Recession: the poison of austerity unsheathed

The United States Federal Reserve (Fed) and the European Central Bank (ECB) set in motion restrictive monetary policies under the guise of coping with inflationary surges. Fears for activity and employment are emerging, however, at the same time, on both sides of the Atlantic. Not enough to dissuade them from inoculating the poison of austerity. And yet, in several sectors, layoffs are scheduled. Including in a flagship multinational like Tesla. The electric vehicle maker has announced that it will cut 10% of its salaried workforce in the next three months, while increasing the number of temporary workers.

1. Inflation, metastasis of financialization

Inflation is flying from record to record throughout the Western world: +9.1% in the United States, +8.6 in the euro zone and +9.3% in the United Kingdom. This price spike was to be » provisional « , assured Christine Lagarde, the President of the European Central Bank, for a long time, before realizing the facts. Many analysts expounded on the « bottlenecks and scarcity of supply » attached » transitorily « to the post-Covid recovery period. Without ever really deciphering the reasons for the under-investments at the origin of these shortages. Without worrying about a financialization that has experienced exponential development during the pandemic years.

During the period, capital swelled until it displayed a monstrous unparalleled obesity, embodied by a few dozen multi-billionaire oligarchs of the capitalist planet (read our May 22 edition about the study by the NGO Oxfam on the explosion of inequalities). Public policies aimed at combating no matter what” – in the words of President Emmanuel Macron – the economic consequences of the lockdowns have fueled this huge financial bloat that began to burst today. As pointed out, among others, by the bitcoin crash or the spectacular declines recorded on the stock markets since the beginning of this year 2022.

The flow of free money obtained by monetary creation – the money printing press of issuing institutions – has never really served to stimulate healthy activity, as it was most often distributed unconditionally and therefore diverted to most speculative transactions. Critical investments in infrastructure or commodities have not been honored enough. Without even mentioning those which should have been devoted to public services, training, health, research or the fight against global warming.

2. Why is Europe so fragile?

The change in the economic situation resulting from the war and Putin’s aggression on Ukraine has increased, for Europe, the risks of recession which already hang over the whole of the Western world under the effect of the financial inflation. Tensions on energy prices linked to a scarcity of Russian natural gas deliveries, or even their interruption weigh very heavily. More than 50% of Germany’s energy consumption depends on it. And the current maintenance operations of the Nord Stream 1 gas pipeline, which have resulted in a cut in the gas intended for the pipes of the first economy in the euro zone, are raising many concerns at this very moment across the Rhine.

There is nothing to suggest that Gazprom will not restart the installation. However, if it were to, without even stopping it, reduce the flow of gas, the impact on a very dense and energy-intensive German industrial sector could be considerable. The industry employers’ federation (BDI) refers to a » dark scenario, with potential site closures”. Either a situation that would not fail to plunge Germany into the red. And this all the more quickly as growth has continued to slow across the Rhine in recent months, the country even verging on a technical entry into recession (two consecutive quarters of negative growth) at the end of March.

One can imagine the consequences of a large-scale failure of the first economy of the euro zone on all of Europe, whose forecasts are already revised downwards at increasingly close intervals. The alert is taken seriously. So much so that Andrea Enria, head of banking supervision at the ECB, now advises banks to include in their forecasts« a dark scenario » a significant fall in activity in the euro zone.

3. Rising rates: weapon against citizens

The Federal Reserve (Fed), the US central bank, has raised its rates very aggressively since March. It took them, which were still nil at the start of the year, to 1.75% and is preparing to carry out a further increase of 1% at the end of July, which would constitute the most brutal tightening operated by the institute. issue since 1994. Priority is given, justifies Jerome Powell, the US central banker, to the fight against inflation, which was approaching 10% on an annual basis in June. After years of an expansive credit policy, in tune with the other major issuing institutions, the Fed is thus performing a spectacular spin.

The monetary tightening is the standard tool of financial institutions to stem a surge in prices that erodes the value of capital investments. After having flooded it with easy money authorizing its financial expansion, it is now a question of preventing inflation from causing too great a devaluation of its assets. Presented as the only means of curbing the rise in prices, the method consists in making workers and ordinary citizens pay for the past speculative exuberance, according to a proven class logic, by blocking the way to the increase in wages or (and) public spending. The maneuver is not without risks. Because, increasing the cost of money could slow down activity and further accelerate the onset of the economic downturn caused by the bursting of the speculative bubbles that have accumulated in recent years, particularly in the United States on cryptocurrencies, the high-tech or real estate. Dilemma: by tightening the screws too much, the Fed could precipitate its own economy into recession. For the time being, Washington is maintaining the course of a drastic revision of its monetary policy. Convinced that its imperial position, based on the privileges of the dollar, the de facto global common currency, will allow it to transfer to the « allied » Western powers and to the emerging countries the most negative effects of the rise in interest rates and that correlated with the US currency. Argentina, Brazil, Indonesia and even South Africa are already paying a high price for the rise in the greenback through very high levels of inflation, as in Turkey (60% annual price increase), or (and) by entering super austerity programs backed by double-digit interest rates.

Europe is not there yet, but it is on its way. Because she is taken, too, by the throat. Faced with high inflation and the fall of the euro against the US currency, it is preparing to in turn initiate a reversal of its monetary policy by starting, this Thursday, July 21, like the Fed, a series interest rate hikes to trigger austerity against European workers.

To avoid recession, maintaining an expansive ECB policy seems essential.« But on condition of triggering selectivity in the allocation of these free credits », emphasize the economists of the French Communist Party. It would be a matter of financing the common goods, the useful activity and no longer the heavyweights of the Stock Exchanges. The former would be reserved access to the means of financing investments that generate jobs, training, public services or the fight against global warming. This could be achieved, without even having to wait for a hypothetical revision of the European treaties, thanks to the creation of an ad hoc European solidarity fund, refinanced by the Central Bank.