[D66] Banks demand deeper cuts following EU summit

[Antid Oto]

Banks demand deeper cuts following EU summit
By Barry Grey
20 December 2011

The emergency summit of the European Union held December 10 in Brussels endorsed
an inter-governmental treaty constitutionally requiring all countries using the
euro to balance their budgets on the backs of the working class. The agreement
essentially transforms the European Union into a gigantic austerity zone,
setting the stage for an escalation of the assault on jobs, living standards and
social services on which tens of millions of working people depend.

The summit exposed the growing fissures within the EU, as Britain refused to
back the deal and used its veto to block the provisions from taking the form of
a revised EU treaty. The UK acted openly and entirely out of concern for the
interests of its banking industry, concentrated in the City of London. The
government of Prime Minister David Cameron is pursuing its own drive to destroy
what remains of the postwar welfare state in Britain and reduce British workers
to poverty, and, along with the rest of the European political establishment,
fully supports penalizing EU member-states that fail to lay siege to the social
gains won in the previous century by the working class.

The response of finance capital to the Brussels agreement was rapid and
peremptory. While welcoming the requirement for all signatories to include
so-called “debt brakes” in their constitutions and the establishment of
quasi-automatic penalties for countries that fail to keep their deficits to 3
percent of gross domestic product, the big banks, bond-holders and rating
agencies trashed the agreement for failing to massively increase the use of
public funds to underwrite their bad debts.

In particular, they denounced the rejection—at the insistence of Germany and the
European Central Bank (ECB)—of any increase in the EU rescue fund, the creation
of euro bonds, or an open-ended commitment from the ECB to back the sovereign
debt of EU nations. The major international banks are demanding, in short, an
even more massive public bailout, to be paid for by even deeper cuts in working
class living standards. This policy internationally is being spearheaded by the
United States, the UK and the International Monetary Fund.

For their part, Germany and the ECB are no less insistent on brutal austerity
measures. They, however, are driven by a fear of inflation and the protection of
German industry and industrial exports. The US and Britain, on the other hand,
have largely dismantled their industrial bases. Their industrial policies are
more completely subordinated to the needs and demands of the financial elite and
its speculative activities.

The banks and rating agencies lost no time whipping the EU and the ECB to come
up with more bailout cash. On the first business day after the Brussels summit,
Monday December 12, both Moody’s Investors Service and Fitch Ratings declared
that the Brussels agreement would not avert a deepening of the sovereign debt
and banking crises.

Moody’s reiterated that it was putting the sovereign debt ratings of all EU
countries on review for possible downgrade in the first quarter of 2012. It
wrote that the measures announced the previous Friday “do not change Moody’s
previously expressed view that the crisis is in a critical and volatile stage,
with sovereign and bank debt markets prone to acute dislocation, which policy
makers will find increasingly hard to contain.”

Stocks plunged in Europe and the US, and by Wednesday the euro had dropped below
$1.30, hitting its lowest point versus in the dollar in 11 months.

On Wednesday, Fitch lowered its ratings on five big banks from Denmark, Finland,
France and the Netherlands and the following day downgraded some of the world’s
largest banks, including Bank of America, Morgan Stanley, Goldman Sachs,
Barclays, Societe Generale, BNP Paribas, Deutsche Bank and Credit Suise. It
followed this up Friday by placing its ratings on six euro zone nations,
including Spain and Italy, on watch for a downgrade, declaring that a
“comprehensive solution” to Europe’s debt crisis was “technically and
politically beyond reach.”

Moody’s on Friday downgraded Belgium by two notches and gave it a negative outlook.

European governments, fearful of the eruption of mass working class resistance,
on the one hand, and facing relentless pressure by the banks for deeper cuts, on
the other, are increasingly coming into conflict with one another as each
national bourgeoisie seeks to salvage its own interests at the expense of its
neighbors.

French officials are anticipating an imminent downgrade of French debt by
Standard & Poor’s. Last week they argued that the rating agency should downgrade
Britain instead. Christian Noyer, head of the Bank of France, said Thursday that
Britain “has bigger deficits, more debt, higher inflation, less growth than us
and where credit is shrinking.”

The next day, French Finance Minister François Baroin added to the attack,
declaring, “At this point, one would prefer to be French than British on the
economic level.”

Following Noyer’s anti-UK statement Thursday, Christine Lagarde, the managing
director of the International Monetary Fund (IMF), cautioned against the growth
of economic nationalism, declaring that there is “no economy in the world” that
will be immune to the crisis “that we see not only unfolding, but escalating.”
Calling for a coordinated global response, she warned that the world faces the
risk of “economic retraction, rising protectionism, isolation and… what happened
in the ‘30s.”

The same day, reflecting the continuing divisions, ECB President Mario Draghi
reiterated his opposition to any major increase in the central bank’s purchases
of government bonds of highly indebted nations such as Spain and Italy, and to
the ECB becoming a lender of last resort, as called for by the IMF. “There is no
external savior for a country that does not want to save itself,” he declared.

Meanwhile, governments brought to power through the intervention of the
financial markets are intensifying their attacks on the working class. In Italy,
the technocratic government of Mario Monti won passage in the lower house of
parliament Friday of a new 30 billion euro austerity package that includes
historic cuts in pensions and a series of regressive taxes. Monti dropped an
earlier proposal for a “wealth tax.”

The bill was roundly denounced in the financial press for failing to include
“structural reforms” to increase “labor flexibility,” i.e., eliminate all job
security provisions. Monti promised to introduce a new plan early next year
including such measures.

In Spain, the newly installed Popular Party prime minister, Mariano Rajoy, on
Monday announced plans to introduce sweeping austerity measures early next year.

In Greece, living standards have plummeted and unemployment has reached 20
percent as a result of a series of austerity budgets dictated by the banks, the
EU and the IMF. Pensions are to be cut a further 15 percent in January, and more
than 40,000 public sector workers are being hit with pay cuts of up to 40 percent.

Now the banks are seeking to extort further concessions from the unelected
government of Prime Minister Lucas Papademos, demanding more onerous terms in
return for agreeing to a 50 percent “haircut” for holders of Greek government
bonds. An accord on the bond repayments is a precondition for the release of the
first trance of a new 130 billion euro rescue fund supervised by the EU, the ECB
and the IMF.

Last week, the IMF demanded a further reduction in the size of Greece’s public
sector, stating, “This inevitably will require closure of inefficient state
entities, reductions in the large public-sector work force, and adjustments of
generous public wage and pension levels.”

http://wsws.org/articles/2011/dec2011/euro-d20.shtml