Approaching the Eurozone Crisis


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This piece was originally written for a discussion meeting on 27 September, 2015. The majority of it is based upon an exstensive review of the Fight Racism! Fight Imperialism! archives – specifically of David Yaffe & Steve Palmer’s economic articles. With such a vast array of material to cover, this exposition is necessarily limited. My aim here is to suggest an approach & a direction for analysing the Eurozone crisis, 1 that is in continuity with that of Yaffe & Palmer.

approaching the eurozone crisis

On Thursday, the Financial Times reported that Emmanuel Macron – the French economics minister – is calling for a ‘radical reform’ to save the euro. He calls for ‘a permenant transfer mechanism’ to channel funds from ‘richer states to countries in difficulty’. He insists that the current structure of the European Union (EU) is insufficient & unsustainable. The Eurozone, he argues, must set up a common treasury, overseen by a new European parliament. (Ferdinando Giugliano & Sarh Gordon, ‘Macron calls for radical reform to save euro‘, Financial Times (24 September, 2015).) The logic behind this argument is geared toward controlling desent. Macron: ‘Without transfers you will not allow the periphery to converge and will create political divergence toward extremists.’

German Imperialism has vehemently opposed similar efforts in the past. It is likely to do so again. This split between the leading lights of the Eurozone takes us directly to the heart of an important question. In effect, European Capital is already centralised in subservience to the leading Eurozone Imperialists – France & Germany. What is now nearing a decade of austeriy in the Eurozone has resulted in countless banks, industry & commerce reductions – or even closures – in the economically weaker Eurozone nations. (See James Martin, ‘Euro Crisis – imperialists in conflict‘, Fight Racism! Fight Imperialism! 222 (August/September, 2011).) What Macron proposes is a formalisation of this fact, cloaked by the sparse cover of neoliberal rhetoric. France hopes to gain ground through this process. Germany opposes it for precisely the same reason, quibbles about taxation be damned.

As I have already said, the disagreement signalled by Macron is nothing new. In June, 2012, another example of this division is discernable: ‘[François] Hollande strongly backs common eurobonds – pooling eurodebt liability – which would ease the funding costs for the eurozone’s deeply indebted periphery. Germany sees this burden-sharing arrangement as taking pressure off the southern eurozone countries to drive through the structural reforms (austerity), as well as potentially increasing German borrowing costs by diluting its creditworthiness across the eurozone.’ (David Yaffe, ‘Greek resistance stalls European imperialist agenda‘, Fight Racism! Fight Imperialism! 227 (June/July, 2012).)

The Eurozone – & subsequently the euro – is a system of Imperialist domination & exploitation. It is used to bolster the interests of French & German Imperialism against the interests of US Imperialism. It was founded as such. In 1950, France & the then German Federal Republic made a series of deals. By 1969, it became clear that Germany would support a single currency European monetary system if France supported German reunification. France was able to consolidate its financial interests in all Southern European states & Germany was able to push into Eastern Europe & Russia following the collapse of the Soviet Union. (See Martin.) Today, France & Germany still make up nearly 1/2 of Eurozone GDP. The tensions between them represent deeper inter-Imperialist rivalries. In the light of the crisis, they resemble 2 competing vultures, pecking harder & ever harder at a starved corpse.

I highlight this as it is central to an understanding of any development in the EU or the Eurozone. The position adopted by German Imperialism is untenable. In reality, if even Greece, Spain, Italy, Ireland & Portugal – the “periphery” states of the Eurozone, referred to collectively as the PIIGS – left the Eurozone the consequences would be dire. Around 58% of the value of Europe’s banks would be wiped off the map. The Eurozone crisis is pushing the major European Imperialists to consolidate, to form a European Imperialist bloc. Moves were made in this direction as early as the 30 January, 2012, with the agreement of a fiscal pact* intended to enforce budgetary discipline in the EU & underpin the Eurozone. (See Yaffe, ‘Imperialists manoeuvre as eurocrisis deepens‘, Fight Racism! Fight Imperialism! 225 (February/March, 2012) & Yaffe, ‘Eurozone crisis – Turning the screw‘, Fight Racism! Fight Imperialism! 226 (April/May,2012).) In 2012, Yaffe wrote that the ‘deepening eurozone crisis is forcing the pace and Germany will have to accept significant moves towards a banking, fiscal and eventually political union in the eurozone, the essential underpinning of a strong and powerful European imperialist bloc.’ (Yaffe, ‘Edging towards a European imperialist bloc‘, Fight Racism! Fight Imperialism! 228 (August/September, 2012).) Macron’s demands are the proof in the pudding.

The banking crash in 2008 precipitated the beginning of the Eurozone crisis, often referred to (in this latent phase) as the “sovereign debt crisis”. At the time of the crisis, aggregate Eurozone debt stood at 180% of GDP. (Yaffe, ‘Capitalism in crisis: stagnant, predatory and corrupt‘, Fight Racism! Fight Imperialism! 244 (April/May, 2015).) In the PIIGS, this was at its most pronounced. Government debt in Greece stood at 112.9% of GDP & in Italy at 106.1%. By contrast, government debt was only 66.8% in Germany. Since 2008, these figures have risen dramatically. In 2011, Greek debt climbed to 170.3%. (‘In graphics: Eurozone crisis‘, BBC News (25 April, 2013).) Aggregate Eurozone debt reached 204% in April this year.

In order to understand this, we need to view it in continuity with the banking crash. In 2011, Yaffe wrote that the ‘sovereign debt crisis is merely the second phase of the global crisis that erupted with the collapse of Lehman Brothers three years ago on 15 September 2008. That precipitated the biggest financial meltdown in history. Underlying the crisis was an over-accumulation of capital in the main imperialist countries. It led to the biggest recession since the 1930s. The capitalist system survived this process because the state underwrote the debts of the banks and financial institutions on a scale never seen before. The huge state debts run up to save the banks in turn precipitated the sovereign debt crisis. The crisis is most severe in the smaller eurozone states with weaker banks, whose ruling class groups borrowed relatively huge sums at low euro interest rates.’ (Yaffe, ‘Capitalism Fractures – No End to Global Economic Crisis‘, Fight Racism! Fight Imperialism! 223 (October/November, 2011).) This has, in many ways, set the stage for austerity in Europe.

It’s important to recognise that the major European Imperialists have both direct & indirect interests in the PIIGS countries. In 2011, the exposure of French banks to the PIIGS countries stood at £350bn. In the same period, the exposure of German banks stood at £270bn & the exposure of British banks at £195bn. (Yaffe, ‘Edging towards a European imperialist bloc’.) It is worth reiterating that, for the French & German Imperialists, what is at stake is nothing less than empire itself: if the PIIGS left the Eurozone, around 58% of the value of European banks would be wiped out. This would severely curtail the Eurozone, damaging the ability of French & German Imperialism to compete with the US.

The response of the Eurozone Imperialists, as we all know, has been the institution of austerity. Loans are granted to the PIIGS economies in return for savage spending cuts, the lowering of wages, etc.

The 1st example of this is Ireland. Whilst Irish government debt to GDP was nowhere near the scale seen in Greece, it’s banking sector was particularly swollen. (See Martin.) The liabilities** of Irish banks stood at over 3x Ireland’s GDP – the 3rd highest in the Eurozone. The banking crisis, therefore, immediately manifested as a sovereign debt crisis. In September, 2008, the EU forced the Irish government to guarantee*** the debts of the top 6 Irish banks & 1 foreign bank for €440bn (over 150% of GDP). An emergency budget was passed in October, attacking the living conditions of the Irish people. The Anglo Irish bank was nationalised & the Bank of Ireland & Allied Irish were part-nationalised between 2009 & 2010. A 2nd round of cuts were made in April 2009, amounting to €4.5bn. Unemployment then stood at 13.5% & living standards had fallen by 20%. By March, 2010, the Irish state was buying massive bad loans from the 3 largest banks at a 47% discount. The state was handing the countries revenues to the banks to protect the countries bond-holders.

The crisis in Greece had now matured. In January, 2010, the Greek government desperately needed €54bn to survive the financial year****. The state budget deficit was 13.6% of GDP – 4x over the Eurozone rules. Total state debt stood at 115% of GDP. Greece had specific importance to the Eurozone & the EU. French banks were holding 24.9% of Greek government bonds & German banks 14.3%. The full Eurozone held 58% of Greek government bonds. In addition to this, Greece was the largest market for conventional arms in this period. It had the highest ratio of arms spending to GDP in the Eurozone. The military, political & economic importance of Greece is clear.

In response to the Grecian debt crisis, the EU approved Greece’s spending cuts to reduce state deficit to 3% of GDP by 2012 – an unrealistic fantasy. After a significant deepening of the crisis in the other PIIGS countries, French & German banks were severely threatened. By March, the situation became absurd, signalling all that was to follow. A proposed EU/IMF 3 year deal, starting with €45bn, €30bn of which was from the EU, allowed Greece to sell €5bn of 10 year bonds at a cost of 6.3%. German demands for deeper Greek budget cuts than France excluded a €1.3bn Greek purchase of German submarines. A further purchase, this time of French warships, was announced on 17 March as bankruptcy loomed. Squeezed by Germany and France, Greece again appealed to the IMF. On 3 May, 2010, the 17 Eurozone countries agreed a 3 year €110bn EU/IMF Greek bailout package in return for a severe austerity package of €24bn cuts. A year later, Greece was paying 15% for privately sourced debt, compared to a peak of 12.3% in 2010. It had an immense debt of €355bn. The budget deficit stood at 13% of GDP, well above a target of 8.1%. Unemployment was 16.2%.

Today, in Greece, the abject failure of the policy can be easily seen. Greece now accounts for on 2% of Eurozone GDP – in 2010 it accounted for 3%. In July, 26% of the Greek population were unemployed, with a youth unemployment (under 25s) of over 60%. 11,000 people have committed suicide in Greece since 2008. 90% of the original 2010 EU/IMF loan to Greece went toward paying off other loans. (James R. Bell, ‘Notes on the Crisis of Imperialism: Oxi‘, Notebook (6 July, 2015).)

Yaffe’s analysis of the Eurozone crisis in Fight Racism! Fight Imperialism! identifies the treatment of the PIIGS countries as central to our understanding. The continual spiral of loans & austerity has been institutionalised by the founding of Special Purpose Vehicles in 2010 – the European Financial Stability Mechanism with €60bn from the European Commission and €250bn from the IMF & the European Financial Stability Facility, able to raise money by issuing bonds of €440bn. These have served as standing bodies to continue the issue of loans to PIIGS countries & continue the management of austerity. Although vast, they have proved insufficient. In 2013, the European Central Bank (ECB) stepped in, pledging ‘to do whatever it takes to preserve the euro’. Initially, this consisted of a pledge to purchase short-term bonds of upto 3 years. (See Yaffe, ‘Divisions and conflicts resurface as immediate threat to Eurozone recedes‘, Fight Racism! Fight Imperialism! 230 (December, 2012/January, 2013).) This too was insufficient. In January, 2015, the ECB announced that it would begin a programme of quantitative easing. It plans to buy €60bn worth of bonds a month. (Yaffe, ‘Unending economic crisis sharpens class divisions‘, Fight Racism! Fight Imperialism! 243 (February/March, 2015).)

A word on Britian. The British bourgeoisie are split on the issue of Europe & the EU. From the onset, they have insisted that they have “special interests” in the EU, that they cannot be held to the same rules as the rest of the EU. The crisis of British Imperialism & its diminishing dominance in the world are making this position untenable. In 2007, Fight Racism! Fight Imperialism! argued that Britain will need to make a choice. Will it side with US Imperialism or the EU? This fundamental choice for the British Imperialists remains. It is becoming more & more urgent. (See Yaffe, ‘European Union and Britain: Tories self-destructing over Europe‘, Fight Racism! Fight Imperialism! 233 (June/July, 2013).)

At the heart of the crisis, the central contradictions of Capitalism remain unaddressed. Writing in 2013, Yaffe says that Capital ‘will only be invested if it can make sufficient profitable returns. A non-expanding capital is a capital in crisis. There are plenty of productive investments that could serve the interests of the millions of people facing falling living standards, lack of housing, poor education and inadequate healthcare. But they would not be profitable for capital. The world economy is generating “more savings than businesses wish to use”, even with the low interest rates in the major capitalist economies, because there are not sufficient profitable outlets for the world’s surplus capital. This is an overaccumulation of capital in relation to the profitable exploitation of labour. The rate of exploitation is insufficient for the expansion requirements of capital.’ (Yaffe, ‘Global economic recovery falters‘, Fight Racism! Fight Imperialism! 236 (December,2013/January, 2014).) The bourgeoisie are attempting to find profitable investment by means of economic terrorism, in Europe & around the world. The fundamental tenants of crisis remain unchanged by all their rhetoric.


*Currency unification refers to several nations possessing the same currency. A fiscal union is the integration of fiscal policyof different states. For example, it would require the integration of tax & public pension laws.

**Banking liablities are the debts incurred by a bank – what that bank owes.

***Guarantee means that, if an institution fails to meet its liabilites, then the lending institution will cover them. In this context, the Irish government would cover the banks mentioned if they failed to meet liabilities of upto €440bn.

****April is the beginning & end of a financial year.


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