Vol. 73/No. 9      March 9, 2009

Latvian president Valdis Zatlers accepted the resignation of the coalition government headed by Prime Minister Ivars Godmanis. Zatlers said he will begin discussions with parties in parliament to find a new prime minister.

The instability of the government was highlighted in January when 10,000 people protesting the impact of the economic crisis clashed with police. In February, farmers blockaded the capital in tractors, forcing the resignation of the agriculture minister.

Hospitals and schools throughout the country are under threat of closing, local government budgets were cut as much as 40 percent, and wages of government workers slashed by 25 percent.

Latvian foreign ministry officials say the country’s economy is expected to shrink 12 percent in 2009.

The collapse is even more striking given that Latvia, known as one of the “Baltic Tigers” along with neighboring Estonia and Lithuania, posted one of Europe’s highest economic growth rates after joining the European Union in 2004.

Other Eastern European governments could suffer the same fate as the Latvian regime. The Ukraine economy, in part dependent on steel exports, has been hard hit by the plummeting price of steel.

In many countries in Eastern Europe the contraction in production is combined with a currency crisis. Between September 2008 and February, Hungary’s currency, the forint, fell 28.9 percent against the U.S. dollar. In the same period the Ukrainian hrvynia fell 42.2 percent and the Russian ruble 32.2 percent.

The currency runs can have a devastating effect both on local capitalist enterprises and on working people. In Hungary home mortgages, although paid in forints, are often pegged to the euro. A devaluation means a sharp increase in monthly payments.

The Washington Post in a February 21 article warned, “A financial meltdown in Eastern Europe could drag down banks in Austria, Sweden and Switzerland, which lent heavily to financial institutions and businesses in Eastern Europe and for years enjoyed healthy returns.”

Banks in Austria, Sweden, Greece, Italy, Ireland, Belgium, and the Netherlands have about $1.6 trillion in outstanding loans to Eastern Europe, increasing the possibility that other Western European countries could implode like Iceland.  
 
Plunging auto sales
The decline in the auto industry, like the crisis of the weakened “Baltic Tigers,” highlights the international character of the unfolding economic contraction.

Sales of automobiles in the United States plunged 18 percent last year. General Motors says its sales decline since 2007 is equal to the capacity of 24 assembly plants.

In Mexico the decline is worse. Auto production in January was 51 percent less than a year ago. U.S. car sales of Toyota, now the world’s largest and richest auto company, have dropped by a third over the last year.

In South Korea, Ssangyong Motor Co., majority owned by China’s Shanghai Automotive Industry Corp., declared bankruptcy. General Motors’ Daewoo subsidiary there is asking Seoul for $646 million to stay in business.

Shortly after GM’s request for help from the Swedish government was turned down, Saab, its Swedish-based subsidiary, filed for bankruptcy protection.

The auto industry is not alone in what Karl Marx referred to 150 years ago as the capitalist crisis of overproduction. “The world is suddenly awash in almost everything,” noted the February 17 Washington Post. “Televisions, bulldozers, Barbie dolls, strip malls, Burberry stores.”

Overproduction does not mean that many things piling up in warehouses—from gasoline and clothing to tractors and water pumps—are not needed by working people and farmers around the world; just that the capitalists cannot sell them at a profit they consider large enough to make it worth their while to continue to produce.

In a scheme that could inflate a new financial bubble, the Federal Reserve February 10 announced a program that dwarfs the so-called stimulus bill. Known as the Term Asset-Backed Securities Loan Facility, the U.S. government will “loan” a trillion dollars to hedge funds and other financial speculators.

Under the plan first developed last fall, “investors” would get up to $1,000 in government loans for every $50 invested. The loans are not for factories or production or the planting of crops, but for buying debt: repackaged and “securitized” student loans, auto loans, and credit card debt.

If the loans go bad, the hedge funds will only have to pay back their original outlay. The government will pay the rest.  
 
 
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