An air of unreality accompanied coverage of the International Monetary Fund/World Bank meeting in Washington DC last weekend.
Under the headline “Debt talks fail to agree solution”, the Financial Times reported, “Despite many private conversations about an inevitable sovereign debt restructuring in Greece, the official line was that default was unthinkable.”
Amid the incoherence, two senior participants joked “about whether it was better to have no plan—as they felt applied in the US—or a European-style plan that lacked market credibility”.
The action taken in 2008 to prevent a collapse of the banking system placed governments centre-stage in dealing with the crisis. Their inability to resolve the problems, and the debts they have acquired as they tried, are now provoking bitter political arguments among our rulers.
Some of these rows involve the approval of the second Greek bailout plan, drawn up in July. German chancellor Angela Merkel will rely on the opposition Social Democrats and the Greens to pass support for the 440 billion euro package on Thursday of this week. Similar tough votes will follow in other eurozone parliaments.
But even if these hurdles are cleared, it is already apparent that the facility is too small—especially if the Greek debt crisis further infects the giant Italian and Spanish economies.
There are calls for banks to accept a greater share in the pain from a Greek default. The banks have responded by threatening to withdraw from the rescue plan altogether.
The intensity of these debates reveals how intractable the crisis is. The financial meltdown in 2007-8 reflected deeper problems. Above all, the rate of profit enjoyed by capitalists had fallen to a low level by the early 1980s.
Though it partially recovered, this depended on squeezing workers ever harder while allowing financial speculation and the build-up of debt to provide much of the impetus for the system.
When this could no longer keep capitalism going, the underlying problems reasserted themselves. It is because of these still unresolved problems that our rulers face such difficult dilemmas.
The resulting cracks at the top have implications for the consciousness of those at the bottom. Crisis can push the masses into action—but equally it can paralyse them. Several factors influence what happens, including the coherence of ruling class ideas. Capitalism relies on being able to win some degree of consent from those it exploits. But this is undermined if the system is plainly out of control.
Even the basic things that capitalism once seemed to offer are under threat. The stock market has fallen steeply in recent weeks. For many ordinary workers this means their pension or the small amount of savings they have set aside are at risk.
In 2008 many accepted that after a short period of pain our rulers could fix the problems. Today there is far less faith in that notion.
Another critical factor in determining workers’ response to a crisis is their confidence in their ability to fight. In Britain at least, such confidence has been in short supply. It was therefore hardly surprising that struggles did not erupt in 2008.
But here, again, the form of the crisis is important. A major crisis like the current one will also be prolonged, passing through many different phases. Each turning point creates the potential for shifts in the mood of workers.
After the 1929 Wall Street Crash it took four years for major struggles to erupt in the US and two more years for mass strikes to develop in France. Today we have had three years to recover from the initial shock of the crisis.
A final pressure on workers to act comes from the very limited room our rulers have to manoeuvre. In the 1980s, Tory leader Margaret Thatcher took on one group of workers at a time. David Cameron feels compelled to mount a generalised attack on workers’ pensions and wages.
This puts pressure on even less political people in workplaces to act. And as they act it can transform their ideas. As this translates into mass strikes in November, it can form a focus for all those who want to see an alternative to austerity.