Haunted by Danger of Collapse

EXTRACT: Clearly though, the current situation of political deadlock cannot last much longer - whether we are five minutes or one minute to midnight will be decided by later historians. What is beyond doubt, except for those with an incurably Panglossian outlook, is that the euro is in distinct danger of busting apart in the near future, with catastrophic consequences for the world economy - possibly plunging us into 1930s territory. Summing up this apocalyptic sentiment, Mario Monti, the technocratic prime minister of Italy, declared on June 22 that EU leaders had a “week to save the euro” - Weekly Worker readers will know by the time they read this whether his prediction has come true or not.

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I am Legion

Invisibility Cloak

EXTRACT: Yet, insofar as these putative ‘rescue plans’ have any reality, it is based on a fundamental contradiction or flaw. Everyone is calling on Germany to do something, but just imagine if Merkel did decide to do what many want - acceding to the creation of Eurobonds. Interests rates would then be equalised and Germany would suddenly find itself paying rates in the region of 3%-4%, as opposed to the minuscule rates it is paying now - ie, the yields on two-year German bonds recently sank to -0.012%. It would only be a matter of time before Germany started to suffer from rising unemployment, stagnation and so on - no more the European economic powerhouse.
Under those conditions, what would happen to the US and the flat-lining British economy?

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EXTRACT: The reasons for the renewed crisis, which refuses to go away, are not too hard to discern: investors are spooked by the sheer confusion surrounding the June 9 deal. Who exactly is going to pay what and when? Critically, no-one is yet sure whether it will be the European Financial Stability Facility or the European Stability Mechanism that will dish out the money to Spain. If the latter, scheduled to replace the EFSF next month, then that has disturbing implications for the markets. Firstly, ESM rules prescribe - and Berlin is very keen on all euro member-states obeying the rules - that the “credit line” will take primary position in the event of default, therefore forcing those bondholders who thought they were first in line into a secondary and much more riskier position. Then, as sure as night follows day, the value of those holdings will immediately start to decline when it dawns upon the investors - who always check the small print - that Spain has done little if anything to improve its overall financial situation. Suspicion is also growing that Rajoy, maybe even the EU officials, were not aware of such an outcome when they agreed the deal - hardly inspiring market confidence.

Secondly, and much more obviously, is the brutal fact this new line of credit - no matter what the conditions turn out to be - is simply going to be added to the Spanish government’s debt: the country’s debt-to-GDP ratio has substantially increased overnight. In that sense, Spain’s ‘bailout lite’ has just acted to hasten the day when another - and larger - bailout will be needed by Madrid.

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Last-chance Saloon Closes for Business

EXTRACT: “Single currency gloom goes viral” - so went the headline to an especially downbeat editorial in the Financial Times, a newspaper to be avoided these days if you are after a cheery read (June 1). The universally gloomy economic news is reviving unfortunate memories of late 2008 and the collapse of the once mighty Lehman Brothers, which sent the world’s major economies into a tailspin - and only massive state intervention by a reluctant George Bush saved the day for the global financial/banking system.
But this time round the stakes are, if anything, even higher - a potentially catastrophic break-up of the euro zone itself which triggers an unprecedented global slump. Yet the capitalist ruling class as a whole seems paralysed by the pace of events, seemingly unable to come up with any viable plan or strategy to save their system. Instead, locked into a state of near permanent crisis management, they jet from one carbon-unfriendly summit to another - going precisely nowhere. Giving the unfolding story an air of tragic - or farcical? - inevitability. In the words of one online broker, “When the tide is this strong, there is no point in swimming against it: simply get in your lifeboat and hope for the best.” An almost perfect summation of the bankrupt capitalist system, seemingly drifting towards the abyss.

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