THE EUROPEAN Central Bank (ECB) has announced its biggest package of rate cuts and economic stimulus in three years as EU President Mario Draghi warned governments on Thursday that they needed to act quickly or face another economic collapse.
Interest rates are to be cut even further below zero. They are already into negative territory. The bank’s key interest rate is currently minus 0.4% – in other words, investors have to pay to keep their own money in the bank.
The European Union is in a serious crisis that is rapidly deepening. The Italian banks are on the verge of collapse, youth joblessness across Europe is out of control. In Greece 40.4% of youth are unemployed, for Spain the figure is 31.7%. Italy is at 30.5%.
The whole of Europe is drowning in debt. And the EU is attempting to squeeze every euro and cent out of the workers and youth of Europe, through mass sackings, wage cuts and privatisation. If that is not bad enough, the EU’s latest proposal to tackle the debt crisis is to take on more debt. Draghi announced the restart of the EU’s 2.6tn euro Quantitative Easing (QE) programme.
Quantitative Easing is the electronic equivalent of printing vast amounts of money and simply pumping it into the banks, creating no new value and in fact making the crisis even worse and they know it.
At the meeting on Thursday, Draghi faced an unprecedented revolt. Bank of France Governor Francois Villeroy de Galhau joined his Dutch colleague Klaas Knot and Bundesbank President Jens Weidmann in opposing the move. However, Draghi took no vote on the issue and simply announced that there was enough support to restart QE.
The stimulus was immediately seized upon by US President Donald Trump, who demanded that the US Federal Reserve join the round of central bank rate cuts when it meets next week. ‘The European Central Bank acting quickly,’ Trump tweeted.
‘They are trying, and succeeding, in depreciating the euro against the very strong dollar, hurting US exports … And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!’ The trade war and financial war between the major capitalist blocks is sharpening, as they fight over the last crumbs of the cake.
Meanwhile, Germany, which is meant to be the bedrock of the EU, has fallen into a full-blown manufacturing recession. Ifo – a Munich-based economic research centre highlighted Germany’s escalating crisis on Tuesday. Timo Wollmershäuser, Ifo’s head of forecasts, pointed to Germany’s unemployment numbers, saying they show the economy’s ‘weakness’.
Unemployment has risen for the fourth consecutive month, and Ifo expects it to rise to 2.313 million in 2020 from 2.275 in 2019.
NatAlliance global fixed income head Andy Brenner said: ‘Germany is in terrible shape with negative GDP (Gross Domestic Product) this week, and with their expectations looking for another negative GDP in the third quarter, the Germans are going to be forced to open up their pockets and do fiscal stimulus.’ Negative GDP is recession.
There are six EU countries whose national debt is over 100% of their GDP. In other words, they are state bankrupt. Greece’s debt is 181% of its GDP; Italy is on 132%; Portugal 125%; Spain 100.1% and the home of the EU headquarters, Belgium itself, is at 103%.
Germany has been frantically trying to repatriate as much of its gold as possible before the euro collapses, as are other countries – there is a new gold rush.
What is clear is that the economic and political collapse of capitalism in the UK and the EU must be resolved by the working class taking power and putting an end to this bankrupt system. This is the only way to advance society to socialism, expropriate the banks and industry and place them under workers’ control and management.
The Brexit vote to leave the EU was revolutionary. It is part of an uprising throughout Europe. In Greece they demanded a break with the EU. The Yellow Vests in France demand a ‘Frexit’, while German workers know that their economy is in a great crisis.
Workers of Europe have had enough of paying for the banking crisis. Workers in the UK must give a lead and force a break with the EU as a major step towards replacing the EU with the Socialist United States of Europe.