ON Thursday afternoon Mario Draghi, head of the European Central Bank (ECB), announced that the bank has cut its benchmark interest rate from 0.5% to zero.
The other measure Draghi sprang on the financial world was a cut in the deposit rate facility to minus 0.4% – an increase in negative interest rates which means that banks depositing money with the ECB will have to pay to leave their money in its vaults and so encourage them to invest.
So far, the banks have held off passing this onto ordinary depositors but it won’t be long before they start to charge anyone with a bank account in order to force people to spend.
To offset the loss incurred by the banks and to provide further ‘stimulus’, Draghi announced an increase in the amount of paper money being pumped into the banks through Quantitative Easing by 20 billion euros a month.
The ECB’s surprise package represents the increasingly desperate attempts to kick-start capitalism out of collapse by handing money to the banks in the vain hope that they will invest in the ‘real economy’ as it is called.
The fact that all of these attempts at flooding the banks with free or cheap money have completely failed in the past to revive capitalism has not prevented the ECB and central banks around the world from keeping the floodgates open and moving into the even more untried waters of negative interest.
All previous efforts involving QE and negative rates have only vastly exacerbated the crisis gripping world capitalism. All this valueless money has done nothing to stimulate the economies of Europe, the US, Britain or Japan. Instead, it has been used by the banks and corporations to speculate on the world’s share and stock markets or used to artificially boost the profits of major companies by the device of buying back their own shares to drive up share prices and investor returns.
This has produced a vast inflationary bubble in stocks and shares that can burst at any moment causing a worldwide crash. If Draghi hoped the ECB’s plans would inspire a revival in European capitalism, his hopes were swiftly dashed.
Initially, the financial markets surged on the news and the euro fell dramatically against the dollar. Within two hours, the financial markets had crashed and the euro rose to its highest level against the dollar as the realisation dawned that this was ‘one last throw of the dice’ by the ECB.
This belief was compounded by the hostile position of the German banks, who made it very clear to Draghi that they would not accept any further descent into negative interest rates or unlimited printing of worthless money.
This was the limit as far as the powerful German banks were concerned, and this was expressed by Draghi when he uttered as a throwaway line, ‘We don’t anticipate it will be necessary to reduce rates further.’
The threat that the ECB had fired off all its guns and the banks would eventually be cut off from their fix of free money sent the money markets into meltdown. The realisation that there is no way out of this crisis was underlined this week by the Bank for International Settlements’ (BIS) latest quarterly report on the financial health of capitalism.
Entitled, ‘Uneasy calm gives way to turbulence’, the report warns: ‘We may not be seeing isolated bolts from the blue but the signs of a gathering storm that has been building for a long time.’
Having fired their last shot, all that remains for the capitalist class is to dump their crisis on the backs of the working class through the ‘structural reforms’ that the bankers are insisting on.
These are nothing less than forcing through cuts in state spending along with a programme of mass privatisation in every country to levels even greater than the austerity forced on Greek workers to pay for the bankers’ debts.
For the working class the only way to resolve this crisis is take over the banks; nationalise them under the control and for the benefit of the working class as a part of a planned socialist economy.
