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Eurozone ‘bazooka’ won’t stop the crisis from spreading

This article is over 11 years, 10 months old
Panos Garganas examines the latest attempt by European authorities to save the euro
Issue 2320

The European Central Bank (ECB) announced a new programme to support the eurozone on Thursday of last week. ECB president Mario Draghi declared, “The euro is irreversible”.

The Financial Times wrote, “Investors are over the moon”. Greece’s highest circulation newspaper printed a cartoon of Draghi as Superman with the headline “the euro is flying”. The secretary of the OECD, which represents a host of leading industrial nations, added, “This is your bazooka.”

We have seen similar claims before over the last three years—yet no previous “bazooka” was able to stop the crisis. So what are the prospects this time?

Under the new Outright Monetary Transactions (OMT) plan the ECB will intervene in bond markets to buy short term debt issued by member states. But to get the bailouts states must enter into a memorandum of agreement that imposes austerity.

The plan is not of much use to poorer states like Greece. They are eligible as they have already signed memorandums. But Greece is not able to return to the markets for new loans.

OMT is effectively a plan for Spain and Italy. But both these governments find it politically difficult to sign a memorandum that will demote them to the status of Greece.

At the moment OMT acts as a future promise that borrowing costs will not escalate out of control. As long as the markets believe this promise, Draghi is buying time for all eurozone governments.


And yet even this is causing divisions. Germany’s central bank opposes OMT. It fears that the ECB will be forced to print money to meet its promises and that this will lead to inflation.

Draghi believes that there will be no need to print more euros, as the ECB already has 800 billion euros worth of deposits from European banks.

But this in itself points to further problems. At the beginning of this year the previous ECB initiative was Long Term Refinancing. Draghi allowed European banks to borrow money from the ECB at very low interest rates for up to three years.

One trillion euros was borrowed, giving ample funds to buy Spanish and Italian bonds without driving up the borrowing costs. But the banks didn’t buy.

Instead, the funds were parked as deposits at the ECB while Spanish and Italian interest rates climbed steeply. This is a vicious circle. And each new ECB plan hardwires ever more vicious austerity across the eurozone.

Stock markets may be cheering for Draghi, but European workers are preparing for mobilisations against cuts.

A speaker from the Italian trade union federation CGIL addressed a mass demonstration in the Greek city of Salonica last Saturday.


He said, “On 15 September unions will demonstrate in Madrid, on 28 September in Rome, on 29 September around Germany and on 20 October in London.”

The Salonica anti-austerity demonstration was a great success. Tens of thousands took the streets with a clear message—we will strike and demonstrate to stop cuts ruining our pensions, schools and hospitals.

The protest also had an anti-fascist edge. People are outraged that recent polls show support for the fascist Golden Dawn rising to almost 10 percent.

All three parties in the governing coalition are losing support. So they resort to openly racist campaigns against immigrants that help the fascists grow.

As the coalition partners decline the anti-austerity left is gaining ground. The radical left Syriza is overtaking the coalition Tories. The Communist Party is ahead of the coalition Democratic Left.

Antarsya, the organisation to which we belong, also has more support than in the June election. We will fight to bring the coalition down and we will not let Golden Dawn threaten the advance of the left.

Panos Garganas is editor of Workers Solidarity, Socialist Worker’s sister paper in Greece

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