European debt crisis shatters promises of U.S. ‘recovery’

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The fears of bankers and investors over the shakiness of European public debts and deficits were mirrored in dire predictions in May about the fiscal health of the United States, as well as worries over the performance of the underlying real economy.

Spiegel Online warned that “the U.S. budget deficit has now reached $1.6 trillion, or 10% of GDP [far higher than the Greek ratio]. The national debt is now over $12 trillion and is forecast to expand to more than $20 trillion by the end of the decade.”

Fred Bergsten, director of the Peterson Institute, claimed: “If we don’t correct the situation in the next five years, our worldwide position will be in jeopardy.” (The Peterson Institute is the creation of billionaire Peter Peterson, whose campaign to eliminate Social Security and other government programs has a sympathetic ear in Barack Obama’s White House, which has set up its own commission to propose drastic cuts.)

In March, rating agencies S&P’s and Moody’s warned that the U.S. perfect triple-A rating could be jeopardized if the country’s financial situation didn’t change drastically, and soon. Spiegel suggested a downgrading hasn’t happened only for fear of the “incalculable consequences for the economy.”

Joining the calls for U.S. austerity was New York Times business columnist David Leonhardt: “It’s easy to look at the protesters and the politicians in Greece… and wonder why they don’t get it. … Yet in the back of your mind comes a nagging question: how different, really, is the U.S.?

“Both countries have a bigger government than they’re paying for. And politicians, spendthrift as some may be, are not the main source of the problem. We, the people, are.”

Justifying his latest cuts, California Governor Arnold Schwarzenegger compared the situation to Europe, saying, “You see what is happening in Greece, you see what is happening in Ireland, you see what is happening now in Spain. We are left with nothing but tough choices.”

The mainstream media has been rife with stories attacking supposedly spendthrift state governments that allegedly knuckled under to powerful public sector unions to promise outrageous pensions and overtime payments. The May 16 Washington Post applauded reversals to this alleged trend, which are gaining strength: i.e. curbing retirement benefits for new workers, raising employee contributions, increasing the retirement age, and/or making workers contribute more to their retirement health-care plans.

The harshest cuts for public workers have so far occurred in the education sector—the same sector that was the source of massive protests in California this spring. A total of 275,000 education jobs are expected to be cut in 2011. Meanwhile, Secretary of Education Arne Duncan is trying to bust teachers’ unions and gut contracts using testing regimens and charter schools.

But every type of social service is in jeopardy. One of the most heartrending incidents—and the clearest sign of the diseased nature of our system—is the case described in The Times of a 67-year-old woman with cerebral palsy who, because of state budget cuts, had her personal-care help cut to 28 hours. That meant she would get help for two hours in the morning and two hours at night. “If she needed to use the bathroom in between, she would sit in a soiled diaper.”

The coming federal cuts to Medicaid and other social services described by The New York Times will mean many more such tragic stories. Rarely mentioned in stories hailing such cuts are the trillions wasted on war or bank bailouts—not to mention the systemic inevitably of capitalist crisis, which underlies today’s fiscal difficulties.

Demands for cuts in the public sector will gain increasing force as the global economic crisis enters the “double dip” of the Great Recession, signs of which are proliferating. The rescue package led to a revival in global stock markets—for one day, Monday, May 10. By Tuesday, as awareness sank in that the package would solve few of the country’s longer standing problems, the markets began a steady decline.

Since late April the Dow has declined more than 1000 points, or over 10%—a rate known as a market Meanwhile, indicators of the real economy parallel in their gloominess the stock exchange plunges. The New York Times columnist Paul Krugman noted that recent employment gains have brought back fewer than 500,000 of the more than 8 million jobs lost during the financial crisis.

The Conference Board’s index of leading economic indicators dipped in April for the first time in over a year. The Washington Post reported on May 14 that “More people lost their homes to foreclosure in April as banks worked through a backlog of troubled borrowers. The number of homes repossessed was up 45% from a year before.

One housing analyst said, “We’re adding foreclosures at a pace that foreclosure-prevention programs can’t keep up with. If anything, we’ve pushed the problem into the future … foreclosures will continue to be a drag on the economy for at least five years.”

Meanwhile, Obama and Congressional Democrats are heading toward agreement on a pro-banker financial regulation “reform” package. Differences between Senate and House versions include how tightly derivatives should be regulated, and whether banks should be allowed to trade on their own account on such financial instruments. Not a word, though, about banning such purely speculative types of investments.

And mainstream commentators agree that even the light regulation likely to eventually pass will just inspire banks to find ways around its limitations by creating brand new financial instruments, setting up new dummy front corporations or divisions, new tax dodges, etc.

With Democrats in Washington united in their determination to make workers pay for the crisis, what’s a labor movement to do? To start with, we can learn from our sisters and brothers in Greece, and take inspiration from the unity and militancy they’ve displayed.

One promising sign of possible new militancy, which builds on the mobilizations in California this spring, was the 35,000-strong Trenton rally by public workers against cuts in New Jersey on May 22.

The United National Antiwar Conference in July in Albany will discuss a nationwide campaign of teach-ins and advocacy for city council resolutions calling for less war spending and more money for jobs and benefits.

Clearly the time has come for more formal collaboration among public sector workers to plan joint resistance to attacks on them—and on the communities which they serve. n cuts being demanded would, instead of guaranteeing Greece’s sol-