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Historic showdown builds in Europe

Two of surely the most delusional people on the planet strolled down the red carpet in Berlin this week, talking about growth and keeping Greece among the eurozone countries. No chance on the first, and close to zero on the second.

Francois Hollande, the newly-elected French president, took more notice of the lightning strike on his plane from Paris to meet Germany’s chancellor Merkel than the real state of the economy.

Greece is close to financial collapse, with people taking their euros out of the country, leading to fears of a run on the country’s banks. With fresh elections due in June, the country is without a government after electoral deadlock.

Even if Greece had a government, there is no way the European Union/International Monetary Fund would meet demands, expressed by voters, for a renegotiation of the draconian bail-out terms. So much for “democracy”.

Europe is in trouble – serious trouble, with the debt contagion claiming Greece, Spain, Italy and Portugal to name just some of the victims in recession. There are serious doubts whether the euro could survive a Greek exit from the single currency, as seems likely now.

But what about the so-called emerging countries? In China, looked to by many as the saviour of the capitalist economy,  a measure of money supply and a leading indicator of economic growth six months ahead has  contracted since November. They are shrinking faster that at any time during the 2008-2009 global meltdown, and faster than in Spain right now.

State investment in railways has fallen 44%, with an accelerating decline over recent months. Highway construction has dropped 2.7%. "The data shows extreme weakness in the Chinese economy," said Alistair Thornton from IHS Global Insight in Beijing. Yes indeed it does: eight of the ten largest shipbuilders in the country have not received a single new order this year. "A wave of closures in the shipbuilding industry has yet to begin. A hurricane is approaching," said one official. 

Housing sales slumped 25% in the first quarter, and this has fed into a drastic fall in new building, which employs 10% of the Chinese work-force directly, and a further 20% indirectly. Land sales provide 70% of tax revenue to local authorities and 30% to the central government. Or at least they did.

Ambrose Evans-Pritchard, international business editor of the Telegraph, isn’t known for understatement, but his stark collection of data should make everybody’s eyes widen in alarm. “Something odd is now happening,” he says. “The People's Bank said new loans fell from $160bn (£99.5bn) in March to $108bn in April. Non-conventional lending seized up altogether. Types of credit including ‘trust lending’ fell by 96pc, and ‘bankers' acceptance bills’ by 90pc. This is astonishing data,” says Ambrose, and you have to agree.

India? Its industrial output fell 3.5% in March. Brazil’s growth has slowed too, with car sales down 15% and industrial production contracting in March. The bad loans of its banks have reached 10.3%, higher than after Lehman crashed, taking the global financial system down with it.

Evans-Pritchard and his co-thinkers including Willem Buiter, and Ebrahim Rahbari of Citigroup, still call for miracles in the shape of a new globally co-ordinated collective effort by central banks to pump more fountains of cash into the financial system in the faint hope of staving off a world slump. 

Merkel holds the ring in Europe right now, and she’s got no intention of returning to Weimar-style inflation. So it’s austerity and “restructuring” all round, whatever Hollande may have promised the French people who elected him.

The Communist Manifesto was published in 1848, the last time there was a Europe-wide revolt against the old order. With Merkel’s party losing heavily in weekend elections, a new showdown is building between the working people of Europe and a political class that is helpless, hopeless and committed to a capitalist economy and financial system beyond repair. In their manifesto, Marx and Engels wrote, the “proletarians have nothing to lose but their chains. They have a world to win”. That remains the case today.

Gerry Gold
Economics editor
16 May 2012

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