THE European Commission stated yesterday that the UK, Germany and Spain, key members of the EU, with Germany being the world’s biggest exporter, are ‘to fall’ into recession this year.
The Commission also downgraded its outlook for eurozone growth again, and said that the bloc would grow by 1.3% this year revising its previous prediction of a 1.7% annual growth.
However, at the start of this month its data already showed that the EU’s economy shrank by 0.2% between April and June – the EU’s first-ever decline.
The high inflation in the EU bloc states meant that the European Central Bank could not cut interest rates from its current 4.25% rate at its last meeting.
The Commission stated in its latest report that inflation is now likely to reach 3.6% in the eurozone – well above its previous predictions of 3.2% and way above the official target of 2%.
The Commission now expects the UK economy, which is not a member of the eurozone, to shrink by an annual rate of 0.2% in each of the next two quarters.
Meanwhile the US budget deficit is expected to reach a record $438bn in 2009, according to the Congressional Budget Office (CBO).
The CBO warns the deficit could go much higher as the figure does not take into account the vast costs of taking over Fannie Mae and Freddie Mac with their $3 trillion of mortgages.
The CBO warned that during the next fiscal year – starting on 1 October, what it called a ‘turbulent economy’, would cut government revenues.
CBO director Peter Orszag said at its press conference that it was too soon to say whether the US officially is in a recession. He continued to add that the recent rise in unemployment and economic weakness ‘are consistent with the pattern seen in past recessions, the past few recessions to be precise’.
Further he admitted that the costs of the Mae-Mac bail-out and the vast debts involved would be directly incorporated into the federal budget, and further swell deficits.
The taking over of the bankrupt mortgage companies has solved nothing but has actually deepened the crisis. This was emphasised when the US Lehman Brothers bank reported devastating losses for the third quarter of $3.9bn.
This news sent world share prices tumbling and lowered the price of the dollar.
On Tuesday, Lehman’s shares plunged 45% on fears that it was going under and stock markets fell all around the world, including a Wall Street fall of 280 points.
The Korea Development Bank (KDB) then announced that it had pulled out of talks with the Lehman Brothers with regard to investment in the US bank.
It stated: ‘We are announcing that we ended talks at this point in time because of a disagreement over conditions of a transaction and considering domestic and foreign financial market conditions.’
Lehman, the fourth-largest US investment bank, had hoped to secure a deal with the Korean fund before announcing its third-quarter earnings. Its hopes came to nothing.
Capitalism is entering a worldwide slump, whose features will be banking and industrial crashes, a sharpening of the class struggle at home, and trade wars and imperialist wars abroad as the world’s bourgeoisie seeks to grab the resources of the planet.
The essential outcome of these trends will be a massive revolutionary wave on a world scale, which is already emerging, as the working class and the poor of the world and the oppressed nations, take action against the plans of the bankers and capitalists of the major capitalist states.
What is vital at this moment of the emerging world revolution is the building of the revolutionary leadership of the Fourth International to lead the world socialist revolution to its victory.
The WRP is the British section of the International Committee of the Fourth International.
All workers and youth who want to see an end to the capitalist system should join the WRP at once.