Throughout Europe, manufacturing output is in decline while unemployment continues to soar. The effects of deep cuts across Europe has undermined demand and consumption, causing sections of the capitalist classes internationally to question and oppose the policy of “cutting your way out of recession”. Worryingly for the world economy and especially Europe, the German economy “grew” by only .1% between April and June as a result of a slowdown in manufacturing – an international phenomena. Due to falling consumer spending in Europe and the US as well as attempts by the Chinese government to cool down overheating in the property market (a massive bubble), Chinese output has also slowed. Manufacturing has contracted in China for the past three months, causing nervousness on markets that the world economy faces falling back into negative growth. Prices of commodities such as steel have plunged in recent weeks out of fear of a downturn.
Long-term Mass unemployment
Despite a massive stimulus package, Obama finds himself entering a presidential election year being haunted by rising unemployment. Since the start of the “Great Recession” in 2007, the number of people of working age in the US has risen by 7 million. Yet the number of jobs in the US since then has shrunk by 300,000. In August no new jobs were created, leading to some capitalist economists such as George Soros to conclude that the US has already entered a double-dip recession. With falling consumer spending in Europe and the US, and the threat of a fresh wave of banking crisis resulting from a default by Greece which could also be followed by a speculative run on Ireland, Portugal and Italy, capitalist governments and the “markets” are extremely nervous.
The failure of austerity to resolve the debt crisis in Greece has opened up divisions amongst the capitalist class, with the IMF in favour of extending loans to Greece and other debt countries and promoting “growth friendly” policies.
A default by Greece is now recognised as inevitable – the only argument is whether it is possible to plan an “orderly” default or not. But what is seriously horrifying the markets is the threat of Spain or Italy defaulting. Italy has recently been forced to accelerate austerity measures under pressure from US and Europe in order to make a dent on its deficit. The current size of the European Financial Stability Facility (EFSF) – €440 billion – which caused real divisions between European states, in particular opposition from Germany, does not come near to covering the cost of bailing out Spain or Italy. A default by these major players in Europe would see the end of the eurozone as it currently exists – a nightmare for the European capitalist class. But even the latest proposal to extend the EFSF to €2trillion would not even cover the deficit of Italy which stands at €2.3trillion! It is these nightmare consequences which has the European establishment considering fresh bail-outs of the banks – as much as €500billion – in order to encourage lending between banks and avoid a credit crunch mark 2.
Capitalism has no solution – socialist measures needed
It is clear, no matter where capitalism turns there is nowhere to run. The room for manoeuvre is shrinking. No matter what they do, one thing is guaranteed – the working and middle classes will be expected to pay, not the super-rich who have seen their wealth increase during this recession! The only way forward is to take the wealth which is currently in the hands of a tiny minority into public ownership under democratic control and use the wealth to invest in production to get people back to work and to stimulate real economic growth. Only a socialist plan of production can begin to offer a real future – one where people are guaranteed decent jobs, services, homes and a healthy and peaceful existence.