The PIGS and the EU

The poorest of the rich

A volcanic eruption may have created a physical cloud of dust over Europe, however, it has been the events in Portugal, Spain but particularly in Greece, that are really haunting Europe and which make the talk of economic recovery sound decidedly hollow. Kevin McLoughlin looks at the prospects for the so-called poorest of the rich.

The crises in the three southern european countries have deepened due to huge debt and budgetary problems. In turn, all three, under the lead of their respective “social democratic” governments, are imposing unprecedented cuts and austerity programmes which have provoked angry, mass responses from the working class.

At this stage, it is the crisis that has engulfed Greece which constitutes the most clear and present challenge to the policies of the EU, the euro and EU integration itself. Far from resolving the problems, the €45 billion bail-out plan agreed between Greece and the EU at the end of March is also likely to go up in smoke.

Southern Ireland is the other country that makes up the now much used PIGS label (Portugal, Ireland, Greece and Spain). Sometimes Italy is included to make it PIIGS.

The fact that the bond markets refer to these countries as PIGS isn’t just a comment on their credit “worthiness”. It is a disgusting example of the contempt and complete disregard that those who caused the global crisis have for working people and the poor, their victims!

At the same time, being labeled as one of the PIGS is an incredible fall from the dizzy heights of the Celtic Tiger for the capitalist establishment in Ireland once the key part of the “Arc of Prosperity” stemming from Ireland to Norway and on to Iceland. Now Ireland is the start of an “arc of poverty” going the other way, ending in Greece via Portugal and Spain.

In truth, Ireland is just being reconnected with the poorer countries of southern Europe which it had been compared to in the 1970s and 1980s. While Southern Ireland joined the EU in 1973, in advance of the other so-called PIGS countries, fundamentally there has always been a similarity between the four, stemming from the traditional weakness of capitalism in these countries. Each of the four countries also has a very rich tradition of industrial militancy, with the southern countries also having a tradition of recent revolutionary struggle.

Militant revolutionary traditions
Portugal, Greece and Spain, under the impact of the first major postwar economic crisis, all emerged out of military dictatorships on the basis of revolutionary struggles of the workers and youth between 1973-75. Due to a lack of revolutionary leadership, these movements didn’t result in a defeat for capitalism but saw the rapid emergence or re-emergence of the mass social democratic parties in the form of the PS in Portugal, PSOE in Spain and Pasok in Greece.

With the historic election victories for PSOE in Spain (1982) and Pasok in Greece in 1981 on the basis of promising socialist policies and socialist change, all three countries had experienced social democratic governments.

However, betraying the movement that propelled them into office, none of these parties were prepared to break with the capitalist market or their respective capitalist classes and quickly, in the context of the economic crisis, imposed terrible attacks on the living standards of the masses.
That the PS, PSOE and Pasok are back in power is a reflection of the deep seated hatred amongst the working class for the parties of the right and the yearning for an alternative, in the context of profound economic crisis. However, there are no longer serious or deep illusions in social democracy. That they are back in power also shows that lack of real choice for the working class as a result of the lack of new mass socialist parties as an alternative to ex-social democracy.

The PIGS and the EU
Greece joined the EU in 1981, with Spain and Portugal both joining in 1986. All three are part of the sixteen state eurozone area. Like most countries, the establishment in Greece cooked the books in order to be able to meet the financial and economic criteria to join the EMU just before the start of the century.

The inability of countries to develop on the basis of capitalism and the inability of the EU to be a greenhouse for development are both exposed by the crisis which is engulfing the PIGS. EU membership was originally sold in these countries, and resold again and again when new treaties needed to be agreed, as a step to economic development and moderisation.

Yet twenty five and thirty five years after joining the EU as “the poorest of the rich”, these four countries are still the poorest and are facing austerity and insolvency. In truth, these countries have always tended to have the lowest wages in europe and the poorest public services. The booms in Ireland and in Spain may have temporarily obscured this economic reality but in Portugal and Greece, the weakness of capitalism has always been apparent for the working class.

The PIGS were by-passed by the postwar boom and never developed a strong industrial base through investment. Eighty percent of the Greek economy is accounted for by services. The booms in both Spain and Ireland were increasingly dominated by consumer spending, credit and property bubbles, as opposed to a qualitative development of investment and manufacturing industry. The lack of an industrial base is a factor in their debt crises but will be a key reason why these countries will not be able to escape from this black hole pulling them down.

The current crises and austerity
The current situation in the four countries is strikingly similar. All have budget deficits which are between 9% – 14% of their Gross Domestic Products. They have had to borrow increasing amounts on the international financial markets in order to be able to fund day-to-day state expenditure, as tax revenues have been hit by the recession and the cost of borrowing has risen. In the case of Greece, part of the problem is that the figures for the national finances were falsified over a whole period.
To appease their creditors and to convince them that the money will be repaid, all have embarked on huge austerity programmes, supposedly aimed at getting their budgets under control within two to three years.

In Spain, Prime Minister, Zapatero, has launched a programme of cuts worth €50 billion over the next two years. In Greece, the Pasok government, which only came to power in the second part of last year, has already announced draconian cuts of over €20 billion in a country of less than 12 million people.

In all instances, the public sector is the prime target. Public services are being butchered. Wages are been frozen or cut. Pensions are being cut and the age for entitlement to state pensions is being raised.

Workers – seeking to fight back
Like in Southern Ireland, in each country there has been instinctive opposition to these attacks from the working class and very angry scenes on mass mobilisations over the last two months in particular. Again, as here, in each case, even though the unions have been forced into action, their response has been weak in comparison to the nature of the attacks and hasn’t matched the desire to fight that exists amongst the working class.

In Portugal, the government says it wants to slash its budget deficit to just 3% by 2013. This austerity programme will have a devastating effect considering that already 20% of the population lives below the official poverty line. March saw 300,000 public sector workers hold a 24 hour national strike, with 80% participation.

Spain, with a population four times the 11 million of Portugal is one of the major countries in europe, with the fourth biggest economy. What happens there will have a profound economic and political effect on other countries and on the EU itself.

The main mood on the regional demonstrations in Spain against the attacks on pensions recently, was one of anger. The demand from the ranks, that the unions should organise a general strike, was a dominant feature of the protests. As well as the anger, there was also a certain lack of confidence and even a pessimism regarding the union leaders and whether the government would be defeated. However, since then, the government has actually been forced to a retreat on significant aspects of their pension reform because of the mobilisations.

The fragmentation of the euro and the EU
The crises in the PIGS are also a crisis for the whole EU and its institutions. It has exposed the true nature of the EU and demonstrated how fragile the euro and the EU is in a serious crisis, as the different capitalist classes act to represent first and foremost their own narrow nationalist capitalist interests.

The EU has become very unpopular in Greece because of its dictats and demands for austerity, coupled with the propaganda that the Greek working class are freeloaders and are living beyond their means.

Neo-liberal EU laws, built up through treaties like Lisbon, are being used to force austerity cuts and curtailments on public service provision. The rules of the Stability Pact, which were relaxed for some, are being used to try to force countries to quickly reduce their budget deficits. Papandreou has stated that Greece has lost national sovereignty. The terms for the bailout for Greece demanded from the EU are more severe than even the IMF had advocated.

The general monetary policies pursued by the EU and the Commission reflect the interests of the richer capitalist countries, particularly Germany, but are a vice grip squeezing the life out of the PIGS and other states in this crisis.

Weaker, less competitive capitalist economies suffer most when a currency is strong, as it tends to choke off the chance of gaining income from exports, as the high currency means exports are more expensive on the international markets. Maintaining a relatively strong euro has been a central plank of EU policy. By now, if they weren’t in the eurozone, many of these countries would have devalued their currencies to try to off set the crisis and the growth of mass unemployment.

It is also clear that the European Central Bank intends to raise interest rates over the next period and that will make investment more expensive and therefore less likely in the PIGS and will also increase the cost of their debt liabilities and thereby deepen the crisis they face. All these are undermining and chipping away at the EU.

Full economic integration and convergence of the EU has not been achieved and was never possible. While there has been an exceptional amount of co-operation and some integration both economically and politically, the EU has not supplanted the different nation states and the controversy around the Greek bail-out plan clearly showed that there are different capitalist classes, with conflicting national interests within the EU.

The modern EU, which evolved all the way from the Treaty of Rome in 1957, was a serious attempt by the capitalist classes of europe to build an economic, political and military bloc to rival that of the USA, so they could act collectively to safeguard their interests.

When the economy is going forward and markets are developing, different capitalist countries actually have a vested interest in co-operating with each other, to sustain development. However, when there is a crisis (and the current crisis is the worst in history, save the Great Depression) and markets disappear, co-operation tends to be replaced by competition and national tensions between the different countries.

While they have invested a lot into the project and there is a vast EU bureaucracy to push for its maintenance, the economic basis at the heart of the EU is being pulled apart and that inevitably will increase disintegration. The worse the crisis, the more the EU will fragment and even collapse.
The sixteen country eurozone is coming under irresistible pressure, with the likely prospect that some countries will be forced to leave the common currency sooner or later. That will be a huge blow to the position of the EU on the world stage. However, the EU and many of the countries will fight to try to hold it all together, but the omens from the controversy surrounding the Greek bail-out aren’t good.

Greek crisis threatens to explode the euro
The EU had to intervene, as the crisis in Greece threatened to undermine the whole eurozone. On the other hand, it was clear from the position of Angela Merkel, that the German capitalist class was only willing to give limited support. Of the bail-out deal that has been hatched, involving the availability of €45 billion, including a third to come from the IMF, Goldman Sachs said that for it to have any chance of working, a wage cut of 15% will be necessary in Greece. They weren’t optimistic about the prospects for the deal.

The international bond markets were making it very difficult for the Greek state to get the credit it needed to function. They did this in part by manipulating the credit rating agencies and then on the basis of a downgrading of Greece’s credit worthiness, the markets could squeeze a higher rate of interest for any new monies borrowed. Greece is being forced to pay 3.5% more in interest for its credit than Germany.

Without credit, Greece faced bankruptcy. Positive statements from the EU that it backs Greece etc cut no ice. That they weren’t prepared to guarantee Greece’s debt meant the markets continued to be free to speculate and profit from Greece’s crisis. That the EU establishment wouldn’t guarantee the debt also shows their lack of confidence in Greece and illustrates the real limitations in the integration of the EU.

On the other hand, at some point,§ the international markets may have refused to give more money to Greece. While that technically may not be a default, such a scenario would also have opened up the prospect of insolvency and profound economic, social and political collapse in Greece.
Economically, this would have been a disaster for the stability of the euro, which would have immediately impacted on all the euro countries. A default could have provoked new banking crises globally, Greece possibly acting, like in the Lehman’s collapse, as a catalyst for new turmoil. Politically, this scenario would have been a huge blow to the EU itself.

German capitalism puts its own interests above those of the EU
Given the seriousness of the situation, it says a lot about the current position of the German government that they delayed, played hardball, altered the plan and involved the IMF in the deal. The involvement of the IMF is a blow to the prestige of the EU and again that Germany pushed for such involvement, illustrates that in this instance their national capitalist interests were much more important for them than the integrity of the EU.

The Greek bail-out, as with the latest bail-out of the Irish banks, is unlikely to work because the economic crisis is likely to get worse, not least because of the effect of the draconian austerity programme itself. Greece is in a debt and budgetary nightmare, pointing towards insolvency and bankruptcy. The crisis in Greece and similarly Spain, Portugal, Ireland and potentially a number of other countries, brings potentially explosive weaknesses into the euro and the EU itself.

Economically weaker countries could leave the euro or even be removed by the more powerful countries, in a vain attempt to save the integrity of the euro or the EU. Clearly economically weak countries are strong candidates for this but for a weaker country to voluntarily leave the euro or the EU, would be a monumental decision. Yes, they could get benefits from devaluation but there is also the possibility that a new currency could collapse in an uncontrollable way. Devaluation could also see a country’s debt increase significantly. So there are pluses and minus and it’s not necessarily a black and white question as to who will break from the euro first.

It’s entirely possible a breach with the euro could also come from one of the more powerful countries, like Germany. The approach that the German government took regarding the Greek bail-out gives a glimpse of how in the future, for its own national capitalist interests, Germany or other states could decide to break-out with a view to re-establishing a strong currency or to try to insulate itself from further economic crisis.

Greece – preparing for revolutionary developments
Greece is centre stage at the moment and the crisis and the events that can develop there should not be underestimated.

The Greek capitalist class consciously didn’t attempt to impose these attacks through the last hated New Democracy government because they feared they would not be able to deal with the explosive response from the working class that would have provoked. They pushed New Democracy into early elections last year knowing that a Pasok victory was likely and that they would have a better chance to launch their offensive through the betrayal of the so-called workers’ party.

The level of the cuts is unprecedented and they have provoked a huge response – three general strikes in the last months – even though the full impact of the cuts has still to be felt. Not only will the cuts devastate people’s lives, they will further pull the economy into a downward spiral of chaotic economic decline. The basis is being laid for huge and more intense confrontations between the workers and the youth on one side and capitalist class and its state on the other.

The general strikes have the support of the working class, although the youth haven’t joined the movement or the actions in a decisive way. At the same time, workers aren’t confident that the government can be defeated or that the union leaders have the strategy necessary or the intention to defeat the government’s austerity.

Likewise, the leaders of the left parties, the KKE (Communist Party) and Syriza, are not galvanizing the movement around definite action to defeat the government. Recently on television, when pushed as to what the movement and workers should do now, the general secretary of the KKE blurted out that nothing could be done and abstractly talked about the need to change the social system!
The absence of a revolutionary leadership, with a clear idea of the struggle and for political action, is the single biggest factor in holding back the working class and the youth in Greece at the moment.
Some small terrorist groups have been established with a support and sympathy of a section of young people. That’s a dangerous consequence of the absence of real leadership and the pushing back of consciousness about politics and how to struggle. It also shows the level of anger amongst young people which could explode in the months and years ahead.

Xekinima, the Greek section of the CWI and sister organisation of the Socialist Party, is an important part of the left-wing of Syriza. Xekinima is pushing for the development of occupations throughout colleges and schools and for the establishment of mass action committees to unite and co-ordinate the struggle amongst the youth and between the youth and the workers.

Xekinima is demanding that the strike actions be co-ordinated. That starting with a 48 hour general strike, action should be escalated and repeated to force the government back. Xekinima is fighting for the establishment of a united front between Syriza and the KKE as the base for alternative workers’ and socialist government. Syriza and the KKE should build a mass movement around a programme of opposition to paying the national debt, nationalisation of the banks, ending the bosses’ tax avoidance and massive state investment in health, education, housing and infrastructure.

If a politically powerful and cohesive revolutionary movement, with a strong base existed now, the workers and youth movements could be brought together and strengthened and Greek society could be on the cusp of the early phase of a revolutionary period. Xekinima is urgently striving to build a revolutionary movement in Greece in preparation for the explosive events in the months and years ahead.