Three years after the Wall Street collapse initiated deep recession, the world once again stands on the precipice of an economic abyss, demonstrating that the current crisis represents not merely a conjunctural downturn in the markets, but a systemic breakdown of the capitalist system.
This time the immediate issue is the economic and political crisis engulfing the euro zone, calling into question the viability of the euro currency and the European Union itself. A collapse of the euro and dissolution of the European Union would have disastrous social consequences not only for Europe, but for the US and the rest of world.
According to Martin Wolf of the Financial Times, “Such turbulence in Europe, with massive wealth destruction, bankruptcies and a collapse in confidence in European integration and cooperation, would most likely result in a deep depression in both the existing and remaining euro countries, as well as in the world economy.”
In particular, the Times pointed to sections of the euro zone which are denominated in dollars, and warned, if a collapse of investor confidence in these areas “sparked a fire sale of dollar assets, contagion could spread to US banks.”
As the crisis deepens, so do the divisions between the European powers, raising the specter of dictatorship and war.
French President Nicolas Sarkozy is pushing for the European Central Bank to act as lender of last resort for struggling governments, an idea which is being resisted by the German Chancellor Angela Merkel for fear this will, in reality, mean a German bailout of Europe.
French Foreign Minister Alain Juppe warned the collapse of the euro could mean “the explosion of the European Union itself,” at which point “everything becomes possible, even the worst. We have flattered ourselves for decades that we have eradicated the danger of conflict inside our continent, but let’s not be too sure.”
At bottom, the European debt crisis is not so much about debt, but lack of economic growth.
Due to the recession set off by the Wall Street collapse in 2008, the European governments have been forced to borrow more from the banks as their economies slowed. At the same time, however, the anemic growth rate has exacerbated their debt to gross domestic product (GDP) ratios – a measure banks look at to determine the risk of their loans. The more risky a loan is perceived to be, the higher the interest rate charged by the banks.
In response to this, the banks are demanding, and the national governments are carrying out, brutal austerity measures. But austerity, which ultimately lowers the living standards of the population, pushes these countries deeper into recession, thus worsening the debt to GDP ratio and driving up borrowing costs, and so on.
On display is one of the inherent contradictions of capitalism. The globalization of production over the past two decades signified the productive forces themselves had outgrown the confines of the nation-state system. Yet the world remains politically divided into some two hundred competing nations.
The capitalist class has no progressive solution to this contradiction, because their social position is bound up with private property, which is historically rooted in and inseparable from the nation-state.
In fact, the introduction of the euro in 1999 was, by itself, an attempt to solve the contradiction on the basis of private property, while at the same time constructing a market capable of competing against the US.
The euro gave the outward appearance of having solved the contradiction by creating the conditions for an ever-expanding European economy. The union’s core nations – in particular Germany – were able to expand their exports to the union’s peripheral nations, such as Greece.
In doing so, the core nations ran balance of payments surpluses, meaning they had more money coming into the country than leaving. These surpluses were used to provide cheap credit to the peripheral nations they might continue to import from the core countries. But this meant the peripheral nations ran balance of trade deficits
– that is, they went into debt.
This can be compared to the current relationship between the United States and China, in which the US provides a vast export market for cheap Chinese goods, but which requires China to fund this consumption by using its trade surplus to buy US debt.
In both cases, the contradiction must eventually reassert itself in the form of an even more acute crisis.
“One of the basic reasons for the crisis in bourgeois society,” explained Leon Trotsky more than 80 years ago, “is the fact that the productive forces created by it can no longer be reconciled with the framework of the national state. From this follow, on the one hand, imperialist wars, on the other, the utopia of a bourgeois United States of Europe.”
There is only one social force on the planet not tied to the nation-state and inherently international that is capable of unifying Europe, and that is the working class. Their power is derived, not from owning the means of production, but from setting them into motion, thereby creating all of society’s wealth.
Placing production under the democratic control of the working class would place it on an international foundation and solve the contradiction currently plunging the capitalist world into chaos. Society’s resources could then be used to meet social need, not just private profit. This is the perspective of international socialism.