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Who’s to blame?

(Socialism Today Issue 129 June 2009)

The current economic crisis has fuelled waves of anger around the world. Prime targets are the top bankers and stock market dealers who epitomise the rampant, ultra-free market policies of the last 20 years. Backed by their political accomplices, they gorged themselves while workers’ conditions worsened, and finance capital drove down living standards in the neo-colonial countries. LYNN WALSH argues that behind the obscene greed lie more fundamental reasons for today’s global turmoil.

THE FINGER OF blame points to greedy bankers and financiers. They are seen as responsible for the financial meltdown that has triggered a world-wide slump. A wave of fury swept the US when 80 directors of the American International Group paid themselves $165 million in bonuses after being bailed out by taxpayers to the tune of £173 billion. "

Do the leaders of Wall Street want to set off an anti-capitalist political tidal wave across the United States that will sweep them away forever? It's certainly starting to look that way". (Martin Sieff, UPI.com, 16 March)

In Britain, there was popular outrage when Sir Fred Goodwin, ‘Fred the Shred’, the boss of Royal Bank of Scotland who presided over its ruination, walked away with a pension fund of £17 million - giving him a pension of £700,000 a year -

effectively financed by taxpayers.

There is growing recognition, however, that the bankers and speculators are the figureheads of a rotten system. The Financial Times referred to the US people’s "widespread and deeply felt anger at financial capitalism and capitalism… the new and dominant fact in the country’s political life". (Chrystia Freeland, 27 March) But it is politically convenient for political leaders and even big-business bosses to blame the ‘greedy’ and ‘irresponsible’ financiers. Even in the serious financial press, debate about the causes of the present crisis, which is rooted in a profound, long-term crisis of the system, is mostly very superficial.

Writing in the New York Times, for instance, columnist David Brooks claims there are "two general narratives… gaining prominence… the greed narrative and the stupidity narrative". (Greed and Stupidity, 3 April) How can there be any doubt that the predatory profit-drive of investment bankers, hedge funds, and ultra-rich investors accelerated the process of financial boom and bust? True, they were the agents of deeper processes. But they became fabulously wealthy while inequality deepened.

Yet Brooks dismisses the greed narrative in favour of the stupidly narrative: "Overconfident bankers didn’t know what they were doing". They did not understand the complex financial instruments they were using. They relied too much on mathematical models. "We got into [the crisis]", Brooks concludes, "because arrogant traders around the world were playing a high-stakes game they didn’t understand".

There is an element of truth in this, of course. The complex financial instruments, derivatives, asset-backed securities, etc, that were supposed to spread risk – and even abolish risk – actually disastrously generalised risk. But again, this was a symptom of a diseased economy, not a primary cause. Brooks’ narrative is almost laughable in its simplicity. However, the columnist refers to a more serious analysis, one that has provoked debate in serious capitalist journals.

Submerging market economies

‘THE QUIET COUP’ by Simon Johnson, chief economist to the IMF in 2007-08, lays bare (as the magazine’s introductory caption puts it) the alarming and "unpleasant truth" that "the finance industry has effectively captured [the US] government". (The Atlantic Monthly, May 2009, www.theatlantic.com) As an IMF official, Johnson was involved in many crises in ‘emerging markets’, semi-developed economies like the South-East Asian countries in 1997, Russia in 1998, and so on. Every crisis is different, but he sees a common thread:

"Typically, these countries are in a desperate economic situation for one simple reason – the powerful elites within them overreached in good times and took too many risks". (This is somewhat one-sided, given the uneven, contradictory development of the neo-colonial developing countries.) "Emerging-market governments and their private-sector allies commonly form a tight-knit… oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon – correctly, in most cases – that their political connections will allow them to push onto the government any substantial problems that arise".

But the oligarchs "get carried away: they waste money and build massive business empires on a mountain of debt". With the onset of crisis, there is a downward spiral of corporate bankruptcies and collapsing banks. "Yesterday’s ‘public-private partnerships’ are relabelled ‘crony capitalism’." Governments find various ways of bailing out their big business friends. "Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk – at least until the riots grow too large".

Johnson finds a strong resemblance to the US crisis: "In its depth and suddenness, the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the US financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people".

Without using the precise, appropriate term, Johnson points to the role of US finance capital, which has become the dominant faction of the US capitalist class. "But there’s a deeper and more disturbing similarity [with development in neo-colonial countries]: elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them".

Mesmerised by Wall Street

BLAME HAS BEEN targeted at an array of people and policies. Greedy bankers and irresponsible government officials (who lowered interest rates and loosened the money supply). Financiers proposed financial instruments they did not understand. Regulators turned a blind eye to shady practices. The twin deficits – the Federal government and the US trade deficit – allowed consumer spending and the housing bubble to grow on the basis of ever mounting debt. China supplied cheap goods and provided market-supporting credit. All these developments benefited the finance sector, and all attempts to limit potentially risky activities were brushed aside.

From the early 1980s, the finance sector boomed, becoming increasingly powerful. The monetary policy of Paul Volcker, chair of the Federal Reserve, which supported high interest rates and reduced inflation, favoured money lenders and those trading financial assets. Republican president, Ronald Reagan, opened up a period of deregulation, which was continued under Bill Clinton (Democrat) and George W Bush (Republican). There was an unprecedented boom of money trading outside the previous framework of the commercial banks through securitisation, with the proliferation of a host of exotic derivatives.

The growth of pension funds and individual saving plans also expanded the profit-making opportunities of investment banks, hedge funds, and so on. The accelerated globalisation of financial markets enormously extended the scope of speculative activity, channelling fabulous profits into the coffers of money traders (including the special trading units of commercial banks).

"Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16% of domestic corporate profits. In 1986, that figure reached 19%. In the 1990s, it oscillated between 21% and 30%, higher than it had ever been in the post-war period. This decade, it reached 41%. Pay rose just as dramatically. From 1948 to 1982, average compensation pay in the financial sector ranged between 99% and 108% of the average for all domestic private industries. From 1983, it shot upward, reaching 181% in 2007".

Finance capitalists concentrated massive wealth into their hands in recent years and, as a result, have exerted enormous political power. Johnson points to the ‘cultural capital’ acquired by the finance sector, ‘a belief system’: "Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country". In other words, ultra-free market ideology was a powerful force in shaping conditions favourable to finance capital: "Faith in free financial markets grew into conventional wisdom – trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress".

Wall Street firms were among the top contributors to political campaigns, Republican and Democrat. Leaders rotated between Wall Street and Washington, people like James Rubin (Clinton’s Treasury Secretary), Alan Greenspan (from Wall Street to the Fed and back again), and now Tim Geithner, Barack Obama’s Treasury Secretary. Politicians, journalists and academics (says Johnson) were "mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true".

Systemic flaw

BUT IT HAS all come to an end. The beginning of the unwinding of the subprime housing bubble in 2007 triggered a world-wide seizure of the banking system. The ensuing credit squeeze produced an economic downturn. This in turn has aggravated the financial crisis. The illusion of limitless, risk-free profits has been totally shattered. The recovery, when it comes, is likely to be long-drawn-out and painful, particularly for workers who, as always, will bear the main burden of the crisis.

According to Brooks, Johnson’s analysis is just another ‘greed narrative’. Investment bankers, pursuing bigger and bigger profits, became increasingly powerful, "the US economy got finance heavy and finance mad, and finally collapsed". This just shows how shallow this columnist is. Johnson’s The Quiet Coup accurately describes a structural change in US capitalism – which also developed in Britain and other economies following the ‘Anglo-Saxon model’ – with the emergence of finance capital as the dominant section of the capitalist class.

Yet Johnson’s analysis also has its limitations. Nowhere does he explain the underlying reasons for the rise of the financial oligarchy. This means that, ultimately, he fails to analyse the causes of the current financial-economic crisis, which he simply blames on the rise of the oligarchy. Like any other structural change in capitalism, it is ultimately rooted in the underlying relations of production, in the inner processes of the capitalist economy.

The swing to financial investment and speculation over the last three-and-a-half decades arises from a crisis of over-accumulation of capital. During the post-war upswing (1950-73), capitalism enjoyed very favourable conditions, especially in the advanced capitalist countries. Historically high levels of investment and productivity growth supported both relatively high wage levels (sustaining consumer demand) and a rise in profitability (encouraging new investment). The growth of state expenditure also supported investment and demand for goods and services. This period is now referred to as the ‘golden age’ of capitalism.

The favourable relationships of that period, however, were undermined by the inner contradictions of capitalism. In particular, new investment in the means of production (plant, machinery, etc) no longer produced the level of profits required by the capitalists. "Between 1968 and 1973 the profit rate for the ACCs [advanced capitalist countries] as a whole fell in the business and manufacturing sectors by one fifth". (Andrew Glyn: Capitalism since 1945 [1991], p182) In the US, for instance, the profit rate for manufacturing fell from the previous peak of 36.4% to 22% in 1973. Significantly, the end of the upswing, marked by the 1973 oil price shock, was marked by an explosion of speculation, especially in commodities and commercial property. In their search for higher profits, the capitalists turned more and more towards financial investment, which became increasingly speculative. The Thatcher-Reagan ‘revolution’ – deregulation, privatisation, tax changes for the super-rich, and an offensive on workers’ rights – was carried through under pressure of the underlying economic change and, of course, enormously widened the scope for speculative capital.

The growth of investible funds (from corporate profits, pension funds, investment banks, etc) continuously grew, but far outstripped the opportunities for profitable investment in new productive capacity. In capitalist terms, there was an ‘over-supply’ of capital. Not that millions of people did not need essential goods and services, but there was insufficient money-backed demand because of the limited income of the working class. Overcapacity developed in most major industries, so why should capitalists invest in new means of production?

For the major capitalist economies, the growth rate of fixed capital stock (a measure of capital accumulation) in the 1990s and 2000s has been only half that of the 1960s. In the US, the growth fell from 4% per annum in the 1920s to 3% in the 1990s and 2% in the 2000s: "capital stock growth started from an exceptionally low point in the early 1990s. The most positive conclusion from [the data] would be that the investment boom of the later 1990s halted the seemingly inexorable downward trend in the growth rate of the capital stock which had begun in the late 1960s. Moreover, when the boom came to an end in 2000, capital stock growth plummeted more steeply than ever before". (Andrew Glyn: Capitalism Unleashed [2006], pp86, 134)

Surprisingly, perhaps, this analysis was confirmed in 2007 by a Morgan Stanley economist, whose role is to advise investors in the financial sector. Rejecting the ‘conventional wisdom’ that the flood of cheap credit was merely the result of "the central banks’ irresponsibly easy monetary policy", Stephen Jen wrote: "I believe that the more important source of global liquidity is the (curiously) low capex/capital stock in the world". (Capex is short for capital expenditure.) In spite of low interest rates and an abundance of credit, "there has been a curious reluctance on the part of the corporate sector in the world to invest in physical assets, ie capex has been surprisingly low…" Jen’s explanation emphasises the "intense uncertainty regarding the outlook of the global economy [which] may have forced companies to restrain their capex plans… multinational corporations may have attached a certain risk to expanding capacity in emerging markets, due to uncertainties regarding both political and economic policies". (Low Investment is the Main Source of Global Liquidity, Morgan Stanley Global Economic Forum, 23 February 2007)

Credit plays an essential part in the process of capitalist production, as Karl Marx showed. But, in the last 30 years, finance capital became increasingly parasitic. As Johnson’s figures show, finance swallowed an ever increasing share of total profits. The pressure of the finance sector for short-term profit also raised the profitability of many manufacturing and service industries, mostly through downsizing and intensifying the exploitation of workers. But the biggest profits for finance came from churning the huge volumes of cash flowing around the global economy.

Some originated, as we have seen, in the ‘surplus’ profits of big corporations which had no incentive to reinvest in new productive capacity. But the biggest profits have come from trading financial assets using ultra-cheap credit borrowed from economies with big surpluses, like Japan, China and the oil-producers. Much of the super-profits have come, not from the production of new wealth, but from the redistribution of savings and profits from small and medium savers, and investors to the super-rich, elite financiers who run the big hedge funds, investment banks and private equity firms.

An ongoing crisis

THESE, IN JOHNSON’S language, constitute the financial oligarchy. Its leaders were seen, until the collapse, as ‘masters of the universe’. But, in reality, they are the alchemists of capitalist impasse, conjuring up capital gains from speculative trading. The domination of finance capital arises from the inability of capitalism in this period to develop the productive forces in a broad-based way. There has been a surge of investment in some sectors, where there is new technology, and in some countries like China (where growth is still very uneven). But, on a world scale, the accumulation of capital, which should be the dynamic motor of capitalist growth, has collided with the barrier of private ownership, which demands profitable returns as the condition of new investment.

Johnson argues that all toxic assets should be written off at their true market value (a lot lower than their current valuation). Banks with insufficient capital should be nationalised, broken up, and eventually sold back to private owners. But he clearly does not believe that this is what will happen. The US government has effectively partially nationalised several big banks and financial institutions, but it has not taken control. Like the Bush administration, the Obama government is attempting to muddle through with a series of bank-by-bank deals, handing out state subsidies that are too complex for the public to understand. "Throughout the crisis", writes Johnson, "the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here".

There are now two scenarios, says Johnson. With government bailouts, the US and other major capitalist economies may muddle through. Alternatively, there could be a deepening world financial and economic crisis. It would be wrong (he says) to rely on the consoling idea that ‘it can’t be as bad as the great depression’ of the 1930s: "What we face now could, in fact, be worse than the Great Depression – because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronised downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances". Whatever scenario plays out, the capitalist ruling class will do all it can to offload the effects of this deep economic crisis onto the backs of the world’s working class and poor.

Latvia: Unprecedented economic collapse

IMF and EU blackmail means misery for workers

Per Olsson, Rattvisepartiet Socialisterna (CWI in Sweden) 21 May 2009

Latvia’s Gross National Product (GNP) fell by 18 % in the first quarter of 2009 compared to the same quarter the previous year. Industrial production declined by 22 % and retail sales by 25 % in the same period. These are catastrophic figures. “Latvia has become a capitalist inferno,” wrote the Swedish economic journal, Veckan Affärer, earlier this year. The Latvian economy is collapsing at a rate and to an extent that are unprecedented. For the first three months of this year, the annualised contraction of GNP was 30%. With the economy collapsing, the International Monetary Fund and European Union officials have demanded that the Latvian government cut its budget by 40% - a drastic measure that can only strangle a country already on the edge.

Until the government presents its cutback plans to keep the budget deficit under 7% of GNP, the IMF and EU are refusing to pay out the emergency loans already promised to Latvia. The IMF’s demand has been that the budget deficit should be set below 5%; the government maintains, however, that they negotiated it at 7%.(It is still unclear whether this is true or not). But even if the Latvian government slashes 40% off this year’s budget, they will not fulfil the IMF’s and EU’s requirements.

”It’s worse than we could have imagined in our wildest nightmares. Latvia has no chance of getting the budget deficit down to 7% of GNP. We think that it will be about 15%” says Lars Christensen, chief analyst at Danske Bank, in the Swedish Newspaper, Dagens Nyheter (13 May).

Last December, the IMF, EU and Swedish government promised to give Latvia a loan of almost €8 billion. The Swedish government promised €750 million – “all to save the Swedish banks; Swedbank, SEB and Nordea, who between them have lent around €50 billion in the Baltic States.” (Dagens Nyheter, 13 May)


The promise of a loan became the means of political blackmail aimed at protecting interests such as the large Swedish banks and to prevent the devaluation of the Latvian currency. The IMF as early as March withheld a payment of nearly €200 million and is now threatening to withhold the loan to be paid out in June.

“In order to receive the next payment of the EU’s support loan, Latvia must implement the promised budget and structural reforms,” said the EU commissioner, Joaquin Almunia, last week

The internal devaluation that the IMF and others wish to impose on Latvia is doomed to failure and if the government should attempt this, then it is signing its own death warrant. The cutbacks that have been made public so far speak for themselves. Half of the country’s teachers could lose their jobs, the number of hospitals would be cut by almost half, another decrease in civil servants’ salaries and reductions in child welfare benefits are included.

Meanwhile unemployment has risen to 14% and continues to climb. Half of the almost 200,000 unemployed have no unemployment benefit and those who have, receive a minimal amount for just nine months.

On the 2 May, the correspondent for Dagens Nyheter met a family of teachers in Latvia who had a combined income of around €3,000 per month before tax, which is relatively high in Latvia. But since last Autumn each of them has lost their extra job and their teacher’s salaries have been reduced twice, by nearly 40%. In just under six months, the family’s income has crashed to a mere €1,000 a month. To demand enormous cutbacks in such a climate is a recipe for social and human destruction.

Protest grows

Protests have mounted. Teachers, farmers and even the police have taken to the streets. An outcry from parents has warned against cutbacks in welfare to families.

Last week, at least 1,000 students took part in a demonstration in the capital, Riga, against education cutbacks for the second time in a month. This time the protestors laid a wreath at the door of the Department of Education to symbolise that the cutbacks are burying the country’s school system.

Latvia will probably be forced to devalue its currency, which will inevitably be followed by similar devaluations in the neighbouring two Baltic States, Estonia and Lithuania, where the economies have also collapsed.

That will in turn deepen the banking crisis in Western Europe, since fewer countries will be able to pay their debts in euros (over 80% percent of the Latvian loans are in euros). Furthermore, devaluation is no solution; it hits the working class in the form of higher prices and nor will it be any guarantee against further cutbacks.

No capitalist ‘crisis policies’ can remove Latvia from the iron grip that the banks, businesses and capitalist institutions have over the country. A struggle is needed to weaken this stranglehold and to fight for: an end to loan repayments, no more money to the bankers, write-off the debt, stop the IMF’s and EU’s blackmail, for a new workers’ government that stands on a socialist and democratic platform.

Spain: Devastating impact of the economic crisis

Class battles brewing

Nick Auvache, CWI, in Spain 15 May 2009

The Mayday demonstrations in Spain this year reflected increasing anger on the part of ordinary workers but also a sense of anticipation of what steps need to be taken in order to fight back against the growing oppression they face as the recession begins to bite and the bosses seek to pass the burden onto workers and youth.

The main Mayday march in Madrid, which attracted approximately 50,000 demonstrators, was jointly organised by Unión General de Trabajadores (UGT) and Comisiones Obreras (CCOO), which are the two biggest trade union federations in Spain. Cándido Méndez, the General Secretary of the UGT referred to the crisis as “the first great crisis of globalisation” and warned the government against giving into the Bosses attempts to make the workers responsible for the crisis through wage cuts and attacks on conditions. The bosses organisation, the CEOE, want the government to reform labour law to introduce new contracts for workers reducing severance pay to a maximum of 8 days for the first 2 years of employment and to a maximum of 20 days for each year worked after that period. Méndez stated that such a change was unacceptable and referred to it as “American style sacking” which would “condemn youth to an existence without any security and rob them of a future. This cannot be tolerated”. Toxo, the CCOO leader, added “we are not going to submit our workers to the infantry of the political and economic attacks coming from the right.” Both unions, marching under the slogan of “Employment, public investment and social protection” were urging the government to take action to curb the worst effects of the crisis but failed to state what action they would take if the government’s policies failed to work. This was in sharp contrast to the demonstrators, who seemed to be quite clear on what they wanted – a general strike now! With unemployment and house repossessions at record levels, ordinary workers can testify first hand that government policies are not working. Many press reports on the many regional demos that took place all over the country referred to the demonstrators chants, calling for the unions to set a date for a general strike.

Mounting anger

Representatives from the CWI were present at the demonstration in Granada, Andalucia, attended by an estimated 6,500, a huge turnout for a regional city. We were greeted by the bizarre sight of a delegation from the Civil Guard (special police force with some military powers) holding up a banner calling for the right to demonstrate! There were many other groups of workers marching behind their own banners, such as postal workers, local government workers, workers from a local cement factory and most audible of all the metal workers, who have been involved in a long struggle with employers to secure the agreed industry rate of pay. Many of the demonstrations this year were better attended than they have been for a while, most probably due to the economic crisis. Unemployment has sky-rocketed in Spain and in the province of Granada there are estimated to be as many as 30,000 people unemployed and living without any state subsidy at all! Clearly these events have had an effect even on the leaders of the trade unions in Granada, who publically called for an “urgent change in the system” at the demonstration. The CCOO representative warned the bosses of the dangers that lie ahead “if investment was not increased, coupled with proper training and employment”. The march was vibrant and quite. Groups of youth lead the chant for a general strike and a communist youth band helped to up the tempo with a fantastic drumming routine. The anger of the marchers was evident but so was their thirst for ideas as evidenced by the warm response CWI members received to our Mayday statement.

In Málaga, the march was even bigger, with an estimated 40,000 on the demonstration. It has the highest rate of unemployment throughout the region, currently standing a staggering 27.18% of the active population! The anger displayed on many of these demonstrations is a testament to the dramatic turnaround of events that has occurred recently in Spain and the psychological effect it has had on the Spanish working class.

Spain’s economy has experienced unprecedented growth rates for a period of 20 years until now. Year on year the economic boom saw the rich grow richer and many, including the trade union leaders, had drawn the conclusion that Spain had emerged from the doldrums. The idea of the need to change society had been ditched; Spain was beginning to punch its weight again in Europe and the world. Capitalism could be managed and Spain would continue to prosper, so they said. However, the current recession and the pressure from workers below has forced many of the leaders of these organisations to begin to question the validity of these ideas.

Government divisions

Another mark of the crisis has been the effect it has had on the PSOE government itself. On the one hand, the government would like to take advantage of the severity of the economic conditions to usher in labour reforms which would make it easier for the capitalist class to hire and fire as well as attacking working conditions, enabling them to maintain profits at the expense of the workers, but on the other hand it does not want to act too early. It is split, not on the principle of “reform”, but on the question of timing and method. Prime Minister Zapatero in particular is eager not to act prematurely and thereby provoke a movement from below, whereas others such as the ex-minister Solbes, who resigned from the cabinet in April, are clearly in favour of pushing ahead with reforms now. However well the matter is disguised by the government’s spin doctors, this was the political essence of the split, as a member of Solbes´ team later explained in El País 19th April: “He was not tired, it was that he was convinced of the need to take advantage of the crisis to introduce structural reforms that would be painful and unpopular but necessary in the medium term.”

No signs of recovery

The depth of the economic crisis in Spain is only likely to intensify in the short term despite the protestations of some that recent rises in the Spanish stock market are the first signs of green shoots of recovery. Recent figures however would indicate otherwise. PSOE Prime minister Zapatero may try to remain upbeat and complain about opposition Partido Popular leaders “talking Spain down” but in reality they may offer a more honest appraisal of the economy, not least because they fear they may inherit the situation if the polls are correct and they are elected to government at the next election. In a recent interview in the Spanish daily El País, a leading PP (Partido Popular) spokesperson remarked that the truth about the Spanish economy was that it was “worst and longest recession in its economic history. We have not touched bottom yet and don´t know how bad things are going to get.” Unemployment in Spain now stands at 4 million, the highest in Europe, yet its population is only 45 million (roughly two thirds of UK population). A recent EU commission report revised downwards its predictions for growth in the Spanish economy. This year it is due to fall by 3.2% and in 2010 it forecasts no more than 0.2% growth in GDP. This anemic rate of growth will see unemployment continue to rise and current estimates suggest that it will rise from the present level of 17.4% to 20% next year. However this may be a conservative estimate as Spain has also seen its public deficit rise to 8.6% of GDP. A report by Barclays Capital has predicted that this will grow to 11% in the course of 2010. If this is the case it will mean that there will be huge pressure on the government to reduce public spending including unemployment payments and pensions not to mention salaries and jobs in the public sector.

Class tensions

This will only serve to further fuel the flames of class tension as the bosses will be calling on the government to “take action” before the matter gets out of hand – a euphemism for making the workers pay for the crisis. However the truth is that the Spanish working class has already paid the price of the crisis and is close to breaking point. An unemployment rate of 4 million is scandalous but to add insult to injury, 1,127,000 of these people are left without any visible means of support as their entitlement to unemployment pay has expired which in turn has lead to a record of 180,000 house repossessions in the last year. Swine flu may have caused some alarm but the real epidemic of unemployment has proven to be much more of a threat to the well being of many Spanish working class families. This is especially so amongst the youth where it has spread like a virus going up from 21% to a current level of 35%! The soaring levels of youth unemployment contributed to the impetus behind the recent wave of student strikes in opposition to the hated Plan Bolonia which is an attempt by the government to introduce UK style student loans and closer control of the curriculum by big business. This lead to mass demonstrations and occupations.

Much of Spain’s economic success over the last period has been fuelled by the construction boom, Spain built more houses last year than France, the UK and Germany put together. However this was mainly sustained by the high property prices in northern Europe and the credit expansion which attracted significant foreign investment. So great was its effects that the bosses of construction firms were often referred to as “The brick rich”. Yet now the crisis which started in the US and spread to Europe has seen this situation turn into its opposite. The brick rich are no more and the Construction industry has collapsed which has had a huge effect on those working in the construction industry and those who depended on it such as electricians, plumbers and even estate agents!

From construction boom to housing crisis

House prices have actually declined for the first time since 1993, over the last year they have fallen by 30% and are still in decline. Building licenses have declined by 60%. Banks that have been supporting these construction companies have had to agree to swap bad credit for property causing the banks to further reduce the price by as much as 30% in one go. This in turn has infuriated the construction industry as it has forced existing firms to offer similar reductions. Yet despite these reductions, a measure of the depth of crisis and in particular the position of many ordinary families is that there remains a housing glut of between 600,000 to 1 million units. The contradiction is plain for all to see that amidst a housing crisis 1 million homes lie empty which could be occupied by homeless families or young people who are forced to live in cramped conditions simply because they are still unable to afford a home of their own or be able to rent at a reasonable price! These buildings are monuments to the failure of a system which is unable to offer basic shelter to those that helped build them! The workers’ movement should be targeting these buildings and campaigning for the state and local authorities to take them over to rent at reasonable prices to those in need. This would generate enormous support and restore the confidence of the working class in their ability to influence events and change society however it would also require organisations be built which are capable of that task.

The need for a general strike

In response to the crisis, the Basque trade unions have called a general strike for 21 May, although shamefully neither the UGT nor CCOO have supported the call as yet. This could be the initial stage of state wide response to the economic crisis if it were used as a spring board for further action. One thing is for certain: it will certainly put further pressure on the UGT and CCOO to mount a more effective response than they have done to date. In recognition of the pressure that the trade union leaders have been put under by their members, the leader of CCOO commented on 25 April in a Galician daily newspaper “the possibility of a General Strike becomes more and more likely as the effects of the government’s economic strategy fail to achieve the desired effect. We cannot rule out a general strike in the months after the summer”. This is hardly an inspiring call to action but rather a reluctant admission of what might be necessary to prevent an explosion of anger threatening the position of the current leadership. Nevertheless, even if the current leadership were forced by the unbearable pressure from below to call a general strike it would be a huge step forward

This would show the power of the working class in action and begin to pose the question of who really controls society and in whose interests it is governed. This issue has already been raised in some way by the PSOE government’s “economic rescue package” which saw the Spanish banks bailed out to tune of 150 billion euros at the same time as Spanish workers were being ejected from their jobs and homes all for the cause of “economic stability” - but whose economic stability? Certainly not the 4 million unemployed, nor the 1,127, 000 currently without any official means of support or the 180,000 who have lost their home! It is even possible that the scope of such industrial action may provide such a threat to the capitalists that they are prepared to temporarily cede concessions but such benefits would be short lived as inevitably they would move to try to take back what they have given as soon as an opportunity arises. Precisely for these reasons it is essential to build a robust and genuinely socialist party in Spain and unite the various workers organisations around a socialist programme, which would enable workers to create a new socialist society, based on democratic control and planned to meet the needs of the majority.