime Minister Alexis Tsipras to send in the riot police.

Political instability and global slump intensify financial turmoil

By Nick Beams
January 7, 2015
World Socialist Web Site

 
The year has opened with turbulence on world financial markets, reflecting the interaction between deepening slump, heightened geo-political tensions and growing political instability in virtually every country.

The mounting problems in the global financial system are expressed most directly on Wall Street, its apex. US equity markets are on course to have their worst start to the year since 2008. That year culminated in the global financial crisis set off by the collapse of Lehman Brothers in September.

Yesterday, the Dow was down by 130 points—a decline of 0.8 percent—following a 331-point decline on Monday. The more broadly based S&P 500 index has likewise fallen over the past two days, with markets in Asia and Europe also sharply down. Tuesday saw a “flight to safety,” with soaring demand pushing the yield on US ten-year Treasury bonds below 2 percent.

The most immediate factor behind the fall on Wall Street was a further decline in the price of oil, with West Texas intermediate falling below $50 per barrel and Brent, the global benchmark, approaching that level. Since June, the price of oil has declined by more than 50 percent.

The oil price decline is itself the outcome of two processes: the attempts by the US to inflict economic damage on Russia, as it imposes sanctions cutting Moscow off from financial markets and seeks to use plummeting oil prices as a club, and the deepening recessionary trends in the world economy.

Summing up the situation, Financial Times columnist John Plender wrote that the world “has been prey to the growing problem of deficient demand, leading to deflation,” while the US has been growing too slowly to provide a foundation for global growth.

“This is a fearful world in which geopolitical risk, competitive devaluation and protectionist pressure could bring a descent into intractable deflation and long-depressed yields in the absence of robust policy,” he warned.

However, there is no evidence of such a policy anywhere on the horizon.

The euro zone is on the edge of its third recession since the financial crisis of 2008, amid increasing deflationary pressures. Figures to be released later today are expected to show almost zero inflation, with some predicting that the number will be negative.

The eyes of financial markets are turned towards the meeting of the European Central Bank (ECB) Governing Council on January 22 in the hope that the central bank may embark on expanded quantitative easing, involving purchases of government debt, in an attempt to stem deflationary pressures.

But a survey conducted by the Financial Times of 32 euro economists found that while most expected the ECB to step up its intervention, few believed the move would revive the euro zone economy.

In the wake of the financial crisis of 2008, China provided a stimulus to global growth as the government embarked on a major spending program and expanded credit. But China now faces the prospect, for the first time since the recession of 2009, of a fall in its growth rate to below the 7 percent level considered necessary to maintain employment.

It has been reported that the Chinese government is considering another major stimulus package to try to arrest the slowdown, but any such measures will only add to concerns about the level of Chinese debt.

In addition to recessionary pressures reflected in the oil price decline—a slump that is reflected across a broad range of industrial commodities, including iron ore—another major factor impacting financial markets is the prospect of a financial and political crisis in Europe following the Greek elections on January 25.

Polls indicate that SYRIZA (Coalition of the Radical Left), which has called for “renegotiation” of the Greek debt bailout package, could obtain the most votes and be called on to form the next government.

A report published in the news magazine Der Spiegel over the weekend made it clear that the German government of Angela Merkel will not tolerate any renegotiation of Greek debt and is prepared for a Greek exit from the euro zone. While the Spiegel report cited government sources who said Germany would be able to “handle” a Greek exit, no one knows what the consequences would be.

The Greek election is only one expression of growing instability across Europe that could lead to the break-up of the common currency. This would have major political consequences because the measures taken to foster European integration, reaching back to the early 1950s and culminating in the common currency, were never simply about economics but were aimed at preventing the eruption of major power tensions that led to two world wars in the space of a generation.

Those tensions are once again clearly in evidence. The governing council of the ECB is wracked by deep divisions, with German representatives opposed to further extensions of quantitative easing, above all, the purchase of sovereign debt.

The Greek election is to be followed by elections in Spain and Portugal where there is intense hostility to government austerity programs that have produced conditions not seen since the Great Depression of the 1930s.

The deepening political malaise was reflected in a column published in yesterday’s Financial Times by foreign policy correspondent Gideon Rachman, in which he pointed to the loss of confidence in the strength of “the three props on which the post-cold war order [had] been constructed: markets, democracy and American power.”

Faith in free markets had been shaken by the events of 2008 and the Great Recession that followed, and while American power had demonstrated its capacity to destroy regimes, it had failed to provide stability.

“Just as troubling,” Rachman wrote, “is an emerging loss of faith in the ability of established democracies to deliver competent government. In the US, respect for Congress is at near-record lows,” while in European states “the political system seems incapable of delivering reform or growth—and voters are flirting with extremist parties.”