Italy on the edge of the abyss – the UK is next

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THE European Union is being broken on the rocks of the deepening crisis of the world capitalist order.

The leaders of France and Germany are desperately planning an eviction from the eurozone of Greece and other states that cannot resolve their debt crises, and moving to a political union of the inner core, with the German capitalists in charge and the French capitalists serving as their lieutenants.

This measure cannot even be begun without amending treaties, after national referendums, with all the internal strife, even civil wars that will be involved in some states, and at a time when the EU is already bankrupted and the euro staggering under mountains of debt.

Merkel and Sarkozy are planning to start with Greece, where they have imposed a government on the country that will be unable to impose itself on the Greek people, except by carrying out a civil war against the working class and the vast majority of the middle class to start paying off Greece’s debts to the EU and international banks.

Behind Greece stand, Ireland, Portugal and Spain whose ruling classes are all up to their necks in gigantic debt, and whose austerity programmes have only begun to be imposed on the masses.

Casting them out of the eurozone, and returning them back to their old currencies whose value will be extremely doubtful, is a recipe for both wars and revolutions.

And then there is Italy, the third EU economic power, with a massive government debt and with a very determined internal resistance to austerity measures. This has led to a situation where the Italian government can no longer sell its debt except at yields of 7%, making repayment extremely problematic. Italy is on the point of default.

Even the EU bankers are saying that Italy is ‘too big to fail and too big to bail out’.

This contradiction saw big share crashes on Wednesday carrying over into Thursday as the world’s banks shuddered at the prospect of an Italian default.

The EU commission has predicted that if there is no change in political policy, ie. if there is not a successful massive attack on the working class, then Italian public debt will remain unchanged at 120.5% of GDP next year, and that next year Greece will see its debt level rise to 198.3% of GDP.

Banks have already accepted a 50% loss on the money they had lent to Greece. Now the French bank Credit Agricole has reported a 65% drop in third-quarter profits after being hit by losses on Greek sovereign debt.

The French banks also have the largest international exposure to Italy, according to the Bank for International Settlements.

As Italy’s debt crisis worsens, similar ‘haircut’ measures will have to be taken by banks that are exposed to its debt.

However, the truth is that Italy’s domestic debt is relatively small. The UK, France, the US, Japan and Holland are more indebted than Italy when private and public debt are taken together. The UK has more then £1.2 trillion of private credit card and other debt, as well as a massive national debt, which is why Cameron is so terrified of relaxing his austerity measures.

Italy is Britain’s eighth biggest trading partner, while France is Britain’s fourth biggest export market.

The UK has the third largest bank exposure to Italy, holding £42bn of sovereign debt. France has 290bn euro exposure to Italian debt, while Germany has 119bn euros.

All this means is that when Italy defaults, British banks will need to be bailed out again by the state or they will go under, as will the French and German banks.

In fact, when Italy defaults the European banks will be hit very hard, but the UK will be seen as the next state to default.

The truth is that there is no peaceful democratic way out of the crisis of the European Union. From the point of view of the bourgeoisie, the German ruling class must take charge of Europe and be the master of the eurozone. The rest must be turned into its protectorates and become sources of raw materials and cheap labour.

The future of the working class rests with overthrowing the EU with socialist revolutions, and replacing it with the Socialist United States of Europe, where the bankers and bosses will be expropriated and planned production to satisfy people’s need replaces bankrupt, out of date capitalism.