THE CONTINUED economic collapse of the EU was highlighted yesterday when it was officially acknowledged that Italy, the third largest economy in Europe, has plunged into recession.
Italian Gross Domestic Product (GDP), the measure of the wealth generated by a country, fell by 0.2% in the final three months of 2018. This followed a fall in GDP by 0.1% in the previous third quarter of that year, more than meeting the official definition of a full-blown recession. Italy was not alone with the biggest economy in Europe, Germany, having to cut its forecast for growth from 1.8% to just 1% for next year.
Italy is plunging into recession at a time when its entire banking system is bankrupt, drowning in a sea of indebtedness and its vaults stuffed not with money but with bad debt estimated to be over 200 billion euros. Italian banks are doubly in jeopardy as they also hold a huge amount of the Italian sovereign debt.
With the Italian economy tanking, this sovereign debt held by the banks is not the safe haven previously believed but just as bad as all the other risky loans that turn out to be unrepayable. Last year, the IMF issued a dire warning that the banks, singling out Italian banks as a prime example, are stuck in a sovereign debt ‘doom loop’ from which it is impossible to escape.
This refers to the endless cycle of the capitalist financial system, where banks take on risky loans in order to swell their growth and profits. When these loans turn bad and they face collapse, as happened in the world banking crash in 2008, they demand the state bails them out.
Trillions of worthless ‘money’ electronically produced by central banks was handed to the banks to prop them up. In turn the banks invest this money, paid for by austerity cuts by the working class, buying up government bonds. This creates an unbreakable cycle between the banks and governments with the banks relying on sustained economic growth to enable the government to pay off these loans.
As recession hits, these loans become just more bad debt that can’t be repaid. In turn the state relies on the banks to finance government spending through buying its bonds using the money provided through the bail-outs. In Italy the banks hold 20% of government debt, when the banks crash into bankruptcy it will plunge Italy into state bankruptcy. This insane cycle of piling up debt can’t continue but must inevitably lead to a banking collapse that will not be confined to just Italy but will bring down the banking system of Europe and beyond.
Every bank in Europe, especially French and German, is up to its necks in loans to Italian banks (one fifth of Italy’s government bonds is held in other Eurozone countries) and when they crash it will bring the lot down and threaten every state in Europe with the same fate as Italy.
Already this year, one Italian bank has declared itself bankrupt. On January 2nd the Banca Carige bank was taken over by the European Central Bank whichmoved in under powers granted them in 2014 to ‘supervise’ lenders. Supervision is a futile attempt to sell off the bankrupt bank and when this fails simply grab whatever money they can find to pay off the big creditors, the big European banks.
The Italian working class is already in bitter conflict with the EU over its demands that the coalition government renege on its election promises to end austerity and threatening economic retaliation if they don’t submit. Italian workers stand alongside the yellow vest movement in France that is spreading across Europe demanding an end to the austerity demands of the bankers and bosses and an end to the capitalist EU.
This tide of revolution that is sweeping Europe proves conclusively the correctness of the decision by British workers to vote to leave the EU. The immediate task ahead for the working class in Britain and Europe is to break immediately with the EU and to join together to bring down the bosses’ and bankers’ EU and replace it with the Socialist United States of Europe.