If you owe $500,000 to your bank, the bank owns you. If, however, you owe $500 million to your bank, you own the bank. Big debtors have the potential leverage to defend themselves because it is not in the interests of their creditors to see them default completely.
This was discovered by the former president of Argentina, Nestor Kirchner, who died suddenly on October 27. When Kirchner was elected in 2003, Argentina was drowning in debt and the living standards of its workers, once the highest in Latin America, were plunging. But Kirchner stood up to his own ruling class and international lenders and backed them down, rescuing his country and protecting workers' living standards, as well as laying the basis for a remarkable period of economic growth.
The poorer countries in the European Union are in turmoil today, partly because of the world financial crisis and partly because of situations in individual countries. These countries, insultingly called PIIGS (Portugal, Ireland, Italy, Greece and Spain), entered the European Union and the common euro currency because this promised to open the markets of the wealthier countries to their products. Now they see the downside.
In the spring, Greece was the focus of concern when it was found that the previous government of Kostas Karamanlis' right wing New Democrat Party had engaged in massive fraud to conceal huge deficits. The new government of the social democratic PASOK's Prime Minister George Papandreou implemented an austerity program which led to massive street protests, and the European Union and International Monetary Fund came up with a trillion-dollar temporary emergency fund to finance Greece and, potentially, other countries in similar straits.
But in exchange, the recipient country has to take drastic measures to get its finances in order, either increasing taxes or cutting the social welfare budget and other worker-unfriendly measures, such as sharply increasing the age of retirement.
Ireland achieved temporary prosperity by setting its corporate tax rate so low that investors came flooding in. But the country was hit in 2008 by a massive mortgage crisis like the one that hit the United States. A number of Irish banks were headed for the cliff. The government of Taoiseach (Prime Minister) Brian Cowan, of the center-right Fianna Fail party, slashed the social welfare net and bailed out the banks, instead of letting the banks fail and saving the living standards of the workers. As a result, the solvency of the Irish government is severely endangered and Cowan is super-unpopular. On Friday, the UK Guardian reported that Ireland's opposition Labour Party has demanded Cowan's resignation, and his Green Party coalition partners may ditch him. Either way, he would have to call new elections which Fianna Fail would probably lose.
Meanwhile, the estimate of the Greek deficit has now been revised sharply upward to 13 percent of gross domestic product. The euro area's rules only allow 3 percent. The situation in Greece and Ireland is freezing credit and jacking up its cost, thus endangering Portugal, Spain and Italy. Everywhere, the governments, whether rightist or social democratic, are opting to preserve the interests of the ruling class and international monopoly capital by shifting the immense load onto the backs of workers, small farmers, poor people, youth and students.
The beleaguered PIIGS countries now find that the rules of the European Union and the euro currency are a straightjacket. One tactic that countries in such conditions could use is to devalue their currency. This would boost their exports (because their goods would be more attractively priced) and shrink the size of their debt. But they cannot do this because they no longer have their own national currencies, and the richer European Union countries do not want to devalue the euro.
In each case, resistance has been organized by the local communist parties and the labor-based left. In Greece, this has led to electoral advances for the KKE, Greece's communist party, whose vote in recent local elections rose to nearly 11 percent of total votes cast, up 3.3 percent over the last elections. In Portugal and Greece there have been massive protests backing a demand that the wealthy and the corporations pay for the crisis they have caused. More strikes and protests are scheduled for late November. These countries are finding themselves in the position that the poor countries of Asia, Africa and Latin America have faced for so many years: no fair deal in international trade, and being forced to accept loans from international agencies controlled by monopoly capital, who then demand that they adopt neoliberal policies including rigged "free" trade, privatization, austerity, layoffs, and, eventually, repression.
Art Perlo contributed to this article.
Photo: Signs at a demonstration in Dublin, Ireland, Sept. 29, protest cuts in bus services. informatique CC 2.0