Vol. 76/No. 4      January 30, 2012

Greece is the leading edge in a deepening capitalist crisis across Europe, especially in the eurozone, the 17 countries that form an economically linked free trade, protectionist and currency bloc.

The worldwide slowdown in capitalist production, trade and employment is behind the growing crisis.

In the 10 years since the bloc’s creation, Germany’s dominant manufacturing and export-based economy has benefited from growing markets in European countries dependent on importing manufactured goods and capital, such as Greece and Italy, among others.

These countries took advantage of cheap credit available from their adherence to the euro bloc to fund these imports. Over years, this has led to ever-growing trade imbalances and indebtedness, which has come to a head with the deepening crisis of capitalism worldwide.

Greece is no longer able to pay its bills or finance its government. Ten-year Greek bonds sell at an astronomical 35 percent interest rate. The Greek government faces $18.4 billion in bonds due March 20, without funds to pay or refinance them.

Leaders of the European Central Bank, European Union and International Monetary Fund, fearing uncontrolled bankruptcy in Greece, with devastating consequences for capitalism reverberating across Europe, organized to supply ever more loans while pressing Greek capitalist rulers to impose ever deeper austerity on the working class.

Last October, as part of these moves, the “Troika” won promises from both Athens and private banks, hedge funds and other investors to agree to a 50 percent “haircut” on $130 billion in holdings of the country’s bonds. Government central banks are exempt from the loss.

They made a negotiated pact a precondition for releasing any funds to Greece.

Since then, the Greek government has been pressing for an agreement with the Institute of International Finance, a Washington-based group representing the banks that hold the bulk of the Greek bonds. Banks involved include the National Bank of Greece, BNP Paribas in France and Germany’s Deutsche Bank.

At the heart of the negotiations was reaching agreement on the terms of new bonds embodying the cut in value by half, or more.

The IMF, noting that Greece’s economic crisis has gotten worse since October, pressed for a higher “haircut,” to 60 or even 75 percent, and for lower interest payments on the replacement bonds.

The banks balked at the suggestion, demanding no further losses, guarantees that the new bonds would be redeemable, and higher interest.

On Jan. 13, the banks broke off the talks, saying that they “paused for reflection.”

An additional wrinkle in the mix is a group of hedge funds and other speculators that have bought some of the Greek bonds being renegotiated, along with credit default swaps to insure full payment if Greece defaults. Betting on either bankruptcy, or Athens being forced to pay in full on their bonds, they have no interest in agreeing to a 50 percent drop in their investment, and are refusing to come to the table.

These developments precipitated divergent views across the continent on what should come next. Some urge throwing more money into keeping it limping along, urging deeper and deeper austerity. Others say the time has come to cut losses and let Greece go out of the eurozone.

German foreign minister Guido Westerwelle, in Athens Jan. 15 to press for a deal, pushed more attacks on the working class, saying “we want to embolden the Greek government to implement the reform steps it has announced.” While the Greek government has promised to slash 30,000 state jobs, shifting workers into a labor reserve at much lower pay, only 1,000 workers have been hit so far.

Unemployment is over 18 percent. State workers’ wages have been cut by 40 percent. Some 68,000 businesses closed in 2010, and 53,000 more are reported on the verge of shuttering, throwing workers on the street. Greeks seeking jobs are leaving the country in unprecedented numbers. Arrivals of Greeks are up 21 percent in Australia.

Crisis hits French bond ratings

The stakes are high. Germany’s state bank, the Bundesbank, is currently owed $709 billion by other eurozone central banks, including those of Ireland, Spain, Italy and Greece.

The crisis is continent wide, also afflicting the “core” imperialist powers. Standard and Poor’s rating agency announced Jan. 13 that it was cutting the ratings of the majority of eurozone countries, including France, Austria and Italy, making it more costly for them to issue bonds. They were met with howls of nationalist protest.

All across Europe, manufacturing and trade is declining, as a double-dip recession deepens, causing layoffs and worsening conditions for working people.

One thing is sure. The centrifugal forces tearing away at the eurozone will grow. And workers will be targeted to bear the cost of capitalism’s crisis.  
 
 
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