[D66] Stock market panic deepens euro crisis

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Stock market panic deepens euro crisis
By Peter Schwarz
6 August 2011

When the euro-zone government chiefs met on 21 July at a special summit in
Brussels to agree on a package of measures to resolve the euro crisis, the World
Socialist Web Site noted: “The summit has not solved the crisis, but merely
postponed it. It is therefore only a matter of time before the pressure on the
euro increases again, and the government chiefs will have to meet again in an
emergency summit.”

It has taken exactly two weeks for this prediction to come true.

After the stock market panic of Thursday, the fate of the euro and the European
Union is more uncertain than ever before. In addition to the peripheral
countries of Greece, Ireland and Portugal, now Spain and Italy, two core states
of the euro-zone, are facing difficulties refinancing their debts. Even France,
the second largest economy in Europe, is having to pay much higher interest
rates on government bonds than her German neighbours.

Europe presents the image of a continent whose governments are paralysed and at
loggerheads, being driven forward helplessly by the financial markets. In this,
they are certainly not just the “victims” of the panic on the stock exchanges.
The growing national conflicts in Europe—along with the budget dispute and the
signs of a coming recession in the US—have largely contributed to the stock
market panic. This week alone, this panic destroyed worldwide assets worth some
$2.5 trillion, a sum equivalent to the annual economic output of France.

After the euro summit on July 21, the risk premiums for Spanish and Italian
government bonds soon began to rise again, despite the meeting agreeing to
extend the powers of the European Rescue Fund (EFSF), supposed to help the
highly indebted countries.

The announcement of early elections by Spanish Prime Minister José Luis Zapatero
and a parliamentary speech of Italian Prime Minister Silvio Berlusconi also
failed to calm the financial markets. Both countries have had to pay more than
six percent interest for ten-year bonds.

The panic on the markets then escalated, when, on Thursday, a letter from EU
Commission President Barroso to the leaders of the 17 euro-zone countries was
made known, in which he demanded “a swift revaluation of all elements” that had
been agreed at the euro summit two week earlier, and called for a substantial
increase of the 440 billion euro European rescue fund.

In Berlin, which must raise about one-third of the fund, Barroso’s letter met
with angry rejection. “It is impossible to tell whether re-opening the debate
only two weeks after the summit will calm the markets,” said the spokesman for
Finance Minister Wolfgang Schäuble.

The financial daily Handelsblatt said Barroso could not have chosen a worse time
for his “show of ego”. Now the financial markets were in turmoil, “discrete
action was called for, but no alarm messages via the media”.

A press conference by the head of the European Central Bank encountered
similarly harsh reactions in Berlin. Jean-Claude Trichet announced that the ECB
would restart the controversial purchase of government bonds of crisis-hit
countries, previously halted for several months.

According to a report by Reuters news agency, there had been a heated debate in
the ECB governing council; the two German and two other council members rejected
the measure.

The international stock markets reacted to the announcements made by Barroso and
Trichet, and the controversy they provoked, with the biggest losses since the
crisis in 2008. Many observers fear that there could be a repeat of the earlier
crisis.

Britain’s Guardian newspaper asked, “Are we heading for Meltdown 2?” It compared
the situation with the beginning of World War II: “Even in the month or so after
the assassination at Sarajevo, when the great powers gave up on diplomacy and
prepared for conflict, the movements in financial markets were less violent than
they were on Thursday.”

Should it really come to a second meltdown, says the Guardian, the political
options for a solution would be far fewer than four years ago. Interest rates
are already at rock-bottom and “the deepest recession since the 1930s has been
followed by the feeblest recovery—weak, stuttering and at risk of being aborted
at any moment.”

The Financial Times too fears “a full-scale financial meltdown” and asks: “Will
that turn a sticky summer into a turbulent autumn? And then produce a wintry
‘real economy’ hit?”

There is no shortage of voices in the European media calling on the European
heads of government to stand together, to act far-sightedly and not to drift
from one crisis to another. On Friday, the German Chancellor Angela Merkel,
French President Nicolas Sarkozy and Spanish Prime Minister Zapatero have agreed
to hold a crisis conference call. But they will be just as unable to solve the
crisis as the special summit two weeks ago and the many extraordinary summits
that will follow.

The narrow-mindedness of the leading European politicians, the growth of
national self-interest and the constant bickering between Berlin, Paris,
Brussels and the other capitals are not the result of failures of character by
the responsible politicians; the national narrow-mindedness of a Sarkozy, or the
lack of a European vision of a Merkel, as many observers complain. Rather, they
are an expression of profound social change.

Every aspect of economic and social life today is subject to the dictates of
finance capital, which—detached from productive activity—only looks for a quick
profit. Any longer-term policy that takes into account social needs, or at least
tries to dampen domestic and social conflicts is thus impossible.

All political parties—whether conservative, liberal, Green, social democratic or
“left”—have become subordinated to the dictates of the financial elite, which
has immense riches. Their only answer to the crisis is handing over billions to
the banks, on the one hand, and implementing new austerity programs to the
detriment of the population, on the other.

The consequences are a persistent social decline and growing national conflicts.
Society is heading towards massive revolutionary struggles and armed conflicts.
The parallel drawn by the Guardian to the First World War is, in this regard, is
not plucked from thin air.

The need is to prepare for the coming conflicts. The power of the financial
elite can only be broken by the international working class. This requires a
socialist programme and a new party. This is the aim of the Socialist Equality
Party and the International Committee of the Fourth International.

http://wsws.org/articles/2011/aug2011/euro-a06.shtml