THE LATEST dire prediction on the precarious economic state of the eurozone came from three former chief executives of the European Central Bank (ECB), who warned that the zone is heading into a ‘debt trap’ as raging inflation takes hold of the world capitalist economy.
One of these, Peter Praet, (the ECB’s top economist from 2011 to 2019 who was instrumental in the bank printing billions of euros under the Quantitative Easing programme to prop up the banks after the collapse in 2008) is now worried that these very policies are coming back to crash the Eurozone.
Praet told the Politico magazine that the financial measures he helped to introduce could ‘make a worrying comeback’.
He is worried that as inflation takes hold the ECB will resist taking any measure to reign it in by increasing interest rates.
Countries in the Eurozone have borrowed unprecedented amounts of money to prevent the wholesale collapse of the EU banking system followed by a massive increase in more borrowing as the coronavirus pandemic hit Europe. Last summer the ECB announced a ‘stimulus’ package of 750 billion euros to bail out member states.
The warning from these economists comes over an inflationary surge caused by the ECB’s unwillingness to raise interest rates as national debts surge.
Eurozone states have agreed on an unprecedented borrowing package to overcome the economic effects of the coronavirus pandemic. The amount of debt taken on by members of the Eurozone is astronomical, and this mounting debt could be ‘lethal’ for countries like Italy and Greece admits Praet.
The Italian debt to GDP ratio is 150% while in Greece it is a staggering 200% of GDP, meaning the country has debt twice the total value of its economic output.
What is frightening the living daylights out of these economists is that inflation worldwide is rapidly increasing, piling pressure on the ECB, along with every other central bank, to raise interest rates.
All these debts have been kept manageable so far only by the ECB, the Bank of England and the US Federal Reserve rigidly sticking to near zero interest rates repayments, keeping them as low as possible.
Any increase in the rate, forced by the need to try to rein in inflation, would indeed send entire countries into bankruptcy across the Eurozone bringing it crashing down.
Of course the crisis is not confined to the EU states.
The fear of inflation, which for decades they had dismissed as belonging firmly in the past, is currently haunting the minds of economists and commentators across the world today.
The increases in the cost of raw materials – and with recent fuel price increases, higher gas and electricity prices – are beginning to signal an era of raging inflation fuelled by all this worthless money pumped out by the central banks to keep capitalism from collapse.
Last week, on the news that global commodity prices rose by 54% and oil prices by 144%, the world stock markets went into a meltdown over fear that inflation would force an increase in interest rates.
Even the slightest increase in interest rates will be enough to plunge countries and corporations that survive entirely on debt into bankruptcy.
But the alternative for the central banks is equally disastrous – to carry on with zero rates and pumping yet more worthless paper money into the economy will only drive inflation through the roof.
Capitalism today stands on the very brink of bankruptcy and hyper-inflation with no answer to this crisis except to dump it on the backs of the working class throughout Europe, Britain and America through mass unemployment and wage cutting.
The working class will not tolerate being driven into poverty to keep capitalism from collapse.
Only the working class can provide an answer by putting this bankrupt crisis-ridden capitalist system out of its misery by overthrowing it and going forward to socialism.
The urgent issue today is to build revolutionary parties of the International Committee of the Fourth International in every country to lead the struggle for socialist revolution to victory.
There is no other way forward!