We are pleased to publish this contribution from Robert Injey (PCF). It is clearly ‘out of chorus’ (dissident voice). Given the prevailing conformity…
Why the crisis?
After the financial crisis of 2009, countries intervened financially and very massively to save the banking system, getting heavily into debt in the process.
Today, the very same entities that were at fault for their lack of foresight in the face of the obvious (rating agencies, for example) are now lecturing the states. The markets, whose greed plunged us into the crisis, are now demanding austerity measures.
Austerity measures aimed at making the people pay for this crisis and reassuring ‘investors,’ that is, guaranteeing them they can continue to gorge themselves at the expense of the majority.
The causes of the crisis are numerous, but we can distinguish four in particular:
- 1: An endemic cause in the system, in its deep logic, is the frantic pursuit of profit.
From colonizations to globalization, from wars to surgical strikes, the “how” doesn’t matter, what counts is “how much” it brings in.
“The pursuit of profit is destructive: it is, as Marx explains, indifferent to use values, that is, to the fate of people and nature” [3].
To meet this objective, after a period where in the wake of World War II the “haves” had to give up a lot, they have relentlessly been regaining ground since the 1970s and acquiring new ones [4].
- 2: States that must resort to banks for financing.
The obligation imposed on the state in 1974, generalized and established with the Maastricht Treaty of 1992, to turn to the private sector for financing needs has dramatic consequences. Previously, the state could borrow directly and interest-free from the Central Bank. This possibility was perceived as a loss of profit by the banks and was prohibited in favor of borrowing solely on financial markets. According to Michaël Chetrit, economist, “the present value of the interest on debt paid to markets since 1974 represents nearly 1,200 billion euros for France,” compared with the 1,641 billion total public debt [5].
This situation allows banks to refinance themselves from the ECB at less than 1% and impose exorbitant rates on states.
Over 4% for France, which nonetheless enjoys a AAA rating from rating agencies, over 6% for Italy, over 14% for Greece [6].
Far from playing a financing role for states, the ECB creates hundreds of billions of liquidity to refinance banks and markets without conditions on the use of these funds [7].
A system that has become completely insidious with the implementation of speculative tools “at work in the 2007-2008 crisis that have remained virtually intact: tax havens, transaction opacity, ‘derivatives’ and ‘short sales’ used in downward-oriented markets, often buying titles back later at reduced prices” [8].
And the motivation of speculators is free of any qualms, “Italy is targeted by speculators who are no longer seeking reimbursement but are betting on its bankruptcy.” (Jacques Attali)
- 3: Explosion of private debt.
Over the past 30 years, the share of wages in wealth distribution has continuously decreased in favor of capital income, which has thus recovered more than 10 points. The result is that “to maintain the level of economic outlets, financial capitalism has generated massive debt of all economic agents” [9] and it has taken precedence over the real economy. According to Jacques de Larosière, former director of the IMF, in 2007 in the US, 40% of profits were made by financial institutions alone.
Private debt (banks, households, businesses) has become gigantic. The American, Irish, Spanish crises are primarily private debt crises, which the bank bailouts have transformed into public debts. “Privatizing profits and socializing debts” is the policy implemented by liberal policies.
- 4: With gifts to banks, gifts to the wealthy.
After reducing the financial leeway of states, after generating massive debt of economic agents, liberal policies have worked to minimize the tax burden on the richest. From tax gifts to reductions in corporate taxes, this policy has cost public finances billions. For France, tax gifts represent 110 billion per year…
The situation is strongly summarized by billionaire Warren Buffet: “While the poor and middle classes fight for us in Afghanistan, while most Americans struggle to make ends meet, we, the mega-rich, continue to benefit from extraordinary tax exemptions” [10].
- What are the consequences?
Caught in a vise between ravenous financial markets and deliberately reduced means of action, states and peoples are bled dry. This automatically leads to:
- 1: States see their public debt explode. For France, it has risen from 14% of GDP in 1974 to 81% today.
This situation is not due to social achievements that are too expensive or even to the weight of the wage bill. No, it is the result of a policy subject to the profitability and profit demands of a minority and the subjugation of much of the political class, on the right, of course, but also on the left.
From this point of view, the statements of candidates in the socialist primary are worrying: they do not emancipate themselves from financial markets [11].
- 2: The vicious circle of austerity and recessions.
Not only have states and central banks had to inject billions of liquidity to support banks and financial markets, but this financial crisis has impacted the “real economy,” leading to recession, unemployment, loss of public revenue, and additional expenses. For example, for France, 1% less growth results in nearly 10 billion less public revenue. In other words, either the deficit worsens mechanically by 10 billion, or employers, the government, and European bodies cut public spending and useful social protection, deepening the economic malaise and the financial impasse!
In 2009-2010, public and social security deficits accelerated due to this lack of revenue, and costly “recovery policies” were largely ineffective as they were mostly absorbed by support for financial markets. We need to break this vicious circle.
- 3: The compression of the purchasing power of the vast majority of workers and their families directly impacts the real economic activity that is stalled, and which the depleted state is unable to offset with an adapted economic policy.
Far from learning lessons from repeated crises and the impasse to which the greed of financial markets pushes us, our political leaders only follow the recommendations of those who have failed.
Recommendations that, despite accumulating errors and failures, continue in the same direction: privatize, dismantle… This is the case of the ECB, which, at the beginning of August 2011, sent a letter to the Italian government demanding “to adopt as soon as possible” measures for “less rigidity on permanent contracts, interventions on public employment, labor contracts stimulating productivity” and the privatization “of municipal companies managing waste, transport, or electricity distribution.”
Cynicism knows no bounds when the head of a rating agency declares: in France, the pension reform of 2010 was “an intelligent measure,” “an example of well-conceived fiscal policy” [12].
- Is it possible to do otherwise?
Listening to and reading the vast majority of the political class and experts, they endlessly repeat the same discourse “reassure financial markets, reduce deficits, make efforts”…
Deciphered it means, “don’t worry, public debts will be honored to the last cent, the problem of the crisis is not the financial markets but the uncertainties posed by the weight of public debt; to solve the crisis, public debt must be reduced, and new efforts must be made, which means privatizing, destabilizing the labor market, reducing social budgets.”
The problem with this reasoning is twofold: On the one hand, its implementation would only increase inequalities and accelerate recession. Christine Lagarde herself illustrates it in her own way when, in an IMF statement on August 16, she asks governments not to slow down global growth by implementing overly heavy austerity policies. Nobel Prize winner Joseph Stiglitz is even clearer: “Strengthening austerity will only slow Europe’s growth and exacerbate its budgetary issues” [13]
On the other hand, this reasoning is based on a false premise: “the crisis is public debt.” Instead of addressing one of the causes of the crisis, we try to act only on one of its multiple effects. Far from solving anything, we let the deep reasons for the crisis persist.
Far from aligning with the diktats of financial markets, there are alternative proposals. They are not given prominence in major media, but they do exist.
- Thus, three strong proposals [14] to break with the spiral of the financial crisis:
-
1: For a moratorium on public debt and a citizen audit on it.
As previously mentioned, since the obligation for states to refinance through financial markets, they have been literally gorging on debt. 1,200 billion euros in debt service, in total actual value, paid by France since 1974; this year it will represent 45 billion euros!
An audit to determine the illegitimate part of the debt, due for example to the bailout of banks and hedge funds, and to decide not to repay this illegitimate part.
The opportunity also to examine the necessary debt restructurings to be undertaken to deflate the financial sphere in favor of the real economy
- 2: For financing the economy and states emancipated from the markets.
To avoid falling back into current drifts, it is necessary to challenge the recourse to markets as the privileged mode of state financing.
It is necessary to return to direct financing of states by the Central Bank. This necessarily entails an overhaul of the statutes and missions of the ECB. Freeing states from the grasp of financial markets means escaping the permanent blackmail they exert. It is about regaining control of a true economic policy.
- 3: For selective credit to the economy.
Closely linked to a new role for the Central Bank, the establishment of a public banking sector favoring a useful and effective funding of the economy towards households and businesses
The objective is to allow very low-interest credit for projects that foster employment, salaries, qualifications, and conversely to set dissuasive rates for speculative operations.
This framework around 3 strong measures will reinforce fiscal reforms, fight against inequalities, and promote the development of employment and new workers’ rights in management.
Similarly, it raises the emergence of new monetary tools, which can gradually replace the dollar in international transactions [15].
- “And now?”
-
Two perspectives open before us.
Either those who failed to “master the crisis” or to “rebuild capitalism,” who showed themselves incapable of “punishing rogue bosses,” curbing speculative practices, or creating any recovery, continue in the same logic. Even under the aegis of a “European governance,” such a policy of submission to the markets will fail, endangering the living conditions of peoples.
Or we commit to building radical political change. This starts by breaking speculation, becoming independent of markets, and getting out of the austerity impasse.
For left forces, it begins by refusing in parliament the golden rule, the results of the European summit in July which are harmful for France (they increase France’s debt by 15 billion) and for the Greek, Italian, Spanish,… people plunged into endless vicious circles of austerity and recession.
The challenge for each of us is not to let ourselves be imposed with choices we do not want. Mobilization, each person’s intervention will be decisive; this is the ambition of the Left Front…
[1] This text does not claim to be exhaustive. It owes much to the editorials and articles by Jean Paul Duparc in the Patriote in July and August 2011, to articles in L’Huma and various press articles.
[2] “Bringing civilization, opening up to the world, right of intervention, clean war…” the system’s warmongers will stop at nothing to justify their control.
[3] Jacques Bidet, Marx International Congress V, October 2007.
[4] In the world dated August 17, a text by Sylvain Cypel reports on the publication of the new book by Jeff Madrick “An Age of Greed: The Triumph of Finance and the Fall of America, 1970 to Present.” The author describes 40 years of confrontations where finance proponents have prevailed.
[5] Libération of July 22, cited in the Patriote of July 28.
[6] To know almost everything about the state debt in France: https://www.aft.gouv.fr/aft_fr_23/dette_etat_24/dette_20_questions_69/index.html
[7] Latest example being the ECB’s purchase of 22 billion euros in public bonds from the….financial markets!
[8] JP Duparc “Le Patriote du 28 juillet
[9] Editorial “Le Patriote du 11 aout jul
[10] Opinion piece in the “New York Times” of Monday, August 15.
[11] There is F. Hollande proposing an amendment to the Golden Rule. There are the recent opinion pieces (Le Monde and JDD) by Martine Aubry where there is nothing about the ECB. Finally, the PS proposal for Eurobonds is a headlong rush into the logic of financial markets.
[12] As a reminder, rating agencies gave Lehman Brothers a good rating just days before its bankruptcy.
[13] Le Monde dated August 17, 2011
[14] Cf J.P Duparc in the Patriote of August 18, 2011
[15] This is only to highlight a few paths.
