THE GOVERNOR of the Bank of England, King, spoke to the gathered ranks of big business on Thursday evening at his Mansion House feast, as the darkest clouds of the world crisis gathered.
The rate on Spanish debt rose to over seven per cent. Greece nears Sunday’s General election, which is set to see a left government emerge which will reject the austerity measures that the EU has imposed on the Greek workers, as it was revealed that 5bn euros had been withdrawn from the Greek banks in a fortnight. As well, the French and German banks shuddered at the latest declaration from Angela Merkel that the EU states will have to save themselves and that ‘Germany’s strength is not unlimited’.
King attested to the infinite depth of the crisis saying: ‘Five years ago, at this same dinner and just before the crisis began, I quoted a banker who had said to me, “I cannot recall a time when credit was more easily available”. Today, the sentiment is exactly the opposite. Over those five years, the authorities around the industrialised world have thrown everything bar the kitchen sink at the problem – record low interest rates, unprecedented operations to flood financial markets with liquidity, fiscal forbearance which allowed budget deficits to reach record levels, and a raft of reforms to the structure and regulation of banking. Yet the calls for more and bolder action continue.’
He added: ‘Two years ago, a gradual recovery was in prospect…Since then, events have taken a different course…That reflects unexpected increases in world energy and commodity prices, leading to an unprecedentedly long and severe squeeze on real take-home pay and, so, weak consumer spending. But it also reflects events in the euro area where the crisis has grown to cast a long shadow over our own recovery, holding back both exports and investment.’
He fantasised: ‘Perhaps the sequel will be the provision by the ECB of liquidity as The Bridge to the other side of the crisis. No central bank has done more in recent months to flood the system with liquidity than the ECB – one trillion euros injected through two long-term refinancing operations.
‘Those two operations demonstrated that liquidity is not the issue because after a few months we are back to where we were. The problem is one of solvency…Where there are debtors who cannot afford to repay, there are creditors who will not be repaid. Until losses are recognised, and reflected in balance sheets, the current problems will drag on. An honest recognition of those losses would require a major recapitalisation of the European banking system.’
That this will require a major destruction of the productive forces – of ‘bad banks’ and bankrupt industries, and the most savage austerity programmes ever seen, with regimes that are prepared to use the most brutal methods to achieve the target of debt free banks – is obvious.
King is actually broaching the subject of civil wars throughout Europe to put the banks and capitalism back into the black.
He observed: ‘The world economy is a much less welcoming environment in which to rebalance the UK economy than two years ago…
‘Meanwhile, the imbalances in the world economy still await resolution. It is an ugly picture. Leaders of the G20 will next week confront formidable challenges. In the United Kingdom, we can and will get through this. But it would be naive to pretend that any of us can know when the storms from overseas will have passed over our shores and the economic skies begin to brighten.’
Faced with this massive historical crisis of capitalism, King proposes a few trivial measures. ‘What I can say tonight is that the Bank and the Treasury are working together on a “funding for lending” scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK.’
The banks will simply pocket the money for recapitalisation and then ask for more!
There can be no tinkering with this world crisis of capitalism. Resolving its crisis requires the victory of the world socialist revolution.