Tuesday, 6 December 2011

Social Democracy and the Economic Crisis

Act Up In Sask
November 14, 2011

In the Spanish general election last Sunday, the Socialist Party government was soundly defeated. The rightist Peoples Party won the election but only increased their vote by a very small margin. The Indignatos, the people who staged mass street mobilizations, asked the voters to stay home, spoil their ballot or vote for the numerous smaller parties. Neither of the two major parties were deemed fit to govern, they argued. The Socialists lost three million votes.

The Spanish economy is in the tank with unemployment at 22% and youth unemployment over 40%. Personal and government debt is huge, and investors fear they will default on their bonds. As in the United States, the crisis is the fallout from the collapse of the housing bubble, created by the unregulated finance industry supported by low interest rates and neoliberal government policies.

The Financial/Economic Crisis

The stock markets rose when the central banks of major capitalist countries pledged to provide the troubled banks of Europe with more liquidity, printing money guaranteed by their taxpayers. The Eurozone crisis is not really about bad fiscal practices by a number of the smaller states. It is about the bad lending practices of the big banks. F. A. Hayek would have insisted that the banks have to suck it up and take the losses, which were due to their own irresponsible practices. The neoconservatives have been ignoring him lately.

The central bank of the European Union does not have the funds to bail out the governments of Italy or Spain. Therefore, the only option seen by the political-economic elite is for a bank directed government imposing harsh austerity measures on the common people. Riots and general strikes are natural reactions.

This week Angela Merkel and Nicolas Sarkozy are meeting to come up with a plan for a new European union which would include the power to control the elected governments of the member states. These governments would be brought into line by a central authority operating on behalf of the international financial community. Needless to say, this is a diversion that would never be accepted by the member states.

Few want to mention that the real reason for the crisis is the dodgy level of solvency of the large banks. They made bad investments, like purchasing U.S. mortgage backed securities. They made loans to governments without checking to see if they could be paid back. The sovereign debt held by the banks was judged to be as good as cash and used to make inter-bank payments. There is no mark to market rule used by accountants today as it would reveal that banks hold a great deal of debt at a face value that is far above the real market value. That is why they are not rushing to foreclose on bad loans. It is a question of solvency.


Then there is Iceland. The first country that went bankrupt. Fortunately for the Icelanders, it was not a member of the European Union. The common people, through two referendums, refused to be held responsible for the horrendous practices of the private banks egged on by their mainstream economist advisers.

The OECD now reports that the GDP for Iceland will be +2.9% for 2011. Unemployment has fallen to 6.1%. Exports are recovering. Inflation is firm at 4%. The government is steadily moving to reduce the budget deficit. This turnaround was achieved by the Social Democratic-Green Left Movement government by devaluating the currency and introducing capital controls. This government rejected the calls for an austerity program and has chosen to follow the Argentine example of promoting growth from the bottom up.

Highway of Heroes?

It is Remembrance Day in Canada. The Saskatchewan government just announced the naming of the Trans-Canada highway between Regina and Moose Jaw our Highway of Heroes. This is to follow Ontario, to honour the memory of Canadians killed in the war in Afghanistan. Politicians and the mass media have been drowning us in PR pieces on what a great job we did there supporting the US/NATO war. A war for what? To keep in power Hamid Karzai, the corrupt president put in office by the U.S. government. To celebrate the Afghan parliament, which is dominated by misogynist warlords and drug lords. Our government has been there to block the participation of the democratic parties in the electoral process and to support the rewriting of the Afghan constitution to make the country completely dependent on the free market, free trade and foreign ownership.

Meanwhile, the two main parties in Greece have formed a temporary coalition government in order to impose the draconian “adjustments” on their own people. All of this, of course, is to protect the big European banks who made bad loans to the Greek government. Everyone who has half a brain knows that Greece will not be able to pay her debts and a default is just a matter of time. Another general strike has been called.

Suddenly, it was discovered that Italy has a huge debt and given its weak economy cannot pay it off. More political juggling. Another austerity budget is being imposed on the Italian people, a guarantee that the economy will further decline and debts will be impossible to pay. Such is the state of advanced capitalism today. Even the European Community Bank is warning that Europe is now falling into a double dip recession.

Far away in hinterland Saskatchewan, the oil is still flowing, potash is being dug out of the ground and exported, this year’s agricultural crops were blessed with good weather. Thus the right of centre Saskatchewan Party won the November 7 election with 65% of the vote cast, the largest margin of victory in the province’s history. The social democrat opposition, the NDP, was reduced to just nine seats and Dwain Lingenfelter, the leader brought back by the party’s caucus from his post at Nexen Energy, lost his own seat. The NDP had a good progressive platform, but with Lingenfelter, a strong neoliberal, as leader, they had no credibility.