THE European banks are heading at speed into a crash that will bring down not just the economies of the 17-nation Eurozone but the capitalist system worldwide.
This is the grim prediction in this week’s International Monetary Fund (IMF) six-monthly Global Financial Stability Review.
Studying the banking and financial crisis gripping the Eurozone and Europe as a whole, the IMF found no stability, only a train wreck for which it has no answer except to urge European nations to take ‘drastic action to repair their balance sheets’.
In other words, step up the cuts way beyond anything seen so far to reduce the massive state debts that the capitalist sovereign states have taken on from the banks.
At the same time, the IMF reveals that it is impaled on the contradictions of the capitalist crisis by warning that although cuts on a huge scale are essential it is also essential ‘to continue to avoid a synchronised, large-scale, and aggressive trimming of balance sheets that could do serious damage to asset prices, credit supply and economic activity in Europe and beyond’.
How this balancing act is to be achieved, on the highest of high wires in the midst of a huge gale, the IMF is unable to spell out – what it does reveal is that 58 of the biggest EU banks involved in the IMF study, including Barclays, Lloyds, RBS and HSBC, are in such a weak state that to survive they will need to ‘slim down’ to the tune of £1.6 billion.
This will be achieved, reveals the IMF study, by ‘deleveraging’ 75% of bank assets – that is, by selling assets worth up to £2.4 trillion in order to stay solvent. This is a ‘fire sale’ just before going bust.
Such drastic action will also be accompanied by a complete ending of any credit to industry from the banks, leading to the ‘mother of all credit crunches’.
Britain, along with the other European nations, is particularly at risk because of its reliance on bank credit. When credit dries up, European industry will collapse like the proverbial pack of cards.
Britain is singled out by the IMF which warns that the country has such massive debts that it will require another £50 billion of spending cuts and tax rises to come anywhere near reducing it to levels acceptable to the international banks.
These cuts, which far exceed the cuts being imposed on Greece and Portugal combined, will mean spending on the National Health and on state and public pensions having to be cut to the extent that there will no longer be a free NHS, or pensions that come anywhere near being able to sustain human life.
This crisis in Europe will lead to a default amongst the EU countries and, inevitably, to the break-up of the 17 nations in the Eurozone, ‘aggravating economic stress levels well above those after the Lehman collapse’ to super-tsunami proportions.
When Lehman Brothers bank went bust in 2008 it sent shockwaves throughout the banking system that came within a whisker of crashing every bank in the world. The banks were only ‘saved’ by the nation state stepping in and taking over their colossal debts, transferring these debts effectively to the working class.
Now the capitalist nations, having assumed these debts, are faced with going down the same route and going bust but with no one to bail them out.
The only way out for capitalism is to make the working class pay the debts through impoverishment and fascism, the destruction of welfare states, and new oil and gas wars.
As befits a society in its death agony, its top officer corps has now fallen out. Ex-member of the Monetary Policy Committee, Blanchflower, is calling the Bank’s governor, King, a power-crazy tyrant, while King’s deputy has publicly disowned the economic perspectives of his master. As they say: ‘Those that the Gods wish to destroy…’. This situation leaves the working class with no alternative but to put bankrupt capitalism out of its misery by carrying out the socialist revolution.
