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In thrall to the markets

Governments across the world are engaged in a beauty contest judged by the ratings agencies which pronounce on their credit-worthiness, and the hedge funds which decide whether a country’s debt – its bond issues - are worth buying.

The closer a country like Greece, or Portugal, or Spain or the UK gets to defaulting on its debts, the more it applies the make-up to hide its decay. Greek prime minister George Papandreou is engaged in a two-pronged shadow play. It is designed to stop the bankrupt country’s ancient monuments – essential to the tourist industry from which the country derives much of it income – from falling into the hands of its creditors.

In act one of the country’s financial tragedy, Papandreou is implementing the first tranche of a broad austerity programme of savage cuts and tax increases. Act two is a world tour to gather support for a campaign to regulate the use of credit default swaps and other derivatives by speculators gambling on the likelihood of a default.

But Papandreou is himself gambling. His campaign is a populist move intended to deflect the anger of the still-powerful Greek trade unions that once supported his party PASOK. But the Greek workers are having none of it.

In protest against the planned austerity measures, Greek tax and rubbish collectors walked off their jobs for a second day on Monday. The country's two main unions have urged more than a million civil servants and private sector workers to strike today. This second general strike in as many weeks is set to paralyse much of the country.

Meanwhile, in Portugal, similar plans sparked a strike by civil servants which shut schools, courts and hospitals on March 4 in actions supported by 80% of the membership. In its historic referendum, the population of Iceland has resoundingly rejected the terms for repaying the debt guarantees for Icesave depositors held by the British and Dutch governments.

Public and private sector employers across the world are responding to the recession by driving up productivity and cutting labour costs. As a two-day strike by 270,000 UK public sector workers over cuts in redundancy pay came to an end on Tuesday, the threat was growing of action over the Easter holiday by British Airways cabin crews over pay cuts, and rail maintenance workers and signallers over job reductions and changes to working conditions.

In the United States, the economic shakeout is driving the rate of exploitation to record levels. Official figures show that in 2009, productivity rose 3.8% from 2008, while unit labour costs fell 1.7%, a record pace of contraction. There are surely limits to what American workers can stand. Trouble is brewing already at American Airlines.

Everyday brings new shocks that surprise and disappoint those who search for signs of recovery. The UK’s declining exports and widening trade deficit despite a 25% decline in the relative value of the pound, are just the latest in a long line of figures that lead it inexorably to join the sovereign debt crisis on the way to full-blown state bankruptcy. No wonder Gordon Brown today admitted that there were “substantial risks ahead” for the economy.

The financial markets are relying on New Labour and/or the Tories to deal with the public spending deficit at the expense of ordinary people. Brown’s denials on this subject should be taken with a pinch of salt. Capitalism is cornered in country after country and is fighting back the only way it knows how. The increasing resistance by workers around the world has to point towards the strengthening of international alliances on the road to putting capital out of business once and for all.

Gerry Gold
Economics editor
10 March 2010

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