Eurozone hits rock bottom

Monetary conjuring tricks are no more the answer to economic crisis than is austerity.

Proletarian writers

Subscribe to our channel

Proletarian writers

Subscribe to our channel

The economic situation in the Eurozone remains desperate: since the crisis that began in 2008, there has been nothing that could be described as anything better than stagnation. For the past six years, the economy of the currency union has contracted more than it has grown, only managing to increase in 2010 and 2011, by a meagre 2 percent and 1.6 percent respectively.

Even Germany, the economic powerhouse of Europe, has seen its economic output shrink in the second quarter of this year – a worrying sign for a country that has been not nearly as badly effected by the crisis as those on the European periphery. Additionally, inflation across the Euro economies has dropped to 0.3 percent, which is worrying the ruling class perhaps more than it has ordinary people, as deflation hits corporate profits by forcing companies to sell products below their value.

The situation has now become so grim that even the ever-positive president of the European Central Bank (ECB), Mario Draghi, has changed his tune. Faced with the absence of any meaningful economic recovery, Draghi and his colleagues are now attempting one last desperate throw of the dice.

In September, the ECB announced that it would cut interest rates to a record low – hitting rock bottom at 0.5 percent. But cutting interest rates alone, and thus providing businesses with cheap cash, has been shown to be thoroughly ineffective in kick-starting a failing economy. While the supply of money for circulation was indeed a problem immediately following the onset of the financial crisis, the fact is that, ultimately, businesses will only invest if they stand to make a profit. The supply of credit is therefore only a secondary consideration to the lack of demand.

As the economist Michael Roberts has pointed out: “the belief of mainstream economics (particularly the monetarist and Keynesian wings) that low interest rates and plentiful credit can get a capitalist economy going continues to be proved wrong. What matters for businesses is whether sales and profits are rising sufficiently to suggest that investment and borrowing is worth doing.” (‘Draghi fights the drag’,, 6 June 2014)[sup][/sup]

Quantitative Easing (QE) – the direct purchase of assets (especially government bonds) by central banks in order to inject money into the economy – is another measure now being considered by Draghi. However, this also does precious little to boost the overall economy, but merely flows into stock and bond markets, benefitting the holders of those bonds at the top layers of society. In Britain, the extensive QE measures already undertaken by the Bank of England have done little for overall economic recovery and have only resulted in a significant upward transfer of wealth. (See ‘Quantitative easing described as “Robin Hood tax in reverse”’, Proletarian, June 2014)

For the mass of workers, the obscurely-named practice of ‘quantitative easing’ is, in fact, a massive rip-off – a quiet pay and pension cut that is effected by artificially increasing the money supply, boosting demand and therefore prices, in relation to which the purchasing power of a given amount of money, in the absence of an equivalent increase in supply of commodities (impossible because of the crisis of overproduction), falls. This simply devalues everything we may have saved and everything we are currently earning.

Needless to say, no-one ever points this out to us in terms we might be likely to understand. We see the resultant inflation and cost-of-living increase, but never realise it has come about as a direct result of the government’s programme of artificially increasing the money supply. Quantitative easing is theft effected on a massive scale. It can, moreover, act as a disincentive to the bourgeoisie to engage in productive investment, since inflation is likely to eat into the value of their returns. All in all, it’s a hiding to nothing and an exercise in burying one’s head in the sand.

Mario Draghi himself does seem to be aware that the currently-proposed measures have their limits, but he remains in the pocket of Germany and Chancellor Merkel, who are very much against loosening the purse-strings to try and boost the economy via more public spending. There is now, however, a growing rift developing between Germany and its satellites on the one hand, which continue to push austerity, and others, like France, that are advocating a temporary boost to public spending in the hopes that this might kick-start the economy.

The problem is that this money has to be borrowed by the government, and the more it borrows, the less credit-worthy it becomes and the higher the interest that has to be paid, leaving the government in question worse off than it was before, and even under threat of sovereign default in many cases.

All the same, even Draghi is beginning to voice opposition to the economic policies of austerity favoured by Germany. Considering all this, it is not hard to imagine the beginning of a break-up of the European Union, or at least of the Eurozone, once the ECB’s latest ‘recession-fighting’ measures turn out to be ineffective – which they most certainly will. Faced with continuing hardship, the poorer countries on the fringes of the union will no longer accept having to de facto prop up the economies of the likes of Germany and their banks by paying them vast amounts of interest in exchange for the loans that have been keeping them afloat.

Whether this happens sooner rather than later very much depends on whether Brussels bureaucrats and the leading EU member states can force through a more close political and fiscal union (under the leadership of Germany). At the moment, this looks highly unlikely to come about, but, even if it were to happen, it would merely delay the inevitable break-up of a thoroughly reactionary imperialist bloc, which can only be welcomed by progressive people.

One of the most important tasks of Marxist Leninists in all this must surely then be to limit the foothold that fascism can achieve in this fertile breeding-ground of unrest, as anti-EU sentiment is too easily linked with nationalist and xenophobic politics. In the end, the break-up, whether partial or complete, cannot and will not solve the immense crisis of overproduction with which we are faced today. Only socialist revolution can take us out of the endless cycle of crisis and war.

The break-up of the EU would, however, undermine the unity of the imperialists of Europe, and thus strengthen the hand of the workers in their struggle to overthrow the system.