Economic emergency

18 March, 2022

Today's demonstration of haulers in Seville
Today's demonstration of haulers in Seville
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The economic emergency situation we are experiencing -general price inflation, escalating energy and basic food prices, reduction of real wages and purchasing power- is an accelerated version of what the government and the Spanish ruling class expected from the Green Deal. What is coming now is the fall of economic activity and an “income pact” that, in order to stop inflation -which was not caused by wages but by the exaggerated margins of the electricity companies, the Ukrainian disaster and the blockade of Russia- is going to consume almost 20% of the purchasing power of a typical wage.

Table of Contents

Economic emergency: War hits food, industry, and living conditions

Evolution of fuel prices in Spain, first symptom of the general economic emergency.
Evolution of fuel prices in Spain, first symptom of the general economic emergency.

Fuels have already risen by almost 10% since the beginning of the war in Ukraine. Food prices are even worse. One need only go to the market to see that the prices of a family’s ordinary consumer goods have gone through the roof.

To make matters worse, the lockout of hauliers, small entrepreneurs on the ropes because of the rise in fuel prices, threatens to cause shortages in the distribution of vegetables and fruit as of Monday. The situation is already critical for livestock farmers: the lack of trucks means that milk cannot be transported from the farms, nor fish from the fisheries. And, after three days, storage capacity is reaching its limit. Thousands of hectoliters of milk will be thrown away today on small farms.

But the economic emergency is not limited to the food circuit. The industry is not doing any better. Its inputs are skyrocketing, electricity prices are destroying margins and the global shortage of electronic components is now compounded by the lack of deliveries. The electro-intensive industry is asking for a moratorium on the payment of emission rights to face the rise in energy prices with its cash flow stretched to the limit, while forcing workers to take vacations and proposing new temporary lay-offs.

The nearest bomb fell more than 2,700 km from the Spanish northern border, but the war is already present in the form of an economic emergency. And with it, fear runs through the whole society. The government organizes convoys de facto militarizing supplies and the fear that a blockade of Russian gas by the EU will end in a “big blackout” suddenly makes candles one of the most sought-after products in supermarkets.

From economic emergency to war economy at full stride

Summary of the macroeconomic panel with the new forecasts for the Spanish economy made by FUNCAS. It does not yet reflect the seriousness of the economic emergency we are experiencing, but its main trends are already emerging.
Summary of the macroeconomic panel with the new forecasts for the Spanish economy made by FUNCAS. It does not yet reflect the seriousness of the economic emergency we are experiencing, but its main trends are already emerging.

In view of the economic emergency, all think tanks and economists’ offices have started to cut forecasts. Starting with the OECD and the European Central Bank, which is already warning that it will raise interest rates to contain soaring inflation.

The problem is that raising rates and reducing purchases of government-issued debt is tantamount to raising the financing costs of both companies and the state. When companies are burdened further on their income statements, in today’s context they will not only invest less, they will hire less as well. And if the financial costs of the state are increased, its spending capacity will be reduced when it is most important to maintain economic activity.

But believe it or not, this is the intended result. It is the standard central bank price control formula: reduce economic activity until layoffs and closures produce a drop in wages pulling prices down. There is no policy of “cooling the economy” which does not mean a redistribution of income from labor to capital.

Such a move is not without risk for national capital. That is why the state is more present than ever using its power to get to the same place -the lowering of wages- without devaluing capital too much on the way. This is the real meaning of the “Income Pact” and of the “Plan of response to the economic conditions of the war”, the touchstone of the war economy with which Spanish capital intends to face the economic emergency coming on the horizon and which the war in Ukraine has definitively brought to a head.

The government itself and its media spokesmen are already talking about “war economy” out of no rhetorical excess. At the heart of the new policies in the face of what is already recognized as an economic emergency are: state intervention – with or without the EU endorsing it – in the energy market and the famous “income pact”.

The problem with the transition to a war economy is that it does not solve the contradictions that led to its adoption, but rather exacerbates them.

Real also: War Economy and the “Income Pact”, 3/10/2022

The contradictions of the Spanish war economy

The contradictions of the Green Deal’s electricity pricing system: suicide by success

Gas prices in Spain
Gas prices in Spain

The government wants to cap the weight of the cost of gas in electricity generation. In the European system, the most expensive energy source, the one that is contracted when all the rest is already used to its maximum capacity, is the one which determines the price paid per kilowatt produced in each daily auction.

With the distortions imposed by the purchase of CO2 emission rights that must be bought by combined cycle plants, this means that gas (and coal) are much more expensive than clean sources, which enjoy higher margins the greater the distance between the cost of generation based on traditional fuels and their cost of generation.

This ensures extraordinary profits for renewables, “windfall profits” for hydroelectric and nuclear plants that have already been paid off, and therefore, supposedly, incentives to increase the clean generation pool.

In other words: the rise in gas prices has an impact on the cost of electricity generation in the same way as if all electricity were generated with gas, even though, of course, electricity companies try to use as little gas as possible.

What they now call “Putin’s blackmail” and which started long before the war, is not the result of any blackmail or the unexpected cause of the economic emergency. It is in fact the result of the intentional design of the electricity pricing system, the core of the Green Deal, which offered Russia the possibility of raising prices and taking its cut from what had actually been intended from the outset as a levy on the wages of European workers.

The result in the current situation is not a failure of the system, but rather that it works “too well”: the electricity companies “make a fortune” by savagely reducing the purchasing power of wages. The “downside” is that gas prices have risen so much that the assured returns of the electricity companies have become a burden for industry and the national capital that was supposed to serve as a lifeline for it.

Read also: Soaring gas prices: a consequence of the Green Deal, 14/10/2021

…and the contradictions of “capping the price of gas”

José Ignacio Sánchez Galán, Chairman and CEO of Iberdrola. The general economic emergency is inseparable from its extraordinary profits.
José Ignacio Sánchez Galán, Chairman and CEO of Iberdrola. The general economic emergency is inseparable from its extraordinary profits.

The problem with capping gas prices is twofold. First, the Green Deal is, like everything else under capitalism, all about attracting and concentrating capital in an environment of global competition. In order to eliminate risks to capital, the entire pricing system is legally shielded.

We have already seen the electricity companies are willing to assert “legal certainty” when the government tried to alleviate the first increases by reducing a part of their “windfall profits”. That is to say, to litigate with all the possibilities of success and end up obtaining gigantic compensations from the state that revert a good part of the impact of the measure.

Read also: A fierce resistance against cosmetic measures, 21/9/2021 

But that’s not all. Should the Spanish government go ahead and impose the measure on its own, its ability to attract masses of capital in the future, such as those arriving for the development of photovoltaic and wind power plants, would be damaged. Capital would associate a risk to the Spanish promises that it would not associate with other European countries.

And there is something almost worse. Although the electrical interconnection with France is very scarce – in spite of Spanish attempts – it exists. And should the Spanish electricity price fall due to government measures, France would take its purchasing capacity to the maximum, increasing Spanish electricity production, which would satisfy the extra demand in the only possible way: by consuming more gas. The balance would be sad for Spanish capital: it would increase gas imports to subsidize part of its neighbor’s electricity production.

Read also: The most expensive electricity bill in Europe or how imperialism also comes out in your electricity bill, 18/6/2021

Hence the European tour of Sánchez to delay the measures until the summit on the 29th as long as they are “Europe-wide”. The government does not want to lose competitiveness for national capital against other European destinations, nor does it want the effectiveness of the measures to fade away between lawsuits and transfers to France.

The problem is that big industry tells the government that it has no breathing space even to get through the rest of the month, and if big industry does not have any, then imagine the petty bourgeoisie and the workers.

The class struggle, that inevitable companion of the economic emergency

Tractors and trucks take Málaga today. The petty bourgeoisie has been the first to react against the economic emergency... worsening the situation and trying to dump the costs of the economic emergency on its workers.
Tractors and trucks take Málaga today. The petty bourgeoisie has been the first to react against the economic emergency… worsening the situation and trying to dump the costs of the economic emergency on its workers.

The response of the petty bourgeoisie already on the ropes was inevitable. The mobilizations of carriers and truckers, the first to feel the impact of fuel prices, continue, with no prospect of truce.

The government may well blame the economic emergency on the far right and mobilize 15,000 policemen to repress the pickets, but the bottom line is undeniable: the owners of micro-enterprises -the truck driver with one or two trucks, the cab drivers, the owner of a small workshop, etc.- do not have the resources to hold out for a month and wait patiently for “the prices to calm down”. Neither do many of the farmers who will take Madrid on Sunday, even though the government, in order to alleviate the effects of the drought on their profit and loss accounts, has already given them a 20% discount on income tax and cheap loans.

Stifled by the rising costs that make ruinous the contracts already signed with their customers, and inflamed by their own war propaganda hammered by the government and the media, they react to the economic emergency by projecting themselves on their Ukrainian peers and wrapping themselves in nationalist flags. They are not being instrumentalized by the far-right, but rather the far-right is the open way they have in almost all the territory to articulate and politically express their revolt, just as independentism was -and will surely be again- in Catalonia.

Whether or not they impose themselves on the government, whether they articulate themselves politically around the far right or independence, we know very well what their demands are not only against the major capitals but also against the workers: to be able to pay wages below subsistence level and to give no respite to precarization.

Because the only way for them to survive the concentration of capital that runs amok with each acceleration of the crisis, is to increase the exploitation of their employees, to take it even further than their larger-scale competitors and thus be able to maintain profitability in the midst of the economic emergency.

What about the workers?

 The economic emergency begins for workers in their basic consumption
The economic emergency begins for workers in their basic consumption

We, the workers, are the ones who are being hit hard by the economic emergency. And the first reaction is one of fear and caution. The data coming out of markets and supermarkets, e-commerce sites and traditional stores speak of an increase in purchases of basic goods in the context of a general drop in consumption.

In the face of the economic emergency, working families have stocked the pantry expecting a price increase and have frozen spending in fear of new layoffs.

The economic emergency we are experiencing – general price inflation, escalating energy and basic food prices, falling real wages and purchasing power – is an accelerated version of what the government and the Spanish ruling class expected from the Green Deal. What is coming now is an accelerated Green Deal under the general framework of something more and more like a War Economy.

It means nothing other than the fall of economic activity and an “income pact” which, in order to stop inflation -which was not caused by wages but by the exaggerated margins of the electricity companies, the Ukrainian disaster and the blockade of Russia- will eat up almost 20% of the purchasing power of the income of a typical working family. The economic emergency will thus become a redoubled “social emergency”.

And while big capital is calling the shots with the government and trying to turn its own collapse into a new “social contract” at our expense, the petty bourgeoisie is stepping up to save itself from the fire and to bounce back on the workers -directly, through prices or through the state- an even bigger part of the cost of this emergency for the profits of capital.

The unions have made it clear which side they are on when it comes to facing the economic emergency. They have shamelessly declared their readiness to accept “sacrifices” which will be, moreover, permanent, new “Moncloa Pacts” which will condition, like a slab around the neck of the workers, the years to come.

We cannot count on the trade unions nor on the left-wing parties, whether they are inside or outside the government, for anything except more impoverishment, more militarism and more “sacrifices” for the profitability of the investments of the ruling class. When they talk about economic emergency, they cook the social emergency and season it with palliatives that only cover the most dramatic situations… and not even all of them.

We are not talking about privileges or demands at nobody’s expense. We are talking about access to food, housing and energy for all, universal human needs that have a very different nature from the search for exemptions, tax breaks and special prices for small landowners and large industries. Universal needs that no one but workers, and only by ourselves, can defend. It is time to organize and fight effectively in order to do so.

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