The institution set up to bail out failing European economies has become the latest casualty of the crisis.
The ratings agency Standard & Poor’s has stripped the European Financial Stability Facility (EFSF) of its AAA credit status.
This means the EFSF no longer enjoys the highest possible credit rating and is likely to find it more expensive to borrow money.
The move comes only days after Standard & Poor’s downgraded the ratings of nine European countries. France and Austria lost their AAA rating.
Italy and Spain also had their ratings knocked down again. The debts of Portugal and Cyprus are now considered as no better than so called “junk bonds”.
Germany is now the only country backing the EFSF that still has its AAA status from Standard & Poor’s.
Germany’s chancellor Angela Merkel has ruled out providing further funds for bailouts.
The bankers, politicians and technocrats cannot contain this crisis, no matter what they do.
Merkel and France’s president Nicolas Sarkozy are in an almost permanent session of crisis summits.
Yet the contagion of toxic debt still threatens to drag down the entire eurozone.
The global financial crisis began in 2007 with what was initially dismissed as a local problem involving bad mortgage loans in the US.
But at every stage attempts to stem the spread of the crisis have resulted in new sectors of the economy being infected.
Europe hasn’t been able to insulate itself. The debt crisis transferred first to smaller eurozone countries such as Greece. Now it has hit the very largest economies in Europe.
The European ruling class can’t even solve the crisis in Greece, an economy that represents only 3 percent of the eurozone’s total GDP.
Greece has been in state of “imminent default” since July last year. Its government has been brought down, a new one imposed—and still the crisis deepens.
The only solution being pursued is austerity policies that hit ordinary people the hardest.
This is despite the failure of those austerity policies to resolve the Greek crisis.
The ruling class has appointed officials from the European Union, International Monetary Fund and European Central Bank to act as its roving gang of enforcers.
The three institutions are known as the “troika”. Their job is to bully governments into complying with their demands for privatisation and austerity.
Troika officials travel around Europe staying in the best hotels, and instructing governments to impose ever more severe austerity measures in order to qualify for bailout funds.
But the medicine isn’t working, as the credit downgrades show. And the European ruling classes now face an even greater danger—rising working class resistance to its attacks.
Italy’s new prime minister Mario Monti warned on Tuesday this week of a “powerful backlash” against austerity.
Politicians fear reaping the whirlwind from populations that are sick of being punished for a crisis they did not create.