Sri Lankan government imposes austerity budget

Sri Lankan President Mahinda Rajapakse, who is also the country’s finance minister, presented the budget for next year to parliament on November 21. Following the dictates of the International Monetary Fund (IMF), he has maintained the current wage freeze and imposed new burdens on workers and the rural poor, while making further tax concessions to big business. Read more>>>

The crisis of the euro

Since this year began, hardly a month has passed without a major summit to decide on new measures to save the euro. Now the year is approaching its end, and the crisis of the euro is deeper than ever.

The creation of the European Financial Stability Facility (EFSF); its increase and leveraging; acquisition of government bonds by the European Central Bank; harsh austerity measures in Greece, Portugal, Spain, Italy, and France; the monitoring of the Greek budget by the troika of the EU, the European Central Bank and the IMF; changes of government in Portugal, Grece, Italy and Spain—all these measures, which have dominated headlines in recent months, failed to stop the onslaught of the financial markets. On the contrary, the markets are now panicking.

The debt crisis has moved from the periphery of the eurozone to its core. After Greece, Ireland and Portugal, Spain, Italy and even France have to pay such high interest for their government bonds that they can no longer escape the debt trap. On Wednesday, even a German bond sale worth €6 billion failed to attract buyers. Analysts described this as a “motion of no-confidence for the entire Euro zone.”

Many experts no longer believe that the euro can survive in its current form. A poll by Reuters of 20 prominent academics, policymakers and business leaders found that only six believe that the currency union will survive. An additional ten saw a new “core” eurozone with fewer members as a possible alternative.

The collapse of the eurozone would have disastrous economic and social consequences—on this point experts agree. It would plunge the continent into social upheavals and national conflicts similar to those in the first half of last century.

In this context, national tensions in Europe are increasing. France and Italy, supported by Britain and the US, are calling for joint European bonds (euro bonds) and unlimited ECB funds for indebted countries to satisfy the insatiable appetite of the financial markets. Germany has rejected this categorically, insisting that every country must restructure its own budget through hard austerity measures, even if this means—as in the case of Greece—recession and ruin.

When European Commission President José Manuel Barroso presented his own plans for euro bonds on Wednesday in Brussels, Berlin reacted hysterically. The media fumed over “Barroso’s provocation,” and Chancellor Angela Merkel denounced his initiative in front of Parliament. “Never before in the history of the EU has a President of the Commission been publicly slapped by a German Chancellor in such a way,” the Süddeutsche Zeitung commented.

Alexander Dobrindt, the general Secretary of the Bavarian CSU, attacked Barroso in the Bild tabloid as “a mercenary of the Dolce Vita states, who want to get their hands into our cash box”. Economy Minister Philipp Roesler insisted as well, that Germany will take no financial responsibility for other Euro states. “We say ‘no’ to euro bonds,” he said. “A transfer union would be wrong because it would mean German taxpayers pick up the costs. Euro bonds are wrong because they would mean a rise in interest rates for Germany.”

Meeting with French president Nicolas Sarkozy and the new Italian Prime Minister Mario Monti on Thursday, Chancellor Merkel insisted on her ‘No’ to euro bonds. Instead she announced that Germany and France will present proposals for changes in the EU treaties within a few days. The aim is to give Brussels the means to enforce even harsher austerity measures. Those who violate the Stability and Growth Pact “must be called to account,” Merkel insisted.

There are indications that Merkel might ultimately agree to euro bonds, as she agreed to the EFSF and other measures after initial opposition. But she will ask for a high price. In return, the German government is asking for a tightening of the Stability Pact, enabling Brussels to install a veritable dictatorship over the budgets of individual member states. This would allow the EU to drop the burden of the crisis on the people without bothering about public opinion and democratic procedures.

Euro bonds aim to save the assets of the banks and the funds of the super rich with public money, while the burden of the crisis is shifted on the working class. Nonetheless, the Social Democrats, the Greens and the German Left Party are enthusiastically calling for euro bonds.

Euro bonds would just as little resolve the crisis, as the EFSF and other measures have done.

The idea that Germany can tear Italy, France and Spain out of their difficulties by its economic strength is an illusion. Even if one ignored the fact that Germany itself is highly indebted and very susceptible to the fluctuations of the world economy due to its dependence on exports, its economy is not large enough. The German GDP of $3.3 trillion is only one fifth of the GDP of the entire European Union, and just half of the combined GDP of France, Italy and Spain.

Furthermore, the basic cause of the crisis is not the indebtedness of the European countries. In fact, the average debt in the EU is considerably lower than in the US, Japan or Britain. Rather it is an international crisis of the capitalist system whose epicenter is in the US. Europe is the target of the financial markets’ attacks because it is internally riven and split.

The European Union has not “unified” Europe, it has only subordinated it to the most powerful financial and industrial corporations; nor has it overcome national antagonisms, which resurge whenever the crisis intensifies. The capitalist class is organically incapable of unifying the continent in the interest of its people, because capitalist private property is insolubly tied to the nation state.

A progressive resolution of the crisis is possible only on the basis of transforming existing property relations. The banks, large corporations and major private fortunes must be expropriated, subjected to democratic control and devoted to serving society as a whole. Social needs must take precedence over the drive for profit.

Such a socialist perspective can be realized in the economically and socially closely-knit continent of Europe only through the close international collaboration of the working class. The aim must be to build the United Socialist States of Europe. The alternative, as in the 1930s, is the balkanization of the continent and a slide into dictatorship and war.

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ILO report warns of sharp employment downturn, social unrest

The International Labour Organization, an agency of the United Nations, released a report Monday pointing to a disastrous global jobs situation and a “vicious cycle” sending the world economy into a new downturn.

“The next few months will be crucial for avoiding a dramatic downturn in employment and a further significant aggravation of social unrest,” warns the opening editorial to the World of Work report, released ahead of a G20 meeting later this week.

In addition to documenting the employment situation, affecting both advanced and “developing” countries, the reports presents a damning portrait of contemporary world capitalism: growing financialization, declining taxes on the wealthy and corporations, and a collapse in the share of income going to the working class.

Three years after the crash of 2008, “economic growth in major advanced economies has come to a halt and some countries have re-entered recession, notably in Europe,” the ILO notes. “Growth has also slowed down in large emerging and developing countries.”

The vast majority of countries categorized as having advanced economies—mainly in the United States and Europe—have seen a slowdown in employment growth in the most recent quarter, and more than half have seen employment declines. At the same time, about half of those countries categorized as “emerging or developing” have seen declines in employment, including Russia and Mexico.

The advanced economies have 13 million fewer jobs today than in 2007, with the United States (6.7 million) and Spain (2.3 million) accounting for more than half of this figure. Due to the growth in the labor force, to restore pre-crisis employment rates, 27 million jobs would have to be added in advanced countries, and 80 million globally, over the next two years.

The jobs situation is particularly bleak for young people, and this holds true in almost all parts of the world. “Among countries with recently available data, more than one in five youth [aged 15-24], i.e. 20 per cent, were unemployed as of the first quarter of 2011—against total unemployment of 9.6 per cent.”

According to the ILO’s projections, which are predicated on the assumption that there will not be renewed decline in global growth, the global employment rate in advanced countries is not expected to return to pre-crisis levels until far past 2016.

Figure 1. Employment Rate Projections for Advanced Economies (ILO).

The prospects of a recovery in employment and economic growth are undermined by a number of factors, including a renewed financial crisis in Europe and a turn by governments throughout the world to fiscal austerity. Sharply declining wages for workers, particularly in advanced countries, is leading to a fall-off in consumption.

“In short,” the ILO writes, “there is a vicious cycle of a weaker economy affecting jobs and society, in turn depressing real investment and consumption, thus the economy and so on.”

Any prospect of a return to growth is also undermined by increasingly bitter national conflicts between the different capitalist powers. “While in 2008-2009 there was an attempt to coordinate policies, especially among G20 countries, there is evidence that countries are now acting in isolation,” the report states.

The ILO expresses the hope that governments will institute job-creation programs to resolve the crisis. However, the impossibility of this happening is highlighted by the fact that the report cites the United States as the only major advanced country to advance a “national jobs plan.” In fact, the Obama administration’s proposal, even if enacted in full, would be no more than a drop in the bucket. Since it was announced in September, it has already been scaled down significantly. Whatever is passed will consist largely of tax cuts for corporations.

The economic crisis is, predictably, producing a sharp increase in social discontent. The year 2011 has already seen a significant growth of the class struggle, beginning with the revolutionary upheavals in the Middle East and North Africa. They have since expanded to Europe, Latin America, and the United States, including in the Occupy Wall Street movement that began in September.

According to a metric of “social unrest” based on various indicators, including unemployment, the ILO calculates that 40 percent of the countries surveyed have seen a significant increase in the prospect of unrest. The likelihood of social unrest has increased particularly sharply in advanced countries. Moreover, the majority of countries worldwide reported a collapse of public confidence in national governments.

Dissatisfaction over the availability of quality jobs is over 80 percent in sub-Saharan Africa and over 70 percent in Central and Eastern Europe. It is over 60 percent in the Middle East and North Africa, though significantly higher in some countries, including Egypt.

Anger over the jobs situation is higher than 70 percent in Greece, Italy, Portugal and Spain—countries that are currently at the center of the European-wide drive to slash social programs and eliminate all previous gains of the working class.

The financialization of the world economy

Global social conditions have deteriorated sharply since the Crash of 2008, precipitated by the collapse of a massive speculative bubble inflated over the previous decade. While the fall of global stock markets led to an immediate decline in the wealth of the financial aristocracy, the actions of governments, led by the United States, have served to quickly reverse this trend.

In addition to documenting global labor conditions, the ILO report includes some important data on the financialization of the world economy, and the parallel process of wealth transfer—both before and after the 2008 crash.

It notes, disapprovingly, that in the aftermath of the crash “countries have increasingly focused on appeasing financial markets” rather than restoring employment, and that this “has often centered on fiscal austerity and how to help the banks—without necessarily reforming the bank practices that led to the crisis, or providing a vision for how the real economy will recover.”

In 2008, the capital share among financial corporations worldwide fell by more than 25 percent, after a decade of steady growth. Only a year later, however, shares were back to pre-crisis levels, a direct product of the various bank bailout schemes.

Figure 2. Evolution of capital shares by type of corporations (ILO)

''On the other hand,” the ILO noted, “the decline in the non-financial sector has been more gradual, but capital shares for this group—which account for 87 percent of employment in advanced countries—continue to decline.”

This has produced what the report refers to as a “paradox”: “The impact of the global economic crisis of 2007-08 on the financial sector was short-lived initially—despite it being at the very origin of the downturn.”

The growth of corporate profits since the crash have accrued largely to financial corporations. Non-financial corporations, moreover, instead of investing have funneled money into the stock market. “In 2009, more than 36 per cent of profits were distributed in terms of dividends, compared with less than 35 per cent in 2007 and less than 29 per cent in 2000…”

This process of financialization is part of a longer-term trend, in which wealth accumulation through speculation has increasingly replaced productive investment. Far from reversing this trend, the economic crisis has only exacerbated it.

At the same time, an ever smaller share of income has gone to the working class. According to the ILO, “the wage share—the share of domestic income that goes to labor—has declined in almost three quarters of the 69 countries for which data is available.” This is also a long-term trend.

In addition to direct infusions of money into the banks, the transfer of wealth to the corporate and financial aristocracy has been facilitated by a tax policy that places an ever greater share of the tax burden on the working class.

 

Figure 3. Top personal income tax rate—world average (ILO)

Between 2000 and 2008, 43 percent of countries decreased their top income tax rate, while 70 percent of countries decreased their corporate profit tax rate. During the same period, 30 percent of countries increased value added taxes or consumption taxes, which disproportionately target the working class.

Overall, the top personal income tax rate globally fell from 31.4 percent in 2003 to 29.1 percent in 2009. Corporate taxes have fallen from 29.5 percent to 25 percent in the same period.

Again, this trend has only continued since the 2008 crisis. The proportion of government revenue from regressive consumption taxes has increased, while the income and corporate taxes have declined.

The ILO’s policy recommendations, on the other hand, are both grossly insufficient and utterly incapable of realization within the framework of capitalism. In addition to a jobs program, it hopes that governments will cooperate to increase the share of income going to the workers, while placing greater constraints on the financial system.

What the report in fact demonstrates, however, is that any attempt to resolve the crisis in the interests of the working class runs into direct conflict with the capitalist system and the financial aristocracy that controls it. (WSWS)

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