From Socialist Voice, March 2011

Workers in peripheral countries paying a heavy price

Euro-zone politicians are meeting in Brussels this month to try to come forward with new rrules in relation to the euro and to the growing difficulties being experienced by the peripheral states as they struggle to cope with the massive debts they have taken on—money originally borrowed from finance houses mainly in the core countries of Germany, France, and Britain.
     It seems increasingly likely that they will not be able to square the circle in relation to new rules, on the expansion of the bail-out fund, or any renegotiation of their terms.
     What may well be up for discussion is more flexibility in relation to interest rates and a rescheduling of the deadlines on the existing loans. Merkel has also hinted that they might agree to increase the lending capacity of the existing temporary rescue fund.
     But Merkel is not in a position to support giving the senior bondholders a severe “haircut,” as they are German banks, and German banks are already in difficulties and want their money back.
     German manufacturers are concerned that consumption throughout the euro zone will further decline, as the cuts in public spending would take more money out of the economy, thereby reducing the market for German goods. The German financial interests that pumped up the credit bubble in the peripheral countries, no longer having this outlet for their money, are now seeking to create a credit bubble in Germany itself.
     In mid-March the Spanish central bank issued its official figure on the cost of recapitalising Spanish banks, putting it at €15.15 billion. This is in stark contrast to Moody’s estimate of €40 to €50 billion, which the markets seem to have judged more credible. (Much of the difference is put down to the central bank’s definition of core capital.)
     The Austrian Minister of Finance, Josef Pröll, added to the growing pressure being put on Portugal to go for a bail-out, while the European Commission and the president of the European Central Bank, Jean-Claude Trichet, claimed to have discovered a “finance gap” in Portugal’s budget planning.
     All this pressure on the Portuguese people is contributing to the manufacturing of fear, which they hope will lead in turn to the consent of the Portuguese people, giving the ruling class the necessary cover for launching renewed attacks, under the guise of “restructuring,” with privatisation and savage cuts in public spending as more and more revenue will go to servicing an unpayable debt. What is left of the gains made in the Portuguese Revolution of 1974 will be further undermined and rolled back.

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