In succession, governments in the European Union are kicked out of office for having prescribed to their peoples rigid “savings programs” with the aim of regaining their national creditworthiness. The affected countries seem to be victims of finance capital, which downgrades their ratings, extorts them with unbearable interest rates, or turns their money spigot off completely by denying them new loans and the refinancing of their due debts.
Economists, trade unions and ever more politicians of all stripes are preaching new debts as a remedy, hence exactly more of what many euro states already can’t handle. The cuts are criticized for letting the ailing economies shrink further. State growth programs are talked about, even a new Marshall Plan, as in the May 1st call of the Germany Confederation of Trade Unions (DGB).
It can’t be true that the “broke states” are victims of finance capital: for decades, they nonchalantly rang up debt. The financial industry saw this as such a good business that it not only lent them money for new projects, but also for repaying overdue debts, completely as a matter of course. The banks didn’t want to see their money back, but to make additional profits by “revolving” these debts. That in a series of euro countries the economy did not grow in proportion to what the governments wanted by leveraging their national debt does not make them victims of their former investors. And when the new French president campaigns on a promise to “renegotiate the EU Fiscal Compact” and “promote growth instead of savings policy,” then you should look closely where the victims are in the policy he will soon impose.
A sovereign debt crisis is when banks and other investors don’t loan a state any more money, when they no longer buy new securities from it. Then the state doesn’t just have to get by on what it otherwise takes in, but goes broke. Why? Because it has to create new debts to redeem the old ones that reach maturity, i.e. because it does not go into debt sometimes in special situations, but this is perpetual normality. When it doesn’t get new loans from the banks, then it not only lacks money for the expenses it would like to make, but for the payments it has to make.
This universally practiced debt financing of states accounts for the bankruptcy that occurs as soon as they no longer receive further loans. Hence successful states differ from unsuccessful ones not in the extent to which they are in debt and whether they can repay it or not – none of them could! – but in whether the money-capitalists allow them to take on ever new debts.
This shows the type of relationship that a capitalist state has with its economy, and what the investors bet on when they invest their capital in government bonds: The state’s power is used domestically so that the private economy, separate from the state and aimed at money-making, regulated and supervised by it, produces on its location year after year a growth which it can sufficiently help itself to by means of its political power. Even in times of prosperity, it is clear: for this, there needs to be poverty, that is, a whole class of people who only get money for the necessities of life when they sell their labor-power to capitalists and let themselves be exploited for the growth of their property. Capitalist countries have a vested interest in this working out in the territory ruled by them.
But what they collect from their society in taxes is not enough. They borrow money, turn their debts over all the time, and continually increase them. They can usually do this with no problem because government debt is normally considered a secure investment without rival. Financial investors buy government promises of interest payment which yield relatively low interest rates, although a state is not a capitalist company that can service its obligations after earning a profit. It spends its money only consumptively, whether for roads, schools, or tanks. Investors bet on the state having success in orienting its economy to capitalistic growth; and that, should the growth leave a lot to be desired, as a political force it can still collect enough in taxes. They normally do not want to get the debts paid back, but to enter them in their portfolios as safe, equity-like investments on which, at most, they want to see the interest serviced. They are more concerned with letting the state make further debts.
In a justification carousel
However, this has consequences for the state: what it wants, namely to set up its society as a profit machine that year after year brings in growing tax revenues from which it serves interest payments and proves its creditworthiness to the banks, it now faces as a claim by the banks and the financial investors with whom it is in debt. Its ability to act depends on its borrowing power, thus in that it is (and/or to what extent) judged by finance capital as the regent of a solidly prosperous profit machine. But the state does not deserve any pity here because it does not have to do this particularly because of the banks it goes into debt with. Vice versa, it goes into debt in order to jump start economic growth in its society with all the means necessary, with which it wants to be in the competition with its peers – the other states that do the same thing. How successfully it scores as a competitive location for investments, it has however handed over to the judgment of the financial markets with its indebtedness.
This judgement has been increasingly more negative towards ever more European states since the beginning of the global financial crisis; the interest rates rise for new government bonds, and precisely the high interest rates demanded make it increasingly unlikely that the states will be able to service them. Finance capital increasingly often arrives at the verdict: This state is no longer worth it as an investment; its debts do not stand in a sustainable ratio to the growth prospects there. Its expenditures were wasteful; this state is too expensive for what it looks to get out of its society. That trains and ferries run, bridges hold up, schools and hospitals operate, pensions are paid, etc. – all this is superfluous if it is not worth it for those who invest money in the state budget. So the society gets to feel that everything that is commonly chalked up as “achievements of civilization” are not things gained once and for all, but are calculated with as good for the growth of capital and are seen to remain that way in the future by the state’s credit lenders.
Giving the bill to the masses
The bankruptcy of a (euro) state does not mean that it ceases to exist, but that it now has to get by without loans from finance capital. It must “repair” its relations to the banks and investors. That means it must “cut.” It can’t possibly lower its sights on the economy: capital is not profitable in the country anyhow, or far too little; the growth of profits and investments, economic activity, generating income and taxes is not achieved in the amount required to service the debt. The class that is venturing too little and should venture more can’t be burdened. Their enrichment is the condition of all economic activity and all other incomes that should yield the state its wherewithall. The state can increase its revenue only by passing the bill onto the general population, whose income is consumed and not invested anyway. Hence, the value added tax and other taxes that affect the masses are increased, ditto tuition fees, water and fare prices, etc.
At the same time, radical impoverishment is announced: absolute poverty. Just like before the states went bankrupt, everything exists for the work- and life-process of the society, but all the available resources are allowed to decay, left unused, closed down or cut back if their use is not profitable for the capitalist businesses, thereby for the state, and thereby for the investors. Past societies went hungry because there was not enough food due to a lack of labor productivity or as a result of crop failures. Today, in a bankrupt country like Greece, from the standpoint of investors there is much too much: roads, hospitals, schools, yes even food that the impoverished Greeks can no longer afford.
And what can it save on? Again, not on its services for capital, which are supposed to create revenue, but on spending for the functioning of social life: on schools, health care, pensions, wages for public employees.
The determination it shows to ruthlessly take action against the people is calculated to win back the confidence of the financial markets. It is another question how successful it is. But if the markets reward anything, then it is the ruthlessness of the states, their willingness to impose a far-reaching poverty in their countries. Poverty is thus not just a result of the mistrust of financiers in the ability of national debt to function like capital, but also a politically deliberate means to dispel this suspicion.
On the wrong track
The contradiction in these state “haircuts” is now well known: business opportunities for the economy shrink along with it, the countries slide all the more into recession as a result, and the relation of government revenue and spending deteriorates further, first even with reduced costs and second with the new miseries caused by the recession.
So the “savings policy” is considered a wrong track. Against it, a growth policy should be reasonable. Therefore, it is now recognized in the EU: “We” need not only thrift, but at the same time also growth. An open, direct contradiction, when the decisive condition of growth policy, namely money for the state, thus new debts, has been scrapped. Less government spending and at the same time a Marshall Plan for Greece or the whole South – how is this possible? Is such a plan then something different than new debts with finance capital? If “the financial markets,” however, can’t believe that Greece and co. are profitable locations, because not much profit pops up there even with lower wages, then they will continue doing what they do now: where there is no profit in sight, there’s also no credit.
But there is one thing that can be done for growth even with reduced government spending. There is a kind of capital promotion which costs nothing: capital makes the labor force still cheaper, so that it yields more profit. So in Greece collective bargaining agreements are overriden by state resolutions, the minimum wage, on which all other wages are based, and unemployment benefits are radically reduced, so that the unemployed have to take any job under any conditions. Protection against unlawful dismissal is abolished. There is “liberalization” and “less bureaucracy” so that capital will save on labor and environmental protection, or existing restrictions are no longer seriously enforced. More poverty is openly dealt with as the nation’s source of life: it should bolster the national economy, and thereby the growth bolster tax revenues, and thereby again the creditworthiness of the state.
In fact, the poverty of the workers in an absolute sense is the basic condition of all capitalist economics, but increasing it is by no means the only, and not even the most effective, way of stimulating growth: Much more important is the volume of loans that a state can take up and spend on supporting its location, and the size of the private capital advances that are to be mobilized in a nation. That’s what makes possible the development or purchase of scientific results and technical achievements which provide innovative products and profitable working conditions. Only this makes labor productive for capital: if labor productivity is higher than that of the competition, one has reduced the unit costs without having equivalently reduced the value of the commodities in general; one can thus underbid the others on the market and win market shares. But it does not help – the impoverishment of the workers may not be the decisive means of growth, but in countries that have lost their credit, it is the only thing available to them.
The promotion of growth by increasing the poverty of the workers certainly has its contradiction: people who earn less and less also buy less and less. The second function of the wage – to be the buying power that capital needs to realize the profits generated in production – is dispensed with for the producers of consumer goods for the workers. But this contradiction does not prevent this means from being used: The second function of the wage always ranks behind the first – that it must be a worthwhile cost for the generation of profit, never the other way around. It would be nice if the capitalists only had to pay the workers wages so that they can then buy commodities from them. Where would that leave the business? For capitalists – and of course the state fully understands this – the wage is to be held as low as possible, and if it is already set and must be paid, then the purchased labor-power must be exploited effectively and extensively. That its cost reduction also reduces buying power somewhere else in the society is not its problem, but the problem of the other capitalists. Markets consequently may shrink as a whole, because each one of them proceeds this way, but they relate to it as something that becomes a matter of them conquering from their competitors, precisely by reducing unit costs through rationalization and wage cuts.
Despite all the problems and contradictions, Merkel knows what the problem countries need so that they can generate growth again and put their public finances back in order: they have to do something to earn more money at home and in Europe, and for that they need to strengthen their “competitiveness.” Become winners in the competition – just like us, who have done everything right! You can see in us that it works after all! Merkel presents Germany’s success, which of course is the result of a competitive striving that only some can win, never all, as something that any state can achieve if it only wants to.
At the same time, precisely Germany’s success in the competition is not at the bottom of the list of reasons for Greece’s bankruptcy and the debts of Spain, Portugal, Ireland, etc. ... Here you realize that it makes a big difference whether a nation that has capital, the latest high-tech products and high productivity, overcomes weak growth by impoverishing its workers and can in addition use this to tilt the scales in the competition to attract investment, or whether these means should replace everything else.
So Merkel requires the partner states use the impoverishment of the people, the only means that is available to them in their competition against their more powerful neighbor, ever more radically, the less it accomplishes. And to live with the fact that they are deprived of the other means, the public and private advance financing of growth with borrowed money. Moreover, Merkel acts as if she has the confidence that the financial markets have hitherto placed in Germany in the bag – and when faced with fact that the poverty prescribed for the southern europeans slowly but surely also undermines Germany’s export success.
“Done right,” according to Merkel, Germany has everything – for whom really? For returns and growth rates of German capital, for Germany’s tax revenues and creditworthiness. For this purpose. But for the working people in Germany? Ten to twenty percent of them now slave away for money they previously received as unemployment compensation. For them, progress is having to work for a miserable minimum income. For companies, this wage pressure opens new opportunities in the country; some relocation to low-wage countries can perhaps be avoided if Germany itself becomes a low-wage country. And the world market leaders who stay and continue to invest make high profits with the exploitation of lower wages and the use of standard-setting productivity. The state transforms people who cost taxes and burden social security funds into people who pay taxes and social contributions; the conquest of market shares by German export industries more than makes up for the losses resulting from layoffs caused by rationalization. Little has changed in the poverty of the previously unemployed, except that this poverty has gone from being useless and a burden on the state-administered welfare funds to being “useful.”
The remaining German workers and employees are continuously threatened by falling into the low wage and Hartz-IV-zone, and become correspondingly susceptible to blackmail. Their wages have also been sinking for over a decade, while the work demands have increased dramatically. They get less and less from their work, but work more and more per hour and day.
That’s the good relations that Europe should take as its model. These are the conditions that must be met so that a country has healthy finances and consequently an intact and stable state power.
[Translation of an article by Theo Wentzke, an editor of the German Marxist magazine GegenStandpunkt, from the May 14, 2012 “Junge Welt.”]