War Economy and the “Income Pact”

10 March, 2022

EU Ukraine. War Economy

The tsunami brought about by the emergence of militarism and the evolution from economic war to a war economy is not going to stop. Least of all with regard to the workers in all the states of Europe, from the Azores to Yakutia. We are at the first moment of a massive impoverishment which will inevitably be accompanied by a strengthening of state totalitarianism. And only struggles, strikes and an increasingly frank confrontation with the ruling militarism will be able to stop and reverse it.

Table of Contents

For the EU, economic warfare necessarily leads to war economy

soaring gas prices
Gas pumping station in Russia

One only needs to look at the map of investments, energy trade and raw materials to realize that Europe, including Russia, form a single capital market in which Russia plays the role of a semi-colonial country. The degree of imbrication of German and European capital with the Russian economy was, until now, equivalent if not greater than that of the US in its Mexican and Ibero-American “backyard”.

Shattering through sanctions that which for capital is a single unit is already having “devastating effects” on capital accumulation in Russia. But, as it could not be otherwise, also for European capitals. And not only through energy prices.

Russia now owes $300 billion in foreign debt, of which $60 billion is government debt. The Russian government responded to the sanctions by setting up payment in rubles to debt holders as a way of not completely losing its foreign exchange reserve. But with the ruble plummeting day by day as a result of the sanctions, this “corralito” amounts, in practice, to a feared “default”, a default and devaluation of the debt.

The risk of a Russian default leading to a financial crisis is the immediate consequence of the economic war. And saving European banking and financial capital from it is the primary goal of a European Central Bank which, as analysts have been predicting, cannot raise rates to lower inflation without seriously damaging production along the way.

The “solution” towards which the EU, governments and finance capital are aiming at full speed is an accelerated militarization of the management of the economy.

First and foremost, as we saw yesterday, of the energy system. The acceleration of the Green Deal becomes “strategic”. The EU will reduce its dependence on Russian gas by 2/3 in the remainder of the year, even if middle and low-wage workers in the European East will freeze in the coming winter. On the way, the first characteristic signs of the war economy: just today the EU allowed the states to intervene in the electricity market in order, this time, to cut the “skyrocketing profits” of the electricity companies in order to keep the industry, especially the electro-intensive industry, going.

This subordination of capital localization – even at the cost of the sacred “legal certainty” of state-guaranteed returns – to ” sanctuary” sectors for capital such as electricity is spreading to strategic industries at full speed. Just today, Stellantis (Fiat, Peugeot, Citroën, Jeep, etc.), the “last Mohican” of the sector which was opposed to electrification, announced an accelerated plan for the electrification of its models, while continuing to whine. And overnight, all the obstacles and risks involved in setting up a lithium industry in Romania disappeared.

In a matter of days since February 24, if not hours, the Green Deal is being integrated and assimilated to militarism and militarism to the Green Deal.

If in September investments in the “Green Deal” – which included nuclear and, until now, gas – had already been removed from the calculation of deficit and debt, now it is taken for granted that “investments” in armaments and development of the armies are going to be treated in the same way.

Capital funds are already requesting to be allowed to count investments in war production as “ethical” investments under the ESG label (investments in social, environmental and governance sustainability). It sounds like a bad joke, but no: the sustainability of capital depends on everything that armaments and their use represent. But it is obvious for capital, in this system its growth is the basis for everything else and now that growth goes through militarism, totalitarian development of the state and war.

It is no paradox, it is a contradiction: the contradiction between the growth of capital and human development which defines the decadence of the system and which, when radicalized, becomes an antagonism between capitalism and human life, between the ruling classes of each and every nation and the universal class.

Read also: From Economic War to War Economy, 9/3/2022 

The role of workers in the emerging War Economy

Spain. Meeting between employers, unions and government to discuss an "Income Pact" to deal with the "economic consequences of the war".
Spain. Meeting between employers, unions and government to discuss an “Income Pact” to deal with the “economic consequences of the war”.

Seen from the point of view of capital, the role of labor in all this is evident: to “work hard” and accept poverty and over-exploitation in order to save profitability in “difficult times” for capital investments. In the immediate term, analysts and economists immediately draw the comparison with the rise in oil prices in 1973 and congratulate themselves. As then, they need to reduce inflation caused by the shocks of the imperialist game by attacking real wages. But unlike then there does not seem to be a rising wave of strikes and struggles in Europe.

In fact, the trade unions have been playing openly for months now. Already in December, the secretary general of CCOO (a trade union of Spanish stalinist origin) proposed to keep wage increases below inflation for “two or three years”. The fact that in February Spanish inflation reached 7.4%, a record since 1989, only made him dig deeper into his position.

The unions and their “social dialogue” were doing their job without great resistance and achieving a real success for national capital: after last year’s collective bargaining, salaries rose 3 times less than inflation. Sixteen percent of the employees -and a higher percentage of workers- kept their nominal wages frozen, that is to say, they directly and totally absorbed inflation as a loss of purchasing power.

And when, in early February, the new round of collective bargaining for 2022 opened, the starting consensus was to hold the line: inflation was to be stopped at the expense of the purchasing power of wages. Spanish workers were entering the new phase of crisis and war in Europe after 10 years of wage erosion, and were destined to take a new, even bigger bite out of their living conditions.

After the invasion of Ukraine by Russia, the Spanish government entered the game. It was a way of recognizing and aligning trade unions and employers in the face of a historic moment. It is no longer just a “bite”, but a qualitative change which opens the perspective of a serious and massive impoverishment that cannot easily be dressed up as temporary.

Sánchez then presented the proposal of a “National Plan of Response to the Impact of the War“, which would include a “pact of incomes” designed to provide “stability from the perspective of wage costs and business profits”. Warning: this is not about stabilizing the purchasing power of wages, but the wage cost of companies, protecting them from updates that would compensate for inflation.

The trade unions were not surprised because they were already on the job. UGT (socialdemocrats) had been proposing a wage increase of 5% (with inflation already close to 8% and rising at full speed) and the secretary of CCOO made it clear that “to propose now increases of 6%, 7% or 8% is not very realistic at this time”.

The specific figures are totally contradictory to the message picked up by the media according to which the unions would not give in in order to preserve the purchasing power of wages. But if we go into the details and small print, the contradiction disappears and the trick becomes clear. The unions propose to limit increases equal to inflation to the agreements of large companies where such a mechanism is already established as an automatic one. The employers want it to apply only to companies with higher profitability rates.

This is the umpteenth negotiation theatrics in which over 70% of the workers will be sacrificed to maintain the profitability of the companies in which they work. But even for the remaining 30%, who would maintain their theoretical real wages, the purchasing power will be drastically reduced.

To compensate for last year’s losses with a rise equivalent to inflation is to build a sand castle in the face of a tsunami.

Can there be a change for the better? Would a peace in Ukraine bring us back to “normalcy”?

Russia. Yandex workers on strike.
Russia. Yandex workers on strike.

Today the European media dawned happy. Emirates faces again the alliance between Saudi Arabia and Russia in OPEC+ and wants to multiply oil production, prices immediately fell. Good news? In a war context, not necessarily. It may in fact be the trigger for an even greater Russian gas supply reduction in Europe that would make things even worse. And above all, price swings may aggravate or temper the immediate impact, but they will not change a long-standing course that has already produced qualitative changes.

Read also: The economic consequences of the war will not be temporary, 8/3/2022

The tsunami represented by the hatching of militarism and the evolution from economic warfare to war economy is not going to stop. Least of all with regard to the workers in all states of Europe, from the Azores to Yakutia.

We are in the first stage of a massive impoverishment which will inevitably be accompanied by a strengthening of state totalitarianism. And only struggles, strikes and an increasingly frank confrontation with the ruling militarism will be able to stop and reverse it.

Read also: The invasion of Ukraine and the workers of the whole world

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