Debt bombing Greece, part 2

At 8.30 pm on February 4, the European Central Bank decided to block funding for Greece despite the previously agreed basis (across all other EU countries) that accepted that outstanding loans could be used as collateral for the ECB's money. It is hard not to see Merkel's intervention here as the Bank chief talked things over with his boss, after meeting with Syriza's Finance Minister earlier that day. Merkel and Mario Draghi then provoked the bank run in Greece on 5 February that they had decided was needed to educate the Greeks that their democratic decisions were subject to European ruling class veto. Billions more Euros were exported out of the country. The ten-day-old Syriza government faced their first Troika initiated emergency.

Greece then is still an experiment. Up to now, this experiment seemed more a matter of Greek politician's rhetoric and hyperbole - that is to most of the media in Western Europe, outside Greece. But Greek people always understood the idea. The Greeks understood why it is that they still 'owe' £340 billion, more than they 'owed' in 2008, even after a £40 billion debt reduction in 2012, and after 6 years of drastic, life-threatening austerity. They lived the 'austerity' and still have the debt; except it has gotten bigger. The Greeks understand that their lives and resources have been stolen from them.

The capitalist world's increasing debt has been discussed before, including by this blog. Now McKinsey Global Institute have been analysing world debt for a decade and have produced a new report. Their latest study shows that, despite austerity policies in the west - presented as the solution to the indebtedness, which nearly blew the world apart in 2008, world debt has increased by $57 trillion since. It now stands at 286% of the world's GDP. China makes a significant contribution to this with an increase from $7 trillion of debt in 2007 to $28 trillion now - 282% of its GDP (see 'China fever ... ' blog 6/11/2014.) All of the major western countries, including the UK, have also increased their indebtedness since 2008. So whatever else is true, this colossal trend in modern capitalism, with debt now at its highest levels for 200 years, including during periods of world wars, cannot be reversed, or even substantially effected, by 'austerity.'

Interestingly among McKinsey's answers to the debt problem are the proposals that inflation is encouraged so as to reduce the value of the world's debt. (This is a call for flooring the gas pedal for growth!) Debt 'restructuring' is called for. (That is annulling what debt you can get rid of.) McKinsey also calls for higher wealth taxes. And it is at this point that they get closest to the heart of the problem and its real solution. How has the capitalist system built its astronomical debt?

The debt is a product of a global capital strike that started in the late 1970s. Since that point big capitalist companies across the globe stopped serious investing and stopped paying part or all of their taxes. And that process sped up after the collapse of the USSR and sped up again when the brakes were taken off financial institutions and the trade in money itself became the world's biggest economic activity. Instead of investing (and despite a real exaggeration, this one built up around the new 'digital revolution' - a source of investment that was miniscule in comparison to the creation of the world's railways and air travel, health systems and universal education) companies instead paid out to their shareholders. Instead of receiving taxes from the companies and the wealthy, it was governments, in cahoots with financial institutions, that were used and continue to be used to 'keep up' the costs of the welfare states that had been won by the working classes in the west. (It is worth comparing the tax income from companies and the wealthy gathered by the 1945 / 48 Labour government with governments today.) Indeed western governments accounted for $25 trillion of the increase of $57 trillion of debt since 2008 - despite their almost universal austerity policies.

That is why we have got the most wealthy ruling class in today's world since any sort of figures were ever collected. That is the true achievement of modern capitalism. The Greeks are right. Austerity cannot deal with the economic problem they face. They will never pay down their debt. What has happened is that their money and their resources have been stolen from them. And now a new experiment in the west is underway. The new experiment that Merkel and others want to try out in Greece (and Osborne in Britain etc) is the withdrawal of government from any substantial aspect of care - in favour of philanthropy and 'citizen based' commissioning. Trying to escape from its historical debts to the working class, forced on them by the huge working class struggles of the 20th century, our new ruling class seeks a new-model, lean and mean state, with as little power over economics as possible. Then the debt can play its real role to the full. It can then be the sword of Damocles permanently hanging over the majority who seek to defend the social rights that previous generations have won.

Next: what are the Greek peoples' options?