'Go time' has arrived

The sudden appearance of the global contraction over the summer is inducing a state of chaos amongst the governments of the world’s major economies.

Three years after the financial crash all attempts to bring about a recovery lay in ruins.

Italy’s Berlusconi government yesterday announced VAT-rises as a further provocation to mass street protests and strikes against its previous round of austerity measures in an attempt to forestall a downgrade of its debt.

Greece's finance minister Evangelos Venizelos pledged to speed up delayed privatisation and market “reforms”, while his Irish counterpart said Dublin was considering making a deeper fiscal adjustment than planned next year to boost market confidence.

"We are in the middle of a peculiar war – if we lose, we lose everything," said Venizolos. "If we don't complete structural reforms, if we don't change the way the state and the economy work, we will be stuck."

The problem, however, is that even if they do what the IMF and European Central Bank demands, they will still be stuffed.

Britain’s economy is heavily dependent on the service sector which slowed at the fastest pace in a more than a decade last month while orders for new construction have fallen to the lowest since 1980.

Today’s call by 20 “leading economists” for the government to abandon the 50p tax rate for high earners to boost the economy – as if it would make the slightest difference – shows how far from reality these apparently learned men and women have drifted.

The US economy which needs close to 200,000 new jobs each month to prevent a dive into recession added no jobs at all in August. President Obama’s expected plan for a $300 billion job creation programme is certain to meet powerful Republican opposition and a replay of the political deadlock over the debt ceiling.

When governments rushed to the rescue of the bankrupt banks they took on responsibility for the three decades-long accumulation of credit. They attempted to shore up the already tumbling house of cards with props made of unrepayable sovereign debt, adding immense sums to existing deficits.

Government after government launched slashing attacks on all programmes of expenditure – health, education, social services, transport, police - you name it, under the guise of “austerity”. Wages were frozen, effectively reduced by rising prices, and pensions undermined.

But each and every one of the brutal attacks on their populations made only a small contribution to the deficit reduction. Every austerity programme so far introduced is founded upon an expectation of a return to growth which has not been and can not be forthcoming.

As Mark Dow, hedge fund manager and former IMF economist, puts it for Reuters global news agency:

“I am not by nature an alarmist. But the cancer is metastasizing at an ever-accelerating rate. Italy, Spain and even France are now genuinely at risk. Failure to stem the tide now could well undermine faith in the modern global capitalist system — a system already stretched by political polarisation and income inequality — with potentially massive social implications. In short: It’s go time.”

Amongst Dow’s proposals are to drive Greece, Portugal and Ireland out of the eurozone, allowing their economies to disintegrate, their populations to be abandoned to their collective fate. These are the kind of horror scenarios now being openly debated.

“Go time” it most certainly is – but not in the way Dow envisages. Time is up for the capitalist system of production for profit which is clearly beyond repair. And the bell has surely tolled for the political elites that know only how to force their populations to shoulder the burden of a crisis they didn’t create.

Gerry Gold

Economics editor