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Euro crisis: workers vs Austerity

Pam Frache

November 20, 2011

For the past month, all eyes have been fixed on Greece. At the beginning of the month, economic data confirmed what ordinary Greek workers already knew: that the austerity imposed on Greece was making the economy worse, even by capitalist standards.

Markets fell into a tailspin with the realization that Greece—a small country comprising less than two percent of the eurozone economy—would likely default on its debt, despite the 21 per cent “haircut” in profit that lenders agreed to accept back in July.

The eight billion Euro installment of last summer’s rescue package was immediately postponed, while European leaders scrambled to find a solution. Knowing that Greece was expected to “run out of money” by mid-November, the markets reeled.

So, when the European leaders emerged in mid-October with a new rescue package—one in which private lenders would accept a 50 per cent cut in profit on Greek debt in exchange for deeper cuts to workers’ living standards—German Chancellor Angela Merkel proclaimed that the new deal would enable Europe to turn itself back into a “union of stability.”


But Greek workers had other ideas. On October 19, public and private sector workers launched the largest two-day general strike to date. On October 20, while the Greek parliament voted on new measures that would see 30,000 more public sector workers sacked and a suspension of collective bargaining agreements, hundreds of thousands demonstrated outside. Police used tear gas and rubber bullets against the workers. And although the bill won initial approval, the details of the measures would have to be debated and voted upon in the days and weeks to follow.

This is the backdrop to Greek Prime Minister George Papandreou’s sudden announcement that he would put the austerity package to a referendum. The announcement that the deals cooked up by the financial elite of Europe could be subjected to a democratic vote threw the markets back into turmoil, knowing full well that the vast majority of Greek society opposed austerity. Merkel and French President Nicolas Sarkozy declared that any thought of rejecting the austerity package was tantamount to exploding the whole of the eurozone and would not be tolerated. To reject austerity would mean Greece’s expulsion from the Euro and—knowing full well that public opinion polls showed mass opposition to austerity but support for staying within the monetary union—Papandreou agreed that this would be made clear in any referendum. This was a high stakes gamble to try to cudgel the Greek working class into accepting austerity.

But the ruling classes are so fearful of Greek workers that even a referendum was too much to stomach. Calls for Papandreou’s resignation and for new elections grew. Within days, the referendum proposal had been scrapped and Papandreou’s survival in a confidence motion on November 4 proved pyrrhic.


Over the next 48 hours, Papandreou was forced to announce his resignation to pave the way for a new government of “national unity” prepared to implement austerity on the scale demanded. The new coalition would be conducting elections in mid-February. The right-wing New Democracy party – rejected by voters just two years ago – has agreed to join the coalition government, along with the far-right LAOS party. So far, the leftist parties have vowed not to join the new government. Lucas Papademos, a former European Central Bank vice-president and former governor of the Bank of Greece, was named prime minister of the coalition government on November 10.

While European rulers hope that the new coalition will be able to implement austerity package, it is equally clear that Merkel’s hope of restoring Europe to a “union of stability” may be far more elusive than she, or other European rulers, imagine.

Capitalist crisis spreads to Italy

As the world’s attention turns from Greece to Italy, it is clear that the European debt crisis is far from solved. No sooner had the markets absorbed the news that the Greek rescue package would not be subjected to a popular vote than the bond market vultures began circling over Italy.

Panic is palpable. British Prime Minister David Cameron warned that the eurozone would collapse unless the European Central Bank (ECB) takes more powers to buy the bonds of countries with high debt and who are vulnerable to interest rate increases.

By November 7, the interest demanded on Italian debt had soared to the highest levels since Italy joined the Euro—6.69 per cent. In response, the 17 finance ministers of the eurozone convened an emergency meeting in Brussels in an attempt to “to stop the rot” with Italian bond yields. European leaders are worried that if bond yields keep increasing as they did for Greece, Italy may be forced into default, creating a situation in which there simply isn’t enough money to save the system. Italy has the eigth largest economy in the world and the fourth largest in Europe.

Interest rates (bond yields) increase when speculators believe it is more “risky” to lend money. To put it in perspective, Germany is currently paying about 2 per cent on its debt (bonds) while Greece is paying over 18 per cent.

The annual interest currently being paid by workers in Greece has nearly doubled from about 10 billion Euros in 2007 to 18 billion Euros today. This interest is being paid to bankers primarily in Germany, France and Greece itself. The rescue packages are designed to rescue the bankers – not Greek workers.

In the meantime, Italy, Spain, Portugal, Greece and even France are considered to be vulnerable. And as bond markets target one country after another for higher bond yields, it makes it even more difficult for those countries to meet their debt obligation. In order to head off the market response to Italian “risk”, the calls are growing louder for all Eurozone countries to step up to the plate to buy bonds from countries that are vulnerable to interest rate hikes, in order to avoid a catastrophic situation. Even China—with its sovereign wealth funds—has been asked to help keep the eurozone afloat by pitching in.

It is growing increasingly clear that even with the most vicious and draconian austerity measures, these countries’ debts will never be paid off. But that isn’t necessarily the point. Bankers want stability so workers will continue to pay the interest that makes the financial sector so fantastically profitable. It is up to workers in Europe and around the world to say: “Enough!”

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