THE GIANT German Deutsche Bank announced yesterday that it was slashing more than 7,000 jobs from its global investment arm as part of a major restructuring exercise; they were reluctant to reveal the exact number.
Calling this ‘restructuring’ is a lame attempt to cover up the fact that Deutsche, the largest bank in the eurozone and a major international investment bank, is on the brink of collapse. In a desperate attempt to stave off the inevitable, it is shedding its investment arm and retreating to the status of just another high street bank.
What is clear is that no amount of restructuring can save Deutsche from a collapse that will bring down the eurozone and precipitate a crash of the entire world banking and financial system. The collapse of the US investment bank Lehman Brothers in 2008, a collapse that wiped $10 trillion from the global markets overnight, was the start of the unravelling of the entire debt-laden capitalist banking system and now Deutsche looks set to complete it.
The importance of Deutsche Bank to the European and world banking system cannot be underestimated. For years, the bank has been identified as the major threat to banking stability as it staggered from one crisis to another. In April, in another doomed attempt to restructure itself out of trouble, Deutsche sacked its chief executive who had been brought in three years previously to ‘turn the bank around’. His forced departure followed year-on-year losses which culminated in February in the bank posting losses of £1.9 billion.
Despite being valued on paper as being worth 1.1 trillion euros, the bank in fact has real assets only about a tenth of that figure, while its share price is dropping daily. Last month, the European Central Bank (ECB) announced that it was engaged in moves to protect global financial markets from the chaos caused by Deutsche quitting investment banking. At the heart of Deutsche Bank’s collapse is the same cancer eating away at every other bank in the world, a massive build-up of bad debt.
Lehman’s collapse revealed to the world that the entire capitalist banking system relied for its astronomical profits on parcelling up toxic debt like sub-prime mortgages and selling them to each other as secured loans. Deutsche, as a major player in the so-called derivatives market, had a reputation for being the most eager of all European banks to buy vast amounts of these ‘secured loans’ and label them as ‘assets’ while in reality they were worthless. As such, it sat at the centre of a complex, interwoven web of deals with every other bank. All the banks are linked together in this game of pass the derivatives around, hoping that the whole charade doesn’t come crashing down.
With the collapse of Deutsche Bank, this nightmare for the bankers has come about as the entire edifice of secure banking will crash into bankruptcy and closures. The political ramifications of the Deutsche Bank crash are equally enormous. German Chancellor Angela Merkel has staked her reputation on never bailing out a failed bank.
Indeed, along with the EU banks, her government has forced countries like Greece to suffer massive austerity cuts rather than allow state bail-outs of its banking system or debt repudiation. If she is forced to bail-out Deutsche Bank it will create a massive political crisis throughout Europe.
Workers throughout the continent are already rising up against savage austerity and will not tolerate having even more cuts forced on them to keep the banks from sinking in a sea of debt. The latest banking crisis will only add more fuel to the revolutionary movement of workers and youth that is already up in arms, with France gripped by strikes, while workers in Italy have dealt a mortal blow to the EU with the election of the new anti-austerity, anti-EU coalition government.
What is directly posed to the working class by this crisis is to put an end to the capitalist system through socialist revolution. This means replacing this bankrupt system with a socialist society where the banks and industry are expropriated and put under the control of the working class as part of a planned socialist economy.