A new stage in the euro crisis
Reading the latest headlines on the euro crisis, one experiences a feeling of déjà vu. Like last summer, the rating agencies are lowering their ratings, interest rates for government bonds are rising to astronomical heights, and governments are announcing new austerity measures. Only this time Spain has supplanted Greece, whose economy is just one fifth the size of Spain’s, as the focal point of the crisis.
Despite the billions in bailouts and trillions injected by the European Central Bank, as well as round after round of austerity measures, the euro stands closer to the abyss than ever before. “We believe that Europe is sleepwalking toward a disaster of incalculable proportions,” 17 leading European economists warn in a report published this week.
It would be naïve to attribute the worsening of the crisis to a purely technical response by the markets to rising public debt in Southern European countries. Even the Financial Times’ editorial on Wednesday acknowledged that Spain’s public debt is “well below the euro zone average,” and that “there are no underlying economic reasons to feel differently about Spain now than a week ago”. Nevertheless, interest rates on ten-year Spanish bonds have risen far above the critical level of 7 percent.
Behind the onslaught on the euro lie fundamental class interests. The international financial oligarchy that dominates the financial markets and stock exchanges will not rest until all the social gains won by the European working class after World War II have been destroyed. In their eyes, collectively agreed upon wages and workers’ rights are illegitimate restrictions on their wealth, as is government spending on education, health, pensions, public services and infrastructure.
A definite pattern has been established. First, the rating agencies downgrade the creditworthiness of a country, which results in an increase in the interest it must pay on its debt. The country falls into a debt trap and turns to the European Union (EU) and the International Monetary Fund (IMF). These institutions, dominated by the major international banks, guarantee the creditors’ loans and dictate drastic austerity measures to the country. It slides into recession, the debt continues to rise, there follow further austerity diktats, and the recession deepens—until the welfare state is destroyed and the working class is ruined.
Read the full article at: wsws.org