Vol. 74/No. 8      March 1, 2010

In the next several months, Athens needs to raise $75 billion to cover its budget deficit and pay off other loans, many of which come due in April and May.

When the European Union was created in 1993, it was touted as a way to bring together the nations of Europe to compete economically and politically against Washington. By 2002, 12 EU members, including France, Germany, and Italy, replaced their national currencies with a single currency called the euro to challenge the supremacy of the U.S. dollar.

But neither the EU or the now 16-member eurozone could overcome divisions among European imperialists. In fact, by promoting a freer flow of goods, labor, and capital they exacerbated the existing contradictions and tensions between rival capitalist classes in Europe.

In spite of worries that the Greek crisis could spread, leaders of 27 EU governments issued only a vague statement February 11 promising “coordinated action if needed to safeguard stability,” but took no specific measures. German chancellor Angela Merkel opposed any immediate financial assistance or loan guarantees.

The Panhellenic Socialist Movement government of Greek prime minister George Papandreou promised to do “whatever is necessary”—meaning taking the crisis out on workers and farmers—to not go over “the edge of the cliff.”

The Greek government announced $2.75 billion in public spending cuts, and a plan to raise $6.87 billion from new taxes and measures to fight “tax evasion.” Taxes will be increased on alcohol and gasoline, which currently costs $6.74 a gallon. The government has also pledged to increase the average retirement age by two years to 63 and cut wages of government workers, one-third of the country’s workforce.

The Greek government’s total debt to bondholders and banks is expected to be 120 percent of the gross domestic product (GDP) this year. Its yearly deficit is nearly 13 percent of GDP, way above the supposed EU ceiling of 3 percent.

On February 10 government workers in Greece staged a 24-hour strike to protest the proposed austerity measures. The strike grounded planes at the airport and slowed rail travel. Many hospitals were also affected. According to press reports only a couple protest marches were organized by the unions and turnout was low.

“It wasn’t the workers who took all the money, it was the plutocracy,” Alexandros Potamitis, a retired merchant seaman, told AP. “It’s them who should give it back.”

Greece is not the only EU member in danger of financial collapse with huge deficits and outstanding loans. Spokespeople for the French and German rulers show their disdain for their weaker capitalist EU sisters by referring to them as PIGS, an acronym for Portugal, Ireland (and sometimes Italy), Greece, and Spain.  
 
Savage austerity in Ireland
Last year the Irish government implemented what London’s Guardian newspaper called a “savage” austerity program after it feared it could be the next Iceland. In October 2008 the Icelandic government and economy imploded after banks there collapsed in the face of debts equal to 10 times Iceland’s GDP.

With official unemployment at about 13 percent, the Irish government cut the wages of government employees by 5 percent to 15 percent and slashed welfare programs by $1 billion.

A meltdown in Greece or Ireland would put capitalist profits across Europe at risk. According to the Wall Street Journal, French banks have $75.5 billion in loans to Greece; Swiss banks have $64 billion, and German banks $43 billion. British banks have loans worth $193 billion in Ireland. Germans banks have at least that, while French banks have $78 billion there.

Spain could be an even bigger problem for the EU. With a population of 45 million, compared to 11 million people in Greece, it is the fifth largest economy in Europe. Spain has an annual budget deficit of 11.4 percent and the highest unemployment rate in the EU, officially reaching 18.8 percent in January. German banks and financial institutions have $240 billion in loans outstanding there.

While the German and French economies have more wiggle room than their weaker competitors, like the rest of the capitalist world they are not in good shape. In 2009 the Germany economy shrank by 5 percent, the largest contraction there since World War II.  
 
Euro in crisis
Just a year ago Time magazine waxed eloquent about the “remarkable achievement” for the euro, claiming it had remained unflustered in spite of the global financial crisis, prevented a currency crisis, and protected small nations.

Since January, however, the euro has dropped 4.4 percent against the U.S. dollar. USA Today captures the currency’s weakness in a February 10 headline: “EU Tries to Figure Out How to Help Greece, Save the Euro.”

The euro has never been able to seriously challenge the U.S. dollar. A January report from the U.S. Federal Reserve notes that most European exports to the United States, including from France and Germany, are invoiced in dollars, not euros.

As the worldwide economic crisis continues to unfold, with all its ups and downs, Washington’s competitors in Europe are also worried about the U.S. economy. A column by Niall Ferguson in the February 10 Financial Times titled “A Greek Crisis is Coming to America” warns that the looming financial disasters are not caused by “idiosyncrasies of the eurozone.”

“The key question,” he argues “is when that crisis will reach the last bastion of western power, on the other side of the Atlantic.”  
 
 
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