LAST Thursday the European Central Bank (ECB) abandoned its previously proclaimed policy of ending free money handouts to the banks through quantitative easing (QE) programmes and zero interest rates.
These policies, introduced to prevent the complete collapse of the European banking system after the 2008 world financial crash, were supposed to be ended by the ECB on the grounds that the crisis was over and the banks no longer needed bailing out by the working class.
The EU and eurozone, the ECB assured everyone, was undergoing economic expansion that had made austerity cuts and endless attacks on workers worth all the pain.
Late in the day the ECB has been forced to recognise that, far from the economic crisis of capitalism being consigned to the past, its policy of pumping trillions of worthless euros into the banks to prop them up has backfired.
Instead of economic growth, in the EU countries – from Italy to the supposedly economic powerhouse of European capitalism Germany – manufacturing industry is collapsing and these countries are being shoved into recession.
On Thursday the head of the ECB, Mario Draghi, ruled out any increase in interest rates – a central plank of the ECB’s optimistic plans – and to turn on the money taps to the banks again under a mechanism called Targeted Longer-Term Refinancing Operations (TLTROs).
The initials may have changed from QE to TLTRO but the policy remains – to hand over free or cheap money to banks in the hope that they will use this windfall to lend to companies who will use it to invest and so boost the ‘real economy’. It didn’t work last time and it won’t work again.
The banks, seeking a ‘safe haven’ for their loans rather than risky ones to companies that were producing no real profits, used it to buy up government bonds which, they assumed, would always meet massive interest payments and provide them with massive profits – as sovereign states are not supposed to go bankrupt.
They believed that, at the end of the day, these countries would always find the money for repaying any loans out of cuts to government spending. In short, they relied on the working class of every country in Europe to pay for keeping the banks from going under through even more savage austerity cuts.
This has created the ‘doom loop’ that has got financial analysts so worried. The banks rely on the country to be able to pay for its loans and the governments rely on these loans to pay for their spending.
The failure of either part of this doom loop means the entire banking system, and along with it the state, collapses into bankruptcy.
The futile attempt to hold capitalism together after 2008 by creating trillions of worthless money to flood the world’s banks only succeeded in inflating the world debt crisis to the point of explosion.
One analyst quipped that TLTRO in reality stands for ‘The Last Try to Restore Optimism’ not for any real prospect of saving capitalism from a monumental crash.
Optimism is in short supply for the capitalist class, as they are being torn apart by Trump’s trade war to bankrupt America’s capitalist rivals while facing a mass movement of workers and youth refusing to pay for the bankers’ crisis.
In Britain it has led to the complete breakup of the two party system, as the ruling class tries to deal with how to keep tied to a rapidly collapsing capitalist EU in the face of an intransigent working class determined not to allow the referendum result to be overturned by any parliamentary coup.
What is clear is that the economic and political collapse of capitalism must be resolved by the working class taking power and putting an end to this bankrupt system and advancing to a socialist society that will expropriate the banks and industry and place them under the management and for the benefit of all the people.
This calls for the building of revolutionary parties of the Fourth International in every country to lead the coming socialist revolution throughout Europe to victory.