A crisis larger than 2007 crash

From years ago, the world capitalist system has shown its bankruptcy with sequential socioeconomic crises. It has shown that the time for this rotten order is over, and it should be replaced by a socialist order organised by free and equal men. The failure of this system and its paralysis in the face of a virus which has caught the entire world and kills thousands of people everyday and has slumped the world economy is another reason that humanity will have no benefit from an order based on class differentiation, profit and exploitation but poverty, unemployment, homelessness, contagious diseases, fear, stress and the lack of future.

The capitalist order has been suffering a structural crisis for several decades and has experienced cyclic crises. It has not rehabilitated from the consequences of the deep crisis in 2007 and now it is challenged with a larger and deeper crisis.

Before the coronavirus inflict its final blow on this economy, it was obvious in late 2018 that the world system would face a new crisis. Falling growth rates in major countries led the International Monetary Fund and other institutions to forecast a new crisis for late 2019.

The IMF said in his 2019 report: “The world economic activity reduced significantly in 2018. China’s growth fell under the pressure of the trade war and banking controls, and the Euro zone economy lost its momentum.”

The IMF’s assessment of the world economy suggested that the growth of the GNP of advanced capitalist countries reduced to 2.2 percent in 2018. This rate even fell to 1.8 percent in 2019. The figure dropped from 1.8 to 1.3 percent in Europe. The US which experienced better economic conditions experienced a fall from 2.9 to 2.3 percent. The IMP’s report forecast that the growth rate of Japan and China would fall to 1 and 6.5 percent, respectively.

Meanwhile, the UN United Nations Conference on Trade and Development (UNCTAD) report showed that international debts is now higher than 2008 by one-third and exceeds the world GDP tripled. These debts reached 193 trillion dollars in 2017 which accounts for 318 percent of the world GDP. The report said that this debt of the world countries not only is a huge financial risk but the source of a serious damage when an economic slump starts.

Therefore, apart from the coronavirus pandemic, a new crisis was inevitable. The pandemic only accelerated and intensified this process and gave it bigger dimensions. With the spread of the virus and the prospect of a deep crisis the stock market started a crash. Estimates showed that the world markets lost 7,000 billion dollars only in seven days.

In March, a new plunge of the stock market came while he US Federal Reserve had reduced the banking interest rates to almost zero and devised a 700-billion-dollar motivating package, and announced that would buy 1,500 billion dollars of American companies’ debts. It later said this might increase up to 4,000 billion dollars.

Despite the American government’s efforts, major indexes of the Wall Street went on their fall until 23 March. However, the measures taken by the US financial and monetary institutes failed to settle the crisis.

Finally, Trump got a 2,000-billion-dollar package passed by the Congress and Senate in order to prevent a big crash. This package – which was described as the largest saving package in the American history – was decided to be spent as loans to small companies (350 billion dollars), airlines and other companies (500 billion dollars), 1,200-dollar cheques for adults and 500-dollar cheques for children.

Although the stock market apparently experienced a sudden boom but it was short-lived and the crash continued. The most powerful economy of the capitalist world entered a slump.

Just a few days after the beginning of the slump, the US labour department published a report that said 3.28 million people have applied for unemployment benefit. Based on the estimate of the US restaurants association about seven million workers will lose their jobs within three months.

American economists have also forecast a fall by 24 percent in the GDP for the second quarter of 2020. If this forecast comes to true this economic crash will be three times bigger than 2008.

A senior at the Morgan Stanley predicted that the coronavirus pandemic would heavily destroy the economy of the US and the world. The ensuring economic crisis will be much deeper than the crash which impacted the US economy. When the strongest world economy yields it would be clear what will happen to other countries. Germany, the strongest European economy, is experiencing the same conditions.

With the stock market crash, the German government allocated 550 billion euros to save German companies. However, this remedy was not effective.

The German economy minister estimated that production would all by 5 percent in the current year due to the pandemic, and this country would face an unprecedented economic slump since the 2008 crash.

A German research Institute (DIW) has estimated that the loss caused by the coronavirus might rise to 729 billion euros. This crisis will lead to halt in production and unemployment and will squeeze the budget. If the recession continues more than three months it will impose a loss between 354 to 729 euros. Under such conditions, the German economy will shrunk by 10 to 21 per cent.

According to German official media, Clemence Fuest , the head of an institute in Munich, says that the coronavirus pandemic will give rise to stagnation, unemployment and the conversion of many jobs to part-time and precarious ones, and this situation will put the annual budget in trouble.

He warned that the pandemic will adversely affect the labour market and unemployment, and will lead to the unemployment of one million people, and 1.4 million people will have to engage in precarious jobs.

The situation will be far worse in other European countries. By a drastic reduction of the interest rate, governments have allocated huge funds to tackle bankruptcy and support manufacturing and service enterprises, and to settle public and companies’ debts.

The European Central Bank has allocated 750 billion euros and France 345 billion euros. Britain has set aside 330 billion pounds, while G20 countries are to spend 5 trillion dollars.

Monetary and banking policies, injection of money, reducing interest rates, helping weak businesses and those who have lost their incomes have not even relieved the problem. The economy of all countries has started a slump, or on the brink of such crash.

The director general of the Development and Economic Cooperation predicts that some large economics will enter a depression period and it takes long years to set right the damage caused by the pandemic. He says this damage is much greater than the 2008 crash.

Finally, the head of the International Monetary Fund announced: “It’s evident that we have entered a period of depression, as acute as 2009 or even worse… the worrying problem, however, is the long-term stop of the world economy and the wave of bankruptcies and dismissals that can prevent an improvement and furthermore destroy the texture of our societies.”

The International Monetary Fund has called for lending 2.5 trillion dollars to the so-called newly emerging markets; India and Brazil.

In Asia, the most important countries are facing a serious economic crisis. The GDP and exports have fallen by 13 percent and 16 percent, respectively, in China. Likewise, South Korea and Japan are facing the problem despite the huge financial support packages devised by governments. The countries where tourism accounts for a major part of their incomes, such as Thailand and Singapore have already been damaged seriously. Oil exporting countries will also face tough conditions with a fall in oil prices. The oil price has fallen below 30 dollar a barrel.

The chaos of the world economy in the past month shows that the world capitalism is facing a crisis bigger than the 2007 crash. This crisis will entail a series of immediate consequences, the most important will be its impact on workers’ livelihood. This time, the consequences will be harsher; the unemployment of tens of millions and falling living conditions and the expansion of poverty. Meanwhile, this crisis will cause changes in the international economic policy of the capitalist class. The 2007 crash showed the bankruptcy of globalisation and neoliberalism. Now, governments have to adopt the policies contrary to the previous one. They have had to takeover manufactures and service sector which have gone bankrupt. The government nationalised the largest airline in Italy. The Spanish government nationalised health services. France said it would nationalise bankrupt companies. And Germany said the takeover of the firms which cannot survive is on its agenda. The coronavirus crisis caused the government to accumulate more power and tended to nationalism. More government are supposed to follow the US and Britain. The European Union failed to adopt a unified policy to counter the virus, and now French president warns against the breakup of the EU. This situation will intensify confrontation between states. The countries that made the largest profit from globalisation and neoliberalism will suffer most from changing the direction. The result will be the intensification of contradictions and conflicts. However, the serious conditions caused by the pandemic and the ongoing economic crisis for the working class in each country and at the international level means a deeper confrontation between the labour and capital and the will boost class struggle in advanced capitalist countries. Capitalism has no solution to the accumulation of contradictions and the crises of the contemporary world. The only way is the establishment of a socialist order.

From “Kar”, No. 863, March 2020