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Spain's economy heads for the buffers

Watching the minute-by-minute account of this morning’s speech by Spanish Prime Minister Mariano Rajoy felt like looking over the shoulder of the driver of the locomotive with his hand hard down on the accelerator as the train heads for the buffers.

Rajoy was listing the new, more brutal round of measures to be dealt out to the Spanish people. These are needed to pay for an additional €30 billion handout for banks in yet another certain-to-fail measure to prevent the debt contagion from spreading.

Rajoy says the measures will slash a further €65bn from Spain's budget over the next two-and-a-half-years. Only four months ago the government announced €27bn of cuts for 2012 in what was labelled at the time as the "most austere" budget in Spain's history.

As he spoke, thousands of well wishers greeted hundreds of Asturian miners marching from the north into Madrid at the end of a three-week long, 300km protest against the consequences of the previous rounds of public spending cuts. Miners have been exchanging rocket fire with police as they try to stop the cuts in subsidies that will be certain to close pits throughout the region.

Unemployment in Spain is already at 24% – 50% amongst young people – and the International Labour Organisation is warning that the number of unemployed in the eurozone could rise from 17.5  million to 22 million in four years.

Now EU finance ministers insist that Spain slashes a further 2.7% off spending this year in order to rescue the banking system from complete collapse. So unemployment benefits will be cut by around 30%, VAT will rise by 3% to 21%. Local government spending will be cut by €3.5bn, and the number of local councillors reduced. Public sector workers will lose their end of year bonus. Central government budgets will be cut by €600m.

Meanwhile, across the Atlantic, the members of the less than 1% who make up the global capitalist class watch anxiously as the US economy stumbles towards the abyss known as the “fiscal cliff”. 

This critical economic and political moment for the US is the result of an extraordinary accumulation and convergence of spending cuts and tax increases due at the start of next year which the Congressional Budget Office warns could tip the US into a “double-dip” recession.

The scheduled tax increases result from the expiration of tax cuts for the wealthy enacted during the Bush era from as early as 2001, and extended by Republicans in 2010. They were denying the revenue to the Obama administration needed to help reduce the government’s mounting deficit. Republicans are once again demanding further massive cuts to government spending programmes before they’ll consider agreeing to raise the $16.4tn borrowing threshold which will be reached this year.

Automatic spending cuts set up to resolve the last political stalemate come into force on January 1 affecting both defence and domestic government programmes and agencies. These were triggered by the failure of a special bipartisan “super committee” of lawmakers set up to identify at least $1.2tn in deficit reduction over the next decade, or face an equal amount of forced reductions.

There is also a flurry of expiring tax cuts for businesses, the expiration of emergency jobless benefits, and reductions in the reimbursement rate for doctors participating in Medicare, the government health plan for senior citizens.

As events across the world show, the darkening clouds of the global capitalist contraction require that entire populations are targeted for the most savage measures. This is austerity as oppression on a grand scale.

Resistance is growing, while the political elites are more and more driven by events outside of their control. The challenge then is to generalise the struggles into a challenge for power itself in order to halt the catastrophic collapse that threatens the majority in every country.

Gerry Gold
Economics editor
11 July 2012

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