Global economy heading 'down for the count'
Stark warnings from the International Monetary Fund about the risk of financial collapse in Europe have coincided with indicators from the Brookings Institution and the Financial Times showing that the global economy is “on the ropes”.
They give some context to Coalition prime minister Cameron’s “hour of reckoning” speech to the party faithful today. Except that it is not just for the British economy that the bell tolls but for capitalism internationally, if its own agencies and researchers are to be believed.
The IMF said that the euro area's debt crisis was the main threat and the risks to global financial stability had risen in the last six months, leaving confidence "very fragile". Concerns centre on European banks offloading $2.8 trillion in assets over two years to cut their risk exposure. That could shrink credit supply dramatically.
Report author Jose Vinals said: “The choice today is between making the necessary but tough policy and political decisions or delaying them – once more – in the false hope that time is on our side. It is not."
His fears are confirmed by indicators compiled by the Brookings Institution and the Financial Times which show that “the global economic recovery is on the ropes, battered by political conflicts within and across countries, lack of decisive policy actions, and governments’ inability to tackle deep-seated problems such as unsustainable public finances that are stifling growth.”
All of the Tiger (Tracking Indices for the Global Economic Recovery) measures show that the global economy is operating at a lower level than before the 2007-8 crash and heading downwards. Spokesperson Professor Eswar Prasad warned: “In the absence of a broader range of decisive policy measures – including fiscal, financial system and structural reforms needed in many countries – the world economy may soon be down for the count.”
This is the stark reality of global contraction which is the driving force at the epicentre of the planetary emergency.
The brutal treatment of protestors demonstrating against German chancellor Angela Merkel’s visit to Athens, together with the rise of the fascist Golden Dawn in Greece are clear warnings of the depths of barbarity the defenders of the system will plumb to do what is necessary to save capitalism.
Merkel visited Greece to strengthen the determination of the government of prime minister Antonis Samaras which must force another round of austerity onto the Greek people. They are already going through intolerable pain in terms of cuts to living standards, unemployment, shortage of medicines and homelessness.
Merkel is acting as spokesperson for the Troika – the IMF, the European Central Bank and the European Union – which once again is confounded by the facts. Three years ago they said that Greece's economy would contract by 2.6% in 2010, before growing by 1.1% in 2011, and 2.1% in 2012. Greek GDP instead contracted by 4.5% in 2010, 6.9% in 2011, and is likely to shrink a further 6% this year.
But Greece is not an isolated case.
According to Professor Prasad, The Brookings-FT Tiger index shows growth momentum has dissipated in nearly all major advanced and emerging market economies. Central banks of the major advanced economies have responded with a range of conventional and unconventional policy monetary policy actions.
He says while these measures have put a “floor on short-term financial market risks” they have been unable to reverse declining growth momentum. “As a result, financial markets continue to go through short-term cycles of angst and euphoria even as indicators of real economic activity remain mired in weakness.”
These indicators reveal the objective movement of the global capitalist system which has already brought millions of people onto the streets protesting against the unbearable consequences of contraction. On any measure, the capitalist system of production has failed. At the same time, threatening political reaction is the order of the day in Britain, Greece, Spain and in many other countries.
10 October 2012