Last Tuesday Standard and Poor (an international rating agency which evaluates the viability of an organisation’s ability to repay debt) reclassified Greece’s debts as junk and downgraded the ability of Spain and Portugal to repay their debts. European officials were particularly angry given that, along with the IMF, they have agreed an extensive “rescue package” which makes these debts serviceable (i.e. Greece are in no immediate danger of defaulting on their loans). Like many working class families in debt will know, the perception that you are at high risk of defaulting, means you will have to agree to excessive interest in order to secure loans, making your financial situation much worse. Indeed, interest rates on Greek loans were already in the high teens (hitting a peak of 25% after the reclassification), far greater than those of emerging markets. This action is particularly galling given S&P’s role in the financial crisis of 2008/09, where they inflated the security ratings of high-risk mortgage-backed bonds before rapidly downgrading them as soon as the underlying subprime loans began to default. S&P’s actions of course will only lead to further planned austerity measures aimed at making the Greek (and the Spanish and Portuguese) working class pay for the crisis.
The attention on Greece (and indeed the PIGS)and its economic problems, however, is a convenient distraction for other governments of advanced industrial countries, to ignore their own burgeoning deficits and posit themselves as somehow thrifty and more skilled in economic management; nothing could be further from the truth. The truth is that the advanced industrial countries have run up huge deficits in public finances (pre-dating the financial crash of 2008/09 but certainly exacerbated by it). As Citigroup analyst Buiter’s timely assessment of Sovereign Debt Problems in Advanced Capitalist Countries reveals, most advanced industrial countries are in their worst ever peacetime fiscal position. Indeed, it is Citigroup who describe the modern state as “fiscally challenged”. The proportion of debt to GDP is at record levels of anything seen outside a generalised war period. This is what they say of the US and the UK:
“For the US, with a structural primary deficit in 2009 of 7.3 percent of GDP, the arithmetic of solvency indicates the need for at least 7.3 percent of GDP worth of permanent fiscal tightening (not counting the long-term fiscal tightening required to accommodate future age-related public spending ambitions). For the UK, with a structural primary deficit in 2009 of 6.8 percent of GDP, the required permanent fiscal tightening (beyond what is achieved automatically by a cyclical recovery) would be at least 6.8 percent of GDP. In neither country are policy makers debating how to achieve anything like these degrees of fiscal tightening. In the US, beyond the expiration of part of the Bush tax cuts, no additional fiscal tightening has been planned. With the policy makers in denial, the fiscal situation is likely to deteriorate further, with the result that the magnitude of the permanent fiscal tightening that is required, when the markets eventually demand an immediate fiscal adjustment, will keep on rising.”
Basically, Greece does not represent a freak economic occurrence brought about by local conditions but a taste of what other workers around the world are likely to face over the coming years. This is not to discount the very particular situations that precipitated the crisis there (high debt ratio to GDP at entry to EU, 25th highest spender per GDP on arms, the discovery that Goldman and Sachs were massaging the true figures of spending), but to say state expenditure has been keeping Capitalism alive since the 1970’s but its ability to do so is currently compromised. State expenditure must now “be balanced” meaning workers will have to suffer cuts to their social wage (health care, pensions, clean air) in addition to cuts in their individual wage. In the absence of generalised conditions for increasing profitability in the Capitalist system, profits have fed into speculation, consumer spending has been fuelled by easier credit not higher wages, home-ownership and higher education have expanded but so has the proportion of household income spent on them (income largely borrowed from banks). As Citigroup say:
The sovereign debt problems encountered by most advanced industrial countries are the logical final chapter of a classic ”pass the baby (aka “hot potato”) game of excessive sectoral debt or leverage. First excessively indebted households passed part of their debt back to their creditors – the banks. Then the banks, excessively leveraged and at risk of default, passed part of their debt to the sovereign. Finally, the now overly indebted sovereign is passing the debt back to the households, through higher taxes, lower public spending, the risk of default or the threat of monetization and inflation.
Of course for Buiter, an apologist for the capitalist system, it has rewarded him well. He believes we all have a “collective responsibility” to resolving this situation. He points out that that when the economy is expanding the general populace want to see an expansion of the social wage (better schools, fewer hospital waiting lists, higher pensions) as a reward for growth rather than an opportunity to reduce state indebtedness. The problem for him is based on “our” inability to tackle spiralling debt when the economy is going well. He sees therefore no alternative but a slow concerted effort to reduce fiscal spending. He recognises, however, that such cuts and increases in taxes will have a negative effect on growth for the next five to ten years but he insists that there is no alternative.
When considering Buiter’s call for collective pain and hard choices we should remember that people are affected unevenly by the crisis. It is one thing to lose your second or third home, it is another to lose your only home. The Sunday Times Rich List recently showed that the crisis last year was good for the richest 1,000 people in the UK; their personal wealth grew by a staggering 30%. If debt is bad then why were working class people encouraged to become so embroiled in it, why have workers come to see their only chance of a secure old age so closely tied to owning their own house (i.e. taking out a mortgage) their job prospects closely tied to higher education (yet more debt)? The simple answer is that debt has been one more way of transferring surplus value into the hands of the rich. The rich have got richer, inequalities in wealth have soared in advanced industrial countries, and personal debt and state debt has grown in order to feed that wealth gap. Fiscal balancing is about making the poor pay, not the rich.
It is essential this May Day, therefore, to consider the different alternatives open to us. Do we quietly acquiesce to demands to cut wages and social provision or do we fight back. Do we accept that the crisis is “society’s fault” or do we see the problem resting in an inappropriate organisation of society where the few benefit from the hardwork of the many and, because of those benefits, justify a system that cannot deliver the basics like food, shelter and healthcare to the majority of the world’s population. The so-called boom was a spiral of indebtedness for workers in the advanced industrialised countries, the few advances, if any, are now being threatened with being rolled back. If we accept the blame, we accept the punishment. If we place the blame where it truly lies, we are left with the task of envisaging a new society, a just society based on need and not profit.
On the part of ELT we are delighted to say teachers are fighting back whether they be Greek teachers of EFL or ESOL teachers in the UK. Indeed, in the UK teachers have formed an education activist’s network to unite teachers and students over the broad range of educational issues, including ESOL. Workers are responding and they will need to respond. We will need to go beyond narrow economic interest, beyond the lie of “national interests” if we are to resist the attacks spurred on by the capitalist crisis. We will have to rediscover the truth in that old slogan:
Workers of the world unite you have nothing to lose but your chains.